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x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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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)
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California | 20-1357935 | |
(State or other jurisdiction of Incorporation or organization) |
(I. R. S. Employer Identification No.) |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)
Registrants telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of Limited Liability Company Units outstanding as of October 31, 2014 was 5,209,307.
None.
2
SEPTEMBER 30, 2014 AND DECEMBER 31, 2013
(In Thousands)
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September 30, 2014 |
December 31, 2013 |
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(Unaudited) | ||||||||
ASSETS |
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Cash and cash equivalents | $ | 2,301 | $ | 1,419 | ||||
Accounts receivable, net of allowance for doubtful accounts of $0 as of September 30, 2014 and $2 as of December 31, 2013 | 2,117 | 139 | ||||||
Notes receivable, net of unearned interest income of $29 as of September 30, 2014 and $57 as of December 31, 2013 | 380 | 518 | ||||||
Investment in securities | 219 | 219 | ||||||
Investments in equipment and leases, net of accumulated depreciation of $14,515 as of September 30, 2014 and $18,094 as of December 31, 2013 | 4,105 | 7,974 | ||||||
Prepaid expenses and other assets | 33 | 30 | ||||||
Total assets | $ | 9,155 | $ | 10,299 | ||||
LIABILITIES AND MEMBERS CAPITAL |
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Accounts payable and accrued liabilities: |
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Managing Member | $ | 9 | $ | 73 | ||||
Accrued distributions to Other Members | | 781 | ||||||
Other | 189 | 157 | ||||||
Non-recourse debt | 839 | 1,952 | ||||||
Unearned operating lease income | 166 | 112 | ||||||
Total liabilities | 1,203 | 3,075 | ||||||
Commitments and contingencies |
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Members capital: |
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Managing Member | | | ||||||
Other Members | 7,952 | 7,224 | ||||||
Total Members capital | 7,952 | 7,224 | ||||||
Total liabilities and Members capital | $ | 9,155 | $ | 10,299 |
See accompanying notes.
3
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Revenues: |
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Leasing and lending activities: |
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Operating leases | $ | 780 | $ | 913 | $ | 2,414 | $ | 3,162 | ||||||||
Direct financing leases | 5 | 18 | 23 | 66 | ||||||||||||
Interest on notes receivable | 8 | 13 | 28 | 42 | ||||||||||||
Gain on sales of lease assets and early termination of notes | 481 | 98 | 625 | 194 | ||||||||||||
Gain on sales or dispositions of securities | 1 | | 30 | 3 | ||||||||||||
Other | 15 | 53 | 85 | 139 | ||||||||||||
Total revenues | 1,290 | 1,095 | 3,205 | 3,606 | ||||||||||||
Expenses: |
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Depreciation of operating lease assets | 353 | 441 | 1,094 | 1,647 | ||||||||||||
Asset management fees to Managing Member and/or affiliates | 45 | 51 | 121 | 181 | ||||||||||||
Cost reimbursements to Managing Member and/or affiliates | 53 | 81 | 170 | 242 | ||||||||||||
(Reversal of) provision for credit losses | (1 | ) | 2 | (2 | ) | (3 | ) | |||||||||
Impairment losses on equipment | | 39 | | 52 | ||||||||||||
Amortization of initial direct costs | 3 | 5 | 12 | 15 | ||||||||||||
Interest expense | 14 | 35 | 56 | 120 | ||||||||||||
Professional fees | 11 | 8 | 96 | 61 | ||||||||||||
Outside services | 5 | 8 | 26 | 28 | ||||||||||||
Other | 19 | 24 | 57 | 97 | ||||||||||||
Total operating expenses | 502 | 694 | 1,630 | 2,440 | ||||||||||||
Other loss, net | | | (2 | ) | (1 | ) | ||||||||||
Net income | $ | 788 | $ | 401 | $ | 1,573 | $ | 1,165 | ||||||||
Net income: |
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Managing Member | $ | | $ | | $ | 64 | $ | 195 | ||||||||
Other Members | 788 | 401 | 1,509 | 970 | ||||||||||||
$ | 788 | $ | 401 | $ | 1,573 | $ | 1,165 | |||||||||
Net income per Limited Liability Company Unit (Other Members) | $ | 0.15 | $ | 0.08 | $ | 0.29 | $ | 0.19 | ||||||||
Weighted average number of Units outstanding | 5,209,307 | 5,209,307 | 5,209,307 | 5,209,307 |
See accompanying notes.
