Attached files
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EX-32.1 - EXHIBIT 32.1 - ATEL 12, LLC | v498968_exh32x1.htm |
EX-32.2 - EXHIBIT 32.2 - ATEL 12, LLC | v498968_exh32x2.htm |
EX-31.2 - EXHIBIT 31.2 - ATEL 12, LLC | v498968_exh31x2.htm |
EX-31.1 - EXHIBIT 31.1 - ATEL 12, LLC | v498968_exh31x1.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, 2018
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.) |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(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
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x
The number of Limited Liability Company Units outstanding as of July 31, 2018 was 2,992,482.
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, 2018 AND DECEMBER 31, 2017
(In Thousands)
June 30, 2018 |
December 31, 2017 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 891 | $ | 479 | ||||
Accounts receivable, net | 3 | 42 | ||||||
Investment in securities | 47 | 27 | ||||||
Warrants, fair value | 156 | 149 | ||||||
Investments in equipment and leases, net | 1,672 | 1,924 | ||||||
Due from Managing Member | 21 | 10 | ||||||
Prepaid expenses and other assets | 30 | 25 | ||||||
Total assets | $ | 2,820 | $ | 2,656 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Affiliates | $ | 13 | $ | 36 | ||||
Other | 202 | 257 | ||||||
Non-recourse debt | | 103 | ||||||
Unearned operating lease income | 30 | 37 | ||||||
Total liabilities | 245 | 433 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Other Members | 2,575 | 2,223 | ||||||
Total Members capital | 2,575 | 2,223 | ||||||
Total liabilities and Members capital | $ | 2,820 | $ | 2,656 |
See accompanying notes.
3
ATEL 12, LLC
STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2018 AND 2017
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenues: |
||||||||||||||||
Leasing and lending activities: |
||||||||||||||||
Operating leases | $ | 304 | $ | 352 | $ | 662 | $ | 708 | ||||||||
Gain on sales of lease assets | | 8 | 6 | 15 | ||||||||||||
Gain on sales or dispositions of investment in securities | 11 | 75 | 11 | 75 | ||||||||||||
Unrealized (loss) gain on fair value adjustment for investment in securities | (10 | ) | | 20 | | |||||||||||
Unrealized (loss) gain on fair value adjustment for warrants | (1 | ) | (2 | ) | 7 | (2 | ) | |||||||||
Other | 22 | 1 | 26 | 10 | ||||||||||||
Total revenues | 326 | 434 | 732 | 806 | ||||||||||||
Expenses: |
||||||||||||||||
Depreciation of operating lease assets | 50 | 143 | 165 | 285 | ||||||||||||
Asset management fees to Managing Member | 14 | 17 | 29 | 27 | ||||||||||||
Cost reimbursements to Managing Member and/or affiliates | 41 | 43 | 85 | 91 | ||||||||||||
(Reversal of) provision for credit losses | (2 | ) | 8 | (37 | ) | 8 | ||||||||||
Interest expense | | 2 | | 5 | ||||||||||||
Professional fees | 20 | 46 | 77 | 99 | ||||||||||||
Outside services | 12 | 20 | 39 | 43 | ||||||||||||
Taxes on income and franchise fees | (5 | ) | 14 | 4 | 19 | |||||||||||
Other | 5 | 12 | 18 | 28 | ||||||||||||
Total expenses | 135 | 305 | 380 | 605 | ||||||||||||
Net income | $ | 191 | $ | 129 | $ | 352 | $ | 201 | ||||||||
Net income: |
||||||||||||||||
Managing Member | $ | | $ | 30 | $ | | $ | 66 | ||||||||
Other Members | 191 | 99 | 352 | 135 | ||||||||||||
$ | 191 | $ | 129 | $ | 352 | $ | 201 | |||||||||
Net income per Limited Liability Company Unit (Other Members) | $ | 0.06 | $ | 0.03 | $ | 0.12 | $ | 0.05 | ||||||||
Weighted average number of Units outstanding | 2,992,482 | 2,992,482 | 2,992,482 | 2,992,482 |
See accompanying notes.
