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Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934. For the quarterly period ended
March 31, 2005
|_| Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.
For the transition period from ____ to ____
Commission File number 000-50210
ATEL Capital Equipment Fund IX, LLC
(Exact name of registrant as specified in its charter)
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 94108-2733
(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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of Limited Liability Company Units outstanding as of March 31, 2005
was 12,058,516.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
ATEL CAPITAL EQUIPMENT FUND IX, LLC
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets, March 31, 2005 and December 31, 2004.
Statements of Operations for the three month periods ended March 31, 2005
and 2004.
Statements of Changes in Members' Capital for the year ended December 31,
2004 and for the three month period ended March 31, 2005.
Statements of Cash Flows for the three month periods ended March 31, 2005
and 2004.
Notes to the Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
ATEL CAPITAL EQUIPMENT FUND IX, LLC
BALANCE SHEETS
MARCH 31, 2005 AND DECEMBER 31, 2004
ASSETS
March 31,
2005 December 31,
----
(Unaudited) 2004
Cash and cash equivalents $ 6,301,219 $ 1,779,803
Due from affiliate 8,815 8,815
Accounts receivable, net of allowance for doubtful accounts of $21,667 in 2005 and
$16,667 in 2004 1,676,250 1,782,230
Notes receivable 4,668,064 4,857,778
Interest rate swap contracts 123,000 -
Other assets 860,634 858,464
Investments in equipment and leases 90,623,926 83,508,789
---- ----------------
Total assets $ 104,261,908 $ 92,795,879
==== ================ == ===============
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Managing Member $ 802,208 $ 196,718
Other 82,780 86,740
Accrued interest payable - 35,880
Deposits due lessees 131,017 131,017
Line of credit obligation - 17,000,000
Long-term debt 29,534,000 -
Unearned operating lease income 1,521,020 466,045
--- ---------------- ---- ---------------
Total liabilities 32,071,025 17,916,400
Total Members' capital 72,190,883 74,879,479
--- ---------------- ---- ---------------
Total liabilities and Members' capital $ 104,261,908 $ 92,795,879
=== ================ ==== ===============
3
See accompanying notes.
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF OPERATIONS
THREE MONTH PERIODS ENDED
MARCH 31, 2005 AND 2004
(Unaudited)
Revenues: 2005 2004
---- ----
Leasing activities:
Operating leases $ 4,454,579 $ 2,502,091
Direct financing leases 132,932 153,793
Gain on sales of assets - 10,069
Gain on foreign exchange 33,033 -
Interest 159,661 87,511
Other 3,660 3,332
--- ----------------- --- ----------------
4,783,865 2,756,796
Expenses:
Depreciation of operating lease assets 3,487,660 2,058,727
Asset management fees to Managing Member 271,336 145,625
Cost reimbursements to Managing Member 200,811 171,297
Provision for losses and doubtful accounts 5,000 169,000
Amortization of initial direct costs 264,139 162,262
Interest expense 287,887 135,165
Professional fees 35,101 102,867
Impairment losses - 95,158
Fair value adjustment for swap contracts (123,000) -
Other 110,448 93,105
--- ----------------- --- ----------------
4,539,382 3,133,206
--- ----------------- --- ----------------
Net income (loss) $ 244,483 $ (376,410)
=== ================= === ================
Net income (loss):
Managing member $ 219,981 $ 220,079
Other Members 24,502 (596,489)
--- ----------------- --- ----------------
$ 244,483 $ (376,410)
=== ================= === ================
Net income (loss) per Limited Liability Company Unit (Other Members) $ 0.00 $ (0.05)
Weighted average number of Limited Liability Company Units outstanding 12,058,016 12,065,016
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2004
AND FOR THE
THREE MONTH PERIOD ENDED
MARCH 31, 2005
(Unaudited)
Other Members
Units Amount Managing Member Total
----- ------ ------ -----
Balance December 31, 2003 12,065,016 $ 86,906,015 $ - $ 86,906,015
Other syndication costs to affiliates - 22,683 - 22,683
Limited Liability Company Units )
repurchased (6,500 (56,093) - (56,093)
Distribution to Other Members ($0.90
per Unit) - (10,853,935) - (10,853,935)
Distributions to Managing Member - - (880,049) (880,049)
Net income (loss) - (1,139,191) 880,049 (259,142)
