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EX-32.1 - CERTIFICATION OF DEAN L. CASH PURSUANT TO 18 U.S.C. SECTION 1350 - ATEL CAPITAL EQUIPMENT FUND IX LLCdex321.htm
EX-31.2 - CERTIFICATION OF PARITOSH K. CHOSKI PURSUANT TO RULES 13A-14(A)/15D-14(A) - ATEL CAPITAL EQUIPMENT FUND IX LLCdex312.htm
EX-14.1 - CODE OF ETHICS - ATEL CAPITAL EQUIPMENT FUND IX LLCdex141.htm
EX-31.1 - CERTIFICATION OF DEAN L. CASH PURSUANT TO RULES 13A-14(A)/15D-14(A) - ATEL CAPITAL EQUIPMENT FUND IX LLCdex311.htm
EX-32.2 - CERTIFICATION OF PARITOSH K. CHOKSI PURSUANT TO 18 U.S.C. SECTION 1350 - ATEL CAPITAL EQUIPMENT FUND IX LLCdex322.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

 

x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the year ended December 31, 2009

 

¨ 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

incorporation or organization)

 

(I. R. S. Employer

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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934.    Yes  ¨    No  x

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer ¨   Smaller reporting company x
                                               (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

State the aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable

The number of Limited Liability Company Units outstanding as of February 28, 2010 was 12,055,016.

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.

 

 

 


PART I

 

Item 1. BUSINESS

General Development of Business

ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on September 27, 2000 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities, primarily in the United States. The Managing Member of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2020. 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 $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business (acquiring equipment to engage in equipment leasing, lending and sales activities). As of April 3, 2001, the Company had received subscriptions for 753,050 Units ($7.5 million), thus exceeding the $7.5 million 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 offering was terminated. As of that date, the Company had received subscriptions for 12,065,266 Units ($120.7 million). Subsequent to January 15, 2003, Units totaling 10,250 were rescinded or repurchased and funds returned to investors. As of December 31, 2009, 12,055,016 Units remain issued and outstanding.

The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended on December 31, 2009 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by the Limited Liability Company Operating Agreement (“Operating Agreement”), as amended. On January 1, 2010, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.

The Company has incurred debt to finance the purchase of a portion of its equipment portfolio. The amount of borrowings in connection with any equipment acquisition transaction is determined by, among other things, the credit of the lease, the terms of the lease, the nature of the equipment and the condition of the money market. There is no limit on the amount of debt that may be incurred in connection with any single acquisition of equipment. However the Company may not incur aggregate outstanding indebtedness in excess of 50% of the total cost of all equipment as of the date of the final commitment of the offering proceeds and, thereafter, as of the date of any subsequent indebtedness is incurred. The Company has borrowed amounts within such maximum debt level in order to fund a portion of its equipment acquisitions. There can be no assurance that such financing will continue to be available to the Company in the future.

The Company also incurred long-term recourse debt in the form of asset securitization transactions in order to obtain lower interest rates or other more desirable terms than may be available for individual non-recourse debt transactions. In an “asset securitization,” the lender would receive a security interest in a specified pool of “securitized” Company assets or a general lien against all of the otherwise unencumbered assets of the Company. It had been the intention of AFS to use asset securitization primarily to finance assets leased to those credits which, in the opinion of AFS, had a relatively lower potential risk of lease default than those lessees with equipment financed with non-recourse debt. AFS expected that an asset securitization financing would involve borrowing at a variable interest rate based on an established reference rate, and sought to limit the Company’s exposure to increases in the interest rate by engaging in hedging transactions that would effectively fix the interest rate obligation. As of December 31, 2009, the amount of such securitized borrowings was $2.4 million.

Pursuant to the terms of the Operating Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Company (See Note 7 to the financial statements included in Item 8 of this report). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

 

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Narrative Description of Business

The Company has acquired various types of equipment to lease 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 operating 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 has only purchased equipment under pre-existing leases or for which a lease will be entered into concurrently at the time of the purchase. Through December 31, 2009, the Company had purchased equipment with a total acquisition price of $175.7 million. The Company also had investments in notes receivable of which $2.6 million remained outstanding at December 31, 2009.

The Company’s objective has been 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 Investors Service 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) was originally leased to lessees with an aggregate credit rating of Baa or better or to such hospitals or municipalities, as described in (ii) above.

During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Company’s total lease revenues as follows:

 

          Percentage
of Total
 

Lessee

  

Type of Equipment

   2009     2008  

The Sabine Mining Company

   Mining    16   10

Ford Motor Company

   Materials handling    *      11

Whirlpool Corporation

   Materials handling    *      11

 

  * Less than 10%

These percentages are not expected to be comparable in future periods.

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, type of equipment and creditworthiness of the lessee. 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 raw material costs to manufacture equipment as well 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 sought 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. AFS’ employees provide the services the Company requires to effectively operate. The cost of these services is reimbursed by the Company to AFS per the Operating Agreement.

Equipment Leasing Activities

The Company has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries.

 

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The following tables set forth the types of equipment acquired by the Company through December 31, 2009 and the industries to which the assets have been leased (dollars in thousands):

 

Asset Types

   Purchase Price
Excluding
Acquisition Fees
   Percentage of
Total
Acquisitions
     

Mining equipment

   $ 45,530    26.23  

Materials handling

     34,865    20.08  

Transportation, other

     15,700    9.04  

Construction

     15,513    8.94  

Aviation

     13,644    7.86  

Transportation, rail

     13,458    7.75  

Marine vessels

     12,841    7.40  

Computers

     6,143    3.54  

Logging/Lumber

     4,176    2.41  

Manufacturing

     4,004    2.31  

Other

     7,725    4.44  
               
   $ 173,599    100.00  
               

 

Industry of Lessee

   Purchase Price
Excluding
Acquisition Fees
   Percentage of
Total
Acquisitions
     

Mining

   $ 44,228    25.48  

Transportation, other

     25,960    14.95  

Manufacturing

     19,256    11.09  

Electronics

     16,926    9.75  

Oil/Gas

     8,709    5.02  

Health services

     7,704    4.44  

Retail

     7,662    4.41  

Communications

     7,561    4.36  

Transportation, rail

     7,467    4.30  

Wood/Lumber products

     6,530    3.76  

Transportation, marine

     6,241    3.60  

Construction

     5,365    3.09  

Paper products

     4,549    2.62  

Other

     5,441    3.13  
               
   $ 173,599    100.00  
               

From inception to December 31, 2009, the Company has disposed of certain leased assets as set forth below (in thousands):

 

Asset Types

   Original
Equipment Cost
Excluding
Acquisition Fees
   Sale Price    Gross Rents

Manufacturing

   $ 14,104    $ 10,229    $ 10,096

Materials handling

     12,931      1,848      13,742

Mining equipment

     9,788      4,754      8,584

Construction

     5,450      2,349      5,312

Computers

     5,353      928      4,936

Marine vessels

     1,025      —        1,058

Transportation, other

     275      96      362

Transportation, rail

     159      119      79

Other

     3,732      1,969      3,183
                    
   $ 52,817    $ 22,292    $ 47,352
                    

 

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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 had acquired 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 sought 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 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 of such assets during the course of its term.

