Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - ATEL 12, LLC | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - ATEL 12, LLC | v228402_ex32x1.htm |
EX-31.2 - EXHIBIT 31.2 - ATEL 12, LLC | v228402_ex31x2.htm |
EX-32.2 - EXHIBIT 32.2 - ATEL 12, LLC | v228402_ex32x2.htm |
EX-31.1 - EXHIBIT 31.1 - ATEL 12, LLC | v228402_ex31x1.htm |
Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended June 30, 2011
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to
Commission File number 000-53618
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 a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of Limited Liability Company Units outstanding as of July 31, 2011 was 2,999,482.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL 12, LLC
Index
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
ATEL 12, LLC
BALANCE SHEETS
JUNE 30, 2011 AND DECEMBER 31, 2010
(in thousands)
(Unaudited)
June 30, 2011 |
December 31, 2010 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 1,145 | $ | 4,765 | ||||
Due from affiliate | 151 | | ||||||
Accounts receivable, net of allowance for doubtful accounts of $37 at June 30, 2011 and $20 at December 31, 2010 | 125 | 111 | ||||||
Notes receivable, net of unearned interest income of $216 and allowance for credit losses of $500 at June 30, 2011 and net of unearned interest income of $360 and allowance for credit losses of $500 at December 31, 2010 | 1,109 | 1,571 | ||||||
Investment in securities | 179 | 167 | ||||||
Investments in equipment and leases, net of accumulated depreciation of $7,462 at June 30, 2011 and $6,683 at December 31, 2010 | 16,276 | 15,184 | ||||||
Prepaid expenses and other assets | 11 | 16 | ||||||
Total assets | $ | 18,996 | $ | 21,814 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Managing Member | $ | 20 | $ | 19 | ||||
Affiliates | | 160 | ||||||
Accrued distributions to Other Members | 230 | 230 | ||||||
Other | 101 | 667 | ||||||
Non-recourse debt | 3,262 | 3,734 | ||||||
Unearned operating lease income | 102 | 119 | ||||||
Total liabilities | 3,715 | 4,929 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Managing Member | | | ||||||
Other Members | 15,281 | 16,885 | ||||||
Total Members capital | 15,281 | 16,885 | ||||||
Total liabilities and Members capital | $ | 18,996 | $ | 21,814 |
See accompanying notes.
3
ATEL 12, LLC
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2011 AND 2010
(in thousands except for units and per unit data)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Operating leases | $ | 1,189 | $ | 994 | $ | 2,384 | $ | 1,989 | ||||||||
Direct financing leases | 45 | 1 | 68 | 3 | ||||||||||||
Interest on notes receivable | 36 | 14 | 82 | 40 | ||||||||||||
(Loss) gain on sales of lease assets and early termination of notes | (13 | ) | | 3 | | |||||||||||
Gain on sales or dispositions of securities | 17 | | 17 | | ||||||||||||
Other | 4 | 5 | 6 | 10 | ||||||||||||
Total revenues | 1,278 | 1,014 | 2,560 | 2,042 | ||||||||||||
Expenses: |
||||||||||||||||
Depreciation of operating lease assets | 949 | 852 | 1,916 | 1,703 | ||||||||||||
Asset management fees to Managing Member | 61 | 43 | 124 | 88 | ||||||||||||
Acquisition expense | 22 | | 170 | | ||||||||||||
Cost reimbursements to Managing Member and affiliates | 96 | 110 | 190 | 224 | ||||||||||||
Provision for credit losses | 20 | 12 | 17 | 109 | ||||||||||||
Provision for losses on investment in securities | 5 | | 5 | | ||||||||||||
Amortization of initial direct costs | 19 | 20 | 39 | 41 | ||||||||||||
Interest expense | 51 | 17 | 111 | 37 | ||||||||||||
Professional fees | 15 | 38 | 64 | 94 | ||||||||||||
Outside services | 4 | 26 | 17 | 35 | ||||||||||||
Other | 26 | 24 | 51 | 45 | ||||||||||||
Total operating expenses | 1,268 | 1,142 | 2,704 | 2,376 | ||||||||||||
Net income (loss) | $ | 10 | $ | (128 | ) | $ | (144 | ) | $ | (334 | ) | |||||
Net income (loss): |
||||||||||||||||
Managing Member | $ | 55 | $ | 55 | $ | 110 | $ | 110 | ||||||||
Other Members | (45 | ) | (183 | ) | (254 | ) | (444 | ) | ||||||||
$ | 10 | $ | (128 | ) | $ | (144 | ) | $ | (334 | ) | ||||||
Net loss per Limited Liability Company Unit (Other Members) | $ | (0.02 | ) | $ | (0.06 | ) | $ | (0.08 | ) | $ | (0.15 | ) | ||||
Weighted average number of Units outstanding | 2,999,482 | 2,999,482 | 2,999,482 | 2,999,482 |
See accompanying notes.
