10-Q 1 v351561_atel11-10q.htm FORM 10-Q

 

 

 

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
x   Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2013

 
o   Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

For the transition period from          to         

Commission File number 000-51858

ATEL Capital Equipment Fund XI, LLC

(Exact name of registrant as specified in its charter)

 
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)

Registrant’s telephone number, including area code (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o     Non-accelerated filer o     Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The number of Limited Liability Company Units outstanding as of July 31, 2013 was 5,209,307.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, June 30, 2013 and December 31, 2012     3  
Statements of Income for the three and six months ended June 30, 2013 and 2012     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2012 and for the six months ended June 30, 2013     5  
Statements of Cash Flows for the three and six months ended June 30, 2013 and 2012     6  
Notes to the Financial Statements     7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and
Results of Operations

    23  

Item 4.

Controls and Procedures

    27  

Part II.

Other Information

    28  

Item 1.

Legal Proceedings

    28  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    28  

Item 3.

Defaults Upon Senior Securities

    28  

Item 4.

Mine Safety Disclosures

    28  

Item 5.

Other Information

    28  

Item 6.

Exhibits

    28  

2


 
 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
BALANCE SHEETS
 
JUNE 30, 2013 AND DECEMBER 31, 2012
(In Thousands)

   
  June 30,
2013
  December 31, 2012
     (Unaudited)     
ASSETS
                 
Cash and cash equivalents   $      488     $      1,502  
Accounts receivable, net of allowance for doubtful accounts of $1 as of June 30, 2013 and $6 as of December 31, 2012     185       179  
Notes receivable, net of unearned interest income of $81 and allowance for credit losses of $10 at June 30, 2013 and net of unearned interest income of $110 and allowance for credit losses of $10 at December 31, 2012     641       759  
Investment in securities     219       219  
Investments in equipment and leases, net of accumulated depreciation of $19,909 as of June 30, 2013 and $22,758 as of December 31, 2012     9,292       11,245  
Prepaid expenses and other assets     26       32  
Total assets   $ 10,851     $ 13,936  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 74     $ 155  
Accrued distributions to Other Members     551       551  
Other     188       404  
Non-recourse debt     2,807       3,651  
Unearned operating lease income     58       162  
Total liabilities     3,678       4,923  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     7,173       9,013  
Total Members’ capital     7,173       9,013  
Total liabilities and Members’ capital   $ 10,851     $ 13,936  

See accompanying notes.

3


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF INCOME
 
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2013 AND 2012
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012
Revenues:
                                   
Leasing and lending activities:
                                   
Operating leases   $      1,098     $      1,415     $      2,249     $      3,071  
Direct financing leases     22       33       48       45  
Interest on notes receivable     14       19       29       41  
Gain on sales of lease assets and early termination of notes     64       77       96       200  
Gain on sales or dispositions of securities     2       1       3       1  
Unrealized gain on securities           6             59  
Other     81       16       86       37  
Total revenues     1,281       1,567       2,511       3,454  
Expenses:
                                   
Depreciation of operating lease assets     548       793       1,206       1,596  
Asset management fees to Managing Member and/or affiliates     61       84       130       172  
Acquisition expense                       12  
Cost reimbursements to Managing Member and/or affiliates     77       103       161       216  
Reversal of provision for credit losses     (3 )      (59 )      (5 )      (49 ) 
Impairment losses on equipment     13       34       13       34  
Provision for losses on investment in securities                       32  
Amortization of initial direct costs     5       6       10       13  
Interest expense     39       62       85       131  
Professional fees     9       16       53       65  
Outside services     13       24       20       32  
Other     29       56       73       102  
Total operating expenses     791       1,119       1,746       2,356  
Other income (loss), net     4             (1 )      1  
Net income   $ 494     $ 448     $ 764     $ 1,099  
Net income:
                                   
Managing Member   $ 98     $ 98     $ 195     $ 195  
Other Members     396       350       569       904  
     $ 494     $ 448     $ 764     $ 1,099  
Net income per Limited Liability Company Unit (Other Members)   $ 0.08     $ 0.07     $ 0.11     $ 0.17  
Weighted average number of Units outstanding     5,209,307       5,209,307       5,209,307       5,209,307  

See accompanying notes.