For further information regarding the Company’s equipment lease portfolio as of December 31, 2009 and 2008, see Note 6 to the financial statements, Investments in equipment and leases, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

Notes Receivable Activities

The Company finances a diversified portfolio of assets in diverse industries. The following tables set forth the types of assets financed by the Company through December 31, 2009 and the industries to which the assets have been financed (dollars in thousands):

 

Asset Types

   Amount Financed
Excluding
Acquisition Fees
   Percentage of
Total
Acquisitions
     

Computers

   $ 3,719    26.92  

Aircraft

     2,680    19.40  

Storage facility

     2,503    18.12  

Research

     1,977    14.31  

Manufacturing

     1,083    7.84  

Telecommunications

     503    3.64  

Furniture/Fixtures

     320    2.32  

Other

     1,028    7.45  
               
   $ 13,813    100.00  
               

 

Industry of Borrower

   Amount Financed
Excluding
Acquisition Fees
   Percentage of
Total
Acquisitions
     

Manufacturing

   $ 4,086    29.58  

Communications

     3,360    24.33  

Transportation, air

     2,680    19.40  

Business services

     1,750    12.67  

Health services

     940    6.80  

Electric/Gas

     500    3.62  

Electronics

     350    2.53  

Industrial machinery

     147    1.07  
               
   $ 13,813    100.00  
               

 

5


From inception to December 31, 2009, assets financed by the Company that are associated with terminated loans are as follows (in thousands):

 

Asset Types

   Amount Financed
Excluding
Acquisition Fees
   Disposition Proceeds    Total Payments
Received
    

Computers

   $ 5,484    $ 328    $ 4,333   

Manufacturing

     1,083      —        697   

Telecommunications

     495      287      365   

Research

     480      15      573   

Furniture/Fixtures

     88      —        98   
                       
   $ 7,630    $ 630    $ 6,066   
                       

For further information regarding the Company’s notes receivable portfolio as of December 31, 2009, see Note 4 to the financial statements, Notes receivable, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

The Company operates in one reportable operating segment in the United States. For further information regarding the Company’s geographic revenues and assets, and major customers, see Notes 2 and 3 to the financial statements 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, Business.

 

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 financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.

 

Item 4. [RESERVED]

 

6


PART II

 

Item 5. MARKET FOR REGISTRANT’S LIMITED LIABILITY COMPANY UNITS AND RELATED MATTERS

Market Information

There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.

Holders

As of December 31, 2009, a total of 3,072 investors were Unitholders of record holders in the Company.

Distributions

The Unitholders of record 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.

The rate for monthly distributions from 2009 operations was $0.075 per Unit for the period from January through December 2009. Likewise, the rate for monthly distributions from 2008 operations was $0.075 per Unit for the period from January through December 2008. The rate for each of the quarterly distributions paid in 2009 and 2008 was $0.225 per Unit.

The following table presents summarized information regarding distributions to members other than the Managing Member (“Other Members”):

 

     2009    2008

Net income per Unit, based on weighted average Units outstanding

   $ 0.14    $ 0.10

Return of investment

     0.76      0.80
             

Distributions declared per Unit, based on weighted average Other Member Units outstanding

     0.90      0.90

Differences due to timing of distributions

     —        —  
             

Actual distributions paid per Unit

   $ 0.90    $ 0.90
             

 

Item 6. SELECTED FINANCIAL DATA

A smaller reporting company is not required to present selected financial data in accordance with item 301(c) of Regulation S-K.

 

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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” (“MD&A”) 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. In particular, economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Fund’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-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.

Overview

ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) is a California limited liability company that was formed in September 2000 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States. The Managing Member of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. The offering was terminated in January 2003. During early 2003, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company has utilized its credit facilities and reinvested cash flow in excess of certain amounts required to be distributed to the Other Members to acquire additional equipment.

The Company may continue until December 31, 2020. However, pursuant to the guidelines of the Operating Agreement, the Company commenced liquidation phase activities subsequent to the end of the Reinvestment Period which ended on December 31, 2009. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred.

The Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be recovered in future years to the extent of the cumulative limit. As of December 31, 2009, the Company has not exceeded the annual and/or cumulative limitations discussed above.

As of December 31, 2009 and 2008, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:

 

     2009   2008    

Mining

   32%   21%  

Manufacturing

   23%   36%  

Marine transportation/Transportation, other

   16%   18%  

Rail transportation

   12%   12%  

 

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During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Company’s total lease revenues as follows:

 

          Percentage
of Total
 

Lessee

  

Type of Equipment

   2009     2008  
The Sabine Mining Company    Mining    16   10
Ford Motor Company    Materials handling    *      11
Whirlpool Corporation    Materials handling    *      11

 

  * Less than 10%

These percentages are not expected to be comparable in future periods due to anticipated changes in the mix of investments and/or lessees as a result of liquidation stage activities commencing January 1, 2010.

It is the Company’s objective to maintain a 100% utilization rate for all equipment purchased in any given year. All equipment transactions are acquired subject to binding lease commitments, so equipment utilization is expected to remain high throughout the reinvestment stage. Initial lease terms of these leases are generally from 36 to 120 months, and as they expire, the Company will attempt to re-lease or sell the equipment; as such, utilization rates may tend to decrease during the liquidation stage of the Company. All of the Company’s equipment on lease was acquired in the years 2001 through 2009. The utilization percentage of existing assets under lease was 83% and 88% as of December 31, 2009 and 2008, respectively.

2009 vs. 2008

The Company had net income of $2.6 million and $2.1 million for the years ended December 31, 2009 and 2008, respectively. Results for 2009 reflect a decrease in total operating expenses offset, in part, by a decrease in total revenues.

Revenues

Total revenues for 2009 decreased by $2.5 million, or 12%, as compared to the prior year. The net decline in total revenues was comprised of reductions in revenues from operating leases, interest on notes receivable and other revenue offset, in part, by an increase in gain on sales of lease assets.

The decrease in operating lease revenues totaled $3.4 million and was attributable to runoff and sales of the lease assets. Interest income on the notes receivable was reduced by $177 thousand primarily as a result of maturities and/or early termination of the notes; and other revenue declined by $124 thousand primarily due to a 2008 gain recognized on the sale of an investment security and the year over year decline in interest income on the Company’s cash deposit, which declined as a result of the change in the Company’s depository account to a non-interest bearing account to ensure maximum FDIC insurance coverage on deposits.

Partially offsetting the aforementioned decreases in revenues was a $1.3 million year over year increase in gains on sales of assets. The increase in gains on sales of assets was mainly due to the higher number of assets sold as a result of an increase in terminating lease assets coupled with the stronger demand for the assets available for sale during 2009 as compared to the prior year.

Expenses

Total expenses for 2009 decreased by $2.6 million, or 15%, as compared to the prior year. The net decline in expenses was primarily due to decreases in depreciation expense, amortization of initial direct costs related to asset acquisitions, interest expense and management fees to AFS offset, in part, by increases in lease impairment losses, the provision for credit losses, the cost of operating and maintaining the Company’s marine vessel, other expense and acquisition expense.

The decrease in depreciation expense, totaling $3.7 million, was attributable to runoff and lease asset sales since December 31, 2008. Amortization of initial direct costs related to asset acquisitions declined by $162 thousand as a result of the decline in acquisition phase activity as the Company has approached full investment. In addition, interest expense was reduced by $69 thousand largely due to a decline in outstanding debt through September 2009 at which point, the Company

 

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financed a lease with new non-recourse debt; and asset management fees paid to AFS decreased by $67 thousand primarily due to the year over year decline in managed assets and related rents.

As partial offsets to the aforementioned decreases in expenses, impairment losses increased by $650 thousand as the Company adjusted the cost basis of certain impaired leased and off-lease assets. The provision for credit losses also increased by $219 thousand as a result of a reserve established for an aged receivable. Likewise, marine vessel maintenance and operating costs increased by $168 thousand as a result of a year over year increase in vessel activity. In addition, other expense increased by $143 thousand primarily due to higher tax related accruals and increased bank charges; and acquisition expense increased by $126 thousand as a result of new leases and loans funded during the latter half of 2009.

Other

The Company recorded other income, net totaling $164 thousand for 2009 and other expense, net totaling $193 thousand for 2008. The $357 thousand increase was comprised of a $318 thousand favorable change in the fair value of the Company’s interest rate swap contracts and a $39 thousand favorable change in foreign currency transaction gains and losses recognized during 2009 as compared to the prior year.

The improvement in the value of the interest rate swaps was mostly driven by the decline in the notional balance of outstanding contracts since December 31, 2008 offset, in part, by the impact of the lower interest rate environment; and the decrease in foreign currency losses was largely due to the year over year weakness of the U.S. currency against the British pound. The British pound comprises the majority of the Company’s foreign currency transactions.

Capital Resources and Liquidity

The liquidity of the Company varies, 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 Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Company is its cash flow from leasing activities. As initial lease terms expire, the Company re-leases or sells the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Company’s success in remarketing or selling the equipment as it comes off rental.