-------------- --- ---------------- --- ---------------- --- ----------------
Balance December 31, 2004 12,058,516 74,879,479 - 74,879,479
Distribution to Other Members ($0.22
per Unit) - (2,713,098) - (2,713,098)
Distributions to Managing Member - - (219,981) (219,981)
Net income - 24,502 219,981 244,483
-------------- --- ---------------- --- ---------------- --- ----------------
Balance March 31, 2005 12,058,516 $ 72,190,883 $ - $ 72,190,883
============== === ================ === ================ === ================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
THREE MONTH PERIODS ENDED
MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Operating activities:
Net income (loss) $ 244,483 $ (376,410)
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
Gain on sales of assets - (10,069)
Depreciation of operating leases assets 3,487,660 2,058,727
Amortization of initial direct costs 264,139 162,262
Provision for losses and doubtful accounts 5,000 169,000
Impairment losses
- - 95,158
Interest rate swap contracts (123,000) -
Changes in operating assets and liabilities:
Other assets (2,170) 109,089
Accounts receivable 100,980 450,466
Due from Managing Member - (63,583)
Accounts payable, Managing Member 605,490 (18,804)
Accounts payable, other (3,960) (442,145)
Accrued interest payable (35,880) -
Unearned operating lease income 1,054,975 32,153
-------------------- -----------------
Net cash provided by operating activities 5,597,717 2,165,844
-------------------- -----------------
Investing activities:
Purchases of equipment on operating leases (10,449,039) (325,787)
Proceeds from sales of assets - 21,098
Receipts from affiliates - 4,142,025
Payments of initial direct costs to Managing Member (756,672) (184,972)
Reduction of net investment in direct financing leases 713,955 490,700
Payments received on notes receivable 316,109 81,260
Investment in direct financing leases (375,180) -
Investment in notes receivable (126,395) -
-------------------- -----------------
Net cash provided by (used in) investing activities (10,677,222) 4,224,324
-------------------- -----------------
Financing activities:
Repayments of line of credit (17,000,000) -
Repayments of other long-term debt (358,000) -
Distributions to Other Members (2,713,098) (2,934,389)
6
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
(CONTINUED)
THREE MONTH PERIODS ENDED
MARCH 31, 2005 AND 2004
(Unaudited)
2005 2004
---- ----
Financing activities (continued):
Distributions to Managing Members (219,981) -
Borrowings from long-term debt 29,892,000 -
-------------------- -----------------
Net cash provided by (used in) financing activities 9,600,921 (2,934,389)
-------------------- -----------------
Net increase in cash and cash equivalents 4,521,416 3,455,779
Cash and cash equivalents at beginning of period 1,779,803 29,429,383
-------------------- -----------------
Cash and cash equivalents at end of period $ 6,301,219 $ 32,885,162
==================== =================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 323,767 $ 135,165
==================== =================
See accompanying notes.
7
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
1. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and with instructions to Form 10-Q
and Article 10 of Regulation S-X. The unaudited interim financial statements
reflect all adjustments which are, in the opinion of the Managing Member,
necessary to a fair statement of financial position and results of operations
for the interim periods presented. All such adjustments are of a normal
recurring nature. The preparation of financial statements in accordance with
GAAP requires management to make estimates and assumptions that effect
reported amounts in the financial statements and accompanying notes.
Therefore, actual results could differ from those estimates. Operating results
for the three months ended March 31, 2005 are not necessarily indicative of
the results for the year ending December 31, 2005.
Certain prior period amounts have been reclassified to conform to current
period presentation.
These unaudited interim financial statements should be read in conjunction
with the financial statements and notes thereto contained in the report on
Form 10-K for the year ended December 31, 2004, filed with the Securities and
Exchange Commission.
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.
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.
