Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2003
|_| 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 333-47196
ATEL Capital Equipment Fund IX, LLC
(Exact name of registrant as specified in its charter)
California 94-3375584
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
235 Pine Street, 6th Floor, San Francisco, California 94104
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of Limited Partnership Units outstanding as of June 30, 2003 was
12,065,016
DOCUMENTS INCORPORATED BY REFERENCE
None
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND IX, LLC
BALANCE SHEETS
JUNE 30, 2003 AND DECEMBER 31, 2002
(Unaudited)
ASSETS
2003 2002
Cash and cash equivalents $38,627,508 $39,722,496
Accounts receivable 1,082,912 1,197,760
Notes receivable 773,783 1,131,793
Other assets 435,158 465,157
Investments in leases 52,435,262 46,902,018
------------------ ------------------
Total assets $93,354,623 $89,419,224
================== ==================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Managing Member $ 555,947 $ 434,516
Other 89,335 90,667
Unearned operating lease income 137,782 77,044
------------------ ------------------
Total liabilities 783,064 602,227
Members' capital 92,571,559 88,816,997
------------------ ------------------
Total liabilities and members' capital $93,354,623 $89,419,224
================== ==================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF OPERATIONS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Revenues:
Leasing activities:
Operating leases $ 4,530,250 $ 2,187,687 $ 2,380,006 $ 1,235,820
Direct financing leases 57,791 53,396 9,012 32,244
Gain on sales of assets 104,373 107,353 104,373 107,353
Interest 511,065 271,501 280,310 164,910
Other 46,179 319 35,131 183
------------------ ------------------ ------------------ ------------------
5,249,658 2,620,256 2,808,832 1,540,510
Expenses:
Depreciation and amortization 3,800,559 1,806,647 2,031,946 1,022,111
Cost reimbursements to Managing Member 312,058 118,586 192,545 65,732
Asset management fees to Managing Member 256,771 93,693 136,806 35,437
Impairment losses 76,634 - - -
Professional fees 56,646 32,857 23,812 8,832
Interest expense 166,803 19,263 82,291 19,263
Other 149,877 133,563 101,602 52,209
------------------ ------------------ ------------------ ------------------
4,819,348 2,204,609 2,569,002 1,203,584
------------------ ------------------ ------------------ ------------------
Net income $ 430,310 $ 415,647 $ 239,830 $ 336,926
================== ================== ================== ==================
Net income:
Managing member $ 421,953 $ 197,341 $ 219,169 $ 110,831
Other members 8,357 218,306 20,661 226,095
------------------ ------------------ ------------------ ------------------
$ 430,310 $ 415,647 $ 239,830 $ 336,926
================== ================== ================== ==================
Net income per Limited Liability Company Unit $0.001 $0.038 $0.002 $0.035
Weighted average number of Units outstanding 11,994,974 5,728,798 12,074,561 6,394,522
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
SIX MONTH PERIOD ENDED
JUNE 30, 2003
(Unaudited)
Other Members Managing
Units Amount Member Total
Balance December 31, 2002 11,037,141 $88,816,997 $ - $88,816,997
Capital contributions 1,028,125 10,281,250 - 10,281,250
Limited liability company units repurchased (250) (1,923) - (1,923)
Less selling commissions to affiliates - (976,719) - (976,719)
Other syndication costs to affiliates - (352,311) - (352,311)
Distributions to members - (5,204,092) (421,953) (5,626,045)
Net income - 8,357 421,953 430,310
------------------ ------------------ ------------------ ------------------
Balance June 30, 2003 12,065,016 $92,571,559 $ - $92,571,559
================== ================== ================== ==================
See accompanying notes.