The changes in the Company’s cash flow for 2009 when compared to the prior year are as follows:

 

   

Operating Activities

Cash provided by operating activities decreased by $4.1 million for the year ended December 31, 2009 as compared to the prior year. The net reduction in cash flow was primarily due to decreases in net operating results, as adjusted for non-cash items such as gains on sales of assets and depreciation, collections of outstanding receivables and unearned operating lease income. These decreases in cash were offset, in part, by a net increase in accounts payable and accrued liabilities.

The reduction in net operating results, as adjusted for non-cash items, reduced cash flow by $3.9 million and was primarily due to the decrease in revenues from operating leases combined with increases in costs related to operating and maintaining the Company’s marine vessel, other expense and acquisition expense. The decrease in collection of accounts receivable reduced cash flow by $456 thousand and was mainly a result of lower amounts of billings accrued at year-end 2008 versus 2007. Accordingly, this resulted in lower amounts of receivable collected during 2009 versus the prior year. Moreover, the decline in unearned operating lease income reduced cash flow by $439 thousand and was attributable to the decrease in unearned rents received and increased amortization of prepaid rents received in previous periods.

The aforementioned decreases in cash were offset, in part, by increased levels of accounts payable and accrued liabilities which increased cash flow by $764 thousand. The year over year increase in accounts payable and accrued liabilities was largely due to increases in accrued taxes and marine vessel refurbishing, maintenance and operating costs.

 

10


   

Investing Activities

Net cash used in investing activities totaled $6.1 million for 2009 as compared to cash provided by activities totaling $5.1 million for the prior year. The $11.3 million net decrease in cash flow was primarily due to approximately $11.4 million of cash used to refurbish existing assets relative to new direct financing leases, and $1.8 million used to originate new operating leases during the latter half of 2009. Cash flow also decreased by $399 thousand and $346 thousand as a result of reduced payments received on direct financing leases and notes receivable, both of which decreased due to runoff of such assets. Moreover, cash flow decreased by $365 thousand due to capitalized improvement costs associated with the Company’s marine vessel.

The aforementioned decreases in cash flow were offset, in part, by a $3.1 million increase in net proceeds from sales of lease assets, which was mainly a result of the stronger demand for the types of assets sold during 2009 as compared to the prior year.

 

   

Financing Activities

Net cash provided by financing activities totaled $4.5 million for 2009 as compared to cash used of $21.1 million for 2008. The $25.6 million increase in cash flow was primarily due to $24.9 million of gross proceeds from the non-recourse debt, as previously noted, as well as a $698 thousand year over year decrease in net repayments made on a variety of outstanding borrowings.

In a normal economy, if inflation in the general economy becomes significant, it may affect the Company in as much 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. In addition, if interest rates increase significantly under such circumstances, 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.

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.

Revolving credit facility

On December 30, 2009, the Company’s participation in a revolving credit facility with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to December 30, 2009, the Company participated with AFS and certain of its affiliates in a revolving credit facility comprised of a working capital facility to AFS, an acquisition facility and a warehouse facility to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions.

Receivable funding program

As of December 31, 2009, the Company had amounts outstanding under a $60 million receivables funding program (the “RF Program”) with a receivables financing company that issued commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investor Services. Under the RF Program, the lender holds liens against the Company’s assets. The lender is in a first position against certain specified assets and is in either a subordinated or shared position against the remaining assets. The ability to draw down on the RF Program terminated on July 31, 2008, and the RF Program matures in August 2011 upon repayment in full of all outstanding amounts due under the Program.

Compliance with covenants

The RF Program includes certain financial and non-financial covenants applicable to the Company as borrower. Such covenants include covenants typically found in credit facilities of the size and nature of the RF Program, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was

 

11


in compliance with all covenants under the RF Program as of December 31, 2009. The Company considers certain financial covenants to be material to its ongoing use of the RF Program and these covenants are described below.

Material financial covenants

Under the RF Program, the Company is required to maintain a specific tangible net worth and leverage ratio, and to comply with other terms expressed in the RF Program, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies. The material financial covenants are summarized as follows:

Minimum Tangible Net Worth: $15 million

Leverage Ratio (leverage to Tangible Net Worth): not to exceed 2.00 to 1

“Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under GAAP, and after certain other adjustments permitted under the agreements.

The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the RF Program. As of December 31, 2009, the Company’s Tangible Net Worth requirement was $15 million, and the permitted maximum leverage ratio under the RF Program was 2.00 to 1. The Company was in compliance with each of these financial covenants with a minimum Tangible Net Worth and leverage ratio of $20.9 million and 1.48 to 1, respectively, as of December 31, 2009. As such, as of December 31, 2009, the Company was in compliance with all such material financial covenants.

Events of default, cross-defaults, recourse and security

The terms of the RF Program include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the RF Program should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Company’s request.

The Company is currently in compliance with its obligations under the RF Program. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.

The Operating Agreement limits aggregate borrowings to 50% of the total cost of equipment. For detailed information on the Company’s debt obligations, see Notes 8 to 10 to the financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

Due to the April 2009 bankruptcy of a major lessee, Chrysler Corporation, the Company, in accordance with its accounting policy for allowance for doubtful accounts, has placed all operating leases with Chrysler on non-accrual status pending resumption of recurring payment activity. As a result, the Company, in accordance with its accounting policy for delinquent operating leases, has reversed the billed but not yet paid amounts, and placed each of these respective operating leases on a non-accrual and cash basis pending resumption of recurring payment activity. The Company also considered the equipment underlying the lease contracts for impairment and believes that such equipment is not impaired as of December 31, 2009. At December 31, 2009, the net book value of such equipment was approximately $1.9 million. Such investment in Chrysler represents the total net investment in equipment underlying lease contracts placed in non-accrual status as of December 31, 2009. As of the same date, management has concluded that the status of these leases will not have a material impact on either of the Company’s capital resources or liquidity. There were no lease contracts in non-accrual status as of December 31, 2008.

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2001.

 

12


At December 31, 2009, the Company had commitments to purchase lease assets and fund investments in notes receivable totaling approximately $2.7 million and $500 thousand, respectively. These amounts represent contract awards which may be canceled by the prospective lessee or not be accepted by the Company. There were no cancellations subsequent to year-end.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.

Critical Accounting Policies and Estimates

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 significantly 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.

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values at the end of the leases. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, operating lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.

The Company earns revenues from its marine vessel based on utilization of the vessel. Such contingent rentals and the associated expenses are recorded when earned and/or incurred. From time to time, the Company incurs “drydocking” costs on its vessel. Such drydocking costs are capitalized and added to the equipment cost and depreciated over the period between scheduled drydockings, which generally occur every 24 to 30 months.

 

13


Direct financing leases and related revenue recognition:

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 interest 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 off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off as they are deemed uncollectible.

Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, direct finance lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.

Notes receivable, unearned interest income and related revenue recognition:

The Company records all future payments of principal and interest on notes as notes receivable and then offsets the related unearned interest income. For financial statement purposes, the Company reports only the principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.

Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Notes are written off to the allowance as they are deemed uncollectible.

Notes receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, notes may be placed in a non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable.

Initial direct costs:

The Company capitalizes initial direct costs (“IDC”) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual contract term using a straight-line method for operating leases and the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease or loan assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.

Asset valuation:

Recorded values of the Company’s leased asset portfolio are periodically reviewed for impairment. 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

 

14


held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the assets and its carrying value on the measurement date.

 

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 16 through 38.