Revenue recognition:
Operating leases
Operating lease revenue is recognized on a straight-line basis over the term
of the underlying leases. The initial lease terms will vary as to the type of
equipment subject to the leases, the needs of the lessees and the terms to be
negotiated, but initial leases are generally expected to be for 36 to 84
months. Income from step rent provisions, escalation clauses, capital
improvement funding provisions or other lease concessions in lease contracts,
and lease rates subject to variation based on changes in market indexes or
interest rates are recognized on a straight line basis.
8
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
1. Summary of significant accounting policies:
Direct finance 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.
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.
Initial direct costs:
The Company capitalizes initial direct costs associated with the acquisition
of lease assets. These costs are amortized over a five year period, which
approximates average lease term, using a straight line method.
Segment Reporting:
The Company adopted the provisions of SFAS No. 131 Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes annual and
interim standards for operating segments of a company. It also requires
entity-wide disclosures about the products and services an entity provides,
the material countries in which it holds assts and reports revenue, and its
major customers. The Company is not organized by multiple operating segments
for the purpose of making operating decisions or assessing performance.
Accordingly the Company operates in one reportable operating segment in the
United States.
2. Organization and 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).
9
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
2. Organization and Company matters (continued):
As a limited liability company, the liability of any individual member for the
obligations of the Fund is limited to the extent of capital contributions to
the Fund by the individual member.
The Company'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, 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).
The Company does not make a provision for income taxes since all income and
losses will be allocated to the Members for inclusion in their individual tax
returns.
The Company is in its acquisition phase and is making distributions on a
monthly and quarterly basis.
3. Investment in equipment leases:
The Company's investment in equipment leases consists of the following:
Balance Additions Depreciation/ Balance
---------
Amortization
Expense or
Amortization of
December 31, Direct Financing March, 31,
2004 Leases 2005
---- ------ ----
Net investment in operating
leases $ 71,983,788 $ 10,449,039 $ (3,487,660) $ 78,945,167
Net investment in direct
financing lease 8,343,277 375,180 (713,955) 8,004,502
Assets held for sale or lease 255,159 - - 255,159
Initial direct costs, net of
accumulated amortization of
$1,667,824 in 2005 and
$1,404,303 in 2004 2,926,565 756,672 (264,139) 3,419,098
-- --------------- -- -------------- -- -------------- -- -------------
$ 83,508,789 $ 11,580,891 $ (4,465,754) $ 90,623,926
== =============== == ============== == ============== == =============
10
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
3. Investment in leases (Continued):
Operating leases:
Property on operating leases consists of the following:
Balance Additions Depreciation Balance March 31,
---------
December 31,
2004 Expense 2005
---- ------- ----
Mining $ 40,293,704 $ - $ - $ 40,293,704
Manufacturing 14,015,957 1,153,447 - 15,169,404
Marine vessels 11,200,000 - - 11,200,000
Materials handling 13,251,773 7,231,953 - 20,483,726
Communications 7,124,351 255,581 - 7,379,932
Transportation 7,381,919 1,797,704 - 9,179,623
Natural gas compressors 569,460 - - 569,460
Office furniture 1,229,069 10,354 - 1,239,423
--- ----------------- -- ------------- -- -------------- --- ----------------
95,066,233 10,449,039 - 105,515,272
Less accumulated depreciation (23,082,445) - (3,487,660) (26,570,105)
--- ----------------- -- ------------- -- -------------- --- ----------------
$ 71,983,788 $ 10,449,039 $ (3,487,660) $ 78,945,167
=== ================= == ============= == ============== === ================
Impairment losses are recorded as an addition to accumulated depreciation of
the impaired assets. For the periods ended March 31, 2005 and 2004, no assets
were identified as impaired. Depreciation expense and impairment losses on
property subject to operating leases and property held for lease or sale
consist of the following for the three month periods ended March 31:
2005 2004
---- ----
-- -------------- -- --------------
Depreciation expense $ 3,487,660 $ 2,058,727
== ============== == ==============
The Company utilizes a straight line depreciation method for equipment in all
of the categories currently in its portfolio of lease transactions. The useful
lives for investment in leases by category are as follows:
Equipment category Useful Life
------------------ -----------
Mining 30 - 40
Marine Vessels 20 - 30
Manufacturing 10 - 20
Materials Handling 7 - 10
Transportation 7 - 10
Natural Gas Compressors 7 - 10
Office Furniture 7 - 10
Communications 3 - 5
11
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
3. Investment in equipment leases (continued):
Direct financing leases:
As of March 31, 2005, 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 March
31, 2005:
Total minimum lease payments receivable $ 7,776,256
Estimated residual values of leased equipment (unguaranteed) 1,081,979
---- --------------
Investment in direct financing leases 8,858,235
Less unearned income (853,733)
---- --------------
Net investment in direct financing leases $ 8,004,502
==== ==============
All of the property on leases was acquired in 2001, 2002, 2003, 2004, and
2005.
