Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
⌧ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2020
◻ 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 000-50687
ATEL Capital Equipment Fund X, LLC
(Exact name of registrant as specified in its charter)
California |
| 68-0517690 |
(State or other jurisdiction of | (I. R. S. Employer |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)
Registrant’s telephone number, including area code: (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
N/A | | N/A | | N/A |
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 No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 files) Yes No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ◻ | Accelerated filer ◻ | Non-accelerated filer ⌧ | Smaller reporting company ⌧ |
Emerging growth company ◻ | | | |
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. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes ◻ No
The number of Limited Liability Company Units outstanding as of July 31, 2020 was 13,971,486.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL CAPITAL EQUIPMENT FUND X, LLC
2
Item 1. Financial Statements (Unaudited).
ATEL CAPITAL EQUIPMENT FUND X, LLC
JUNE 30, 2020 AND DECEMBER 31, 2019
(In Thousands)
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2020 |
| 2019 | ||
| | (Unaudited) | | | | |
ASSETS | | | | | | |
Cash and cash equivalents | | $ | 751 | | $ | 2,041 |
Accounts receivable, net | | | 55 | | | 81 |
Investment in securities | |
| 44 | |
| 44 |
Equipment under operating leases, net | | | 3,703 | | | 3,792 |
Prepaid expenses and other assets | | | 87 | |
| 104 |
Total assets | | $ | 4,640 | | $ | 6,062 |
| | | | | | |
LIABILITIES AND MEMBERS’ CAPITAL | |
|
| |
|
|
| | | | | | |
Accounts payable and accrued liabilities: | |
|
| |
|
|
Due to Managing Member and/or affiliates | | $ | 41 | | $ | 17 |
Other | | | 113 | | | 58 |
Deposits due lessees | |
| 1 | |
| 1 |
Unearned operating lease income | |
| 70 | |
| 17 |
Total liabilities | |
| 225 | |
| 93 |
| | | | | | |
Commitments and contingencies | |
|
| |
|
|
| | | | | | |
Members’ capital: | |
|
| |
|
|
Managing Member | |
| — | |
| — |
Other Members | |
| 4,415 | |
| 5,969 |
Total Members’ capital | |
| 4,415 | |
| 5,969 |
Total liabilities and Members’ capital | | $ | 4,640 | | $ | 6,062 |
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND X, LLC
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2020 AND 2019
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||
Revenues: |
| |
|
| |
| | |
|
| |
| |
Leasing activities: |
| |
|
| |
| | |
|
| |
| |
Operating leases revenues, net | | $ | 291 | | $ | 386 | | $ | 544 | | $ | 912 | |
Gain (loss) on sales of equipment under operating leases | |
| 3 | |
| (44) | |
| 32 | |
| (7) | |
Other revenue | |
| — | |
| 117 | |
| — | |
| 118 | |
Total revenues | |
| 294 | |
| 459 | |
| 576 | |
| 1,023 | |
| | | | | | | | | | | | | |
Expenses: | |
|
| |
|
| |
|
| |
|
| |
Depreciation of operating lease assets | |
| 39 | |
| 48 | |
| 78 | |
| 70 | |
Asset management fees to Managing Member and/or affiliates | |
| 17 | |
| 28 | |
| 35 | |
| 52 | |
Costs reimbursed to Managing Member and/or affiliates | |
| 40 | |
| 56 | |
| 82 | |
| 121 | |
Amortization of initial direct costs | |
| — | |
| — | |
| 1 | |
| 1 | |
Impairment losses on equipment | | | — | | | 281 | | | — | | | 281 | |
Railcar maintenance | |
| 32 | |
| 26 | |
| 56 | |
| 62 | |
Impairment losses on investment in securities | |
| — | |
| — | |
| — | |
| 11 | |
Professional fees | |
| 59 | |
| 40 | |
| 113 | |
| 117 | |
Franchise fees and taxes | |
| (6) | |
| (11) | |
| 5 | |
| 27 | |
Outside services | |
| 21 | |
| 20 | |
| 33 | |
| 50 | |
Insurance | |
| 9 | |
| 10 | |
| 16 | |
| 20 | |
Storage fees | |
| 66 | |
| 2 | |
| 68 | |
| 4 | |
Other expenses | |
| 29 | |
| 17 | |
| 57 | |
| 55 | |
Total expenses | |
| 306 | |
| 517 | |
| 544 | |
| 871 | |
Net (loss) income | | $ | (12) | | $ | (58) | | $ | 32 | | $ | 152 | |
| | | | | | | | | | | | | |
Net (loss) income: | |
|
| |
|
| |
|
| |
|
| |
Managing Member | | $ | — | | $ | — | | $ | 119 | | $ | 181 | |
Other Members | |
| (12) | |
| (58) | |
| (87) | |
| (29) | |
| | $ | (12) | | $ | (58) | | $ | 32 | | $ | 152 | |
| | | | | | | | | | | | | |
Net loss per Limited Liability Company Unit (Other Members) | | $ | — | | $ | — | | $ | (0.01) | | $ | — | |
Weighted average number of Units outstanding | |
| 13,971,486 | |
| 13,971,486 | |
| 13,971,486 | |
| 13,971,486 | |
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND X, LLC
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2020 AND 2019
(In Thousands Except for Units and Per Unit Data)
(Unaudited)
| | | | | | | | | | | |
| | Three Months Ended June 30, 2020 | |||||||||
| | | | Amount | | | | ||||
| | | | Other | | Managing | | | | ||
|
| Units |
| Members | | Member |
| Total | |||
Balance March 31, 2020 |
| 13,971,486 | | $ | 4,427 | | $ | — | | $ | 4,427 |
Net loss |
| — | |
| (12) | |
| — | |
| (12) |
Balance June 30, 2020 |
| 13,971,486 | | $ | 4,415 | | $ | — | | $ | 4,415 |
| | | | | | | | | | | |
| | Six Months Ended June 30, 2020 | |||||||||
| | | | Amount | | | | ||||
| | | | Other | | Managing | | | | ||
|
| Units |
| Members | | Member |
| Total | |||
Balance December 31, 2019 |
| 13,971,486 | | $ | 5,969 | | $ | — | | $ | 5,969 |
Distributions to Other Members ($0.11 per Unit) |
| — | |
| (1,467) | |
| — | |
| (1,467) |
Distributions to Managing Member |
| — | |
| — | |
| (119) | |
| (119) |
Net (loss) income |
| — | |
| (87) | |
| 119 | |
| 32 |
Balance June 30, 2020 |
| 13,971,486 | | $ | 4,415 | | $ | — | | $ | 4,415 |
| | | | | | | | | | | |
| | Three Months Ended June 30, 2019 | |||||||||
| | | | Amount | | | | ||||
| | | | Other | | Managing | | | | ||
|
| Units |
| Members | | Member |
| Total | |||
Balance March 31, 2019 |
| 13,971,486 | | $ | 4,716 | | $ | — | | $ | 4,716 |
Net loss |
| — | |
| (58) | |
| — | |
| (58) |
Balance June 30, 2019 |
| 13,971,486 | | $ | 4,658 | | $ | — | | $ | 4,658 |
| | | | | | | | | | | |
| | Six Months Ended June 30, 2019 | |||||||||
| | | | Amount | | | | ||||
| | | | Other | | Managing | | | | ||
|
| Units |
| Members | | Member |
| Total | |||
Balance December 31, 2018 |
| 13,971,486 | | $ | 6,923 | | $ | — | | $ | 6,923 |
Distributions to Other Members ($0.16 per Unit) |
| — | |
| (2,236) | |
| — | |
| (2,236) |
Distributions to Managing Member |
| — | |
| — | |
| (181) | |
| (181) |
Net (loss) income |
| — | |
| (29) | |
| 181 | |
| 152 |
Balance June 30, 2019 |
| 13,971,486 | | $ | 4,658 | | $ | — | | $ | 4,658 |
| | | | | | | | | | | |
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND X, LLC
FOR THE SIX MONTHS ENDED
JUNE 30, 2020 AND 2019
(In Thousands)
(Unaudited)
| | | | | |
| Six Months Ended | ||||
| June 30, | ||||
| 2020 |
| 2019 | ||
Operating activities: | |
|