 

15


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Members

ATEL Capital Equipment Fund IX, LLC

We have audited the accompanying balance sheets of ATEL Capital Equipment Fund IX, LLC (the “Company”) as of December 31, 2009 and 2008, and the related statements of income, changes in members’ capital, and cash flows for the years then ended. These financial statements are the responsibility of the Management of the Company’s Managing Member. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. 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 as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Moss Adams LLP

San Francisco, California

March 26, 2010

 

16


ATEL CAPITAL EQUIPMENT FUND IX, LLC

BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

(In Thousands)

 

     2009    2008
ASSETS      

Cash and cash equivalents

   $ 10,189    $ 2,142

Accounts receivable, net of allowance for doubtful accounts of $275 at December 31, 2009 and $100 at December 31, 2008

     814      1,030

Notes receivable, net of unearned interest income of $653 at December 31, 2009 and $612 at December 31, 2008

     2,628      3,653

Prepaid expenses and other assets

     46      51

Investment in securities

     70      70

Investments in equipment and leases, net of accumulated depreciation of $45,823 at December 31, 2009 and $55,818 at December 31, 2008

     45,466      41,655
             

Total assets

   $ 59,213    $ 48,601
             
LIABILITIES AND MEMBERS’ CAPITAL      

Accounts payable and accrued liabilities:

     

Managing Member

   $ 325    $ 172

Due to affiliates

     3,595      —  

Accrued distributions to Other Members

     1,209      1,209

Other

     1,340      1,021

Deposits due lessees

     90      129

Non-recourse debt

     28,663      4,826

Interest rate swap contracts

     53      225

Acquisition facility obligation

     —        2,000

Receivables funding program obligation

     2,405      8,009

Unearned operating lease income

     585      950
             

Total liabilities

     38,265      18,541
             

Commitments and contingencies

     

Members’ capital:

     

Managing Member

     —        —  

Other Members

     20,948      30,060
             

Total Members’ capital

     20,948      30,060
             

Total liabilities and Members’ capital

   $ 59,213    $ 48,601
             

See accompanying notes.

 

17


ATEL CAPITAL EQUIPMENT FUND IX, LLC

STATEMENTS OF INCOME

FOR THE YEARS ENDED

DECEMBER 31, 2009 AND 2008

(In Thousands Except for Units and Per Unit Data)

 

     2009    2008  

Revenues:

     

Leasing activities:

     

Operating leases

   $ 14,050    $ 17,478   

Direct financing leases

     1,933      1,932   

Interest on notes receivable

     203      380   

Gain on sales of assets

     1,350      98   

Other revenue

     59      183   
               

Total revenues

     17,595      20,071   

Expenses:

     

Depreciation of operating lease assets

     9,295      12,996   

Asset management fees to Managing Member

     835      902   

Acquisition expense

     126      —     

Cost reimbursements to Managing Member

     670      626   

Provision (reversal of provision) for credit losses

     175      (44

Impairment losses

     1,046      396   

Amortization of initial direct costs

     143      305   

Interest expense

     1,020      1,089   

Professional fees

     363      315   

Outside services

     102      101   

Insurance

     88      99   

Marine vessel maintenance and other operating costs

     799      631   

Other

     480      337   
               

Total operating expenses

     15,142      17,753   

Other income (expense), net

     164      (193
               

Net income

   $ 2,617    $ 2,125   
               

Net income:

     

Managing Member

   $ 880    $ 880   

Other Members

     1,737      1,245   
               
   $ 2,617    $ 2,125   
               

Net income per Limited Liability Company Unit (Other Members)

   $ 0.14    $ 0.10   

Weighted average number of Units outstanding

     12,055,016      12,055,016   

See accompanying notes.

 

18


ATEL CAPITAL EQUIPMENT FUND IX, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE YEARS ENDED

DECEMBER 31, 2009 AND 2008

(In Thousands Except for Units and Per Unit Data)

 

     Other Members     Managing
Member
    Total  
     Units    Amount      

Balance December 31, 2007

   12,055,016    $ 39,665      $ —        $ 39,665   

Distributions to Other Members ($0.90 per Unit)

   —        (10,850     —          (10,850

Distributions to Managing Member

   —        —          (880     (880

Net income

   —        1,245        880        2,125   
                             

Balance December 31, 2008

   12,055,016      30,060        —          30,060   

Distributions to Other Members ($0.90 per Unit)

   —        (10,849     —          (10,849

Distributions to Managing Member

   —        —          (880     (880

Net income

   —        1,737        880        2,617   
                             

Balance December 31, 2009

   12,055,016    $ 20,948      $ —        $ 20,948   
                             

See accompanying notes.

 

19


ATEL CAPITAL EQUIPMENT FUND IX, LLC

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

(In Thousands)

 

           2009                 2008        

Operating activities:

    

Net income

   $ 2,617      $ 2,125   

Adjustment to reconcile net income to cash provided by operating activities:

    

Gain on sales of lease assets

     (1,350     (98

Depreciation of operating lease assets

     9,295        12,996   

Amortization of initial direct costs

     143        305   

Amortization of unearned income on direct financing leases

     (1,933     (1,932

Amortization of unearned income on notes receivable

     (203     (380

Provision (reversal of provision) for credit losses

     175        (44

Impairment losses

     1,046        396   

(Gain) loss on interest rate swap contracts

     (172     146   

Changes in operating assets and liabilities:

    

Accounts receivable

     (33     423   

Prepaid and other assets

     5        (3

Accounts payable, Managing Member

     153        (283

Accounts payable, affiliates

     8        —     

Accounts payable, other

     318        (2

Deposits due lessees

     (39     37   

Unearned operating lease income

     (368     71   
                

Net cash provided by operating activities

     9,662        13,757   
                

Investing activities:

    

Purchases of equipment on operating leases

     (2,125     —     

Purchases of equipment on direct financing leases

     (11,359     —     

Proceeds from sales of lease assets

     3,766        690   

Payments of initial direct costs

     (97     —     

Payments received on direct financing leases

     3,185        3,584   

Payments received on notes receivable

     511        857   
                

Net cash (used in) provided by investing activities

     (6,119     5,131   
                

Financing activities:

    

Borrowings under acquisition facility

     4,000        4,000   

Repayments under acquisition facility

     (6,000     (3,500

Repayments under receivables funding program

     (5,604     (7,470

Proceeds of non-recourse debt

     24,877        —     

Repayments of non-recourse debt

     (1,040     (2,372

Distributions to Other Members

     (10,849     (10,850

Distributions to Managing Member

     (880     (880
                

Net cash provided by (used in) financing activities

     4,504        (21,072
                

Net increase (decrease) in cash and cash equivalents

     8,047        (2,184

Cash and cash equivalents at beginning of year

     2,142        4,326   
                

Cash and cash equivalents at end of year

   $ 10,189      $ 2,142   
                

Supplemental disclosures of cash flow information:

    

Cash paid during the year for interest

   $ 964      $ 1,116   
                

Cash paid during the year for taxes

   $ 196      $ 150   
                

Schedule of non-cash transactions:

    

Transfer of operating lease assets from affiliates

   $ 2,674      $ —     
                

Transfer of investments in notes receivable from affiliates

   $ 1,000      $ —     
                

Distributions payable to Other Members at year end

   $           1,209      $           1,209   
                

See accompanying notes.

 

20


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

1. Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on September 27, 2000 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities, primarily in the United States. The Managing Member of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2020. 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 $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business (acquiring equipment to engage in equipment leasing, lending and sales activities). As of April 3, 2001, the Company had received subscriptions for 753,050 Units ($7.5 million), thus exceeding the $7.5 million 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 offering was terminated. As of that date, the Company had received subscriptions for 12,065,266 Units ($120.7 million). Subsequent to January 15, 2003, Units totaling 10,250 were rescinded or repurchased and funds returned to investors. As of December 31, 2009, 12,055,016 Units remain issued and outstanding.

The Company’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular distributions to the members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended on December 31, 2009 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Company is governed by the Limited Liability Company Operating Agreement (“Operating Agreement”), as amended. On January 1, 2010, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.

Pursuant to the terms of the Operating Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Company (See Note 7). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying balance sheets as of December 31, 2009 and 2008, and the related statements of income, changes in members’ capital, and cash flows for the years then ended, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on equity or net income.

Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after December 31, 2009, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.

 

21


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.

Credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, direct financing lease receivables, notes receivable, accounts receivable and interest rate swaps. The Company places the majority of its cash deposits and temporary cash investments in U.S. Treasury denominated instruments with the remainder placed in financial institutions where the principal is 100% guaranteed under the Troubled Asset Relief Program Act of 2008 (“TARP”) through June 2010, so as to meet ongoing working capital requirements. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts and notes receivable represent amounts due from lessees or borrowers in various industries related to equipment on operating and direct financing leases or notes receivable. See Note 3 for a description of lessees and financial borrowers by industry as of December 31, 2009 and 2008.