At March 31, 2005, the aggregate amounts of future minimum lease payments are
as follows:
Operating Leases Direct Financing Total
------ -----
Leases
Nine months ending December 31, 2005 $ 13,657,996 $ 2,109,946 $ 15,767,942
Year ending December 31, 2006 17,566,406 2,386,326 19,952,732
2007 11,826,629 1,738,316 13,564,945
2008 7,884,540 1,049,293 8,933,833
2009 6,128,541 486,659 6,615,200
2010 1,066,383 5,716 1,072,099
Thereafter 167,903 - 167,903
-- -------------- -- -------------- --- --------------
$ 58,298,398 $ 7,776,256 $ 66,074,654
== ============== == ============== === ==============
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 18 to 60 months and bear interest at rates ranging from 11% to 22%. The
notes are secured by the equipment financed. As of March 31, 2005, the minimum
future payments receivable are as follows:
Nine months ending December 31, 2005 $ 1,345,312
Year ending December 31, 2006 1,413,378
2007 912,636
2008 463,280
2009 1,818,006
----- ---------------
5,952,612
----- ---------------
Less portion representing interest (1,284,548)
----- ---------------
$ 4,668,064
===== ===============
12
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
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.
Cost reimbursements to the Managing Member are based on costs incurred by AFS
in performing administrative services for the Company that are allocated to
each fund that AFS manages based on certain criteria such as existing or new
leases, number of investors or equity depending on the type of cost incurred.
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.
During the three month periods ended March 31, 2005 and 2004, AFS and/or
affiliates earned fees, commissions and reimbursements, pursuant to the
Limited Liability Company Agreement as follows:
2005 2004
---- ----
Administrative costs reimbursed to Managing Member $ 200,811 $ 171,297
Asset management fees to Managing Member 271,336 145,625
--- --------------- -- ---------------
$ 472,147 $ 316,922
=== =============== == ===============
The Managing Member makes certain payments to third parties on behalf of the
Company for convenience purposes. During the three month periods ended March
31, 2005 and 2004, the Managing Member made such payments of $108,821 and
$84,466, respectively.
13
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
6. Financing Arrangement:
The Company participates with AFS and certain of its affiliates in a financing
arrangement (comprised of a term loan to AFS and a line of credit) with a
group of financial institutions that includes certain financial covenants. The
financial arrangement is $75,000,000 and expires in June 2006. The
availability of borrowings to the Company under this financing arrangement is
reduced by the amount AFS has outstanding as a term loan. As of March 31, 2005
borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 75,000,000
Term loan to AFS as of March 31, 2005 (1,482,182)
-----------------
Total available under the acquisition and warehouse facilities 73,517,818
Amount borrowed by the Company under the acquisition facility -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility (16,000,000)
-----------------
Total remaining available under the acquisition and warehouse facilities $ 57,517,818
=================
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
Memberships and limited liability companies, the Company and AFS.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of March 31,
2005.
7. Member's capital:
As of March 31, 2005, 12,058,516 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,000 Units, including the 50 Units
issued to the Initial Members.
The Company's Net Income, Net Losses, and Distributions, as defined in the
Limited Liability Company Operating Agreement, are to be allocated 92.5% to
the Other Members and 7.5% to AFS.