| |
|
Net income | $ | 32 | | $ | 152 |
Adjustments to reconcile net income to cash provided by operating activities: |
|
| |
| |
(Gain) loss on sales of equipment under operating leases |
| (32) | |
| 7 |
Depreciation of operating lease assets |
| 78 | |
| 70 |
Amortization of initial direct costs |
| 1 | |
| 1 |
Impairment losses on equipment | | — | | | 281 |
Provision for credit losses |
| 94 | |
| 31 |
Impairment losses on investment in securities |
| — | |
| 11 |
Changes in operating assets and liabilities: | | | |
| |
Accounts receivable |
| (68) | |
| (25) |
Due from affiliates |
| — | |
| (15) |
Prepaid expenses and other assets |
| 17 | |
| 19 |
Accounts payable, Managing Member and affiliates |
| 24 | |
| — |
Accounts payable, Other |
| 55 | |
| 165 |
Unearned operating lease income |
| 53 | |
| (4) |
Net cash provided by operating activities |
| 254 | |
| 693 |
| | | | | |
Investing activities: |
|
| |
|
|
Principal payments received on direct financing leases | | — | | | 3 |
Proceeds from sales of equipment under operating leases |
| 42 | |
| 304 |
Net cash provided by investing activities |
| 42 | |
| 307 |
| | | | | |
Financing activities: |
|
| |
|
|
Distributions to Other Members |
| (1,467) | |
| (2,236) |
Distributions to Managing Member |
| (119) | |
| (181) |
Net cash used in financing activities |
| (1,586) | |
| (2,417) |
| | | | | |
Net decrease in cash and cash equivalents |
| (1,290) | |
| (1,417) |
Cash and cash equivalents at beginning of period |
| 2,041 | |
| 2,877 |
Cash and cash equivalents at end of period | $ | 751 | | $ | 1,460 |
| | | | | |
Supplemental disclosures of cash flow information: |
|
| |
|
|
Cash paid during the period for taxes | $ | 13 | | $ | 44 |
See accompanying notes.
6
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund X, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on August 12, 2002 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities, primarily in the United States. The managing member of the Company is ATEL Financial Services, LLC (“AFS” or the “Managing Member), a California limited liability company. The Company may continue until December 31, 2022.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On April 9, 2003, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business. As of March 11, 2005, the offering was terminated. As of that date, subscriptions for 14,059,136 Units ($140.6 million) had been received, of which 87,650 Units ($720 thousand) were subsequently rescinded or repurchased (net of distributions paid and allocated syndication costs, as applicable) by the Company through June 30, 2020. As of June 30, 2020, 13,971,486 Units remain issued and outstanding.
The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated) which ended on December 31, 2011 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by the Limited Liability Company Operating Agreement (“Operating Agreement”), as amended. On January 1, 2012, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.
Pursuant to the terms of the Operating Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Company (See Note 5). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
The Company will pay AFS and affiliates of AFS substantial fees which may result in a conflict of interest. The Company will pay substantial fees to AFS and its affiliates before distributions are paid to investors even if the Company does not produce profits. Therefore, the financial position of the Company could change significantly.
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, 2019, filed with the Securities and Exchange Commission.
7
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, 2020 are not necessarily indicative of the results to be expected for the full year.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2020, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowances for doubtful accounts.
Accounts receivable:
Accounts receivable represent the amounts billed under operating lease contracts which are due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are charged off to the allowance on a specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company places the majority of its cash deposits in noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Company’s 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.
8
Accounts receivable represent amounts due from lessees or borrowers in various industries, related to equipment on operating leases.
Equipment on operating leases and related revenue recognitions:
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 equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with Accounting Standards Codification (“ASC”) 360-20-35-3, over the periods of the lease terms contained in each asset’s 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 Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s 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 management’s 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. Upon adoption of Accounting Standards Update (“ASU”) 2016-02, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in the Company’s financial statements.
9
Initial direct costs:
With the adoption of ASU 2016-02 certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred effective January 1, 2019.
Asset valuation:
Recorded values of the Company’s 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 asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.
Segment reporting:
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.
10
The primary geographic region in which the Company sought leasing opportunities was North America. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019, and long-lived tangible assets as of June 30, 2020 and December 31, 2019 (dollars in thousands):
| | | | | | | | | | | | |
| | Three Months Ended June 30, |
| |||||||||
|
| 2020 |
| % of Total |
| | 2019 |
| % of Total |
| ||
Revenue | | | | | | | | | | | | |
United States | | $ | 277 |
| 94 | % | | $ | 449 |
| 98 | % |
Canada | |
| 17 |
| 6 | % | |
| 10 |
| 2 | % |
Total | | $ | 294 |
| 100 | % | | $ | 459 |
| 100 | % |
| | | | | | | | | | | | |
| | Six Months Ended June 30, |
| |||||||||
|
| 2020 |
| % of Total |
| | 2019 |
| % of Total |
| ||
Revenue | | | | | | | | | | | | |
United States | | $ | 542 |
| 94 | % | | $ | 995 |
| 97 | % |
Canada | |
| 34 |
| 6 | % | |
| 28 |
| 3 | % |
Total | | $ | 576 |
| 100 | % | | $ | 1,023 |
| 100 | % |
| | | | | | | | | | | | |
| | As of June 30, | | | As of December 31, |
| ||||||
|
| 2020 |
| % of Total |
| | 2019 |
| % of Total |
| ||
Long-lived assets | | | | | | | | | | | | |
United States | | $ | 3,612 |
| 98 | % | | $ | 3,701 |
| 98 | % |
Canada | |
| 91 |
| 2 | % | |
| 91 |
| 2 | % |
Total | | $ | 3,703 |
| 100 | % | | $ | 3,792 |
| 100 | % |
Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements.