Accounts receivable:

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and invoiced amounts. Accounts receivable deemed uncollectible are charged off to the allowance on specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values at the end of the leases. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, operating lessees may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.

 

22


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

The Company earns revenues from its fleet of marine vessels based on utilization of the vessels. Such contingent rentals and the associated expenses are recorded when earned and/or incurred. From time to time, the Company incurs “drydocking” costs on its vessel. Such drydocking costs are capitalized and added to the equipment cost and depreciated over the period between scheduled drydockings, which generally occur every 24 to 30 months.

Direct financing leases and related revenue recognition:

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 interest 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 off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are charged off to the allowance as they are deemed uncollectible.

Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, direct finance lessees with balances less than 90 days delinquent may be placed in a non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable.

Notes receivable, unearned interest income and related revenue recognition:

The Company records all future payments of principal and interest on notes as notes receivable which is then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.

Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. Notes are charged off to the allowance as they are deemed uncollectible.

Notes receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, notes may be placed in a non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable.

The fair value of the Company’s notes receivable is commensurate with the amount at which the asset could be collected in a current transaction, exclusive of transaction costs such as prepayment penalties.

Initial direct costs:

The Company capitalizes initial direct costs (“IDC”) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual contract term using a straight-line method for operating leases and

 

23


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease or loan assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.

Acquisition expense:

Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.

Asset valuation:

Recorded values of the Company’s leased asset portfolio are periodically reviewed for impairment. 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 a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

Segment reporting:

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.

The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the years ended December 31, 2009 and 2008 and long-lived assets as of December 31, 2009 and 2008 (in thousands):

 

     For the year ended December 31,  
     2009    % of Total     2008    % of Total  

Revenue

          

United States

   $ 15,889    90   $ 18,506    92
                          

United Kingdom

     1,330    8     1,353    7

Canada

     376    2     212    1
                          

Total International

     1,706    10     1,565    8
                          

Total

   $         17,595        100   $         20,071        100
                          

 

24


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

     As of December 31,  
     2009    % of Total     2008    % of Total  

Long-lived assets

          

United States

   $ 42,552    94   $ 39,004    94
                          

United Kingdom

     1,532    3     2,651    6

Canada

     1,382    3     —      0
                          

Total International

     2,914    6     2,651    6
                          

Total

   $         45,466        100   $         41,655        100
                          

Derivative financial instruments:

The Company records all derivatives as either assets or liabilities in the balance sheet, measures those instruments at fair value and recognizes the offsetting gains or losses as adjustments to net income (loss). Credit exposure from derivative financial instruments that are assets arises from the risk of a counterparty default on the derivative contract. The amount of the loss created by the default is the replacement cost or current positive fair value of the defaulted contract.

Foreign currency transactions:

Foreign currency transaction gains and losses are reported in the results of operations as “other income” or “other expense” in the period in which they occur. Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions risks to date have not been significant. During the year ended December 31, 2009 and 2008, the Company recognized foreign currency losses of $8 thousand and $47 thousand, respectively, which are included in other income (expense), net for each of the reporting years.

Investment in securities:

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. Accordingly, such investment is stated at cost at December 31, 2009 and 2008. See note 14 for further discussion.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value on the balance sheet at the end of the period, as determined by the Managing Member. At December 31, 2009 and 2008, the Managing Member estimated the fair value of the warrants to be nominal in amount.

Unearned operating lease income:

The Company records prepayments on operating leases as a liability, unearned operating lease income. The liability is recorded when the prepayments are received and recognized as operating lease revenue ratably over the period to which the prepayments relate.

 

25


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

Income taxes:

The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Company has provided current income taxes for only those states which levy income taxes on partnerships. For the years ended December 31, 2009 and 2008, the related provision for state income taxes was approximately $272 thousand and $138 thousand, respectively. The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is generally subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of a tax return.

The tax bases of the Company’s net assets and liabilities vary from the amounts presented in these financial statements at December 31, 2009 and 2008 (in thousands):

 

     2009     2008

Financial statement basis of net assets

   $ 20,948      $ 30,060

Tax basis of net assets (unaudited)

     20,971        27,814
              

Difference

   $ (23   $ 2,246
              

The primary differences between the tax bases 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.

The following reconciles the net income reported in these financial statements to the income reported on the Company’s federal tax return (unaudited) for each of the years ended December 31, 2009 and 2008 (in thousands):

 

     2009     2008  

Net income per financial statements

   $ 2,617      $ 2,125   

Tax adjustments (unaudited):

    

Adjustment to depreciation expense

     604        161   

Provision for losses and doubtful accounts

     175        (44

Adjustments to revenues / other expenses

     986        2,269   

Adjustments to gain on sales of assets

     (320     12   

Other

     824        —     
                

Income per federal tax return (unaudited)

   $ 4,886      $ 4,523   
                

Other income (expense), net:

Other income (expense), net consists of gains and losses on interest rate swap contracts and gains and losses on foreign exchange transactions. The table below details the Company’s other income (expense), net for the years ended December 31, 2009 and 2008 (in thousands):

 

     2009     2008  

Foreign currency loss

   $ (8   $ (47

Change in fair value of interest rate swap contracts

     172        (146
                
   $ 164      $ (193
                

Per Unit data:

Net income and distributions per Unit are based upon the weighted average number of Other Members’ Units outstanding during the period.

 

26


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

 

Recent accounting pronouncements:

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification provides guidance on improving disclosures about fair value measurements. This guidance has new requirements for disclosures related to recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements in a rollforward reconciliation of Level 3 fair-value measurements. This guidance is effective for the first reporting period beginning after December 15, 2009, which will be effective for the Company beginning January 1, 2010. The Level 3 reconciliation disclosures are effective for fiscal years beginning after December 15, 2010. The adoption of the guidance is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

The Generally Accepted Accounting Principles Topic of the FASB Accounting Standards Codification identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the guidance for its third quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Company’s financial position, results of operations or cash flows.

The Subsequent Events Topic of the FASB Accounting Standards Codification establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The guidance is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted the guidance for its second quarter 2009 interim reporting period. The adoption of the guidance did not have a significant impact on the Company’s financial position, results of operations or cash flows.

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales. The guidance is effective for interim and annual periods ending after June 15, 2009 and has been adopted by the Company for its second quarter 2009 interim reporting period with no impact on its financial position, results of operations or cash flows.

The Financial Instruments Topic of the FASB Accounting Standards Codification increases the frequency of fair value disclosures for financial instruments within the scope of the Topic from an annual basis to a quarterly basis. The guidance is effective for interim reporting periods ending after June 15, 2009. The Company adopted the guidance for its second quarter 2009 interim reporting period without significant effect on the Company’s financial position, results of operations or cash flows.

The Derivatives and Hedging Topic of the FASB Accounting Standards Codification requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The fair value of derivative instruments and their gains and losses will need to be presented in tabular format in order to present a more complete picture of the effects of using derivative instruments. The guidance is effective for financial statements issued for fiscal years beginning after November 15, 2008. The Company adopted the provisions of the guidance on January 1, 2009. The adoption did not have a significant effect on the Company’s financial position, results of operations or cash flows.

The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. The guidance was to be effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB deferred the effective date of the guidance as it pertains to fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. On January 1, 2008, the Company adopted the provisions of the guidance except as it applies to its investment in equipment and leases, and other nonfinancial assets and nonfinancial liabilities. The deferred provisions of the guidance were implemented effective January 1, 2009 without significant effect on the Company’s financial position, results of operations or cash flows.

 

27


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

 

3. 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 to the Company upon default.

