Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the year ended December 31, 2009
¨ | 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 000-53618
ATEL 12, LLC
(Exact name of registrant as specified in its charter)
California | 20-8712853 | |
(State or other jurisdiction of incorporation or organization) |
(I. R. S. Employer Identification No.) |
600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)
Registrants telephone number, including area code: (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes ¨ No x
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 ¨
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 ¨ No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
State the aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable
The number of Limited Liability Company Units outstanding as of February 28, 2010 was 2,999,482.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Item 1. | BUSINESS |
General Development of Business
ATEL 12, LLC (the Company or the Fund) was formed under the laws of the state of California on January 25, 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the principal operations). The Managing Member of the Company is ATEL Associates 12, LLC (the Managing Member), a Nevada limited liability corporation. The Fund may continue until December 31, 2030. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
The Company conducted a public offering of 20,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2008. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. The offering was terminated on September 25, 2009.
As of December 31, 2009, cumulative contributions, net of rescissions, totaling $30.0 million (inclusive of the $500 initial members capital investment) have been received and 2,999,482 Units were issued and outstanding.
The Fund, or Managing Member and/or affiliates on behalf of the Fund, has incurred costs in connection with the organization, registration and issuance of the limited liability company units (Units). The amount of such costs to be borne by the Fund is limited by certain provisions of the ATEL 12, LLC Limited Liability Company Operating Agreement dated April 3, 2007 (the Operating Agreement).
The Companys principal objectives are to invest in a diversified portfolio of investments that (i) preserves, protects and returns the Companys invested capital; (ii) generates regular cash distributions to Unit holders, any balance remaining after required minimum distributions to be used to purchase additional investments during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated) which ends on December 31, 2015 and (iii) provides additional cash distributions following the Reinvestment Period and until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by its Operating Agreement, as amended.
Narrative Description of Business
The Company has acquired and intends to acquire various types of new and used equipment subject to leases and to make loans secured by equipment acquired by its borrowers. The Companys primary investment objective is to acquire investments primarily in low-technology, low-obsolescence equipment such as materials handling equipment, manufacturing equipment, mining equipment, and transportation equipment. A portion of the portfolio will include some more technology-dependent equipment such as certain types of communications equipment, medical equipment, manufacturing equipment and office equipment. The Company will also seek investments in equipment or financing of equipment and business involving green technologies such as those involved in the following activities: materials recycling, water purification, sewage treatment pollution radiation, gas and other emission treatment, solid waste management, renewable energy generation, as well as many other similar industries and activities.
The Company only purchases equipment under pre-existing leases or for which a lease will be entered into concurrently at the time of the purchase. Through December 31, 2009, the Company had purchased equipment with a total acquisition price of $17.5 million. The Company had also loaned $1.7 million for notes receivable secured by various assets.
The Companys objective is to have at least 60% of its investment portfolio (by cost) consist of equipment leased to lessees that the Manager deems to be high quality corporate credits and/or leases guaranteed by such high quality corporate credits. High quality corporate credits are lessees or guarantors who have a credit rating by Moodys Investors Service, Inc. of Baa or better, or the credit equivalent as determined by the Manager, or are public and private corporations with
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substantial revenues and histories of profitable operations, as well as established hospitals with histories of profitability or municipalities. The remaining 40% of the initial investment portfolio may include equipment lease transactions, real property single tenant net leases and other financing for companies which, although deemed creditworthy by the Manager, would not satisfy the specific credit criteria for the portfolio described above. Included in this 40% of the portfolio may be growth capital financing investments. No more than 20% of the initial portfolio, by cost, will consist of these growth capital financing investments and no more than 20% of the portfolio, by cost, will consist of real estate investments. The Companys objective is to invest approximately 25% of its capital in assets that involve green technologies or applications as discussed above.
During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Companys total lease revenues as follows:
Percentage of Total Lease Revenues |
||||||||
Lessee |
Type of Equipment |
2009 | 2008 | |||||
IBM Corporation |
Research | 24 | % | * | ||||
Newell Rubbermaid, Inc. |
Materials handling | 14 | % | 10 | % | |||
Ryder Integrated Logistics, Inc. |
Materials handling | 11 | % | 15 | % | |||
Meadwestvaco Corporation |
Transportation | * | 16 | % | ||||
Midwest Energy Resources Co. |
Construction | * | 16 | % | ||||
Wal-Mart Transportation, LLC |
Transportation | * | 16 | % |
* Less than 10%
These percentages are not expected to be comparable in future periods.
The equipment financing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms that vary widely depending on the type of financing, the lease or loan term and type of equipment. The ability of the Company to keep the equipment leased and the terms of purchase, lease and sale of equipment depends on various factors (many of which neither the Managing Member nor the Company can control), such as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic obsolescence.
The Managing Member will use its best efforts to diversify lessees by geography and industry and to maintain an appropriate balance and diversity in the types of equipment acquired and the types of leases entered into by the Company, and will apply the following policies: (i) The Managing Member will seek to limit the amount invested in equipment or property leased to any single lessee to not more than 20% of the aggregate purchase price of investments owned at any time during the reinvestment period; (ii) in no event will the Companys equity investment in equipment or property leased to a single lessee exceed an amount equal to 20% of the maximum capital from the sale of Units (or $40 million); and (iii) the Managing Member will seek to invest not more than 20% of the aggregate purchase price of equipment in equipment acquired from a single manufacturer. However, this last limitation is a general guideline only, and the Company may acquire equipment from a single manufacturer in excess of the stated percentage during the offering period and before the offering proceeds are fully invested, or if the Managing Member deems such a course of action to be in the Companys best interest.
The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. Currently, 100% of the Companys operating revenues are from customers domiciled in North America.
The business of the Company is not seasonal.
The Company has no full time employees. Employees of the Managing Member and affiliates provide the services the Company requires to effectively operate. The cost of these services is reimbursed by the Company to the Managing Member and affiliates per the Operating Agreement.
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Equipment Leasing Activities
The Company has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Company through December 31, 2009 and the industries to which the assets have been leased (dollars in thousands):
Asset Types |
Purchase Price Excluding Acquisition Fees |
Percentage of Total Acquisitions |
||||
Materials handling |
$ | 7,124 | 40.69 | % | ||
Research |
3,963 | 22.64 | % | |||
Construction |
2,405 | 13.74 | % | |||
Aviation |
2,167 | 12.38 | % | |||
Transportation |
1,436 | 8.20 | % | |||
Other |
411 | 2.35 | % | |||
$ | 17,506 | 100.00 | % | |||
Industry of Lessee |
Purchase Price Excluding Acquisition Fees |
Percentage of Total Acquisitions |
||||
Business services |
$ | 3,963 | 22.64 | % | ||
Rubber/Miscellaneous plastics |
2,764 | 15.79 | % | |||
Air transportation |
2,167 | 12.38 | % | |||
Lumber/Wood products |
1,680 | 9.60 | % | |||
Transportation services |
1,644 | 9.39 | % | |||
Gas/Coal products |
1,542 | 8.81 | % | |||
Food products |
1,310 | 7.48 | % | |||
Retail |
972 | 5.55 | % | |||
Chemical products |
863 | 4.93 | % | |||
Other |
601 | 3.43 | % | |||
$ | 17,506 | 100.00 | % | |||
For further information regarding the Companys equipment lease portfolio as of December 31, 2009, see Note 5 to the financial statements, Investments in equipment and leases, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.
Notes Receivable Activities
The Company finances assets in diverse industries. The following tables set forth the types of assets financed by the Company through December 31, 2009 and the industries to which the assets have been financed (dollars in thousands):
Asset Types |
Purchase Price Excluding Acquisition Fees |
Percentage of Total Acquisitions |
||||
Miscellaneous office equipment |
$ | 1,500 | 85.76 | % | ||
Research |
249 | 14.24 | % | |||
$ | 1,749 | 100.00 | % | |||
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Industry of Lessee |
Purchase Price Excluding Acquisition Fees |
Percentage of Total Acquisitions |
||||
Health services |
$ | 1,250 | 71.46 | % | ||
Lab equipment |
249 | 14.24 | % | |||
Business services |
125 | 7.15 | % | |||
Electronics |
125 | 7.15 | % | |||
$ | 1,749 | 100.00 | % | |||
For further information regarding the Companys note receivable portfolio as of December 31, 2009, see Note 4 to the financial statements, Notes receivable, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.
Item 2. | PROPERTIES |
The Company does not own or lease any real property, plant or material physical properties other than the equipment held for lease as set forth in Item 1, Business.
Item 3. | LEGAL PROCEEDINGS |
Not applicable.
Item 4. | [RESERVED] |
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PART II
Item 5. | MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.
Holders
As of December 31, 2009, a total of 883 investors were Unitholders of record in the Company.
Distributions
The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement.