4
ATEL 12, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2010
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2011
(in thousands except for units and per unit data)
(Unaudited)
Other Members | Managing Member |
Total | ||||||||||||||
Units | Amount | |||||||||||||||
Balance December 31, 2009 | 2,999,482 | $ | 20,949 | $ | | $ | 20,949 | |||||||||
Distributions to Other Members ($0.90 per Unit) | | (2,699 | ) | | (2,699 | ) | ||||||||||
Distributions to Managing Member | | | (219 | ) | (219 | ) | ||||||||||
Net (loss) income | | (1,365 | ) | 219 | (1,146 | ) | ||||||||||
Balance December 31, 2010 | 2,999,482 | 16,885 | | 16,885 | ||||||||||||
Distributions to Other Members ($0.45 per Unit) | | (1,350 | ) | | (1,350 | ) | ||||||||||
Distributions to Managing Member | | | (110 | ) | (110 | ) | ||||||||||
Net (loss) income | | (254 | ) | 110 | (144 | ) | ||||||||||
Balance June 30, 2011 | 2,999,482 | $ | 15,281 | $ | | $ | 15,281 |
See accompanying notes.
5
ATEL 12, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2011 AND 2010
(in thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating activities: |
||||||||||||||||
Net income (loss) | $ | 10 | $ | (128 | ) | $ | (144 | ) | $ | (334 | ) | |||||
Adjustment to reconcile net income (loss) to cash provided by operating activities: |
||||||||||||||||
Loss (gain) on sales of lease assets and early termination of notes | 13 | | (3 | ) | | |||||||||||
Depreciation of operating lease assets | 949 | 852 | 1,916 | 1,703 | ||||||||||||
Amortization of initial direct costs | 19 | 20 | 39 | 41 | ||||||||||||
Provision for credit losses | 20 | 12 | 17 | 109 | ||||||||||||
Provision for losses on investment in securities | 5 | | 5 | | ||||||||||||
Gain on sales or dispositions of securities | (17 | ) | | (17 | ) | | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable | 4 | 5 | (31 | ) | 86 | |||||||||||
Prepaid expenses and other assets | 5 | 6 | 5 | 7 | ||||||||||||
Accounts payable, Managing Member | (6 | ) | 2 | 1 | | |||||||||||
Accounts payable, other | 24 | (9 | ) | (566 | ) | (51 | ) | |||||||||
Accrued liabilities, affiliates | (281 | ) | (12 | ) | (311 | ) | 158 | |||||||||
Unearned operating lease income | (15 | ) | 15 | (17 | ) | (67 | ) | |||||||||
Net cash provided by operating activities | 730 | 763 | 894 | 1,652 | ||||||||||||
Investing activities: |
||||||||||||||||
Purchases of equipment on operating leases | (1,931 | ) | | (3,172 | ) | | ||||||||||
Purchase of securities | | (2 | ) | | (15 | ) | ||||||||||
Proceeds from sales of lease assets and early termination of notes | 70 | | 267 | | ||||||||||||
Payments of initial direct costs | (2 | ) | | (31 | ) | (1 | ) | |||||||||
Principal payments received on direct financing leases | 53 | 5 | 122 | 10 | ||||||||||||
Principal payments received on notes receivable | 112 | 78 | 232 | 164 | ||||||||||||
Net cash (used in) provided by investing activities | (1,698 | ) | 81 | (2,582 | ) | 158 | ||||||||||
Financing activities: |
||||||||||||||||
Repayments under non-recourse debt | (235 | ) | | (472 | ) | | ||||||||||
Borrowings under acquisition facility | | | 632 | | ||||||||||||
Repayments under acquisition facility | | | (632 | ) | | |||||||||||
Repayment of amount due from affiliate | | | | 1,670 | ||||||||||||
Distributions to Other Members | (675 | ) | (675 | ) | (1,350 | ) | (1,350 | ) | ||||||||
Distributions to Managing Member | (55 | ) | (55 | ) | (110 | ) | (110 | ) | ||||||||
Net cash (used in) provided by financing activities | (965 | ) | (730 | ) | (1,932 | ) | 210 | |||||||||
Net (decrease) increase in cash and cash equivalents | (1,933 | ) | 114 | (3,620 | ) | 2,020 | ||||||||||
Cash and cash equivalents at beginning of period | 3,078 | 5,882 | 4,765 | 3,976 | ||||||||||||
Cash and cash equivalents at end of period | $ | 1,145 | $ | 5,996 | $ | 1,145 | $ | 5,996 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid during the period for interest | $ | 52 | $ | 17 | $ | 107 | $ | 37 | ||||||||
Cash paid during the period for taxes | $ | 11 | $ | 9 | $ | 11 | $ | 9 | ||||||||
Schedule of non-cash transactions: |
||||||||||||||||
Distributions payable to Other Members at period-end | $ | 230 | $ | 230 | $ | 230 | $ | 230 | ||||||||
Distributions payable to Managing Member at period-end | $ | 19 | $ | 19 | $ | 19 | $ | 19 | ||||||||
Securities acquired through net exercise of warrants | $ | 17 | $ | | $ | 17 | $ | |
See accompanying notes.
6
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 or Manager), 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. 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 June 30, 2011, cumulative contributions, net of rescissions and/or redemptions, 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 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 Unitholders, any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units) 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.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported financial position or results from operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
7
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after June 30, 2011 up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, and adjustments thereto.
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 for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.
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 primary geographic regions in which the Company sought leasing opportunities were North America and Europe. For the six months ended June 30, 2011 and 2010, and as of June 30, 2011 and December 31, 2010, 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. At June 30, 2011, the Company deemed an investment security to be impaired and recorded a fair value adjustment of $5 thousand which reduced the cost basis of the investment. At December 31, 2010, such fair value adjustments made to impaired securities totaled $356 thousand.