4
FOR THE YEAR ENDED DECEMBER 31, 2013
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014
(In Thousands Except for Units and Per Unit Data)
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Other Members | Managing Member | |||||||||||||||
Units | Amount | Total | ||||||||||||||
Balance December 31, 2012 | 5,209,307 | $ | 9,013 | $ | | $ | 9,013 | |||||||||
Distributions to Other Members ($0.61 per Unit) | | (3,190 | ) | | (3,190 | ) | ||||||||||
Distributions to Managing Member | | | (259 | ) | (259 | ) | ||||||||||
Net income | | 1,401 | 259 | 1,660 | ||||||||||||
Balance December 31, 2013 | 5,209,307 | 7,224 | | 7,224 | ||||||||||||
Distributions to Other Members ($0.15 per Unit) | | (781 | ) | | (781 | ) | ||||||||||
Distributions to Managing Member | | | (64 | ) | (64 | ) | ||||||||||
Net income | | 1,509 | 64 | 1,573 | ||||||||||||
Balance September 30, 2014 (Unaudited) | 5,209,307 | $ | 7,952 | $ | | $ | 7,952 |
See accompanying notes.
5
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
(In Thousands)
(Unaudited)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Operating activities: |
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Net income | $ | 788 | $ | 401 | $ | 1,573 | $ | 1,165 | ||||||||
Adjustments to reconcile net income to cash provided by operating activities: |
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Gain on sales of lease assets and early termination of notes | (481 | ) | (98 | ) | (625 | ) | (194 | ) | ||||||||
Depreciation of operating lease assets | 353 | 441 | 1,094 | 1,647 | ||||||||||||
Amortization of initial direct costs | 3 | 5 | 12 | 15 | ||||||||||||
Impairment losses on equipment | | 39 | | 52 | ||||||||||||
(Reversal of) provision for credit losses | (1 | ) | 2 | (2 | ) | (3 | ) | |||||||||
Gain on sales or dispositions of securities | (1 | ) | | (30 | ) | (3 | ) | |||||||||
Changes in operating assets and liabilities: |
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Accounts receivable | (61 | ) | (56 | ) | (68 | ) | (57 | ) | ||||||||
Prepaid expenses and other assets | (7 | ) | (7 | ) | (3 | ) | (1 | ) | ||||||||
Accounts payable, Managing Member | 19 | 12 | | (69 | ) | |||||||||||
Accounts payable, other | 69 | (2 | ) | 32 | (218 | ) | ||||||||||
Unearned operating lease income | 146 | 146 | 54 | 42 | ||||||||||||
Net cash provided by operating activities | 827 | 883 | 2,037 | 2,376 | ||||||||||||
Investing activities: |
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Purchase of securities | | | | (8 | ) | |||||||||||
Proceeds from sales of lease assets and early termination of notes | 94 | 277 | 1,424 | 999 | ||||||||||||
Proceeds from sales or dispositions of securities | 30 | | 30 | 11 | ||||||||||||
Principal payments received on direct financing leases | 12 | 37 | 56 | 135 | ||||||||||||
Principal payments received on notes receivable | 47 | 61 | 138 | 179 | ||||||||||||
Net cash provided by investing activities | 183 | 375 | 1,648 | 1,316 | ||||||||||||
Financing activities: |
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Repayments under non-recourse debt | (363 | ) | (425 | ) | (1,113 | ) | (1,269 | ) | ||||||||
Distributions to Other Members | (781 | ) | (551 | ) | (1,562 | ) | (2,960 | ) | ||||||||
Distributions to Managing Member | (64 | ) | (45 | ) | (128 | ) | (240 | ) | ||||||||
Net cash used in financing activities | (1,208 | ) | (1,021 | ) | (2,803 | ) | (4,469 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | (198 | ) | 237 | 882 | (777 | ) | ||||||||||
Cash and cash equivalents at beginning of period | 2,499 | 488 | 1,419 | 1,502 | ||||||||||||
Cash and cash equivalents at end of period | $ | 2,301 | $ | 725 | $ | 2,301 | $ | 725 |
See accompanying notes.