4


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2012
AND FOR THE SIX MONTHS ENDED JUNE 30, 2013
(In Thousands Except for Units and Per Unit Data)

       
  Other Members   Managing Member   Total
     Units   Amount
Balance December 31, 2011     5,209,307     $     12,585     $      —     $     12,585  
Distributions to Other Members ($0.93 per Unit)           (4,819 )            (4,819 ) 
Distributions to Managing Member                 (391 )      (391 ) 
Net income           1,247       391       1,638  
Balance December 31, 2012     5,209,307       9,013             9,013  
Distributions to Other Members ($0.46 per Unit)           (2,409 )            (2,409 ) 
Distributions to Managing Member                 (195 )      (195 ) 
Net income           569       195       764  
Balance June 30, 2013 (Unaudited)     5,209,307     $ 7,173     $     $ 7,173  

See accompanying notes.

5


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF CASH FLOWS
 
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2013 AND 2012
(In Thousands)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012
Operating activities:
                                   
Net income   $      494     $      448     $      764     $      1,099  
Adjustments to reconcile net income to cash provided by operating activities:
                                   
Gain on sales of lease assets and early termination of notes     (64 )      (77 )      (96 )      (200 ) 
Depreciation of operating lease assets     548       793       1,206       1,596  
Amortization of initial direct costs     5       6       10       13  
Impairment losses on equipment     13       34       13       34  
Reversal of provision for credit losses     (3 )      (59 )      (5 )      (49 ) 
Provision for losses on investment in securities                       32  
Gain on sales or dispositions of securities     (2 )      (1 )      (3 )      (1 ) 
Unrealized gain on securities           (6 )            (59 ) 
Changes in operating assets and liabilities:
                                   
Accounts receivable     163       200       (1 )      313  
Prepaid expenses and other assets     3       (68 )      6       (65 ) 
Accounts payable, Managing Member     (4 )      (65 )      (81 )      (61 ) 
Accounts payable, other     (34 )      123       (216 )      117  
Unearned operating lease income     (144 )      25       (104 )      33  
Net cash provided by operating activities     975       1,353       1,493       2,802  
Investing activities:
                                   
Purchase of securities                 (8 )       
Proceeds from sales of lease assets and early termination of notes     254       418       722       927  
Proceeds from sales or dispositions of securities     11       1       11       1  
Principal payments received on direct financing leases     40       43       98       86  
Principal payments received on notes receivable     60       79       118       159  
Net cash provided by investing activities     365       541       941       1,173  
Financing activities:
                                   
Repayments under non-recourse debt     (423 )      (484 )      (844 )      (997 ) 
Distributions to Other Members     (1,205 )      (1,204 )      (2,409 )      (2,409 ) 
Distributions to Managing Member     (98 )      (98 )      (195 )      (195 ) 
Net cash used in financing activities     (1,726 )      (1,786 )      (3,448 )      (3,601 ) 
Net (decrease) increase in cash and cash equivalents     (386 )      108       (1,014 )      374  
Cash and cash equivalents at beginning of period     874       1,682       1,502       1,416  
Cash and cash equivalents at end of period   $ 488     $ 1,790     $ 488     $ 1,790  
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for interest   $ 42     $ 74     $ 89     $ 156  
Cash paid during the period for taxes   $ 29     $ 45     $ 32     $ 45  
Schedule of non-cash transactions:
                                   
Distributions payable to Other Members at
period-end
  $ 551     $ 551     $ 551     $ 551  
Distributions payable to Managing Member at
period-end
  $ 45     $ 45     $ 45     $ 45  
Securities acquired through conversion of warrants   $      —     $      6     $      —     $      59  

See accompanying notes.

6


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

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 Member’s personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“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 June 30, 2013 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 June 30, 2013, 5,209,307 Units were issued and outstanding.

The Company’s principal objectives are to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 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 6). 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 Company’s 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, 2012, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year.

7


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Certain prior period amounts 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 June 30, 2013 up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates 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.

Segment reporting:

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly the Company operates in one reportable operating segment in the United States.