Distributions to the Other Members were as follows:
Three Months Ended
March 31,
2005 2004
---- ----
Distributions $ 2,713,098 $ 2,714,310
Weighted average number of Units outstanding 12,058,516 12,065,016
Weighted average distributions per Unit $ 0.22 $ 0.22
14
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
8. Commitments:
The Company has $16,039,119 in commitments to purchase lease assets as of
March 31, 2005. This amount represents contract awards which may be cancelled
by the prospective lessee or may not be accepted by the Company.
The following table summarizes the expected funding dates for these
commitments:
Year ended December 31, Amount committed
2005 $16,039,119
9. Other Long-term debt:
In August 2002, the Company established a $100 million receivables funding
program with a receivables financing company that issues commercial paper
rated A1 from Standard and Poor's 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.
The Company had $29,534,000 outstanding under this program as of March 31,
2005. As of March 31, 2005, the Company receives or pays interest on a
notional principal of $29,534,000 based on the difference between nominal
rates ranging from 3.754% to 4.31% and the variable rate under the Program. No
actual borrowing or lending is involved. The termination of the swaps
coincides with the maturity of the debt. Through the swap agreements, the
interest rates have been effectively fixed. The differential to be paid or
received is accrued as interest rates change and is recognized currently as an
adjustment to interest expense related to the debt. The interest rate swaps
are carried at fair value on the balance sheet with unrealized gain/loss
included in the statement of operations.
Borrowings under the Program are as follows:
Notional Payment Rate
Balance Swap On Interest
Original Balance March March 31, Value Swap
Date Borrowed Amount Borrowed 31, 2005 2005 March 31, 2005 Agreement
-------- -------- ---- ---- ---- ---------
02/14/2005 $ 20,000,000 $ 19,642,000 $ 19,642,000 $ 133,000 3.754%
03/22/2005 9,892,000 9,892,000 9,892,000 (10,000) 4.31%
-- ---------------- -- --------------- -- ------------------ -- ---------------
$ 29,892,000 $ 29,534,000 $ 29,534,000 $ 123,000
== ================ == =============== == ================== == ===============
15
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
10. Guarantees:
The Company enters into contracts that contain a variety of indemnifications.
The Company's maximum exposure under these arrangements is unknown. However,
the Company has not had prior claims or losses pursuant to these contracts and
expects the risk of loss to be remote.
In the normal course of business, the Company enters into contracts of various
types, including lease contracts, contracts for the sale or purchase of lease
assets, management contracts, loan agreements, credit lines and other debt
facilities. It is prevalent industry practice for most contracts of any
significant value to include provisions that each of the contracting parties -
in addition to assuming liability for breaches of the representations,
warranties, and covenants that are part of the underlying contractual
obligations - also assume an obligation to indemnify and hold the other
contracting party harmless for such breaches, for harm caused by such party's
gross negligence and willful misconduct, including, in certain instances,
certain costs and expenses arising from the contract. The Managing Member has
substantial experience in managing similar leasing programs subject to similar
contractual commitments in similar transactions, and the losses and claims
arising from these commitments have been insignificant, if any. Generally, to
the extent these contracts are performed in the ordinary course of business
under the reasonable business judgment of the Managing Member, no liability
will arise as a result of these provisions. The Managing Member has no reason
to believe that the facts and circumstances relating to the Company's
contractual commitments differ from those it has entered into on behalf of the
prior programs it has managed. The Managing Member knows of no facts or
circumstances that would make the Company's contractual commitments outside
standard mutual covenants applicable to commercial transactions between
businesses. Accordingly, the Company believes that these indemnification
obligations are made in the ordinary course of business as part of standard
commercial and industry practice, and that any potential liability under the
Company's similar commitments is remote. Should any such indemnification
obligation become payable, the Company would separately record and/or disclose
such liability in accordance with GAAP.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form
10-Q, which are not historical facts, may be forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Investors are cautioned not
to attribute undue certainty to these forward-looking statements, which speak
only as of the date of this Form 10-Q. We undertake no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events, other than as required by law.