STATEMENTS OF CASH FLOWS
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Operating activities:
Net income $ 430,310 $ 415,647 $ 239,830 $ 336,926
Adjustments to reconcile net income to cash
provided by operating activities:
Gain on sales of assets (104,373) (107,353) (104,373) (107,353)
Impairment losses 76,634 - - -
Depreciation and amortization 3,800,559 1,806,647 2,031,946 1,022,111
Changes in operating assets and liabilities:
Accounts receivable 114,848 (161,956) (240,712) (606,352)
Other assets 29,999 - 14,999 -
Accounts payable, Managing Member 121,431 23,841 (14,549) (133,454)
Accounts payable, other (1,332) 1,397 47,121 15,050
Unearned operating lease income 60,738 (24,307) 42,528 (159,105)
------------------ ------------------ ------------------ ------------------
Net cash provided by operations 4,528,814 1,953,916 2,016,790 367,823
------------------ ------------------ ------------------ ------------------
5
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
(Continued
SIX AND THREE MONTH PERIODS ENDED
JUNE 30, 2003 AND 2002
(Unaudited)
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Investing activities:
Purchases of equipment on operating leases (8,779,071) (18,013,963) (5,192,067) (11,154,367)
Note receivable advances - (1,031,605) - 145,423
Purchases of equipment on direct financing leases (615,949) (980,570) 34,051 -
Payments received on notes receivable 281,376 419,379 151,498 71,465
Proceeds from sales of lease assets 1,087,663 749,408 1,087,663 749,408
Investment in residuals - (66,995) - 24,814
Payments of initial direct costs to managing
member (1,060,498) (352,809) (501,751) (226,082)
Reduction of net investment in direct financing
leases 138,425 94,646 (3,110) 60,514
------------------ ------------------ ------------------ ------------------
Net cash used in investing activities (8,948,054) (19,182,509) (4,423,716) (10,328,825)
------------------ ------------------ ------------------ ------------------
Financing activities:
Capital contributions received 10,281,250 26,563,080 - 12,096,000
Payment of syndication costs to managing member (1,329,030) (3,366,688) (41,189) (1,494,427)
Repurchase of limited liability company units (1,923) - (1,923) -
Distributions to members (5,626,045) (2,631,209) (2,922,255) (1,489,122)
------------------ ------------------ ------------------ ------------------
Net cash provided by financing activities 3,324,252 20,565,183 (2,965,367) 9,112,451
------------------ ------------------ ------------------ ------------------
Net (decrease) increase in cash and cash (1,094,988) 3,336,590 (5,372,293) (848,551)
equivalents
Cash and cash equivalents at beginning of
period 39,722,496 13,568,058 43,999,801 17,753,199
------------------ ------------------ ------------------ ------------------
Cash and cash equivalents at end of period $38,627,508 $16,904,648 $38,627,508 $16,904,648
================== ================== ================== ==================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 166,803 $ 19,263 $ 82,291 $ 19,263
================== ================== ================== ==================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
1. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with instructions to Form 10-Q and Article 10 of Regulation S-X. The
unaudited interim financial statements reflect all adjustments which are, in the
opinion of the Managing Member, necessary to a fair statement of financial
position and results of operations for the interim periods presented. All such
adjustments are of a normal recurring nature. These unaudited interim financial
statements should be read in conjunction with the financial statements and notes
thereto contained in the report on Form 10-K for the year ended December 31,
2002, filed with the Securities and Exchange Commission.
Reclassifications:
Certain prior period amounts have been reclassified to conform to current period
presentation.
2. Organization and Company matters:
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California on September 27, 2000 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. The Company may
continue until December 31, 2019. The Company's offering was terminated as of
January 15, 2003.
Upon the sale of the minimum amount of Units of Limited Liability Company
interest (Units) of $1,200,000 and the receipt of the proceeds thereof on
February 21, 2001, the Company commenced operations.
The Company does not make a provision for income taxes since all income and
losses will be allocated to the Partners for inclusion in their individual tax
returns.
ATEL Financial Services, LLC, an affiliated entity, acts as the Managing Member
of the Company.
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation
Balance Expense or Reclassi- Balance
December 31, Amortization fications or June 30,
2002 Additions of Leases Dispositions 2003
Net investment in operating
leases $44,149,781 $ 8,779,071 $ (3,597,453) $ (983,290) $48,348,109
Net investment in direct financing
leases 1,525,473 615,949 (138,425) - 2,002,997
Initial direct costs 1,226,764 1,060,498 (203,106) - 2,084,156
----------------- ------------------ ------------------ ------------------ ------------------
$46,902,018 $10,455,518 $ (3,938,984) $ (983,290) $52,435,262
================= ================== ================== ================== ==================
7
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
3. Investment in leases (continued):
Operating leases:
Property on operating leases consists of the following:
Balance Acquisitions, Dispositions & Balance
December 31, Reclassifications June 30,
2002 1st Quarter 2nd Quarter 2003
Mining $ 20,903,212 $ - $ 4,312,710 $ 25,215,922
Manufacturing 15,051,966 656,092 (118,517) 15,589,541
Marine vessels 11,200,000 - - 11,200,000
Communications 269,153 2,756,244 - 3,025,397
Materials handling 2,419,402 - - 2,419,402
Office furniture 562,248 174,668 - 736,916
Natural gas compressors 696,451 - (74,943) 621,508
------------------ ------------------ ------------------ ------------------
51,102,432 3,587,004 4,119,250 58,808,686
Less accumulated depreciation (6,952,651) (1,678,545) (1,829,381) (10,460,577)
------------------ ------------------ ------------------ ------------------
$ 44,149,781 $ 1,908,459 $ 2,289,869 $ 48,348,109
================== ================== ================== ==================
The average assumed residual values for assets on operating leases were 30% at
December 31, 2002 and 29% at June 30, 2003.
