UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 | | |
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
| | |
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
| | |
| California | 94-3307404 | |
| (State or other jurisdiction of Incorporation or organization) | (I. R. S. Employer Identification No.) |
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.Yesx Noo
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).Yesx Noo
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 filero Accelerated filero Non-accelerated filero Smaller reporting companyx
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso Nox
The number of Limited Liability Company Units outstanding as of April 30, 2017 was 13,560,188.
None.
| | |||
Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
| Balance Sheets, March 31, 2017 and December 31, 2016 | 3 | |||
| Statements of Income for the three months ended March 31, 2017 and 2016 | 4 | |||
| Statements of Changes in Members’ Capital for the year ended December 31, 2016 and for the three months ended March 31, 2017 | 5 | |||
| Statements of Cash Flows for the three months ended March 31, 2017 and 2016 | 6 | |||
| Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | |||
Item 4. Controls and Procedures | 15 | |||
Part II. Other Information | 16 | |||
Item 1. Legal Proceedings | 16 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 16 | |||
Item 3. Defaults Upon Senior Securities | 16 | |||
Item 4. Mine Safety Disclosures | 16 | |||
Item 5. Other Information | 16 | |||
Item 6. Exhibits | 16 | |||
2
MARCH 31, 2017 AND DECEMBER 31, 2016
(In Thousands)
| | | ||||||
| March 31, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 1,367 | $ | 965 | ||||
| Accounts receivable, net | 404 | 412 | ||||||
| Prepaid expenses and other assets | 24 | 32 | ||||||
| Investments in equipment and leases, net | 3,381 | 3,466 | ||||||
| Total assets | $ | 5,176 | $ | 4,875 | ||||
| LIABILITIES AND MEMBERS’ CAPITAL | ||||||||
| Accounts payable and accrued liabilities: | ||||||||
| Managing Member | $ | 74 | $ | 200 | ||||
| Other | 54 | 56 | ||||||
| Unearned operating lease income | 73 | 69 | ||||||
| Total liabilities | 201 | 325 | ||||||
| Commitments and contingencies | ||||||||
| Members’ capital: | ||||||||
| Managing Member | — | — | ||||||
| Other Members | 4,975 | 4,550 | ||||||
| Total Members’ capital | 4,975 | 4,550 | ||||||
| Total liabilities and Members’ capital | $ | 5,176 | $ | 4,875 | ||||
See accompanying notes.
3
FOR THE THREE MONTHS ENDED
MARCH 31, 2017 AND 2016
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
| | | ||||||
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Revenues: | ||||||||
| Leasing activities: | ||||||||
| Operating leases | $ | 858 | $ | 891 | ||||
| Direct financing leases | — | 3 | ||||||
| Gain on sales of lease assets | 34 | 31 | ||||||
| Total revenues | 892 | 925 | ||||||
| Expenses: | ||||||||
| Depreciation of operating lease assets | 62 | 77 | ||||||
| Amortization of initial direct costs | 1 | — | ||||||
| Asset management fees to Managing Member | 35 | 31 | ||||||
| Vessel maintenance | — | 19 | ||||||
| Railcar maintenance | 88 | 190 | ||||||
| Cost reimbursements to Managing Member and/or affiliates | 124 | 65 | ||||||
| Other management fees | 25 | 35 | ||||||
| Railcar storage fees | 6 | 9 | ||||||
| Professional fees | 82 | 90 | ||||||
| Insurance | 10 | 9 | ||||||
| Reversal of provision for credit losses | (7 | ) | — | |||||
| Taxes on income and franchise fees | 1 | 7 | ||||||
| Miscellaneous expense | 23 | 15 | ||||||
| Other | 17 | 28 | ||||||
| Total expenses | 467 | 575 | ||||||
| Net income | $ | 425 | $ | 350 | ||||
| Net income: | ||||||||
| Managing Member | $ | — | $ | — | ||||
| Other Members | 425 | 350 | ||||||
| $ | 425 | $ | 350 | |||||
| Net income per Limited Liability Company Unit (Other Members) | $ | 0.03 | $ | 0.03 | ||||
| Weighted average number of Units outstanding | 13,560,188 | 13,560,188 | ||||||
See accompanying notes.
