Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 2004
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 000-50687
ATEL Capital Equipment Fund X, LLC
(Exact name of registrant as specified in its charter)
California 68-0517690
- ---------- ----------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability
Company Units
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of Limited Liability Company Units outstanding as of September 30,
2004 was 9,793,295.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
ATEL CAPITAL EQUIPMENT FUND X, LLC
Index
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets, September 30, 2004 and December 31, 2003.
Statements of Operations for the nine and three month periods ended
September 30, 2004 and 2003.
Statements of Changes in Members' Capital for the year ended December 31,
2003 and for the nine month period ended September 30, 2004.
Statements of Cash Flows for the nine and three month periods ended
September 30, 2004 and 2003.
Notes to Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
2
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).
ATEL CAPITAL EQUIPMENT FUND X, LLC
BALANCE SHEETS
SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
(Unaudited)
ASSETS
September 30, December 31,
2004 2003
---- ----
(Unaudited)
Cash and cash equivalents $56,243,803 $22,680,652
Accounts receivable 112,880 3,179
Prepaid syndication costs 17,990 156,624
Due from Managing Member 2,060 -
Due from affiliate - 248,428
Notes receivable 3,773,700 -
Investments in leases 20,298,132 14,726,680
------------------ ------------------
Total assets $80,448,565 $37,815,563
================== ==================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Other $ 11,177 $ 127,131
Managing Member - 472,041
Unadmitted subscription for limited liability company units 250,000 -
Deposits due to lessees 187,291 -
Unearned operating lease income 119,118 105,728
------------------ ------------------
Total liabilities 567,586 704,900
Members' capital 79,880,979 37,110,663
------------------ ------------------
Total liabilities and Members' capital $80,448,565 $37,815,563
================== ==================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND X, LLC
STATEMENTS OF OPERATIONS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2004 AND 2003
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Leasing activities:
Operating leases $ 2,556,361 $ 320,637 $ 1,005,291 $ 206,433
Direct financing leases 94,245 15,990 39,153 15,990
Interest:
Interest earned on cash deposits 236,192 17,582 103,944 17,495
Interest earned on notes receivable 187,176 - 111,186 -
Other 9,378 78 6,908 78
------------------ ------------------ ------------------ ------------------
3,083,352 354,287 1,266,482 239,996
Expenses:
Depreciation of operating lease assets 2,297,807 370,343 908,473 249,992
Amortization of initial direct costs 236,315 25,422 84,124 19,728
Cost reimbursements to Managing Member 222,833 15,858 108,471 13,859
Asset management fees to Managing Member 131,935 16,656 58,521 10,625
Professional fees 79,949 24,992 5,208 6,234
Franchise fees and state taxes 32,608 - - -
Other 104,181 71,889 42,829 42,745
------------------ ------------------ ------------------ ------------------
3,105,628 525,160 1,207,626 343,183
------------------ ------------------ ------------------ ------------------
Net (loss) income $ (22,276) $ (170,873) $ 58,856 $ (103,187)
================== ================== ================== ==================
Net income (loss):
Managing Member $ 300,132 $ 25,412 $ 127,468 $ 22,618
Other Members (322,408) (196,285) (68,612) (125,805)
------------------ ------------------ ------------------ ------------------
$ (22,276) $ (170,873) $ 58,856 $ (103,187)
================== ================== ================== ==================
Net loss per Limited Liability Company Unit ($0.05) ($0.14) ($0.01) ($0.05)
Weighted average number of Units outstanding 6,977,561 1,410,961 8,724,786 2,737,770
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND X, LLC
STATEMENT OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2003
AND FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2004
(Unaudited)
Initial Member Managing
Units Amount Member Total
Balance December 31, 2002 50 $ 500 $ 100 $ 600
Capital contributions 4,483,332 44,833,320 - 44,833,320
Less selling commissions to affiliates - (4,034,999) - (4,034,999)
Other syndication costs to affiliates - (2,491,736) - (2,491,736)
Distributions to Members - (937,496) (76,013) (1,013,509)
Net income (loss) - (258,926) 75,913 (183,013)
------------------ ------------------ ------------------ ------------------
Balance December 31, 2003 4,483,382 37,110,663 - 37,110,663
Capital contributions 5,333,163 53,331,630 - 53,331,630
Less selling commissions to affiliates - (4,799,847) - (4,799,847)
Other syndication costs to affiliates - (1,507,753) - (1,507,753)
Rescissions of capital contributions (20,000) (200,000) - (200,000)
Units repurchased (3,250) (29,677) - (29,677)
Distributions to members - (3,701,629) (300,132) (4,001,761)
Net income (loss) - (322,408) 300,132 (22,276)
------------------ ------------------ ------------------ ------------------
Balance September 30, 2004 9,793,295 $79,880,979 $ - $79,880,979
================== ================== ================== ==================
See accompanying notes.