Direct financing leases:
As of June 30, 2003, investment in direct financing leases consists office
furniture. The following lists the components of the Company's investment in
direct financing leases as of June 30, 2003:
Total minimum lease payments receivable $ 2,173,873
Estimated residual values of leased equipment (unguaranteed) 211,527
--------------
Investment in direct financing leases 2,385,400
Less unearned income (382,403)
--------------
Net investment in direct financing leases $ 2,002,997
==============
All of the property on leases was acquired in 2001, 2002 and 2003.
At June 30, 2003, the aggregate amounts of future minimum lease payments are as
follows:
Direct
Year ending Operating Financing
December 31, Leases Leases Total
Six months ending December 31, 2003 $ 4,855,353 $ 313,314 $ 5,168,667
Year ending December 31, 2004 9,631,939 594,870 10,226,809
2005 9,502,962 576,549 10,079,511
2006 8,069,939 492,415 8,562,354
2007 3,587,888 135,491 3,723,379
Thereafter 2,873,060 61,234 2,934,294
------------------ ------------------ ------------------
$38,521,141 $ 2,173,873 $40,695,014
================== ================== ==================
8
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
4. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing services to the Company.
Services provided include Company accounting, investor relations, legal counsel
and lease and equipment documentation. The Managing Member is not reimbursed for
services where it is entitled to receive a separate fee as compensation for such
services, such as acquisition and management of equipment. Reimbursable costs
incurred by the Managing Member are allocated to the Company based upon actual
time incurred by employees working on Company business and an allocation of rent
and other costs based on utilization studies.
Substantially all employees of the Managing Member record time incurred in
performing services on behalf of all of the Companies serviced by the Managing
Member. The Managing Member believes that the costs reimbursed are the lower of
(i) actual costs incurred on behalf of the Company or (ii) the amount the
Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
The Managing Member and/or affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
Six Months Three Months
Ended June 30, Ended June 30,
2003 2002 2003 2002
Selling commissions (equal to 9.5% of the selling
price of the Limited Liability Company units,
deducted from Other Members' capital) $ 976,719 $ 2,523,493 $ - $ 1,149,120
Reimbursement of other syndication costs to
Managing Member 352,311 843,195 41,189 345,307
Costs reimbursed to Managing Member 312,058 118,586 192,545 65,732
Asset management fees to Managing Member 256,771 93,693 136,806 35,437
------------------ ------------------ ------------------ ------------------
$ 1,897,859 $ 3,578,967 $ 370,540 $ 1,595,596
================== ================== ================== ==================
5. Member's capital:
As of June 30, 2003, 12,065,016 Units were issued and outstanding. The Company
is authorized to issue up to 15,000,050 Units, including the 50 Units issued to
the initial members.
The Company's Net Income, Net Losses, and Distributions as defined in the
Limited Liability Company Operating Agreement are to be allocated 92.5% to the
Members and 7.5% to the Managing Member.
9
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003
(Unaudited)
6. Line of credit:
The Company participates with the Managing Member and certain of its affiliates
in a $56,736,746 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on June 28,
2004. As of June 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 26,500,000
----------------
Total borrowings under the acquisition facility 26,500,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
----------------
Total outstanding balance $ 26,500,000
================
Total available under the line of credit $ 56,736,746
Total outstanding balance (26,500,000)
----------------
Remaining availability $ 30,236,746
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the General
Partner.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of June 30, 2003.
7. Commitments:
As of June 30, 2003, the Company had outstanding commitments to purchase lease
equipment totaling approximately $29,751,000.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements contained in this Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and elsewhere in this Form 10-Q,
which are not historical facts, may be forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Investors are cautioned not
to attribute undue certainty to these forward-looking statements, which speak
only as of the date of this Form 10-Q. We undertake no obligation to publicly
release any revisions to these forward-looking statements to reflect events or
circumstances after the date of this Form 10-Q or to reflect the occurrence of
unanticipated events, other than as required by law.