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 Company’s total revenues for the six months ended June 30, 2013 and 2012 and long-lived assets as of June 30, 2013 and December 31, 2012 (dollars in thousands):

       
  For The Six Months Ended June 30,
     2013   % of Total   2012   % of Total
Revenue
                                   
United States   $    2,438             97 %    $     3,253             94 % 
United Kingdom     73       3 %      201       6 % 
Total International     73       3 %      201       6 % 
Total   $ 2,511       100 %    $ 3,454       100 % 

       
  As of June 30,   As of December 31,
     2013   % of Total   2012   % of Total
Long-lived assets
                                   
United States   $    9,286           100 %    $    11,090             99 % 
United Kingdom     6       0 %      155       1 % 
Total International     6       0 %      155       1 % 
Total   $ 9,292       100 %    $ 11,245       100 % 

8


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Investment in securities:

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

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 issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. Based upon the Company’s review of its portfolio, no fair value adjustment was deemed necessary for the three and six months ended June 30, 2013. By comparison, $32 thousand of fair value adjustments relative to impaired investments were recorded during the first six months of 2012, all of which were recorded during the first quarter.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value, as determined by the Managing Member, on the balance sheet as assets or liabilities. At June 30, 2013 and December 31, 2012, the Managing Member estimated the fair value of the warrants to be nominal in amount. During the three and six months ended June 30, 2012, the Company recorded unrealized gains of $6 thousand and $59 thousand, respectively, relative to the conversion of warrants associated with shares of certain venture companies. There were no unrealized gains recorded during the three and six months ended June 30, 2013. Gains and/or losses recognized on the net exercise of certain warrants were nominal for the three and six months ended June 30, 2013 and 2012.

Foreign currency transactions:

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 Company’s net foreign currency translation gains and losses were nominal during both the three- and six-month periods ended June 30, 2013 and 2012.

Per Unit data:

Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.

Recent accounting pronouncements:

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

3. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At June 30, 2013, the original terms of the notes receivable are from 17 to 120 months and bear interest at rates ranging from 8.42% to 11.58%. The notes are secured by the equipment financed, and mature from 2013 through 2016.

9


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net: - (continued)

The Company had no notes in non-accrual status at both June 30, 2013 and December 31, 2012. As of December 31, 2012, the Company did, however, have a note receivable that was deemed impaired. Such impaired note remained outstanding as of June 30, 2013.

The impaired note at December 31, 2012 was placed in non-accrual status in 2010, at which time its term was modified to defer the repayment of principal until April 2012 while maintaining interest-only payments at the original rate of 11.58%. During 2011, the note was deemed impaired relative to its original payment terms. From April 1, 2012 well into the third quarter of 2012, the interest only payment arrangement was continued pending final resolution of the terms of repayment. Prior to the end of the third quarter of 2012, a large dollar amount was received to significantly reduce the then outstanding principal balance by September 30, 2012. During the periods when interest only was being paid, all such payments were made in accordance with the then applicable note modification agreements. The note was returned to accrual status effective October 1, 2012. As of June 30, 2013, $10 thousand of the aforementioned note remains outstanding. As of the same date, the fair value of the impaired note is $0, reflecting previous valuation adjustments of $10 thousand.

The minimum future payments receivable as of June 30, 2013 are as follows (in thousands):

 
Six months ending December 31, 2013   $     157  
Year ending December 31, 2014     221  
2015     166  
2016     188  
       732  
Less: portion representing unearned interest income     (81 ) 
       651  
Less: Reserve for impairment     (10 ) 
Notes receivable, net   $ 641  

4. Allowance for credit losses:

The Company’s allowance for credit losses are as follows (in thousands):

           
  Accounts Receivable Allowance
for Doubtful Accounts
  Valuation Adjustments on Financing Receivables   Total Allowance for Credit Losses
     Notes Receivable   Finance Leases   Operating Leases   Notes Receivable   Finance Leases  
Balance December 31, 2011   $     —     $     —     $      58     $      2     $      —     $      60  
(Reversal of) provision for credit losses                 (52 )      8             (44 ) 
Balance December 31, 2012                 6       10             16  
Reversal of provision for credit losses                 (5 )                  (5 ) 
Balance June 30, 2013   $     $     $ 1     $ 10     $     $ 11  

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are currently due to the Company.

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance

10


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable 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 periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes 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 receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.

Financing receivables

In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.

Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. 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.