The Managing Member has sole discretion in determining the amount of distributions; provided, however, that the Managing Member will not cause the Company to reinvest operating revenues in equipment, but will distribute available cash, subject to payment of any obligations of the Company, (i) in an amount sufficient to allow an investor in a 31% federal income tax bracket to meet the federal and state income taxes due on income from the operations of the Fund; (ii) through the first full fiscal quarter ending at least six months after termination of the offering of Units, an amount equal to the lesser of: (a) a rate of return on their original capital contribution equal to 2.5% over the average yield on five-year United States Treasury Bonds for the fiscal quarter immediately preceding the date of distribution, as published in a national financial newspaper from time to time (with a minimum of 8% per annum and a maximum of 9% per annum), or (b) 90% of the total amount of cash available for distributions; and (iii) for each quarter during the rest of the reinvestment period, an amount equal to 9% per annum on their original capital contribution.
The Company commenced periodic distributions in February 2008. The rate for monthly distributions from 2009 operations was $0.075 per Unit for the period from January through December 2009. Likewise, the rate for monthly distributions from 2008 operations was $0.075 per Unit for the period from February through December 2008. The rate for each of the quarterly distributions paid in 2009 and 2008 was $0.225 per Unit.
The following table presents summarized information regarding distributions to Other Members:
2009 | 2008 | |||||||
Net loss per Unit, based on weighted average Units outstanding |
$ | (0.62 | ) | $ | (0.60 | ) | ||
Return of investment |
1.52 | 1.50 | ||||||
Distributions declared per Unit, based on weighted average Other Member Units outstanding |
0.90 | 0.90 | ||||||
Differences due to timing of distributions |
| | ||||||
Actual distributions paid per Unit |
$ | 0.90 | $ | 0.90 | ||||
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Use of Proceeds from Registered Securities
Information provided pursuant to § 229.701 (Item 701(f)) (formerly included in Form SR):
(1) | Effective date of the offering: September 26, 2007; File Number: 333-142034 |
(2) | Offering commenced: September 26, 2007 |
(3) | The offering did not terminate before any securities were sold. |
(4) | The offering was terminated: September 25, 2009 |
(5) | The managing underwriter is ATEL Securities Corporation. |
(6) | The title of the registered class of securities is Units of Limited Liability Company Interest. |
(7) | Aggregate amount and offering price of securities registered and sold as of December 31, 2009 (dollars in thousands): |
Title of Security |
Amount Registered |
Aggregate price of offering amount registered |
Units sold | Aggregate price of offering amount sold | ||||||
Units of Limited Company Interest |
20,000,000 | $ | 200,000 | 2,999,482 | $ | 29,995 |
(8) | Costs incurred for the issuers account in connection with the issuance and distribution of the securities registered for each category listed below: |
Direct or indirect payments to directors, officers, Managing Member of the issuer or its associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer |
Direct or indirect payments to others |
Total | |||||||
Underwriting discounts and commissions |
$ | 450 | $ | 2,252 | $ | 2,702 | |||
Other syndication costs |
| 1,751 | 1,751 | ||||||
$ | 450 | $ | 4,003 | $ | 4,453 | ||||
(9) | Net offering proceeds to the issuer after total expenses in item 8: $25,542 |
(10) | The amount of net offering proceeds to the issuer used for each of the purposes listed below: |
Direct or indirect payments to directors, officers, Managing Member of the issuer or its associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer |
Direct or indirect payments to others |
Total | |||||||
Purchase and installation of machinery and equipment |
$ | 277 | $ | 18,577 | $ | 18,854 | |||
Investments in notes receivable |
13 | 1,749 | 1,762 | ||||||
Distributions paid |
202 | 2,493 | 2,695 | ||||||
Other expenses |
2,231 | | 2,231 | ||||||
$ | 2,723 | $ | 22,819 | $ | 25,542 | ||||
(11) | Net offering proceeds to the issuer after total investments, distributions and other expenses in item 10: $ (0) |
Item 6. | SELECTED FINANCIAL DATA |
A smaller reporting company is not required to present selected financial data in accordance with item 301(c) of Regulation S-K.
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Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements contained in this Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and elsewhere in this Form 10-K, 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, the economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Companys performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Companys performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-K. 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-K or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL 12, LLC (the Company or the Fund) is a California limited liability company that was formed in January 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the principal operations), primarily in the United States.
The Company conducted a public offering of 20,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2008. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. As of September 25, 2009, the offering was terminated.
On January 29, 2008, the Fund made its first investment in a long-term operating lease. The investment totaled $764 thousand and consisted of transportation equipment leased to an operating subsidiary of a Fortune 100 company. The lease commenced on February 1, 2008 and has a term of 84 months. As of December 31, 2009, the Company has purchased a total of $17.5 million of equipment for long-term operating and direct financing leases and funded investments in notes receivable totaling $1.7 million.
The Company is in the process of completing 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 will reinvest cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilize its credit facilities to acquire additional equipment. Throughout the Reinvestment Period, which ends December 31, 2015, the Company anticipates continued reinvestment of cash flow in excess of minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended.
The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member.
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Results of Operations
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.
As of December 31, 2009 and 2008, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:
Industry |
2009 | 2008 | ||||
Transportation |
27 | % | 26 | % | ||
Business services |
23 | % | 11 | % | ||
Rubber/Miscellaneous plastics |
16 | % | 17 | % | ||
Gas/Coal |
15 | % | 23 | % | ||
Lumber/Wood products |
10 | % | 21 | % |
During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Companys total lease revenues as follows:
Percentage of Total Lease Revenues |
||||||||
Lessee |
Type of Equipment | 2009 | 2008 | |||||
IBM Corporation |
Research | 24 | % | * | ||||
Newell Rubbermaid, Inc. |
Materials handling | 14 | % | 10 | % | |||
Ryder Integrated Logistics, Inc. |
Materials handling | 11 | % | 15 | % | |||
Meadwestvaco Corporation |
Transportation | * | 16 | % | ||||
Midwest Energy Resources Co. |
Construction | * | 16 | % | ||||
Wal-Mart Transportation, LLC |
Transportation | * | 16 | % |
* Less than 10%
These percentages are not expected to be comparable in future periods due to anticipated changes in the mix of investments and/or lessees as a result of normal business activities.
It is the Companys objective to maintain a 100% utilization rate for all equipment purchased in any given year. All equipment transactions are acquired subject to binding lease commitments, so equipment utilization is expected to remain high throughout the reinvestment stage. Initial lease terms of these leases are generally from 36 to 120 months, and as they expire, the Company will attempt to re-lease or sell the equipment; as such, utilization rates may tend to decrease during the liquidation stage of the Company.
All of the Companys leased property was acquired during 2008 and 2009. As of the respective years ended December 31, 2009 and 2008, all existing lease assets were fully utilized.
2009 versus 2008
The Company had net losses of $1.3 million and $360 thousand for the years ended December 31, 2009 and 2008, respectively. Results for 2009 reflect an increase in total operating expenses offset, in part, by an increase in total revenues. 2009 operating expenses and revenues increased as the Companys asset base and operations expanded commensurate with increased contributions and investment.
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Revenues
Total revenues for 2009 were higher by $2.7 million as compared to the prior year period. The increase was primarily due to revenues derived from assets acquired and/or investments funded since December 2008.
During both years, a majority of the Companys revenues were derived from its investments in lease assets and notes receivable. Combined, such revenues constituted 99.7% and 96.1% of total revenues during 2009 and 2008, respectively. During 2008, approximately $24 thousand, or 3.1%, of the Companys total revenues were derived from interest earned on the Companys cash deposits. During 2009, interest income was nominal in amount largely due to a year over year decrease in the Companys interest earning cash balances and the change in the Companys depository account to a non-interest bearing account to ensure maximum FDIC insurance coverage on deposits.
Expenses
Total expenses during 2009 were higher by $3.6 million as compared to the prior year. A majority of the year over year increase was attributable to increases in depreciation and acquisition expenses totaling $2.3 million and $447 thousand, respectively. The increase in both expenses was largely due to the continued increase in the Companys lease asset portfolio. In addition, the provision for credit losses, costs reimbursed to AFS and management fees paid to AFS increased by $394 thousand, $133 thousand and $126 thousand, respectively. The increase in provision for credit losses was comprised of a $375 thousand impairment reserve related to a note receivable and a $19 thousand allowance related to a billed receivable that is more than 90 days past due. The increase in costs reimbursed to AFS was a result of higher administrative costs related to expanded operations; and management fees paid to AFS was higher due to the increase in managed assets and related rents.
Combined, the aforementioned expenses comprised approximately 93.8% and 90.7% of total expenses during 2009 and 2008, respectively. The remainder of the net increase in expenses during 2009, as compared to the prior year, was largely related to increases in amortization of initial direct costs, interest expense and professional fees.
Capital Resources and Liquidity
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.
During the funding period, which ended on September 25, 2009, the Companys primary source of liquidity was subscription proceeds from the public offering of Units. Through September 30, 2009, cumulative contributions, net of rescissions, totaling $30.0 million have been received. Subsequent to that date, the primary source of liquidity for the Company has been its cash flow from fixed-term leasing activities.