Capital Resources and Liquidity
During the second quarter of 2003, the Company's primary activity was engaging
in equipment leasing activities. During the second quarter of 2002, the
Company's primary activities were raising funds through its offering of Limited
Liability Company Units (Units) and engaging in equipment leasing activities.
Through January 15, 2003, the Company had received subscriptions for 12,065,266
Units ($120,652,660). The Company's offering was terminated as of that date. As
of June 30, 2003, 12,065,016 Units ($120,650,160) were issued and outstanding.
During the funding period, the Company's primary source of liquidity is
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
exceed expenses, and decreasing as lease assets are acquired, as distributions
are made to the members and to the extent expenses exceed cash flows from
leases.
As another source of liquidity, the Company has contractual obligations with a
diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire, the Company will re-lease or sell the equipment.
The future liquidity beyond the contractual minimum rentals will depend on the
Managing Member's success in re-leasing or selling the equipment as it comes off
lease.
The Company participates with the Managing Member and certain of its affiliates
in a $56,736,746 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on June 28,
2004. As of June 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 26,500,000
----------------
Total borrowings under the acquisition facility 26,500,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
----------------
Total outstanding balance $ 26,500,000
================
Total available under the line of credit $ 56,736,746
Total outstanding balance (26,500,000)
----------------
Remaining availability $ 30,236,746
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the Managing
Member.
The Company anticipates reinvesting a portion of lease payments from assets
owned in new leasing transactions. Such reinvestment will occur only after the
payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to the Managing Member
and providing for cash distributions to the members.
The Company currently has available adequate reserves to meet contingencies, but
in the event those reserves were found to be inadequate, the Company would
likely be in a position to borrow against its current portfolio to meet such
requirements. The Managing Member envisions no such requirements for operating
purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. As of June 30, 2003, such commitments
totaled approximately $29,742,000.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally fixed for the terms of the leases without adjustment for
inflation.
11
If interest rates increase significantly, the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
In August 2002, the Company established a $100 million receivables funding
program with a receivables financing company that issues commercial paper rated
A1 from Standard and Poors and P1 from Moody's Investor Services. In this
receivables funding program, the lenders would receive liens against the
Company's assets. The lender will be in a first position against certain
specified assets and will be in either a subordinated or shared position against
the remaining assets. The program provides for borrowing at a variable interest
rate and requires the Managing Member, on behalf of the Company, to enter into
interest rate swap agreements with certain hedge counterparties (also rated
A1/P1) to mitigate the interest rate risk associated with a variable interest
rate note.
The Managing Member anticipates that this program will allow the Company to have
a more cost effective means of obtaining debt financing than available for
individual non-recourse debt transactions. As of June 30, 2003, the Company had
not borrowed under the facility.
Cash Flows
During the first half of 2003 and 2002, the Company's primary source of
liquidity was the proceeds of its offering of Units.
In 2003 and 2002, the primary source of cash from operations was rents from
operating leases.
In 2003, the primary source of cash from investing activities was proceeds from
the sales of lease assets. In 2002, rents from direct financing leases and
payments received on notes receivable were the primary sources of cash from
investing activities. Uses of cash for investing activities consisted of cash
used to purchase operating and direct financing lease assets, payments of
initial direct costs associated with the lease asset purchases and advances on
notes receivable (2002 only).
In 2003 and 2002, the primary source of cash from financing activities was the
proceeds of the Company's public offering of Units of Limited Liability Company
interest. Financing uses of cash consisted of payments of syndication costs
associated with the offering and distributions to the members.
Results of operations
In 2003, operations resulted in net income of $430,310 for the six month period
ended June 30 and $239,830 for the three month period then ended. In 2002,
operations resulted in net income of $415,647 for the six month period ended
June 30 and $336,926 for the three month period then ended. The Company's
primary source of revenues is from operating leases.
Depreciation is related to operating lease assets and thus, to operating lease
revenues. They are expected to increase in future periods as acquisitions
continue.
Asset management fees are based on the gross lease rents of the Company plus
proceeds from the sales of lease assets. Such fees are limited to certain
percentages of lease rents, distributions to members and certain other items. As
assets are acquired, lease rents are collected and distributions are made to the
members, these fees are expected to increase.
Interest expense in 2003 relates to the cost of maintaining the availability of
the long-term financing facility discussed above under the caption "Capital
Resources and Liquidity". Interest expense for the first half of 2002 related to
the borrowings under the line of credit incurred by an affiliate of the Managing
Member. Interest expense for the first half of 2002 included all amounts related
to those borrowings related transactions transferred to the Company. All of the
revenues and related carrying costs for these transactions were attributed to
the Company in the same periods.