Purchased securities
Purchased securities registered for public sale are carried at fair value. Such securities 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's 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 issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company’s investment securities totaled $44 thousand at both June 30, 2020 and December 31, 2019. There were minimal fair value adjustments on investment securities with readily determinable fair values for the three and six months ended June 30, 2020 and 2019. Likewise, during the same respective periods, there were no fair value adjustments to investment securities that do not have readily determinable fair values. Cumulatively, the Fund recorded $98 thousand of adjustments to reduce the fair value of such investments based on changes in observable prices. Impairment losses on investment securities totaled $11 thousand for the six months ended June 30, 2019, all of which were recorded during the first quarter of 2019. There were no such losses during the three and six months ended June 30, 2020. Also, there were no investment securities sold or disposed of during each of the three and six months ended June 30, 2020 and 2019.
11
Per Unit data:
Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.
Fair value:
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three and six levels of inputs within the fair value hierarchy are defined as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.
The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, and information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
Recent accounting pronouncements:
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. Management is currently evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Fund’s financial statements and disclosures.
12
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 equipment under operating leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, equipment under operating lease, 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. Management is currently evaluating the standard and expects the update may potentially result in the increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new CECL impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
On August 15, 2019, the FASB issued a proposed ASU that would grant certain companies additional time to implement FASB standards on CECL, and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective dates for hedging to fiscal periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of Topic 326 until fiscal year beginning after December 15, 2022.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Fund adopted ASU 2018-13 on January 1, 2020. Such adoption did not have a significant impact on the Fund’s financial statements and related disclosure requirements.
13
3. Allowance for credit losses:
The Company’s allowance for credit losses are as follows (in thousands):
| Allowance for | |
| Doubtful Accounts | |
| Operating Leases | |
Balance December 31, 2018 | $ | 101 |
Provision for credit losses | | 31 |
Balance June 30, 2019 | $ | 132 |
| | |
Balance December 31, 2019 | $ | 190 |
Provision for credit losses | | 94 |
Balance June 30, 2020 | $ | 284 |
4. Equipment under operating leases, net:
The Company’s equipment under operating leases, net consists of the following (in thousands):
| | | | | | | | | | | | |
| | | | | | | | Depreciation/ | | | | |
| | | | | | | | Amortization | | | | |
| | Balance | | Reclassifications | | Expense or | | Balance | ||||
| | December 31, | | Additions / Dispositions | | Amortization | | June 30, | ||||
|
| 2019 |
| and Impairment Losses |
| of Leases |
| 2020 | ||||
Equipment under operating leases, net | | $ | 2,592 | | $ | (33) | | $ | (78) | | $ | 2,481 |
Assets held for sale or lease, net | |
| 1,196 | |
| 22 | |
| — | |
| 1,218 |
Initial direct costs, net | |
| 4 | |
| 1 | |
| (1) | |
| 4 |
Total | | $ | 3,792 | | $ | (10) | | $ | (79) | | $ | 3,703 |
The Company recorded $281 thousand of impairment losses to reduce the fair value of certain equipment for both three and six months ended June 30, 2019. There were no impairment losses recorded on equipment during the three and six months ended June 30, 2020.
The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment was $39 thousand and $48 thousand for the respective three months ended June 30, 2020 and 2019, and was $78 thousand and $70 thousand for the respective six months ended June 30, 2020 and 2019. Initial direct costs amortization expense related to the Company’s operating leases was $1 thousand for both the six months ended June 30, 2020 and 2019. There was no initial direct costs amortization recorded for the three months ended June 30, 2020 and 2019.
All of the leased property was acquired in the years beginning with 2005 through 2011.
As of June 30, 2020 and December 31, 2019, there were no lease contracts placed in non-accrual status. As of the same dates, the Company had certain other leases that have related accounts receivable aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved. Management continues to closely monitor these leases, and all other lease contracts, for any actual change in collectability status and indication of necessary valuation adjustments.
14
Operating leases:
Property on operating leases consisted of the following (in thousands):
| | | | | | | | | | | | |
| | Balance | | | | | | | Balance | |||
| | December 31, | | | | Reclassification | | June 30, | ||||
|
| 2019 |
| Additions |
| /Dispositions |
| 2020 | ||||
Transportation, rail | | $ | 12,150 | | $ | — | | $ | (336) | | $ | 11,814 |
Trucks and trailers | |
| 83 | |
| — | |
| — | |
| 83 |
Aircraft | |
| 1,732 | |
| — | |
| — | |
| 1,732 |
Manufacturing | |
| 624 | |
| — | |
| — | |
| 624 |
Petro/natural gas | |
| 470 | |
| — | |
| — | |
| 470 |
Materials handling | |
| 131 | |
| — | |
| (41) | |
| 90 |
| |
| 15,190 | |
| — | |
| (377) | |
| 14,813 |
Less accumulated depreciation | |
| (12,598) | |
| (78) | |
| 344 | |
| (12,332) |
Total | | $ | 2,592 | | $ | (78) | | $ | (33) | | $ | 2,481 |
The average estimated residual value for assets on operating leases was 14% and 17% of the assets’ original cost at June 30, 2020 and December 31, 2019, respectively.
At June 30, 2020, the aggregate amounts of future minimum lease payments receivable were as follows (in thousands):
|
| Operating | |
| | Leases | |
Six months ending December 31, 2020 | | $ | 428 |
Year ending December 31, 2021 | |
| 688 |
2022 | |
| 550 |
2023 | |
| 106 |
2024 | | | 65 |
2025 | | | 19 |
Thereafter | | | 43 |
| | $ | 1,899 |
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2020, the respective useful lives of each category of lease assets in the Company’s portfolio were as follows (in years):
| | |
Equipment category |
| Useful Life |
Transportation, rail |
| 35 - 50 |
Aircraft |
| 20 - 30 |
Manufacturing |
| 10 - 15 |
Petro/natural gas |
| 10 - 15 |
Materials handling |
| 7 - 10 |
Transportation, other |
| 7 - 10 |
15
5. Related party transactions:
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment. The Company will be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Company.