The changes in the Companys cash flow for 2009 when compared to the prior year are as follows:
2009 versus 2008
| Operating Activities |
Cash provided by operating activities increased by $1.9 million for the year ended December 31, 2009 as compared to the prior year. The net increase in cash flow was primarily a result of a $1.8 million increase in operating results, as adjusted for non-cash expense items such as depreciation and amortization expense, and a $170 thousand favorable change in accounts payable and accrued liabilities. These increases in cash flow were partially offset by the year over year increase in accounts receivable which reduced cash flow by $125 thousand.
The improved operating results, as adjusted for non-cash items, was primarily a result of increased revenues from the Companys operating lease assets offset, in part, by increased acquisition and administrative expenses, and management fees paid to AFS. The favorable change in accounts payable and accrued liabilities was largely due to a year over year reduction in payments made for administrative services provided by an affiliate.
The increase in accounts receivable was mainly due to higher lease, loan and property tax billings at year-end resulting primarily from the year over year increase in Fund investments.
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| Investing Activities |
Investing activities for 2009 resulted in a $1.1 million net decrease in cash flow when compared to the prior year. Cash flow decreased mainly due to a $1.6 million year over year net increase in cash used to purchase lease assets and securities, and fund investments in notes receivable offset, in part, by a $524 thousand increase in payments received on notes receivable.
Cash used to purchase lease assets increased by $3.3 million when compared to prior year. This was partially offset by a reduction in cash used to fund investments in notes receivable and purchase investment securities totaling $1.3 million and $453 thousand, respectively. The decrease was largely due to reduced acquisition phase activity resulting from the absence of appropriate investments as determined by the Managing Member. As of December 31, 2009, $1.7 million of newly purchased lease assets were reassigned to an affiliate as if the transaction had originated with the affiliate. The Fund was reimbursed for such related acquisition costs in January 2010.
The $524 thousand year over year increase in payments received on notes receivable reflects twelve (12) months of payments received on loans funded during the last quarter of 2008.
| Financing Activities |
Net cash provided by financing activities decreased by $892 thousand for 2009 as compared to the prior year. The net decrease in cash flow was largely due to a $1.4 million increase in distributions paid to Other Members resulting from the increased number of Units outstanding, and a $491 thousand decline in subscription proceeds as the Fund terminated the offering of its Units in September 2009.
The aforementioned decreases in cash flow were partially offset by a $1.1 million increase resulting from the year over year reduction in syndication costs. The decline in syndication costs was pursuant to the termination of the offering and the limitation on the reimbursement of such costs as set forth by the Operating Agreement.
Throughout the Reinvestment Period (as defined in the Operating Agreement), the Company anticipates reinvesting a portion of lease payments from assets owned, and/or payments received on notes receivable, in new leasing or financing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to AFS and providing for cash distributions to the Members.
In a normal economy, if inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Companys leased assets may increase as the costs of similar assets increase. However, the Companys revenues from existing leases and notes would not increase as such rates are generally fixed for the terms of the leases and notes without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the rates that the Company can obtain on future lease or financing transactions will be expected to increase as the cost of capital is a significant factor in the pricing of leases and investments in notes receivable. Leases and notes already in place, for the most part, would not be affected by changes in interest rates.
The Company currently has available adequate reserves 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. The Managing Member envisions no such requirements for operating purposes.
Revolving credit facility
The Company participates with AFS and certain of its affiliates in a revolving credit facility (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.
Compliance with covenants
The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company and affiliates were in compliance with all covenants under the Credit Facility as of December 31, 2009. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.
11
Material financial covenants
Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies. The material financial covenants are summarized as follows:
Minimum Tangible Net Worth: $7.5 million
Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1
Collateral Value: Collateral value under the Warehouse Facility must exceed outstanding borrowings under that facility.
EBITDA to Interest Ratio: Not to be less than 2 to 1 for the four fiscal quarters just ended.
EBITDA is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. Tangible Net Worth is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under accounting principles generally accepted in the United States of America (GAAP), and after certain other adjustments permitted under the agreements.
The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the Credit Facility. As of December 31, 2009, the Companys Tangible Net Worth requirement under the Credit Facility was $7.5 million, the permitted maximum leverage ratio was 1.25 to 1, and the required minimum interest coverage ratio (EBITDA/interest expense) was 2 to 1. The Company was in compliance with each of these financial covenants with a minimum Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as calculated per the Credit Facility agreement of $20.9 million, no leverage ratio as there is no debt, and 40.77 to 1, respectively, as of December 31, 2009. As such, as of December 31, 2009, the Company and its affiliates were in compliance with all such material financial covenants.
Reconciliation to GAAP of EBITDA
For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.
The following is a reconciliation of EBITDA to net loss for the year ended December 31, 2009 (in thousands):
Net loss - GAAP basis |
$ | (1,277 | ) | |
Interest expense |
65 | |||
Depreciation and amortization |
2,884 | |||
Amortization of initial direct costs |
70 | |||
Provision for credit losses |
394 | |||
Payments received on direct finance leases |
20 | |||
Payments received on notes receivable |
642 | |||
Amortization of unearned income on direct finance leases |
(5 | ) | ||
Amorization of unearned income on notes receivable |
(143 | ) | ||
$ | 2,650 | |||
12
Events of default, cross-defaults, recourse and security
The terms of the Credit Facility include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the Credit Facility should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Companys request.
The Company is currently in compliance with its obligations under the Credit Facility. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.
The lending syndicate providing the Credit Facility has a blanket lien on all of the Companys assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.
The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Companys consolidated Tangible Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility.
For detailed information on the Companys debt obligations, see Note 8, Borrowing facilities, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.
The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2008. Additional distributions have been consistently made through December 31, 2009.
At December 31, 2009, the Company had commitments to purchase lease assets totaling approximately $3.5 million (see Note 9, Commitments, as set forth in Part II, Item 8, Financial Statements and Supplementary Data).
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.
Critical Accounting Policies and Estimates
The policies discussed below are considered by management of the Company to be critical to an understanding of the Companys financial statements because their application requires significantly complex or subjective judgments, decisions, or assessments, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. The Company also states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.
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.
13
Equipment on operating leases and related revenue recognition:
Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipments estimated residual values at the end of the leases. Maintenance costs associated with the Funds portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.
Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.
Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon managements judgment, operating lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.
Direct financing leases and related revenue recognition:
Income from direct financing lease transactions is reported using the financing method of accounting, in which the Companys investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based on historical charge-off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off as they are deemed uncollectible.
Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct finance lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.
Notes receivable, unearned interest income and related revenue recognition:
The Company records all future payments of principal and interest on notes as notes receivable and then offsets the related unearned interest income. For financial statement purposes, the Company reports only the principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.
Allowances for losses on notes receivable are typically established based on historical charge-off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. 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 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 payments when due. Notes are written off to the allowance as they are deemed uncollectible.
Notes 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 note payments outstanding less than 90 days. Based upon managements judgment, notes may be placed in a non-accrual status. 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.
14
Initial direct costs:
The Company capitalizes initial direct costs (IDC) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual contract term using a straight-line method for operating leases and the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease or loan assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.
Asset valuation:
Recorded values of the Companys leased asset portfolio are periodically reviewed for impairment. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the assets 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 market place 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 assets and its carrying value on the measurement date.
Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 16 through 34.
15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
ATEL 12, LLC
We have audited the accompanying balance sheets of ATEL 12, LLC (the Company) as of December 31, 2009 and 2008, and the related statements of operations, changes in members capital, and cash flows for the years then ended. These financial statements are the responsibility of the Management of the Companys Managing Member. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL 12, LLC as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Moss Adams LLP |
San Francisco, California
March 26, 2010
16
ATEL 12, LLC
BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(In Thousands)
2009 | 2008 | |||||
ASSETS | ||||||
Cash and cash equivalents |
$ | 3,976 | $ | 2,050 | ||
Due from affiliates |
1,758 | 166 | ||||
Accounts receivable, net of allowance for doubtful accounts of $19 and $0 at December 31, 2009 and December 31, 2008, respectively |
164 | 29 | ||||
Notes receivable, net of unearned interest income of $149 and allowance for credit losses of $375 at December 31, 2009 and net of unearned interest income of $228 and allowance for credit losses of $0 at December 31, 2008 |
851 | 1,480 | ||||
Investment in securities |
467 | 460 | ||||
Investments in equipment and leases, net of accumulated depreciation of $3,456 and $572 at December 31, 2009 and December 31, 2008, respectively |
14,234 | 7,454 | ||||
Other assets |
18 | 3 | ||||
Total assets |
$ | 21,468 | $ | 11,642 | ||
LIABILITIES AND MEMBERS CAPITAL | ||||||
Accounts payable and accrued liabilities: |
||||||
Managing Member |
$ | 19 | $ | 13 | ||
Accrued distributions to Other Members |
230 | 112 | ||||
Other |
116 | 98 | ||||
Unearned operating lease income |
154 | 43 | ||||
Total liabilities |
519 | 266 | ||||
Commitments and contingencies |
||||||
Members capital: |
||||||
Managing Member |
| | ||||
Other Members |
20,949 | 11,376 | ||||
Total Members capital |
20,949 | 11,376 | ||||
Total liabilities and Members capital |
$ | 21,468 | $ | 11,642 | ||
See accompanying notes.
