Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (fee required)
For the Year Ended December 31, 2003
OR
|_| Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 (no fee required)
For the transition period from ____ to ____
Commission File number 000-50210
ATEL Capital Equipment Fund IX, LLC
California 94-3375584
---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
600 California Street, 6th Floor, San Francisco, California 94108
(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
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
State the aggregate market value of voting stock held by non-affiliates of the
registrant: Inapplicable
The number of Limited Liability Company Units outstanding as of December 31,
2003 was 12,065,016.
DOCUMENTS INCORPORATED BY REFERENCE
Prospectus dated January 16, 2001, filed pursuant to Rule 424(b) (Commission
File No. 333-47196) is hereby incorporated by reference into Part IV hereof.
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California in September 2000. The Company was formed for the
purpose of acquiring equipment to engage in equipment leasing and sales
activities. The Managing Member of the Company is ATEL Financial Services LLC
(AFS), a California limited liability corporation. Prior to converting to a
limited liability company structure, the Managing Member was formerly known as
ATEL Financial Corporation.
The Company conducted a public offering of 15,000,000 Limited Liability Company
Units (Units), at a price of $10 per Unit. On February 21, 2001, subscriptions
for the minimum number of Units (120,000, representing $1,200,000) had been
received and AFS requested that the subscriptions be released to the Company. On
that date, the Company commenced operations in its primary business (leasing
activities). As of April 3, 2001, the Company had received subscriptions for
753,050 Units ($7,530,500), thus exceeding the $7,500,000 minimum requirement
for Pennsylvania, and AFS requested that the remaining funds in escrow (from
Pennsylvania investors) be released to the Company. As of January 15, 2003, the
Company's offering was terminated. Subscriptions for a total of 12,065,216
($120,652,160) Units had been received and accepted.
As of December 31, 2003, 12,065,016 Units ($120,650,160) were issued and
outstanding.
The Company's principal objectives are to invest in a diversified portfolio of
equipment that will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the partners 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"), ending December 31, 2009 and
(iii) provide additional distributions following the Reinvestment Period and
until all equipment has been sold. The Company is governed by its Limited
Liability Company Operating Agreement (Operating Agreement).
Narrative Description of Business
The Company has acquired and intends to acquire various types of equipment and
to lease such equipment pursuant to "Operating" leases and "High Payout" leases,
whereby "Operating" leases are defined as being leases in which the minimum
lease payments during the initial lease term do not recover the full cost of the
equipment and "High Payout" leases recover at least 90% of such cost. It is the
intention of AFS that a majority of the aggregate purchase price of equipment
will represent equipment leased under "High Payout" leases upon final investment
of the net proceeds of the offering and that no more than 20% of the aggregate
purchase price of equipment will be invested in equipment acquired from a single
manufacturer.
The Company will only purchase equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase.
As of December 31, 2003, the Company had purchased equipment with a total
acquisition price of $69,486,647. The Company has also invested $2,665,740 in
notes receivable.
The Company's objective is to lease a minimum of 75% of the equipment acquired
with the net proceeds of the offering to lessees that (i) have an aggregate
credit rating by Moody's Investor service, Inc. of Baa or better, or the credit
equivalent as determined by AFS, with the aggregate rating weighted to account
for the original equipment cost for each item leased or (ii) are established
hospitals with histories of profitability or municipalities. The balance of the
original equipment portfolio may include equipment leased to lessees which,
although deemed creditworthy by AFS, would not satisfy the general credit rating
criteria for the portfolio. In excess of 75% of the equipment acquired with the
net proceeds of the offering (based on original purchase cost) has been leased
to lessees with an aggregate credit rating of Baa or better or to such hospitals
or municipalities, as described in (ii) above.
During 2003, 2002 and 2001, certain lessees generated significant portions of
the Company's total lease revenues as follows:
Lessee Type of Equipment 2003 2002 2001
- ------ ----------------- ---- ---- ----
General Electric Aircraft Engines Machine tools 15% 11% *
Basin Electric Walking dragline 14% 23% 54%
Graham Offshore Inc. Off shore supply vessels 11% 17% *
Photuris, Inc. Various lab, computer * * 14%
and office equipment
* Less than 10%
These percentages are not expected to be comparable in future periods.
2
The equipment leasing industry is highly competitive. Equipment manufacturers,
corporations, partnerships and others offer users an alternative to the purchase
of most types of equipment with payment terms that vary widely depending on the
lease term and type of equipment. The ability of the Company to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of AFS or the Company), such as general economic conditions,
including the effects of inflation or recession, and fluctuations in supply and
demand for various types of equipment resulting from, among other things,
technological and economic obsolescence.
AFS will seek to limit the amount invested in equipment to any single lessee to
not more than 20% of the aggregate purchase price of equipment owned at any time
during the Reinvestment Period.
The business of the Company is not seasonal.
The Company has no full time employees.
Equipment Leasing Activities
The Company has acquired a diversified portfolio of equipment. The equipment has
been leased to lessees in various industries. The following tables set forth the
types of equipment acquired by the Company through December 31, 2003 and the
industries to which the assets have been leased. The Company has purchased
certain assets subject to existing non-recourse debt.
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
- ----------- ---------------- ------------
Mining equipment $25,681,512 36.95%
Manufacturing 16,908,402 24.33%
Marine vessels 11,200,000 16.12%
Materials handling 7,838,171 11.28%
Communications 3,033,933 4.37%
Furniture and fixtures 2,143,896 3.09%
Office automation 1,680,478 2.42%
Natural gas compressors 696,451 1.00%
Test Equipment 303,804 0.44%
--------------- ----------------
$69,486,647 100.00%
=============== ================
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
- ------------------ ---------------- ------------
Manufacturing $31,105,814 44.77%
Mining 14,366,115 20.67%
Electric utilities 11,315,397 16.28%
Marine transportation 11,200,000 16.12%
Retail 802,870 1.16%
Oil and gas 696,451 1.00%
--------------- ----------------
$69,486,647 100.00%
=============== ================
Through December 31, 2003, the Company has disposed of certain leased assets as
set forth below:
Excess of
Type of Original Rents Over
Equipment Equipment Cost Sale Price Expenses *
--------- -------------- ---------- ----------
Manufacturing $ 5,373,271 $ 5,163,964 $ 1,300,489
Research 774,314 63,141 1,006,066
Electronics 769,502 749,800 121,255
Computers 357,207 31,301 331,012
Other 77,180 65,850 31,091
----------------- ---------------- ----------------
$ 7,351,474 $ 6,074,056 $ 2,789,913
================= ================ ================
* Includes only those expenses directly related to the production of the related
rents.
For further information regarding the Company's equipment lease portfolio as of
December 31, 2003, see Note 3 to the financial statements, Investments in
equipment and leases, as set forth in Part II, Item 8, Financial Statements and
Supplementary Data.
Item 2. PROPERTIES
The Company does not own or lease any real property, plant or material physical
properties other than the equipment held for lease as set forth in Item 1.
3
Item 3. LEGAL PROCEEDINGS
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 consolidated financial position or results of operations. No material
legal proceedings are currently pending against the Company or against any of
its assets. The following is a discussion of legal matters involving the
Company, but which do not represent claims against the Company or its assets.
Silicon Access Networks, Inc.:
Silicon Access Networks, Inc. ("SAN") advised AFS on July 8, 2002, that due to a
further decline in expectations of future demand for SAN's products by potential
customers in its target markets, SAN's Board of Directors had directed
management to close a branch office located in North Carolina, which occurred in
July 2002.
In September 2003, SAN defaulted on its note payable to the Company. Essentially
all of the equipment financed was recovered and sold at auction in 2003. Assets
remaining in inventory are carried at the estimated net realizable value of
approximately $5,200. On December 22, 2003, SAN filed for protection under the
Bankruptcy Act. The Company's remaining claims are unsecured. No amounts
relating to the unsecured claims have been included in the financial statements
of the Company as of December 31, 2003.
Photuris, Inc.:
Photuris, a debtor of the Company, was on the verge of ceasing operations as it
was unable to secure new equity under favorable terms when the Company commenced
negotiations regarding Photuris' debt with the Company. As of this date, no
legal action has been initiated against the debtor; however, the account has
been restructured. In concert with several other lessors and lenders, the
Company concluded negotiations and executed a Settlement Agreement with
Photuris. Under the terms of the Settlement Agreement, the Company received an
initial $200,000 in cash in July 2002.
The Company is carrying a promissory note from Photuris for $300,000 (the
carrying value in the financial statements is $234,000 at December 31, 2003)
that is payable interest only at prime plus 1.25% from August 1, 2002 to October
2003, at which time payments will convert to an equal principal plus interest
basis, spread over 36 months. During 2003, Photuris made interest payments each
month, but made only two of the three scheduled payments of principal. The
agreement was again modified in 2004 and Photuris is scheduled to start making
payments of principal again on April 1, 2004.
The Company also owns Series C preferred stock of Photuris. The carrying value
of the stock (included in other assets on the balance sheet at December 31,
2003) was $95,158 and the original cost of the stock was $190,158. The write
down of $95,000 was recorded in 2003 and resulted from AFS's determination that
the stock had permanently declined in value.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED LIABILITY COMPANY UNITS AND RELATED
MATTERS
Market Information
The Units are transferable subject to restrictions on transfers that have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Company and its investment objectives, to
AFS's knowledge, no established public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future. As a
result, there is no currently ascertainable market value for the Units.