5
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2004 AND 2003
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Operating activities:
Net (loss) income $ (22,276) $ (170,873) $ 58,856 $ (103,187)
Adjustments to reconcile net (loss) income to
cash provided by operating activities:
Depreciation of operating lease assets 2,297,807 370,343 908,473 249,992
Amortization of initial direct costs 236,315 25,422 84,124 19,728
Changes in operating assets and liabilities:
Accounts receivable (109,701) - (57,759) -
Due from Managing Member (2,060) - (2,060) -
Prepaid syndication costs 138,634 (270,101) (17,990) 320,833
Accounts payable, Managing Member (472,041) 234,670 (530,106) 18,680
Accounts payable, other (115,954) 36,658 (192,318) 34,043
Deposits due to lessees 187,291 - 9,858 -
Unearned operating lease income 13,390 105,584 8,082 60,977
------------------ ------------------ ------------------ ------------------
Net cash provided by operations 2,151,405 331,703 269,160 601,066
------------------ ------------------ ------------------ ------------------
6
ATEL CAPITAL EQUIPMENT FUND X, LLC
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2004 AND 2003
(Unaudited)
(Continued)
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Investing activities:
Purchases of equipment on operating leases (7,317,106) (4,975,351) (233,839) (2,793,225)
Note receivable advances (4,030,267) - (623,771) -
(Payments) recoveries of initial direct costs to
Managing Member (586,549) (475,458) 68,137 (267,765)
Purchases of equipment on direct financing leases (433,959) (654,526) (74,242) (654,526)
Payments received on notes receivable 256,567 - 212,843 -
Due from affiliate 248,428 - - -
Reduction of net investment in direct financing
leases 232,040 46,940 101,889 46,940
------------------ ------------------ ------------------ ------------------
Net cash used in investing activities (11,630,846) (6,058,395) (548,983) (3,668,576)
------------------ ------------------ ------------------ ------------------
Financing activities:
Capital contributions received 53,331,630 30,257,390 19,461,330 17,298,200
Payment of syndication costs to Managing
Member (6,307,600) (4,408,839) (1,904,386) (2,794,269)
Distributions to Other Members (3,701,629) (314,651) (1,562,564) (278,957)
Distributions to Managing Member (300,132) (25,512) (127,468) (22,618)
Unadmitted subscriptions for limited liability
company units 250,000 - 250,000 -
Rescissions of capital contributions (200,000) - (9,548) -
Repurchases of units (29,677) - (11,438) -
------------------ ------------------ ------------------ ------------------
Net cash provided by financing activities 43,042,592 25,508,388 16,095,926 14,202,356
------------------ ------------------ ------------------ ------------------
Net increase in cash and cash equivalents 33,563,151 19,781,696 15,816,103 11,134,846
Cash and cash equivalents at beginning of
period 22,680,652 600 40,427,700 8,647,450
------------------ ------------------ ------------------ ------------------
Cash and cash equivalents at end of period $56,243,803 $19,782,296 $56,243,803 $19,782,296
================== ================== ================== ==================
See accompanying notes.
7
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
1. Summary of significant accounting policies:
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States (GAAP) for
interim financial information and with instructions to Form 10-Q and Article 10
of Regulation S-X. The unaudited interim financial statements reflect all
adjustments which are, in the opinion of the Managing Member, necessary to a
fair statement of financial position and results of operations for the interim
periods presented. All such adjustments are of a normal recurring nature. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that effect reported amounts in the financial
statements and accompanying notes. Therefore, actual results could differ from
those estimates. Operating results for the nine months ended September 30, 2004
are not necessarily indicative of the results for the year ending December 31,
2004.