17
ATEL 12, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31, 2009 AND 2008
(In Thousands Except for Units and Per Unit Data)
2009 | 2008 | |||||||
Revenues: |
||||||||
Operating lease income |
$ | 3,295 | $ | 648 | ||||
Direct financing leases |
5 | 1 | ||||||
Notes receivable interest income |
143 | 91 | ||||||
Interest income |
1 | 24 | ||||||
Other |
9 | 6 | ||||||
Total revenues |
3,453 | 770 | ||||||
Expenses: |
||||||||
Depreciation of operating lease assets |
2,884 | 572 | ||||||
Asset management fees to Managing Member |
157 | 31 | ||||||
Acquisition expense |
764 | 317 | ||||||
Cost reimbursements to Managing Member and affiliates |
238 | 105 | ||||||
Provision for credit losses |
394 | | ||||||
Amortization of initial direct costs |
70 | 14 | ||||||
Interest expense |
65 | 17 | ||||||
Professional fees |
78 | 34 | ||||||
Outside services |
30 | 18 | ||||||
Other |
50 | 22 | ||||||
Total operating expenses |
4,730 | 1,130 | ||||||
Net loss |
$ | (1,277 | ) | $ | (360 | ) | ||
Net income (loss): |
||||||||
Managing Member |
$ | 169 | $ | 64 | ||||
Other Members |
(1,446 | ) | (424 | ) | ||||
$ | (1,277 | ) | $ | (360 | ) | |||
Net loss per Limited Liability Company Unit (Other Members) |
$ | (0.62 | ) | $ | (0.60 | ) | ||
Weighted average number of Units outstanding |
2,324,192 | 704,323 |
See accompanying notes.
18
ATEL 12, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
THE YEARS ENDED
DECEMBER 31, 2009 AND 2008
(In Thousands Except for Units and Per Unit Data)
Other Members | Managing | ||||||||||||||
Units | Amount | Member | Total | ||||||||||||
Balance December 31, 2007 |
50 | $ | (893 | ) | $ | (12 | ) | $ | (905 | ) | |||||
Capital contributions |
1,526,852 | 15,269 | | 15,269 | |||||||||||
Rescissions of capital contributions |
(2,500 | ) | (25 | ) | | (25 | ) | ||||||||
Distributions to Other Members ($0.90 per Unit) |
| (635 | ) | | (635 | ) | |||||||||
Less selling commissions to affiliates |
| (1,293 | ) | | (1,293 | ) | |||||||||
Syndication costs |
| (623 | ) | | (623 | ) | |||||||||
Distributions to Managing Member |
| | (51 | ) | (51 | ) | |||||||||
Net (loss) income |
(424 | ) | 63 | (361 | ) | ||||||||||
Balance December 31, 2008 |
1,524,402 | 11,376 | | 11,376 | |||||||||||
Capital contributions |
1,477,780 | 14,778 | | 14,778 | |||||||||||
Redemptions of capital contributions |
(2,700 | ) | (27 | ) | | (27 | ) | ||||||||
Distributions to Other Members ($0.90 per Unit) |
| (2,088 | ) | | (2,088 | ) | |||||||||
Less selling commissions to affiliates |
| (1,330 | ) | | (1,330 | ) | |||||||||
Syndication costs |
| (314 | ) | | (314 | ) | |||||||||
Distributions to Managing Member |
| | (169 | ) | (169 | ) | |||||||||
Net (loss) income |
(1,446 | ) | 169 | (1,277 | ) | ||||||||||
Balance December 31, 2009 |
2,999,482 | $ | 20,949 | $ | | $ | 20,949 | ||||||||
See accompanying notes.
19
ATEL 12, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2009 AND 2008
(In Thousands)
2009 | 2008 | |||||||
Operating activities: |
||||||||
Net loss |
$ | (1,277 | ) | $ | (360 | ) | ||
Adjustment to reconcile net loss to cash provided by operating activities: |
||||||||
Depreciation of operating lease assets |
2,884 | 572 | ||||||
Amortization of initial direct costs |
70 | 14 | ||||||
Amortization of unearned income on direct financing leases |
(5 | ) | (1 | ) | ||||
Amortization of unearned income on notes receivable |
(143 | ) | (91 | ) | ||||
Provision for credit losses |
394 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable |
(154 | ) | (29 | ) | ||||
Prepaid expenses and other assets |
(15 | ) | (3 | ) | ||||
Accounts payable, Managing Member |
(3 | ) | 13 | |||||
Accrued liabilities, affiliates |
78 | (177 | ) | |||||
Accounts payable, other |
18 | 87 | ||||||
Unearned operating lease income |
111 | 43 | ||||||
Net cash provided by operating activities |
1,958 | 68 | ||||||
Investing activities: |
||||||||
Purchases of equipment on operating leases |
(11,173 | ) | (7,906 | ) | ||||
Purchases of equipment on direct financing leases |
(59 | ) | (38 | ) | ||||
Purchase of securities |
(7 | ) | (460 | ) | ||||
Payments of initial direct costs |
(183 | ) | (106 | ) | ||||
Payments received on direct financing leases |
20 | 4 | ||||||
Note receivable advances |
(249 | ) | (1,500 | ) | ||||
Payments received on notes receivable |
642 | 118 | ||||||
Net cash used in investing activities |
(11,009 | ) | (9,888 | ) | ||||
Financing activities: |
||||||||
Borrowings under acquisition facility |
1,500 | | ||||||
Repayments under acquisition facility |
(1,500 | ) | | |||||
Selling commissions to affiliates |
(1,330 | ) | (1,372 | ) | ||||
Syndication costs paid to Managing Member |
(314 | ) | (1,438 | ) | ||||
Distributions to Other Members |
(1,970 | ) | (523 | ) | ||||
Distributions to Managing Member |
(160 | ) | (42 | ) | ||||
Capital contributions |
14,778 | 15,269 | ||||||
Rescissions and redemptions of capital contributions |
(27 | ) | (25 | ) | ||||
Net cash provided by financing activities |
10,977 | 11,869 | ||||||
Net increase in cash and cash equivalents |
1,926 | 2,049 | ||||||
Cash and cash equivalents at beginning of year |
2,050 | 1 | ||||||
Cash and cash equivalents at end of year |
$ | 3,976 | $ | 2,050 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for interest |
$ | 65 | $ | 17 | ||||
Cash paid during the year for taxes |
$ | 7 | $ | 2 | ||||
Schedule of non-cash transactions: |
||||||||
Distributions payable to Other Members at year-end |
$ | 230 | $ | 112 | ||||
Distributions payable to Managing Member at year-end |
$ | 19 | $ | 9 | ||||
Transfer of operating lease assets to an affiliate |
$ | 1,670 | $ | | ||||
See accompanying notes.
20
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Limited Liability Company matters:
ATEL 12, LLC (the Company or the Fund) was formed under the laws of the state of California on January 25, 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the principal operations). The Managing Member of the Company is ATEL Associates 12, LLC (the Managing Member), a Nevada limited liability corporation. The Fund may continue until December 31, 2030. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
The Company conducted a public offering of 20,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2008. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. The offering was terminated on September 25, 2009.
As of December 31, 2009, cumulative contributions, net of rescissions, totaling $30.0 million (inclusive of the $500 initial members capital investment) have been received and 2,999,482 Units were issued and outstanding.
The Fund, or Managing Member and/or affiliates on behalf of the Fund, has incurred costs in connection with the organization, registration and issuance of the limited liability company units (Units). The amount of such costs to be borne by the Fund is limited by certain provisions of the ATEL 12, LLC Limited Liability Company Operating Agreement dated April 3, 2007 (the Operating Agreement).
The Companys principal objectives are to invest in a diversified portfolio of investments that (i) preserves, protects and returns the Companys invested capital; (ii) generates regular cash distributions to Unit holders, any balance remaining after required minimum distributions to be used to purchase additional investments during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated) which ends on December 31, 2015 and (iii) provides additional cash distributions following the Reinvestment Period and until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by its Operating Agreement, as amended.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying balance sheets as of December 31, 2009 and 2008, and the related statements of operations, changes in members capital, and cash flows for the years then ended, have been prepared in accordance with accounting principles generally accepted in the United States of America, (GAAP) and the rules and regulations of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on equity or net income.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after December 31, 2009, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
Cash and cash equivalents
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
21
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued):
Use of Estimates
The preparation of the 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 the 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 determination of the allowances for doubtful accounts and reserve for credit losses on notes receivable.
