Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Annual report pursuant to section 13 or 15(d) of
the Securities Exchange Act of 1934 (fee required)
For the Year Ended December 31, 2001
OR
|_| Transition report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934 (no fee
required) For the transition period from ____ to
----
Commission File number 333-47196
ATEL Capital Equipment Fund IX, LLC
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
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
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 |_|
State the aggregate market value of voting stock held by non-affiliates of the
registrant. Inapplicable
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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Index to Exhibits on Page 31
1
PART I
Item 1: BUSINESS
General Development of Business
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California in September 2000. The Company was formed for the
purpose of acquiring equipment to engage in equipment leasing and sales
activities. The Managing Member of the Company is ATEL Financial Services LLC
(ATEL), a California limited liability corporation. Prior to converting to a
limited liability company structure, the Managing Member was formerly known as
ATEL Financial Corporation.
The Company is conducting a public offering of 15,000,000 Limited Liability
Company Units (Units), at a price of $10 per Unit. On February 21, 2001,
subscriptions for the minimum number of Units (120,000, representing $1,200,000)
had been received and ATEL requested that the subscriptions be released to the
Company. On that date, the Company commenced operations in its primary business
(leasing activities). As of April 3, 2001, the Company had received
subscriptions for 753,050 Units ($7,530,500) and ATEL requested that the
remaining funds in escrow (from Pennsylvania investors) be released to the
Company. As of December 31, 2001, the Company had received subscriptions for
4,363,409 ($43,634,090) Units, including the Initial Members' Units. All of the
Units were issued and outstanding as of December 31, 2001.
The Company's principal objectives are to invest in a diversified portfolio of
equipment which will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the partners of cash from
operations and cash from sales or refinancing, with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period, ending 72 months after the end of the year in which the
Final Closing occurs and (iii) provide additional distributions following the
reinvestment period and until all equipment has been sold. The Company is
governed by its Limited Liability Company Operating Agreement (Operating
Agreement).
Narrative Description of Business
The Company has acquired and intends to acquire various types of equipment and
to lease such equipment pursuant to "Operating" leases and "High Payout" leases,
where "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 ATEL that a majority of the aggregate purchase price of equipment
will represent equipment leased under "High Payout" leases upon final investment
of the Net Proceeds of the Offering and that no more than 20% of the aggregate
purchase price of equipment will be invested in equipment acquired from a single
manufacturer.
The Company will only purchase equipment for which a lease exists or for which a
lease will be entered into at the time of the purchase.
As of December 31, 2001, the Company had purchased equipment with a total
acquisition price of $22,844,529.
The Company's objective is to lease a minimum of 75% of the equipment acquired
with the net proceeds of the offering to lessees which (i) have an aggregate
credit rating by Moody's Investor service, Inc. of Baa or better, or the credit
equivalent as determined by ATEL, 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 the Managing Member, would not satisfy the
general credit rating criteria for the portfolio. In excess of 75% of the
equipment acquired with the net proceeds of the offering (based on original
purchase cost) has been leased to lessees with an aggregate credit rating of Baa
or better or to such hospitals or municipalities.
2
During 2001, certain lessees generated significant portions of the Company's
total lease revenues as follows:
Lessee Type of Equipment
Basin Electric Walking dragline 54%
Photuris, Inc. Various lab, computer and office equipment 14%
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 which vary widely depending on the
lease term and type of equipment. The ability of the Company to keep the
equipment leased and/or operating and the terms of the acquisitions, leases and
dispositions of equipment depends on various factors (many of which are not in
the control of ATEL or the Company), such as general economic conditions,
including the effects of inflation or recession, and fluctuations in supply and
demand for various types of equipment resulting from, among other things,
technological and economic obsolescence.
ATEL will seek to limit the amount invested in equipment to any single lessee to
not more than 20% of the aggregate purchase price of equipment owned at any time
during the reinvestment period.
The business of the Company is not seasonal.
The Company has no full time employees.
Equipment Leasing Activities
The Company has acquired a diversified portfolio of equipment. The equipment has
been leased to lessees in various industries. The following tables set forth the
types of equipment acquired by the Company through December 31, 2001 and the
industries to which the assets have been leased. The Company has purchased
certain assets subject to existing non-recourse debt.
Purchase Price Excluding Percentage of Total
Asset Types Acquisition Fees Acquisitions
----------- ---------------- ------------
Mining equipment $13,421,218 58.75%
Marine vessels 5,712,000 25.00%
Furniture and fixtures 1,817,665 7.96%
Manufacturing 989,709 4.33%
Natural gas compressors 696,451 3.05%
Materials handling 207,486 0.91%
---------------- ----------------
$22,844,529 100.00%
================ ================
Purchase Price Excluding Percentage of Total
Industry of Lessee Acquisition Fees Acquisitions
------------------ ---------------- ------------
Electric utilities $11,315,397 49.53%
Marine transportation 5,712,000 25.00%
Manufacturing 2,807,374 12.29%
Mining 2,105,821 9.22%
Oil and gas 696,451 3.05%
Retail 207,486 0.91%
---------------- ----------------
$22,844,529 100.00%
================ ================
For further information regarding the Company's equipment lease portfolio as of
December 31, 2001, see Note 3 to the financial statements, Investments in
equipment and leases, set forth in Item 8, Financial Statements and
Supplementary Data.
3
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.
Item 3. LEGAL PROCEEDINGS
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S LIMITED LIABILITY COMPANY UNITS
AND RELATED MATTERS
Market Information
The Units are transferable subject to restrictions on transfers which have been
imposed under the securities laws of certain states. However, as a result of
such restrictions, the size of the Company and its investment objectives, to
ATEL's knowledge, no established public secondary trading market has developed
and it is unlikely that a public trading market will develop in the future.
Holders
As of December 31, 2001, a total of 1,020 investors were record holders of Units
in the Company.
Dividends
The Company does not make dividend distributions. However, the Members of the
Company are entitled to certain distributions as provided under the Operating
Agreement.
ATEL shall have sole discretion in determining the amount of distributions;
provided, however, that the Managing Member 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 the Managing Member.
The rate for monthly distributions from 2001 operations was $0.069167 per Unit
for February (partial month) through September 2001. The distributions were paid
in April through October 2001. The rate for the distributions for October
through December 2001 was $0.075. The distributions were paid in November
through December 2001 and in January 2002. The rates for quarterly distributions
paid in April and July 2001 and January 2002 were $0.09, $0.2075, $0.2075 and
$0.225, respectively, per Unit. Distributions were from 2001 cash flows from
operations.
The following table presents summarized information regarding distributions to
Other Members:
2001
Distributions of net income $ 0.2242
Return of investment 0.3357
----------------
Distributions per unit 0.5599
Differences due to timing of distributions 0.1668
----------------
Nominal distribution rates from above $ 0.7267
================
4
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 has not been terminated prior to the sale of all of the
securities.
