ATEL
Financial Services, LLC
February 28, 2007
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Attn: Ryan Rohn, Staff Accountant
Mail Stop 7010
Re: ATEL Capital Equipment Fund IX, LLC
Form 8-K Item 4.01
Filed February 9, 2007
File # 000-50210
ATEL Capital Equipment Fund X, LLC
Form 8-K Item 4.01
Filed February 9, 2007
File # 000-50687
ATEL Capital Equipment Fund XI, LLC
Form 8-K Item 4.01
Filed February 9, 2007
File # 000-51858
Dear Mr. Rohn:
In response to the Staff's February 16, 2006 letter to Mr. Paritosh K. Choksi,
our Executive Vice President, Chief Financial Officer and Chief Operating
Officer, and our follow-up conversation that afternoon, I am pleased to provide
the following in response to the issues raised. With reference to the
aforementioned letter, responses will be enumerated by the same number as
indicated in the February 16 letter.
1. We concur with the Staff's findings and have revised the respective
filings to reflect references to years 2004 and 2005.
2. Copies of the Ernst & Young letters to management regarding the
material weaknesses are attached for your files.
3. ATEL Capital Equipment Fund IX, LLC filed its 10-Q for the quarter
ended September 30, 2005 and 10-K for the year ended December 31,
2005, simultaneously on December 21, 2006 with the details and effects
of the restatement of 2005 Quarters 1 and 2 included within the 2005
10-K filing. The Company's management determined that no significant
adjustments were required for fair presentation of the financial
statements filed with these reports, taken as a whole.
600 California Street, 6th Floor, San Francisco, CA 94108 Main 415.989.8800
Facsimile 415.989.3796 www.atel.com
Similarly, ATEL Capital Equipment Fund X, LLC simultaneously filed
both its 10-Q for the quarter ended September 30, 2005 and its 10-K
for the year ended December 31, 2005, on January 5, 2007, with the
details and effects of the restatement of 2005 Quarters 1 and 2
included within the 2005 10-K filing. The Company's management
determined that no significant adjustments were required for fair
presentation of the financial statements filed with these reports,
taken as a whole.
ATEL Capital Equipment Fund XI, LLC filed its 10-KSB on June 2, 2006.
The Company's management determined that no significant adjustments
were required for fair presentation of the financial statements filed
with this report, taken as a whole.
4. We do not currently have an anticipated date for filing the above
referenced Funds' 2006 Forms 10-Q, but we continue to focus our
efforts to bring the Funds' statutory filings current as soon as
possible.
We have not identified any additional material weaknesses during 2006.
Corrective actions taken to correct those previously identified
material weaknesses include:
o As regards the timely identification and recording of
impairment of leased assets, the Managing Member has
strengthened its quarterly impairment analysis through
additional management review of the analysis.
o As to initial direct costs ("IDC"), the accounting guidance
has been reviewed, and a standard cost model (the "Model")
has been developed that includes quarterly reviews from
management. Information from the model drives the rates to
be capitalized on a lease by lease basis. IDC is amortized
over the term of the lease based on a straight-line basis
for operating leases and on the effective interest method
for direct finance leases and notes receivable.
o Regarding the allocations of costs and expenses incurred by
the Managing Member, the allocation process has been
reviewed and revised, and systems instituted and enhanced to
assure that costs and expenses are being properly allocated
in accordance with the Limited Liability Company Operating
Agreements.
o As to identifying and estimating liabilities in the correct
periods, the Managing Member has performed a detailed review
to identify and record the liabilities in the correct
period. A standardized quarterly review process has been
implemented to ensure the correct identification and
estimation of the liabilities.
o Regarding the proper accounting and related disclosures of
the Company's investment in warrants, the Managing Member
has reviewed the accounting guidance, and a formal policy
has been developed to ensure compliance with established
standards.
o In addition. the Managing Member has taken the following
steps to mitigate the weakness regarding its financial
statement close process: a Chief Accounting Officer has been
hired and the controller position has been split into two
separate roles to ensure proper management of the Managing
Member and the managed Funds' respective accounting
operations. As reporting structures and protocols are being
evaluated, an additional statutory reporting resource
requirement has been defined and a recruitment effort is
underway for additional accounting personnel.
5. We are concurrently filing an updated Exhibit 16 letter from Ernst &
Young regarding the statements made in each of our revised Forms 8-K.
We further note that we acknowledge that:
o we are responsible for the adequacy and accuracy of the disclosures in
the filings;
o staff comments or changes to disclosure in response to staff comments
in the filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filings; and
o that we may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws off the United States.
Should you have any further questions please feel free to contact the
undersigned at our corporate offices in San Francisco.
Very truly yours,
/s/ SAMUEL SCHUSSLER
Samuel Schussler
Chief Accounting Officer
ATEL Financial Services LLC
600 California Street, 6th Floor
San Francisco California 94108
415-616-3404
Attachment
Letter of Ernst & Young LLP
ERNST & YOUNG
o ERNST & YOUNG LLP Phone: (415) 894-8000
Suite 1600 www.ey.com
560 Mission Street
San Francisco, California 94105-2907
Audit Committee and Management of
ATEL Financial Services, LLC as Managing Member of
ATEL Capital Equipment Fund XI, LLC
In planning and performing our audits of the financial statements of Atel
Capital Equipment Fund XI, LLC (the "Fund") for the year ended December 31,
2005, we considered its internal controls to determine our auditing procedures
for the purpose of expressing our opinion on the financial statements and not to
provide assurance on internal control. However, we noted certain matters
involving internal control and its operation that we consider to be material
weaknesses (and significant deficiencies) under standards established by the
Public Company Accounting Oversight Board (United States).
A control deficiency exists when the design or operation of a control does not
allow management or employees, in the normal course of performing their assigned
functions, to prevent or detect misstatements on a timely basis. A significant
deficiency is a control deficiency, or combination of control deficiencies, that
adversely affects the company's ability to initiate, authorize, record, process,
or report external financial data reliably in accordance with generally accepted
accounting principles such that there is more than a remote likelihood that a
misstatement of the company's annual or interim financial statements that is
more than inconsequential will not be prevented or detected. A material weakness
is a significant deficiency, or combination of significant deficiencies, that
results in more than a remote likelihood that a material misstatement of the
annual or interim financial statements will not be prevented or detected.
Material Weaknesses
During our audit, we noted the following matters involving internal control over
financial reporting and its operation that we consider to be material weaknesses
as defined above.
The Fund does not maintain its own financial reporting process, and is thus
dependent on the Managing Member, Atel Financial Services, LLC, who is
responsible for maintaining the accounting records and providing the Fund with
financial statements in accordance with generally accepted accounting
principles.
The Managing Member's accounting and disclosure controls and procedures in the
areas listed below were determined to be ineffective.
1. The application of generally accepted accounting principles for leasing
transactions (specifically, timely identification and recording of impairment
in leased assets, accumulating and capitalizing costs for initiating leases, and
properly amortizing costs associated with the initiation of a lease).
2. Allocation of cost incurred by the Managing Member on behalf of the Company.
3. Process of identifying and estimating liabilities in the correct period.
A Member Practice of Ernst & Young Global
ERNST & YOUNG
o ERNST & YOUNG LLP
4. Financial statement close process, including evaluating the relative
significance of misstatements.
This report is intended solely for the information and use of the audit
committee, board of directors, management, and others within the organization
and is not intended to be and should not be used by anyone other than these
specified parties.
We would be pleased to discuss the above matters or to respond to any questions
at your convenience.
/s/ ERNST & YOUNG LLP
May 31, 2006