Warrants
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 June 30, 2011 and December 31, 2010, the Managing Member estimated the fair value of the warrants to be nominal in amount. During the second quarter of 2011, the Company recognized a gain of $17 thousand relative to the net exercise of warrants associated with shares of a venture company.
Per Unit data:
Net loss and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
8
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Recent accounting pronouncements:
In May 2011, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) (collectively the Boards) issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in US GAAP. ASU 2011-04 is effective for the first reporting annual period beginning after December 15, 2011 and shall be applied prospectively. The Company anticipates that adoption of this update will not have a material impact on its financial position or results of operations.
In April 2011, the FASB issued ASU No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies guidance on a creditors evaluation of whether it has granted a concession to a borrower and a creditors evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The Company anticipates that adoption of this update will not have a material impact on its financial position or results of operations.
In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. The guidance will be effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.
3. Notes receivable, net:
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At June 30, 2011, the original terms of the notes receivable are between 17 and 36 months and bear interest at rates ranging from 11% to 18%. The notes are generally secured by the equipment financed. The notes mature from 2011 through 2014.
At December 31, 2010, the Company had a $500 thousand reserve related to an impaired note receivable. Such reserve reduced the net book value of the investment to zero at December 31, 2010 and thus, at June 30, 2011. In addition to the fully reserved note, three notes with a combined net book value of $196 thousand were on non-accrual status at December 31, 2010 and were considered impaired relative to their payment terms. Of these non-accrual status notes, a note for $145 thousand was restructured pursuant to a forbearance agreement at graduated default interest-only payment terms followed by a balloon payment of unpaid principal scheduled for October 2011. The default interest rates increase starts at 12.50% and graduate up to 18.00%. The two remaining non-accrual notes, for $51 thousand, were modified to defer the repayment of principal until April 2012 while maintaining interest-only payments at their original rates of 11.58% and 11.78%, respectively. As of June 30, 2011, the aforementioned notes continue in non-accrual status and reflect principal balances outstanding of $132 thousand and $48 thousand, respectively. However, as of the same date, such notes were current with respect to their restructured terms. Management has determined that no valuation adjustment is necessary as of the same dates and is vigilant in taking appropriate steps to ensure collection of the outstanding non-accrual balances.
9
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
3. Notes receivable, net: - (continued)
As of June 30, 2011, the minimum future payments receivable are as follows (in thousands):
Six months ending December 31, 2011 | $ | 943 | ||
Year ending December 31, 2012 | 536 | |||
2013 | 326 | |||
2014 | 9 | |||
1,814 | ||||
Less: portion representing unearned interest income | (216 | ) | ||
1,598 | ||||
Unamortized initial direct costs | 11 | |||
Less: Reserve for impairment | (500 | ) | ||
Notes receivable, net | $ | 1,109 |
Initial direct costs (IDC) amortization expense related to notes receivable and the Companys operating and direct financing leases for the three and six months ended June 30, 2011 and 2010 are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
IDC amortization notes receivable | $ | 3 | $ | 1 | $ | 6 | $ | 3 | ||||||||
IDC amortization lease assets | 16 | 19 | 33 | 38 | ||||||||||||
Total | $ | 19 | $ | 20 | $ | 39 | $ | 41 |
4. Provision for credit losses:
The Companys provision for credit losses are as follows (in thousands):
Accounts Receivable Allowance for Doubtful Accounts |
Valuation Adjustments on Financing Receivables | Total Allowance for Credit Losses |
||||||||||||||||||||||
Notes Receivable |
Finance Leases |
Operating Leases |
Notes Receivable |
Finance Leases |
||||||||||||||||||||
Balance December 31, 2009 | $ | | $ | | $ | 19 | $ | 375 | $ | | $ | 394 | ||||||||||||
Provision | | | 1 | 125 | | 126 | ||||||||||||||||||
Balance December 31, 2010 | | | 20 | 500 | | 520 | ||||||||||||||||||
Provision | | 3 | 14 | | | 17 | ||||||||||||||||||
Balance June 30, 2011 | $ | | $ | 3 | $ | 34 | $ | 500 | $ | | $ | 537 |
Accounts Receivable
Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon managements judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.
10
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
4. Provision for credit losses: - (continued)
Financing Receivables
In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the 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.
The Companys allowance for credit losses (related solely to financing receivables) and its recorded net investment in financing receivables as of June 30, 2011 and December 31, 2010 were as follows (in thousands):
June 30, 2011 | Notes Receivable |
Finance Leases |
Total | |||||||||
Allowance for credit losses: |
||||||||||||
Ending balance | $ | 500 | $ | | $ | 500 | ||||||
Ending balance: individually evaluated for impairment | $ | 500 | $ | | $ | 500 | ||||||
Ending balance: collectively evaluated for impairment | $ | | $ | | $ | | ||||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | $ | | ||||||
Financing receivables, net: |
||||||||||||
Ending balance | $ | 1,6091 | $ | 434 | $ | 2,043 | ||||||
Ending balance: individually evaluated for impairment | $ | 1,609 | $ | 434 | $ | 2,043 | ||||||
Ending balance: collectively evaluated for impairment | $ | | $ | | $ | | ||||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | $ | |
1 | Includes $11 of unamortized initial direct costs. |
11
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
4. Provision for credit losses: - (continued)
December 31, 2010 | Notes Receivable |
Finance Leases |
Total | |||||||||
Allowance for credit losses: |
||||||||||||
Ending balance | $ | 500 | $ | | $ | 500 | ||||||
Ending balance: individually evaluated for impairment | $ | 500 | $ | | $ | 500 | ||||||
Ending balance: collectively evaluated for impairment | $ | | $ | | $ | | ||||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | $ | | ||||||
Financing receivables, net: |
||||||||||||
Ending balance | $ | 2,0712 | $ | 58 | $ | 2,129 | ||||||
Ending balance: individually evaluated for impairment | $ | 2,071 | $ | 58 | $ | 2,129 | ||||||
Ending balance: collectively evaluated for impairment | $ | | $ | | $ | | ||||||
Ending balance: loans acquired with deteriorated credit quality | $ | | $ | | $ | |
2 | Includes $11 of unamortized initial direct costs. |
The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date.