4
ATEL 12, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2017
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2018
(In Thousands Except for Units and Per Unit Data)
Amount | ||||||||||||||||
Units | Other Members |
Managing Member |
Total | |||||||||||||
Balance December 31, 2016 | 2,992,482 | $ | 3,299 | $ | | $ | 3,299 | |||||||||
Distributions to Other Members ($0.27 per Unit) | | (818 | ) | | (818 | ) | ||||||||||
Distributions to Managing Member | | | (66 | ) | (66 | ) | ||||||||||
Net (loss) income | | (258 | ) | 66 | (192 | ) | ||||||||||
Balance December 31, 2017 | 2,992,482 | 2,223 | | 2,223 | ||||||||||||
Net income | | 352 | | 352 | ||||||||||||
Balance June 30, 2018 (Unaudited) | 2,992,482 | $ | 2,575 | $ | | $ | 2,575 |
See accompanying notes.
5
ATEL 12, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2018 AND 2017
(In Thousands)
(Unaudited)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Operating activities: |
||||||||||||||||
Net income | $ | 191 | $ | 129 | $ | 352 | $ | 201 | ||||||||
Adjustment to reconcile net income to cash provided by operating activities: |
||||||||||||||||
Gain on sales of lease assets | | (8 | ) | (6 | ) | (15 | ) | |||||||||
Depreciation of operating lease assets | 50 | 143 | 165 | 285 | ||||||||||||
(Reversal of) provision for credit losses | (2 | ) | 8 | (37 | ) | 8 | ||||||||||
Gain on sales or dispositions of investment in securities | (11 | ) | (75 | ) | (11 | ) | (75 | ) | ||||||||
Unrealized loss (gain) on fair value adjustment for investment in securities | 10 | | (20 | ) | | |||||||||||
Unrealized loss (gain) on fair value adjustment for warrants | 1 | 2 | (7 | ) | 2 | |||||||||||
Changes in operating assets and liabilities: |
||||||||||||||||
Accounts receivable | 7 | (30 | ) | 76 | 26 | |||||||||||
Prepaid expenses and other assets | (6 | ) | 2 | (5 | ) | 4 | ||||||||||
Accounts payable, Managing Member | 10 | (40 | ) | 2 | (27 | ) | ||||||||||
Accounts payable, other | (28 | ) | 37 | (57 | ) | 38 | ||||||||||
Accrued liabilities, affiliates | (27 | ) | | (23 | ) | | ||||||||||
Unearned operating lease income | (28 | ) | (14 | ) | (7 | ) | 32 | |||||||||
Net cash provided by operating activities | 167 | 154 | 422 | 479 | ||||||||||||
Investing activities: |
||||||||||||||||
Proceeds from sales of lease assets | | 12 | 93 | 64 | ||||||||||||
Principal payments received on direct financing leases | | | | 1 | ||||||||||||
Net cash provided by investing activities | | 12 | 93 | 65 | ||||||||||||
Financing activities: |
||||||||||||||||
Repayments under non-recourse debt | | (115 | ) | (103 | ) | (230 | ) | |||||||||
Distributions to Other Members | | | | (674 | ) | |||||||||||
Distributions to Managing Member | | | | (55 | ) | |||||||||||
Net cash used in financing activities | | (115 | ) | (103 | ) | (959 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 167 | 51 | 412 | (415 | ) | |||||||||||
Cash and cash equivalents at beginning of period | 724 | 567 | 479 | 1,033 | ||||||||||||
Cash and cash equivalents at end of period | $ | 891 | $ | 618 | $ | 891 | $ | 618 | ||||||||
Supplemental disclosures of cash flow information: |
||||||||||||||||
Cash paid during the year for interest | $ | | $ | 2 | $ | | $ | 5 | ||||||||
Cash paid during the year for taxes | $ | 18 | $ | 3 | $ | 19 | $ | 16 | ||||||||
Schedule of non-cash transactions: |
||||||||||||||||
Distributions payable to Other Members at period-end | $ | | $ | 374 | $ | | $ | 374 | ||||||||
Distributions payable to Managing Member at period-end | $ | | $ | 30 | $ | | $ | 30 |
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. From its inception into the third quarter of 2013, the Managing Member was ATEL Associates 12, LLC (AA12), a Nevada limited liability company. Effective September 30, 2013, AA12 was merged into ATEL Financial Services, LLC (AFS or Managing Member or Manager), a wholly-owned subsidiary of ATEL Capital Group. 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.