Holders
As of December 31, 2003, a total of 3,238 investors were record holders of Units
in the Company.
Dividends
The Company does not make dividend distributions. However, the Members of the
Company are entitled to certain distributions as provided under the Operating
Agreement.
AFS has sole discretion in determining the amount of distributions; provided,
however, that AFS will not reinvest in equipment, but will distribute, subject
to payment of any obligations of the Company, such available cash from
operations and cash from sales or refinancing as may be necessary to cause total
distributions to the Members for each year during the Reinvestment Period to
equal an amount between $0.90 and $1.10 per Unit which will be determined by
AFS.
4
The rate for monthly distributions from 2003 operations was $0.075 per Unit for
January through December 2003. The distributions were paid in February through
December 2003 and in January 2004. The rate for quarterly distributions paid in
April, July, October 2003 and January 2004 was $0.225 per Unit. Distributions
were from 2003 cash flows from operations.
The rate for monthly distributions from 2002 operations was $0.075 per Unit for
January through December 2002. The distributions were paid in February through
December 2002 and in January 2003. The rate for quarterly distributions paid in
April, July, October 2002 and January 2003 was $0.225 per Unit. Distributions
were from 2002 cash flows from operations.
The rate for monthly distributions from 2001 operations was $0.069 per Unit for
February (partial month) through September 2001. The distributions were paid in
April through October 2001. The rate for the distributions for October through
December 2001 was $0.075, per Unit. The distributions were paid in November
through December 2001 and in January 2002. The rates for quarterly distributions
paid in April and July 2001 and January 2002 were $0.090, $0.208, $0.208 and
$0.225, respectively per Unit. Distributions were from 2001 cash flows from
operations.
The following table presents summarized information regarding distributions to
members other than the Managing Member ("Other Members"):
2003 2002 2001
---- ---- ----
Net (loss) income per Unit, based on weighted
average Units outstanding $ (0.02) $ 0.02 $ 0.22
Return of investment 0.90 0.81 0.34
---------------- ---------------- ----------------
Distributions per Unit, based on weighted average
Units outstanding 0.88 0.83 0.56
Differences due to timing of distributions 0.02 0.07 0.17
---------------- ---------------- ----------------
Actual distribution rates, per Unit $ 0.90 $ 0.90 $ 0.73
================ ================ ================
Item 6. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company at December
31, 2003, 2002, 2001 and 2000 and for the periods then ended. This financial
data should be read in conjunction with the financial statements and related
notes included under Part II Item 8.
2003 2002 2001 2000
---- ---- ---- ----
Gross revenues $11,531,560 $ 7,073,495 $ 3,393,685 $ -
Net income $ 591,015 $ 603,150 $ 584,176 $ -
Weighted average Units outstanding 12,035,095 7,280,533 2,167,171 50
Net (loss) income allocated to Other Members $ (271,127) $ 115,396 $ 485,897 $ -
Net (loss) income per Unit, based on weighted
average Units outstanding $ (0.02) $ 0.02 $ 0.22 $ -
Distributions per Unit, based on weighted average
Units outstanding $ 0.88 $ 0.83 $ 0.56 $ -
Total Assets $87,530,487 $89,419,224 $36,828,411 $ 600
Total Members' Capital $86,906,015 $88,816,997 $36,550,603 $ 600
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements contained in this Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-K,
which are not historical facts, may be forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Investors are cautioned not
to attribute undue certainty to these forward-looking statements, which speak
only as of the date of this Form 10-K. We undertake no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this Form 10-K or to reflect the occurrence of
unanticipated events, other than as required by law.
Capital Resources and Liquidity
The Company commenced its offering of Units on January 16, 2001. On February 21,
2001, the Company commenced operations in its primary business (leasing
activities). Until the Company's initial portfolio of equipment has been
purchased, funds that have been received, but that have not yet been invested in
leased equipment, are invested in interest-bearing accounts or
high-quality/short-term commercial paper. The Company's public offering provided
for a total maximum capitalization of $150,000,000.
5
During the funding period, the Company's primary source of liquidity was
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
and proceeds of asset sales exceed expenses, and decreasing as lease assets are
acquired, as distributions are made to the Members and to the extent expenses
exceed cash flows from leases and proceeds from asset sales.
As another source of liquidity, the Company is expected to have contractual
obligations with a diversified group of lessees for fixed lease terms at fixed
rental amounts. As the initial lease terms expire, the Company will re-lease or
sell the equipment. The future liquidity beyond the contractual minimum rentals
will depend on AFS's success in re-leasing or selling the equipment as it comes
off lease.
The Company participates with AFS and certain of its affiliates in a $58,627,656
revolving line of credit (comprised of an acquisition facility and a warehouse
facility) with a financial institution that includes certain financial
covenants. The line of credit expires on June 28, 2004. As of December 31, 2003,
borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 23,000,000
----------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by AFS and its sister corporation under the
warehouse facility -
----------------
Total outstanding balance $ 23,000,000
================
Total available under the line of credit $ 58,627,656
Total outstanding balance (23,000,000)
----------------
Remaining availability $ 35,627,656
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and AFS.
The Company anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management fees to AFS and providing for cash
distributions to the Other Members. At December 31, 2003, the Company had
commitments to purchase lease assets totaling approximately $17,162,000.
AFS or an affiliate may purchase equipment in its own name, the name of an
affiliate or the name of a nominee, a trust or otherwise and hold title thereto
on a temporary or interim basis for the purpose of facilitating the acquisition
of such equipment or the completion of manufacture of the equipment or for any
other purpose related to the business of the Company, provided, however that:
(i) the transaction is in the best interest of the Company; (ii) such equipment
is purchased by the Company for a purchase price no greater than the cost of
such equipment to AFS or affiliate (including any out-of-pocket carrying costs),
except for compensation permitted by the Operating Agreement; (iii) there is no
difference in interest terms of the loans secured by the equipment at the time
acquired by AFS or affiliate and the time acquired by the Company; (iv) there is
no benefit arising out of such transaction to AFS or its affiliate apart from
the compensation otherwise permitted by the Operating Agreement; and (v) all
income generated by, and all expenses associated with, equipment so acquired
will be treated as belonging to the Company.
The Company currently has available adequate reserves to meet its immediate cash
requirements and those of the next twelve months, but in the event those
reserves were found to be inadequate, the Company would likely be in a position
to borrow against its current portfolio to meet such requirements. AFS envisions
no such requirements for operating purposes.
In August 2002, the Company established a $102 million receivables funding
program with a receivables financing company that issues commercial paper rated
A1 from Standard and Poors and P1 from Moody's Investor Services. In this
receivables funding program, the lenders would receive liens against the
Company's assets. The lender will be in a first position against certain
specified assets and will be in either a subordinated or shared position against
the remaining assets. The program provides for borrowing at a variable interest
rate and requires AFS, on behalf of the Company, to enter into interest rate
swap agreements with certain hedge counterparties (also rated A1/P1) to mitigate
the interest rate risk associated with a variable interest rate note. AFS
anticipates that this program will allow the Company to have a more cost
effective means of obtaining debt financing than available for individual
non-recourse debt transactions.
As of December 31, 2003, the Company had not borrowed under the facility. In
order to maintain the availability of the program, the Company is required to
make payments of standby fees. These fees totaled $238,000 in 2003 and are
included in interest expense in the Company's statement of operations.
6
It is the intention of the Company to use the receivables funding program as its
primary source of debt financing. The Company also has access to certain sources
of non-0recourse debt financing, which the Company will use on a transaction
basis as a means of mitigating credit risk.
AFS expects that aggregate borrowings in the future will be approximately 50% of
aggregate equipment cost. In any event, the Operating Agreement limits such
borrowings to 50% of the total cost of equipment, in aggregate.
The Company commenced regular distributions, based on cash flows from
operations, beginning with the month of February 2001. The distribution was made
in April 2001 and additional distributions have been consistently made through
December 2003.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally fixed for the terms of the leases without adjustment for
inflation.
If interest rates increase significantly, the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Cash Flows
2003 vs. 2002:
In both 2003 and 2002, our primary source of cash from operations was rents from
operating leases. Cash flows from operations increased from $5,521,904 in 2002
to $8,661,683 in 2003, an increase of $3,139,779. The increase is largely the
result of increases in operating lease revenues. Operating lease rents increased
from $6,269,908 in 2002 to $9,762,725 in 2003, an increase of $3,492,817.
In 2003 and 2002, sources of cash from investing activities consisted of
proceeds from sales of lease assets, payments on direct financing leases and
payments received on notes receivable. The amounts of sales proceeds increased
from $749,408 in 2002 to $5,370,886 in 2003, an increase of $4,621,478. At
December 31, 2003, the Company had a receivable from an affiliate of $4,142,025
with respect to the sale of certain assets. The sale was part of a larger sale
of assets to a third party. See Note 5 to the financial statements included in
Item 8 of Part I of this report on Form 10K for further details. Cash flows from
financing leases increased from $220,691 in 2002 to $929,968 in 2003, an
increase of $709,277. Increases in the amounts we have received on direct
financing leases have resulted from asset acquisitions over the last two years.
We used cash to purchase assets on operating leases ($11,777,539 in 2003 and
$29,839,551 in 2002) and direct financing leases ($5,778,880 in 2003 and
$995,270 in 2002), to pay initial direct costs associated with those leases and
to make note receivable advances.