6
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2014 AND 2013
(In Thousands)
(Unaudited)
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for interest | $ | 15 | $ | 36 | $ | 61 | $ | 125 | ||||||||
Cash paid during the period for taxes | $ | 5 | $ | | $ | 34 | $ | 32 | ||||||||
Schedule of non-cash transactions: |
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Amount due from sale of lease assets | $ | 1,908 | $ | | $ | 1,908 | $ | |
See accompanying notes.
7
ATEL Capital Equipment Fund XI, LLC (the Company or the Fund) was formed under the laws of the State of California on June 25, 2004. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing, lending and sales activities. Also, from time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (AFS), a California limited liability company. The Company may continue until December 31, 2025. Each 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 May 31, 2005, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business (acquiring equipment to engage in equipment leasing, lending and sales activities). As of July 13, 2005, the Company had received subscriptions for 958,274 Units ($9.6 million), thus exceeding the $7.5 million minimum requirement for Pennsylvania, and AFS requested that the remaining funds in escrow (from Pennsylvania investors) be released to the Company. The Company terminated sales of Units effective April 30, 2006. Life-to-date net contributions through September 30, 2014 totaled $52.2 million, consisting of approximately $52.8 million in gross contributions from Other Members purchasing Units under the public offering less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) of $636 thousand. As of September 30, 2014, 5,209,307 Units were issued and outstanding.
The Companys principal objectives are 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, 2012, and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended. On January 1, 2013, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.
Pursuant to the terms of the Operating Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 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.
The Companys unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year.
8
Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after September 30, 2014 up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements, or adjustments thereto.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.
Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipments estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 840-20-35-3, over the periods of the lease terms contained in each assets respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360-10-35-43).
The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Companys quarterly impairment analysis, as described in Note 4. Maintenance costs associated with the Funds portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.
Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.
9
Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon managements judgment, the related operating leases may be placed on non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, revenues are recognized on a cash basis.
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly the Company operates in one reportable operating segment in the United States.
The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Companys total revenues for the nine months ended September 30, 2014 and 2013 and long-lived assets as of September 30, 2014 and December 31, 2013 (dollars in thousands):
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For The Nine Months Ended September 30, | ||||||||||||||||
2014 | % of Total | 2013 | % of Total | |||||||||||||
Revenue |
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United States | $ | 3,168 | 99 | % | $ | 3,518 | 98 | % | ||||||||
United Kingdom | 37 | 1 | % | 88 | 2 | % | ||||||||||
Total International | 37 | 1 | % | 88 | 2 | % | ||||||||||
Total | $ | 3,205 | 100 | % | $ | 3,606 | 100 | % |
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As of September 30, | As of December 31, | |||||||||||||||
2014 | % of Total | 2013 | % of Total | |||||||||||||
Long-lived assets |
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United States | $ | 4,100 | 100 | % | $ | 7,968 | 100 | % | ||||||||
United Kingdom | 5 | 0 | % | 6 | 0 | % | ||||||||||
Total International | 5 | 0 | % | 6 | 0 | % | ||||||||||
Total | $ | 4,105 | 100 | % | $ | 7,974 | 100 | % |
From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements.
Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. Based upon the Companys review of its portfolio, no fair value adjustment was deemed necessary for the three and nine months ended September 30, 2014 and 2013.
10
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. At September 30, 2014 and 2013, the Managing Member estimated the fair value of the warrants to be nominal in amount. Net gains recognized on the net exercise of certain warrants totaled $1 thousand for the three months ended September 30, 2014. By comparison, there were no such gains recognized during the prior year period. During the nine months ended September 30, 2014 and 2013, net gains realized on the net exercise of warrants totaled $30 thousand and $3 thousand, respectively.