11


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

As of June 30, 2013 and December 31, 2012, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):

     
June 30, 2013   Notes Receivable   Finance Leases   Total
Allowance for credit losses:
                          
Ending balance   $       10     $       —     $       10  
Ending balance: individually evaluated for impairment   $ 10     $     $ 10  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 651     $ 201     $ 852  
Ending balance: individually evaluated for impairment   $ 651     $ 201     $ 852  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  

     
December 31, 2012   Notes Receivable   Finance Leases   Total
Allowance for credit losses:
                          
Ending balance   $       10     $       —     $       10  
Ending balance: individually evaluated for impairment   $ 10     $     $ 10  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 769     $ 300     $ 1,069  
Ending balance: individually evaluated for impairment   $ 769     $ 300     $ 1,069  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  

The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.

12


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.

At June 30, 2013 and December 31, 2012, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

       
  Notes Receivable   Finance Leases
     June 30,
2013
  December 31, 2012   June 30,
2013
  December 31, 2012
Pass   $      641     $       —     $      201     $      274  
Special mention           769             26  
Substandard                        
Doubtful     10                    
Total   $ 651     $ 769     $ 201     $ 300  

As of June 30, 2013 and December 31, 2012, the Company’s impaired loans were as follows (in thousands):

         
  Impaired Loans
June 30, 2013   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment   Interest Income Recognized
With no related allowance recorded                                             
Notes receivable   $     —     $     —     $     —     $     —     $     —  
With an allowance recorded                                             
Notes receivable     10       10       10       10        
Total   $ 10     $ 10     $ 10     $ 10     $  

13


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

         
  Impaired Loans
December 31, 2012   Recorded Investment   Unpaid Principal Balance   Related Allowance   Average Recorded Investment   Interest Income Recognized
With no related allowance recorded                                             
Notes receivable   $     —     $     —     $     —     $     —     $     —  
With an allowance recorded                                             
Notes receivable     10       10       10       14       4  
Total   $ 10     $ 10     $ 10     $ 14     $ 4  

At June 30, 2013 and December 31, 2012, investment in financing receivables is aged as follows (in thousands):

             
June 30, 2013   31 – 60 Days Past Due   61 – 90 Days Past Due   Greater Than 90 Days   Total
Past Due
  Current   Total Financing Receivables   Recorded Investment
> 90 Days and Accruing
Notes receivable   $     —     $     —     $     —     $     —     $      651     $      651     $      —  
Finance leases                 1       1       200       201       1  
Total   $     $     $ 1     $ 1     $ 851     $ 852     $ 1  

             
December 31, 2012   31 – 60 Days Past Due   61 – 90 Days Past Due   Greater Than 90 Days   Total
Past Due
  Current   Total Financing Receivables   Recorded Investment
> 90 Days and Accruing
Notes receivable   $     —     $     —     $     —     $     —     $      769     $      769     $      —  
Finance leases           33             33       267       300        
Total   $     $ 33     $     $ 33     $ 1,036     $ 1,069     $  

The Company had no notes in non-accrual status at both June 30, 2013 and December 31, 2012. As of December 31, 2012, the Company did, however, have a note receivable that was deemed impaired. Such impaired note remained outstanding as of June 30, 2013. See Note 3 for further discussion.

At June 30, 2013, certain investments in financing receivables with related accounts receivable past due more than 90 days were still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable were fully reserved and included in the allowance for doubtful accounts presented above. As of December 31, 2012, there were no investments in financing receivables with related accounts receivable past due more than 90 days which were still on an accrual basis.

5. Investment in equipment and leases, net:

The Company’s investment in leases consists of the following (in thousands):

       
  Balance December 31, 2012   Reclassifications, Additions/ Dispositions and Impairment Losses   Depreciation/ Amortization Expense or Amortization
of Leases
  Balance June 30,
2013
Net investment in operating leases   $     10,515     $       (463 )    $     (1,206 )    $       8,846  
Net investment in direct financing leases     300       (1 )      (98 )      201  
Assets held for sale or lease, net     371       (175 )            196  
Initial direct costs, net of accumulated amortization of $78 at June 30, 2013 and $80 at December 31, 2012     59             (10 )      49  
Total   $ 11,245     $ (639 )    $ (1,314 )    $ 9,292  

14


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Investment in equipment and leases, net: - (continued)

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. During the respective three months ended June 30, 2013 and 2012, the Company recorded $13 thousand and $34 thousand of fair value adjustments to reduce the cost basis of certain impaired off-lease equipment. Such amounts also represent the total fair value adjustments for the six months ended June 30, 2013 and 2012.