In both 2003 and 2002, our only source of cash from financing activities was the
proceeds from the public offering of the Company's Units. The offering was
concluded in January of 2003. We used cash in both years to pay the costs of the
offering and to make distributions to the members. The amounts distributed to
members other than AFS increased from $6,015,627 in 2002 to $10,633,086 as a
result of the increase in the weighted average number of Units outstanding in
2003 compared to 2002.
2002 vs. 2001:
In 2002 and 2001, operating lease rents were the primary source of cash flows
from operations. The Company's primary source of cash in both years was the
proceeds of its offering of Limited Liability Company Units. Operating lease
rents have increased as discussed below under "Results of Operations".
Sources of cash from investing activities included amounts received for notes
receivable principal payments and direct finance lease payments in both 2002 and
2001. In 2002, the Company also received proceeds from sales of lease assets.
Cash was used to purchase assets on operating and direct finance leases. Cash
was also used to pay initial direct lease costs and to pay syndication costs
(associated with the offering) to AFS and one of its affiliates. Cash was also
used to make distributions to the members.
Results of Operations
As of February 21, 2001, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Company. As of that date, the
Company commenced operations in its primary business (leasing activities).
Because of the timing of the commencement of operations and the fact that the
initial portfolio acquisitions were not completed at December 31, 2003, the
results of operations in 2003, 2002 and 2001 are not expected to be comparable
to future periods. After the Company's public offering and its initial asset
acquisition stage terminate, the results of operations are expected to change
significantly.
7
Substantially all employees of AFS track time incurred in performing
administrative services on behalf of the Company. AFS believes that the costs
reimbursed are the lower of (i) actual costs incurred on behalf of the Company
or (ii) the amount the Company would be required to pay independent parties for
comparable administrative services in the same geographic location.
As of December 31, 2003, 2002 and 2001, there were concentrations (greater than
10%) of equipment leased to lessees and/or financial borrowers in certain
industries (as a percentage of total equipment cost) as follows:
2003 2002 2001
---- ---- ----
Manufacturing 40% 37% *
Electric utilities 23% 21% 50%
Marine transportation 17% 21% 25%
Mining 17% 18% *
* Less than 10%
2003 vs. 2002:
Operations in 2003 and 2002 resulted in net income of $591,015 and $603,150,
respectively. Our primary source of revenues is rents from operating leases. We
are continuing to acquire additional lease assets. As a result of our
acquisitions, our operating leases revenues increased from $6,269,908 in 2002 to
$9,762,725 in 2003, an increase of $3,492,817.
Our largest expense is depreciation. It is directly related to operating lease
assets and the revenues we earn on them. Our continued acquisitions of these
assets has led to the increases in revenues we noted above and to the increase
in depreciation expense from $5,019,123 in 2002 to $7,798,332 in 2003, an
increase of $2,779,209.
Our management fees are calculated based on our revenues plus the amounts of
proceeds from sales of assets that we generated. The amounts of cash flows on
which the fees are based increased from approximately $7,130,000 in 2002 to
$15,020,000 in 2003, an increase if $7,890,000. As a result, our management fees
increased from $264,622 in 2002 to $686,013 in 2003, an increase of $421,691.
The level of our leasing activities has increased in 2003 compared to 2002.
During 2002, the average cost of assets on operating leases was $36,563,919. In
2003, that average had increased to $54,179,761, and increase of 48%. Our cost
reimbursements to AFS increased from $343,120 in 2002 to $627,320 in 2003,
largely as a result of this increased activity.
In 2003, we provided $496,347 for losses and doubtful accounts. The amounts
provided related assets held for lease or sale ($61,712); marketable securities
available for sale, included in other asset in the balance sheet ($95,000);
accounts receivable ($13,000); and notes receivable ($326,635.) There were no
similar provisions in 2002.
The Company is continuing to acquire significant amounts of lease assets. As a
result, results of operations in future periods are not expected to be
comparable to 2003 or 2002.
2002 vs. 2001:
Operations in 2002 and 2001 resulted in net income of $603,150 and $584,176,
respectively. The primary source of revenues was rents from operating leases.
The Company is continuing to acquire significant amounts of lease assets. As a
result, results of operations in future periods are not expected to be
comparable to 2002 or 2001, nor are they expected to be comparable to each
other. During these two years, the Company was conducting public offering of
Units and was acquiring the majority of its initial portfolio of lease assets.
During this phase of the Company's life cycle, revenues and expenses are
expected to change significantly from one period to another.
Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in June 2000 and by
SFAS No. 149, issued in June 2003.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments. If derivative financial instruments are utilized, the Company will
be required to record derivative instruments at fair value in the balance sheet
and recognize the offsetting gains or losses as adjustments to net income or
other comprehensive income, as appropriate.
The Company adopted SFAS No. 133, as amended, on January 1, 2001, which had no
impact as the Company did not utilize derivatives in 2003, 2002 or 2001.
However, the Company expects to enter into interest rate swap agreements in
future periods.
8
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows: (i) Special purpose entities ("SPEs") created prior to
February 1, 2003. The company must apply either the provisions of FIN 46 or
early adopt the provisions of FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to
February 1, 2003. The company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether a SPE, that were created subsequent to January
31, 2003. The provisions of FIN 46 were applicable for variable interests in
entities obtained after January 31, 2003.
The company is required to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 15, 2004. The adoption of the
provisions applicable to SPEs and all other variable interests obtained after
January 31, 2003 did not have a material impact on the company's financial
statements. The company is currently evaluating the impact of adopting FIN 46-R
applicable to Non-SPEs created prior to February 1, 2003 but does not expect a
material impact.
In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds
Statement No. 4, which required that all gains and losses from extinguishment of
debt be reported as an extraordinary item. The adoption of Statement No. 145,
effective January 1, 2003, did not have any effect on the Company's consolidated
financial position, consolidated results of operations, or liquidity.
Critical Accounting Policies
The policies discussed below are considered by management of the Company to be
critical to an understanding of the Company's financial statements because their
application requires significant complex or subjective judgments, decisions, or
assessments, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. The
Company also states these accounting policies in the notes to the financial
statements and in relevant sections in this discussion and analysis. For all of
these policies, management cautions that future events rarely develop exactly as
forecast, and the best estimates routinely require adjustment.
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the lives of the
related leases.
9
Direct financing leases:
Income from direct financing lease transactions is reported using the financing
method of accounting, in which the Company's investment in the leased property
is reported as a receivable from the lessee to be recovered through future
rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review of AFS. Direct financing leases are charged off on
specific identification by AFS.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Asset Valuation:
Recorded values of the Company's asset portfolio are periodically reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An
impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
mpairment is measured as the difference between the fair value (as determined by
the discounted estimated future cash flows) of the assets and its carrying value
on the measurement date.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks, including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.
In general, the Company expects to manage its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is to be structured so as to
match the cash flows required to service the debt to the payment streams under
fixed rate lease receivables. The payments under the leases are assigned to the
lenders in satisfaction of the debt. Furthermore, AFS has historically been able
to maintain a stable spread between its cost of funds and lease yields in both
periods of rising and falling interest rates. Nevertheless, the Company expects
to frequently fund leases with its floating interest rate line of credit and
will, therefore, be exposed to interest rate risk until fixed rate financing is
arranged, or the floating interest rate line of credit is repaid. As of December
31, 2003, there was no outstanding balance on the floating interest rate line of
credit.
Also, as described in the caption "Capital Resources and Liquidity," the Company
entered into a receivables funding facility in 2002. Since interest on the
outstanding balances under the facility will vary, the Company will be exposed
to market risks associated with changing interest rates. To hedge its interest
rate risk, the Company expects to enter into interest rate swaps, which will
effectively convert the underlying interest characteristic on the facility from
floating to fixed. Under the swap agreements, the Company expects to make or
receive variable interest payments to or from the counterparty based on a
notional principal amount. The net differential paid or received by the Company
is recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received will represent the difference between the
payments required under the variable interest rate facility and the amounts due
under the facility at the fixed (hedged) interest rate. There were no borrowing
In general, it is anticipated that these swap agreements will eliminate the
Company's interest rate risk associated with variable rate borrowings. However,
the Company would be exposed to and would manage credit risk associated with the
counterparty by dealing only with institutions it considers financially sound.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 11 through 28.
10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Members
ATEL Capital Equipment Fund IX, LLC
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
IX, LLC (Company) as of December 31, 2003 and 2002, the related statements of
income, changes in members' capital and cash flows for the three years ended
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund IX,
LLC at December 31, 2003 and 2002, the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 20, 2004
11
ATEL CAPITAL EQUIPMENT FUND IX, LLC
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
2003 2002
---- ----
ASSETS
Cash $29,429,383 $39,722,496
Due from affiliate 4,142,025 -
Accounts receivable, net of allowance for
doubtful accounts of $13,000 in 2003 and zero
in 2002 1,323,526 1,197,760
Notes receivable 268,196 1,055,609
Other assets 310,158 465,157
Investment in equipment and leases 52,057,199 46,978,202
---------------- ----------------
$87,530,487 $89,419,224
================ ================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Managing Member $ 18,804 $ 434,516
Other 476,740 90,667
Unearned operating lease income 128,928 77,044
---------------- ----------------
Total liabilities 624,472 602,227
Total Members' capital 86,906,015 88,816,997
---------------- ----------------
Total liabilities and Members' capital $87,530,487 $89,419,224
================ ================
See accompanying notes.