Foreign currency transaction gains and losses are reported in the results of operations as other income or other loss in the period in which they occur. Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions risks to date have not been significant. The Companys foreign currency translations gains and losses were nominal during the three months and nine months ended September 30, 2014 and 2013.
Net income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
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 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 and loans, which comprise the majority of the Companys 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 Entitys Ability to Continue as a Going Concern. The new standard provides guidance relative to managements responsibility to evaluate whether there is substantial doubt about an entitys 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.
The Company has had various notes receivable from borrowers who have financed the purchase of equipment through the Company. The notes were secured by the equipment financed. As of September 30, 2014 and December 31, 2013, only one note receivable remains unsettled. Such note has an annual interest rate of 8.51% and matures in 2016.
The Company had neither notes in non-accrual status nor impaired notes at both September 30, 2014 and December 31, 2013.
11
The minimum future payments receivable as of September 30, 2014 are as follows (in thousands):
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Three months ending December 31, 2014 | $ | 55 | ||
Year ending December 31, 2015 | 166 | |||
2016 | 188 | |||
409 | ||||
Less: portion representing unearned interest income | (29 | ) | ||
Notes receivable, net | $ | 380 |
The Companys investment in leases consists of the following (in thousands):
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Balance December 31, 2013 | Reclassifications, Additions/ Dispositions and Impairment Losses | Depreciation/ Amortization Expense or Amortization of Leases | Balance September 30, 2014 | |||||||||||||
Net investment in operating leases | $ | 7,761 | $ | (2,656 | ) | $ | (1,094 | ) | $ | 4,011 | ||||||
Net investment in direct financing leases | 131 | (12 | ) | (56 | ) | 63 | ||||||||||
Assets held for sale or lease, net | 43 | (39 | ) | | 4 | |||||||||||
Initial direct costs, net of accumulated amortization of $27 at September 30, 2014 and $82 at December 31, 2013 | 39 | | (12 | ) | 27 | |||||||||||
Total | $ | 7,974 | $ | (2,707 | ) | $ | (1,162 | ) | $ | 4,105 |
Recorded values of the Companys 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 assets 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 and nine months ended September 30, 2014. By comparison, during the respective three and nine months ended September 30, 2013, the Company recorded $39 thousand and $52 thousand of fair value adjustments to reduce the cost basis of certain impaired lease and off-lease equipment.
12
The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Companys equipment was approximately $353 thousand and $441 thousand for the respective three months ended September 30, 2014 and 2013, and was approximately $1.1 million and $1.6 million for the respective nine months ended September 30, 2014 and 2013.
Initial direct costs amortization expense related to the Companys operating and direct financing leases amounted to $3 thousand and $5 thousand for the respective three months ended September 30, 2014 and 2013, and $12 thousand and $15 thousand for the respective nine months ended September 30, 2014 and 2013.
All of the leased property was acquired during the years 2005 through 2011.
Property on operating leases consists of the following (in thousands):
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Balance December 31, 2013 | Additions | Reclassifications or Dispositions | Balance September 30, 2014 | |||||||||||||
Transportation, rail | $ | 11,163 | $ | | $ | (187 | ) | $ | 10,976 | |||||||
Transportation, other | 4,409 | | (2,627 | ) | 1,782 | |||||||||||
Aviation | 1,658 | | | 1,658 | ||||||||||||
Materials handling | 2,351 | | (702 | ) | 1,649 | |||||||||||
Marine vessels | 1,415 | | | 1,415 | ||||||||||||
Construction | 758 | | (260 | ) | 498 | |||||||||||
Manufacturing | 840 | | (374 | ) | 466 | |||||||||||
Mining | 2,893 | | (2,893 | ) | | |||||||||||
Other | 11 | | | 11 | ||||||||||||
25,498 | | (7,043 | ) | 18,455 | ||||||||||||
Less accumulated depreciation | (17,737 | ) | (1,094 | ) | 4,387 | (14,444 | ) | |||||||||
Total | $ | 7,761 | $ | (1,094 | ) | $ | (2,656 | ) | $ | 4,011 |
The average estimated residual value for assets on operating leases was 15% and 21% of the assets original cost at September 30, 2014 and December 31, 2013, respectively. There were no operating lease contracts placed in non-accrual status at September 30, 2014 and December 31, 2013.