Substandard Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List.
Doubtful Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
At June 30, 2011 and December 31, 2010, the Companys financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes IDC) (in thousands):
Notes Receivable | Finance Leases | |||||||||||||||
June 30, 2011 | December 31, 2010 | June 30, 2011 | December 31, 2010 | |||||||||||||
Pass | $ | 808 | $ | 1,415 | $ | 434 | $ | 58 | ||||||||
Special mention | 159 | | | | ||||||||||||
Substandard | 131 | 145 | | | ||||||||||||
Doubtful | 500 | 500 | | | ||||||||||||
Total | $ | 1,598 | $ | 2,060 | $ | 434 | $ | 58 |
12
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
4. Provision for credit losses: - (continued)
As of June 30, 2011 and December 31, 2010, the Companys impaired loans were as follows (in thousands):
Impaired Loans | ||||||||||||||||||||
June 30, 2011 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 500 | 500 | 500 | 500 | | |||||||||||||||
Total | $ | 500 | $ | 500 | $ | 500 | $ | 500 | $ | |
Impaired Loans | ||||||||||||||||||||
December 31, 2010 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 500 | 500 | 500 | 500 | 5 | |||||||||||||||
Total | $ | 500 | $ | 500 | $ | 500 | $ | 500 | $ | 5 |
At June 30, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):
June 30, 2011 | 30 59 Days Past Due |
60 89 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 1,098 | $ | 1,098 | $ | | ||||||||||||||
Finance leases | 172 | 60 | 232 | 202 | 434 | 60 | ||||||||||||||||||||||
Total | $ | | $ | 172 | $ | 60 | $ | 232 | $ | 1,300 | $ | 1,532 | $ | 60 |
December 31, 2010 | 30 59 Days Past Due |
60 89 wDays Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment>90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 1,560 | $ | 1,560 | $ | | ||||||||||||||
Finance leases | 22 | | | 22 | 36 | 58 | | |||||||||||||||||||||
Total | $ | 22 | $ | | $ | | $ | 22 | $ | 1,596 | $ | 1,618 | $ | |
In addition to the fully reserved impaired note receivable discussed in Note 3, there were three other notes in non-accrual status as of June 30, 2011 and December 31, 2010. Such notes were considered impaired relative to their payment terms; however, as of the same dates, such notes were current with respect to their restructured terms. Management has determined that no valuation adjustment is currently necessary. At June 30, 2011, certain net investments in financing receivables with related accounts receivable past due more than 90 days are still on an accrual basis based on managements assessment of the collectability of such receivables. However, these accounts receivable are fully reserved and included in the allowance for doubtful accounts presented above. There were no accounts receivable related to net investments in financing receivables placed in non-accrual status as of December 31, 2010.
13
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
5. Investments in equipment and leases, net:
The Companys investment in leases consists of the following (in thousands):
Balance December 31, 2010 |
Reclassifications & Additions/ Dispositions |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance June 30, 2011 |
|||||||||||||
Net investment in operating leases | $ | 14,956 | $ | 2,674 | $ | (1,913 | ) | $ | 15,717 | |||||||
Net investment in direct financing leases | 58 | 498 | (122 | ) | 434 | |||||||||||
Assets held for sale or lease, net | 37 | (34 | ) | (3 | ) | | ||||||||||
Initial direct costs, net of accumulated amortization of $140 at June 30, 2011 and $118 at December 31, 2010 | 133 | 25 | (33 | ) | 125 | |||||||||||
Total | $ | 15,184 | $ | 3,163 | $ | (2,071 | ) | $ | 16,276 |
Impairment of investments in leases:
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 the three and six months ended June 30, 2011 and 2010.
The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. Depreciation expense on the Companys equipment totaled $949 thousand and $852 thousand for the respective three months ended June 30, 2011 and 2010, and $1.9 million and $1.7 million for the respective six months ended June 30, 2011 and 2010.
All of the Companys leased property was acquired in the years 2008 through 2011.