As of December 31, 2009 and 2008, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:

 

     2009     2008  

Mining

   32   21

Manufacturing

   23   36

Marine transportation/Transportation, other

   16   18

Rail transportation

   12   12

During 2009 and 2008, certain lessees generated significant portions (defined as 10% or more) of the Company’s total lease revenues as follows:

 

         

Percentage

of Total
Lease Revenues

 

Lessee

  

Type of Equipment

   2009     2008  

The Sabine Mining Company

   Mining    16   10

Ford Motor Company

   Materials handling    *      11

Whirlpool Corporation

   Materials handling    *      11

 

* Less than 10%

4. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At December 31, 2009, the original terms of the notes receivable are 36 to 120 months and bear interest at rates ranging from 8.5% to 16.2%. The notes are secured by the equipment financed. The notes mature from 2013 through 2016. There were neither impaired notes nor notes placed in non-accrual status as of December 31, 2009 and 2008. As of December 31, 2009, the minimum future payments receivable are as follows (in thousands):

 

Year ending December 31, 2010      $ 828   
2011        795   
2012        761   
2013        320   
2014        221   
Thereafter        353   
          
       3,278   
Less: portion representing unearned interest income        (653
          
       2,625   
Unamortized indirect costs        3   
          
Notes receivable, net      $ 2,628   
          

 

28


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

4. Notes receivable, net (continued):

 

IDC amortization expense related to notes receivable and the Company’s operating and direct financing leases for the years ended December 31, 2009 and 2008 are as follows (in thousands):

 

     2009    2008

IDC amortization - notes receivable

   $ 2    $ 3

IDC amortization - lease assets

     141      302
             

Total

   $ 143    $ 305
             

5. Provision for credit losses:

The Company’s provision for credit losses are as follows (in thousands):

 

     Allowance for
Doubtful
Accounts
 

Balance January 1, 2008

   $ 144   

Provision

     —     

Charge-offs and/or recoveries

     (44
        

Balance December 31, 2008

   $ 100   

Provision

     175   

Charge-offs and/or recoveries

     —     
        

Balance December 31, 2009

   $ 275   
        

6. Investment in equipment and leases, net:

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

 

     Balance
December 31,
2008
   Reclassifications,
Additions /
Dispositions and
Impairment
Losses
    Depreciation/
Amortization
Expense or
Amortization of
Leases
    Balance
December 31,
2009

Net investment in operating leases

   $ 35,945    $ (709   $ (9,239   $ 25,997

Net investment in direct financing leases

     4,597      15,282        (1,435     18,444

Assets held for sale or lease, net

     906      12        (56     862

Initial direct costs, net of accumulated amortization of $467 and $718 at December 31, 2009 and 2008, respectively

     207      97        (141     163
                             

Total

   $ 41,655    $ 14,682      $ (10,871   $ 45,466
                             

For the years ended December 31, 2009 and 2008, IDC amortization expense related to operating leases and direct financing leases was $141 thousand and $302 thousand, respectively (See Note 4).

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

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. During 2009, the Company deemed certain operating lease and off-lease assets to be impaired and, accordingly, the Company recorded an adjustment of $1.0 million to the cost basis of such assets. For the year ended December 31, 2008, the Company recorded an impairment loss of $396 thousand. The impairment loss was related to impaired construction and computer equipment.

 

29


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

6. Investment in equipment and leases, net (continued):

 

Depreciation expense and impairment losses on property subject to operating leases and property held for lease or sale consist of the following for the years ended December 31, 2009 and 2008 (in thousands).

 

     2009    2008

Depreciation of operating lease assets

   $ 9,295    $ 12,996

Impairment losses

     1,046      396
             

Total

   $ 10,341    $ 13,392
             

All of the leased property was acquired during the years 2001 through 2009.

Operating leases:

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

 

     Balance
December 31,
2008
    Additions     Reclassifications,
Dispositions and
Impairment
Losses
    Balance
December 31,
2009
 

Transportation, other

   $ 14,672      $ 1,965      $ 1,524      $ 18,161   

Transportation, rail

     13,300        —          —          13,300   

Materials handling

     21,615        798        (10,179     12,234   

Marine vessels

     10,776        365        (1,025     10,116   

Manufacturing

     11,459        —          (4,635     6,824   

Natural gas compressors

     —          1,671        —          1,671   

Construction

     1,758        —          (682     1,076   

Office furniture

     580        —          (20     560   

Mining

     12,651        —          (12,651     —     
                                
     86,811        4,799        (27,668     63,942   

Less accumulated depreciation

     (50,866     (9,239     22,160        (37,945
                                

Total

   $ 35,945      $ (4,440   $ (5,508   $ 25,997   
                                

The average estimated residual value for assets on operating leases was 23% and 24% of the assets’ original cost at December 31, 2009 and 2008, respectively.

The Company earns revenues from its marine vessel based on utilization of the vessel. Such contingent rentals (i.e., short-term, operating charter hire payments) and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues, and totaled $841 thousand and $1.0 million for the years ended December 31, 2009 and 2008, respectively.

On April 30, 2009, a major lessee, Chrysler Corporation filed for bankruptcy protection under Chapter 11. Under a pre-package agreement, a new company was formed to purchase the assets of old Chrysler – its plants, brands, land, equipment, as well as its contracts with the union, dealers and suppliers – from the bankruptcy court. Under this agreement, the Company had its leases with the old, bankrupt Chrysler assumed by the new Chrysler, Chrysler Group, LLC, which is 35% owned by Fiat. The new Chrysler has remitted payments relative to the affirmed leases. However, at December 31, 2009, payments on certain operating leases still remained delinquent. The Company, in accordance with its accounting policy for delinquent operating leases, has reversed the billed but not yet paid amounts, and placed these respective operating leases on a non-accrual and cash bases pending resumption of recurring payment activity. The Company also considered the equipment underlying the lease contracts for impairment and believes that such equipment is not impaired as of December 31, 2009.

 

30


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

6. Investment in equipment and leases, net (continued):

 

At December 31, 2009, the net book value of such equipment was approximately $1.9 million. Such investment in Chrysler represents the total net investment in equipment underlying lease contracts placed in non-accrual status as of December 31, 2009. There were no lease contracts in non-accrual status as of December 31, 2008.

Direct financing leases:

As of December 31, 2009, investment in direct financing leases consists of mining, materials handling equipment and office furniture. As of December 31, 2008, such investment 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, 2009 and 2008 (in thousands):

 

     2009     2008  

Total minimum lease payments receivable

   $ 35,093      $ 6,974   

Estimated residual values of leased equipment (unguaranteed)

     3,864        681   
                

Investment in direct financing leases

     38,957        7,655   

Less unearned income

     (20,513     (3,058
                

Net investment in direct financing leases

   $ 18,444      $ 4,597   
                

Net investment in direct financing leases placed in non-accrual status

   $ 48      $ —     
                

At December 31, 2009, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

 

         Operating
Leases
   Direct
Financing
Leases
   Total
Year ending December 31, 2010      $ 6,926    $ 6,012    $ 12,938
2011        3,162      5,820      8,982
2012        2,185      6,227      8,412
2013        1,576      4,450      6,026
2014        942      4,450      5,392
Thereafter        742      8,134      8,876
                      
     $ 15,533    $ 35,093    $ 50,626
                      

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. The useful lives for investment in leases by category are as follows (in years):

 

Equipment category

   Useful Life

Mining

   30 - 40

Transportation, rail

   30 - 35

Marine vessels

   20 - 30

Manufacturing

   10 - 20

Construction

   7 - 10

Materials handling

   7 - 10

Office furniture

   7 - 10

Transportation, other

   7 - 10

Natural gas compressors

   7 - 10

 

31


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

 

7. Related party transactions:

The terms of the Operating Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.

The Operating Agreement allows for the reimbursement of costs incurred by AFS for providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment. The Company would be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Company.

Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services for the Company are performed by AFS.

Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be recovered in future years to the extent of the cumulative limit. As of December 31, 2009, the Company has not exceeded the annual and/or cumulative limitations discussed above.

AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to the Operating Agreement as follows during each of the years ended December 31, 2009 and 2008 (in thousands):

 

     2009    2008

Costs reimbursed to Managing Member and/or affiliates

   $ 670    $ 626

Asset management fees to Managing Member

     835      902

Acquisition and initial direct costs paid to Managing Member

     192      —  
             
   $ 1,697    $ 1,528
             

During December 2009, operating lease assets with an original cost of $2.7 million and investments in notes receivable totaling $1.0 million were transferred to the Company by certain affiliates, resulting in an amount due to affiliates equivalent to the original cost of the assets.