As of September 30, 2014, investment in direct financing leases consists of construction equipment. As of December 31, 2013, such investment primarily consisted of construction and materials handling equipment.
13
The components of the Companys investment in direct financing leases as of September 30, 2014 and December 31, 2013 are as follows (in thousands):
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September 30, 2014 |
December 31, 2013 |
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Total minimum lease payments receivable | $ | 74 | $ | 153 | ||||
Estimated residual values of leased equipment (unguaranteed) | 6 | 18 | ||||||
Investment in direct financing leases | 80 | 171 | ||||||
Less unearned income | (17 | ) | (40 | ) | ||||
Net investment in direct financing leases | $ | 63 | $ | 131 |
There were no investments in direct financing lease assets in non-accrual status at September 30, 2014 and December 31, 2013.
At September 30, 2014, the aggregate amounts of future minimum lease payments to be received are as follows (in thousands):
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Operating Leases |
Direct Financing Leases |
Total | ||||||||||
Three months ending December 31, 2014 | $ | 526 | $ | 17 | $ | 543 | ||||||
Year ending December 31, 2015 | 1,300 | 46 | 1,346 | |||||||||
2016 | 554 | 11 | 565 | |||||||||
2017 | 484 | | 484 | |||||||||
2018 | 114 | | 114 | |||||||||
2019 | 24 | | 24 | |||||||||
Thereafter | 1 | | 1 | |||||||||
$ | 3,003 | $ | 74 | $ | 3,077 |
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 2014 and December 31, 2013, the respective useful lives of each category of lease assets in the Companys portfolio are as follows (in years):
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Equipment category | Useful Life | |||
Transportation, rail | 35 40 | |||
Marine vessels | 20 30 | |||
Aviation | 15 20 | |||
Manufacturing | 10 15 | |||
Mining | 10 15 | |||
Construction | 7 10 | |||
Materials handling | 7 10 | |||
Transportation, other | 7 10 |
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale, and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.
14
Each of ATEL Leasing Corporation (ALC) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; and investor relations, communications services and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred.
The Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent of the cumulative limit. As of September 30, 2014, the Company has not exceeded the annual and/or cumulative limitations discussed above.
AFS and/or affiliates earned fees and billed for reimbursements pursuant to the Operating Agreement as follows during each of the three and nine months ended September 30, 2014 and 2013 (in thousands):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
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2014 | 2013 | 2014 | 2013 | |||||||||||||
Costs reimbursed to Managing Member and/or affiliates | $ | 53 | $ | 81 | $ | 170 | $ | 242 | ||||||||
Asset management fees to Managing Member and/or affiliates | 45 | 51 | 121 | 181 | ||||||||||||
$ | 98 | $ | 132 | $ | 291 | $ | 423 |
At September 30, 2014, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at a fixed rate of 5.95%. The notes are secured by assignments of lease payments and pledges of assets. At September 30, 2014, gross lease rentals totaled approximately $827 thousand over the remaining lease terms; and the carrying value of the pledged assets is approximately $1.8 million. The notes mature in 2015.
The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Companys good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.
15
Future minimum payments of non-recourse debt are as follows (in thousands):
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Principal | Interest | Total | ||||||||||
Three months ending December 31, 2014 | $ | 200 | $ | 11 | $ | 211 | ||||||
Year ending December 31, 2015 | 639 | 17 | 656 | |||||||||
$ | 839 | $ | 28 | $ | 867 |
At September 30, 2014, the Company had no commitments to either purchase lease assets or fund loans.
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.
A total of 5,209,307 Units were issued and outstanding as of September 30, 2014 and December 31, 2013. The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units). The Company terminated sales of Units effective April 30, 2006.