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 on historical charge off and collection experience and the collectability of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. During 2009, the Company established a $19 thousand allowance related to a billed receivable that is more than 90 days past due.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, direct financing lease receivables, notes receivable and accounts receivable. The Company places the majority of its cash deposits and temporary cash investments in U.S. Treasury denominated instruments with the remainder placed in financial institutions where the principal is 100% guaranteed under the Troubled Asset Relief Program Act of 2008 (TARP) through June 2010, so as to meet ongoing working capital requirements. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts and notes receivable represent amounts due from lessees or borrowers in various industries, related to equipment on operating leases or notes receivable.
Equipment on operating leases and related revenue recognition:
Equipment subject to operating leases is stated at cost. Depreciation is recognized on a straight-line method over the terms of the related leases to the equipments estimated residual values at the end of the leases. Major additions and betterments are capitalized.
Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.
Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon managements judgment, operating lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.
22
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued):
Direct financing leases and related revenue recognition:
Income from direct financing lease transactions is reported using the financing method of accounting, in which the Companys investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based on historical charge-off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off as they are deemed uncollectible.
Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct finance lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.
Notes receivable, unearned interest income and related revenue recognition:
The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.
Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. 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 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 payments when due. Notes are charged off to the allowance as they are deemed uncollectible.
Notes 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 note payments outstanding less than 90 days. Based upon managements judgment, notes may be placed in a non-accrual status. 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.
Initial direct costs:
The Company capitalizes initial direct costs (IDC) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual lease term using a straight-line method for operating leases and the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease assets and notes receivable, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.
23
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued):
Acquisition expense:
Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.
Asset valuation:
Recorded values of the Companys leased asset portfolio are periodically reviewed for impairment. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the assets 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 market place 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.
Segment reporting:
The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The Companys principal decision makers are the Managing Members Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.
The primary geographic regions in which the Company sought leasing opportunities were North America and Europe. Currently, 100% of the Companys operating revenues and long-lived assets are from customers domiciled in North America.
Investment in securities
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 issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. Accordingly, such investment is stated at cost at December 31, 2009 and 2008.
24
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued):
Warrants
From time to time, the Company receives warrants to purchase securities of its borrowers in connection with lending arrangements. During the first quarter of 2008, the Company commenced funding of investments in notes receivable. Pursuant to the terms of certain of these investments, the Company received equity rights in the form of warrants. Such warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value on the balance sheet at the end of the period, as determined by the Managing Member. At December 31, 2009 and 2008, the Managing Member estimated the fair value of the warrants to be nominal in amount.
Income Taxes
The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Company has provided current franchise income taxes for only those states which levy income taxes on partnerships. For the years ended December 31, 2009 and 2008, the related provision for state income taxes was approximately $14 thousand and $5 thousand, respectively. The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is generally subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of a tax return.
The tax bases of the Companys net assets and liabilities vary from the amounts presented in these financial statements at December 31, 2009 and 2008 as follows (in thousands):
2009 | 2008 | |||||||
Financial statement basis of net assets |
$ | 20,949 | $ | 11,376 | ||||
Tax basis of net assets (unaudited) |
23,695 | 13,584 | ||||||
Difference |
$ | (2,746 | ) | $ | (2,208 | ) | ||
The primary differences between the tax bases of net assets and the amounts recorded in the financial statements are the result of differences in accounting for impairment losses, syndication costs and differences between the depreciation methods used in the financial statements and the Companys tax returns.
The following reconciles the net loss reported in these financial statements to the loss reported on the Companys federal tax return (unaudited) for the years ended December 31, 2009 and 2008 (in thousands):
2009 | 2008 | |||||||
Net loss per financial statements |
$ | (1,277 | ) | $ | (360 | ) | ||
Tax adjustments (unaudited): |
||||||||
Adjustment to depreciation expense |
(1,762 | ) | (780 | ) | ||||
Provision for losses and doubtful accounts |
19 | | ||||||
Adjustments to revenues / other expenses |
125 | 45 | ||||||
Other |
386 | | ||||||
Loss per federal tax return (unaudited) |
$ | (2,509 | ) | $ | (1,095 | ) | ||
Per Unit data:
Net loss and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
25
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of Significant Accounting Policies (continued):
Recent Accounting Pronouncements
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification provides guidance on improving disclosures about fair value measurements. This guidance has new requirements for disclosures related to recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements in a rollforward reconciliation of Level 3 fair-value measurements. This guidance is effective for the first reporting period beginning after December 15, 2009, which will be effective for the Company beginning January 1, 2010. The Level 3 reconciliation disclosures are effective for fiscal years beginning after December 15, 2010. The adoption of the guidance is not expected to have a material impact on the Companys financial position, results of operations or cash flows.
The Generally Accepted Accounting Principles Topic of the FASB Accounting Standards Codification identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the guidance for its third quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Companys financial position, results of operations or cash flows.
The Subsequent Events Topic of the FASB Accounting Standards Codification establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted the guidance for its second quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Companys financial position, results of operations or cash flows.
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales. The guidance is effective for interim and annual periods ending after June 15, 2009 and has been adopted by the Company for its second quarter 2009 interim reporting period with no impact on its financial position, results of operations or cash flows.
The Financial Instruments Topic of the FASB Accounting Standards Codification increases the frequency of fair value disclosures for financial instruments within the scope of the Topic from an annual basis to a quarterly basis. The guidance is effective for interim reporting periods ending after June 15, 2009. The Company adopted the guidance for its second quarter 2009 interim reporting period without significant effect on the Companys financial position, results of operations or cash flows.
The Derivatives and Hedging Topic of the FASB Accounting Standards Codification requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The fair value of derivative instruments and their gains and losses will need to be presented in tabular format in order to present a more complete picture of the effects of using derivative instruments. The guidance is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted the provisions of the guidance on January 1, 2009. The adoption did not have a significant effect on the Companys financial position, results of operations or cash flows.
The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. The guidance was to be effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB deferred the effective date of the guidance as it pertains to fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. On January 1, 2008, the Company adopted the provisions of the guidance except as it applies to its investment in equipment and leases, and other nonfinancial assets and nonfinancial liabilities. The deferred provisions of the guidance were implemented effective January 1, 2009 without significant effect on the Companys financial position, results of operations or cash flows.
26
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
3. Concentration of credit risk and major customers:
The Company leases equipment to lessees and provides debt financing to borrowers in diversified industries. Leases and notes receivable are subject to the Managing Members credit committee review. The leases and notes receivable provide for the return of the equipment to the Company upon default.
As of December 31, 2009 and 2008, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:
Industry |
2009 | 2008 | ||||
Transportation |
27 | % | 26 | % | ||
Business services |
23 | % | 11 | % | ||
Rubber/Miscellaneous plastics |
16 | % | 17 | % | ||
Gas/Coal |
15 | % | 23 | % | ||
Lumber/Wood products |
10 | % | 21 | % |
During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Companys total lease revenues as follows:
Percentage of Total Lease Revenues |
||||||||
Lessee |
Type of Equipment |
2009 | 2008 | |||||
IBM Corporation |
Research | 24 | % | * | ||||
Newell Rubbermaid, Inc. |
Materials handling | 14 | % | 10 | % | |||
Ryder Integrated Logistics, Inc. |
Materials handling | 11 | % | 15 | % | |||
Meadwestvaco Corporation |
Transportation | * | 16 | % | ||||
Midwest Energy Resources Co. |
Construction | * | 16 | % | ||||
Wal-Mart Transportation, LLC |
Transportation | * | 16 | % |
* | Less than 10% |
4. Notes receivable, net:
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At December 31, 2009, the original terms of the notes receivable are 36 months and bear interest at rates ranging from 11% to 15%. The notes are generally secured by the equipment financed. The notes mature from 2011 through 2013. At December 31, 2009, the Company recorded an impairment provision totaling $375 thousand related to a note receivable. The impaired note remained in accrual status as of December 31, 2009 but was subsequently placed in nonaccrual status during the first quarter of 2010. There were no notes impaired or placed in nonaccrual status at December 31, 2008.
As of December 31, 2009, the minimum future payments receivable are as follows (in thousands):
Year ending December 31, 2010 | $ | 748 | ||||
2011 | 522 | |||||
2012 | 94 | |||||
2013 | 7 | |||||
1,371 | ||||||
Less: portion representing unearned interest income |
(149 | ) | ||||
1,222 | ||||||
Unamortized indirect costs | 4 | |||||
Less: reserve for impairment | (375 | ) | ||||
Notes receivable, net | $ | 851 | ||||
27
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
4. Notes receivable, net (continued):
IDC amortization expense related to notes receivable and the Companys operating and direct financing leases for the years ended December 31, 2009 and 2008 are as follows (in thousands):
2009 | 2008 | |||||
IDC amortization - notes receivable |
$ | 5 | $ | 4 | ||
IDC amortization - lease assets |
65 | 10 | ||||
Total |
$ | 70 | $ | 14 | ||
5. Investments in equipment and leases, net:
The Companys investment in leases consists of the following (in thousands):
Balance December 31, 2008 |
Reclassifications & Additions / Dispositions |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance December 31, 2009 | ||||||||||
Net investment in operating leases |
$ | 7,334 | $ | 9,503 | $ | (2,884 | ) | $ | 13,953 | ||||
Net investment in direct financing leases |
35 | 59 | (15 | ) | 79 | ||||||||
Initial direct costs, net |
85 | 182 | (65 | ) | 202 | ||||||||
Total |
$ | 7,454 | $ | 9,744 | $ | (2,964 | ) | $ | 14,234 | ||||
Additions to net investment in operating leases are stated at cost and include amounts accrued at December 31, 2008 related to asset purchase obligations totaling $67 thousand. There were no such amounts accrued at December 31, 2009.