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services for the Company are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.
During the three and six months ended June 30, 2020 and 2019, AFS and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement, as follows (in thousands):
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Costs reimbursed to Managing Member and/or affiliates | | $ | 40 | | $ | 56 | | $ | 82 | | $ | 121 |
Asset management fees to Managing Member and/or affiliates | | | 17 | | | 28 | | | 35 | | | 52 |
| | $ | 57 | | $ | 84 | | $ | 117 | | $ | 173 |
The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. As of June 30, 2020 and December 31, 2019, the Company has not exceeded the annual and/or cumulative limitations discussed above.
6. Commitments:
At June 30, 2020, the Company had no commitments to purchase lease assets.
16
7. Members’ capital:
Units issued and outstanding were 13,971,486 at both June 30, 2020 and December 31, 2019. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units). The Company ceased offering Units on March 11, 2005.
The Company has the right, exercisable at the Managing Member’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member’s on terms it determines to be appropriate under given circumstances, in the event that the Managing Member’s deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the 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.
As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Members and 7.5% to AFS.
Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
| | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||||||
| | June 30, | | June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Distributions declared | | $ | — | | $ | — | | $ | 1,467 | | $ | 2,236 |
Weighted average number of Units outstanding | |
| 13,971,486 | |
| 13,971,486 | |
| 13,971,486 | |
| 13,971,486 |
Weighted average distributions per Unit | | $ | — | | $ | — | | $ | 0.11 | | $ | 0.16 |
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.
Such fair value adjustments utilized the following methodology:
Investment in securities (recurring)
The Company’s investment in securities registered for public sale that have 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’s investments in publicly traded investment securities are valued based on their quoted market prices. The calculated change in fair value of these investments in securities was deemed nominal for both the three and six month periods ended June 30, 2020 and 2019.
17
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash and cash equivalents
The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
Commitments and Contingencies
Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.
The following tables present a summary of the carrying value and fair value by level of financial instruments on the Company’s balance sheet at June 30, 2020 and December 31, 2019 (in thousands):
| | Fair Value Measurements at June 30, 2020 | |||||||||||||
| | Carrying | | | | | | | | | | | | | |
|
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Financial assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 751 | | $ | 751 | | $ | — | | $ | — | | $ | 751 |
| | Fair Value Measurements at December 31, 2019 | |||||||||||||
| | Carrying | | | | | | | | | | | | | |
|
| Value |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Financial assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 2,041 | | $ | 2,041 | | $ | — | | $ | — | | $ | 2,041 |
9. Global health emergency:
On January 30, 2020, the World Health Organization declared the novel coronavirus outbreak a public health emergency. The Fund’s operations is located in California, which has restricted gatherings of people due to the coronavirus outbreak. At present, the Fund’s operations have not been adversely affected and continues to function effectively. Due to the dynamic nature of these unprecedented circumstances and possible business disruption, the Fund will continue to monitor the situation closely, but given the uncertainty about the situation, an estimate of the future impact, if any, cannot be made at this time.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL Capital Equipment Fund X, LLC (the “Company” or the “Fund”) is a California limited liability company that was formed in August 2002 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States. The Managing Member of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company.
The Company may continue until December 31, 2022. However, pursuant to the guidelines of the Limited Liability Company Operating Agreement (“Operating Agreement”), the Company commenced liquidation phase activities subsequent to the end of the Reinvestment Period which ended on December 31, 2011. Periodic distributions will be paid at the discretion of the Managing Member.
Results of Operations
The three months ended June 30, 2020 versus the three months ended June 30, 2019
The Company had net losses of $12 thousand and $58 thousand for the three months ended June 30, 2020 and 2019, respectively. The results for the second quarter of 2020 reflect decreases in both total revenues and total operating expenses when compared to the prior year period.
Total revenues for the three months ended June 30, 2020 and 2019 were $294 thousand and $459 thousand, respectively. The $165 thousand, or 36%, decline in revenue was largely due to decreases in other revenue and operating lease revenues partially offset by a favorable change in gains and losses recorded on sales of lease assets.
Other revenue declined by $117 thousand as the prior year period included deferred maintenance fees of the same amount for excess wear and tear on certain returned equipment. Operating lease revenues decreased by $95 thousand primarily due to run-off and disposition of lease assets. Such decline in total operating lease revenues is consistent with a fund in its liquidating stage where lease assets are sold as lease commitments end. As a partial offset to the aforementioned decreases in revenues, the Company saw a $47 thousand favorable variance in gains and losses recognized on sales of lease assets. Such favorable variance was attributable to a change in the mix of assets sold.
Total expenses were $306 thousand and $517 thousand for the three months ended June 30, 2020 and 2019, respectively. The $211 thousand, or 41%, reduction in expenses was primarily due to a decline in impairment losses on equipment partially offset by an increase in storage fees.
19
Impairment losses declined by $281 thousand as the prior year period included adjustments of the same amount to reduce the carrying value of certain assets deemed impaired. There were no assets deemed impaired during the current quarter. This decrease in expenses was partially offset by a $64 thousand increase in storage fees, which was attributable to delayed billings from a new vendor.
The six months ended June 30, 2020 versus the six months ended June 30, 2019
The Company had net income of $32 thousand and $152 thousand for the respective six months ended June 30, 2020 and 2019. The net results for the six months of 2020 reflect decreases in both total revenues and total expenses when compared to the prior year period.
Total revenues were $576 thousand and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.
The $447 thousand, or 44%, decline in revenues was mainly due to decreases in operating leases revenues and other revenue partially offset by a favorable change in gains and losses recorded on sales of lease assets.
Operating lease revenues declined by $368 thousand largely due to portfolio run-off and disposition of lease assets. Other revenue declined by $118 thousand as the prior year period included $117 thousand of deferred maintenance fees for excess wear and tear on certain equipment returned during the second quarter of 2019. Partially offsetting the above-mentioned decreases in revenues was a $39 thousand favorable variance in gains and losses recognized on sales of lease assets, which was attributable to a change in the mix of assets sold.
Total expenses were $544 thousand and $871 thousand for the six months ended June 30, 2020 and 2019, respectively. The $327 thousand, or 38%, decline in expenses was primarily due to decreases in impairment losses on equipment, cost reimbursements to the Managing Member, franchise fees and taxes, and asset management fees. These decreases were partially offset by an increase in storage fees.