12
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF INCOME
FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
Revenues: 2003 2002 2001
---- ---- ----
Leasing activities:
Operating leases $ 9,762,725 $ 6,269,908 $ 3,102,265
Direct financing leases 315,801 114,980 53,589
Gain on sales of assets 658,865 107,353 -
Interest 741,634 579,486 232,116
Other 52,535 1,768 5,715
---------------- ---------------- ----------------
11,531,560 7,073,495 3,393,685
Expenses:
Depreciation of operating lease assets 7,798,332 5,019,123 2,053,997
Asset management fees to Managing Member 686,013 264,322 83,341
Cost reimbursements to Managing Member 627,320 343,120 374,507
Provision for losses and doubtful accounts 496,347 - -
Amortization of initial direct costs 491,376 158,964 24,898
Interest expense 349,319 336,696 199,230
Professional fees 106,167 99,730 39,384
Insurance 104,588 - -
Other 281,083 248,390 34,152
---------------- ---------------- ----------------
10,940,545 6,470,345 2,809,509
---------------- ---------------- ----------------
Net income $ 591,015 $ 603,150 $ 584,176
================ ================ ================
Net income (loss):
Managing Member $ 862,142 $ 487,754 $ 98,279
Other Members (271,127) 115,396 485,897
---------------- ---------------- ----------------
$ 591,015 $ 603,150 $ 584,176
================ ================ ================
Net (loss) income per Limited Liability Company Unit (Other Members) $ (0.02) $ 0.02 $ 0.22
Weighted average number of Units outstanding 12,035,095 7,280,533 2,167,171
See accompanying notes.
13
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
Other Members Managing
-------------
Units Amount Member Total
Balance December 31, 2000 50 $ 500 $ 100 $ 600
Capital contributions 4,363,359 43,633,590 - 43,633,590
Less selling commissions to affiliates (4,145,191) - (4,145,191)
Other syndication costs to affiliates (2,210,852) - (2,210,852)
Distributions to Other Members ($0.56 per Unit) (1,213,341) - (1,213,341)
Distributions to Managing Member - (98,379) (98,379)
Net income 485,897 98,279 584,176
---------------- ---------------- ---------------- ----------------
Balance December 31, 2001 4,363,409 36,550,603 - 36,550,603
Capital contributions 6,673,732 66,737,320 - 66,737,320
Less selling commissions to affiliates (6,340,045) - (6,340,045)
Other syndication costs to affiliates (2,230,650) - (2,230,650)
Distributions to Other Members ($0.83 per Unit) (6,015,627) - (6,015,627)
Distributions to Managing Member - (487,754) (487,754)
Net income 115,396 487,754 603,150
---------------- ---------------- ---------------- ----------------
Balance December 31, 2002 11,037,141 88,816,997 - 88,816,997
Capital contributions 1,028,125 10,281,250 - 10,281,250
Less selling commissions to affiliates (976,719) - (976,719)
Other syndication costs to affiliates (309,377) - (309,377)
Limited Liability Company Units repurchased (250) (1,923) - (1,923)
Distributions to Other Members ($0.88 per Unit) (10,633,086) - (10,633,086)
Distributions to Managing Member - (862,142) (862,142)
Net income (loss) (271,127) 862,142 591,015
---------------- ---------------- ---------------- ----------------
Balance December 31, 2003 12,065,016 $86,906,015 $ - $86,906,015
================ ================ ================ ================
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31, 2003, 2002 AND 2001
Operating activities: 2003 2002 2001
---- ---- ----
Net income $ 591,015 $ 603,150 $ 584,176
Adjustments to reconcile net income to cash provided by operating
activities:
Gain on sales of lease assets (658,865) (107,353) -
Depreciation of operating lease assets 7,798,332 5,019,123 2,053,997
Amortization of initial direct costs 491,376 158,964 24,898
Provision for losses and doubtful accounts 496,347 - -
Residual value income - (201) (9,890)
Changes in operating assets and liabilities:
Other assets 59,999 (465,157) -
Accounts receivable (138,766) (11,041) (1,186,719)
Accounts payable, Managing Member (415,712) 276,797 157,719
Accounts payable, other 386,073 66,196 24,471
Unearned operating lease income 51,884 (18,574) 95,618
---------------- ---------------- ----------------
Net cash provided by operations 8,661,683 5,521,904 1,744,270
---------------- ---------------- ----------------
Investing activities:
Purchases of equipment on operating leases (11,777,539) (29,839,551) (22,025,405)
Purchases of equipment on direct financing leases (5,778,880) (995,270) (819,124)
Proceeds from sales of lease assets 5,370,886 749,408 -
Due from affiliate (4,142,025) - -
Payments of initial direct costs to Managing Member (1,515,987) (1,092,641) (317,985)
Reduction of net investment in direct financing leases 929,968 220,691 68,230
Payments received on notes receivable 506,974 958,258 605,677
Note receivable advances (46,196) (1,031,605) (1,587,939)
Investment in residuals - - (66,093)
---------------- ---------------- ----------------
Net cash used in investing activities (16,452,799) (31,030,710) (24,142,639)
---------------- ---------------- ----------------
Financing activities:
Capital contributions received 10,281,250 66,737,320 43,633,590
Payment of syndication costs to Managing Member (1,286,096) (8,570,695) (6,356,043)
Distributions to Other Members (10,633,086) (6,015,627) (1,213,341)
Distributions to Managing Member (862,142) (487,754) (98,379)
Limited Liability Company Units repurchased (1,923) - -
---------------- ---------------- ----------------
Net cash (used in) provided by financing activities (2,501,997) 51,663,244 35,965,827
---------------- ---------------- ----------------
Net (decrease) increase in cash and cash equivalents (10,293,113) 26,154,438 13,567,458
Cash and cash equivalents at beginning of period 39,722,496 13,568,058 600
---------------- ---------------- ----------------
Cash and cash equivalents at end of period $29,429,383 $39,722,496 $13,568,058
================ ================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 349,319 $ 336,696 $ 199,230
================ ================ ================
See accompanying notes.
15
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California on September 27, 2000 for the purpose of acquiring
equipment to engage in 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 corporation. The Company may continue
until December 31, 2019. Contributions in the amount of $600 were received as of
December 31, 2000, $100 of which represented AFS's continuing interest, and $500
of which represented the Initial Member's capital investment.
The Company conducted a public offering of 15,000,000 Limited Liability Company
Units (Units), at a price of $10 per Unit. On February 21, 2001, subscriptions
for the minimum number of Units (120,000, representing $1,200,000) had been
received and AFS requested that the subscriptions be released to the Company. On
that date, the Company commenced operations in its primary business (leasing
activities). As of April 3, 2001, the Company had received subscriptions for
753,050 Units ($7,530,500) and AFS requested that the remaining funds in escrow
(from Pennsylvania investors) be released to the Company.
As of January 15, 2003, the offering was terminated. As of that date, the
Company had received subscriptions for 12,110,460 Units ($121,104,600).
The Company's principal objectives are to invest in a diversified portfolio of
equipment that will (i) preserve, protect and return the Company's invested
capital; (ii) generate 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, ending December 31, 2009 and (iii) provide additional
distributions following the Reinvestment Period and until all equipment has been
sold. The Company is governed by its Limited Liability Company Operating
Agreement (Operating Agreement).
2. Summary of significant accounting policies:
Cash and cash equivalents:
Cash and cash equivalents includes cash in banks and cash equivalent investments
with original maturities of ninety days or less.
Accounts receivable:
Accounts receivable represent the amounts billed under lease contracts and
currently due to the Company. Allowances for doubtful accounts are typically
established based on historical charge offs and collection experience and are
usually determined by specifically identified lessees and invoiced amounts.
Investment in notes receivable:
Income from notes receivable is reported using the financing method of
accounting. The Company's investment in notes receivable is reported as the
present value of the future note payments. The income portion of each note
payment is calculated so as to generate a constant rate of return on the net
balance outstanding. Allowances for doubtful accounts are typically established
based on historical charge offs and collection experience and are usually
determined by specifically identified notes. Notes receivable are charged off on
specific identification by AFS.
16
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the lives of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported using the financing
method of accounting, in which the Company's investment in the leased property
is reported as a receivable from the lessee to be recovered through future
rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
Allowances for losses on direct financing leases are typically established based
on historical charge offs and collections experience and are usually determined
by specifically identified lessees and billed and unbilled receivables.
Direct financing leases are placed in a non-accrual status based on specifically
identified lessees. Such leases are only returned to an accrual status based on
a case by case review of AFS. Direct financing leases are charged off on
specific identification by AFS.
Initial direct costs:
The Company capitalizes initial direct costs associated with the acquisition of
lease assets. The costs are amortized over a five year period using a straight
line method.
Income taxes:
The Company does not provide for income taxes since all income and losses are
the liability of the individual members and are allocated to the members for
inclusion in their individual tax returns.
The tax basis of the Company's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
2003 2002
---- ----
Financial statement basis of net assets $ 86,906,015 $ 88,816,997
Tax basis of net assets 94,208,823 99,145,193
---------------- ----------------
Difference $ 7,302,808 $ 10,328,196
================ ================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences between the depreciation methods used in
the financial statements and the Company's tax returns.