Operating leases:
Property on operating leases consists of the following (in thousands):
Balance December 31, 2010 |
Additions | Reclassifications or Dispositions |
Balance June 30, 2011 |
|||||||||||||
Materials handling | $ | 7,030 | $ | 653 | $ | (825 | ) | $ | 6,858 | |||||||
Transportation | 2,416 | 2,519 | | 4,935 | ||||||||||||
Research | 3,796 | | (708 | ) | 3,088 | |||||||||||
Construction | 2,989 | | | 2,989 | ||||||||||||
Mining | 2,893 | | | 2,893 | ||||||||||||
Aviation | 2,167 | | | 2,167 | ||||||||||||
Manufacturing | 249 | | | 249 | ||||||||||||
Cleaning & Maintenance | 79 | | (79 | ) | | |||||||||||
21,619 | 3,172 | (1,612 | ) | 23,179 | ||||||||||||
Less accumulated depreciation | (6,663 | ) | (1,913 | ) | 1,114 | (7,462 | ) | |||||||||
Total | $ | 14,956 | $ | 1,259 | $ | (498 | ) | $ | 15,717 |
The average estimated residual value for assets on operating leases was 28% and 25% of the assets original cost at June 30, 2011 and December 31, 2010, respectively.
14
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
5. Investments in equipment and leases, net: - (continued)
Direct financing leases:
As of June 30, 2011, investment in direct financing leases consists of research equipment, cleaning services and materials handling equipment such as sweepers, forklifts and lift trucks. The following lists the components of the Companys investment in direct financing leases as of June 30, 2011 and December 31, 2010 (in thousands):
June 30, 2011 |
December 31, 2010 |
|||||||
Total minimum lease payments receivable | $ | 523 | $ | 55 | ||||
Estimated residual values of leased equipment (unguaranteed) | 56 | 8 | ||||||
Investment in direct financing leases | 579 | 63 | ||||||
Less unearned income | (145 | ) | (5 | ) | ||||
Net investment in direct financing leases | $ | 434 | $ | 58 |
There were no investments in direct financing leases in non-accrual status at June 30, 2011 and December 31, 2010.
At June 30, 2011, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):
Operating Leases |
Direct Financing Leases |
Total | ||||||||||
Six months ending December 31, 2011 | $ | 2,280 | $ | 189 | $ | 2,469 | ||||||
Year ending December 31, 2012 | 3,451 | 297 | 3,748 | |||||||||
2013 | 2,528 | 37 | 2,565 | |||||||||
2014 | 2,027 | | 2,027 | |||||||||
2015 | 752 | | 752 | |||||||||
2016 | 471 | | 471 | |||||||||
Thereafter | 580 | | 580 | |||||||||
$ | 12,089 | $ | 523 | $ | 12,612 |
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, communications 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 managed 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.
15
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
6. Related party transactions: - (continued)
During the three and six months ended June 30, 2011 and 2010, the Managing Member and/or affiliates earned commissions and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Administrative costs reimbursed to Managing Member and/or affiliates | $ | 96 | $ | 110 | $ | 190 | $ | 224 | ||||||||
Asset management fees to Managing Member and/or affiliates | 61 | 43 | 124 | 88 | ||||||||||||
Acquisition and initial direct costs paid to Managing Member and/or affiliates | 23 | | 196 | | ||||||||||||
$ | 180 | $ | 153 | $ | 510 | $ | 312 |
7. Non-recourse debt:
At June 30, 2011, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 4.11% to 4.40% per annum. The notes are secured by assignments of lease payments and pledges of assets. At June 30, 2011, gross lease rentals totaled approximately $3.5 million over the remaining lease terms; and the carrying value of the pledged assets is approximately $4.3 million. The notes all mature in 2014.
The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties' signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company's good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.
Future minimum payments of non-recourse debt are as follows (in thousands):
Principal | Interest | Total | ||||||||||
Six months ending December 31, 2011 | $ | 478 | $ | 66 | $ | 544 | ||||||
Year ending December 31, 2012 | 987 | 100 | 1,087 | |||||||||
2013 | 1,030 | 57 | 1,087 | |||||||||
2014 | 767 | 13 | 780 | |||||||||
$ | 3,262 | $ | 236 | $ | 3,498 |
16
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 and expires in June 2012. 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.
As of June 30, 2011 and December 31, 2010, borrowings under the facility were as follows (in thousands):
June 30, 2011 |
December 31, 2010 |
|||||||
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 | | (5,345 | ) | |||||
Total remaining available under the working capital, acquisition and warehouse facilities | $ | 75,000 | $ | 69,655 |
The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of June 30, 2011, 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 June 30, 2011, 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 $15.3 million, 0.21 to 1, and 20.70 to 1, respectively, as of June 30, 2011. As such, as of June 30, 2011, the Company was 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.
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. There were no borrowings outstanding at December 31, 2010. During the first quarter of 2011, the Company borrowed $632 thousand, of which the whole amount was repaid during the same quarter. The year-to-date weighted average rate on such borrowings was 3.27%.
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
17
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
8. Borrowing facilities: - (continued)
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 June 30, 2011, the investment program participants were ATEL Capital Equipment Fund X, LLC, ATEL Capital Equipment Fund XI, LLC, the Company, and ATEL 14, LLC. 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.
As of June 30, 2011, there were no borrowings under the Warehouse Facility. At December 31, 2010, borrowings of $4.8 million were outstanding under such facility. The Companys maximum contingent obligation on the outstanding warehouse balance at December 31, 2010 was approximately $1.1 million.
9. Commitments:
At June 30, 2011, there were commitments to purchase lease assets and fund investments in notes receivable totaling approximately $1.9 million and $1.4 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
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.
11. Members capital:
A total of 2,999,482 Units were issued and outstanding as of June 30, 2011 and December 31, 2010, 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 Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled.