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, 2003, filed with the Securities and Exchange
Commission.
2. Organization and Limited Liability Company matters:
ATEL Capital Equipment Fund X, LLC (the Company) was formed under the laws of
the state of California on August 12, 2002 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. The Company may
continue until December 31, 2021.
The Company, or the Managing Member on behalf of the Company, will incur costs
in connection with the organization, registration and issuance of the Limited
Liability Company Units (Units). The amount of such costs to be borne by the
Company is limited by certain provisions of the Company's Operating Agreement.
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 April
9, 2003, the Company commenced operations.
ATEL Financial Services, LLC (AFS), an affiliated entity, acts as the Managing
Member of the Company.
The Company is in its acquisition phase and is making distributions on a monthly
or quarterly basis.
8
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation /
Amortization
Expense or
Balance Amortization of Balance
December 31, Direct Financing September 30,
2003 Additions Leases 2004
---- --------- ------ ----
Net investment in operating leases $12,967,263 $ 7,317,106 $ (2,297,807) $17,986,562
Net investment in direct financing leases 735,451 433,959 (232,040) 937,370
Initial direct costs, net of accumulated
amortization of $302,720 in 2004 and $66,405
in 2003 1,023,966 586,549 (236,315) 1,374,200
------------------ ------------------ ------------------ ------------------
$14,726,680 $ 8,337,614 $ (2,766,162) $20,298,132
================== ================== ================== ==================
Net investment in operating leases:
Property on operating leases consists of the following:
Balance Balance
December 31, Depreciation September 30,
2003 Additions Expense 2004
---- --------- ------- ----
Materials handling $ 4,827,588 $ 3,520,420 $ - $ 8,348,008
Manufacturing 5,848,508 - - 5,848,508
Mining 2,000,000 1,371,097 - 3,371,097
Transportation - 2,392,301 - 2,392,301
Data processing 1,046,434 33,288 - 1,079,722
------------------ ------------------ ------------------ ------------------
13,722,530 7,317,106 - 21,039,636
Less accumulated depreciation (755,267) - (2,297,807) (3,053,074)
------------------ ------------------ ------------------ ------------------
$ 12,967,263 $ 7,317,106 $ (2,297,807) $ 17,986,562
================== ================== ================== ==================
The average assumed residual values for assets on operating leases was 22% at
September 30, 2004 and 20% at December 31, 2003. The weighted average term of
the operating leases was 55 months at September 30, 2004 and 57 months at
December 31, 2003.
9
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
3. Investment in leases (continued):
Net investment in direct financing leases:
The following lists the components of the Company's net investment in direct
financing leases as of September 30, 2004:
Total minimum lease payments receivable $ 1,066,617
Estimated residual values of leased equipment (unguaranteed) 46,738
------------------
Investment in direct financing leases 1,113,355
Less unearned income (175,985)
------------------
Net investment in direct financing leases $ 937,370
==================
At September 30, 2004, the aggregate amounts of future minimum lease payments to
be received are as follows:
Direct
Operating Financing
Leases Leases Total
Three months ending December 31, 2004 $ 1,002,6674 $ 132,317 $ 1,134,984
Year ending December 31, 2005 4,010,668 527,375 4,538,043
2006 3,447,806 358,157 3,805,963
2007 2,809,847 48,768 2,858,615
2008 2,163,508 - 2,163,508
2009 714,512 - 714,512
2010 36,453 - 36,453
------------------ ------------------ ------------------
$14,185,461 $ 1,066,617 $15,252,078
================== ================== ==================
All of the property on leases was acquired in 2003 and 2004.
10
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
4. Notes receivable:
The Company has various notes receivable from parties who have financed the
purchase of equipment through the Company. The terms of the notes receivable are
18 to 60 months and bear interest at rates ranging from 11% to 21%. The notes
are secured by the equipment financed. As of September 30, 2004, the minimum
future payments receivable are as follows:
Year ending
December 31,
Three months ending December 31, 2004 $ 287,5924
Year ending December 31, 2005 1,144,318
2006 843,897
2007 535,210
2008 447,024
2009 1,818,005
------------------
5,076,046
Less portion representing interest (1,302,346)
------------------
$ 3,773,700
==================
5. Related party transactions:
The terms of the Limited Company Operating Agreement provide that AFS 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 AFS in providing services to the Company. Services provided
include Company accounting, investor relations, legal counsel and lease and
equipment documentation. AFS is not reimbursed for services where it is entitled
to receive a separate fee as compensation for such services. Reimbursable costs
incurred by AFS 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.