Impairment losses declined by $281 thousand as the prior year period included adjustments of the same amount to reduce the carrying value of certain assets deemed impaired. There were no assets deemed impaired during the first half of 2020. Cost reimbursements paid to the Managing Member decreased by $39 thousand due to lower allocated costs. Franchise fees and taxes declined by $22 thousand due to lower estimated tax liabilities, and asset management fees paid to the Managing Member declined by $17 thousand as a result of the continued decline in managed assets and related revenues. These decreases in expenses were partially offset by a $64 thousand increase in storage fees, which was a result of delayed billings from a new vendor.
Capital Resources and Liquidity
At June 30, 2020 and December 31, 2019, the Company’s cash and cash equivalents totaled $751 thousand and $2.0 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
The Company currently believes it has adequate reserves available to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves are found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements.
20
Cash Flows
The following table sets forth summary cash flow data (in thousands):
| | Six Months Ended | ||||
| | June 30, | ||||
|
| 2020 |
| 2019 | ||
Net cash provided by (used in): | | | | | | |
Operating activities |
| $ | 254 | | $ | 693 |
Investing activities | | | 42 | | | 307 |
Financing activities | | | (1,586) | | | (2,417) |
Net decrease in cash and cash equivalents |
| $ | (1,290) | | $ | (1,417) |
During the six months ended June 30, 2020 and 2019, the Company’s primary sources of liquidity were cash flows from its portfolio of operating lease contracts. In addition, the Company realized $42 thousand and $304 thousand of proceeds from sales of lease assets during the six months ended June 30, 2020 and 2019, respectively.
During the same comparative periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member. Distributions paid totaled $1.6 million and $2.4 million for the respective six months ended June 30, 2020 and 2019. In addition, cash was used to pay invoices related to management fees and expenses, and other payables.
Distributions
Beginning with the month of April 2003, the Company commenced periodic distributions based on cash flows from operations. The monthly distributions were discontinued in 2012 as the Company entered its liquidation phase. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Manager.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At June 30, 2020, the Company had no commitments to purchase lease assets.
Off-Balance Sheet Transactions
None.
Recent Accounting Pronouncements
For detailed information on recent accounting pronouncements, see Note 2, Summary of significant accounting policies.
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes to the Company’s critical accounting policies since December 31, 2019.
21
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an 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 Commission’s 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 issuer’s 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 Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.
22
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.
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.
None.
(a) | Documents filed as a part of this report |
| | 1. | Financial Statement Schedules |
| | | All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. |
| | 2. | Other Exhibits | |
| | | | |
| | | Certification of Dean L. Cash pursuant to Rules 13a-14(a)/15d-14(a) | |
| | | Certification of Paritosh K. Choksi pursuant to Rules 13a-14(a)/15d-14(a) | |
| | | Certification of Dean L. Cash pursuant to 18 U.S.C. section 1350 | |
| | | Certification of Paritosh K. Choksi pursuant to 18 U.S.C. section 1350 | |
| | | (101.INS) | XBRL Instance Document |
| | | (101.SCH) | XBRL Taxonomy Extension Schema Document |
| | | (101.CAL) | XBRL Taxonomy Extension Calculation Linkbase Document |
| | | (101.DEF) | XBRL Taxonomy Extension Definition Linkbase Document |
| | | (101.LAB) | XBRL Taxonomy Extension Label Linkbase Document |
| | | (101.PRE) | XBRL Taxonomy Extension Presentation Linkbase Document |
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 13, 2020
ATEL Capital Equipment Fund X, LLC
(Registrant)
By: | ATEL Financial Services, LLC | | |
| Managing Member of Registrant | | |
By: | /s/ Dean L. Cash | | |
| Dean L. Cash | | |
| President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member) | | |
| | | |
| | | |
By: | /s/ Paritosh K. Choksi | | |
| Paritosh K. Choksi | | |
| Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (Managing Member) | | |
| | | |
| | | |
By: | /s/ Samuel Schussler | | |
| Samuel Schussler | | |
| Senior Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member) | | |
24
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dean L. Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund X, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 13, 2020
/s/ Dean L. Cash | |
Dean L. Cash | |
President and Chief Executive Officer of | |
ATEL Financial Services, LLC (Managing Member) |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paritosh K. Choksi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment Fund X, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 13, 2020
/s/ Paritosh K. Choksi | |
Paritosh K. Choksi | |
Executive Vice President and Chief Financial Officer and Chief Operating | |
Officer of ATEL Financial Services, LLC (Managing Member) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C.§1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ATEL Capital Equipment Fund X, LLC (the ‘‘Company’’) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Dean L. Cash, President and Chief Executive Officer of ATEL Financial Services, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 13, 2020
/s/ Dean L. Cash | |
Dean L. Cash | |
President and Chief Executive Officer of | |
ATEL Financial Services, LLC (Managing Member) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
§906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of ATEL Capital Equipment Fund X, LLC (the ‘‘Company’’) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the ‘‘Report’’), I, Paritosh K. Choksi, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 13, 2020
/s/ Paritosh K. Choksi | |
Paritosh K. Choksi | |
Executive Vice President and Chief Financial | |
Officer and Chief Operating Officer of | |
ATEL Financial Services, LLC (Managing Member) |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jul. 31, 2020 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Entity Registrant Name | ATEL CAPITAL EQUIPMENT FUND X LLC | |
Document Period End Date | Jun. 30, 2020 | |
Document Fiscal Year Focus | 2020 | |
Document Fiscal Period Focus | Q2 | |
Entity Central Index Key | 0001186258 | |
Current Fiscal Year End Date | --12-31 | |
Amendment Flag | false | |
Entity Filer Category | Non-accelerated Filer | |
Smaller Reporting Company | true | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Units Outstanding | 13,971,486 |
Balance Sheets - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
ASSETS | ||
Cash and cash equivalents | $ 751 | $ 2,041 |
Accounts receivable, net | 55 | 81 |
Investment in securities | 44 | 44 |
Equipment under operating leases, net | 3,703 | 3,792 |
Prepaid expenses and other assets | 87 | 104 |
Total assets | 4,640 | 6,062 |
Accounts payable and accrued liabilities: | ||
Due to Managing Member and/or affiliates | 41 | 17 |
Other | 113 | 58 |
Deposits due lessees | 1 | 1 |
Unearned operating lease income | 70 | 17 |
Total liabilities | 225 | 93 |
Commitments and contingencies | ||
Members' capital: | ||
Managing Member | ||
Other Members | 4,415 | 5,969 |
Total Members' capital | 4,415 | 5,969 |
Total liabilities and Members' capital | $ 4,640 | $ 6,062 |
Statements of Changes in Members' Capital - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Beginning Balance | $ 4,427 | $ 4,716 | $ 5,969 | $ 6,923 |
Distributions to Other Members | (1,467) | (2,236) | ||
Distributions to Managing Member | (119) | (181) | ||
Net (loss) income | (12) | (58) | 32 | 152 |
Ending Balance | $ 4,415 | $ 4,658 | $ 4,415 | $ 4,658 |
Other Members [Member] | ||||
Beginning Balance (in Units) | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Beginning Balance | $ 4,427 | $ 4,716 | $ 5,969 | $ 6,923 |
Distributions to Other Members | (1,467) | (2,236) | ||
Net (loss) income | $ (12) | $ (58) | $ (87) | $ (29) |
Ending Balance (in Units) | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Ending Balance | $ 4,415 | $ 4,658 | $ 4,415 | $ 4,658 |
Managing Member [Member] | ||||
Distributions to Managing Member | (119) | (181) | ||
Net (loss) income | $ 119 | $ 181 |
Statements of Changes in Members' Capital (Parenthetical) - $ / shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Other Members [Member] | ||
Weighted average distributions per Unit | $ 0.11 | $ 0.16 |
Organization and Limited Liability Company Matters |
6 Months Ended |
---|---|
Jun. 30, 2020 | |