The Company has the right, exercisable at the Managers 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 Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
16
Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Distributions | $ | | $ | | $ | 781 | $ | 2,409 | ||||||||
Weighted average number of Units outstanding | 5,209,307 | 5,209,307 | 5,209,307 | 5,209,307 | ||||||||||||
Weighted average distributions per Unit | $ | | $ | | $ | 0.15 | $ | 0.46 |
The monthly distributions were discontinued in 2013 as the Company entered its liquidation phase. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Manager.
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability.
The Company had no assets or liabilities requiring measurement at fair value on a recurring or non-recurring basis at September 30, 2014.
No assets or liabilities required measurement at fair value on a recurring basis at December 31, 2013; however, the Company recorded non-recurring adjustments to reflect the fair values of certain impaired lease and off-lease assets during 2013. Amounts at December 31, 2013 reflect the fair value of the then existing impaired assets.
The Companys valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Companys assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Companys investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
17
Such fair value adjustments utilized the following methodology:
The Company had no fair value adjustments relative to impaired equipment during the three and nine months ended September 30, 2014. By comparison, during the three and nine months ended September 30, 2013, $39 thousand and $52 thousand of fair value adjustments have been recorded to reduce the cost basis of certain impaired equipment. No additional fair value adjustments were recorded through December 31, 2013. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets are classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.
The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2013 (in thousands):
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December 31, 2013 | Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
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Assets measured at fair value on a non-recurring basis: |
||||||||||||||||
Impaired off-lease equipment | $ | 6 | $ | | $ | | $ | 6 |
The following table summarizes the valuation techniques and significant unobservable inputs used for the Companys non-recurring fair value adjustments categorized as Level 3 in the fair value hierarchy at December 31, 2013:
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Name | Valuation Frequency | Valuation Technique | Unobservable Inputs | Range of Input Values |
||||
Off-lease Equipment | Non-recurring | Market Approach | Third Party Agents Pricing Quotes per equipment Equipment Condition |
$600 (total of $6,000) Poor to Average |
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The recorded amounts of the Companys cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
18
The fair value of the Companys notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.
The Companys investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.
The fair value of the Companys non-recourse debt is estimated using discounted cash flow analyses, based upon the current market borrowing rates for similar types of borrowing arrangements.
Management has determined that no recognition for the fair value of the Companys loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Companys credit requirements at the time of funding.
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.
The following tables present estimated fair values of the Companys financial instruments at September 30, 2014 and December 31, 2013 (in thousands):
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Fair Value Measurements at September 30, 2014 | ||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 2,301 | $ | 2,301 | $ | | $ | | $ | 2,301 | ||||||||||
Notes receivable, net | 380 | | | 380 | 380 | |||||||||||||||
Investment in securities | 219 | | | 219 | 219 | |||||||||||||||
Financial liabilities: |
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Non-recourse debt | 839 | | | 860 | 860 |
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Fair Value Measurements at December 31, 2013 | ||||||||||||||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 1,419 | $ | 1,419 | $ | | $ | | $ | 1,419 | ||||||||||
Notes receivable, net | 518 | | | 518 | 518 | |||||||||||||||
Investment in securities | 219 | | | 219 | 219 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Non-recourse debt | 1,952 | | | 2,014 | 2,014 |
19
Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, 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 Companys performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
ATEL Capital Equipment Fund XI, LLC (the Company or the Fund) is a California limited liability company that was formed in June 2004 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to generate revenues from equipment leasing, lending and sales activities, primarily in the United States.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. The offering was terminated in April 2006. During 2006, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), the Company has reinvested cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilized its credit facilities to acquire additional equipment.
The Company may continue until December 31, 2025. However, pursuant to the guidelines of the Limited Liability Company Operating Agreement (Operating Agreement), the Company commenced liquidation phase activities subsequent to the end of the Reinvestment Period which ended on December 31, 2012. Periodic distributions are paid at the discretion of the Managing Member.
The Company had net income of $788 thousand and $401 thousand for the three months ended September 30, 2014 and 2013, respectively. Results for the third quarter of 2014 reflect an increase in total revenues and a decrease in total operating expenses when compared to the prior year period.
