Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended March 31, 2015
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| 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)
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| California | 94-3307404 | |
| (State or other jurisdiction of Incorporation or organization) |
(I. R. S. Employer Identification No.) |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)
Registrant’s telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
The number of Limited Liability Company Units outstanding as of April 30, 2015 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
MARCH 31, 2015 AND DECEMBER 31, 2014
(In Thousands)
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| March 31, 2015 | December 31, 2014 | |||||||
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| ASSETS |
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| Cash and cash equivalents | $ | 2,159 | $ | 928 | ||||
| Accounts receivable, net | 495 | 558 | ||||||
| Prepaid expenses and other assets | 17 | 21 | ||||||
| Investments in equipment and leases, net of accumulated depreciation of $26,590 as of March 31, 2015 and $28,229 as of December 31, 2014 | 4,200 | 4,500 | ||||||
| Total assets | $ | 6,871 | $ | 6,007 | ||||
| LIABILITIES AND MEMBERS’ CAPITAL |
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| Accounts payable and accrued liabilities: |
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| Managing Member | $ | 81 | $ | 150 | ||||
| Other | 84 | 105 | ||||||
| Unearned operating lease income | 60 | 48 | ||||||
| Total liabilities | 225 | 303 | ||||||
| Commitments and contingencies |
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| Members’ capital: |
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| Managing Member | — | — | ||||||
| Other Members | 6,646 | 5,704 | ||||||
| Total Members’ capital | 6,646 | 5,704 | ||||||
| Total liabilities and Members’ capital | $ | 6,871 | $ | 6,007 | ||||
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
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| Three Months Ended March 31, |
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| 2015 | 2014 | |||||||
| Revenues: |
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| Leasing activities: |
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| Operating leases | $ | 928 | $ | 781 | ||||
| Direct financing leases | 5 | — | ||||||
| Gain on sales of assets | 435 | 121 | ||||||
| Total revenues | 1,368 | 902 | ||||||
| Expenses: |
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| Depreciation of operating lease assets | 89 | 134 | ||||||
| Asset management fees to Managing Member | 38 | 20 | ||||||
| Railcar maintenance | 48 | 59 | ||||||
| Cost reimbursements to Managing Member | 80 | 63 | ||||||
| Other management fees | 26 | 21 | ||||||
| Railcar storage fees | 18 | 35 | ||||||
| Professional fees | 81 | 78 | ||||||
| Insurance | 9 | 11 | ||||||
| Reversal of provision for credit losses | — | (3 | ) | |||||
| Taxes on income and franchise fees | — | 1 | ||||||
| Postage | 3 | 3 | ||||||
| Printing and photocopying | 3 | 4 | ||||||
| Freight and shipping | 4 | 39 | ||||||
| Other | 27 | 20 | ||||||
| Total expenses | 426 | 485 | ||||||
| Net income | $ | 942 | $ | 417 | ||||
| Net income: |
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| Managing Member | $ | — | $ | — | ||||
| Other Members | 942 | 417 | ||||||
| $ | 942 | $ | 417 | |||||
| Net income per Limited Liability Company Unit (Other Members) | $ | 0.07 | $ | 0.03 | ||||
| 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, 2014
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2015
(In Thousands Except for Units and Per Unit Data)
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| Other Members | Managing Member |
Total | ||||||||||||||
| Units | Amount | |||||||||||||||
| Balance December 31, 2013 | 13,560,188 | $ | 7,213 | $ | — | $ | 7,213 | |||||||||
| Distributions to Other Members ($0.25 per Unit) | — | (3,390 | ) | — | (3,390 | ) | ||||||||||
| Distributions to Managing Member | — | — | (275 | ) | (275 | ) | ||||||||||
| Net income | — | 1,881 | 275 | 2,156 | ||||||||||||
| Balance December 31, 2014 | 13,560,188 | 5,704 | — | 5,704 | ||||||||||||
| Net income | — | 942 | — | 942 | ||||||||||||
| Balance March 31, 2015 (Unaudited) | 13,560,188 | $ | 6,646 | $ | — | $ | 6,646 | |||||||||
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014
(In Thousands)
(Unaudited)
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| Three Months Ended March 31, |
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| 2015 | 2014 | |||||||
| Operating activities: |
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| Net income | $ | 942 | $ | 417 | ||||
| Adjustment to reconcile net income to cash provided by operating activities: |
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| Gain on sales of assets | (435 | ) | (121 | ) | ||||
| Depreciation of operating lease assets | 89 | 134 | ||||||
| Reversal of provision for credit losses | — | (3 | ) | |||||
| Changes in operating assets and liabilities: |
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| Accounts receivable | 63 | 30 | ||||||
| Prepaid expenses and other assets | 4 | 3 | ||||||
| Accounts payable, Managing Member | (69 | ) | (323 | ) | ||||
| Accounts payable, other | (21 | ) | (5 | ) | ||||
| Unearned operating lease income | 12 | (12 | ) | |||||
| Net cash provided by operating activities | 585 | 120 | ||||||