Impairment of investments in leases and assets held for sale or lease:
Management periodically reviews the carrying values of its assets on leases. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during 2009 and 2008. Depreciation expense on property subject to operating leases totaled $2.9 million and $572 thousand for the years ended December 31, 2009 and 2008, respectively. All of the Companys leased property was acquired during 2008 and 2009.
Operating leases:
Property on operating leases consists of the following (in thousands):
Balance December 31, 2008 |
Additions | Reclassifications or Dispositions |
Balance December 31, 2009 |
||||||||||||
Materials handling |
$ | 4,457 | $ | 3,385 | $ | | $ | 7,842 | |||||||
Computers |
875 | 3,088 | | 3,963 | |||||||||||
Aviation |
| 2,167 | | 2,167 | |||||||||||
Construction |
1,542 | 614 | | 2,156 | |||||||||||
Transportation |
1,032 | | | 1,032 | |||||||||||
Manufacturing |
| 249 | | 249 | |||||||||||
7,906 | 9,503 | | 17,409 | ||||||||||||
Less accumulated depreciation |
(572 | ) | (2,884 | ) | | (3,456 | ) | ||||||||
Total |
$ | 7,334 | $ | 6,619 | $ | | $ | 13,953 | |||||||
28
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
5. Investments in equipment and leases, net (continued):
The average estimated residual value for assets on operating leases was 26% and 25% of the assets original cost at December 31, 2009 and 2008, respectively. There were no operating leases in non-accrual status at December 31, 2009 and 2008.
Direct financing leases:
As of December 31, 2009, investment in direct financing leases consists of cleaning services equipment and materials handling equipment such as sweepers, forklifts and lift trucks. At December 31, 2008, such investment consisted of cleaning services equipment.
The following lists the components of the Companys investment in direct financing leases as of December 31, 2009 and 2008 (in thousands):
2009 | 2008 | |||||||
Total minimum lease payments receivable |
$ | 82 | $ | 37 | ||||
Estimated residual values of leased equipment (unguaranteed) |
8 | 3 | ||||||
Investment in direct financing leases |
90 | 40 | ||||||
Less unearned income |
(11 | ) | (5 | ) | ||||
Net investment in direct financing leases |
$ | 79 | $ | 35 | ||||
There were no investments in direct financing leases in nonaccrual status at December 31, 2009 and 2008.
At December 31, 2009, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):
Operating Leases |
Direct Financing Leases |
Total | |||||||||
Year ending December 31, 2010 | $ | 3,903 | $ | 27 | $ | 3,930 | |||||
2011 | 3,354 | 27 | 3,381 | ||||||||
2012 | 2,083 | 22 | 2,105 | ||||||||
2013 | 1,159 | 6 | 1,165 | ||||||||
2014 | 817 | | 817 | ||||||||
Thereafter | 189 | | 189 | ||||||||
$ | 11,505 | $ | 82 | $ | 11,587 | ||||||
The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. The useful lives for all investments in equipment and leases by category are as follows (in years):
Equipment category |
Useful Life | |
Aviation |
15 - 20 | |
Manufacturing |
10 - 20 | |
Materials handling |
7 - 10 | |
Transportation |
7 - 10 | |
Construction |
7 - 10 | |
Computers |
3 - 5 |
29
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
6. Related party transactions:
The terms of the Operating Agreement provide that the Managing Member 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 Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments. The Company would be liable for certain future costs to be incurred by the Managing Member to manage the administrative services provided to the Company.
Each of ATEL Financial Services, LLC (AFS) and ATEL Leasing Corporation (ALC) is a wholly-owned subsidiary of ATEL Capital Group, Inc. and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations and communications services, and general administrative services are performed by AFS.
Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.
During the years ended December 31, 2009 and 2008, the Managing Member and/or affiliates earned commissions and reimbursements pursuant to the Operating Agreement as follows (in thousands):
2009 | 2008 | |||||
Selling commissions, Equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital |
$ | 1,330 | $ | 1,293 | ||
Reimbursement of other syndication costs to AFS and/or affiliates, deducted from Other Members capital |
314 | 623 | ||||
Administrative costs reimbursed to Managing Member and/or affiliates |
238 | 105 | ||||
Asset management fees to Managing Member |
157 | 31 | ||||
Acquisition and initial direct costs paid to Managing Member |
930 | 423 | ||||
$ | 2,969 | $ | 2,475 | |||
During December 2009, operating lease assets were purchased and a lease agreement entered into by the Company with an original cost of $1.7 million. During the same month, the assets and associated lease were reassigned to an affiliate of the Company resulting in an amount due from an affiliate equivalent to the original cost of the assets.
7. Syndication Costs:
Syndication costs are reflected as a reduction to Members capital at December 31, 2009 and 2008 as such costs are netted against the capital raised. The amount shown is primarily comprised of selling commissions and fees pertaining to document preparation, regulatory filing fees, legal, and other direct costs associated with the Companys registration. Syndication costs totaled $1.6 million and $1.9 million for the years ended December 31, 2009 and 2008, respectively.
The Operating Agreement places a limit for cost reimbursements to the Managing Member and/or affiliates. When added to selling commissions, such cost reimbursements may not exceed a total equal to 15% of all offering proceeds up to $25 million and 14% of any additional offering proceeds.
30
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
7. Syndication Costs (continued):
As of December 31, 2009, there were no syndication costs in excess of the limitation. As of December 31, 2008, the Company had recorded an approximate $382 thousand of syndication costs in excess of the limitation. The limitation on the amount of syndication costs pursuant to the Operating Agreement is determined on the date of termination of the offering. At such time, the Manager guarantees repayment of any excess expenses above the determined limitation, which guarantee is without recourse or reimbursement by the Fund.
8. Borrowing facilities:
The Company participates with AFS and certain of its affiliates in a revolving credit facility (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 which Credit Facility includes certain financial covenants. The Credit Facility is for an amount up to $75 million. Originally scheduled to expire in June 2009, the Credit Facility was amended effective December 22, 2008 to extend the term of the agreement through June 2010.
As of December 31, 2009 and 2008, borrowings under the facility were as follows (in thousands):
2009 | 2008 | |||||||
Total available under the financing arrangement |
$ | 75,000 | $ | 75,000 | ||||
Amount borrowed by the Company under the acquisition facility |
| | ||||||
Amounts borrowed by affiliated partnerships and limited liability companies under the working capital, acquisition and warehouse facilities |
(1,750 | ) | (8,823 | ) | ||||
Total remaining available under the working capital, acquisition and warehouse facilities |
$ | 73,250 | $ | 66,177 | ||||
The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of December 31, 2009, there were no borrowings under the Warehouse Facility. As of December 31, 2008, borrowings of $1.3 million were outstanding under the Warehouse Facility. The Companys maximum obligation on the outstanding warehouse balance at December 31, 2008 was approximately $118 thousand.
As of December 31, 2009, the aggregate amount remaining unutilized under the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under the Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing.
As of December 31, 2009, the Companys Tangible Net Worth requirement under the Credit Facility was $7.5 million, the permitted maximum leverage ratio was not to exceed 1.25 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $20.9 million, no leverage ratio as there is no debt, and 40.77 to 1, respectively, as of December 31, 2009. As such, as of December 31, 2009, the Company and its affiliates were in compliance with all material financial covenants, and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing.
31
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
8. Borrowing facilities (continued):
Fee and interest terms
The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the banks Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. The Company has repaid all outstanding borrowings under the Credit Facility during 2009. Year-to-date, the weighted average interest rate on borrowings was 2.44%. There were no borrowings at any time during 2008.
Warehouse facility
To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC currently in its acquisition stage is a pro rata participant in the Warehousing Trust, as described below. When a program no longer has a need for short term financing provided by the Warehousing Facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these new entities are added.
As of December 31, 2009, the investment program participants were ATEL Capital Equipment Fund X, LLC, ATEL Capital Equipment Fund XI, LLC and the Company. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding liabilities under the Warehouse Facility, inure to each of such entities based upon each entitys pro-rata share in the Warehousing Trust estate. The pro-rata share is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally liable for the pro rata portion of the obligations of each of the affiliated partnerships and limited liability companies participating under the Warehouse Facility. Transactions are financed through this Warehouse Facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of proceeds of a draw under the Acquisition Facility, and the asset is removed from the Warehouse Facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.