As of June 30, 2018, cumulative contributions, net of rescissions and/or redemptions, totaling $29.9 million (inclusive of the $500 initial Members capital investment) have been received and 2,992,482 Units were issued and outstanding.
The Company is governed by the ATEL 12, LLC amended and restated Limited Liability Company Operating Agreement dated April 3, 2007 (the Operating Agreement). On January 1, 2016, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement. Prior thereto, the Company was in its acquisition phase and was making distributions on a monthly and quarterly basis. During the liquidation phase, periodic distributions are paid at the discretion of the Managing Member.
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, 2017, 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, 2018 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results from operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying unaudited financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2018, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements or adjustments thereto.
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
7
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Use of estimates:
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes, and determination of the allowances for doubtful accounts.
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 region in which the Company sought leasing opportunities was North America. For the six months ended June 30, 2018 and 2017, and as of June 30, 2018 and December 31, 2017, 100% of the Companys operating revenues and long-lived assets relate to customers domiciled in the United States.
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, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.
Financing receivables
In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
8
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
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.
Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants in connection with its lending arrangements.
Purchased securities
The Companys investment securities registered for public sale are carried at fair value. The Companys investment securities with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Companys results of operations. The Companys investment securities that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. 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. Based upon the Companys review of its portfolio, the Company recorded unrealized losses on fair value adjustments on investment in securities totaling $10 thousand and $20 thousand of unrealized gains on fair value adjustments during the respective three and six months ended June 30, 2018. Purchased securities totaled $47 thousand and $27 thousand at June 30, 2018 and December 31, 2017 respectively.
Warrants
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. During the respective three months ended June 30, 2018 and 2017, the Company recorded $1 thousand and $2 thousand of unrealized losses on fair value adjustments for warrants. During the respective six months ended June 30, 2018 and 2017, the Company recorded $7 thousand of unrealized gains and $2 thousand of unrealized losses on fair value adjustments for warrants. As of June 30, 2018 and December 31, 2017, the estimated fair value of the Companys portfolio of warrants amounted to $156 thousand and $149 thousand, respectively. There were no exercises of warrants, net or otherwise, during the three and six months ended June 30, 2018 and 2017. The Company realized gains of $2 thousand on the net exercise of certain warrants during the year ended December 31, 2017.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating lease receivables, and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Funds cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from in various industries, related to equipment on operating leases.
9
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Equipment on operating leases and related revenue recognition:
Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipments estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 840-20-35-3, over the periods of the lease terms contained in each assets respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360-10-35-43).
The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Companys quarterly impairment analysis, as described below. Maintenance costs associated with the Funds portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.
Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet. Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon managements judgment, the related operating leases may be placed on non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, revenues are recognized on a cash basis.
Per Unit data:
The Company issues only one class of Units, none of which are considered dilutive. Net income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.
Fair Value Measurement:
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.
10
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability.
The Companys valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Companys assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Companys investments in equipment, and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
Recent accounting pronouncements:
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. This guidance is effective for the Company beginning on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on its financial statements and disclosures.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments Credit Losses (Topic 326) (ASU 2016-13). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (ASU 2016-02). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting under GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee
11
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. While early adoption is permitted, the Company does not expect to elect that option. The Company expects to adopt the guidance in the first quarter 2019 using the modified retrospective method.
Management is currently evaluating the impact of this standard on the financial statements and its operational and related disclosure requirements, including the impact on the Companys current lease portfolio from a lessor perspective. As part of the adoption of the standard, the Company has selected and is in the process of implementing new lease accounting software. The Company is in the process of identifying and designing appropriate changes to its business processes, systems and controls to support the new standard. Given the limited changes to lessor accounting, Management does not expect material changes to recognition or measurement.