17
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
The following reconciles the net income reported in these financial statements
to the (loss) income reported on the Company's federal tax return (unaudited)
for each of the years ended December 31:
2003 2002 2001
---- ---- ----
Net income per financial statements $ 591,015 $ 603,150 $ 584,176
Adjustment to depreciation expense (6,258,019) (4,486,980) (640,404)
Provision for losses and doubtful accounts 496,347 - -
Adjustments to lease revenues 1,450,188 (64,120) 163,847
---------------- ---------------- ----------------
Net (loss) income per federal tax return $ (3,720,469) $ (3,947,950) $ 107,619
================ ================ ================
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
Asset valuation:
Recorded values of the Company's asset portfolio are periodically reviewed for
impairment in accordance with Statement of Financial Accounting Standards (SFAS)
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. An
impairment loss is measured and recognized only if the estimated undiscounted
future cash flows of the asset are less than their net book value. The estimated
undiscounted future cash flows are the sum of the estimated residual value of
the asset at the end of the asset's expected holding period and estimates of
undiscounted future rents. The residual value assumes, among other things, that
the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets, if held in quantity, simultaneously or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value (as determined
by the discounted estimated future cash flows) of the assets and its carrying
value on the measurement date.
The Company adopted SFAS 144 as of January 1, 2002. The adoption of the
Statement did not have a significant impact on the Company's financial position
and results of operations.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of
credit risk include cash and cash equivalents, notes receivable, direct finance
lease receivables and accounts receivable. The Company places its cash deposits
and temporary cash investments with creditworthy, high quality financial
institutions. The concentration of such deposits and temporary cash investments
is not deemed to create a significant risk to the Company. Accounts receivable
and notes receivable represent amounts due from lessees and debtors in various
industries, related to equipment on operating and direct financing leases or
equipment financed through notes receivable. See Note 7 for a description of
lessees and debtors by industry as of December 31, 2003, 2002 and 2001.
Derivative financial instruments:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in June 2000 and by
SFAS No. 149, issued June 2003.
18
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Derivative financial instruments (continued):
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments.
The Company adopted SFAS No. 133, as amended, on January 1, 2001, which had no
impact as the Company did not utilize derivatives during 2003, 2002 or 2001.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Basis of presentation:
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Recent accounting pronouncements:
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of ARB 51." The
primary objectives of this interpretation are to provide guidance on the
identification of entities for which control is achieved through means other
than through voting rights ("variable interest entities") and how to determine
when and which business enterprise (the "primary beneficiary") should
consolidate the variable interest entity. This new model for consolidation
applies to an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46 requires
that the primary beneficiary, as well as all other enterprises with a
significant variable interest in a variable interest entity, make additional
disclosures. Certain disclosure requirements of FIN 46 were effective for
financial statements issued after January 31, 2003.
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows: (i) Special purpose entities ("SPEs") created prior to
February 1, 2003. The company must apply either the provisions of FIN 46 or
early adopt the provisions of FIN 46-R at the end of the first interim or annual
reporting period ending after December 15, 2003. (ii) Non-SPEs created prior to
February 1, 2003. The company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 15, 2004. (iii) All
entities, regardless of whether a SPE, that were created subsequent to January
31, 2003. The provisions of FIN 46 were applicable for variable interests in
entities obtained after January 31, 2003.
19
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
2. Summary of significant accounting policies (continued):
Recent accounting pronouncements (continued):
In December 2003, the FASB issued FIN No. 46 (revised December 2003),
"Consolidation of Variable Interest Entities" ("FIN 46-R") to address certain
FIN 46 implementation issues. The effective dates and impact of FIN 46 and FIN
46-R are as follows:
(i) Special purpose entities ("SPEs") created prior to February 1, 2003. The
company must apply either the provisions of FIN 46 or early adopt the provisions
of FIN 46-R at the end of the first interim or annual reporting period ending
after December 15, 2003.
(ii) Non-SPEs created prior to February 1, 2003. The company is required to
adopt FIN 46-R at the end of the first interim or annual reporting period ending
after March 15, 2004.
(iii) All entities, regardless of whether a SPE, that were created subsequent to
January 31, 2003. The provisions of FIN 46 were applicable for variable
interests in entities obtained after January 31, 2003.
In April 2002, the FASB issued FASB Statement No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections (Statement No. 145). Among other things, Statement No. 145 rescinds
Statement No. 4, which required that all gains and losses from extinguishment of
debt be reported as an extraordinary item. The adoption of Statement No. 145,
effective January 1, 2003, did not have any effect on the Company's consolidated
financial position, consolidated results of operations, or liquidity.
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation /
Amortization
Expense or
Balance Amortization of Reclassi- Balance
December 31, Impairment Direct Financing fications or December 31,
2002 Additions Losses Leases Dispositions 2003
---- --------- ------ ------ ------------ ----
Net investment in
operating leases $ 44,149,781 $ 11,777,539 $ - $ (7,798,332) $ (4,685,551) $ 43,443,437
Net investment in direct
financing leases 1,525,473 5,778,880 - (929,968) (17,158) 6,357,227
Assets held for sale or lease - - (61,712) - 66,872 5,160
Residual values, other 76,184 - - - (76,184) -
Initial direct costs, net of
accumulated amortization
of $675,238 in 2003 and
$183,862 in 2002 1,226,764 1,515,987 - (491,376) - 2,251,375
-------------- ----------------- --------------- ---------------- ---------------- ----------------
$ 46,978,202 $ 19,072,406 $ (61,712) $ (9,219,676) $ (4,712,021) $ 52,057,199
============== ================= =============== ================ ================ ================
20
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. Investment in leases (continued):
Management periodically reviews the carrying values of its assets on leases and
assets held for lease or sale. As a result of the reviews, management determined
that due to continuing declines in markets for certain types of assets, during
2003, the value of certain office equipment held for sale or lease was impaired.
The fair values of the assets were determined based on the sum of the discounted
estimated future cash flows of the assets. A charge to operations was recorded
for the decline in value of the assets in the amount of $61,712 for the year
ended December 31, 2003. No impairment losses were recorded in either 2002 or
2001.
Impairment losses are recorded as an addition to accumulated depreciation of the
impaired assets. Depreciation expense and impairment losses on property subject
to operating leases and property held for lease or sale consist of the following
for each of the years ended December 31:
2003 2002 2001
---- ---- ----
Depreciation expense $ 7,798,332 $ 5,019,123 $ 2,053,997
Impairment losses 61,712 - -
---------------- ---------------- ----------------
$ 7,860,044 $ 5,019,123 $ 2,053,997
================ ================ ================
All of the property on leases was acquired in 2003, 2002 and 2001.
Operating leases:
Property on operating leases consists of the following:
Reclassi-
December 31, fications or December 31,
2002 Additions Dispositions 2003
---- --------- ------------ ----
Mining $20,903,212 $ 4,618,772 $ - $ 25,521,984
Manufacturing 15,051,966 759,157 (5,373,271) 10,437,852
Marine vessels 11,200,000 - - 11,200,000
Materials handling 2,419,402 3,460,162 - 5,879,564
Communications 269,153 2,764,780 - 3,033,933
Natural gas compressors 696,451 - (74,943) 621,508
Office furniture 562,248 174,668 (174,668) 562,248
---------------- ---------------- ---------------- ----------------
51,102,432 11,777,539 (5,622,882) 57,257,089
Less accumulated depreciation (6,952,651) (7,798,332) 937,331 (13,813,652)
---------------- ---------------- ---------------- ----------------
$ 44,149,781 $ 3,979,207 $ (4,685,551) $ 43,443,437
================ ================ ================ ================
The average assumed residual value for assets on operating leases at December
31, 2003 and 2002 were 28% and 30% of the assets original cost, respectively.
21
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
3. Investment in leases (continued):
Direct financing leases:
As of December 31, 2003, investment in direct financing leases consists of
materials handling equipment and office furniture. The following lists the
components of the Company's investment in direct financing leases as of December
31, 2003 and 2002:
2003 2002
---- ----
Total minimum lease payments receivable $ 6,752,281 $ 1,621,790
Estimated residual values of leased equipment (unguaranteed) 649,809 211,527
---------------- ----------------
Investment in direct financing leases 7,402,090 1,833,317
Less unearned income (1,044,863) (307,844)
---------------- ----------------
Net investment in direct financing leases $ 6,357,227 $ 1,525,473
================ ================
At December 31, 2003, the aggregate amounts of future minimum lease payments are
as follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
------------ ------ ------ -----
2004 $ 9,720,952 $ 2,572,293 $ 12,293,245
2005 9,670,173 1,710,138 11,380,311
2006 8,059,545 1,162,042 9,221,587
2007 3,490,662 780,802 4,271,464
2008 1,646,561 414,840 2,061,401
Thereafter 1,154,256 112,166 1,266,422
---------------- ---------------- ----------------
$ 33,742,149 $ 6,752,281 $ 40,494,430
================ ================ ================
4. Notes receivable:
The Company has various notes receivable from parties who have financed the
purchase of equipment through the Company. The terms of the notes receivable are
36 to 49 months and bear interest at rates ranging from 15% to 18%. The notes
are secured by the equipment financed. As of December 31, 2003, the minimum
future payments receivable are as follows:
Year ending
December 31,
2004 $ 133,922
2005 124,828
2006 76,715
----------------
335,465
Less portion representing interest (67,269)
----------------
$ 268,196
================
22
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
5. Related party transactions:
The terms of the Limited Liability Company 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 Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by AFS in providing administrative services to the Company.
Administrative services provided include Company accounting, 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. Reimbursable costs incurred by
AFS are allocated to the Company based upon estimated time incurred by employees
working on Company business and an allocation of rent and other costs based on
utilization studies.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC is a wholly-owned
subsidiary of ATEL Capital Group and performs services for the Company.