9. Commitments:
The terms of the Operating Agreement provided that the Managing Member and/or affiliates are entitled to receive certain fees. In addition to the allocations described above, which are more fully described in Section 8 of the Operating Agreement. At December 31, 2009, the Company had commitments to purchase lease assets totaling approximately $3.5 million. This amount represents contract awards which may be canceled by the prospective lessee or not be accepted by the Company. There were no cancellations subsequent to year-end.
10. Guarantees:
The Company enters into contracts that contain a variety of indemnifications. The Companys maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
The Managing Member knows of no facts or circumstances that would make the Companys contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Companys similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.
32
ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
11. Members Capital:
A total of 2,999,482 and 1,524,402 Units were issued and outstanding as of December 31, 2009 and 2008, respectively. The Fund was authorized to issue up to 20,000,000 total Units.
The Company has the right, exercisable in the Managers discretion, but not the obligation, to repurchase Units of a Unit holder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the unit-holder 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.
The Funds net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, as defined in the Companys Operating Agreement, net income and net loss shall be allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss shall be allocated 92.5% to the Other Members and 7.5% to the Managing Member.
Fund distributions are to be allocated 7.5% to the Managing Member and 92.5% to the Other Members. Distributions to the Other Members for the years ended December 31, 2009 and 2008 were as follows (in thousands, except as to Units and per Unit data):
2009 | 2008 | |||||
Distributions declared |
$ | 2,088 | $ | 635 | ||
Weighted average number of Units outstanding |
2,324,192 | 704,323 | ||||
Weighted average distributions per Unit |
$ | 0.90 | $ | 0.90 | ||
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.
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability.
At December 31, 2009, the Company had no assets or liabilities that require measurement on a recurring or non-recurring basis.
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ATEL 12, LLC
NOTES TO FINANCIAL STATEMENTS
12. Fair value measurements (continued):
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. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes.
Cash and cash equivalents
The recorded amounts of the Companys cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
Due from affiliates
The recorded amounts of due from affiliates approximate fair value because of the short-term period of settlement.
Notes receivable
The Companys notes receivable are stated at the amount at which the asset could be collected in a current transaction, exclusive of transaction costs such as prepayment penalties.
Investment in securities
The Companys 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 issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. Accordingly, such investment is stated at cost.
Limitations
The fair value estimates presented herein were based on pertinent information available to the Company as of December 31 2009 and 2008. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
The following table presents estimated fair values of the Companys financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at December 31, 2009 and 2008 (in thousands):
2009 | 2008 | |||||||||||
Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value | |||||||||
Financial assets: |
||||||||||||
Cash and cash equivalents |
$ | 3,976 | $ | 3,976 | $ | 2,050 | $ | 2,050 | ||||
Due from affiliates |
1,758 | 1,758 | 166 | 166 | ||||||||
Notes receivable |
851 | 851 | 1,480 | 1,480 |
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Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
Item 9A(T). | CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
The Companys Managing Members President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (Management), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Members disclosure controls and procedures, as it is 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.
Managements Annual Report on Internal Control over Financial Reporting
The Management of the Managing Member is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2009. The internal control process of the Managing Member, as it is applicable to the Company, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:
(1) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Companys receipts and expenditures are being made only in accordance with authorization of the Management of the Managing Member; and |
(2) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. |
All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Managing Member assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Company, as of December 31, 2009. In making this assessment, it used the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, Management of the Managing Member concluded that the Managing Members internal control over financial reporting, as it is applicable to the Company, was effective as of December 31, 2009.
This annual report does not include an attestation report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only managements report in this annual report.
Changes in internal control
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as it is applicable to the Company.
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PART III
Item 10. | DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |
The registrant is a Limited Liability Company and has no officers or directors.
ATEL Associates 12, LLC (the Managing Member or Manager) is the Companys Managing Member. The Managing Member is controlled by ATEL Capital Group (ACG or ATEL), a holding company formed to control ATEL and affiliated companies. The outstanding voting capital stock of ATEL is owned 100% by Dean L. Cash.
Each of ATEL Financial Services, LLC (AFS) and ATEL Leasing Corporation (ALC) is a wholly-owned subsidiary of ATEL and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations and communications services, and general administrative services are performed by AFS.
The officers and directors of ACG and its affiliates are as follows:
Dean L. Cash | Chairman of the Board, President and Chief Executive Officer of ATEL Associates 12, LLC (Managing Member) | |
Paritosh K. Choksi | Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Associates 12, LLC (Managing Member) | |
Vasco H. Morais | Executive Vice President, Secretary and General Counsel of ATEL Associates 12, LLC (Managing Member) |
Dean L. Cash, age 59, joined ATEL as director of marketing in 1980 and has been a vice president since 1981, executive vice president since 1983 and a director since 1984. He has been President and CEO since April 2001. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association.
Paritosh K. Choksi, age 56, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenixs capital market needs. He also served on the credit committee overseeing all corporate investments, including its venture lease portfolio. Mr. Choksi was a part of the executive management team which caused Phoenixs portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi is a member of the board of directors of Syntel, Inc. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley.
Vasco H. Morais, age 51, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of Americas equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the corporate and securities legal department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais has been an active member of the State Bar of California since 1986.
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Audit Committee
The board of directors of the Managing Member acts as the audit committee of the Company. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of the Managing Member and are deemed to be financial experts. They are not independent of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4, and 5, the Company is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2009.
Code of Ethics
A Code of Ethics that is applicable to the Company, including the Chief Executive Officer and Chief Financial Officer and Chief Operating Officer of its Manager, ATEL Associates 12, LLC, or persons acting in such capacity on behalf of the Company, is included as Exhibit 14.1 to this report.
Item 11. | EXECUTIVE COMPENSATION |
The registrant has no officers or directors.
Set forth hereinafter is a description of the nature of remuneration paid and to be paid to the Manager and its affiliates. The amount of such remuneration paid for the years ended December 31, 2009 and 2008 is set forth in Item 8 of this report under the caption Financial Statements and Supplementary Data - Notes to Financial Statements - Related party transactions, at Note 6 thereof, which information is hereby incorporated by reference.
Selling Commissions
The Company paid selling commissions in the amount of 9% of Gross Proceeds, as defined, to ATEL Securities Corporation, an affiliate of the Manager.
Through December 31, 2009, $2.7 million of such commissions had either been accrued or paid to ASC. Of that amount, $2.3 million has been re-allowed to other broker/dealers.
Asset Management Fee and Carried Interest
The Company pays the Manager an Asset Management Fee in an amount equal to 4% of Operating Revenues, which includes Gross Lease Revenues and Cash from Sales or Refinancing. The Asset Management Fee is paid on a monthly basis. The amount of the Asset Management Fee payable in any year is reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee is paid for services rendered by the Manager and its affiliates in determining portfolio and investment strategies and generally managing or supervising the management of the investment portfolio.
The Manager also receives, as its Carried Interest, an amount equal to 7.5% of all Company Distributions.
AFS supervises performance of all management activities, including, among other activities: the acquisition and financing of the investment portfolio, collection of lease and loan revenues, monitoring compliance by lessees/borrowers with their contract terms, assuring that investment assets are being used in accordance with all operative contractual arrangements, paying operating expenses and arranging for necessary maintenance and repair of equipment and property in the event a lessee fails to do so, monitoring property, sales and use tax compliance and preparation of operating financial data. AFS intends to delegate all or a portion of its duties and the Asset Management Fee to one or more of its affiliates who are in the business of providing such services.
37
Limitations on Fees
The Fund has adopted a single Asset Management Fee plus the Carried Interest as a means of compensating the Manager for sponsoring the Fund and managing its operations. While this compensation structure is intended to simplify management compensation for purposes of investors understanding, state securities administrators use a more complicated compensation structure in their review of equipment program offerings in order to assure that those offerings are fair under the states merit review guidelines. The total of all Front End Fees, the Carried Interest and the Asset Management Fee will be subject to the Asset Management Fee Limit in order to assure these state administrators that Fund will not bear greater fees than permitted under the state merit review guidelines. The North American Securities Administrators Association, Inc. (NASAA) is an organization of state securities administrators, those state government agencies responsible for qualifying securities offerings in their respective states. NASAA has established standards for the qualification of a number of different types of securities offerings and investment products, including its Statement of Policy on Equipment Programs (the NASAA Equipment Leasing Guidelines). Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines establish the standards for payment of reasonable carried interests, promotional interests and fees for equipment acquisition, management, resale and releasing services to equipment leasing program sponsors. Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines set the maximum compensation payable to the sponsor and its affiliates from an equipment leasing program such as the Fund. The Asset Management Fee Limit will equal the maximum compensation payable under Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines as in effect on the date of the Funds prospectus (the NASAA Fee Limitation). Under the Asset Management Fee Limit, the Fund will calculate the maximum fees payable under the NASAA Fee Limitation and guarantee that the Asset Management Fee it will pay the Manager and its Affiliates, when added to its Carried Interest, will never exceed the fees and interests payable to a sponsor and its affiliates under the NASAA Fee Limitation.