Results of operations in future periods are expected to vary considerably from
those of the first half of 2003 and 2002 as the Company continues to acquire
significant amounts of lease assets.
Item 3. Quantitative and Qualitative Disclosures of Market Risk.
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks, including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.
In general, the Company expects to manage its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is structured so as to match the
cash flows required to service the debt to the payment streams under fixed rate
lease receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Managing Member has historically been
able to maintain a stable spread between its cost of funds and lease yields in
both periods of rising and falling interest rates. Nevertheless, the Company
expects to frequently fund leases with its floating interest rate line of credit
and will, therefore, be exposed to interest rate risk until fixed rate financing
is arranged, or the floating interest rate line of credit is repaid. As of June
30, 2003, there was no outstanding balance on the floating interest rate line of
credit.
12
The Company entered into a receivables funding facility in 2002. Since interest
on the outstanding balances under the facility will vary, the Company will be
exposed to market risks associated with changing interest rates. To hedge its
interest rate risk, the Company expects to enter into interest rate swaps, which
will effectively convert the underlying interest characteristic on the facility
from floating to fixed. Under the swap agreements, the Company expects to make
or receive variable interest payments to or from the counterparty based on a
notional principal amount. The net differential paid or received by the Company
is recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received will represent the difference between the
payments required under the variable interest rate facility and the amounts due
under the facility at the fixed (hedged) interest rate. There were no borrowings
under this facility as of June 30, 2003.
In general, it is anticipated that these swap agreements will eliminate the
Company's interest rate risk associated with variable rate borrowings. However,
the Company would be exposed to and would manage credit risk associated with the
counterparty by dealing only with institutions it considers financially sound.
Item 4. Controls and procedures.
Internal Controls
As of June 30, 2003, an evaluation was performed under the supervision and with
the participation of the Company's management, including the CEO and CFO of the
Managing Member, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO of the Managing Member,
concluded that the Company's disclosure controls and procedures were effective
as of June 30, 2003. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect internal
controls subsequent to June 30, 2003.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date, nor were there any significant deficiencies
or material weaknesses in our internal controls.
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including
the CEO and CFO, an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures, as defined in Rules
240.13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 was
performed as of a date within ninety days before the filing date of this
quarterly report. Based upon this evaluation, the CEO and CFO of the Managing
Member concluded that, as of the evaluation date, our disclosure controls and
procedures were effective for the purposes of recording, processing, summarizing
and timely reporting information required to be disclosed by us in the reports
that we file under the Securities Exchange Act of 1934 and that such information
is accumulated and communicated to our management in order to allow timely
decisions regarding required disclosure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Silicon Access Networks, Inc.:
Silicon Access Networks, Inc. ("Debtor") advised the Company on July 8, 2002,
that, due to a further decline in expectations of future demand for the Debtor's
products by potential customers in its target markets, the Debtor's Board of
Directors had directed management to cease operations, which occurred in July
2002. As Debtor was current on the Note payments, the Company declared a
technical default in early July 2002 on the basis of the termination of
operations. As of September 30, 2002, the Debtor's account was current except
for late charges. The Company filed suit, on the basis of the default, and moved
for a Writ of Attachment, which was denied despite repeated attempts by the
Company. The Company's motions were denied, due in large part to the fact that
the Debtor's account was, and still is, current.
On advice of new counsel the Company has withdrawn the initial suit, as it is
apparent that the court will continue to deny any Writ of Attachment until and
unless the lessee actually defaults in payments. As of July 17, 2003, the
account is current. The Company is monitoring the debtor's cash position,
monthly, as it will run out of cash sometime in the late summer of 2003, unless
it raises new equity or debt or is acquired. The Company's likelihood of success
in recovering the full amount of its claims remains highly uncertain.
13
Photuris, Inc.:
Photuris, a Debtor of the Company, was on the verge of ceasing operations as it
was unable to secure new equity under favorable terms when the Company commenced
negotiations with the Debtor. As of June 30, 2003, no legal action has been
initiated against the debtor; however, the account has been restructured. In
concert with several other lessors and lenders, the Company concluded
negotiations and executed a Settlement Agreement with the Debtor. Under the
terms of the Settlement Agreement, the Company received an initial $200,000 in
cash in July 2002. The Company is carrying a promissory note from the Debtor for
$300,000 that is payable interest only at prime plus 1.25% from August 1, 2002
to October 2003, at which time payments will convert to an equal principal plus
interest basis, spread over 36 months.
