Investments in Equipment and Leases, Net

6 Months Ended

Jun. 30, 2016

Investments in Equipment and Leases, Net [Abstract]

Investments in Equipment and Leases, Net

3. Investment in equipment and leases, net:

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


		Balance December 31, 2015		Reclassifications & Additions / Dispositions		Depreciation/ Amortization Expense or Amortization of Leases		Balance June 30, 2016
Net investment in operating leases	$	3,192	$	(42)	$	(151)	$	2,999
Net investment in direct financing leases		12		(10)		(2)		-
Assets held for sale or lease, net		720		(23)		-		697
Total	$	3,924	$	(75)	$	(153)	$	3,696

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

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, if any. 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. As a result of these reviews, management determined that no impairment losses existed during the three and six months ended June 30, 2016 and 2015.

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $74 thousand and $79 thousand for the respective three months ended June 30, 2016 and 2015, and $151 thousand and $168 thousand for the respective six months ended June 30, 2016 and 2015.

All of the remaining property on lease, including capitalized improvements, were acquired during the years 1999 through 2015.

Operating leases:

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


		Balance December 31, 2015		Additions		Reclassifications or Dispositions		Balance June 30, 2016
Transportation, rail	$	14,714	$	-	$	429	$	15,143
Containers		8,968		-		(744)		8,224
		23,682		-		(315)		23,367
Less accumulated depreciation		(20,490)		(151)		273		(20,368)
Total	$	3,192	$	(151)	$	(42)	$	2,999

The average estimated residual value for assets on operating leases was 12% and 11% of the assets’ original cost at June 30, 2016 and December 31, 2015, respectively. There were no operating leases in non-accrual status at June 30, 2016 and December 31, 2015.

The Company may earn revenues from its containers, marine vessel and certain other assets based on utilization of such assets or through fixed term leases. Contingent rentals (i.e., short-term, operating charter hire payments) and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of operating lease revenues, and totaled $274 thousand and $300 thousand for the respective three months ended June 30, 2016 and 2015, and $584 thousand and $658 thousand for the respective six months ended June 30, 2016 and 2015.

Direct financing leases:

During December 2014, aviation equipment formerly leased under an operating lease contract was re-leased as a direct financing lease. Such equipment comprised the Fund’s total investment in direct financing leases as of December 31, 2015. There were no investments in direct financing leases as of June 30, 2016.

The following lists the components of the Company’s investment in direct financing leases as of December 31, 2015 (in thousands):


		December 31,
		2015
Total minimum lease payments receivable	$	6
Estimated residual values of leased equipment (unguaranteed)		10
Investment in direct financing leases		16
Less unearned income		(4)
Net investment in direct financing leases	$	12

The Company’s remaining direct financing lease matured on April 1, 2016.

There was no investment in direct financing lease assets in non-accrual status at June 30, 2016 and December 31, 2015.

At June 30, 2016, the aggregate amounts of future lease payments receivable are as follows (in thousands):


		Operating Leases
Six months ending December 31, 2016	$	1,164
Year ending December 31, 2017		1,795
2018		1,371
2019		1,106
2020		378
2021		48
	$	5,862

As indicated in Note 1, the Company is scheduled to terminate no later than December 31, 2019. In the event that any assets remain at such date, the Fund will venture to dispose of such assets in an orderly manner within a reasonable timeframe.

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2016, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):


Equipment category		Useful Life
Transportation, rail		35 - 40
Containers		15 - 20

ATEL CAPITAL EQUIPMENT FUND VIII LLC 10-Q