Acquisition services are performed for the Company by ALC, equipment management,
lease administration and asset disposition services are performed by AEC,
investor relations and communications services are performed by AIS and general
administrative services for the Company are performed by AFS.
Substantially all employees of AFS record time incurred in performing
administrative services on behalf of all of the Companies serviced by AFS. AFS
believes that the costs reimbursed are the lower of actual costs incurred on
behalf of the Company or the amount the Company would be required to pay
independent parties for comparable administrative services in the same
geographic location and are reimbursable in accordance with the Limited
Liability Company Operating Agreement.
AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to
the Limited Liability Company Agreement as follows during each of the years
ended December 31:
2003 2002 2001
---- ---- ----
Selling commissions (equal to 9.5% of the selling price of the Limited
Liability Company units, deducted from Other Members' capital) $ 976,719 $ 6,340,045 $ 4,145,191
Reimbursement of other syndication costs to Managing Member 309,377 2,230,650 2,210,852
Administrative costs reimbursed to Managing Member 627,320 343,120 374,507
Initial direct costs paid to Managing Member 1,515,987 1,092,641 317,985
Asset management fees to Managing Member 686,013 264,322 83,341
---------------- ---------------- ----------------
$ 4,115,416 $ 10,270,778 $ 7,131,876
================ ================ ================
On December 31, 2003, the Company sold certain assets subject to operating
leases and direct financing leases to the lessee. The assets being sold were a
part of a larger sale involving the sale of assets belonging to an affiliate of
the Company. On December 31, 2003, the lessee/purchaser sent the proceeds of the
sale by wire transfer to the account of the Company's affiliate. The funds
belonging to the Company were transferred to the Company on the Company's next
business day.
23
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
6. Members' capital:
As of December 31, 2003, 12,065,016 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,000 Units in addition to the Units
issued to the initial members (50 Units).
As defined in the Limited Liability Company 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. In accordance with the terms of the of Operating
Agreement, additional allocations of income were made to AFS in 2003, 2002 and
2001. The amounts allocated were determined to bring AFS's ending capital
account balance to zero at the end of each year.
7. Concentration of credit risk and major customers:
The Company leases equipment to lessees and provides debt financing to borrowers
in diversified industries. Leases and notes receivable are subject to AFS's
credit committee review. The leases and notes receivable provide for the return
of the equipment upon default.
As of December 31, 2003, 2002 and 2001, there were concentrations (greater than
10%) of equipment leased to lessees and/or financial borrowers in certain
industries (as a percentage of total equipment cost) as follows:
2003 2002 2001
---- ---- ----
Manufacturing 40% 37% *
Electric utilities 23% 21% 50%
Marine transportation 17% 21% 25%
Mining 17% 18% *
* Less than 10%
'During 2003, three customers comprised 15%, 14% and 11% of the Company's
revenues from leases. During 2002, three customers comprised 23%, 17% and 11% of
the Company's revenues from leases. During 2001, two customers comprised 54% and
14% of the Company's revenues from leases.
24
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
8. Line of credit:
The Company participates with AFS and certain of its affiliates in a $58,627,656
revolving line of credit (comprised of an acquisition facility and a warehouse
facility) with a financial institution that includes certain financial
covenants. The line of credit expires on June 28, 2004. As of December 31, 2003,
borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 23,000,000
----------------
Total borrowings under the acquisition facility 23,000,000
Amounts borrowed by AFS and its sister corporation under the
warehouse facility -
----------------
Total outstanding balance $ 23,000,000
================
Total available under the line of credit $ 58,627,656
Total outstanding balance (23,000,000)
----------------
Remaining availability $ 35,627,656
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and AFS.
The Company has not borrowed under the line of credit. Interest on the line of
credit is based on either the thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
2003.
9. Fair value of financial instruments:
The recorded amounts of the Company's cash and cash equivalents, accounts
receivable, accounts payable and accruals at December 31, 2003 approximate fair
value because of the liquidity and short-term maturity of these instruments.
Notes receivable:
The fair value of the Company's notes receivable is estimated using discounted
cash flow analyses, based on the Company's current incremental lending rates for
similar types of lending arrangements. The estimated fair value of the Company's
notes receivable at December 31, 2003 is $335,465.
25
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
10. Selected quarterly data (unaudited):
March 31, June 30, September 30, December 31,
Quarter ended 2002 2002 2002 2002
---- ---- ---- ----
Total revenues $ 1,079,746 $ 1,540,510 $ 2,255,724 $ 2,197,515
Net income (loss) $ 78,721 $ 336,926 $ (27,874) $ 215,377
Net income (loss) per Limited Liability Company Unit $ 0.00 $ 0.04 $ (0.02) $ 0.00
March 31, June 30, September 30, December 31,
Quarter ended 2003 2003 2003 2003
---- ---- ---- ----
Total revenues $ 2,440,826 $ 2,808,832 $ 2,801,887 $ 3,480,015
Net income (loss) $ 190,480 $ 239,830 $ (253,665) $ 414,370
Net income (loss) per Limited Liability Company Unit $ (0.00) $ 0.00 $ (0.04) $ 0.02
11. Commitments:
At December 31, 2003, there were commitments to purchase lease assets totaling
approximately $17,162,000.
13. Credit facility:
In August 2002, the Company established a $102 million receivables funding
program with a receivables financing company that issues commercial paper rated
A1 from Standard and Poors and P1 from Moody's Investor Services. In this
receivables funding program, the lenders would receive liens against the
Company's assets. The lender will be in a first position against certain
specified assets and will be in either a subordinated or shared position against
the remaining assets. The program provides for borrowing at a variable interest
rate and requires AFS, on behalf of the Company, to enter into interest rate
swap agreements with certain hedge counterparties (also rated A1/P1) to mitigate
the interest rate risk associated with a variable interest rate note. AFS
anticipates that this program will allow the Company to have a more cost
effective means of obtaining debt financing than available for individual
non-recourse debt transactions.
As of December 31, 2003, the Company had not borrowed under the facility. In
order to maintain the availability of the program, the Company is required to
make payments of standby fees. These fees totaled $238,000 in 2003 and are
included in interest expense in the Company's statement of operations.
26
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2003
14. Reserves, impairment losses and provisions for doubtful accounts:
The Company's reserves for losses are as follows:
Reserve for Realized Allowance for
losses on losses on doubtful Allowance for
assets held for marketable accounts doubtful
sale or lease securities (notes) accounts Total
------------- ---------- ------- -------- -----
Balance December 31, 2002 $ - $ - $ - $ - $ -
Provision for losses and doubtful accounts 61,712 95,000 326,635 13,000 496,347
Write-offs (61,712) (95,000) (326,635) - (483,347)
----------------- ---------------- ---------------- ---------------- ----------------
Balance December 31, 2003 $ - $ - $ - $ 13,000 $ 13,000
================= ================ ================ ================ ================
27
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management (ATEL
Financial Services, LLC as Managing Member of the registrant, including the
chief executive officer and chief financial officer), an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures [as defined in Rules 240.13a-14(c) under the Securities Exchange
Act of 1934] was performed as of a date within ninety days before the filing
date of this annual report. Based upon this evaluation, the chief executive
officer and the chief financial officer concluded that, as of the evaluation
date, except as noted below, our disclosure controls and procedures were
effective for the purposes of recording, processing, summarizing, and timely
reporting information required to be disclosed by us in the reports that we file
under the Securities Exchange Act of 1934; and that such information is
accumulated and communicated to our management in order to allow timely
decisions regarding required disclosure.
Due to the increased scrutiny and reporting requirements of Sarbanes-Oxley, it
came to the attention of the chief executive officer and the chief financial
officer of the Company in connection with the audit of the Company for the year
ended December 31, 2003, that enhanced internal controls were needed to
facilitate a more effective closing of the Company's financial statements, and
that this would require additional skilled personnel. To address this issue the
Company has taken steps to upgrade the accounting staff and will take additional
steps in 2004 to add personnel to its accounting department to ensure that the
Company's ability to execute internal controls in accounting and reconciliation
in the closing process will be adequate in all respects. It should be noted that
the control issues affecting the closing process and disclosure did not
materially affect the accuracy and completeness of the Company's financial
reporting and disclosure reflected in this report, and the audited financial
statements included herein contain no qualification or limitation on the scope
of the auditor's opinion.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date nor were there any significant deficiencies or
material weaknesses in our internal controls, except as described in the prior
paragraphs.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
All of the outstanding capital stock of AFS is held by ATEL Capital Group
("ACG"), a holding company formed to control AFS and affiliated companies. The
outstanding voting capital stock of ATEL Capital Group is owned 5% by A. J. Batt
and 95% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Company. Acquisition services are performed for the Company by ALC, equipment
management, lease administration and asset disposition services are performed by
AEC, investor relations and communications services are performed by AIS and
general administrative services for the Company are performed by AFS. ATEL
Securities Corporation ("ASC") is a wholly-owned subsidiary of AFS.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
Dean L. Cash Chairman of the Board of Directors of ACG, AFS,
ALC, AEC, AIS and ASC; President and Chief
Executive Officer of ACG, AFS and AEC
Paritosh K. Choksi Director, Executive Vice President, Chief
Operating Officer and Chief Financial Officer
of ACG, AFS, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC,
AEC and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General
Counsel for ACG, AFS, ALC, AIS and AEC
28
Dean L. Cash, age 53, joined ATEL as director of marketing in 1980 and has been
a vice president since 1981, executive vice president since 1983 and a director
since 1984. He has been President and CEO since April 2001. Prior to joining
ATEL, Mr. Cash was a senior marketing representative for Martin Marietta
Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was
employed by General Electric Corporation, where he was an applications
specialist in the medical systems division and a marketing representative in the
information services division. Mr. Cash was a systems engineer with Electronic
Data Systems from 1975 to 1977, and was involved in maintaining and developing
software for commercial applications. Mr. Cash received a B.S. degree in
psychology and mathematics in 1972 and an M.B.A. degree with a concentration in
finance in 1975 from Florida State University. Mr. Cash is an arbitrator with
the American Arbitration Association.