Organization and Limited Liability Company Matters [Abstract] | |
Organization and Limited Liability Company Matters | 1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund X, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on August 12, 2002 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities, primarily in the United States. The managing member of the Company is ATEL Financial Services, LLC (“AFS” or the “Managing Member), a California limited liability company. The Company may continue until December 31, 2022.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On April 9, 2003, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business. As of March 11, 2005, the offering was terminated. As of that date, subscriptions for 14,059,136 Units ($140.6 million) had been received, of which 87,650 Units ($720 thousand) were subsequently rescinded or repurchased (net of distributions paid and allocated syndication costs, as applicable) by the Company through June 30, 2020. As of June 30, 2020, 13,971,486 Units remain issued and outstanding.
The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated) which ended on December 31, 2011 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by the Limited Liability Company Operating Agreement (“Operating Agreement”), as amended. On January 1, 2012, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.
Pursuant to the terms of the Operating Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Company (See Note 5). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.
The Company will pay AFS and affiliates of AFS substantial fees which may result in a conflict of interest. The Company will pay substantial fees to AFS and its affiliates before distributions are paid to investors even if the Company does not produce profits. Therefore, the financial position of the Company could change significantly.
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, 2019, filed with the Securities and Exchange Commission. |
Summary of Significant Accounting Policies |
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Summary of Significant Accounting Policies | 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, 2020 are not necessarily indicative of the results to be expected for the full year.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2020, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowances for doubtful accounts.
Accounts receivable:
Accounts receivable represent the amounts billed under operating lease contracts which are due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are charged off to the allowance on a specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company places the majority of its cash deposits in noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Company’s 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 lessees or borrowers in various industries, related to equipment on operating leases.
Equipment on operating leases and related revenue recognitions:
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 equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with Accounting Standards Codification (“ASC”) 360‑20‑35‑3, over the periods of the lease terms contained in each asset’s 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 Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s 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 management’s 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. Upon adoption of Accounting Standards Update (“ASU”) 2016-02, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in the Company’s financial statements. Initial direct costs:
With the adoption of ASU 2016-02 certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred effective January 1, 2019.
Asset valuation:
Recorded values of the Company’s 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 asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.
Segment reporting:
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.
The primary geographic region in which the Company sought leasing opportunities was North America. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019, and long-lived tangible assets as of June 30, 2020 and December 31, 2019 (dollars in thousands):
Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements. Purchased securities
Purchased securities registered for public sale are carried at fair value. Such securities 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's 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 issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company’s investment securities totaled $44 thousand at both June 30, 2020 and December 31, 2019. There were minimal fair value adjustments on investment securities with readily determinable fair values for the three and six months ended June 30, 2020 and 2019. Likewise, during the same respective periods, there were no fair value adjustments to investment securities that do not have readily determinable fair values. Cumulatively, the Fund recorded $98 thousand of adjustments to reduce the fair value of such investments based on changes in observable prices. Impairment losses on investment securities totaled $11 thousand for the six months ended June 30, 2019, all of which were recorded during the first quarter of 2019. There were no such losses during the three and six months ended June 30, 2020. Also, there were no investment securities sold or disposed of during each of the three and six months ended June 30, 2020 and 2019.
Per Unit data:
Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.
Fair value: Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three and six levels of inputs within the fair value hierarchy are defined as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market. Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, and information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources. Recent accounting pronouncements:
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. Management is currently evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Fund’s 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 equipment under operating leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, equipment under operating lease, 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. Management is currently evaluating the standard and expects the update may potentially result in the increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new CECL impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
On August 15, 2019, the FASB issued a proposed ASU that would grant certain companies additional time to implement FASB standards on CECL, and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective dates for hedging to fiscal periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of Topic 326 until fiscal year beginning after December 15, 2022.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Fund adopted ASU 2018-13 on January 1, 2020. Such adoption did not have a significant impact on the Fund’s financial statements and related disclosure requirements.
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Allowance for Credit Losses |
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||
Allowance for Credit Losses [Abstract] | ||||||||||||||||||||||||||||||||||
Allowance for Credit Losses | 3. Allowance for credit losses:
The Company’s allowance for credit losses are as follows (in thousands):
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Equipment Under Operating Leases, Net |
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Equipment Under Operating Leases, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment Under Operating Leases, Net | 4. Equipment under operating leases, net:
The Company’s equipment under operating leases, net consists of the following (in thousands):
The Company recorded $281 thousand of impairment losses to reduce the fair value of certain equipment for both three and six months ended June 30, 2019. There were no impairment losses recorded on equipment during the three and six months ended June 30, 2020. The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment was $39 thousand and $48 thousand for the respective three months ended June 30, 2020 and 2019, and was $78 thousand and $70 thousand for the respective six months ended June 30, 2020 and 2019. Initial direct costs amortization expense related to the Company’s operating leases was $1 thousand for both the six months ended June 30, 2020 and 2019. There was no initial direct costs amortization recorded for the three months ended June 30, 2020 and 2019. All of the leased property was acquired in the years beginning with 2005 through 2011.
As of June 30, 2020 and December 31, 2019, there were no lease contracts placed in non-accrual status. As of the same dates, the Company had certain other leases that have related accounts receivable aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved. Management continues to closely monitor these leases, and all other lease contracts, for any actual change in collectability status and indication of necessary valuation adjustments.