Capital Resources and Liquidity
The Company's public offering of Limited Liability Company interests (Units)
was completed as of January 15, 2003. As of that date, subscriptions for
12,065,266 Units ($120,652,660) had been received and accepted, including the
initial member's 50 Units ($500). 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.
As of March 31, 2005, 12,058,516 Units (120,585,160) were issued and
outstanding. Significant cash balances remain from the public offering of
Units. This cash is available to fund leasing transactions in future periods.
During the first quarters of 2005 and 2004, the Company's primary activity was
engaging in equipment leasing and equipment purchase activities.
A primary source of liquidity, the Company has 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 financing
arrangement (comprised of a term loan to AFS and a line of credit) with a
group of financial institutions that includes certain financial covenants. The
financial arrangement is $75,000,000 and expires in June 2006. The
availability of borrowings to the Company under this financing arrangement is
reduced by the amount AFS has outstanding as a term loan. As of March 31, 2005
borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 75,000,000
Term loan to AFS as of March 31, 2005 (1,482,182)
-----------------
Total available under the acquisition and warehouse facilities 73,517,818
Amount borrowed by the Company under the acquisition facility -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility (16,000,000)
-----------------
Total remaining available under the acquisition and warehouse facilities $ 57,517,818
=================
17
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
Memberships and limited liability companies, the Company and AFS.
To manage the warehousing line of credit for the holding of assets prior to
allocation to specific investor programs, a Warehousing Trust Agreement has
been entered into by the Company, ATEL Financial Services LLC ("AFS"), ATEL
Leasing Corporation ("ALC"), and certain of the affiliated partnerships and
limited liability companies. The warehousing line is used to acquire and hold,
on a short-term basis, certain lease transactions that meet the investment
objectives of each of such entities. Each of the leasing programs sponsored by
AFS and ALC currently in its acquisition stage is a pro rata participant in
the Warehousing Trust Agreement, as described below. When a program no longer
has a need for short term financing provided by the warehousing facility, it
is removed from participation, and as new leasing investment entities are
formed by AFS and ALC and commence their acquisition stages, these new
entities will be added. As of March 31, 2005, the investment program
participants were ATEL Cash Distribution Fund VI, L.P., ATEL Capital Equipment
Fund VII, L.P., ATEL Capital Equipment Fund VIII, LLC, ATEL Capital Equipment
Fund IX, LLC, and ATEL Capital Equipment Fund X, LLC. Pursuant to the
Warehousing Trust Agreement, the benefit of the lease transaction assets, and
the corresponding liabilities under the warehouse borrowing facility, inure to
each of such entities based upon each entity's pro-rata share in the
warehousing trust estate. The "pro-rata share" is calculated as a ratio of the
net worth of each entity over the aggregate net worth of all entities
benefiting from the warehouse trust estate, excepting that the trustees, AFS
and ALC, are both liable for their pro-rata shares of the obligations based on
their respective net worths, and jointly liable for the pro rata portion of
the obligations of each of the affiliated partnerships and limited liability
companies participating under the borrowing facility. Transactions are
financed through this warehousing line only until the transactions are
allocated to a specific program for purchase or are otherwise disposed by AFS
and ALC. When a determination is made to allocate the transaction to a
specific program for purchase by the program, the purchaser repays the debt
associated with the asset, either with cash or by means of the acquisition
facility financing, the asset is removed from the warehouse line collateral,
and ownership of the asset and any debt obligation associated with the asset
are assumed solely by the purchasing entity.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of March 31,
2005.
Throughout the reinvestment period, 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 and
acquisition fees to AFS and providing for cash distributions to the members.
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 contingencies,
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.
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.
For detailed information on the Company's debt obligations, see Notes 6 and 9
in the notes to the financial statements in Item 1.
18
The Company has $16,039,119 in commitments to purchase lease assets as of
March 31, 2005. This amount represents contract awards which may be cancelled
by the prospective lessee or may not be accepted by the Company.
The following table summarizes the expected funding dates for these
commitments:
Year ended December 31, Amount committed
2005 $16,039,119
Cash Flows
In the first quarters of 2005 and 2004, the primary source of cash from
operations was rents from operating leases.