Paritosh K. Choksi, age 50, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. He became its executive vice
president and COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief
financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to
1997, Mr. Choksi was with Phoenix American Incorporated, a financial services
and management company, where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company. Mr. Choksi was involved in all corporate matters at Phoenix and was
responsible for Phoenix's capital market needs. He also served on the credit
committee overseeing all corporate investments, including its venture lease
portfolio. Mr. Choksi was a part of the executive management team which caused
Phoenix's portfolio to increase from $50 million in assets to over $2 billion.
Mr. Choksi received a bachelor of technology degree in mechanical engineering
from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the
University of California, Berkeley.
Donald E. Carpenter, age 55, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 45, joined ATEL in 1989 as general counsel to provide legal
support in the drafting and reviewing of lease documentation, advising on
general corporate law matters, and assisting on securities law issues. From 1986
to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of
America's equipment leasing subsidiaries, providing in-house legal support on
the documentation of tax-oriented and non-tax oriented direct and leveraged
lease transactions, vendor leasing programs and general corporate matters. Prior
to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital
Companies in the corporate and securities legal department involved in drafting
and reviewing contracts, advising on corporate law matters and securities law
issues. Mr. Morais received a B.A. degree in 1982 from the University of
California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law
School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais
has been an active member of the State Bar of California since 1986.
Audit Committee
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the Managing Member of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of
directors of ALC and are deemed to be financial experts. They are not
independent of the Company.
Code of Ethics
ACG on behalf of AFS and ALC has adopted a code of ethics for its Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer. The
Code of Ethics is included as Exhibit 14.1 to this report.
Item 11. EXECUTIVE COMPENSATION
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
Set forth hereinafter is a description of the nature of remuneration paid and to
be paid to AFS and its Affiliates. The amount of such remuneration paid in 2003,
2002 and 2001 is set forth in Item 8 of this report under the caption "Financial
Statements and Supplementary Data - Notes to the Financial Statements - Related
party transactions," at Note 5 thereof, which information is hereby incorporated
by reference.
Selling Commissions
The Company paid selling commissions in the amount of 9.5% of Gross Proceeds, as
defined, to ATEL Securities Corporation, an affiliate of AFS.
Through December 31, 2003, $11,461,955 of such commissions had been paid to AFS
or its affiliates. Of that amount, $9,652,173 has been re-allowed to other
broker/dealers. No additional amounts will be incurred in future periods as the
offering has been completed.
29
Asset Management Fee
The Company will pay AFS an Asset Management Fee in an amount equal to 4% of
Operating Revenues, which will include Gross Lease Revenues and Cash From Sales
or Refinancing. The Asset Management Fee will be paid on a monthly basis. The
amount of the Asset Management Fee payable in any year will be reduced for that
year to the extent it would otherwise exceed the Asset Management Fee Limit, as
described below. The Asset Management Fee will be paid for services rendered by
AFS and its Affiliates in determining portfolio and investment strategies (i.e.,
establishing and maintaining the composition of the Equipment portfolio as a
whole and the Company's overall debt structure) and generally managing or
supervising the management of the Equipment.
AFS will supervise performance of among others activities, collection of lease
revenues, monitoring compliance by lessees with the lease terms, assuring that
Equipment is being used in accordance with all operative contractual
arrangements, paying operating expenses and arranging for necessary maintenance
and repair of Equipment in the event a lessee fails to do so, monitoring
property, sales and use tax compliance and preparation of operating financial
data. AFS intends to delegate all or a portion of its duties and the Asset
Management Fee to one or more of its Affiliates who are in the business of
providing such services.
Asset Management Fee Limit:
The Asset Management Fee will be subject to the Asset Management Fee Limit. The
Asset Management Fee Limit will be calculated each year during the Company's
term by calculating the total fees that would be paid to AFS if AFS were to be
compensated on the basis of an alternative fee schedule, to include an Equipment
Management Fee, Incentive Management Fee, and Equipment Resale/Re-Leasing Fee,
plus AFS's Carried Interest, as described below. To the extent that the amount
paid to AFS as the Asset Management Fee plus its Carried Interest for any year
would exceed the aggregate amount of fees calculated under this alternative fee
schedule for the year, the Asset Management Fee and/or Carried Interest for that
year will be reduced to equal the maximum aggregate fees under the alternative
fee schedule.
To the extent any such fees are reduced, the amount of such reduction will be
accrued and deferred, and such accrued and deferred compensation would be paid
to AFS in a subsequent period, but only if and to the extent that such deferred
compensation would be payable within the Asset Management Fee Limit for the
subsequent period. Any deferred fees which cannot be paid under the applicable
limitations in any subsequent period through the date of liquidation would be
forfeited by AFS upon liquidation.
Alternative Fee Schedule:
For purposes of the Asset Management Fee Limit, the Company will calculate an
alternative schedule of fees, including a hypothetical Equipment Management Fee,
Incentive Management Fee, Equipment Resale/Re- Leasing Fee, and Carried Interest
as follows:
An Equipment Management Fee will be calculated to equal the lesser of (i) 3.5%
of annual Gross Revenues from Operating Leases and 2% of annual Gross Revenues
from Full Payout Leases which contain Net Lease Provisions), or (ii) the fees
customarily charged by others rendering similar services as an ongoing public
activity in the same geographic location and for similar types of equipment. If
services with respect to certain Operating Leases are performed by nonaffiliated
persons under the active supervision of AFS or its Affiliate, then the amount so
calculated shall be 1% of Gross Revenues from such Operating Leases.
An Incentive Management Fee will be calculated to equal 4% of Distributions of
Cash from Operations until Holders have received a return of their Original
Invested Capital plus a Priority Distribution, and, thereafter, to equal a total
of 7.5% of Distributions from all sources, including Sale or Refinancing
Proceeds. In subordinating the increase in the Incentive Management Fee to a
cumulative return of a Holder's Original Invested Capital plus a Priority
Distribution, a Holder would be deemed to have received Distributions of
Original Invested Capital only to the extent that Distributions to the Holder
exceed the amount of the Priority Distribution.
An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services. Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the releasing of Equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i) the
competitive rate for comparable services for similar equipment, or (ii) 2% of
the gross rental payments derived from the re-lease of such Equipment, payable
out of each rental payment received by the Company from such re-lease.
A Carried Interest equal to 7.5% of all Distributions of Cash from Operations
and Cash from Sales or Refinancing.
See Note 6 to the financial statements included in Item 8 for amounts paid.
30
Managing Member's Interest in Operating Proceeds
As defined in the Limited Liability Company 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. In accordance with the terms of the of Operating
Agreement, additional allocations of income were made to AFS in 2003, 2002 and
2001. The amounts allocated were determined to bring AFS's ending capital
account balance to zero at the end of each year. See financial statements
included in Item 8, Part I of this report for amounts allocated to AFS in 2003,
2002 and 2001.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2003, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
Security Ownership of Management
The parent of AFS is the beneficial owner of Limited Liability Company Units as
follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Limited Liability ATEL Capital Group Initial Limited Liability 0.0004%
Company Units 600 California Street, 6th Floor Company Units
San Francisco, CA 94108 50 Units ($500)
Changes in Control
The Members have the right, by vote of the Members owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.
AFS may at any time call a meeting of the Members or a vote of the Members
without a meeting, on matters on which they are entitled to vote, and shall call
such meeting or for vote without a meeting following receipt of a written
request therefore of members holding 10% or more of the total outstanding
Limited Liability Company Units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 5 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
During the most recent two years, the Company incurred audit, audit related, tax
and other fees with its principal auditors as follows:
2003 2002
---- ----
Audit fees $ 37,889 $ 43,532
Audit related fees - -
Tax fees 19,150 1,561
Other - -
---------------- ----------------
$ 57,039 $ 45,093
================ ================
ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC.
ATEL Financial Services LLC is the Managing Member of the registrant. The board
of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Engagements for audit services, audit related services and tax
services are approved in advance by the Chief Financial Officer of ATEL Leasing
Corporation acting as a member of the board of directors of that company.
31
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 2003 and 2002
Statements of income for the years ended December 31, 2003, 2002 and
2001
Statement of Changes in Members' Capital for the years ended December
31, 2003, 2002 and 2001
Statement of Cash Flows for the years ended December 31, 2003, 2002
and 2001
Notes to Financial Statements
2. Financial Statement Schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and, therefore,
have been omitted.
(b)Reports on Form 8-K for the fourth quarter of 2003
None
(c)Exhibits
(3) and (4) Agreement of Limited Liability Company, included as
Exhibit B to Prospectus, is incorporated herein by reference to the
report on Form 10K for the period ended December 31, 2001 (File Number
333-47196) (Exhibit 28.1)
(14.1) Code of Ethics
(31.1) Certification of Paritosh K. Choksi
(31.2) Certification of Dean L. Cash
(32.1) Certification Pursuant to 18 U.S.C. section 1350 of Dean L.