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 Company’s equipment was approximately $548 thousand and $793 thousand for the respective three months ended June 30, 2013 and 2012, and was approximately $1.2 million and $1.6 million for the respective six months ended June 30, 2013 and 2012. Initial direct costs amortization expense related to the Company’s operating and direct financing leases totaled $5 thousand and $6 thousand for the respective three months ended June 30, 2013 and 2012 and $10 thousand and $13 thousand for the respective six months ended June 30, 2013 and 2012.

All of the leased property was acquired during the years 2005 through 2011.

Operating leases:

Property on operating leases consists of the following (in thousands):

       
  Balance December 31, 2012   Additions   Reclassifications, Dispositions and Impairment Losses   Balance
June 30,
2013
Transportation, rail   $     11,626     $         —     $        (103 )    $       11,523  
Transportation, other     6,086             (1,677 )      4,409  
Materials handling     6,089             (2,294 )      3,795  
Mining     2,893                   2,893  
Aviation     1,658                   1,658  
Marine vessels     1,415                   1,415  
Construction     898                   898  
Manufacturing     953             (123 )      830  
Other     4             1       5  
       31,622             (4,196 )      27,426  
Less accumulated depreciation     (21,107 )      (1,206 )      3,733       (18,580 ) 
Total   $ 10,515     $ (1,206 )    $ (463 )    $ 8,846  

The average estimated residual value for assets on operating leases was 22% and 21% of the assets’ original cost at June 30, 2013 and December 31, 2012, respectively. There were no operating lease contracts placed in non-accrual status at June 30, 2013 and December 31, 2012. However, as of June 30, 2013 and December 31, 2012, the Company had certain other leases that have related accounts receivables aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved. Management continues to closely monitor these leases for any actual change in collectability status and indication of necessary valuation adjustments.

15


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Investment in equipment and leases, net: - (continued)

Direct financing leases:

As of June 30, 2013 and December 31, 2012, investment in direct financing leases primarily consists of materials handling, furniture and fixtures, and research equipment. The components of the Company’s investment in direct financing leases as of June 30, 2013 and December 31, 2012 are as follows (in thousands):

   
  June 30,
2013
  December 31, 2012
Total minimum lease payments receivable   $     199     $     325  
Estimated residual values of leased equipment (unguaranteed)     47       60  
Investment in direct financing leases     246       385  
Less unearned income     (45 )      (85 ) 
Net investment in direct financing leases   $ 201     $ 300  

There were no investments in direct financing lease assets in non-accrual status at June 30, 2013 and December 31, 2012.

At June 30, 2013, the aggregate amounts of future minimum lease payments to be received are as follows (in thousands):

     
  Operating Leases   Direct
Financing Leases
  Total
Six months ending December 31, 2013   $      1,385     $        88     $       1,473  
Year ending December 31, 2014     2,142       80       2,222  
2015     1,134       31       1,165  
2016     463             463  
2017     441             441  
2018     105             105  
     $ 5,670     $ 199     $ 5,869  

6. Related party transactions:

The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale, and for management of the Company.

The Operating Agreement allows for the reimbursement of costs incurred by AFS 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.

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.

16


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Related party transactions: - (continued)

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 June 30, 2013, the Company has not exceeded the annual and/or cumulative limitations discussed above.

AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows during each of the three months ended June 30, 2013 and 2012 (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012
Costs reimbursed to Managing Member and/or affiliates   $     77     $     103     $     161     $     216  
Asset management fees to Managing Member
and/or affiliates
    61       84       130       172  
Acquisition and initial direct costs paid to Managing Member and/or affiliates                       12  
     $ 138     $ 187     $ 291     $ 400  

7. Non-recourse debt:

At June 30, 2013, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 4.40% to 5.95%. The notes are secured by assignments of lease payments and pledges of assets. At June 30, 2013, gross lease rentals totaled approximately $2.9 million over the remaining lease terms; and the carrying value of the pledged assets is approximately $5.5 million. The notes mature from 2014 through 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 Company's 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.