Each of ATEL Leasing Corporation ("ALC"), ATEL Equipment Corporation ("AEC"),
ATEL Investor Services ("AIS") and ATEL Financial Services LLC is a wholly-owned
subsidiary of ATEL Capital Group and performs services for the Company.
Acquisition services are performed for the Company by ALC, equipment management,
lease administration and asset disposition services are performed by AEC,
investor relations and communications services are performed by AIS and general
administrative services for the Company are performed by AFS.
Substantially all employees of AFS record time incurred in performing services
on behalf of all of the Companies serviced by AFS. AFS believes that the costs
reimbursed are the lower of (i) actual costs incurred on behalf of the Company
or (ii) the amount the Company would be required to pay independent parties for
comparable administrative services in the same geographic location and are
reimbursable in accordance with the Limited Liability Company Operating
Agreement.
11
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
5. Related party transactions (continued):
AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to
the Limited Liability Company Agreement as follows:
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Selling commissions (equal to 9% of the selling
price of the Limited Liability Company units,
deducted from Other Members' capital) $ 4,799,847 $ 2,723,165 $ 1,751,520 $ 1,556,838
Reimbursement of other syndication costs to
AFS 1,507,753 1,685,674 152,866 1,237,431
Payments (recoveries) of initial direct costs to AFS 586,549 475,458 (68,137) 267,765
Costs reimbursed to AFS 222,833 15,858 108,471 13,859
Reimbursements of other costs initially paid by
AFS on behalf of the Company 169,695 53,348 69,211 45,743
Asset management fees to AFS 131,935 16,656 58,521 10,625
------------------ ------------------ ------------------ ------------------
$ 7,418,612 $ 4,970,159 $ 2,072,452 $ 3,132,261
================== ================== ================== ==================
6. Members' capital:
As of September 30, 2004, 9,793,295 Units were issued and outstanding. The
Company is authorized to issue up to 15,000,050 Units.
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 AFS.
Distributions to the Limited Partners were as follows:
Nine Months Three Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Distributions $ 3,701,629 $ 314,651 $ 1,562,564 $ 278,957
Weighted average number of Units outstanding 6,977,561 1,410,961 8,724,786 2,737,770
Weighted average distributions per Unit $ 0.53 $ 0.22 $ 0.18 $ 0.10
7. Commitments:
As of September 30, 2004, the Company had outstanding commitments to purchase
lease equipment totaling approximately $34,732,000.
12
ATEL CAPITAL EQUIPMENT FUND X, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
8. Financing arrangement:
The Company participates with AFS and certain of its affiliates in a financing
arrangement (comprised of a term loan to AFS, an acquisition facility and a
warehouse facility) with a group of financial institutions that includes certain
financial covenants. The available financing arrangement was amended during the
current quarter and the overall financing arrangement was increased by
$4,300,000 to $70,000,000 and expires in June 2006. The availability of
borrowings available to the Company under this financing arrangement is reduced
by the amount AFS has outstanding as a term loan. As of September 30, 2004
borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 70,000,000
Term loan to AFS as of September 30, 2004 (2,809,091)
------------------
Total available under the acquisition and warehouse facilities 67,190,909
Amount borrowed by the Company under the acquisition facility -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility (14,300,000)
------------------
Total remaining available under the acquisition and warehouse
facilities $ 52,890,909
==================
Subsequent to quarter end the revolving line of credit was increased $5,000,000
to an overall available credit limit of $75,000,000.
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 AFS.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of September 30,
2004.
13
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 nine and three month periods ended September 30, 2004 and 2003, the
Company's primary activities were raising funds through its offering of Limited
Liability Company Units (Units) and engaging in equipment leasing activities.
Through September 30, 2004, the Company had received subscriptions for 9,841,545
Units ($98,415,450). As of September 30, 2004, 9,793,295 Units ($97,932,950)
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
lessees for fixed lease terms at fixed rental amounts. As the initial lease
terms expire the Company will re-lease or sell the equipment. The future
liquidity beyond the contractual minimum rentals will depend on AFS's success in
re-leasing or selling the equipment as it comes off lease.