18
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
11. Members capital: - (continued)
Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
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 were as follows (in thousands, except as to Units and per Unit data):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Distributions | $ | 675 | $ | 675 | $ | 1,350 | $ | 1,350 | ||||||||
Weighted average number of Units outstanding | 2,999,482 | 2,999,482 | 2,999,482 | 2,999,482 | ||||||||||||
Weighted average distributions per Unit | $ | 0.23 | $ | 0.23 | $ | 0.45 | $ | 0.45 |
12. Fair value measurements:
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability.
At June 30, 2011 and December 31, 2010, the Company had no assets or liabilities that require measurement at fair value on a recurring basis. However, at both June 30, 2011 and December 31, 2010, the Company measured an impaired investment security at fair value on a non-recurring basis. Such estimate of measurement methodology is as follows:
Impaired investment 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. At June 30, 2011, the Company deemed an investment security to be impaired and recorded a fair value adjustment of $5 thousand which reduced the cost basis of the investment. The non-recurring fair value adjustment was based on an approximate 25% reduction in valuation based on the expected value of shares of the venture company as contemplated in its merger agreement terms. At December 31, 2010, a fair value adjustment of approximately $356 thousand was recorded relative to an impaired security based on an approximate 79% reduction in valuation as determined by investee cash burn and potential for additional venture investors. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of these impaired investment securities are classified within Level 3 of the valuation hierarchy due to the significant inputs that are unobservable in the market.
19
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
12. Fair value measurements: - (continued)
The following table presents the fair value measurement of the impaired investment security measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at June 30, 2011 and December 31, 2010 (in thousands):
June 30, 2011 | Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
|||||||||||||
Impaired investment securities | $ | 109 | $ | | $ | | $ | 109 |
December 31, 2010 | Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
|||||||||||||
Impaired investment securities | $ | 94 | $ | | $ | | $ | 94 |
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. 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.
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.
Notes receivable
The fair value of the Companys notes receivable is estimated using discounted cash flow analyses, based upon current market rates for similar types of lending arrangements.
Investment in securities
The Companys investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.
Non-recourse debt
The fair value of the Companys non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.
Commitments and Contingencies
Management has determined that no recognition for the fair value of the Companys loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Companys credit requirements at the time of funding.
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.
20
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
12. Fair value measurements: - (continued)
Limitations
The fair value estimates presented herein were based on pertinent information available to the Company as of June 30, 2011 and December 31, 2010. 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 June 30, 2011 and December 31, 2010 (in thousands):
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying Amount |
Estimated Fair Value |
Carrying Amount |
Estimated Fair Value |
|||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents | $ | 1,145 | $ | 1,145 | $ | 4,765 | $ | 4,765 | ||||||||
Notes receivable | 1,109 | 1,109 | 1,571 | 1,571 | ||||||||||||
Investment in securities | 179 | 179 | 167 | 167 | ||||||||||||
Financial liabilities: |
||||||||||||||||
Non-recourse debt | 3,262 | 3,279 | 3,734 | 3,733 |
21
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, 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 market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL 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. 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.
During 2009, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), the Company has utilized its credit facilities and reinvested cash flow in excess of certain amounts required to be distributed to the Other Members to acquire additional equipment and/or to fund financing transactions. 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.
Results of Operations
The three months ended June 30, 2011 versus the three months ended June 30, 2010
The Company had net income of $10 thousand for the second quarter of 2011 as compared to a net loss of $128 thousand for the second quarter of 2010. Results for the second quarter of 2011 reflect an increase in total revenues offset, in part, by an increase in total operating expenses.
Revenues
Total second quarter 2011 revenues increased by $264 thousand as compared to the prior year period. The increase was primarily due to higher lease revenues from both operating and direct financing leases and increases in interest income on notes receivables and in gain on sales or dispositions of securities offset, in part, by a loss on the sale of lease assets and early termination of notes.
Operating lease revenues increased by $195 thousand primarily due to income derived from $7.6 million of lease assets acquired since the third quarter of 2010. Direct financing lease revenues increased by $44 thousand as certain equipment under operating leases were re-leased as direct financing leases during the first half of 2011. Interest income
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on notes receivable increased by $22 thousand due to revenues derived from $1.3 million of loans funded during the second half of 2010; and, gain on sales or dispositions of securities increased by $17 thousand due to a gain recognized on the second quarter 2011 net exercise of warrants associated with shares of a venture company.
Partially offsetting the aforementioned increases in revenues was a $13 thousand dollar net loss recognized on the sale of lease assets and early termination of notes. Such loss was largely due to the continued weak economy which impacted demand for the materials handling equipment sold during the period. There were no sales or dispositions of assets during the prior year period.
Expenses
Total expenses for the second quarter of 2011 increased by $126 thousand as compared to the prior year period, primarily due to higher depreciation, interest and acquisition expenses offset, in part, by lower professional fees and outside services expense.
The increase in depreciation expense totaled $97 thousand and was largely due to the increment of approximately $1.9 million of equipment purchases during the second quarter of 2011 and $5.7 million of equipment purchases during the nine months following the second quarter of 2010. Interest expense was higher by $34 thousand largely as a result of new non-recourse debt associated with the acquisition of certain operating lease assets during the second half of 2010; and, acquisition expense was higher by $22 thousand due to the period over period increase in acquisition activity.
Partially offsetting the aforementioned increases in expenses were reductions in professional fees and outside services expense totaling $23 thousand and $22 thousand, respectively. Professional fees decreased primarily due to lower audit related fees; and, outside services expense declined largely as a result of lower business development costs.