(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 February 28, 2002:
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 5,340,537 $53,405,370
(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, managing
members 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 $ 801,081 $4,272,430 $5,073,510
Other expenses - 2,653,242 2,653,242
---------------- ---------------- ----------------
Total expenses $ 801,081 $6,925,671 $7,726,752
================ ================ ================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $45,678,618
5
(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, managing
members 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 $ - $45,411,591 $45,411,591
Working capital - 267,027 267,027
---------------- ---------------- ----------------
$ - $45,678,618 $45,678,618
================ ================ ================
(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. SELECTED FINANCIAL DATA
The following table presents selected financial data of the Company at December
31, 2001 and 2000 and for the periods then ended. This financial data should be
read in conjunction with the financial statements and related notes included
under Part II Item 8.
2001 2000
---- ----
Gross revenues $3,393,685 $ -
Net income $ 584,176 $ -
Weighted average Units 2,167,171 50
Net income allocated to Other Members $ 485,897 $ -
Net income per Unit, based on weighted
average Units outstanding $ 0.22 $ -
Distributions per Unit, based on weighted average
Units outstanding $ 0.56 $ -
Total Assets $36,828,411 $ 600
Non-recourse and long-term debt $ - $ -
Total Members' Capital $36,550,603 $ 600
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Company commenced its offering on January 16, 2001. On February 21, 2001,
the Company commenced operations in its primary business (leasing activities).
Until the Company's initial portfolio of equipment has been purchased, funds
which have been received, but which have not yet been invested in leased
equipment, are invested in interest-bearing accounts or high-quality/short-term
commercial paper. The Company's public offering provides for a total maximum
capitalization of $150,000,000.
During the funding period, the Company's primary source of liquidity was
subscription proceeds from the public offering of Units. The liquidity of the
Company will vary in the future, increasing to the extent cash flows from leases
and proceeds of asset sales exceed expenses, and decreasing as lease assets are
acquired, as distributions are made to the other members and to the extent
expenses exceed cash flows from leases and proceeds from asset sales.
6
As another source of liquidity, the Company is expected to have contractual
obligations with a diversified group of lessees for fixed lease terms at fixed
rental amounts. As the initial lease terms expire, the Company will re-lease or
sell the equipment. The future liquidity beyond the contractual minimum rentals
will depend on ATEL'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 $62,000,000 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on April 12,
2002. The Managing Member is currently negotiating a new line of credit and
anticipates that the current line of credit will either be replaced upon its
expiration or that the current line of credit will be extended until the new one
is finalized. As of December 31, 2001, 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 17,600,000
----------------
Total borrowings under the acquisition facility 17,600,000
Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility * 10,999,501
----------------
Total outstanding balance $28,599,501
================
Total available under the line of credit $62,000,000
Total outstanding balance (28,599,501)
----------------
Remaining availability $33,400,499
================
* (Unaudited) The carrying value of the assets pledged as collateral and
financed at December 31, 2001 was $17,955,014.
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 Other Members. At December 31, 2001,
the Company had commitments to purchase lease assets totaling approximately
$528,000.
ATEL or an affiliate may purchase equipment in its own name, the name of an
affiliate or the name of a nominee, a trust or otherwise and hold title thereto
on a temporary or interim basis for the purpose of facilitating the acquisition
of such equipment or the completion of manufacture of the equipment or for any
other purpose related to the business of the Company, provided, however that:
(i) the transaction is in the best interest of the Company; (ii) such equipment
is purchased by the Company for a purchase price no greater than the cost of
such equipment to ATEL or affiliate (including any out-of-pocket carrying
costs), except for compensation permitted by the Operating Agreement; (iii)
there is no difference in interest terms of the loans secured by the equipment
at the time acquired by ATEL or affiliate and the time acquired by the Company;
(iv) there is no benefit arising out of such transaction to ATEL or its
affiliate apart from the compensation otherwise permitted by the Operating
Agreement; and (v) all income generated by, and all expenses associated with,
equipment so acquired shall be treated as belonging to the Company.
7
The Company currently has available adequate reserves to meet its immediate cash
requirements, 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. ATEL envisions no such requirements for operating
purposes.
In 2002, the Company expects to establish 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 would provide for borrowing at a variable
interest rate and would require 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 abtaining debt financing than
available for individual non-recourse debt transactions.
It is the intention of the Company to use the receivables funding program as its
primary source of debt financing. The Company will continue to use its sources
of non-recourse secured debt financing on a transaction basis as a means of
mitigating credit risk.
ATEL expects that aggregate borrowings in the future will be approximately 50%
of aggregate equipment cost. In any event, the Operating Agreement limits such
borrowings to 50% of the total cost of equipment, in aggregate.
The Company commenced regular distributions, based on cash flows from
operations, beginning with the month of February 2001. The distribution was made
in April 2001.
If inflation in the general economy becomes significant, it may affect the
Company inasmuch as the residual (resale) values and rates on re-leases of the
Company's leased assets may increase as the costs of similar assets increase.
However, the Company's revenues from existing leases would not increase, as such
rates are generally fixed for the terms of the leases without adjustment for
inflation.
If interest rates increase significantly, the lease rates that the Company can
obtain on future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Cash Flows
In 2001, operating lease rents were the primary source of cash flows from
operations. The Company's primary source of cash in 2001 was the proceeds of its
offering of Limited Liability Company Units.
Sources of cash from investing activities consisted of amounts received for
notes receivable principal payments and direct finance lease payments.
Cash was used to purchase assets on operating and direct finance leases. Cash
was also used to pay initial direct lease costs and to pay syndication costs
(associated with the offering) to the Managing Member and one of its affiliates.
Results of Operations
As of February 21, 2001, subscriptions for the minimum amount of the offering
($1,200,000) had been received and accepted by the Company. As of that date, the
Company commenced operations in its primary business (leasing activities). There
were no operations in 2000. Because of the timing of the commencement of
operations and the fact that the initial portfolio acquisitions were not been
completed at December 31, 2001, the results of operations in 2001 are not
expected to be comparable to future periods. After the Company's public offering
and its initial asset acquisition stage terminate, the results of operations are
expected to change significantly.
8
Substantially all employees of ATEL track time incurred in performing
administrative services on behalf of the Company. ATEL 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.
Operations in 2001 resulted in net income of $584,176. The primary source of
revenues was rents from operating leases. The Company is continuing to acquire
significant amounts of lease assets. As a result, results of operations in
future periods is not expected to be comparable to 2001.
Derivative Financial Instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments. If derivative financial instruments are utilized, the Company will
be required to record derivative instruments at fair value in the balance sheet
and recognize the offsetting gains or losses as adjustments to net income or
other comprehensive income, as appropriate.