Cash
(32.2) Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K.
Choksi
32
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: 3/26/2004
ATEL Capital Equipment Fund IX, LLC
(Registrant)
By: ATEL Financial Services LLC,
Managing Member of Registrant
By: /s/ Dean L. Cash
--------------------
Dean Cash
President of ATEL Financial Services LLC (Managing Member)
By: /s/ Paritosh K. Choksi
--------------------------
Paritosh K. Choksi
Executive Vice President of ATEL Financial Services LLC
(Managing Member)
33
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ Dean L. Cash President, Chairman and Chief Executive 3/26/2004
- --------------------------- Officer of ATEL Financial Services LLC
Dean Cash
/s/ Paritosh K. Choksi Executive Vice President and director 3/26/2004
- --------------------------- of ATEL Financial Services LLC,
Paritosh K. Choksi Principal financial officer of
registrant; principal financial
officer and director of ATEL Financial
Services LLC
/s/ Donald E. Carpenter Principal accounting officer of 3/26/2004
- --------------------------- registrant; principal accounting
Donald E. Carpenter officer of ATEL Financial Services LLC
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
34
EXHIBIT 14.1
ATEL CAPITAL GROUP
CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER, CHIEF FINANCIAL OFFICER AND CHIEF
ACCOUNTING OFFICER
A. SCOPE.
This ATEL Capital Group Code of Ethics is applicable to the ATEL Capital Group's
Chief Executive Officer, Chief Financial Officer and the Chief Accounting
Officer, or persons acting in such capacity (collectively the "Covered
Officers"), each of whom acts in such capacity on behalf of its affiliate, ATEL
Financial Services, LLC, which is the general partner or manager, as the case
may be, of each of the public limited partnerships and limited liability
companies sponsored by the Company. ATEL Capital Group is referred to herein as
the "Company," ATEL Financial Services, LLC is referred to as "AFS" and the
sponsored limited partnerships and limited liability companies are referred to
herein as the "Funds" and each of them as a "Fund." The board of directors of
ATEL Leasing Corporation ("ALC"), an affiliate of the Company that serves as the
managing member of ATEL Financial Services, LLC, ("AFS") the manager or general
partner of each of the Funds, is the first board of directors in management
succession for each Fund.
Accordingly, under the Securities and Exchange Commission's interpretation of
its disclosure rules, the ATEL Leasing Corporation board of directors functions
as the de facto audit committee for each Fund with respect to all procedural and
disclosure requirements applicable to audit committees under Securities and
Exchange Commission rules. The Company's Board of Directors shall have oversight
responsibility over the activities of ALC's Board of Directors for purposes of
this Code of Ethics.
B. PURPOSE.
The Company is proud of the values with which it and its subsidiaries and
affiliates conduct business. It has and will continue to uphold the highest
levels of business ethics and personal integrity in all types of transactions
and interactions. To this end, this Code of Ethics serves to (1) emphasize the
Company's commitment to ethics and compliance with the law; (2) set forth basic
standards of ethical and legal behavior; (3) provide reporting mechanisms for
known or suspected ethical or legal violations; and (4) help prevent and detect
wrongdoing. This Code of Ethics is intended to augment and supplement the
standard of ethics and business conduct expected of all Company employees, and
its limitation to Covered Officers is not intended to limit the obligation of
all Company employees to adhere to the highest standards of business ethics and
integrity in all transactions and interactions conducted while in the Company's
employ.
Given the variety and complexity of ethical questions that may arise in the
course of business of the Company and its subsidiaries, this Code of Ethics
serves only as a rough guide. Confronted with ethically ambiguous situations,
the Covered Officers should remember the Company's commitment to the highest
ethical standards and seek independent advice, where necessary, to ensure that
all actions they take on behalf of the Company and its subsidiaries honor this
commitment.
C. ETHICS STANDARDS.
1. Honest and Ethical Conduct.
The Covered Officers shall behave honestly and ethically at all times and with
all people. They shall act in good faith, with due care, and shall engage only
in fair and open competition, by treating ethically competitors, suppliers,
customers, and colleagues. They shall not misrepresent facts or engage in
illegal, unethical, or anti-competitive practices for personal or professional
gain.
2. Conflicts of Interest.
This fundamental standard of honest and ethical conduct extends to the handling
of conflicts of interest. The Covered Officers shall avoid any actual,
potential, or apparent conflicts of interest with the Company and its
subsidiaries and affiliates, including the Funds, and any personal activities,
investments, or associations that might give rise to such conflicts. They shall
not compete with or use the Company, any of its subsidiaries or a Fund for
personal gain, self-deal, or take advantage of corporate or Fund opportunities.
They shall act on behalf of the Company, its subsidiaries and the Funds free
from improper influence or the appearance of improper influence on their
judgment or performance of duties. A Covered Officer shall disclose any material
transaction or relationship that reasonably could be expected to give rise to
such a conflict to the Company's General Counsel or a member of the Company's
Board of Directors. No action may be taken with respect to such transaction or
party unless and until the Company's Board of Directors has approved such
action.
35
Notwithstanding the foregoing, it is understood, as fully disclosed in the
offering documents for each Fund, that AFS as manager or general partner of the
Fund has certain inherent conflicts of interest. The provisions of each Fund's
Operating Agreement or Limited Partnership Agreement have been drafted to
address the obligations, restrictions and limitations on the power and authority
of AFS to manage each Fund's affairs, including restrictions prohibiting or
limiting the terms of any transactions in which conflicts of interest may arise.
Furthermore, AFS has a fiduciary duty to each Fund as its manager or general
partner. It is therefore expressly understood by the Company and the Covered
Officers that any and all actions by AFS and its personnel that comply with the
provisions of a Fund's Operating Agreement or Limited Partnership Agreement, as
the case may be, and are consistent with AFS's fiduciary duty to the Fund, will
not be considered material transactions or relationships which require
disclosure or reporting under this Code of Ethics.
3. Timely and Truthful Disclosure.
In reports and documents filed with or submitted to the Securities and Exchange
Commission and other regulators by the Company, its subsidiaries or affiliates
or a Fund, and in other public communications made by the Company, its
subsidiaries or affiliates or a Fund, the Covered Officers shall make
disclosures that are full, fair, accurate, timely, and understandable. The
Covered Officers shall provide thorough and accurate financial and accounting
data for inclusion in such disclosures. The Covered Officers shall not knowingly
conceal or falsify information, misrepresent material facts, or omit material
facts necessary to avoid misleading the Company's, any of its subsidiaries' or
affiliates' or a Fund's independent public auditors or investors.
4. Legal Compliance.
In conducting the business of the Company, its subsidiaries and affiliates and
the Funds, the Covered Officers shall comply with applicable governmental laws,
rules, and regulations at all levels of government in the United States and in
any non-U.S. jurisdiction in which the Company, any of its affiliates or
subsidiaries or a Fund does business, as well as applicable rules and
regulations of self-regulatory organizations of which the Company, any of its
affiliates or subsidiaries or a Fund is a member. If the Covered Officer is
unsure whether a particular action would violate an applicable law, rule, or
regulation, he or she should seek the advice of inside counsel (if available),
and, where necessary, outside counsel before undertaking it.
D. VIOLATIONS OF ETHICAL STANDARDS.
1. Reporting Known or Suspected Violations.
The Covered Officers will promptly bring to the attention of the Company's
General Counsel or the Board of Directors any information concerning a material
violation of any of the laws, rules or regulations applicable to the Company and
the operation of its businesses, by the Company or any agent thereof, or of
violation of this Code of Ethics. The Company's General Counsel will investigate
reports of violations and the findings communicated to the Company's Board of
Directors.
2. Accountability for Violations.
If the Company's Board of Directors determines that this Code of Ethics has been
violated, either directly, by failure to report a violation, or by withholding
information related to a violation, it may discipline the offending Covered
Officer for non-compliance with penalties up to and including termination of
employment. Violations of this Code of Ethics may also constitute violations of
law and may result in criminal penalties and civil liabilities for the offending
Covered Officer and the Company, its subsidiaries, affiliates or a Fund.
36
Exhibit 31.1
CERTIFICATIONS
I, Paritosh K. Choksi, certify that:
1. I have reviewed this annual report on Form 10-K of ATEL Cash Distribution
Fund IX, LLC;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others within
those entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 3/26/2004
/s/ Paritosh K. Choksi
- --------------------------
Paritosh K. Choksi
Principal financial officer of registrant, Executive
Vice President of Managing Member
37
Exhibit 31.2
CERTIFICATIONS
I, Dean L. Cash, certify that:
1. I have reviewed this annual report on Form 10-K of ATEL Cash Distribution
Fund IX, LLC;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others within
those entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: 3/26/2004
/s/ Dean L. Cash
- ---------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
38
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual report on Form 10K of ATEL Cash Distribution Fund
IX, LLC, (the "Company") for the period ended December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, managing member of the Company, hereby certify 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: 3/26/2004
/s/ Dean L. Cash
- --------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
39
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual report on Form 10K of ATEL Cash Distribution Fund
IX, LP, (the "Company") for the period ended December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, managing member of the Company, hereby certify
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: 3/26/2004
/s/ Paritosh K. Choksi
- ---------------------------
Paritosh K. Choksi
Executive Vice President of General
Partner, Principal financial officer of registrant
40