The six months ended June 30, 2011 versus the six months ended June 30, 2010
The Company had net losses of $144 thousand and $334 thousand for the first half of 2011 and 2010, respectively. Results for the first half of 2011 reflect an increase in total revenues offset, in part, by an increase in total operating expenses.
Revenues
Total revenues for the first half of 2011 increased by $518 thousand compared to the prior year period. The increase was primarily due to higher lease revenues from both operating and direct financing leases and increases in interest income on notes receivables and in gain on sales or dispositions of securities.
Operating lease revenues increased by $395 thousand primarily due to income derived from $7.6 million of lease assets acquired since the third quarter of 2010. Direct financing lease revenues increased by $65 thousand as certain equipment under operating leases were re-leased as direct financing leases during the first half of 2011. Interest income on notes receivable increased by $42 thousand due to revenues derived from $1.3 million of loans funded during the second half of 2010; and, gain on sales or dispositions of securities increased by $17 thousand due to a gain recognized on the 2011 net exercise of warrants associated with shares of a venture company.
Expenses
Total expenses for the first half of 2011 increased by $328 thousand as compared to the prior year period, primarily due to increases in depreciation, acquisition and interest expenses, and in asset management fees paid to the Manager partially offset by a reduction in the provision for credit losses, and decreases in costs reimbursed to the Manager and/or affiliates, professional fees and outside services expense.
The increase in depreciation expense totaled $213 thousand and was largely due to the approximate $7.6 million period over period increase in the Companys lease asset portfolio. Acquisition expense was higher by $170 thousand due to the period over period increase in acquisition activity. An approximate $3.2 million of lease assets were acquired during the first half of 2011. By comparison, there were no lease assets purchased during the same period in 2010.
Moreover, interest expense increased by $74 thousand mainly due to new non-recourse debt originally obtained during the second half of 2010 to fund the acquisition of certain operating lease assets; and, asset management fees paid to the Manager was higher by $36 thousand largely due to the increase in managed assets and related rents resulting from lease asset purchases.
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Partially offsetting the aforementioned increases in expenses was a $92 thousand reduction in the provision for credit losses, a combined $48 thousand decrease in professional fees and outside services expense, and a $34 thousand decline in costs reimbursed to the Manager and /or affiliates.
The decrease in the provision for credit losses was primarily due to a 2010 reserve relative to an impaired note receivable. There was no such reserve recorded during the first half of 2011. Professional fees and outside services expense declined largely as a result of lower audit-related fees and business development expense. Finally, costs reimbursed to the Manager and/or affiliates declined primarily due to a refinement of allocation methodologies employed by the Managing Member to better allocate costs to the Company based upon its current operations.
Capital Resources and Liquidity
At June 30, 2011 and December 31, 2010, the Companys cash and cash equivalents totaled $1.1 million and $4.8 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The primary source of liquidity for the Company has been its cash flow from fixed-term leasing activities. As the lease terms expire, the Company will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Companys success in remarketing or selling the equipment as it comes off rental.
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 the Manager 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 believes it 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.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities | $ | 730 | $ | 763 | $ | 894 | $ | 1,652 | ||||||||
Investing activities | (1,698 | ) | 81 | (2,582 | ) | 158 | ||||||||||
Financing activities | (965 | ) | (730 | ) | (1,932 | ) | 210 | |||||||||
Net (decrease) increase in cash and cash equivalents | $ | (1,933 | ) | $ | 114 | $ | (3,620 | ) | $ | 2,020 |
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The three months ended June 30, 2011 versus the three months ended June 30, 2010
Operating Activities
Cash provided by operating activities during the second quarter of 2011 decreased by $33 thousand as compared to the prior year period, as the improvement in operating results was more than offset by an increase in payments made against liabilities due to affiliates, and a reduction in prepaid rents received. The Companys improved results were primarily due to the growth in revenues consistent with the period over period growth in revenue-earning assets.
Investing Activities
Cash used in investing activities for the second quarter of 2011 totaled $1.7 million as compared to cash provided by investing activities totaling $81 thousand for the second quarter of 2010, a $1.8 million decline. The net decrease in cash flow was mainly due to an approximate $1.9 million of cash used to acquire operating lease assets offset, in part, by $70 thousand of proceeds from an early termination of a note receivable, a $48 thousand increase in principal payments on direct financing leases and a $34 thousand increase in principal payments received on notes receivable. Principal payments on direct financing leases increased as certain equipment under an operating lease were re-leased as a direct financing lease during the first six months of 2011; and, principal payments on notes receivable increased as a result of new loans funded during the second half of 2010.
Financing Activities
Net cash used in financing activities during the second quarter of 2011 increased by $235 thousand as compared to the prior year period. The entire increase in cash used (decrease in cash flow) represents a pay down of the Companys non-recourse debt during the second quarter of 2011. Such scheduled payments on the non-recourse debt commenced during the second half of 2010.
The six months ended June 30, 2011 versus the six months ended June 30, 2010
Operating Activities
Cash provided by operating activities during the first half of 2011 decreased by $758 thousand as compared to the prior year period. The decrease in cash flow was largely due to an increase in payments made against liabilities related to equipment purchases and costs reimbursable to affiliates, coupled with an increase in accrued billings. These decreases were offset, in part, by improved operating results. The Companys improved operating results were primarily due to the growth in revenues consistent with the period over period growth in revenue-earning assets.