The Company participates with AFS and certain of its affiliates in a financing
arrangement (comprised of a term loan to AFS, an acquisition facility and a
warehouse facility) with a group of financial institutions that includes certain
financial covenants. The available financing arrangement was amended during the
current quarter and the overall financing arrangement was increased by
$4,300,000 to $70,000,000 and expires in June 2006. The availability of
borrowings available to the Company under this financing arrangement is reduced
by the amount AFS has outstanding as a term loan. As of September 30, 2004
borrowings under the facility were as follows:
Total amount available under the financing arrangement $ 70,000,000
Term loan to AFS as of September 30, 2004 (2,809,091)
------------------
Total available under the acquisition and warehouse facilities 67,190,909
Amount borrowed by the Company under the acquisition facility -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility (14,300,000)
------------------
Total remaining available under the acquisition and warehouse
facilities $ 52,890,909
==================
Subsequent to quarter end the revolving line of credit was increased $5,000,000
to an overall available credit limit of $75,000,000.
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 AFS.
The Company anticipates reinvesting a portion of lease payments from owned
assets on lease in new leasing transactions. Such reinvestment will occur only
after the payment of all obligations, including debt service (both principal and
interest), the payment of management and acquisition fees to AFS and providing
for cash distributions to the members.
The Company currently has available adequate reserves to meet contingencies, but
in the event those reserves were found to be inadequate, the Company would
likely be in a position to borrow against its current portfolio to meet such
requirements. AFS envisions no such requirements for operating purposes.
No commitments of capital have been or are expected to be made other than for
the acquisition of additional equipment. As of September 30, 2004, such
commitments totaled approximately $34,732,000.
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.
14
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
The Company is raising additional capital through its public offering of Units
and is actively acquiring additional lease assets and is investing in additional
notes receivable. As a result, the cash flows of the Company in the three and
nine month periods ended September 30, 2004 and 2003 are not expected to be
comparable.
During the nine and three month periods ended September 30, 2004 and 2003, the
Company's primary source of liquidity was the proceeds of its public offering of
Units.
During the three and nine month periods ended September 30, 2004 and 2003, the
Company's primary source of cash from operating activities was operating lease
rents.
During 2004, sources of cash from investing activities consisted of collections
of amounts due from an affiliate and cash flows from direct financing leases and
notes receivable. In 2003, sources of cash flows from investing activities
consisted of cash flows from direct financing leases. In 2004 and 2003 we used
cash to purchase assets on operating leases and direct financing leases and to
pay initial direct costs to AFS. In 2004, we also used cash to make note
receivable advances.
In 2004 and 2003, financing sources of cash flows consisted solely of the
proceeds of our public offering of Units. We used cash to pay for the costs of
the offering and to make distributions to the Members. In 2004, we also used
cash to repurchase Units from investors and to rescind a purchase of Units.
Results of operations
As of April 9, 2003, 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).
Because of the fact that the initial portfolio acquisitions were not completed
at September 30, 2004, the results of operations in 2004 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.
Operations resulted in a net loss of $22,276 for the nine month period ended
September 30, 2004 and net income of $58,856 for the three month period then
ended. In 2003, operations resulted in a net losses of $170,873 and $103,187 for
the nine and three month periods, respectively. The Company's primary source of
revenues is from operating leases. We expect that operating leases will continue
to be the primary source of revenues and that the amounts earned will increase
as we continue to acquire additional lease assets. Our depreciation expense is
directly related to the assets we have on operating leases. We also expect that
depreciation expense and amortization of initial direct costs will increase in
future periods as we acquire more assets.
Depreciation expense increased from $370,343 for the nine month period ended
September 30, 2003 to $2,297,807 for the comparable period in 2004. For the
three month periods in those years, depreciation expense increased from $249,992
to $908,473. Amortization expense increased from $25,422 for the nine month
period ended September 30, 2003 to $236,315 for the comparable period in 2004.