17


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Non-recourse debt: - (continued)

Future minimum payments of non-recourse debt are as follows (in thousands):

     
  Principal   Interest   Total
Six months ending December 31, 2013   $       855     $       66     $       921  
Year ending December 31, 2014     1,313       73       1,386  
2015     639       17       656  
     $ 2,807     $ 156     $ 2,963  

8. Borrowing facilities:

Effective as of December 31, 2012, the Company’s participation in a revolving credit facility (the “Credit Facility”) with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to December 31, 2012, the Company participated with AFS and certain of its affiliates in the Credit Facility comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions as lenders. The Credit Facility was for an amount up to $60 million and included certain financial covenants. The interest rate on the Credit Facility was based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-priced daily. Principal amounts of loans made under the Credit Facility that were prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility.

9. Commitments:

At June 30, 2013, the Company had no commitments to either purchase lease assets or fund loans.

10. Guarantees:

The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.

11. Members’ capital:

A total of 5,209,307 Units were issued and outstanding as of June 30, 2013 and December 31, 2012. The Fund was authorized to issue up to 15,000,000 Units. The Company terminated sales of Units effective April 30, 2006.

The Company has the right, exercisable at the Manager’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such

18


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Members’ capital: - (continued)

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.

Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012
Distributions   $     1,205     $     1,204     $     2,409     $ 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   $ 0.23     $ 0.23     $ 0.46     $ 0.46  

12. Fair value measurements:

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 Company's 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 basis as of June 30, 2013 and December 31, 2012; however, the Company recorded non-recurring adjustments to reflect the fair values of certain impaired off-lease equipment during the second quarter of 2013, and those of certain impaired lease and off-lease equipment, notes receivable and investment securities during 2012. Balances shown at June 30, 2013 and December 31, 2012 reflect the fair value of the then existing impaired assets.

The Company’s 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 Company’s 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 Company’s 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.

19


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

Such fair value adjustments utilized the following methodology:

Impaired operating lease and off-lease equipment

During the second quarter of 2013, the Company recorded fair value adjustments of $13 thousand to reduce the cost basis of certain impaired off-lease equipment. Such amount also represents the total fair value adjustments for the six months ended June 30, 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.

During the three and six months ended June 30, 2012, fair value adjustments relative to impaired lease and off-lease equipment amounted to $34 thousand. The fair values of the impaired equipment were classified within Level 3 of the valuation hierarchy. An additional $395 thousand of fair value adjustments were recorded through December 31, 2012.

Impaired notes receivable

The fair value of the Company’s notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans) or discounted cash flow analyses (by discounting estimated future cash flows) using the effective interest rate contained in the terms of the original loan. The Company had no fair value adjustments relative to impaired notes receivable during the first six months of 2013.

During the first quarter of 2012, the Company recorded an additional $8 thousand adjustment to reflect the fair value of a note deemed impaired in 2011. Such amount also represents the total fair value adjustments for the six months ended June 30, 2012. The incremental adjustment was based upon an independent appraisal of the underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable was classified within Level 3 of the valuation hierarchy. Such valuation utilized a market approach technique and used inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral. There was no additional fair value adjustment through December 31, 2012.

Impaired investment securities

The Company’s investment securities are not registered for public sale and are carried at cost. The investment securities are adjusted for impairment, if any, based upon factors which include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company had no fair value adjustments to investment securities during first six months of 2013.

During 2012, the Company recorded $40 thousand of non-recurring fair value adjustments which reduced the cost basis of two investment securities. Of the total adjustment, $32 thousand was recorded during the first quarter of 2012 and was based on an approximate 66% reduction in the valuation of one of the securities. Such reduction considered the investee’s current liquidity, rate of cash burn and potential for additional capital infusion. The remaining $8 thousand, which was recorded during the fourth quarter of 2012, represents an additional adjustment to an investment which was originally deemed impaired in March 2011. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair values of the impaired investment securities were classified within Level 3 of the valuation hierarchy due to the significant inputs that are unobservable in the market.

20


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

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 June 30, 2013 and December 31, 2012 (in thousands):

       
  June 30,
2013
  Level 1 Estimated
Fair Value
  Level 2 Estimated
Fair Value
  Level 3 Estimated
Fair Value
Assets measured at fair value on a non-recurring basis:
                                   
Impaired off-lease equipment   $        7     $     —     $     —     $        7  

       
  December 31, 2012   Level 1 Estimated
Fair Value
  Level 2 Estimated
Fair Value
  Level 3 Estimated
Fair Value
Assets measured at fair value on a non-recurring basis:
                                   
Impaired lease and off-lease equipment   $      405     $      —     $      —     $      405  
Impaired investment securities     24                   24  

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s non-recurring fair value adjustments categorized as Level 3 in the fair value hierarchy at June 30, 2013:

       
Name   Valuation Frequency   Valuation Technique   Unobservable Inputs   Range of Input
Values
Lease Equipment   Non-recurring   Market Approach   Third Party Agents' Pricing
  Quotes - per equipment
Equipment Condition
  $400 – $700
(total of $7,400)
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 Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s 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.