Investing Activities
Cash used in investing activities for the first half of 2011 totaled $2.6 million as compared to cash provided by investing activities totaling $158 thousand for the first half of 2010, a $2.7 million decline. The net reduction in cash flow was primarily a result of an approximate $3.2 million of cash used to acquire operating lease assets partially offset by $267 thousand of proceeds from an early termination of a note receivable and a combined $180 thousand increase in principal payments received on direct financing leases and notes receivable. Principal payments on direct financing leases increased as certain equipment under an operating lease were re-leased as a direct financing lease during the first six months of 2011; and, principal payments on notes receivable increased as a result of new loans funded during the second half of 2010.
Financing Activities
Net cash used in financing activities during the first half of 2011 totaled $1.9 million as compared to cash provided by financing activities totaling $210 thousand for the first half of 2010, a $2.1 million decrease.
Cash flow declined as the 2010 amount included a $1.7 million settlement of an amount due from an affiliate relative to a December 31, 2009 reassignment of a newly purchased asset. Moreover, an approximate $472 thousand was used to pay down the Companys non-recourse debt. As previously discussed, such scheduled payments on the non-recourse debt commenced during the second half of 2010.
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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 was in compliance with all covenants under the Credit Facility as of June 30, 2011. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.
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 be no less than the 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 June 30, 2011, 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 $15.3 million, 0.21 to 1, and 20.70 to 1, respectively, as of June 30, 2011. As such, as of June 30, 2011, the Company was 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.
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The following is a reconciliation of net loss to EBITDA for the six months ended June 30, 2011 (in thousands):
Net loss GAAP basis | $ | (144 | ) | |
Interest expense | 111 | |||
Depreciation and amortization | 1,916 | |||
Amortization of initial direct costs | 39 | |||
Provision for credit losses | 17 | |||
Provision for losses on investment in securities | 5 | |||
Principal payments received on direct financing leases | 122 | |||
Principal payments received on notes receivable | 232 | |||
EBITDA (for Credit Facility financial covenant calculation only) | $ | 2,298 |
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.
Non-Recourse Long-Term Debt
As of June 30, 2011 and December 31, 2010, the Company had non-recourse long-term debt totaling $3.3 million and $3.7 million, respectively. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.
For detailed information on the Companys debt obligations, see Notes 7 and 8 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).
Unit Valuation
There is no public market for Units and, in order to preserve the Companys status for federal income tax purposes, the Company will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.
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Nevertheless, in order to provide an estimated per Unit value for those Unitholders who seek valuation information, the Manager has calculated an estimated value per Unit as of June 30, 2011. The Manager estimates the Companys per Unit value by first estimating the aggregate net asset value of the Company. The valuation does not take into account any future business activity of the Company; rather it is a snapshot view of the Funds portfolio as of the valuation date.
The estimated values for non-interest bearing items such as any current assets and liabilities, as well as for any investment in securities, were assumed to equal their reported balances, which management believes approximate their fair values, as adjusted for impairment. The same was applied to loans incurred under the acquisition facility since they bear variable rates of interest.
A discounted cash flow approach was used to estimate the values of notes receivable, investments in leases, non-recourse debt and interest rate swaps. Under such approach, the value of a financial instrument was estimated by calculating the present value of the instruments expected cash flows. The present value was determined by discounting the cash flows the instrument is expected to generate by discount rates as deemed appropriate by the Manager. In most cases, the discount rates used were based on U.S. Treasury yields reported as of the reporting date, plus a spread to account for the credit risk difference between the instrument being valued and Treasury securities.
After calculating the aggregate estimated net asset value of the Company, the Manager then calculated the portion of the aggregate estimated value that would be distributed to Unitholders on liquidation of the Company, and divided the total that would be so distributable by the number of outstanding Units as of the June 30, 2011 valuation date. As of June 30, 2011, the value of the Companys assets, calculated on this basis, was approximately $7.27 per Unit.
The foregoing valuation was performed solely for the purpose of providing an estimated liquidation value per Unit for those Unitholders who seek valuation information. It is important to note again that there is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unitholder would receive if he were to seek to sell his Units. The Company will liquidate its assets in the ordinary course of its business and investment cycle. Furthermore, there can be no assurance as to when the Company will be fully liquidated, the amount the Company may actually receive if and when it seeks to liquidate its assets, the amount of lease payments and equipment disposition proceeds the Company will actually receive over the remaining term of the Company, or the amounts that may actually be received in distributions by Unitholders over the course of the Companys remaining term.
Distributions
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 June 30, 2011.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At June 30, 2011, the Company had commitments to purchase lease assets totaling approximately $1.9 million and to fund investments in notes receivable approximately $1.4 million (see Note 9, Commitments, as set forth in Part I, Item 1, Financial Statements (Unaudited)).
Off-Balance Sheet Transactions
None.
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 I, Item 1, Financial Statements (Unaudited).
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its
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estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Companys critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Companys critical accounting policies since December 31, 2010.
Item 4. 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, which 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 applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Changes in internal control
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2011 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 II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Members financial position or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. [Removed and Reserved].
Item 5. Other Information.
None.
Item 6. Exhibits.
Documents filed as a part of this report:
1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
2. | Other Exhibits |
31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash
31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 10, 2011
ATEL 12, LLC
(Registrant)
By: ATEL Associates 12, LLC |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
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