The Company adopted SFAS No. 133, as amended, on January 1, 2001, which had no
impact as the Company did not utilize derivatives in 2001.
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption of
the Statement will have a significant impact on the Company's financial position
and results of operations.
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks, including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.
In general, the Company expects to manage its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is 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
December 31, 2001, there was no outstanding balance on the floating interest
rate line of credit.
9
Also, as described in the caption "Capital Resources and Liquidity," the Company
expects to enter 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.
In general, it is anticipated that these swap agreements will eliminate the
Company's interest rate risk associated with variable rate borrowings. However,
the Company would be exposed to and would manage credit risk associated with the
counterparty by dealing only with institutions it considers financially sound.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Auditors, Financial Statements and Notes to
Financial Statements attached hereto at pages 11 through 23.
10
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Members
ATEL Capital Equipment Fund IX, LLC
We have audited the accompanying balance sheets of ATEL Capital Equipment Fund
IX, LLC (Company) as of December 31, 2001 and 2000, the related statement of
income for the year ended December 31, 2001, and the related statements of
changes in members' capital and cash flows for the period from September 27,
2000 (inception) through December 31, 2000 and for the year ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ATEL Capital Equipment Fund IX,
LLC at December 31, 2001 and 2000, the results of its operations for the year
ended December 31, 2001, and its cash flows for the period from September 27,
2000 (inception) through December 31, 2000 and for the year ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
San Francisco, California
February 1, 2002
11
ATEL CAPITAL EQUIPMENT FUND IX, LLC
BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
ASSETS
Cash $13,568,058 $ 600
Accounts receivable 1,186,719 -
Notes receivable 982,262 -
Investment in equipment and leases 21,091,372 -
---------------- ----------------
$36,828,411 $ 600
================ ================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Managing Member $ 157,719 $ -
Other 24,471 -
Unearned operating lease income 95,618 -
---------------- ----------------
Total liabilities 277,808 -
Total members' capital 36,550,603 600
---------------- ----------------
Total liabilities and members' capital $36,828,411 $ 600
================ ================
See accompanying notes.
12
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENT OF INCOME
FOR THE YEAR ENDED
DECEMBER 31, 2001
Revenues:
Leasing activities:
Operating leases $3,102,265
Direct financing leases 53,589
Interest 232,116
Other 5,715
----------------
3,393,685
Expenses:
Depreciation and amortization 2,078,895
Cost reimbursements to Managing Member 374,507
Interest expense 199,230
Asset management fees to Managing Member 83,341
Professional fees 39,384
Other 34,152
----------------
2,809,509
----------------
Net income $ 584,176
================
Net income:
Managing member $ 98,279
Other members 485,897
----------------
$ 584,176
================
Net income per Limited Liability Company Unit (other members) $ 0.22
Weighted average number of Units outstanding 2,167,171
See accompanying notes.
13
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000
AND FOR THE YEAR ENDED
DECEMBER 31, 2001
Other Members Managing
-------------
Units Amount Member Total
----- ------ ------ -----
Initial capital contributions, September 2000 50 $ 500 $ 100 $ 600
---------------- ---------------- ---------------- ----------------
Balance December 31, 2000 50 500 100 600
Capital contributions 4,363,359 43,633,590 - 43,633,590
Less selling commissions to affiliates (4,145,191) - (4,145,191)
Other syndication costs to affiliates (2,210,852) - (2,210,852)
Distributions to other members ($0.56 per Unit) (1,213,341) - (1,213,341)
Distributions to managing member - (98,379) (98,379)
Net income 485,897 98,279 584,176
---------------- ---------------- ---------------- ----------------
Balance December 31, 2001 4,363,409 $36,550,603 $ - $36,550,603
================ ================ ================ ================
See accompanying notes.
14
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 27, 2000 (INCEPTION)
THROUGH DECEMBER 31, 2000
AND FOR THE YEAR ENDED
DECEMBER 31, 2001
Operating activities: 2001 2000
---- ----
Net income $ 584,176 $ -
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 2,078,895 -
Residual value income (9,890) -
Changes in operating assets and liabilities:
Accounts receivable (1,186,719) -
Accounts payable, Managing Member 157,719 -
Accounts payable, other 24,471 -
Unearned operating lease income 95,618 -
---------------- ----------------
Net cash provided by operations 1,744,270 -
---------------- ----------------
Investing activities:
Purchases of equipment on operating leases (22,025,405) -
Note receivable advances (1,587,939) -
Purchases of equipment on direct financing leases (819,124) -
Payments received on notes receivable 605,677 -
Investment in residuals (66,093) -
Payments of initial direct costs to managing member (317,985) -
Reduction of net investment in direct financing leases 68,230 -
---------------- ----------------
Net cash used in investing activities (24,142,639) -
---------------- ----------------
Financing activities:
Capital contributions received 43,633,590 600
Payment of syndication costs to managing member (6,356,043) -
Distributions to other members (1,213,341) -
Distributions to managing member (98,379) -
---------------- ----------------
Net cash provided by financing activities 35,965,827 600
---------------- ----------------
Net increase in cash and cash equivalents 13,567,458 600
Cash and cash equivalents at beginning of period 600 -
---------------- ----------------
Cash and cash equivalents at end of period $13,568,058 $ 600
================ ================
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 199,230 $ -
================ ================
See accompanying notes.
15
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
1. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California on September 27, 2000 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. The Company may
continue until December 31, 2019. Contributions in the amount of $600 were
received as of December 31, 2000, $100 of which represented the Managing
Member's continuing interest, and $500 of which represented the Initial Member's
capital investment. The Managing Member of the Company is ATEL Financial
Services LLC (ATEL), a California limited liability corporation. Prior to
converting to a limited liability company structure, the Managing Member was
formerly known as ATEL Financial Corporation.
The Company is conducting a public offering of 15,000,000 Limited Liability
Company Units (Units), at a price of $10 per Unit. On February 21, 2001,
subscriptions for the minimum number of Units (120,000, representing $1,200,000)
had been received and ATEL requested that the subscriptions be released to the
Company. On that date, the Company commenced operations in its primary business
(leasing activities). As of April 3, 2001, the Company had received
subscriptions for 753,050 Units ($7,530,500) and ATEL requested that the
remaining funds in escrow (from Pennsylvania investors) be released to the
Company. As of December 31, 2001, the Company had received subscriptions for
4,363,409 ($43,634,090) Units, including the Initial Members' Units. All of the
Units were issued and outstanding as of December 31, 2001.