| Investing activities: |
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| Proceeds from sales of lease assets | 646 | 446 | ||||||
| Net cash provided by investing activities | 646 | 446 | ||||||
| Financing activities: |
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| Net cash provided by financing activities | — | — | ||||||
| Net increase in cash and cash equivalents | 1,231 | 566 | ||||||
| Cash and cash equivalents at beginning of period | 928 | 1,641 | ||||||
| Cash and cash equivalents at end of period | $ | 2,159 | $ | 2,207 | ||||
| Supplemental disclosures of cash flow information: |
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| Cash paid during the period for taxes | $ | 2 | $ | 15 | ||||
See accompanying notes.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund VIII, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on July 31, 1998. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing and sales activities. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2019. Each Member’s personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units, at a price of $10 per Unit. On January 13, 1999, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales activities). Gross contributions in the amount of $135.7 million (13,570,188 units) were received as of November 30, 2000, inclusive of $500 of initial Member’s capital investment and $100 of AFS’ capital investment. The offering was terminated on November 30, 2000. As of March 31, 2015, 13,560,188 Units remain issued and outstanding.
The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 2006, and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended.
Pursuant to the Operating Agreement, AFS and/or its affiliates receive compensation and reimbursements for services rendered on behalf of the Company (See Note 4). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
As of March 31, 2015, 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, 2014, filed with the Securities and Exchange Commission.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2015, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements, or adjustments thereto.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates relate primarily to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.
Segment reporting:
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
Certain of the Company’s lessee customers have international operations. In these instances, the Company is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Company to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.
The primary geographic regions in which the Company sought leasing opportunities were North America and Europe. For the three months ended March 31, 2015 and 2014, and as of March 31, 2015 and December 31, 2014, 100% of the Company’s operating revenues and long-lived assets relate to customers domiciled in North America.
Per Unit data:
Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.
Recent accounting pronouncements:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases, which comprise the majority of the Company’s revenues.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
In August 2014, the FASB issued Accounting Standards Update 2014 – 15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
3. Investment in equipment and leases, net:
The Company’s investment in leases consists of the following (in thousands):
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| Balance December 31, 2014 |
Reclassifications & Additions/ Dispositions |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance March 31, 2015 |
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| Net investment in operating leases | $ | 3,697 | $ | (190 | ) | $ | (89 | ) | $ | 3,418 | ||||||
| Net investment in direct financing leases | 18 | — | (1 | ) | 17 | |||||||||||
| Assets held for sale or lease, net | 785 | (20 | ) | — | 765 | |||||||||||
| Total | $ | 4,500 | $ | (210 | ) | $ | (90 | ) | $ | 4,200 | ||||||
Impairment of investments in leases and assets held for sale or lease:
Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the three months ended March 31, 2015 and 2014.
The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $89 thousand and $134 thousand for the respective three months ended March 31, 2015 and 2014.
All of the remaining property on lease was acquired during the years 1999 through 2001.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Investment in equipment and leases, net: - (continued)
Operating leases:
Property on operating leases consists of the following (in thousands):
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| Balance December 31, 2014 |
Additions | Reclassifications or Dispositions |
Balance March 31, 2015 |
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| Transportation, rail | $ | 14,263 | $ | — | $ | (289 | ) | $ | 13,974 | |||||||
| Containers | 11,603 | — | (1,169 | ) | 10,434 | |||||||||||
| Other | 350 | — | (350 | ) | — | |||||||||||
| 26,216 | — | (1,808 | ) | 24,408 | ||||||||||||
| Less accumulated depreciation | (22,519 | ) | (89 | ) | 1,618 | (20,990 | ) | |||||||||
| Total | $ | 3,697 | $ | (89 | ) | $ | (190 | ) | $ | 3,418 | ||||||
The average estimated residual value for assets on operating leases was 11% of the assets’ original cost at both March 31, 2015 and December 31, 2014. There were no operating leases in non-accrual status at March 31, 2015 and December 31, 2014.