Operating leases:
Property on operating leases consisted of the following (in thousands):
The average estimated residual value for assets on operating leases was 14% and 17% of the assets’ original cost at June 30, 2020 and December 31, 2019, respectively.
At June 30, 2020, the aggregate amounts of future minimum lease payments receivable were as follows (in thousands):
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2020, the respective useful lives of each category of lease assets in the Company’s portfolio were as follows (in years):
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Related Party Transactions |
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Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | 5. Related party transactions:
The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment. The Company will be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Company.
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services for the Company are performed by AFS.
Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.
During the three and six months ended June 30, 2020 and 2019, AFS and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement, as follows (in thousands):
The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. As of June 30, 2020 and December 31, 2019, the Company has not exceeded the annual and/or cumulative limitations discussed above. |
Commitments |
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Jun. 30, 2020 | |
Commitments [Abstract] | |
Commitments | 6. Commitments:
At June 30, 2020, the Company had no commitments to purchase lease assets. |
Members' Capital |
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Members' Capital [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members' Capital | 7. Members’ capital:
Units issued and outstanding were 13,971,486 at both June 30, 2020 and December 31, 2019. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units). The Company ceased offering Units on March 11, 2005.
The Company has the right, exercisable at the Managing Member’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member’s on terms it determines to be appropriate under given circumstances, in the event that the Managing Member’s deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the 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.
As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Members and 7.5% to AFS.
Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
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Fair Value Measurements |
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Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 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.
Such fair value adjustments utilized the following methodology:
Investment in securities (recurring)
The Company’s investment in securities registered for public sale that have 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’s investments in publicly traded investment securities are valued based on their quoted market prices. The calculated change in fair value of these investments in securities was deemed nominal for both the three and six month periods ended June 30, 2020 and 2019.
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash and cash equivalents
The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
Commitments and Contingencies
Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred. The following tables present a summary of the carrying value and fair value by level of financial instruments on the Company’s balance sheet at June 30, 2020 and December 31, 2019 (in thousands):
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Global Health Emergency |
6 Months Ended |
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Jun. 30, 2020 | |
Global Health Emergency [Abstract] | |
Global Health Emergency | 9. Global health emergency:
On January 30, 2020, the World Health Organization declared the novel coronavirus outbreak a public health emergency. The Fund’s operations is located in California, which has restricted gatherings of people due to the coronavirus outbreak. At present, the Fund’s operations have not been adversely affected and continues to function effectively. Due to the dynamic nature of these unprecedented circumstances and possible business disruption, the Fund will continue to monitor the situation closely, but given the uncertainty about the situation, an estimate of the future impact, if any, cannot be made at this time. |
Summary of Significant Accounting Policies (Policy) |
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Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of presentation | 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, 2020 are not necessarily indicative of the results to be expected for the full year.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2020, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements. |
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Cash and cash equivalents | 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. |
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Use of estimates | Use of estimates:
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowances for doubtful accounts.
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Accounts Receivable | Accounts receivable:
Accounts receivable represent the amounts billed under operating lease contracts which are due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are charged off to the allowance on a specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received. |
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Credit Risk | Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents and accounts receivable. The Company places the majority of its cash deposits in noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Company’s 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 lessees or borrowers in various industries, related to equipment on operating leases.
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Equipment on operating leases and related revenue recognition | Equipment on operating leases and related revenue recognitions:
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 equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with Accounting Standards Codification (“ASC”) 360‑20‑35‑3, over the periods of the lease terms contained in each asset’s 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 Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s 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 management’s 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. Upon adoption of Accounting Standards Update (“ASU”) 2016-02, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in the Company’s financial statements. |
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Initial direct costs | Initial direct costs:
With the adoption of ASU 2016-02 certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred effective January 1, 2019. |
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Asset Valuation | Asset valuation:
Recorded values of the Company’s 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 asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. |
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Segment reporting | Segment reporting:
The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.
The primary geographic region in which the Company sought leasing opportunities was North America. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019, and long-lived tangible assets as of June 30, 2020 and December 31, 2019 (dollars in thousands):
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Investment in securities | Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements. Purchased securities
Purchased securities registered for public sale are carried at fair value. Such securities 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's 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 issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company’s investment securities totaled $44 thousand at both June 30, 2020 and December 31, 2019. There were minimal fair value adjustments on investment securities with readily determinable fair values for the three and six months ended June 30, 2020 and 2019. Likewise, during the same respective periods, there were no fair value adjustments to investment securities that do not have readily determinable fair values. Cumulatively, the Fund recorded $98 thousand of adjustments to reduce the fair value of such investments based on changes in observable prices. Impairment losses on investment securities totaled $11 thousand for the six months ended June 30, 2019, all of which were recorded during the first quarter of 2019. There were no such losses during the three and six months ended June 30, 2020. Also, there were no investment securities sold or disposed of during each of the three and six months ended June 30, 2020 and 2019. |
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Per Unit data | Per Unit data:
Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period. |
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Fair Value |
Fair value: Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three and six levels of inputs within the fair value hierarchy are defined as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market. Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, and information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources. |
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Recent accounting pronouncements | Recent accounting pronouncements:
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. Management is currently evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Fund’s 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 equipment under operating leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, equipment under operating lease, 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. Management is currently evaluating the standard and expects the update may potentially result in the increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new CECL impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
On August 15, 2019, the FASB issued a proposed ASU that would grant certain companies additional time to implement FASB standards on CECL, and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective dates for hedging to fiscal periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of Topic 326 until fiscal year beginning after December 15, 2022.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The Fund adopted ASU 2018-13 on January 1, 2020. Such adoption did not have a significant impact on the Fund’s financial statements and related disclosure requirements. |
Summary of Significant Accounting Policies (Tables) |
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Geographic Information Relating to Sources, by Nation, of Partnership's Total Revenue and Long-Lived Assets | The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three and six months ended June 30, 2020 and 2019, and long-lived tangible assets as of June 30, 2020 and December 31, 2019 (dollars in thousands):
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Allowance for Credit Losses (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||
Allowance for Credit Losses [Abstract] | ||||||||||||||||||||||||||||||||||
Activity in Allowance for Credit Losses | The Company’s allowance for credit losses are as follows (in thousands):
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Equipment Under Operating Leases, Net (Tables) |
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equipment Under Operating Leases, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment in Leases | The Company’s equipment under operating leases, net consists of the following (in thousands):
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Property on Operating Leases | Property on operating leases consisted of the following (in thousands):
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Future Minimum Lease Payments Receivable | At June 30, 2020, the aggregate amounts of future minimum lease payments receivable were as follows (in thousands):
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Schedule of Useful Lives of Lease Assets | The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2020, the respective useful lives of each category of lease assets in the Company’s portfolio were as follows (in years):
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Related Party Transactions (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
AFS and /or Affiliates Earned Commissions and Billed for Reimbursements Pursuant to Operating Agreement | During the three and six months ended June 30, 2020 and 2019, AFS and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement, as follows (in thousands):
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Members' Capital (Tables) |
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Jun. 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members' Capital [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to Other Members | Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):
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Fair Value Measurements (Tables) |
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Jun. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Fair Values of Financial Instruments | The following tables present a summary of the carrying value and fair value by level of financial instruments on the Company’s balance sheet at June 30, 2020 and December 31, 2019 (in thousands):
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Organization and Limited Liability Company Matters (Narrative) (Details) - USD ($) $ / shares in Units, $ in Thousands |
6 Months Ended | 82 Months Ended | 183 Months Ended | 215 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 11, 2005 |
Apr. 09, 2003 |
Mar. 12, 2003 |
Jun. 30, 2020 |
Dec. 31, 2011 |
Jun. 30, 2020 |
Jun. 30, 2020 |
Mar. 31, 2020 |
Dec. 31, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
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Business formation date | Aug. 12, 2002 | |||||||||||
Business formation State | California | |||||||||||
Business activities, description | sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities | |||||||||||
Business termination date | Dec. 31, 2022 | |||||||||||
Public offering of Limited Liability Company Units | 15,000,000 | |||||||||||
Public offering of Limited Liability Company Units, price per Unit | $ 10 | |||||||||||
Sale of Limited Liability Company Units, number of Units | 14,059,136 | 120,000 | ||||||||||
Proceeds from sale of Limited Liability Company Units | $ 140,600 | $ 1,200 | ||||||||||
Repurchase of Units, number of Units | 87,650 | |||||||||||
Repurchase of Units, value | $ 720 | |||||||||||
Reinvestment period | 6 years | |||||||||||
Other Members [Member] | ||||||||||||
Members capital account, Units issued | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | ||||||||
Members capital account, Units outstanding | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Allowance for Credit Losses (Activity in Allowance for Credit Losses) (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Provision for credit losses | $ 94 | $ 31 |
Allowance For Doubtful Accounts [Member] | Operating Leases [Member] | ||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Beginning Balance | 190 | 101 |
Provision for credit losses | 94 | 31 |
Ending Balance | $ 284 | $ 132 |
Equipment Under Operating Leases, Net (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
Dec. 31, 2019 |
|
Lessor, Lease, Description [Line Items] | |||||
Amortization of initial direct costs | $ 1 | $ 1 | |||
Depreciation of operating lease assets | $ 39 | $ 48 | $ 78 | 70 | |
Average estimated residual value of assets on operating leases | 14.00% | 14.00% | 17.00% | ||
Impairment losses on equipment | $ 281 | $ 281 | |||
Operating leases placed in non-accrual status | $ 0 | $ 0 | $ 0 | ||
Minimum [Member] | |||||
Lessor, Lease, Description [Line Items] | |||||
Accounts receivable, period for non accrual status | 90 days | 90 days |
Equipment Under Operating Leases, Net (Future Minimum Lease Payments Receivable) (Details) $ in Thousands |
Jun. 30, 2020
USD ($)
|
---|---|
Operating Leases | |
Six months ending December 31, 2020 | $ 428 |
Year ending December 31, 2021 | 688 |
2022 | 550 |
2023 | 106 |
2024 | 65 |
2025 | 19 |
Thereafter | 43 |
Operating leases, future minimum payments receivable, total | $ 1,899 |
Related Party Transactions (AFS and/or Affiliates Earned Commissions and Billed for Reimbursements Pursuant to Operating Agreement (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Related Party Transactions [Abstract] | ||||
Costs reimbursed to Managing Member and/or affiliates | $ 40 | $ 56 | $ 82 | $ 121 |
Asset management fees to Managing Member and/or affiliates | 17 | 28 | 35 | 52 |
Related party transactions, total | $ 57 | $ 84 | $ 117 | $ 173 |
Commitments (Narrative) (Details) $ in Thousands |
6 Months Ended |
---|---|
Jun. 30, 2020
USD ($)
| |
Commitments [Abstract] | |
Commitments to purchase lease assets | $ 0 |
Members' Capital (Narrative) (Details) - shares |
6 Months Ended | |||||
---|---|---|---|---|---|---|
Jun. 30, 2020 |
Mar. 31, 2020 |
Dec. 31, 2019 |
Jun. 30, 2019 |
Mar. 31, 2019 |
Dec. 31, 2018 |
|
Other Members Capital Account [Line Items] | ||||||
Potential repurchase price of Units as percentage of holder's capital account | 100.00% | |||||
Other Members [Member] | ||||||
Other Members Capital Account [Line Items] | ||||||
Members capital account, Units issued | 13,971,486 | 13,971,486 | ||||
Members capital account, Units outstanding | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Allocation of net income or net losses | 92.50% | |||||
Other Members [Member] | Maximum [Member] | ||||||
Other Members Capital Account [Line Items] | ||||||
Other Members capital account, Units authorized | 15,000,000 | 15,000,000 | ||||
Managing Member [Member] | ||||||
Other Members Capital Account [Line Items] | ||||||
Allocation of net income or net losses | 7.50% | |||||
Initial Members [Member] | ||||||
Other Members Capital Account [Line Items] | ||||||
Members capital account, Units issued | 50 | 50 |
Members' Capital (Distributions to Other Members) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2020 |
Jun. 30, 2019 |
Jun. 30, 2020 |
Jun. 30, 2019 |
|
Distribution Made to Limited Liability Company (LLC) Member [Line Items] | ||||
Distributions declared | $ 1,467 | $ 2,236 | ||
Weighted average number of Units outstanding | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Other Members [Member] | ||||
Distribution Made to Limited Liability Company (LLC) Member [Line Items] | ||||
Distributions declared | $ 1,467 | $ 2,236 | ||
Weighted average number of Units outstanding | 13,971,486 | 13,971,486 | 13,971,486 | 13,971,486 |
Weighted average distributions per Unit | $ 0.11 | $ 0.16 |
Fair Value Measurements (Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Thousands |
Jun. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Financial assets: | ||
Cash and cash equivalents | $ 751 | $ 2,041 |
Carrying Amount [Member] | ||
Financial assets: | ||
Cash and cash equivalents | 751 | 2,041 |
Level 1 Estimated Fair Value [Member] | ||
Financial assets: | ||
Cash and cash equivalents | $ 751 | $ 2,041 |
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