Rents from direct financing leases accounted for as reductions in the
Company's net investment in direct financing leases and payments received on
notes receivable were one of the primary sources of cash from investing
activities in the first quarter of 2004. Cash from direct financing leases has
increased from $490,700 in the three month period ended March 31, 2004 to
$713,955 in the three month period ended March 31, 2005 as a result of lease
asset acquisitions over the last year. In the first quarter of 2004, another
primary source of cash, the Company received payment of asset sales proceeds
($4,142,025) that had been due from an affiliate as of December 31, 2003. In
the first quarter of 2005, $10,449,039 was used to purchase equipment on
operating lease compared to $325,787 in the first quarter of 2004. The Company
acquired $375,180 of equipment on direct finance leases during the first
quarter of 2005 and made no direct finance lease purchases during the same
period in 2004. Below is a table that summarizes utilization percentages for
assets acquired during the year ended December 31, 2004 and the period ended
March 31, 2005:
Equipment Purchased in: Utilization by Year
2005 2004
2005 100% 100%
2004 100% 100%
It is the Company's objective to maintain a 100% utilization rate for all
equipment. As discussed above, the Company remains in an acquisition stage and
is continuing to acquire equipment. All equipment transactions are acquired
subject to binding lease commitments, so equipment utilization is expected to
remain high throughout this acquisition and reinvestment stage, which ends six
years after the end of the Company's public offering of Units. Initial lease
terms will generally be from 36 to 84 months, and as these initial leases
terminate, the Company will attempt to re-lease or sell the equipment.
Utilization rates may therefore decrease during the liquidation stage of the
Company, which will follow its acquisition and reinvestment stages.
Other uses of cash for investing activities consisted of payments of initial
direct costs associated with the lease asset purchases (both 2005 and 2004)
and advances on notes receivable (2004 only).
The Company borrowed $29,892,000 in 2005, which is classified as other long
term debt on the balance sheet. There were no financing sources of cash in
2004. In 2005, financing uses of cash consisted of distributions to the
members, repayment of the line of credit, and repayment of other long term
debt. The repayment of the line of credit, which was drawn in the fourth
quarter of 2004, was $17,000,000. In 2004, financing uses of cash consisted of
distributions to the members.
Results of Operations
On February 21, 2001, the Company commenced operations. Operations resulted in
net income of $244,483 in the quarter ended March 31, 2005 compared to a net
loss of $376,410 in the quarter ended March 31, 2004. The Company's primary
source of revenues is from operating leases. Depreciation of operating lease
assets was $3,487,660 and $2,058,727 during the quarters ended March 31, 2005
and 2004, respectively, and is related to operating lease assets and thus, to
operating lease revenues. Amortization of initial direct costs was $264,139
and $162,262 during the quarters ended March 31, 2005 and 2004, respectively.
Amortization of initial direct costs has increased in 2005 compared to 2004 as
a result of the acquisitions of equipment that have taken place over the last
year. Depreciation and amortization are expected to increase in future periods
as acquisitions continue.
19
Proceeds from sales of lease assets are not expected to be consistent from one
period to another. The Company is a finite life equipment leasing fund, which
will acquire leasing transactions during the period ending six years after
completion of its public offering. On the termination of leases, assets may be
re-leased or sold. Sales of assets are not scheduled and are created by
opportunities within the marketplace. The Company will seek to acquire and
lease a wide variety of assets and to enter into leases on a variety of terms.
Some assets will be expected to have little or no value upon termination of
the related leases, while others will be expected to have substantial value
for re-lease or sale upon termination of the initial leases, and the
anticipated residual values are a key factor in pricing and terms structured
for each lease. The Company's goal is to seek maximum return on its leased
assets and will determine when and under what terms to dispose such assets
during the course of its term.
Asset management fees were $271,336 and $145,624 for the quarters ended March
31, 2005 and 2004, respectively, and are based on the gross lease rents of the
Company plus proceeds from the sales of lease assets. They are limited to
certain percentages of lease rents, distributions to members and certain other
items. As additional assets are acquired, as lease rents are collected and
distributions are made to the members, these fees are expected to increase.