The Company has been granted $200,000 worth of new equity shares in Photuris as
the final part of the settlement. The Company still retains its perfected first
priority lien on the equipment financed by the Company. As of early October
2002, the Company became aware that Photuris had not yet closed on receiving
additional equity and was in danger of running out of operating capital in early
November 2002. The Company has confirmed with the lead investor in Photuris'
latest equity round that the investors have agreed to provide additional equity
to allow Photuris to continue to operate; however, this commitment, for up to
$15 million, is being provided in stages on a quarterly basis if certain
milestones are met. The Company has confirmed that Photuris received the first
stage of this new equity in November 2002. Follow on rounds, which have allowed
Photuris to continue operations for a few more months at a time, have closed in
February and May 2003, with another to close in late July or early August 2003.
Continued receipt of these staged equity investments will allow Photuris to
operate into the fourth quarter 2003.
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Information provided pursuant to ss. 228.701 (Item 701(f))(formerly included in
Form SR):
(1) Effective date of the offering: January 16, 2001; File Number: 333-47196
(2) Offering commenced: January 16, 2001
(3) The offering did not terminate before any securities were sold.
(4) The offering was terminated prior to the sale of all of the securities on
January 15, 2003.
(5) The managing underwriter is ATEL Securities Corporation.
(6) The title of the registered class of securities is "Units of Limited
Liability Company interest"
(7) Aggregate amount and offering price of securities registered and sold as of
January 15, 2003:
Aggregate Aggregate
price of price of
offering offering
Amount amount Amount amount
Title of Security Registered registered sold sold
Limited Company units 15,000,000 $150,000,000 12,065,266 $120,652,660
14
(8) Costs incurred for the issuers account in connection with the issuance and
distribution of the securities registered for each category listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Underwriting discounts and
commissions $ 1,809,790 $ 9,652,213 $11,462,003
Other expenses 4,793,765 4,793,765
------------------ ------------------ ------------------
Total expenses $ 1,809,790 $14,445,978 $16,255,768
================== ================== ==================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $104,396,892
(10) The amount of net offering proceeds to the issuer used for each of the
purposes listed below:
Direct or indirect payments to
directors, officers, general
partners of the issuer or their
associates; to persons owning
ten percent or more of any Direct or
class of equity securities of indirect
the issuer; and to affiliates of payments to
the issuer others Total
Purchase and installation of
machinery and equipment $ - $103,793,629 $103,793,629
Working capital 603,263 603,263
------------------ ------------------ ------------------
$ - $104,396,892 $104,396,892
================== ================== ==================
(11) The use of the proceeds in Item 10 does not represent a material change in
the uses of proceeds described in the prospectus.
Item 6. Exhibits And Reports On Form 8-K.
(a) Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, June 30, 2003 and December 31, 2002.
Statements of operations for the six and three month periods
ended June 30, 2003 and 2002.
Statement of changes in partners' capital for the six month
period ended June 30, 2003.
Statements of cash flows for the six and three month periods
ended June 30, 2003 and 2002.
Notes to the Financial Statements
2. Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(b) Report on Form 8-K
None
15
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund IX, LLC, (the "Company") for the period ended June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, managing member of the Company, hereby certify that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Dean L. Cash
- --------------------------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
August 12, 2003
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund IX, LLC, (the "Company") for the period ended June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), and
pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, managing member of the Company, hereby certify
that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Paritosh K. Choksi
- --------------------------------------------
Paritosh K. Choksi
Executive Vice President of Managing
Member, Principal financial officer of registrant
August 12, 2003
16
CERTIFICATIONS
I, Paritosh K. Choksi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund IX, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: August 12, 2003
/s/ Paritosh K. Choksi
- -------------------------------
Paritosh K. Choksi
Principal Financial Officer of Registrant,
Executive Vice President of Managing Member
17
CERTIFICATIONS
I, Dean L. Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund IX, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: August 12, 2003
/s/ Dean L. Cash
- -------------------------------
Dean L. Cash
President and Chief Executive Officer of
Managing Member
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:
August 12, 2003
ATEL CAPITAL EQUIPMENT FUND IX, LLC
(Registrant)
By: ATEL Financial Services, LLC
Managing Member of Registrant
By: /s/ Dean L. Cash
-------------------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
By: /s/ Paritosh K. Choksi
-------------------------------------
Paritosh K. Choksi
Executive Vice President of
Managing Member, Principal
financial officer of registrant
By: /s/ Donald E. Carpenter
-------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
19