Cash and cash equivalents

The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.

Notes receivable

The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for impaired loans as deemed necessary.

21


 
 

ATEL CAPITAL EQUIPMENT FUND XI, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

Investment in securities

The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.

Non-recourse debt

The fair value of the Company’s non-recourse debt is estimated using discounted cash flow analyses, based upon the current market borrowing rates for similar types of borrowing arrangements.

Commitments and Contingencies

Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s 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 a summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s balance sheet at June 30, 2013 and December 31, 2012 (in thousands):

         
  Fair Value Measurements at June 30, 2013
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $       488     $       488     $       —     $       —     $       488  
Notes receivable, net     641                   641       641  
Investment in securities     219                   219       219  
Financial liabilities:
                                            
Non-recourse debt     2,807                   2,907       2,907  

         
  Fair Value Measurements at December 31, 2012
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     1,502     $     1,502     $       —     $       —     $     1,502  
Notes receivable, net     759                   759       759  
Investment in securities     219                   219       219  
Financial liabilities:
                                            
Non-recourse debt     3,651                   3,807       3,807  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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.

Overview

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 June 30, 2013 versus the three months ended June 30, 2012

The Company had net income of $494 thousand and $448 thousand for the three months ended June 30, 2013 and 2012, respectively. Results for the second quarter of 2013 reflect decreases in both total revenues and total operating expenses when compared to the prior year period.

Revenues

Total revenues for the second quarter of 2013 declined by $286 thousand, or 18%, 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 an increase in other revenue.

Operating lease revenues decreased $317 thousand primarily as a result of continued run-off and sales of lease assets; while other revenue increased by $65 thousand largely due to excess mileage fees collected on certain returned vehicles.

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Expenses

Total expenses for the second quarter of 2013 decreased by $328 thousand, or 29%, as compared to the prior year period. The net reduction in total expenses was primarily due to decreases in depreciation expense, other expense, interest expense and impairment losses on equipment. Such decreases in expenses were partially offset by a reduction in recovery of accounts receivable amounts previously reserved.

Depreciation expense decreased by $245 thousand, or 31%, largely due to run-off and sales of lease assets. Other expense decreased by $27 thousand largely due to lower franchise tax fees and bank charges related to the Fund’s line of credit which terminated effective December 31, 2012. Moreover, interest expense decreased by $23 thousand mainly due to a $1.7 million decline in outstanding borrowings since June 30, 2012. Finally, the $21 thousand decline in impairment losses on equipment reflects a period over period reduction in fair value adjustments relative to impaired off-lease equipment.

A $56 thousand decline in recovery of accounts receivable amounts previously reserved partially offset the above mentioned decreases in expenses incurred during the second quarter of 2013.

The six months ended June 30, 2013 versus the six months ended June 30, 2012

The Company had net income of $764 thousand and $1.1 million for the six months ended June 30, 2013 and 2012, respectively. Results for the first half of 2013 reflect decreases in both total revenues and total operating expenses when compared to the prior year period

Revenues

Total revenues for the first six months of 2013 declined by $943 thousand, or 27%, as compared to the prior year period. The net reduction in total revenues was largely attributable to decreases in operating lease revenues, gain on sales of lease assets and early termination of notes, and unrealized gain on investment securities partially offset by an increase in other revenue.

The decrease in operating lease revenues totaled $822 thousand and was primarily a result of continued run-off and sales of lease assets. Gain on sales of lease assets and early termination of notes declined by $104 thousand largely due to a reduction in volume and a change in the mix of assets sold. In addition, during the prior year period, the Company recorded $59 thousand of unrealized gain relative to the conversion of warrants into shares of certain venture companies. There were no such unrealized gains during the current year period.

Partially offsetting the aforementioned decreases in revenues was a $49 thousand increase in other revenue. Such increase was largely due to excess mileage fees collected on certain returned vehicles.