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 $358 thousand and $359 thousand for the respective three months ended March 31, 2015 and 2014.
Direct financing leases:
During December 2014, aviation equipment formerly leased under an operating lease contract was re-leased as a direct financing lease. Such equipment comprised the Fund’s total investment in direct financing leases as of March 31, 2015 and December 31, 2014. The following lists the components of the Company’s investment in direct financing leases as of March 31, 2015 and December 31, 2014 (in thousands):
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| March 31, 2015 |
December 31, 2014 |
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| Total minimum lease payments receivable | $ | 22 | $ | 28 | ||||
| Estimated residual values of leased equipment (unguaranteed) | 10 | 10 | ||||||
| Investment in direct financing leases | 32 | 38 | ||||||
| Less unearned income | (15 | ) | (20 | ) | ||||
| Net investment in direct financing leases | $ | 17 | $ | 18 | ||||
There was no investment in direct financing lease assets in non-accrual status at March 31, 2015 and December 31, 2014.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Investment in equipment and leases, net: - (continued)
At March 31, 2015, the aggregate amount of future lease payments associated with operating leases is as follows (in thousands):
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| Operating Leases |
Direct Financing Leases |
Total | ||||||||||
| Nine months ending December 31, 2015 | $ | 866 | $ | 16 | $ | 882 | ||||||
| Year ending December 31, 2016 | 1,002 | 6 | 1,008 | |||||||||
| 2017 | 667 | — | 667 | |||||||||
| 2018 | 314 | — | 314 | |||||||||
| 2019 | 239 | — | 239 | |||||||||
| Thereafter | 2 | — | 2 | |||||||||
| $ | 3,090 | $ | 22 | $ | 3,112 | |||||||
As indicated in Note 1, the Company is scheduled to terminate no later than December 31, 2019. In the event that any assets remain at such date, the Fund will venture to dispose of such assets in an orderly manner within a reasonable timeframe.
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of March 31, 2015, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):
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| Equipment category | Useful Life | |
| Transportation, rail | 35 – 40 | |
| Containers | 20 – 30 | |
| Aviation | 15 – 20 |
4. Related party transactions:
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Related party transactions: - (continued)
During the three months ended March 31, 2015 and 2014, AFS and/or affiliates earned fees and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
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| Three Months Ended March 31, |
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| 2015 | 2014 | |||||||
| Asset management fees to Managing Member | $ | 38 | $ | 20 | ||||
| Cost reimbursements to Managing Member | 80 | 63 | ||||||
| $ | 118 | $ | 83 | |||||
The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. For the year ending December 31, 2015, 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.
5. Guarantees:
The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.
6. Members’ capital:
As of March 31, 2015 and December 31, 2014, 13,560,188 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Members (50 Units).
The Company has the right, exercisable at the Managing Member’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member deems such repurchase to be in the best interest of the Company; provided, the Company is never
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ATEL CAPITAL EQUIPMENT FUND VIII, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
6. Members’ capital: - (continued)
required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Other Members and 7.5% to AFS.
There were no distributions declared or paid during the three months ended March 31, 2015 and 2014.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL Capital Equipment Fund VIII, LLC (the “Company” or the “Fund”) is a California limited liability company that was formed in July 1998 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units, at a price of $10 per Unit. The offering was terminated in November 2000. Total proceeds of the offering were $135.7 million. During early 2001, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company reinvested cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilized its credit facilities to acquire additional equipment.
The Company may continue until December 31, 2019. However, pursuant to the guidelines of the Operating Agreement, the Company began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2006.
As of March 31, 2015, the Company continues in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the Managing Member.