The Company's principal objectives are to invest in a diversified portfolio of
equipment which will (i) preserve, protect and return the Company's invested
capital; (ii) generate regular distributions to the partners of cash from
operations and cash from sales or refinancing, with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during
the reinvestment period, ending 72 months after the end of the year in which the
Final Closing occurs and (iii) provide additional distributions following the
reinvestment period and until all equipment has been sold. The Company is
governed by its Limited Liability Company Operating Agreement (Operating
Agreement).
2. Summary of significant accounting policies:
Equipment on operating leases:
Equipment on operating leases is stated at cost. Depreciation is being provided
by use of the straight-line method over the terms of the related leases to the
equipment's estimated residual values at the end of the leases.
Revenues from operating leases are recognized evenly over the lives of the
related leases.
Direct financing leases:
Income from direct financing lease transactions is reported using the financing
method of accounting, in which the Company's investment in the leased property
is reported as a receivable from the lessee to be recovered through future
rentals. The income portion of each rental payment is calculated so as to
generate a constant rate of return on the net receivable outstanding.
16
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
2. Summary of significant accounting policies (continued):
Statements of cash flows:
For purposes of the Statements of Cash Flows, cash and cash equivalents includes
cash in banks and cash equivalent investments with original maturities of ninety
days or less.
Income taxes:
The Company does not provide for income taxes since all income and losses are
the liability of the individual members and are allocated to the members for
inclusion in their individual tax returns.
The tax basis of the Company's net assets and liabilities varies from the
amounts presented in these financial statements (unaudited):
2001 2000
---- ----
Financial statement basis of net assets $36,550,603 $ 600
Tax basis of net assets 42,430,089 600
---------------- ----------------
Difference $ 5,879,486 $ -
================ ================
The primary differences between the tax basis of net assets and the amounts
recorded in the financial statements are the result of differences in accounting
for syndication costs and differences between the depreciation methods used in
the financial statements and the Company's tax returns.
The following reconciles the net income reported in these financial statements
to the loss reported on the Company's federal tax return (unaudited):
2001 2000
---- ----
Net income per financial statements $ 584,176 $ -
Adjustment to depreciation expense (640,404) -
Adjustments to lease revenues 163,847 -
---------------- ----------------
Net income per federal tax return $ 107,619 $ -
================ ================
Per unit data:
Net income and distributions per unit are based upon the weighted average number
of units outstanding during the period.
17
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
2. Summary of significant accounting policies (continued):
Credit risk:
Financial instruments which potentially subject the Company to concentrations of
credit risk include cash and cash equivalents, notes receivable and accounts
receivable. The Company places its cash deposits and temporary cash investments
with creditworthy, high quality financial institutions. The concentration of
such deposits and temporary cash investments is not deemed to create a
significant risk to the Company. Accounts receivable and notes receivable
represent amounts due from lessees in various industries, related to equipment
on operating and direct financing leases. See Note 7 for a description of
lessees by industry as of December 31, 2001.
Basis of presentation:
The accompanying financial statements as of December 31, 2001 and 2000 and for
the years then ended, have been prepared in accordance with accounting
principles generally accepted in the United States. Certain prior year amounts
have been reclassified to conform to the current year presentation.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Such
estimates primarily relate to the determination of residual values at the end of
the lease term.
Reserve for losses and impairments:
The Company will maintain a reserve on its investments in equipment and leases
when losses and impairments are inherent in the portfolio as of the balance
sheet date. The Managing Member's evaluation of the adequacy of an allowance is
a judgmental estimate that is based on a review of individual leases, past loss
experience and other factors. While the Managing Member believes any applicable
allowance would be adequate to cover known losses, it is reasonably possible
that such an allowance could change in the near term. However, such change would
not be expected to have a material effect on the financial position or future
operating results of the Company. It is the Company's policy to charge off
amounts which, in the opinion of the Managing Member, are not recoverable from
lessees or the disposition of the collateral.
Derivative financial instruments:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which established new accounting and
reporting standards for derivative instruments. SFAS No. 133 has been amended by
SFAS No. 137, issued in June 1999, and by SFAS No. 138, issued in June 2000.
SFAS No. 133, as amended, requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. It further provides criteria for derivative instruments to be
designated as fair value, cash flow, or foreign currency hedges, and establishes
accounting standards for reporting changes in the fair value of the derivative
instruments.
18
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
2. Summary of significant accounting policies (continued):
The Company adopted SFAS No. 133, as amended, on January 1, 2001, which had no
impact as the Company did not utilize derivatives during 2001. However, the
Company does expect to enter into interest rate swaps in future periods.
Recent Accounting Pronouncement:
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. SFAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt SFAS 144 as of January 1, 2002 and it does not expect that the adoption of
the Statement will have a significant impact on the Company's financial position
and results of operations.
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation
Expense and Balance
Amortization December 31,
Additions of Leases 2001
--------- --------- ----
Net investment in operating leases $22,025,405 $(2,053,997) $19,971,408
Net investment in direct financing leases 819,124 (68,230) 750,894
Residual values, other 66,093 9,890 75,983
Initial direct costs 317,985 (24,898) 293,087
---------------- ---------------- ----------------
$23,228,607 $(2,137,235) $21,091,372
================ ================ ================
Operating leases:
Property on operating leases consists of the following at December 31, 2001:
Mining $13,421,219
Marine vessels 5,712,000
Office furniture 998,540
Manufacturing 989,709
Natural gas compressors 696,451
Materials handling 207,486
----------------
22,025,405
Less accumulated depreciation (2,053,997)
----------------
$19,971,408
================
19
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
3. Investment in leases (continued):
Direct financing leases:
As of December 31, 2001, investment in direct financing leases consists of
office furniture. The following lists the components of the Company's investment
in direct financing leases as of December 31, 2001:
Total minimum lease payments receivable $ 845,532
Estimated residual values of leased equipment (unguaranteed) 122,869
----------------
Investment in direct financing leases 968,401
Less unearned income (217,507)
----------------
Net investment in direct financing leases $ 750,894
================
All of the property on leases was acquired in 2001.
At December 31, 2001, the aggregate amounts of future minimum lease payments are
as follows:
Direct
Operating Financing
Leases Leases Total
2002 $ 3,591,845 $ 146,184 $ 3,738,029
2003 3,589,980 146,184 3,736,164
2004 3,483,078 146,184 3,629,262
2005 3,280,986 146,184 3,427,170
2006 2,874,008 146,184 3,020,192
Thereafter 104,120 114,612 218,732
---------------- ---------------- ----------------
$16,924,017 $ 845,532 $17,769,549
================ ================ ================
At December 31, 2001, there were commitments to purchase lease assets totaling
approximately $528,000.