4
FOR THE YEAR ENDED DECEMBER 31, 2016
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2017
(In Thousands Except for Units and Per Unit Data)
| | | | | ||||||||||||
| Other Members | Managing Member | Total | ||||||||||||||
| Units | Amount | |||||||||||||||
| Balance December 31, 2015 | 13,560,188 | $ | 4,114 | $ | — | $ | 4,114 | |||||||||
| Distributions to Other Members ($0.10 per Unit) | — | (1,356 | ) | — | (1,356 | ) | ||||||||||
| Distributions to Managing Member | — | — | (110 | ) | (110 | ) | ||||||||||
| Net income | — | 1,792 | 110 | 1,902 | ||||||||||||
| Balance December 31, 2016 | 13,560,188 | 4,550 | — | 4,550 | ||||||||||||
| Net income | — | 425 | — | 425 | ||||||||||||
| Balance March 31, 2017 (Unaudited) | 13,560,188 | $ | 4,975 | $ | — | $ | 4,975 | |||||||||
See accompanying notes.
5
FOR THE THREE MONTHS ENDED
MARCH 31, 2017 AND 2016
(In Thousands)
(Unaudited)
| | | ||||||
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Operating activities: | ||||||||
| Net income | $ | 425 | $ | 350 | ||||
| Adjustment to reconcile net income to cash provided by operating activities: | ||||||||
| Gain on sales of lease assets | (34 | ) | (31 | ) | ||||
| Depreciation of operating lease assets | 62 | 77 | ||||||
| Amortization of initial direct costs | 1 | — | ||||||
| Reversal of provision for credit losses | (7 | ) | — | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 15 | — | ||||||
| Prepaid expenses and other assets | 8 | 6 | ||||||
| Accounts payable, Managing Member | (126 | ) | (75 | ) | ||||
| Accounts payable, other | (2 | ) | (68 | ) | ||||
| Unearned operating lease income | 4 | (4 | ) | |||||
| Net cash provided by operating activities | 346 | 255 | ||||||
| Investing activities: | ||||||||
| Proceeds from sales of lease assets | 56 | 70 | ||||||
| Principal payments received on direct financing leases | — | 2 | ||||||
| Net cash provided by investing activities | 56 | 72 | ||||||
| Net increase in cash and cash equivalents | 402 | 327 | ||||||
| Cash and cash equivalents at beginning of period | 965 | 11 | ||||||
| Cash and cash equivalents at end of period | $ | 1,367 | $ | 338 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for taxes | $ | 9 | $ | 2 | ||||
See accompanying notes.
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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.
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, 2017, 13,560,188 Units remain issued and outstanding.
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, for the repurchase of Units and for contingencies. The repurchase of Units is solely at the discretion of AFS. As of March 31, 2017, 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, 2016, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2017 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
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reporting period. Actual results could differ from those estimates. Such estimates relate primarily to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
Certain of the 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 U.S. based, and it is not cost effective for the Company to track, on an asset-by-asset, day-by-day basis, where these assets are deployed.
The primary geographic region in which the Company sought leasing opportunities was North America. For the three months ended March 31, 2017 and 2016, and as of March 31, 2017 and December 31, 2016, 100% of the Company’s operating revenues and long-lived assets relate to customers domiciled in the United States.
The Company issues only one class of Units, none of which are considered dilutive. Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and its operational and related disclosure requirements.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting
8
model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management will adopt the standard and is currently evaluating the standard and its operational and related disclosure requirements.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements.
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 (“ASU-2014-15”). 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 annual periods ending after December 15, 2016, and interim periods within annual periods, beginning after December 15, 2016. Early adoption is permitted. Management adopted the standard and the adoption of ASU 2014-15 did not have a material impact on the Company’s financial statements or related disclosures.
In May 2014, the FASB issued Accounting Standards Update 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. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. 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, which comprise the majority of the Company’s revenues.
9
The Company’s investment in leases consists of the following (in thousands):
| | | | | ||||||||||||
| Balance December 31, 2016 | Reclassifications & Additions/ Dispositions | Depreciation/ Amortization Expense or Amortization of Leases | Balance March 31, 2017 | |||||||||||||
| Net investment in operating leases | $ | 2,757 | $ | (28 | ) | $ | (62 | ) | $ | 2,667 | ||||||
| Assets held for sale or lease, net | 697 | 6 | — | 703 | ||||||||||||
| Initial direct costs, net of accumulated amortization of $2 at March 31, 2017 and $1 at December 31, 2016 | 12 | — | (1 | ) | 11 | |||||||||||
| Total | $ | 3,466 | $ | (22 | ) | $ | (63 | ) | $ | 3,381 | ||||||
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, if any. 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, 2017 and 2016.
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 $62 thousand and $77 thousand for the respective three months ended March 31, 2017 and 2016. Initial direct costs amortization expense related to the Company’s operating leases totaled $1 thousand and $0 for each of the respective three month periods ended March 31, 2017 and 2016.
All of the remaining property on lease, including capitalized improvements, were acquired during the years 1999 through 2015.