Expenses

Total expenses for the first six months of 2013 decreased by $610 thousand, or 26%, 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, provision for losses on investment in securities, other expense and impairment losses on equipment. Such decreases in expenses were partially offset by a reduction in recovery of accounts receivable amounts previously reserved.

Depreciation expense decreased by $390 thousand, or 24%, as a result of continued run-off and sales of lease assets. Cost reimbursements to AFS declined by $55 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 $46 thousand mainly due to a $1.7 million decline in outstanding borrowings since June 30, 2012; and, asset management fees declined by $42 thousand as a result of the continued decrease in managed assets and related rents.

Moreover, the provision for losses on investment in securities declined by $32 thousand due to a prior year period fair value adjustment which reduced the cost basis of an impaired investment security. Other expense decreased by $29 thousand largely due to lower franchise tax fees and bank charges related to the Fund’s line of credit which terminated effective December 31, 2012; and, impairment losses on equipment declined by $21 thousand due to a period over period reduction in fair value adjustments relative to impaired off-lease equipment

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A $44 thousand decline in recovery of accounts receivable amounts previously reserved partially offset the above mentioned decreases in expenses incurred during the first six months of 2013.

Capital Resources and Liquidity

At June 30, 2013 and December 31, 2012, the Company’s cash and cash equivalents totaled $488 thousand and $1.5 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 lease assets are acquired, 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):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2013   2012   2013   2012
Net cash provided by (used in):
                                   
Operating activities   $     975     $     1,353     $     1,493     $     2,802  
Investing activities     365       541       941       1,173  
Financing activities     (1,726 )      (1,786 )      (3,448 )      (3,601 ) 
Net (decrease) increase in cash and cash equivalents   $ (386 )    $ 108     $ (1,014 )    $ 374  

The three months ended June 30, 2013 versus the three months ended June 30, 2012

During the three months ended June 30, 2013 and 2012, 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 also realized $265 thousand and $419 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 June 30, 2013 and 2012.

During the same periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $1.3 million for each of the three-month periods ended June 30, 2013 and 2012. In addition, cash was also used to pay down $423 thousand and $484 thousand of debt during the respective three months ended June 30, 2013 and 2012; and, to pay invoices related to management fees and expenses, and other payables.

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The six months ended June 30, 2013 versus the six months ended June 30, 2012

During the six months ended June 30, 2013 and 2012, 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 also realized $733 thousand and $928 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 six months ended June 30, 2013 and 2012.

During the same periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $2.6 million for each of the six-month periods ended June 30, 2013 and 2012. In addition, cash was also used to pay down $844 thousand and $997 thousand of debt during the respective six months ended June 30, 2013 and 2012; and, to pay invoices related to management fees and expenses, and other payables.

Revolving credit facility

Effective as of December 31, 2012, the Company’s participation in a revolving credit facility with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to December 31, 2012, the Company participated with AFS and certain of its affiliates in a revolving credit facility comprised of a working capital facility to AFS, an acquisition facility and a warehouse facility to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions as lenders.

Non-Recourse Long-Term Debt

As of June 30, 2013, the Company had non-recourse long-term debt totaling $2.8 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).

Distributions

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of June 2005. Such distributions have been consistently made through June 30, 2013.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2013, the Company had no commitments to purchase lease assets or fund loans.

Off-Balance Sheet Transactions

None.

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

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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, 2012. There have been no material changes to the Company’s critical accounting policies since December 31, 2012.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) 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, which 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 applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Documents filed as a part of this report:

1. Financial Statement Schedules

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.

2. Other Exhibits

31.1Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash31.2Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi32.1Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash32.2Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi101.INSXBRL Instance Document101.SCHXBRL Taxonomy Extension Schema Document101.CALXBRL Taxonomy Extension Calculation Linkbase Document101.LABXBRL Taxonomy Extension Label Linkbase Document101.PREXBRL Taxonomy Extension Presentation Linkbase Document101.DEFXBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 13, 2013

ATEL CAPITAL EQUIPMENT FUND XI, LLC
(Registrant)

By: ATEL Financial Services, LLC
Managing Member of Registrant
By: /s/ Dean L. Cash

Dean L. Cash
President and Chief Executive Officer of
ATEL Financial Services, LLC (Managing Member)
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)
By: /s/ Samuel Schussler

Samuel Schussler
Vice President and Chief Accounting Officer of
ATEL Financial Services, LLC (Managing Member)