8. Non-recourse debt

At December 31, 2009, non-recourse debt consists of notes payable to financial institutions. The notes are due in varying quarterly and semi-annual installments. Interest on the notes is at fixed rates ranging from 6.07% to 6.66%. The notes are secured by assignments of lease payments and pledges of assets. At December 31, 2009, gross operating lease rentals and future payments on direct financing leases totaled approximately $35.4 million over the remaining lease terms; and the carrying value of the pledged assets is $19.2 million. The notes mature from 2010 through 2017.

The non-recourse note payable does not contain any material financial covenant. The note is secured by a lien granted by the Company to the non-recourse lender on (and only on) the discounted lease transaction. The lender has recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of this specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of non-recourse note as a general obligation or liability of the Company. Although the Company does not have any direct general liability in connection with the non-recourse note apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lender, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the lease chattel paper or the transaction as a whole, or as to the

 

32


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

8. Non-recourse debt (continued):

 

Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with a non-recourse discount financing obligation. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with this non-recourse obligation, the Company has determined that there are no material covenants with respect to the non-recourse note that warrant footnote disclosure.

Future minimum payments of non-recourse debt are as follows (in thousands):

 

         Principal    Interest    Total
Year ending December 31, 2010      $ 3,514    $ 1,716    $ 5,230
2011        3,756      1,538      5,294
2012        4,009      1,285      5,294
2013        4,279      1,015      5,294
2014        4,568      726      5,294
Thereafter        8,537      553      9,090
                      
     $ 28,663    $ 6,833    $ 35,496
                      

9. Borrowing facilities:

On December 30, 2009, the Company’s participation in a revolving credit facility (the “Credit Facility”) with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to December 30, 2009, the Company participated with AFS and certain of its affiliates in the Credit Facility including an acquisition facility and a warehouse facility to the Company and affiliates, with a syndicate of financial institutions. The Credit Facility is for an amount up to $75 million and includes certain financial covenants. The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility.

During the third quarter of 2009, the Company repaid all outstanding borrowings under the Credit Facility. The weighted average interest rate on borrowings was 2.44% for the year ended December 31, 2009.

As of December 31, 2008, approximately $2.0 million was outstanding under the acquisition facility. The effective rates on borrowings ranged from 2.69% and 3.25% at December 31, 2008; and the weighted average interest rate during the year was 3.49%. In addition, borrowings of $1.3 million were outstanding under the warehouse facility as of December 31, 2008 of which the Company’s maximum obligation approximated $313 thousand. The Company’s maximum obligation at December 31, 2008 represented the Company’s “pro-rata share” of the outstanding warehouse borrowings calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate.

10. Receivables funding program:

As of December 31, 2009, the Company had amounts outstanding under a $60 million receivables funding program (the “RF Program”) with a receivables financing company that issued commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investors Service. Under the RF Program, the lender holds liens against the Company’s assets. The lender is in a first position against certain specified assets and is in either a subordinated or shared position against the remaining assets. The RF Program does not contain any credit risk related default contingencies and is scheduled to mature in August 2011 at which time advances under the RF Program are to be repaid in full.

 

33


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

10. Receivables funding program (continued):

 

The RF Program provides for borrowing at a variable interest rate and 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. The RF Program allows the Company to have a more cost effective means of obtaining debt financing than available for individual non-recourse debt transactions.

The Company had approximately $2.4 million and $8.0 million outstanding under the RF Program at December 31, 2009 and 2008, respectively. During the years ended December 31, 2009 and 2008, the Company paid program fees, as defined in the receivables funding agreement, totaling $26 thousand and $44 thousand, respectively. The RF Program fees are included in interest expense in the Company’s statements of income.

As of December 31, 2009, the Company has entered into interest rate swap agreements to receive or pay interest on a notional principal of $2.4 million based on the difference between nominal rates ranging from 3.75% to 4.81% and the variable rates that ranged from 0.24% to 0.55%. As of December 31, 2008, the Company had interest rate swap agreements to receive or pay interest on a notional principal of $8.0 million based on the difference between nominal rates ranging from 3.75% to 4.81% and the variable rates that ranged from 1.45% to 4.95%. 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 not designated as hedging instruments and are carried at fair value on the balance sheet with unrealized gain/loss included in the statements of income in other income (expense), net.

At December 31, 2009 and 2008, borrowings and interest rate swap agreements under the RF Program are as follows (in thousands):

 

Date Borrowed

   Original
Amount
Borrowed
   Balance
December 31,
2009
   Notional
Balance
December 31,
2009
   Swap
Value
December 31,
2009
    Payment Rate
On Interest
Swap
Agreement
 

February 14, 2005

   $ 20,000    $ 466    $ 466    $ (8   3.75

March 22, 2005

     9,892      762      762      (21   4.31

December 15, 2005

     13,047      827      827      (15   4.80

January 9, 2006

     2,500      350      350      (9   4.81
                               
   $ 45,439    $ 2,405    $ 2,405    $ (53  
                               

 

Date Borrowed

   Original
Amount
Borrowed
   Balance
December 31,
2008
   Notional
Balance
December 31,
2008
   Swap
Value
December 31,
2008
    Payment Rate
On Interest
Swap
Agreement
 

February 14, 2005

   $ 20,000    $ 2,291    $ 2,291    $ (43   3.75

March 22, 2005

     9,892      2,365      2,365      (74   4.31

December 15, 2005

     13,047      2,505      2,505      (79   4.80

January 9, 2006

     2,500      848      848      (29   4.81
                               
   $ 45,439    $ 8,009    $ 8,009    $ (225  
                               

The fair value of the interest rate swaps is estimated using inputs that are defined or that can be corroborated by observable market data.

 

34


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

10. Receivables funding program (continued):

 

At December 31, 2009, the minimum repayment schedule under the RF Program is as follows (in thousands):

 

Year ending December 31, 2010      $ 1,990
2011        415
        
     $ 2,405
        

At December 31, 2009, there are specific leases that are identified as collateral under the Program with expected future lease receivables of approximately $2.8 million at their discounted present value.

The weighted average interest rate on the RF Program was 2.15% and 4.22% during years ended December 31, 2009 and 2008, respectively. The RF Program discussed above includes certain financial and non-financial covenants applicable to the Company as borrower. The Company was in compliance with all covenants as of December 31, 2009.

11. Commitments:

At December 31, 2009, the Company had commitments to purchase lease assets and fund investments in notes receivable totaling approximately $2.7 million and $500 thousand, respectively. These amounts represent contract awards which may be canceled by the prospective lessee or not be accepted by the Company. There were no cancellations subsequent to year-end.

12. 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.

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.

13. Members’ capital:

As of December 31, 2009 and 2008, 12,055,016 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial member (50 Units).

The Company has the right, exercisable in the Manager’s discretion, but not the obligation, to repurchase Units of a Unit holder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the unit-holder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

 

35


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

13. Members’ capital (continued):

 

As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Members and 7.5% to AFS. In accordance with the terms of the Operating Agreement, additional allocations of income were made to AFS in 2009 and 2008. The amounts allocated were determined to bring AFS’s ending capital account balance to zero at the end of each year.

Distributions to the Other Members were as follows (in thousands except Units and per Unit data):

 

     2009    2008

Distributions declared

   $ 10,849    $ 10,850

Weighted average number of Units outstanding

     12,055,016      12,055,016
             

Weighted average distributions per Unit

   $ 0.90    $ 0.90
             

14. Fair value measurements:

Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

At December 31, 2009 and 2008, only the Company’s interest rate swap contracts were measured on a recurring basis. In addition, at December 31, 2009, the Company measured the fair value of impaired operating lease and off-lease assets on a non-recurring basis. Such estimate of measurement methodology is as follows:

Interest rate swaps

The fair value of interest rate swaps is estimated using a valuation method with inputs that are defined or that can be corroborated by observable market data. Accordingly, such swap contracts are classified within Level 2 of the valuation hierarchy.

Impaired operating lease and off-lease assets

During 2009, the Company deemed certain operating lease and off-lease assets to be impaired. Accordingly, the Company recorded fair value adjustments of approximately $1.0 million which reduced the cost basis of the assets. Such fair value adjustments are non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets are classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such assets reflect significant inputs that are unobservable in the market.