In July 2018, the FASB issued Accounting Standards Update 2018-11, Leases (Topic 842) Targeted Improvements (ASU 2018-11). The new standard provides a new transition method and practical expedient to simplify the application of the new leasing standard. Under the new transition method, comparative periods presented in the financial statements in the period of adoption will not need to be restated. Instead, a Company would initially apply the new lease requirements at the effective date, and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company would continue to report comparative periods presented in the financial statements in the period of adoption under current GAAP and provide the applicable required disclosures for such periods. The new practical expedient allows lessors to avoid separating lease and associated nonlease components within a contract if certain criteria are met. If elected, lessors will be able to aggregate nonlease components that otherwise would be accounted for under the new revenue standard with the associated lease component if the following conditions are met (1) the timing and pattern of transfer of the nonlease component and the associated lease component are the same and (2) the stand-alone lease component would be classified as an operating lease if accounted for separately. For entities that have not adopted Topic 842 before the issuance of this Update, the effective date and transition requirements for the amendments in this Update related to separating components of a contract are the same as the effective date and transition requirements in Update 2016-02. The practical expedient may be elected either in the first reporting period following the issuance of this Update or at the original effective date of Topic 842 for that entity. The practical expedient may be applied either retrospectively or prospectively. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016- 01). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial
12
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
2. Summary of significant accounting policies: - (continued)
asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This guidance is effective for the Company beginning on January 1, 2018. The adoption of ASU 2016-01 did have an impact on its financial statements and disclosures. The Companys investment securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company's results of operations. The Company elected to record equity investments without readily determinable fair values at cost, less impairment, and adjusted for changes in observable prices. Any changes in the basis of these equity investments are reported in current earnings.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. This guidance is effective for the Company beginning on January 1, 2018. Managements evaluation of the impact of such adoption on the financial statements of the Fund indicated that such impact is non-material as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Companys revenues since leases are not included within the scope of Topic 606.
3. Investments in equipment and leases, net:
The Companys investment in equipment and leases consists of the following (in thousands):
Balance December 31, 2017 |
Reclassifications, Additions/ Dispositions and Impairment Losses |
Depreciation/ Amortization Expense or Amortization of Leases |
Balance June 30, 2018 |
|||||||||||||
Net investment in operating leases | $ | 1,652 | $ | (15 | ) | $ | (165 | ) | $ | 1,472 | ||||||
Assets held for sale or lease, net | 272 | (72 | ) | | 200 | |||||||||||
Initial direct costs, net of accumulated amortization of $0 at June 30, 2018 and $3 at December 31, 2017 | | | | | ||||||||||||
Total | $ | 1,924 | $ | (87 | ) | $ | (165 | ) | $ | 1,672 |
Impairment of investments in lease assets:
Recorded values of the Companys leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place.
The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the assets lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized
13
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
3. Investments in equipment and leases, net: - (continued)
normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the three and six months ended June 30, 2018 and 2017.
The Company utilizes a straight line depreciation method over the term of the equipment for equipment on operating leases currently in its portfolio. Depreciation expense on the Companys equipment totaled $50 thousand and $143 thousand for the respective three months ended June 30, 2018 and 2017, and $165 thousand and $285 thousand for the respective six months ended June 30, 2018 and 2017.
All of the Companys leased property was acquired in the years 2008 through 2013.
Operating leases:
Property on operating leases consists of the following (in thousands):
Balance December 31, 2017 |
Additions | Reclassifications or Dispositions |
Balance June 30, 2018 |
|||||||||||||
Transportation | $ | 3,963 | $ | | $ | (72 | ) | $ | 3,891 | |||||||
Construction | 2,741 | | | 2,741 | ||||||||||||
Aviation | 2,077 | | | 2,077 | ||||||||||||
Other | 104 | | | 104 | ||||||||||||
8,885 | | (72 | ) | 8,813 | ||||||||||||
Less accumulated depreciation | (7,233 | ) | (165 | ) | 57 | (7,341 | ) | |||||||||
Total | $ | 1,652 | $ | (165 | ) | $ | (15 | ) | $ | 1,472 |
The average estimated residual value for assets on operating leases was 16% and 19% of the assets original cost at June 30, 2018 and December 31, 2017, respectively. There were no operating leases in non-accrual status at June 30, 2018 and December 31, 2017.