Interest expense of $287,887 and $135,165 for the first quarters of 2005 and
2004, respectively, related primarily to other long term debt assumed in the
first quarter of 2005 and the maintenance on the availability of the
receivables funding facility established in August 2003.
In the first quarter of 2004, the Company provided $169,000 for doubtful
accounts related to the default of a borrower (Photuris, Inc.) on a note
receivable.
In the first quarter of 2005, the Company recorded a $123,000 recognized
portion of unrealized gain on the interest rate swaps.
Results of operations in future periods are expected to vary considerably from
those of the first quarter of 2005 and 2004 as the Company continues to
acquire significant amounts of lease assets.
Item 3. Quantitative and Qualitative Disclosures of 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 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.
Also, 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. The interest rate swaps are carried at fair value on the balance sheet
with unrealized gain/loss included in the statement of operations.
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.
20
Item 4. 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 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934] was performed as of March 31, 2005. Based
upon this evaluation, the chief executive officer and the chief financial
officer concluded that, as of the evaluation date, 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.
As disclosed in the Company's annual report on Form 10-K for the year ended
December 31, 2003, the chief executive and chief financial officer of the
Managing Member had identified certain enhanced controls needed to facilitate
a more effective closing of the Company's financial statements. Specifically,
the Company's auditors advised management of a material weakness surrounding
the financial statement closing process that they believe arose because ATEL's
accounting resources were not adequate to complete the closing of the books
and preparation of financial statements in a timely manner. However, it should
be noted that the financial statements for that period were nevertheless
issued with an unqualified opinion. Since the beginning of 2004, ATEL hired a
new corporate controller, added two assistant controllers and additional
accounting staff personnel, and has instituted new procedures or revised
existing procedures to ensure that the Company's ability to execute internal
controls in accounting and reconciliation in the closing process is adequate
in all respects. In connection with management's review of the effectiveness
of internal disclosure controls and procedures of the Company as of March 31,
2005, including communication with its auditors regarding the audit process,
ATEL management has determined that it has successfully taken all steps
necessary to resolve any outstanding issues with respect to its annual
financial statement closing process and that its accounting resources are
adequate to perform this process in a timely and accurate manner. In
connection with their audit of the Company and related programs for the year
ended December 31, 2004, the independent accountants issued a no material
weakness letter which indicates that no matters were noted involving internal
control and its operation that the auditor considered to be material
weaknesses as defined by the Public Company Accounting Oversight Board (United
States). Furthermore, all financial statements for the Company and related
programs for 2004 were issued with unqualified opinions of the independent
accountants. The Managing Member will continue to review its accounting
procedures and practices to determine their effectiveness and adequacy and
will take any steps deemed necessary in the opinion of the Managing Member's
chief executive and chief financial officers to ensure the adequacy of the
Company's disclosure and accounting controls and procedures.
The Managing Member's chief executive officer and chief financial officer have
determined that no weakness in financial and accounting controls and
procedures had any material effect on the accuracy and completeness of the
Company's financial reporting and disclosure included in this report.
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.
21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of conducting business, there may be certain claims,
suits, and complaints filed against the Company. In the opinion of management,
the outcome of such matters, if any, will not have a material impact on the
Company's financial position or results of operations. No material legal
proceedings are currently pending against the Company or against any of its
assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits.
Documents filed as a part of this report
1. Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
2. Other Exhibits
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
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
May 13, 2005
ATEL CAPITAL EQUIPMENT FUND IX, LLC
(Registrant)
By: ATEL Financial Services LLC
Managing Member of Registrant
By: /s/ Dean L. Cash_____________
Dean L. Cash
President and Chief Executive Officer
of Managing Member
By: /s/ Paritosh K. Choksi_________
Paritosh K. Choksi
Principal Financial Officer
of Registrant
By: /s/ Donald E. Carpenter________
Donald E. Carpenter
Principal Accounting
Officer of Registrant
By: /s/ Elif A Kuvvetli________
Elif A Kuvvetli
Vice President and
Corporate Controller
23