 

36


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

14. Fair value measurements (continued):

 

The following table presents the fair value measurement of assets and liabilities measured at fair value on a recurring and non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2009 and 2008 (in thousands):

 

     December 31,
2009
   Level 1
Estimated
Fair Value
   Level 2
Estimated
Fair Value
   Level 3
Estimated
Fair Value

Assets measured at fair value on a non-recurring basis:

           

Impaired operating lease and off-lease assets

   $ 860    $ —      $ —      $ 860

Liabilities measured at fair value on a recurring basis:

           

Interest rate swaps

   $ 53    $ —      $ 53    $ —  

 

     December 31,
2008
   Level 1
Estimated
Fair Value
   Level 2
Estimated
Fair Value
   Level 3
Estimated
Fair Value

Liabilities measured at fair value on a recurring basis:

           

Interest rate swaps

   $ 225    $ —      $ 225    $ —  

The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.

Cash and cash equivalents

The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.

Notes receivable

The Company’s notes receivable are stated at the amount at which the asset could be transferred in a current transaction, exclusive of transaction costs such as prepayment penalties.

Investment in securities

The Company’s investment securities are not registered for public sale and are carried at cost. The investment securities are adjusted for impairment, if any, based upon factors which include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. Accordingly, such investment is stated at cost.

 

37


ATEL CAPITAL EQUIPMENT FUND IX, LLC

NOTES TO FINANCIAL STATEMENTS

14. Fair value measurements (continued):

 

Borrowings

Borrowings include the outstanding amounts on the Company’s acquisition facility. The carrying amount of these variable rate obligations approximate fair value based on current borrowing rates for similar types of borrowings.

Non-recourse debt

The fair value of the Company’s non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.

Limitations

The fair value estimates presented herein were based on pertinent information available to the Company as of December 31, 2009 and 2008. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

The following table presents estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at December 31, 2009 and 2008 (in thousands):

 

     December 31, 2009    December 31, 2008
     Carrying
Amount
   Estimated
Fair Value
   Carrying
Amount
   Estimated
Fair Value

Financial assets:

           

Cash and cash equivalents

   $ 10,189    $ 10,189    $ 2,142    $ 2,142

Notes receivable

     2,628      2,628      3,653      3,653

Financial liabilities:

           

Non-recourse debt

     28,663      28,662      4,826      5,274

Borrowings

     2,405      2,405      10,009      10,009

Interest rate swap contracts

     53      53      225      225

 

38


Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS’ ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

Item 9A(T).    CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as it is applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Management’s Annual Report on Internal Control over Financial Reporting

The Management of the Managing Member is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2009. The internal control process of the Managing Member, as it is applicable to the Company, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:

 

  (1) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Company’s receipts and expenditures are being made only in accordance with authorization of the Management of the Managing Member; and

 

  (2) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Managing Member assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Company, as of December 31, 2009. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, Management of the Managing Member concluded that the Managing Member’s internal control over financial reporting, as it is applicable to the Company, was effective as of December 31, 2009.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

 

39


PART III

 

Item 10. DIRECTORS AND EXECUTIVE OFFICERS

The registrant is a Limited Liability Company and, therefore, has no officers or directors.

ATEL Financial Services, LLC (“AFS”) is the Company’s Managing Member or Manager. AFS is controlled by ATEL Capital Group (“ACG” or “ATEL”), a holding company formed to control ATEL and affiliated companies. The outstanding voting capital stock of ATEL Capital Group is owned 100% by Dean Cash.

Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; and investor relations, communications and general administrative services are performed by AFS.

The officers and directors of ATEL and its affiliates are as follows:

 

Dean L. Cash   

President and Chief Executive Officer of ATEL Financial Services, LLC

(Managing Member)

Paritosh K. Choksi   

Executive Vice President and Chief Financial Officer and Chief Operating Officer of

ATEL Financial Services, LLC (Managing Member)

Vasco H. Morais   

Executive Vice President, Secretary and General Counsel of

ATEL Financial Services, LLC (Managing Member)

Dean L. Cash, age 59, 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 56, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/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 is a member of the board of directors of Syntel, Inc. 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.

Vasco H. Morais, age 51, 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.

 

40


Audit Committee

The board of directors of the Managing Member acts as the audit committee of the Company. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of the Managing Member and are deemed to be financial experts. They are not independent of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of Forms 3, 4 and 5, the Company is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2009.

Code of Ethics

A Code of Ethics that is applicable to the Company, including the Chief Executive Officer and Chief Financial Officer and Chief Operating Officer of its Managing Member, AFS, or persons acting in such capacity on behalf of the Company, 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 2009 and 2008 is set forth in Item 8 of this report under the caption “Financial Statements and Supplementary Data - Notes to Financial Statements - Related party transactions,” at Note 7 thereof, which information is hereby incorporated by reference.

Asset Management Fee

The Company pays AFS an Asset Management Fee in an amount equal to 4% of Operating Revenues, which includes Gross Lease Revenues and Cash From Sales or Refinancing. The Asset Management Fee is paid on a monthly basis. The amount of the Asset Management Fee payable in any year is reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee is 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 supervises 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 is subject to the Asset Management Fee Limit. The Asset Management Fee Limit is 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 is 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.

 

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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 7 to the financial statements included in Item 8, Financial Statements and Supplementary Data, for amounts paid.

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 Operating Agreement, additional allocations of income were made to AFS in 2009 and 2008. The amounts allocated were determined to bring AFS’s ending capital account balance to zero at the end of each year. See financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data, of this report for amounts allocated to AFS in 2009 and 2008.

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners

At December 31, 2009, 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)

Title of Class

  

(2)

Name and Address of

Beneficial Owner

  

(3)

Amount and Nature of

Beneficial Ownership

   (4)
Percent of
Class
 

Limited Liability Company Units

  

ATEL Capital Group

600 California Street, 6th Floor

San Francisco, CA 94108

  

Initial Limited Liability

Company Units

50 Units ($500)

   0.0004

 

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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 Supplementary Data - Notes to Financial Statements - Related party transactions” at footnote 7 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 and audit related fees with its principal auditors as follows (in thousands):

 

     2009    2008

Audit fees

   $ 130    $ 159

Other

     8      41
             
   $ 138    $ 200
             

Audit fees consist of the aggregate fees and expenses billed in connection with the audit of the Company’s annual financial statements and the review of the financial statements included in the Company’s quarterly reports on Form 10-Q.

Other fees represent costs incurred in connection with various Agreed-Upon Procedures engagements.

The board of directors of the Managing Member 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 the Managing Member acting on behalf of the board of directors of the Managing Member in its role as the audit committee of the Company.

 

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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 Registered Public Accounting Firm

Balance Sheets at December 31, 2009 and 2008

Statements of Income for the years ended December 31, 2009 and 2008

Statements of Changes in Members’ Capital for the years ended December 31, 2009 and 2008

Statements of Cash Flows for the years ended December 31, 2009 and 2008

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) Exhibits

(3) and (4) Amended and Restated Limited Liability Company Agreement, included as Exhibit B to the Prospectus included in the registrant’s registration statement on form S-1 effective January 16, 2001, (File Number 333-47196) is hereby incorporated herein by reference.

(14.1)    Code of Ethics

(31.1)    Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash

(31.2)    Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi

(32.1)    Certification pursuant to 18 U.S.C. section 1350 of Dean L. Cash

(32.2)    Certification pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

 

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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: March 26, 2010

 

   

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 ATEL Financial Services, LLC (Managing Member)
    By:  

/s/ Paritosh K. Choksi

      Paritosh K. Choksi,
     

Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC

(Managing Member)

    By:  

/s/ Samuel Schussler

      Samuel Schussler,
      Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member)

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

Dean L. Cash

  

President and Chief Executive Officer of

ATEL Financial Services, LLC

(Managing Member)

  March 26, 2010

/s/ Paritosh K. Choksi

Paritosh K. Choksi

   Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (Managing Member) (Managing Member)   March 26, 2010

/s/ Samuel Schussler

Samuel Schussler

   Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member)   March 26, 2010

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.

 

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