For the three month periods in those years, amortization expense increased from
$19,728 to $84,124. Under the terms of the Limited Liability Company Operating
Agreement, AFS is entitled certain fees and reimbursements of costs. Asset
management fees for the nine and three month periods ended September 30, 2004
were $131,935 and $58,521, respectively and $16,656 and $10,625 in the
comparable periods in 2003. Costs reimbursements were $222,833 and $108,471 for
the nine and three month periods ended September 30, 2004, respectively. Cost
reimbursements were $15,858 and $13,859 for the comparable periods in 2003.
These am
15
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 will be 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 will be 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 a 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 September 30, 2004, there was no outstanding balance on the floating
interest rate line of credit.
Item 4. Controls and procedures.
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management (ATEL
Financial Services, LLC as Managing Member of the registrant, including the
chief executive officer and chief financial officer), an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures [as defined in Rules 240.13a-14(c) under the Securities Exchange
Act of 1934] was performed as of the date of this report. Based upon this
evaluation, the chief executive officer and the chief financial officer
concluded that, as of the evaluation date, except as noted below, our disclosure
controls and procedures were effective for the purposes of recording,
processing, summarizing, and timely reporting information required to be
disclosed by us in the reports that we file under the Securities Exchange Act of
1934; and that such information is accumulated and communicated to our
management in order to allow timely decisions regarding required disclosure.
As disclosed in the Form 10-K for the year ended December 31, 2003, the chief
executive and chief financial officer of the Managing Member of the Company had
identified certain enhanced controls needed to facilitate a more effective
closing of the Company's financial statements. During the first quarter of 2004
and since the end of the quarter, the Managing Member hired a new controller,
added additional accounting staff personnel, and has instituted or revised
existing procedures in order to ensure that the Company's ability to execute
internal controls in accounting and reconciliation in the closing process is
adequate in all respects. The Managing Member will continue to review its
accounting procedures and practices to determine their effectiveness and
adequacy and will take such steps as deemed necessary in the opinion of the
Managing Member's chief executive and chief financial officers to ensure the
adequacy of the Company's accounting controls and procedures.
The Managing Member's chief executive officer and chief financial officer have
determined that no weakness in financial and accounting controls and procedures
had any material effect on the accuracy and completeness of the Company's
financial reporting and disclosure included in this report.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date nor were there any significant deficiencies or
material weaknesses in our internal controls, except as described in the prior
paragraphs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In the ordinary course of conducting business, there may be certain claims,
suits, and complaints filed against the Company. In the opinion of management,
the outcome of such matters, if any, will not have a material impact on the
Company's financial position or results of operations. No material legal
proceedings are currently pending against the Company or against any of its
assets.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
16
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: March 12, 2003; File Number: 333-100452
(2) Offering commenced: March 12, 2003
(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
September 30, 2004:
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 9,793,245 $97,932,450
(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 $ 1,468,987 $ 7,344,934 $ 8,813,921
Other expenses - 4,020,414 4,020,414
------------------ ------------------ ------------------
Total expenses $ 1,468,987 $11,365,348 $12,834,335
================== ================== ==================
(9) Net offering proceeds to the issuer after the total expenses in item 8: $85,098,115
(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 $ 1,676,920 $26,623,765 $28,300,685
Working capital - 56,797,430 56,797,430
------------------ ------------------ ------------------
$ 1,676,920 $83,421,195 $85,098,115
================== ================== ==================
(11) The use of the proceeds in Item 10 does not represent a material change in
the uses of proceeds described in the prospectus.
17
Item 6. Exhibits.
(a) Documents filed as a part of this report
1. Financial Statement Schedules
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable, and
therefore have been omitted.
2. Other Exhibits
31.1 Certification of Paritosh K. Choksi
31.2 Certification of Dean L. Cash
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K.
Choksi
(b) Report on Form 8-K
None
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:
November 11, 2004
ATEL CAPITAL EQUIPMENT FUND X, LLC
(Registrant)
By: ATEL Financial Services, LLC
Managing Member of Registrant
By: /s/ Dean L. Cash
---------------------
Dean L. Cash
President and Chief Executive Officer
of Managing Member
By: /s/ Paritosh K. Choksi
---------------------------------
Paritosh K. Choksi
Principal Financial Officer
of Registrant
By: /s/ Donald E. Carpenter
---------------------------------
Donald E. Carpenter
Principal Accounting
Officer of Registrant
19