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Property on operating leases consists of the following (in thousands):
| | | | | ||||||||||||
| Balance December 31, 2016 | Additions | Reclassifications or Dispositions | Balance March 31, 2017 | |||||||||||||
| Transportation, rail | $ | 15,111 | $ | — | $ | (40 | ) | $ | 15,071 | |||||||
| Containers | 6,970 | — | (275 | ) | 6,695 | |||||||||||
| Aviation | 11 | — | (1 | ) | 10 | |||||||||||
| 22,092 | — | (316 | ) | 21,776 | ||||||||||||
| Less accumulated depreciation | (19,335 | ) | (62 | ) | 288 | (19,109 | ) | |||||||||
| Total | $ | 2,757 | $ | (62 | ) | $ | (28 | ) | $ | 2,667 | ||||||
The average estimated residual value for assets on operating leases was 12% of the assets’ original cost at both March 31, 2017 and December 31, 2016. There were no operating leases in non-accrual status at March 31, 2017 and December 31, 2016.
The Company may earn revenues from its containers, rail transportation, 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 $260 thousand and $309 thousand for the respective three months ended March 31, 2017 and 2016.
There were no investments in direct financing leases as of March 31, 2017 or December 31, 2016.
At March 31, 2017, the aggregate amounts of future lease payments receivable are as follows (in thousands):
| | |||
| Operating Leases | ||||
| Nine months ending December 31, 2017 | $ | 1,213 | ||
| Year ending December 31, 2018 | 1,367 | |||
| 2019 | 1,102 | |||
| 2020 | 375 | |||
| 2021 | 48 | |||
| $ | 4,105 | |||
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, 2017, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):
| | |||
| Equipment category | Useful Life | |||
| Transportation, rail | 35 – 40 | |||
| Aviation equipment | 15 – 20 | |||
| Containers | 15 – 20 | |||
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The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.
During the three months ended March 31, 2017 and 2016, AFS and/or affiliates earned fees and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
| | | ||||||
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Asset management fees to Managing Member | $ | 35 | $ | 31 | ||||
| Cost reimbursements to Managing Member | 124 | 65 | ||||||
| $ | 159 | $ | 96 | |||||
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, 2017, 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.
As of March 31, 2017 and December 31, 2016, 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).
There were no distributions declared or paid during the three months ended March 31, 2017 and 2016.
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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.
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 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, 2017, the Company continues in its liquidation phase. Accordingly, leased 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.
The Company had net income of $425 thousand and $350 thousand for the three months ended March 31, 2017 and 2016, respectively. The results for the first quarter of 2017 reflect decreases in total revenues and decrease in total expenses when compared to the prior year period.
Total revenues for the first quarter of 2017 decreased by $33 thousand or 4% as compared to the prior year period. The decrease in total revenue was primarily a result of a decrease in operating lease revenues, mainly the result of run-off and disposition of lease assets.
Total expenses for the first quarter of 2017 decreased by $108 thousand or 19%, as compared to the prior year period. Railcar maintenance costs decreased by $102 thousand due to costs incurred on railcars that were previously off-lease in relation to prior year. Taxes on income and franchise fees decreased by $6 thousand or 86%, attributed to the timing of tax payments to various jurisdictions.
At March 31, 2017 and December 31, 2016, the Company’s cash and cash equivalents totaled $1.4 million and $965 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.
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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.
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):
| | | ||||||
| Three Months Ended March 31, | ||||||||
| 2017 | 2016 | |||||||
| Net cash provided by: | ||||||||
| Operating activities | $ | 346 | $ | 255 | ||||
| Investing activities | 56 | 72 | ||||||
| Net increase in cash and cash equivalents | $ | 402 | $ | 327 | ||||
During the three months ended March 31, 2017 and 2016, the Company’s primary source of liquidity has been cash flows from its portfolio of operating lease contracts. In addition, the Fund realized $56 thousand and $70 thousand of proceeds from sales of lease equipment during the respective three months ended March 31, 2017 and 2016.
During the same respective 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 cash flows from/to financing activities are anticipated to only include distributions to Members.
At March 31, 2017, the Company had no commitments to purchase lease assets. Pursuant to the Operating Agreement, the Company will no longer purchase any new lease assets.
None.
For information on recent accounting pronouncements, see Note 2 Summary of Significant Accounting Policies.
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 significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the Company’s significant accounting policies since December 31, 2016.
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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. 78aet 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.
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, 2017 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.
15
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.
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 |
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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 11, 2017
| | |
By: ATEL Financial Services, LLC |
| | |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
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Dean L. Cash