Total revenues for the third quarter of 2014 increased by $195 thousand, or 18%, as compared to the prior year period. The net increase in total revenues was largely attributable to an increase in gains on sales of lease assets and early termination of notes partially offset by decreases in operating lease revenues and other revenue.
The increase in gains on sales of lease assets and early termination of notes totaled $383 thousand and was attributable to a $407 thousand gain realized on the sale of two drill rigs associated with a terminated lease during the current three-month period.
Partially offsetting the aforementioned increase in gains realized from sales of lease assets and early termination of notes were decreases in operating lease revenues and other revenue totaling $133 thousand and
20
$38 thousand, respectively. The reduction in operating lease revenues was a result of continued run-off and sales of lease asset; and, the decline in other revenue was primarily attributable to lower fees billed for excess wear and tear, and excess mileage on certain returned vehicles.
Total expenses for the third quarter of 2014 decreased by $192 thousand, or 28%, as compared to the prior year period. The net reduction in total expenses was primarily due to decreases in depreciation expense, impairment losses on equipment, cost reimbursements to AFS and interest expense.
The decrease in depreciation expense totaled $88 thousand and was largely due to continued run-off and sales of lease assets. Impairment losses on equipment declined by $39 thousand as a result of prior year period fair value adjustments relative to certain materials handling equipment deemed impaired. By comparison, there was no fair value adjustments recorded during the current year period.
Cost reimbursements to AFS declined by $28 thousand due to lower costs allocated by the Manager based on the Companys declining asset base, consistent with a fund in liquidation. Finally, interest expense decreased by $21 thousand as a result of a $1.5 million decline in outstanding borrowings since September 30, 2013.
The Company had net income of $1.6 million and $1.2 million for the nine months ended September 30, 2014 and 2013, respectively. Results for the first nine months of 2014 reflect decreases in both total operating expenses and total revenues when compared to the prior year period.
Total revenues for the first nine months of 2014 declined by $401 thousand, or 11%, as compared to the prior year period. The net reduction in total revenues was largely attributable to decreases in operating lease revenues, other revenue and direct financing lease revenues partially offset by an increase in gains on sales of lease assets and early termination of notes.
The decrease in operating lease revenues totaled $748 thousand and was primarily a result of continued run-off and sales of lease assets. Other revenue decreased by $54 thousand primarily as a result of lower fees billed for excess wear and tear, and excess mileage on certain returned vehicles. Direct financing lease revenues declined by $43 thousand due to continued run-off of the portfolio.
Partially offsetting the aforementioned decreases in revenues was a $431 thousand increase in gains realized on sales of lease assets and early termination of notes. Such increase was attributable to a $407 thousand gain realized on the sale of two drill rigs associated with a terminated lease during the current year period.
Total expenses for the first nine months of 2014 decreased by $810 thousand, or 33%, as compared to the prior year period. The net reduction in total expenses was primarily due to decreases in the following: depreciation expense, cost reimbursements to AFS, interest expense, asset management fees paid to AFS and impairment losses on equipment.
The decrease in depreciation expense totaled $553 thousand and was a result of continued run-off and sales of lease assets. Cost reimbursements to AFS declined by $72 thousand primarily due to lower costs allocated by the Manager based on the Companys declining asset base and operations; and, interest expense decreased by $64 thousand mainly due to a $1.5 million decline in outstanding borrowings since September 30, 2013.
In addition, asset management fees paid to AFS declined by $60 thousand as a result of continued decline in managed assets and related rents. Impairment losses on equipment declined by $52 thousand as a result of prior year period fair value adjustments relative to certain materials handling equipment deemed impaired. By comparison, there was no fair value adjustments recorded during the current year period.
21
At September 30, 2014 and December 31, 2013, the Companys cash and cash equivalents totaled $2.3 million and $1.4 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The primary source of liquidity for the Company is its cash flow from leasing activities. As the lease terms expire, the Company will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on AFSs success in remarketing or selling the equipment as it comes off rental.
