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ATEL CAPITAL EQUIPMENT FUND XI, LLC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

May 13, 2014

Statements contained in this Item 2, "Management's 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 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 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.

Results of Operations The three months ended March 31, 2014 versus the three months ended March 31, 2013

The Company had net income of $517 thousand and $270 thousand for the three months ended March 31, 2014 and 2013, respectively. Results for the first quarter of 2014 reflect decreases in both total operating expenses and total revenues when compared to the prior year period.


Total revenues for the first quarter of 2014 declined by $102 thousand, or 8%, as compared to the prior year period. The net reduction in total revenues was largely attributable to a decrease in operating lease revenues partially offset by increases in gain on sales of lease assets and early termination of notes, and in other revenue.

Operating lease revenues declined by $276 thousand primarily as a result of continued run-off and sales of lease assets.

Partially offsetting the aforementioned decrease in revenues were increases in gain on sales of lease assets and early termination of notes, and in other revenue totaling $138 thousand and $57 thousand, respectively. The increase in gain realized on sales of lease assets and early termination of notes was largely a result of increased volume and change in the mix of assets sold; while the increase in other revenue was primarily due to additional billings for excess wear and tear on returned equipment.




Total expenses for the first quarter of 2014 decreased by $347 thousand, or 36%, as compared to the prior year period. The net reduction in total expenses was primarily due to decreases in depreciation expense, cost reimbursements to AFS, interest expense, and in other expense.

The decrease in depreciation expense totaled $282 thousand and was largely due to continued run-off and sales of lease assets. Cost reimbursements to AFS declined by $31 thousand primarily due to lower costs allocated by the Manager based on the Company's declining asset base and operations, consistent with a fund in liquidation. Interest expense decreased by $22 thousand primarily due to a $1.7 million decline in outstanding borrowings since March 31, 2013; and, other expense declined by $22 thousand largely due to lower inspection fees and a reduction in printing and photocopying costs.

Capital Resources and Liquidity

At March 31, 2014 and December 31, 2013, the Company's cash and cash equivalents totaled $2.2 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 AFS's success in remarketing or selling the equipment as it comes off rental.

If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Company's leased assets may increase as the costs of similar assets increase. However, the Company's revenues from existing leases 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.

Cash Flows

The following table sets forth summary cash flow data (in thousands):

[[Image Removed]] [[Image Removed]] [[Image Removed]] Three Months Ended March 31, 2014 2013 Net cash provided by (used in): Operating activities $ 732 $ 518 Investing activities 1,294 576 Financing activities (1,237 ) (1,722 ) Net increase (decrease) in cash and cash $ 789 $ (628 )


The three months ended March 31, 2014 versus the three months ended March 31, 2013

During the three months ended March 31, 2014 and 2013, the Company's 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 $1.2 million and $468 thousand of cash flows from the sale or disposition of equipment and early termination of certain notes during the respective three months ended March 31, 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 $1.3 million. In addition, cash was used to pay down $392 thousand and $421 thousand of debt during the respective three months ended March 31, 2014 and 2013; and, to pay invoices related to management fees and expenses, and other payables.

Non-Recourse Long-Term Debt

As of March 31, 2014 and December 31, 2013, the Company had non-recourse long-term debt totaling $1.6 million 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 Company's debt obligations, see Notes 7 and 8 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 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.

Commitments and Contingencies and Off-Balance Sheet Transactions Commitments and Contingencies

At March 31, 2014, the Company had no commitments to purchase lease assets or fund loans.

Off-Balance Sheet Transactions


Recent Accounting Pronouncements

Recent accounting standards updates as issued by the Financial Accounting Standards Board (FASB) were evaluated and determined to be not applicable to the Company.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.

The Company's 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 Company's critical accounting policies since December 31, 2013.




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Source: Edgar Glimpses

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