At June 30, 2018, the aggregate amounts of future minimum operating lease payments receivable are $90 thousand all of which are due and receivable during 2018.
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2018, the respective useful lives of each category of lease assets in the Companys portfolio are as follows (in years):
Equipment category | Useful Life | |||
Aviation | 15 20 | |||
Construction | 7 10 | |||
Materials handling | 7 10 | |||
Transportation | 7 10 | |||
Computer | 3 5 |
14
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
4. 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 AFS and ATEL Leasing Corporation (ALC) is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications 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.
The Managing Member and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement, during the three and six months ended June 30, 2018 and 2017 as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Administrative costs reimbursed to Managing Member and/or affiliates | $ | 41 | $ | 43 | $ | 85 | $ | 91 | ||||||||
Asset management fees to Managing Member | 14 | 17 | 29 | 27 | ||||||||||||
$ | 55 | $ | 60 | $ | 114 | $ | 118 |
5. Non-recourse debt:
At June 30, 2018, non-recourse debt consisted of notes payable to financial institutions. The notes were due in monthly installments. Interest on the notes was at fixed rates ranging from 1.97% to 2.39% per annum. The notes were secured by assignments of lease payments and pledges of assets. At June 30, 2018, the non-recourse debt was paid off.
The non-recourse debt did not contain any material financial covenants. The debt was secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders had 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 was payable solely out of the respective specific security and the Company did not guarantee (nor was 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 did not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company was 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 Companys 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
15
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
5. Non-recourse debt: - (continued)
customary in the equipment finance industry, and were viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there were no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company had determined that there were no material covenants with respect to the non-recourse debt that warrant footnote disclosure.
6. Commitments:
At June 30, 2018, the Company had no commitments to purchase lease assets or fund investments in notes receivable.
7. Members capital:
A total of 2,992,482 Units were issued and outstanding at both June 30, 2018 and December 31, 2017. The Fund was authorized to issue up to 20,000,000 total Units.
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, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Distributions | $ | | $ | 374 | $ | | $ | 818 | ||||||||
Weighted average number of Units outstanding | 2,992,482 | 2,992,482 | 2,992,482 | 2,992,482 | ||||||||||||
Weighted average distributions per Unit | $ | | $ | 0.12 | $ | | $ | 0.27 |
8. Fair value measurements:
Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
At June 30, 2018, the Companys investment in securities and warrants were measured on a recurring basis. At December 31, 2017, only the Companys warrants were measured on a recurring basis.
The fair value adjustments utilized the following methodology:
Warrants (recurring)
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, time to maturity, and a risk free interest rate for the term(s) of the warrant exercise(s). As of June 30, 2018 and December 31, 2017, the calculated fair value of the Funds warrant portfolio is $156 thousand and $149 thousand, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.
16
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
8. Fair value measurements: - (continued)
The fair value of warrants that were accounted for on a recurring basis as of the three and six months ended June 30, 2018 and 2017 and classified as Level 3 are as follows (in thousands):
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Fair value of warrants at beginning of period | $ | 157 | $ | 159 | $ | 149 | $ | 159 | ||||||||
Unrealized (loss) gain on fair valuation of warrants | (1 | ) | (2 | ) | 7 | (2 | ) | |||||||||
Fair value of warrants at end of period | $ | 156 | $ | 157 | $ | 156 | $ | 157 |
Investment securities (recurring)
The Companys investment securities registered for public sale, which are recurring, with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Companys results of operations.
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.