Asset Management Fee Limit. The Asset Management Fee Limit will be calculated each year during the Funds term by calculating the total fees that would be paid to the Manager if the Manager were to be compensated on the basis of the maximum compensation payable under the NASAA Fee Limitation, including the Managers Carried Interest, as described below. To the extent that the amount paid as Front End Fees, the Asset Management Fee, and the Carried Interest for any year would cause the total fees to exceed the aggregate amount of fees calculated under the NASAA Fee Limitation for the year, the Asset Management Fee and/or Carried Interest for that year will be reduced to equal the maximum aggregate fees under the NASAA Fee Limitation. To the extent any such fees are reduced, the amount of such reduction will be accrued and deferred, and such accrued and deferred compensation would be paid to the Manager in a subsequent period, but only to the extent that the deferred compensation would be within the Asset Management Fee Limit for that later period. Any deferred fees that cannot be paid under the applicable limitations through the date of liquidation would be forfeited by the Manager at liquidation.
Under the NASAA Equipment Leasing Guidelines, the Fund is required to commit a minimum percentage of the Gross Proceeds to Investment in Equipment, calculated as the greater of: (i) 80% of the Gross Proceeds reduced by 0.0625% for each 1% of indebtedness encumbering the Funds equipment; or (ii) 75% of such Gross Proceeds. The Fund intends to incur total indebtedness equal to 50% of the aggregate cost of its equipment. The Operating Agreement requires the Fund to commit at least 85.875% of the Gross Proceeds to Investment in Equipment. Based on the formula in the NASAA Guidelines, the Funds minimum Investment in Equipment would equal 76.875% of Gross Proceeds (80% - [50% x .0625%] = 76.875%), and the Funds minimum Investment in Equipment would therefore exceed the NASAA Fee Limitation minimum by 9%.
The amount of the Carried Interest permitted the Manager under the NASAA Fee Limitation will be dependent on the amount by which the percentage of Gross Proceeds the Fund ultimately commits to Investment in Equipment exceeds the minimum Investment in Equipment under the NASAA Fee Limitation. The NASAA Fee Limitation permits the Manager and its Affiliates to receive compensation in the form of a carried interest in Fund Net Income, Net Loss and Distributions equal to 1% for the first 2.5% of excess Investment in Equipment over the NASAA Guidelines minimum, 1% for the next 2% of such excess, and 1% for each additional 1% of excess Investment in Equipment. With a minimum Investment in Equipment of 85.875%, the Manager and its Affiliates may receive an additional carried interest equal to 6.5% of Net Profit, Net Loss and Distributions under the foregoing formula (2.5% + 2% + 4.5% = 9%; 1% + 1% + 4.5% = 6.5%). At the lowest permitted level of Investment in Equipment, the NASAA Guidelines would permit the Manager and its Affiliates to receive a promotional interest equal to 5% of Distributions of Cash from Operations and 1% of Distributions of Sale or Refinancing Proceeds until Members have received total Distributions equal to their Original Invested Capital plus an 8% per annum cumulative return on their Adjusted Invested Capital, and, thereafter, the promotional interest may increase to 15% of all Distributions.
38
With the additional carried interest calculated as described above, the maximum aggregate fees payable to the Manager and Affiliates under the NASAA Guidelines as carried interest and promotional interest would equal 11.5% of Distributions of Cash from Operations (6.5% + 5% = 11.5%), and 7.5% of Distributions of Sale or Refinancing Proceeds (6.5% + 1% = 7.5%), before the subordination level was reached, and 21.5% of all Distributions thereafter. The maximum amounts to be paid under the terms of the Operating Agreement are subject to the application of the Asset Management Fee Limit provided in Section 8.3 of the Agreement, which limits the annual amount payable to the Manager and its Affiliates as the Asset Management Fee and the Carried Interest to an aggregate not to exceed the total amount of fees that would be payable to the Manager and its Affiliates under the NASAA Fee Limitation.
Upon completion of the offering of Units, final commitment of offering proceeds to acquisition of equipment and establishment of final levels of permanent portfolio debt, the Manager will calculate the maximum carried interest and promotional interest payable to the Manager and its Affiliates under the NASAA Fee Limitation and compare such total permitted fees to the total of the Asset Management Fee and Managers Carried Interest. If and to the extent that the Asset Management Fee and Managers Carried Interest would exceed the fees calculated under the NASAA Fee Limitation, the fees payable to the Manager and its Affiliates will be reduced by an amount sufficient to cause the total of such compensation to comply with the NASAA Fee Limitation. The adjusted Asset Management Fee Limit will then be applied to the Asset Management Fee and Carried Interest as described above. A comparison of the Front End Fees actually paid by the Fund and the NASAA Fee Limitation maximums will be repeated, and any required adjustments will be made, at least annually thereafter.
See Note 6 to the financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data, for amounts paid.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Security Ownership of Certain Beneficial Owners
At December 31, 2009, no investor is known to hold beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The parent of ATEL Associates 12, LLC is the beneficial owner of Limited Liability Company Units as follows:
(1) | (2) | (3) | (4) | |||
Title of Class |
Name and Address of Beneficial Owner |
Amount and Nature of Beneficial Ownership |
Percent of Class | |||
Limited Liability Company Units | ATEL Capital Group 600 California Street, 6th Floor San Francisco, CA 94108 |
Initial Limited Liability Company Units 50 Units ($500) | 0.0003% |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
See Item 8 of this report under the caption Financial Statements and Supplementary Data - Notes to Financial Statements - Related party transactions at Note 6 thereof.
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Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
During the years ended December 31, 2009 and 2008, the Company incurred audit, audit related and other fees with its principal auditors as follows (in thousands):
2009 | 2008 | |||||
Audit fees |
$ | 55 | $ | 27 | ||
Other fees |
2 | 1 | ||||
$ | 57 | $ | 28 | |||
Audit fees consist of the aggregate fees and expenses billed in connection with the audit of the Companys annual financial statements and the review of the financial statements included in the Companys quarterly reports on Form 10-Q.
Other fees represent costs incurred in connection with various Agreed-Upon Procedures engagements.
The board of directors of the Managing Member acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief Financial Officer of the Managing Member acting on behalf of the board of directors of the Managing Member in its role as the audit committee of the Company.
PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | Financial Statements and Schedules |
1. | Financial Statements |
Included in Part II of this report: |
Report of Independent Registered Public Accounting Firm
Balance Sheets at December 31, 2009 and 2008
Statements of Operations for the years ended December 31, 2009 and 2008
Statements of Changes in Members Capital for the years ended December 31, 2009 and 2008
Statements of Cash Flows for the years ended December 31, 2009 and 2008
Notes to Financial Statements
2. | Financial Statement Schedules |
All 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 inapplicable and, therefore, have been omitted. |
(b) | Exhibits |
(3) and (4) Amended and Restated Limited Liability Company Operating Agreement, included as exhibit B to the Prospectus effective September 26, 2007 as filed on October 2, 2007 (File Number 333-142034) is hereby incorporated herein by reference |
(14.1) Code of Ethics
(31.1) Certification of Dean L. Cash pursuant to Rules 13a-14(a)/15d-14(a)
(31.2) Certification of Paritosh K. Choksi pursuant to Rules 13a-14(a)/15d-14(a)
(32.1) Certification of Dean L. Cash pursuant to 18 U.S.C. section 1350
(32.2) Certification of Paritosh K. Choksi pursuant to 18 U.S.C. section 1350
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 26, 2010
ATEL 12, LLC (Registrant) |
By: | ATEL Associates 12, LLC | |||||||
Managing Member of Registrant |
By: | /s/ Dean L. Cash | |
Dean L. Cash, | ||
Chairman of the Board, President and Chief Executive Officer of ATEL Associates 12, LLC, (Managing Member) | ||
By: | /s/ Paritosh K. Choksi | |
Paritosh K. Choksi, | ||
Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Associates 12, LLC (Managing Member) | ||
By: | /s/ Samuel Schussler | |
Samuel Schussler, | ||
Vice President and Chief Accounting Officer of ATEL Associates 12, LLC (Managing Member) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons in the capacities and on the dates indicated.
SIGNATURE |
CAPACITIES |
DATE | ||
/s/ Dean L. Cash Dean L. Cash |
Chairman of the Board, President and Chief Executive Officer of ATEL Associates 12, LLC, (Managing Member) |
March 26, 2010 | ||
/s/ Paritosh K. Choksi Paritosh K. Choksi |
Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Associates 12, LLC (Managing Member) | March 26, 2010 | ||
/s/ Samuel Schussler Samuel Schussler |
Vice President and Chief Accounting Officer of ATEL Associates 12, LLC (Managing Member) | March 26, 2010 |
No proxy materials have been or will be sent to security holders. An annual report will be furnished to security holders subsequent to the filing of this report on Form 10-K, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders.
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