Results of Operations
The three months ended March 31, 2015 versus the three months ended March 31, 2014
The Company had net income of $942 thousand and $417 thousand for the three months ended March 31, 2015 and 2014, respectively. The results for the first quarter of 2015 primarily reflect an increase in total revenues coupled with a reduction in total expenses when compared to the prior year period.
Revenues
Total revenues for the first quarter of 2015 increased by $466 thousand, or 52%, as compared to the prior year period. The net increase in total revenues was primarily a result of an increase in gain on sales of assets and an increase in operating lease revenues.
Gains on sales of assets increased by $314 thousand primarily as a result of a change in the mix of assets sold. Operating revenues increased by $147 thousand primarily due to incremental revenues from certain off-lease equipment that were re-leased subsequent to March 31, 2014 partially offset by the impact of continued run-off and sales of lease assets.
14
Expenses
Total expenses for the first quarter of 2015 decreased by $59 thousand, or 12%, as compared to the prior year period. The net decrease was primarily due to reductions in depreciation expense, freight and shipping, and railcar storage fees partially offset by higher asset management fees and cost reimbursements to AFS.
Depreciation expense decreased by $45 thousand primarily due to continued run-off and sales of lease assets. Freight and shipping costs declined by $35 thousand as the prior year period amount included shipping costs to move re-leased railcars from inventory; and, railcar storage fees decreased by $17 thousand largely due to the reduction in off-lease railcars since March 31, 2014.
Partially offsetting the aforementioned decreases in expenses were increases in asset management fees and costs reimbursed to AFS totaling $18 thousand and $17 thousand, respectively. The increase in asset management fees paid to AFS was attributable to increased rents related to managed assets; while the increase in costs reimbursed to AFS was largely due to an increase in allocated payroll and overhead costs.
Capital Resources and Liquidity
At March 31, 2015 and December 31, 2014, the Company’s cash and cash equivalents totaled $2.2 million and $928 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 Company’s success in remarketing or selling the equipment as it comes off rental.
If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Company’s leased assets may increase as the costs of similar assets increase. However, the Company’s revenues from existing leases would not increase; as such rates are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the lease rates that the Company can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.
The Company currently believes it has adequate reserves available to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for operating purposes.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
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| Three Months Ended March 31, |
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| 2015 | 2014 | |||||||
| Net cash provided by: |
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| Operating activities | $ | 585 | $ | 120 | ||||
| Investing activities | 646 | 446 | ||||||
| Financing activities | — | — | ||||||
| Net increase in cash and cash equivalents | $ | 1,231 | $ | 566 | ||||
The three months ended March 31, 2015 versus the three months ended March 31, 2014
During the three months ended March 31, 2015 and 2014, the Company’s primary source of liquidity had been cash flows from its portfolio of operating lease contracts. In addition, the Fund realized $646 thousand and $446 thousand of proceeds from sales of equipment during the respective three months ended March 31, 2015 and 2014.
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During the same comparative periods, cash was primarily used to pay invoices related to management fees and expenses, and other payables. As the Fund is in its liquidation phase, any future financing activity is anticipated to only include distributions to Members.
Distributions
The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1999. During its liquidation phase, the rates and frequency of periodic distributions paid by the Fund are solely at the discretion of the Managing Member. There were no distributions declared or paid during the three months ended March 31, 2015 and 2014.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At March 31, 2015, the Company had no commitments to purchase lease assets. Pursuant to the Operating Agreement, the Company will no longer purchase any new lease assets.
Off-Balance Sheet Transactions
None.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases, which comprise the majority of the Company’s revenues.
In August 2014, the FASB issued Accounting Standards Update 2014 – 15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes to the Company’s critical accounting policies since December 31, 2014.
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Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in internal control
There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as is applicable to the Company.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Documents filed as a part of this report:
| 1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
| 2. | Other Exhibits |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi |
| 32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash |
| 32.2 | Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 14, 2015
ATEL CAPITAL EQUIPMENT FUND VIII, LLC
(Registrant)
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By: ATEL Financial Services, LLC |
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By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
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Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
Date: May 14, 2015
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/s/ Dean L. Cash Dean L. Cash President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s 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 registrant’s 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 registrant’s internal control over financial reporting. |
Date: May 14, 2015
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| /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
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2015 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 14, 2015
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| /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
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
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, 2015 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 14, 2015
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| /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.
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