The fair value of investment securities that were accounted for on a recurring basis as of the three and six month ended June 30, 2018 and classified as Level 1 are as follows (in thousands):
Three Months Ended June 30, 2018 |
Six Months Ended June 30, 2018 |
|||||||
Fair value of investment in securities at beginning of period | $ | 51 | $ | 21 | ||||
Unrealized (loss) gain on fair valuation of investment in securities | (10 | ) | 20 | |||||
Fair value of investment in securities at end of period | $ | 41 | $ | 41 |
Impaired off-lease equipment (non-recurring)
During 2017, the Company deemed certain off-lease equipment (assets) to be impaired and recorded fair value adjustments of $281 thousand to reduce the cost basis of the equipment.
The aforementioned adjustments were non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair values of such impaired equipment are classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of the assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.
17
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
8. Fair value measurements: - (continued)
The following tables summarize the valuation techniques and significant unobservable inputs used for the Companys recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2018 and December 31, 2017:
June 30, 2018 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring |
Black-Scholes formulation | Stock price | $0.020 $14.750 | ||||||||||||
Exercise price | $0.360 $25.760 | |||||||||||||||
Time to maturity (in years) | 0.25 5.34 | |||||||||||||||
Risk-free interest rate | 1.93% 2.74% | |||||||||||||||
Annualized volatility | 48.97% 84.91% |
December 31, 2017 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring |
Black-Scholes formulation | Stock price | $0.02 $14.75 | ||||||||||||
Exercise price | $0.36 $25.76 | |||||||||||||||
Time to maturity (in years) | 0.75 5.84 | |||||||||||||||
Risk-free interest rate | 1.65% 2.25% | |||||||||||||||
Annualized volatility | 48.32% 83.3% | |||||||||||||||
Impaired off-lease Equipment | Non-recurring |
Market Approach |
Third Party Agents Pricing | $72,525 $200,000 | ||||||||||||
Equipment Condition | Good |
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.
Investment in securities
The Companys purchased securities registered for public sale with readily determinable fair value are carried at fair value. These investment securities are valued based on their quoted market prices.
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.
18
ATEL 12, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
8. Fair value measurements: - (continued)
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.
The following tables present 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, 2018 and December 31, 2017 (in thousands):
Fair Value Measurements at June 30, 2018 | ||||||||||||||||||||
Carrying Value |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 891 | $ | 891 | $ | | $ | | $ | 891 | ||||||||||
Investment in securities | 41 | 41 | | | 41 | |||||||||||||||
Warrants, fair value | 156 | | | 156 | 156 |
Fair Value Measurements at December 31, 2017 | ||||||||||||||||||||
Carrying Value |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 479 | $ | 479 | $ | | $ | | $ | 479 | ||||||||||
Warrants, fair value | 149 | | | 149 | 149 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Non-recourse debt | 103 | | | 102 | 102 |
19
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, 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 may continue until December 31, 2030. However, pursuant to the guidelines of the Operating Agreement, the Company commenced liquidation phase activities on January 1, 2016. Periodic distributions are paid at the discretion of the Managing Member.
Results of Operations
The three months ended June 30, 2018 versus the three months ended June 30, 2017
The Company had net income of $191 thousand and $129 thousand for the three months ended June 30, 2018 and 2017, respectively. Results for the second quarter of 2018 reflect decreases both in total revenues and total operating expenses when compared to the prior year period.
Revenues
Total revenues for the second quarter of 2018 decreased by $108 thousand, or 25%, as compared to the prior year period. Such decrease was largely due to a $64 thousand, or 85%, decrease in gain on sales or dispositions of investment in securities; and a $48 thousand, or 14%, reduction in lease revenues, mainly the result of portfolio runoff and dispositions of lease assets.
Expenses
Total expenses for the second quarter of 2018 decreased by $170 thousand, or 56%, as compared to the prior year period. The decrease in total expenses was primarily the result of a $93 thousand, or 65%, decrease in depreciation of operating lease assets, a result of portfolio runoff and disposition of lease assets; a $26 thousand, or 57%, decrease in professional fees, due to the year over year difference in timing and related billings for professional audit and tax services; a $19 thousand or 136%, decrease in taxes on income and franchise fees, attributed to an adjustment in estimated liability for prior year tax payments; and a $10 thousand, or 125%, decrease in provision for credit losses, a result of customers payments on their accounts.