If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Companys leased assets may increase as the costs of similar assets increase. However, the Companys revenues from existing leases and notes would not increase as such rates are generally fixed for the terms of the leases and notes without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the rates that the Company can obtain on future lease or financing transactions will be expected to increase as the cost of capital is a significant factor in the pricing of leases and investments in notes receivable. Leases and notes already in place, for the most part, would not be affected by changes in interest rates.
The Company currently believes it has 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.
The following table sets forth summary cash flow data (in thousands):
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Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities | $ | 827 | $ | 883 | $ | 2,037 | $ | 2,376 | ||||||||
Investing activities | 183 | 375 | 1,648 | 1,316 | ||||||||||||
Financing activities | (1,208 | ) | (1,021 | ) | (2,803 | ) | (4,469 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | $ | (198 | ) | $ | 237 | $ | 882 | $ | (777 | ) |
During the three months ended September 30, 2014 and 2013, the Companys primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company realized $124 thousand and $277 thousand of cash flows from the sale or disposition of equipment and early termination of certain notes, and the disposition of investment securities during the respective three months ended September 30, 2014 and 2013.
During the same respective periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $845 thousand and $596 thousand. In addition, cash was also used to pay down $363 thousand and $425 thousand of debt, and to pay invoices related to management fees and expenses.
During the nine months ended September 30, 2014 and 2013, the Companys primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company also realized $1.5 million and $1.0 million of cash flows from the sale or disposition of equipment and early termination of certain notes, and the disposition of investment securities during the respective nine months ended September 30, 2014 and 2013.
22
During the same respective periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $1.7 million and $3.2 million. In addition, cash was used to pay down $1.1 million and $1.3 million of debt during the respective nine months ended September 30, 2014 and 2013; and, to pay invoices related to management fees and expenses.
As of September 30, 2014 and December 31, 2013, the Company had non-recourse long-term debt totaling $839 thousand and $2.0 million. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.
For detailed information on the Companys debt obligations, see Note 6 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).
The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of June 2005. Although the schedule of monthly and quarterly distributions could have been discontinued in January 2013 as the Company entered its liquidation phase, the Company continued to pay monthly and quarterly distributions from January 1 to June 30, 2013. Such distributions ceased in July 2013 when the Company adopted a semi-annual distribution cycle consistent with a fund in liquidation. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Manager.
At September 30, 2014, the Company had no commitments to purchase lease assets or fund loans.
None.
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 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 and loans, which comprise the majority of the Companys 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 Entitys Ability to Continue as a Going Concern. The new standard provides guidance relative to managements responsibility to evaluate whether there is substantial doubt about an entitys 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.
23
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, 2013. There have been no material changes to the Companys critical accounting policies since December 31, 2013.
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) and 15d-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, who 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 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 Commissions 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 issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as it is applicable to the Company.
24
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.
None.
None.
Not Applicable.
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 |
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 |
25
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 13, 2014
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By: ATEL Financial Services, LLC | ||||
By: | /s/ Dean L. Cash![]() Dean L. Cash President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member) |
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By: | /s/ Paritosh K. Choksi![]() Paritosh K. Choksi Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (Managing Member) |
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By: | /s/ Samuel Schussler![]() Samuel Schussler Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member) |
26
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 XI, 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: November 13, 2014
/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 XI, 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: November 13, 2014
/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 XI, LLC (the Company) on Form 10-Q for the period ended September 30, 2014 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: November 13, 2014
/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 XI, LLC (the Company) on Form 10-Q for the period ended September 30, 2014 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: November 13, 2014
/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.
Non-Recourse Debt (Future Minimum Payments of Non-Recourse Debt) (Details) (USD $)
In Thousands, unless otherwise specified |
Sep. 30, 2014
|
---|---|
Principal | |
Three months ending December 31, 2014 | $ 200 |
Year ending December 31, 2015 | 639 |
Long-term debt, total | 839 |
Interest | |
Three months ending December 31, 2014 | 11 |
Year ending December 31, 2015 | 17 |
Long-term debt interest, total | 28 |
Total | |
Three months ending December 31, 2014 | 211 |
Year ending December 31, 2015 | 656 |
Long-term debt principal and interest, total | $ 867 |
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