4. Notes receivable:
The Company has various notes receivable from parties who have financed the
purchase of equipment through the Company. The terms of the notes receivable are
36 months and bear interest at rates ranging from 17.633% to 21.459%. The notes
are secured by the equipment financed. The minimum payments receivable are as
follows:
2002 $ 574,729
2003 556,542
2004 38,244
----------------
1,169,515
Less portion representing interest (187,253)
----------------
$ 982,262
================
20
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
5. 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 administrative services to
the Company. Administrative 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 administrative 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 actual costs incurred on behalf of the Company or the amount the
Company would be required to pay independent parties for comparable
administrative services in the same geographic location and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
The Managing Member and/or affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
Selling commissions (equal to 9.5% of the selling price of the
Limited Liability Company units, deducted from Other Members'
capital) $ 4,145,191
Reimbursement of other syndication costs to Managing Member 2,210,852
Administrative costs reimbursed to Managing Member 374,507
Initial direct costs paid to Managing Member 317,985
Asset management fees to Managing Member 83,341
----------------
$ 7,131,876
================
6. Members' capital:
As of December 31, 2001, 4,363,409 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,000 Units in addition to the Units
issued to the initial members (50 Units).
The Company's Net Income, Net Losses, and Distributions are to be allocated
92.5% to the Members and 7.5% to ATEL. In accordance with the terms of the of
Operating Agreement, an additional allocation of income was made to the Managing
Member in 2001. The amount allocated was determined so as to bring the Managing
Member's ending capital account balance to zero.
21
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
7. Concentration of credit risk and major customers:
The Company leases equipment to lessees in diversified industries. Leases are
subject to the Managing Member's credit committee review. The leases provide for
the return of the equipment upon default.
As of December 31, 2001, there were concentrations (greater than 10%) of
equipment leased to lessees in certain industries (as a percentage of total
equipment cost) as follows:
Electric utilities 50%
Marine transportation 25%
During 2001, two customers comprised 54% and 14% of the Company's revenues from
leases.
8. Line of credit:
The Company participates with the Managing Member and certain of its affiliates
in a $62,000,000 revolving line of credit with a financial institution that
includes certain financial covenants. The line of credit expires on April 12,
2002. The Managing Member is currently negotiating a new line of credit and
anticipates that the current line of credit will either be replaced upon its
expiration or that the current line of credit will be extended until the new one
is finalized. As of December 31, 2001, 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 17,600,000
----------------
Total borrowings under the acquisition facility 17,600,000
Amounts borrowed by the Managing Member and its sister corporation under the warehouse facility * 10,999,501
----------------
Total outstanding balance $28,599,501
================
Total available under the line of credit $62,000,000
Total outstanding balance (28,599,501)
----------------
Remaining availability $33,400,499
================
* (Unaudited) The carrying value of the assets pledged as collateral and
financed at December 31, 2001 was $17,955,014.
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 has not borrowed under the line of credit. Interest on the line of
credit is based on either the thirty day LIBOR rate or the bank's prime rate.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of December 31,
2001.
22
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001
9. Fair value of financial instruments:
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value.
Cash and cash equivalents:
The carrying amount of cash and cash equivalents approximates fair value because
of the short-term maturity of these instruments.
Notes receivable:
The fair value of the Company's notes receivable is estimated using discounted
cash flow analyses, based on the Company's current incremental lending rates for
similar types of lending arrangements. The estimated fair value of the Company's
notes receivable at December 31, 2001 is $898,671.
23
Item 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
Not applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The registrant is a Limited Liability Company and, therefore, has no officers or
directors.
All of the outstanding capital stock of ATEL Financial Services LLC (the
Managing Member) is held by ATEL Capital Group ("ACG"), a holding company formed
to control ATEL and affiliated companies. The outstanding voting capital stock
of ATEL Capital Group is owned 5% by A. J. Batt and 95% by Dean Cash.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC ("AFS") is a
wholly-owned subsidiary of ATEL Capital Group and performs services for the
Company. Acquisition services are performed for the Company by ALC, equipment
management, lease administration and asset disposition services are performed by
AEC, investor relations and communications services are performed by AIS and
general administrative services for the Company are performed by AFS. ATEL
Securities Corporation ("ASC") is a wholly-owned subsidiary of ATEL Financial
Services LLC.
The officers and directors of ATEL Capital Group and its affiliates are as
follows:
Dean L. Cash Chairman of the Board of Directors of ACG, AFS,
ALC, AEC, AIS and ASC; President and Chief
Executive Officer of ACG, AFS and AEC
Paritosh K. Choksi Director, Executive Vice President, Chief
Operating Officer and Chief Financial Officer of
ACG, AFS, ALC, AEC and AIS
Donald E. Carpenter Vice President and Controller of ACG, AFS, ALC,
AEC and AIS; Chief Financial Officer of ASC
Vasco H. Morais Senior Vice President, Secretary and General
Counsel for ACG, AFS, ALC, AIS and AEC
Dean L. Cash, age 51, 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.
24
Paritosh K. Choksi, age 48, joined ATEL in 1999 as a director, senior vice
president and its chief financial officer. He became its executive vice
president and COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief
financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to
1997, Mr. Choksi was with Phoenix American Incorporated, a financial services
and management company, where he held various positions during his tenure, and
was senior vice president, chief financial officer and director when he left the
company. Mr. Choksi was involved in all corporate matters at Phoenix and was
responsible for Phoenix's capital market needs. He also served on the credit
committee overseeing all corporate investments, including its venture lease
portfolio. Mr. Choksi was a part of the executive management team which caused
Phoenix's portfolio to increase from $50 million in assets to over $2 billion.
Mr. Choksi received a bachelor of technology degree in mechanical engineering
from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the
University of California, Berkeley.
Donald E. Carpenter, age 53, joined ATEL in 1986 as controller. Prior to joining
ATEL, Mr. Carpenter was an audit supervisor with Laventhol & Horwath, certified
public accountants in San Francisco, California, from 1983 to 1986. From 1979 to
1983, Mr. Carpenter was an audit senior with Deloitte, Haskins & Sells,
certified public accountants, in San Jose, California. From 1971 to 1975, Mr.
Carpenter was a Supply Corp officer in the U. S. Navy. Mr. Carpenter received a
B.S. degree in mathematics (magna cum laude) from California State University,
Fresno in 1971 and completed a second major in accounting in 1978. Mr. Carpenter
has been a California certified public accountant since 1981.
Vasco H. Morais, age 43, 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.
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 ATEL and its Affiliates. The amount of such remuneration paid in 2001
is set forth in Item 8 of this report under the caption "Financial Statements
and Supplementary Data - Notes to the Financial Statements - Related party
transactions," at Note 5 thereof, which information is hereby incorporated by
reference.
Selling Commissions
The Company paid selling commissions in the amount of 9.5% of Gross Proceeds, as
defined, to ATEL Securities Corporation, an affiliate of ATEL.
Through December 31, 2001, $4,145,191 of such commissions had been paid to ATEL
or its affiliates. Of that amount, $3,490,687 has been re-allowed to other
broker/dealers.
25
Asset Management Fee
The Company will pay ATEL an Asset Management Fee in an amount equal to 4% of
Operating Revenues, which will include Gross Lease Revenues and Cash From Sales
or Refinancing. The Asset Management Fee will be paid on a monthly basis. The
amount of the Asset Management Fee payable in any year will be reduced for that
year to the extent it would otherwise exceed the Asset Management Fee Limit, as
described below. The Asset Management Fee will be paid for services rendered by
ATEL 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.
ATEL will supervise performance of among others activities, collection of lease
revenues, monitoring compliance by lessees with the lease terms, assuring that
Equipment is being used in accordance with all operative contractual
arrangements, paying operating expenses and arranging for necessary maintenance
and repair of Equipment in the event a lessee fails to do so, monitoring
property, sales and use tax compliance and preparation of operating financial
data. ATEL intends to delegate all or a portion of its duties and the Asset
Management Fee to one or more of its Affiliates who are in the business of
providing such services.
Asset Management Fee Limit:
The Asset Management Fee will be subject to the Asset Management Fee Limit. The
Asset Management Fee Limit will be calculated each year during the Company's
term by calculating the total fees that would be paid to ATEL if the Managing
Member 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 ATEL's Carried Interest, as described below. To the
extent that the amount paid to ATEL as the Asset Management Fee plus its Carried
Interest for any year would exceed the aggregate amount of fees calculated under
this alternative fee schedule for the year, the Asset Management Fee and/or
Carried Interest for that year will be reduced to equal the maximum aggregate
fees under the alternative fee schedule.
To the extent any such fees are reduced, the amount of such reduction will be
accrued and deferred, and such accrued and deferred compensation would be paid
to ATEL 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 ATEL upon liquidation.
Alternative Fee Schedule:
For purposes of the Asset Management Fee Limit, the Company will calculate an
alternative schedule of fees, including a hypothetical Equipment Management Fee,
Incentive Management Fee, Equipment Resale/Re- Leasing Fee, and Carried Interest
as follows:
An Equipment Management Fee will be calculated to equal the lesser of (i) 3.5%
of annual Gross Revenues from Operating Leases and 2% of annual Gross Revenues
from Full Payout Leases which contain Net Lease Provisions), or (ii) the fees
customarily charged by others rendering similar services as an ongoing public
activity in the same geographic location and for similar types of equipment. If
services with respect to certain Operating Leases are performed by nonaffiliated
persons under the active supervision of ATEL 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.
26
An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the
lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal
competitive equipment sale commission charged by unaffiliated parties for resale
services. Such fee would apply only after the Holders have received a return of
their Original Invested Capital plus a Priority Distribution. In connection with
the releasing of Equipment to lessees other than previous lessees or their
Affiliates, the fee would be in an amount equal to the lesser of (i) the
competitive rate for comparable services for similar equipment, or (ii) 2% of
the gross rental payments derived from the re-lease of such Equipment, payable
out of each rental payment received by the Company from such re-lease.
A Carried Interest equal to 7.5% of all Distributions of Cash from Operations
and Cash from Sales or Refinancing.
See Note 6 to the financial statements included in Item 8 for amounts paid.
Managing Member's Interest in Operating Proceeds
Net income, net loss and investment tax credits are allocated 92.5% to the
Members and 7.5% to ATEL. See financial statements included in Item 8, Part I of
this report for amounts allocated to the Managing Member in 2001.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners
At December 31, 2001, no investor is known to hold beneficially more than 5% of
the issued and outstanding Units.
Security Ownership of Management
The parent of ATEL is the beneficial owner of Limited Liability Company Units as
follows:
(1) (2) (3) (4)
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
- -------------- ---------------- -------------------- --------
Limited Liability ATEL Capital Group Initial Limited Liability 0.0011%
Company Units 235 Pine Street, 6th Floor Company Units
San Francisco, CA 94104 50 Units ($500)
Changes in Control
The Members have the right, by vote of the Members owning more than 50% of the
outstanding Limited Liability Company Units, to remove a Managing Member.
ATEL 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 Limited Partners holding 10% or more of the total
outstanding Limited Liability Company Units.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The responses to Item 1 of this report under the caption "Equipment Leasing
Activities," Item 8 of this report under the caption "Financial Statements and
Supplemental Data - Notes to the Financial Statements - Related party
transactions" at Note 5 thereof, and Item 11 of this report under the caption
"Executive Compensation," are hereby incorporated by reference.
27
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a)Financial Statements and Schedules
1. Financial Statements
Included in Part II of this report:
Report of Independent Auditors
Balance Sheets at December 31, 2001 and 2000
Statement of income for the year ended December
31, 2001
Statement of Changes in Members' Capital for the
period from September 27, 2000 (inception)
through December 31, 2000 and for the year
ended December 31, 2001
Statement of Cash Flows for the period from
September 27, 2000 (inception) through December
31, 2000 and for the year ended December 31,
2001
Notes to Financial Statements
2. Financial Statement Schedules
Allschedules for which provision is made in the
applicable accounting regulations of the
Securities and Exchange Commission are not
required under the related instructions or are
inapplicable and, therefore, have been omitted.
(b) Reports on Form 8-K for the fourth quarter of 2001
Not applicable
(c)Exhibits
None
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: 3/25/2002
ATEL Capital Equipment Fund IX, LLC
(Registrant)
By: ATEL Financial Services LLC,
Managing Member of Registrant
By: /s/ Dean L. Cash
---------------------------------------------------
Dean Cash
President of ATEL Financial Services LLC (Managing
Member)
By: /s/ Paritosh K. Choksi
---------------------------------------------------
Paritosh K. Choksi
Executive Vice President of ATEL Financial Services
LLC (Managing Member)
29
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the persons in the capacities and on the dates
indicated.
SIGNATURE CAPACITIES DATE
/s/ Dean L. Cash President, Chairman and Chief 3/25/2002
- -------------------------- Executive Officer of ATEL Financial
Dean Cash Services LLC
/s/ Paritosh K. Choksi Principal financial officer of 3/25/2002
- -------------------------- registrant; principal financial officer
Paritosh K. Choksi and director of ATEL Financial Services
LLC
/s/ Donald E. Carpenter Principal accounting officer of 3/25/2002
- -------------------------- registrant; principal accounting officer
Donald E. Carpenter of ATEL Financial Services LLC
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act:
No proxy materials have been or will be sent to security holders. An annual
report will be furnished to security holders subsequent to the filing of this
report on Form 10-K, and copies thereof will be furnished supplementally to the
Commission when forwarded to the security holders.
30
INDEX TO EXHIBITS
Index Number Exhibit
3 & 4 Limited Liability Company Operating Agreement,
included as Exhibit B to Prospectus
28.1 Prospectus
31
EXHIBIT
ATEL CAPITAL EQUIPMENT FUND IX, LLC
Limited Liability Company Units
ATEL Capital Equipment Fund IX, LLC will buy a diversified portfolio of
primarily low-technology equipment and lease the equipment to corporations. ATEL
Financial Corporation is its Manager. The Fund will collect lease payments and
eventually sell the equipment. Its objective will be to distribute to investors
the lease payments and sales proceeds remaining after it pays its expenses and
fees. The Fund intends to use approximately 86.5% of the capital it raises from
the sale of Units to purchase its investments in equipment. At least an
additional one-half of one percent of its initial capital will be held as
reserves. Of the remaining capital, 9.5% will be used to pay selling commissions
and up to 3.5% will be used to pay other offering expenses.
A purchase of Units involves risks. See "Risk Factors" on page 9. Risks include:
- Investors must rely on ATEL to manage the Fund;
- The Fund will pay ATEL substantial fees;
- The Fund has not specified all its equipment investments;
- The Fund's performance is subject to the risk of lessee defaults;
- The Fund will borrow to buy equipment;
- An investor's ability to sell his Units is limited; and
The Fund is offering a total of 15,000,000 of its Units of limited liability
company interest for a price of $10 per Unit. An investor must purchase a
minimum of 250 Units, except that an Individual Retirement Account or other
retirement plan can purchase a minimum of 200 Units. No Units will be sold
unless a minimum of $1,200,000 in cash is received within one year from the
start of the offering. The Fund will deposit its subscriptions in a bank escrow
account until that amount is received. The brokers selling the Units are not
required to sell any specific number of Units, but will use their best efforts
to sell Units.
- The Fund does not guarantee its distributions or the return of investors'
capital.
Price to Selling Proceeds to
Public Commissions Fund
------ ----------- ----
Per Unit $10 $0.95 $9.05 THE DATE OF THIS PROSPECTUS
Total IS January 16, 2001
Minimum $1,200,000 $114,000 $1,086,000
Total
Maximum $150,000,000 $14,250,000 $135,750,000
------------ ----------- ------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities
nor has any state securities commission passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary
is a criminal offense.
[Sticker to be inserted on prospectus cover page]
The prospectus consists of this sticker, the prospectus dated January 16, 2001
and the cumulative prospectus Supplement No. 1 dated April 30, 2001.
TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING................................................... 6
The Fund.............................................................. 6
Management............................................................ 6
Risk Factors.......................................................... 6
Who Should Invest..................................................... 6
Use of Capital........................................................ 7
ATEL's Fees........................................................... 7
Income, Losses and Distributions...................................... 7
Income Tax Consequences............................................... 7
Summary of the Operating Agreement.................................... 8
Plan of Distribution.................................................. 9
RISK FACTORS.............................................................. 9
Equipment Leasing Risks............................................... 9
Risks Inherent in the Structure of the Fund........................... 12
Risks Relating to Tax Matters......................................... 14
Risks Relating to ERISA Matters....................................... 15
WHO SHOULD INVEST......................................................... 16
ESTIMATED USE OF PROCEEDS................................................. 18
MANAGEMENT COMPENSATION................................................... 20
Summary Table......................................................... 20
Narrative Description of Compensation................................. 21
Limitations on Fees................................................... 22
Defined Terms Used in Description of Compensation..................... 25
INVESTMENT OBJECTIVES AND POLICIES........................................ 27
Principal Investment Objectives....................................... 27
General Policies...................................................... 27
Types of Equipment.................................................... 30
Prior Program Diversification......................................... 34
Borrowing Policies.................................................... 34
Description of Lessees................................................ 36
Foreign Leases........................................................ 37
Description of Leases................................................. 38
Growth Capital Equipment Financing.................................... 39
Competition........................................................... 41
Joint Venture Investments............................................. 41
General Restrictions.................................................. 42
Changes in Investment Objectives and Policies......................... 43
2
CONFLICTS OF INTEREST..................................................... 43
ORGANIZATIONAL DIAGRAM.................................................... 46
FIDUCIARY DUTY OF THE MANAGER............................................. 46
MANAGEMENT................................................................ 47
The Manager........................................................... 47
Selection and Management of Investments............................... 49
Management Compensation............................................... 50
Changes in Management................................................. 50
The Dealer Manager.................................................... 50
PRIOR PERFORMANCE SUMMARY................................................. 51
INCOME, LOSSES AND DISTRIBUTIONS.......................................... 53
Allocations of Net Income and Net Loss................................ 54
Timing of Distributions............................................... 54
Allocations of Distributions.......................................... 54
Reinvestment.......................................................... 55
Return of Unused Capital.............................................. 55
Cash from Reserve Account............................................. 56
Sources of Distributions - Accounting Matters......................... 56
CAPITALIZATION............................................................ 57
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION.................................................. 57
Year 2000 Compliance.................................................. 58
FEDERAL INCOME TAX CONSEQUENCES........................................... 59
Opinion of Derenthal & Dannhauser..................................... 60
Classification as a Partnership....................................... 60
Allocations of Profits and Losses..................................... 62
Income Recognition.................................................... 63
Taxation of Investors................................................. 64
Limitation on Deduction of Losses..................................... 64
Tax Basis............................................................. 64
At Risk Rules......................................................... 65
Passive Loss Limitation............................................... 65
Tax Status of Leases.................................................. 66
Cost Recovery......................................................... 66
Tax Consequences Respecting Equity Interests.......................... 67
Deductibility of Management Fees...................................... 68
Tax Liability in Later Years.......................................... 68
Sales or Exchanges of Fund Equipment.................................. 68
3
Disposition of Units.................................................. 69
Liquidation of the Fund............................................... 69
Fund Elections........................................................ 70
Treatment of Gifts of Units........................................... 70
Investment by Qualified Retirement Plans and IRAs..................... 70
Individual Tax Rates.................................................. 71
Alternative Minimum Tax............................................... 71
Fund Tax Returns and Tax Information.................................. 74
Interest and Penalties................................................ 74
Audit of Tax Returns.................................................. 75
Registration Provisions............................................... 76
Miscellaneous Fund Tax Aspects........................................ 76
Foreign Tax Considerations of U.S. Investors.......................... 77
U.S. Taxation of Foreign Persons...................................... 77
Future Federal Income Tax Changes..................................... 77
State and Local Taxes................................................. 78
Need for Independent Advice........................................... 78
ERISA CONSIDERATIONS...................................................... 78
Prohibited Transactions Under ERISA and the Code...................... 78
Plan Assets........................................................... 79
Other ERISA Considerations............................................ 80
SUMMARY OF THE OPERATING AGREEMENT........................................ 80
The Duties of the Manager............................................. 80
Liability of Holders.................................................. 81
Term and Dissolution.................................................. 81
Voting Rights of Members.............................................. 81
Dissenters' Rights and Limitations on Mergers and Roll-ups............ 82
Meetings.............................................................. 82
Books of Account and Records.......................................... 83
Status of Units....................................................... 83
Transferability of Units.............................................. 83
Repurchase of Units................................................... 86
Indemnification of the Manager........................................ 86
PLAN OF DISTRIBUTION...................................................... 87
Distribution.......................................................... 87
Selling Compensation and Certain Expenses............................. 87
Escrow Arrangements................................................... 88
Investments by Certain Persons........................................ 89
State Requirements.................................................... 89
REPORTS TO HOLDERS........................................................ 90
4
SUPPLEMENTAL SALES MATERIAL............................................... 91
LEGAL OPINIONS............................................................ 92
EXPERTS................................................................... 92
ADDITIONAL INFORMATION.................................................... 92
GLOSSARY.................................................................. 92
FINANCIAL STATEMENTS...................................................... F-1
Exhibit A - Prior Performance Information................................. A-1
Exhibit B - Operating Agreement........................................... B-1
Exhibit C - Subscription Instructions and Documents....................... C-1
5
SUMMARY OF THE OFFERING
This summary outlines the main points of the offering. The summary does
not replace the more detailed information found in the remainder of this
Prospectus. All prospective investors are urged to read this Prospectus in its
entirety.
The Fund: The Fund is a California limited liability company
which intends to invest in a variety of types of
equipment and to lease the equipment to corporations.
The Fund expects to acquire mostly low-technology
equipment such as the basic equipment used by
companies in the manufacturing, mining, and
transportation industries. The portfolio will also
include some more high-technology equipment, such as
communications equipment, medical equipment and
office equipment. The Fund will seek to buy equipment
and leases that will produce lease payments and
eventual sales prices which will provide a favorable
return on its investments and cash distributions to
its investors. The Fund's equipment will primarily be
leased to major publicly owned corporations. Some of
its equipment investments will finance capital
equipment for other public and private companies. In
some of these investments, the Fund may acquire
equity interests and warrants and rights to purchase
equity interests in these companies.
Management: The Manager of the Fund is ATEL Financial
Corporation. ATEL and its family of related ATEL
companies will provide various services to the Fund,
including asset management and company
administration. ATEL will be responsible for
supervising all of the Fund's business and affairs.
ATEL will act as a fiduciary to the Fund, and,
consequently, is required to exercise good faith and
integrity in all dealings with respect to Fund
affairs. The offices of the Fund and ATEL are located
at 235 Pine Street, 6th Floor, San Francisco,
California 94104, and its telephone numbers are
(415) 989-8800 and (800) 543-ATEL (2835).
Risk Factors: An investment in Units involves risks, including the
following:
- Investors must rely on ATEL to manage the Fund's
business.
- The Fund will pay ATEL substantial fees.
- The Fund has not specified all its equipment
investments;
- The Fund's performance is subject to the risk of
lessee defaults;
- The Fund will borrow to buy equipment
investments;
- An investor's ability to sell his Units is
limited; and
- The Fund does not guarantee its distributions or
the return of investors' capital.
Who Should Invest: The Units are a long-term investment, with a primary
objective of regular cash distributions. Investors
must satisfy minimum net worth and income
requirements which require, generally, that
investors have either:
6
- an annual gross income of at least $45,000 and a
net worth (exclusive of home, home furnishings and
automobiles) of at least $45,000; or
- a net worth (determined with the same exclusions)
of at least $150,000.
Use of Capital: The Fund expects to invest approximately
86.5% of its capital in the cash portion of the
purchase price of equipment. It intends to retain an
additional 0.5% as reserves for general working
capital purposes, and to use the balance to pay
selling commissions equal to 9.5%, and other offering
and organization expenses in the estimated amount of
from 2.5% to 3.5% .
ATEL's Fees: The Fund will pay ATEL and its family of
related companies substantial fees and compensation
in connection with this offering and the operation of
the Fund's business, including the following:
- ATEL Securities Corporation organize and
manage the group of broker-dealers selling
the Units. It will receive selling
commissions most of which will pay to the
participating broker dealers. ATEL
Securities Corporation may retain up to 1.5%
of the sale price of Units.
- The Fund will pay ATEL an annual asset
management fee equal to 4% of the revenues
from leases and sales of the Fund's
equipment, subject to fee limits.
- ATEL will have an interest equal to 7.5% of all
of the Fund's income, loss and cash
distributions.
The Fund will also reimburse ATEL for offering
expenses and administrative expenses ATEL incurs on
behalf of the Fund, subject to some limitations.
Income, Losses
and Distributions: Fund income and loss for tax purposes and cash
distributions will be allocated 92.5% to investors
and 7.5% to ATEL. The Fund intends to distribute all
cash revenues remaining after the Fund
- pays its expenses, including fees paid to ATEL,
- establishes or restores its capital reserves, and
- to the extent permitted, sets aside amounts for
reinvestment in additional equipment.
Until the end of a six-year period following the end
of the offering of Units, the Fund may invest its
revenues in additional equipment. Before it can
reinvest its revenues, though, it must first satisfy
conditions which include distributions to each
investor for the year equal to at least 8% of the
purchase price of the Units.
Income Tax
Consequences: This Prospectus has a discussion of federal income
tax consequences relating to an investment in Units
under the caption "Federal Income Tax Consequences".
Investors should consult with their tax and financial
advisors to determine whether an investment in Units
is suitable for their portfolio.
7
Summary of the
Operating Agreement: The Operating Agreement that will govern
the relationship between the investors and ATEL is a
complex legal document. The following is a brief
summary of certain provisions of the Operating
Agreement discussed in greater detail under "Summary
of the Operating Agreement."
- Voting Rights of Members. Each investor will
become a member of the Fund, and will be
entitled to cast one vote for each Unit
owned as of the date record date for any
vote of all the members. The members are
entitled to vote on only certain fundamental
organizational matters affecting the Fund,
and have no voice in Fund operations or
policies.
- Meetings. ATEL or Members holding 10% or
more of the total outstanding Units may call
a meeting of the Members or a vote of the
Members without a meeting, on matters on
which they are entitled to vote.
- Dissenters' Rights and Limitations on
Mergers and Roll-ups. The Operating
Agreement provides Members with protection
in a proposed reorganization in which the
investors would be issued new securities in
the resulting entity.
- Transferability of Units. ATEL may condition
any proposed transfer of Units on, among
other things, legal opinions confirming that
the proposed transfer does not violate
securities laws and will not result in
adverse tax con