The six months ended June 30, 2018 versus the six months ended June 30, 2017
The Company had net income of $352 thousand and $201 thousand for the six months ended June 30, 2018 and 2017, respectively. Results for the first half of 2018 reflect decreases in both total revenues and total operating expenses when compared to the prior year period.
20
Revenues
Total revenues for the first half of 2018 declined by $74 thousand, or 9%, as compared to the prior year period. Such decrease was largely due to a $64 thousand, or 85%, decrease in gain on sales or disposition of investment securities; and a $46 thousand, or 6%, reduction in lease revenues, mainly the result of portfolio runoff and dispositions of lease assets; offset, in part, by a $20 thousand, favorable unrealized gain on fair value adjustment for investment in securities.
Expenses
Total expenses for the first half of 2018 decreased by $225 thousand, or 37%, as compared to the prior year period. The decrease was primarily the result of a $120 thousand, or 42%, decrease in depreciation expense, a result of portfolio runoff and disposition of lease assets; a $45 thousand, or 6 times, decrease in the provision for credit losses, a result of customers payments on previously reserved accounts; a $22 thousand, or 22% decrease in professional fees related to year over year differences in timing and related billings for professional audit and tax services; and a $15 thousand, or 79%, decrease in taxes on income and franchise fees, attributed to an adjustment in estimated liability for prior year tax payments.
Capital Resources and Liquidity
At June 30, 2018 and December 31, 2017, the Companys cash and cash equivalents totaled $891 thousand and $479 thousand, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The primary source of liquidity for the Company 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.
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, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities | $ | 167 | $ | 154 | $ | 422 | $ | 479 | ||||||||
Investing activities | | 12 | 93 | 65 | ||||||||||||
Financing activities | | (115 | ) | (103 | ) | (959 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | $ | 167 | $ | 51 | $ | 412 | $ | (415 | ) |
The three months ended June 30, 2018 versus the three months ended June 30, 2017
During the three months ended June 30, 2018 and 2017, the Companys primary sources of liquidity were cash flows from its portfolio of operating lease contracts. The Company also realized an additional $12 thousand of proceeds from the sales of lease assets during the three months ended June 30, 2017.
Cash was used to pay down non-recourse debt totaling $0 and $115 thousand during the respective three months ended June 30, 2018 and 2017.
In addition, cash was used to pay invoices related to management fees and expenses, and other payables.
21
The six months ended June 30, 2018 versus the six months ended June 30, 2017
During the six months ended June 30, 2018 and 2017, the Companys primary sources of liquidity were cash flows from its portfolio of operating lease contracts. The Company also realized $93 thousand and $64 thousand of proceeds from the sales of lease assets during the respective six months ended June 30, 2018 and 2017.
Cash was used to pay distributions to the Other Members and Managing Member, totaling $729 thousand for the six months ended June 30, 2017. Cash was also used to pay down non-recourse debt totaling $103 thousand and $230 thousand during the respective six months ended June 30, 2018 and 2017.
In addition, cash was used to pay invoices related to management fees and expenses, and other payables.
Distributions
Beginning with the month of February 2008, the Company commenced periodic distributions, based on cash flows from operations. Such distributions had been consistently made through July 31, 2017.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At June 30, 2018, the Company had no commitments to purchase lease assets or fund investments in notes receivable.
Off-Balance Sheet Transactions
None.
Recent Accounting Pronouncements
For information on recent accounting pronouncements, see note 2 Summary of significant accounting policies.
Significant Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Companys significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2017. There have been no material changes to the Companys significant accounting policies since December 31, 2017.
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) and 15-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Members disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an
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issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
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, 2018 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. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Documents filed as a part of this report:
1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
2. | Other Exhibits |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi | |
32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash | |
32.2 | Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
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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 9, 2018
ATEL 12, LLC
(Registrant)
By: ATEL Financial Services, LLC | ||
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |