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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 March 31, 2012

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

For the transition period from          to         

Commission File number 000-50210

ATEL Capital Equipment Fund IX, LLC

(Exact name of registrant as specified in its charter)

 
California   94-3375584
(State or other jurisdiction of
Incorporation or organization)
  (I. R. S. Employer
Identification No.)

600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)

Registrant’s telephone number, including area code (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units

Indicate by 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 o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o    Accelerated filer o    Non-accelerated filer o  Smaller reporting company x

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

The number of Limited Liability Company Units outstanding as of April 30, 2012 was 12,055,016.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, March 31, 2012 and December 31, 2011     3  
Statements of Income for the three months ended March 31, 2012 and 2011     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2011 and for the three months ended March 31, 2012     5  
Statements of Cash Flows for the three months ended March 31, 2012 and 2011     6  
Notes to the Financial Statements     7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    21  

Item 4.

Controls and Procedures

    25  

Part II.

Other Information

    26  

Item 1.

Legal Proceedings

    26  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    26  

Item 3.

Defaults Upon Senior Securities

    26  

Item 4.

[Removed and Reserved]

    26  

Item 5.

Other Information

    26  

Item 6.

Exhibits

    26  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
BALANCE SHEETS
  
MARCH 31, 2012 AND DECEMBER 31, 2011
(in thousands)
(Unaudited)

   
  March 31,
2012
  December 31,
2011
ASSETS
                 
Cash and cash equivalents   $     5,892     $     5,593  
Accounts receivable, net of allowance for doubtful accounts of $14 at March 31, 2012 and $70 at December 31, 2011     895       900  
Notes receivable, net of unearned interest income of $215 at March 31, 2012 and $255 at December 31, 2011     1,548       1,721  
Prepaid expenses and other assets     38       36  
Investment in securities     5        
Investments in equipment and leases, net of accumulated depreciation of $41,786 at March 31, 2012 and $41,511 at December 31, 2011     29,877       31,192  
Total assets   $ 38,255     $ 39,442  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 68     $ 76  
Other     499       467  
Deposits due lessees     49       49  
Non-recourse debt     20,416       21,394  
Unearned operating lease income     348       259  
Total liabilities     21,380       22,245  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     16,875       17,197  
Total Members’ capital     16,875       17,197  
Total liabilities and Members’ capital   $ 38,255     $ 39,442  

See accompanying notes.

3


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
STATEMENTS OF INCOME
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011
(in thousands, except per unit data)
(Unaudited)

   
  Three Months Ended
March 31,
     2012   2011
Revenues:
                 
Leasing activities:
                 
Operating leases   $ 2,467     $ 2,287  
Direct financing leases     877       1,137  
Interest on notes receivable     40       71  
Gain on sale of lease assets     195       116  
Unrealized gain on securities     5        
Gain on sale or disposition of securities           42  
Other revenue     46       28  
Total revenues     3,630       3,681  
Expenses:
                 
Depreciation of operating lease assets     931       1,286  
Asset management fees to Managing Member     154       192  
Acquisition expense           (2 ) 
Cost reimbursements to Managing Member     210       227  
Reversal of provision for credit losses     (56 )      (98 ) 
Provision for losses on investment in securities           41  
Amortization of initial direct costs     7       10  
Interest expense     340       406  
Professional fees     55       68  
Outside services     13       10  
Insurance     23       (4 ) 
Marine vessel maintenance and other operating costs     191       203  
Other     126       94  
Total operating expenses     1,994       2,433  
Other (expense) income, net     (3 )      6  
Net income   $ 1,633     $ 1,254  
Net income:
                 
Managing Member   $ 147     $ 147  
Other Members     1,486       1,107  
     $ 1,633     $ 1,254  
Net income per Limited Liability Company Unit (Other Members)   $ 0.12     $ 0.09  
Weighted average number of Units outstanding     12,055,016       12,055,016  

See accompanying notes.

4


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
  
FOR THE YEAR ENDED DECEMBER 31, 2011
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2012
(in thousands, except per unit data)
(Unaudited)

       
  Other Members   Managing
Member
  Total
     Units   Amount
Balance December 31, 2010     12,055,016     $    19,645     $       —     $     19,645  
Distributions to Other Members ($0.60 per Unit)           (7,233 )            (7,233 ) 
Distributions to Managing Member                 (586 )      (586 ) 
Net income           4,785       586       5,371  
Balance December 31, 2011     12,055,016       17,197             17,197  
Distributions to Other Members ($0.15 per Unit)           (1,808 )            (1,808 ) 
Distributions to Managing Member                 (147 )      (147 ) 
Net income           1,486       147       1,633  
Balance March 31, 2012     12,055,016     $ 16,875     $     $ 16,875  

See accompanying notes.

5


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
STATEMENTS OF CASH FLOWS
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011
(in thousands)
(Unaudited)

   
  Three Months Ended
March 31,
     2012   2011
Operating activities:
                 
Net income   $     1,633     $     1,254  
Adjustment to reconcile net income to cash provided by operating activities:
                 
Gain on sales of lease assets     (195 )      (116 ) 
Unrealized gain on securities     (5 )       
Gain on sales or dispositions of securities           (42 ) 
Depreciation of operating lease assets     931       1,286  
Amortization of initial direct costs     7       10  
Reversal of provision for credit losses     (56 )      (98 ) 
Provision for losses on investment in securities           41  
Gain on interest rate swap contracts           (3 ) 
Changes in operating assets and liabilities:
                 
Accounts receivable     61       33  
Prepaid and other assets     (2 )      15  
Accounts payable, Managing Member     (8 )      (39 ) 
Accounts payable, other     32       243  
Deposits due lessees           (41 ) 
Unearned operating lease income     89       142  
Net cash provided by operating activities     2,487       2,685  
Investing activities:
                 
Purchases and improvements to operating leases           (442 ) 
Proceeds from sales of lease assets     254       410  
Proceeds from sales of securities           50  
Payments of initial direct costs           (2 ) 
Payments received on direct finance leases     319       720  
Payments received on notes receivable     172       198  
Net cash provided by investing activities     745       934  
Financing activities:
                 
Repayments under receivables funding program           (178 ) 
Repayments of non-recourse debt     (978 )      (917 ) 
Distributions to Other Members     (1,808 )      (1,808 ) 
Distributions to Managing Member     (147 )      (147 ) 
Net cash used in financing activities     (2,933 )      (3,050 ) 
Net increase in cash and cash equivalents     299       569  
Cash and cash equivalents at beginning of period     5,593       2,782  
Cash and cash equivalents at end of period   $ 5,892     $ 3,351  
Supplemental disclosures of cash flow information:
                 
Cash paid during the period for interest   $ 346     $ 411  
Cash paid during the period for taxes   $ 9     $  

See accompanying notes.

6


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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 engaging in the sale of limited liability company investment units and acquiring equipment to engage in equipment leasing, lending and sales activities, primarily in the United States. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2020. Contributions in the amount of $600 were received as of December 31, 2000, $100 of which represented AFS’s continuing interest, and $500 of which represented the Initial Member’s capital investment.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On February 21, 2001, subscriptions for the minimum number of Units (120,000, representing $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Company. On that date, the Company commenced operations in its primary business. As of April 3, 2001, the Company had received subscriptions for 753,050 Units ($7.5 million), thus exceeding the $7.5 million minimum requirement for Pennsylvania, and AFS requested that the remaining funds in escrow (from Pennsylvania investors) be released to the Company.

As of January 15, 2003, the offering was terminated. As of that date, the Company had received subscriptions for 12,065,266 Units ($120.7 million). Subsequent to January 15, 2003, Units totaling 10,250 were rescinded or repurchased and funds returned to investors (net of distributions paid and allocated syndication costs, as applicable). As of March 31, 2012, 12,055,016 Units remain issued and outstanding.

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

Pursuant to the terms of the Operating Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (Note 6). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

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, 2011, filed with the Securities and Exchange Commission.

2. 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 the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full year.

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no significant impact on the reported financial position or results of operations.

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

7


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after March 31, 2012, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.

Use of estimates:

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

Segment reporting:

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

The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for three months ended March 31, 2012 and 2011 and long-lived tangible assets as of March 31, 2012 and December 31, 2011 (dollars in thousands):

       
  Three Months Ended March 31,
     2012   % of Total   2011   % of Total
Revenue
                                   
United States   $     3,418              94 %    $    3,404               92 % 
United Kingdom     116       3 %      168       5 % 
Canada     96       3 %      109       3 % 
Total international     212       6 %      277       8 % 
Total   $ 3,630       100 %    $ 3,681       100 % 

       
  As of March 31,   As of December 31,
     2012   % of Total   2011   % of Total
Long-lived assets
                                   
United States   $    29,225              97 %    $    30,424               97 % 
United Kingdom     152       1 %      182       1 % 
Canada     500       2 %      586       2 % 
Total international     652       3 %      768       3 % 
Total   $ 29,877       100 %    $ 31,192       100 % 

8


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Investment in securities:

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. There were no impaired securities at March 31, 2012 and December 31, 2011. During the first quarter of 2011, the Company had previously recorded fair value adjustments totaling $41 thousand which reduced the cost basis of certain investments deemed impaired at March 31, 2011. Such investment securities were disposed of during the second quarter of 2011 with minimal gain. There were no investment securities sold or disposed of during the three months ended March 31, 2012 and 2011.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value on the balance sheet at the end of the period, as determined by the Managing Member. At March 31, 2012 and December 31, 2011, the Managing Member estimated the fair value of the warrants to be nominal in amount. There were no gains or losses recognized on the net exercise of warrants during the three months ended March 31, 2012. By comparison, the Company recognized an approximate $42 thousand gain on the net exercise of warrants during the first quarter of 2011.

Other (expense) income, net:

Other (expense) income, net consists of gains and losses on interest rate swap contracts, and gains and losses on foreign exchange transactions. The table below details the Company’s other (expense) income, net for the three months ended March 31, 2012 and 2011 (in thousands):

   
  Three Months
Ended March 31,
     2012   2011
Foreign currency (loss) gain   $         (3 )    $           3  
Change in fair value of interest rate swap contracts           3  
     $ (3 )    $ 6  

Per Unit data:

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

Recent accounting pronouncements:

In May 2011, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in US GAAP. ASU 2011-04 is effective for the first interim or annual reporting period beginning after December 15, 2011 and shall be applied prospectively. The Company adopted the provisions of ASU 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU 2011-04 had no material impact on the Company’s financial position or results of operations.

9


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At March 31, 2012, the original terms of the notes receivable are 36 to 120 months and bear interest at rates ranging from 8.4% to 16.2%. The notes are secured by the equipment financed. The notes mature from 2013 through 2016. There were no impaired notes at March 31, 2012 and December 31, 2011. Likewise, as of the same dates, there were no notes placed in non-accrual status.

As of March 31, 2012, the minimum future payments receivable are as follows (in thousands):

 
Nine months ending December 31, 2012   $       620  
Year ending December 31, 2013     558  
2014     229  
2015     166  
2016     188  
       1,761  
Less: portion representing unearned interest income     (215 ) 
       1,546  
Unamortized initial direct costs     2  
Notes receivable, net   $ 1,548  

Initial direct costs (“IDC”) amortization expense related to the notes receivable and the Company’s operating and direct financing leases for the three months ended March 31, 2012 and 2011 are as follows (in thousands):

   
  Three Months Ended
March 31,
     2012   2011
IDC amortization – notes receivable   $          1     $           1  
IDC amortization – lease assets     6       9  
Total   $ 7     $ 10  

4. Allowance for credit losses:

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

           
  Accounts Receivable Allowance
for Doubtful Accounts
  Valuation Adjustments on
Financing Receivables
  Total
Allowance for
Credit Losses
     Notes
Receivable
  Finance
Leases
  Operating
Leases
  Notes
Receivable
  Finance
Leases
 
Balance December 31, 2010   $       19     $       46     $       174     $       —     $       —     $       239  
Reversal of provision     (19 )      (36 )      (114 )                  (169 ) 
Balance December 31, 2011           10       60                   70  
Reversal of provision           (8 )      (48 )                  (56 ) 
Balance March 31, 2012   $     $ 2     $ 12     $     $     $ 14  

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are currently due to the Company.

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases contracts and notes receivable are applied only against outstanding principal balances.

Financing receivables

In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.

Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

As of March 31, 2012 and December 31, 2011, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):

     
March 31, 2012   Notes Receivable   Finance Leases   Total
Allowance for credit losses:
                          
Ending balance   $       —     $       —     $       —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 1,5481     $ 13,5612     $ 15,109  
Ending balance: individually evaluated for impairment   $ 1,548     $ 13,561     $ 15,109  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
1 Includes $2 of unamortized initial direct costs.
2 Includes $35 of unamortized initial direct costs.

     
December 31, 2011   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $       —     $       —     $        —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 1,7213     $ 13,8914     $ 15,612  
Ending balance: individually evaluated for impairment   $ 1,721     $ 13,891     $ 15,612  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
3 Includes $3 of unamortized initial direct costs.
4 Includes $39 of unamortized initial direct costs.

The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.

Special Mention — Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.

At March 31, 2012 and December 31, 2011, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

       
  Notes Receivable   Finance Leases
     March 31, 2012   December 31, 2011   March 31, 2012   December 31, 2011
Pass   $           547     $           642     $        13,447     $        13,754  
Special mention     999       1,076       79       98  
Substandard                        
Doubtful                        
Total   $ 1,546     $ 1,718     $ 13,526     $ 13,852  

At March 31, 2012 and December 31, 2011, the investment in financing receivables is aged as follows (in thousands):

             
March 31, 2012   30 – 59 Days
Past Due
  60 – 89 Days
Past Due
  Greater Than
90 Days
  Total
Past Due
  Current   Total
Financing
Receivables
  Recorded
Investment>90
Days and
Accruing
Notes receivable   $      —     $      —     $      —     $      —     $    1,546     $    1,546     $        —  
Finance leases                 1       1       13,525       13,526       1  
Total   $     $     $ 1     $ 1     $ 15,071     $ 15,072     $ 1  

             
December 31, 2012   30 – 59 Days
Past Due
  60 – 89 Days
Past Due
  Greater Than
90 Days
  Total
Past Due
  Current   Total
Financing
Receivables
  Recorded
Investment>90
Days and
Accruing
Notes receivable   $      —     $      —     $      —     $      —     $    1,718     $    1,718     $        —  
Finance leases     4             7       11       13,841       13,852       7  
Total   $ 4     $     $ 7     $ 11     $ 15,559     $ 15,570     $ 7  

The Company did not carry an impairment reserve on its financing receivables at both March 31, 2012 and December 31, 2011. As of March 31, 2012 and December 31, 2011, certain investments in financing receivables with related accounts receivable past due more than 90 days are still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable are fully reserved and included in the allowance for doubtful accounts presented above.

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Investment in equipment and leases, net:

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

       
  Balance
December 31,
2011
  Reclassifications,
Additions/
Dispositions and
Impairment
Losses
  Depreciation/
Amortization
Expense or
Amortization
of Leases
  Balance
March 31,
2012
Net investment in operating leases   $     15,657     $         503     $       (931 )    $      15,229  
Net investment in direct financing leases     13,852       (7 )      (319 )      13,526  
Assets held for sale or lease, net     1,628       (555 )            1,073  
Initial direct costs, net of accumulated amortization of $76 at March 31, 2012 and $78 at December 31, 2011     55             (6 )      49  
Total   $ 31,192     $ (59 )    $ (1,256 )    $ 29,877  

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

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. As a result of these reviews, management determined that no impairment losses existed during the respective three months ended March 31, 2012 and 2011.

As of March 31, 2012 and December 31, 2011, there were no lease contracts placed in non-accrual status. As of the same dates, the Company has certain other leases that have related accounts receivables aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved. Management continues to closely monitor these leases for any actual change in collectability status and indication of necessary valuation adjustments.

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment was approximately $931 thousand and $1.3 million for the respective three months ended March 31, 2012 and 2011.

All of the leased property was acquired in years beginning with 2002 through 2010.

Operating leases:

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

       
  Balance
December 31,
2011
  Additions   Reclassifications
or Dispositions
  Balance
March 31,
2012
Transportation, other   $       16,205     $          —     $          —     $       16,205  
Transportation, rail     11,900                   11,900  
Materials handling     9,169             (718 )      8,451  
Marine vessels     7,258                   7,258  
Manufacturing     2,368                   2,368  
Natural gas compressors     1,671                   1,671  
Construction     1,584             1,700       3,284  
Agriculture     1,151                   1,151  
Other     84             (11 )      73  
       51,390             971       52,361  
Less accumulated depreciation     (35,733 )      (931 )      (468 )      (37,132 ) 
Total   $ 15,657     $ (931 )    $ 503     $ 15,229  

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

The average estimated residual value for assets on operating leases was 17% and 18% of the assets’ original cost at March 31, 2012 and December 31, 2011, respectively.

The Company may earn revenues from its containers, marine vessel and certain other assets based on utilization of such assets or a fixed-term lease. Contingent rentals (i.e., short-term, operating charter hire payments) and the associated expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues and totaled $9 thousand and $47 thousand during the respective first quarters of 2012 and 2011.

Direct financing leases:

As of March 31, 2012 and December 31, 2011, investment in direct financing leases primarily consists of mining, materials handling equipment and research equipment. The components of the Company’s investment in direct financing leases as of March 31, 2012 and December 31, 2011 are as follows (in thousands):

   
  March 31,
2012
  December 31,
2011
Total minimum lease payments receivable   $      20,584     $      21,780  
Estimated residual values of leased equipment (unguaranteed)     3,637       3,644  
Investment in direct financing leases     24,221       25,424  
Less unearned income     (10,695 )      (11,572 ) 
Net investment in direct financing leases   $ 13,526     $ 13,852  

There was no investment in direct financing lease assets in non-accrual status at March 31, 2012 and December 31, 2011. However, the Company has certain direct financing leases that have related accounts receivables aged 90 days or more that have not been placed on non-accrual status. In accordance with Company policy, such receivables are fully reserved and included in the allowance for doubtful accounts presented in Note 4.

At March 31, 2012, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

     
  Operating
Leases
  Direct Financing
Leases
  Total
Nine months ending December 31, 2012   $       3,675     $       3,495     $        7,170  
Year ending December 31, 2013     3,347       4,505       7,852  
2014     2,014       4,450       6,464  
2015     1,215       4,450       5,665  
2016     378       3,684       4,062  
2017     350             350  
Thereafter     410             410  
     $ 11,389     $ 20,584     $ 31,973  

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Related party transactions:

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

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

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

Cost reimbursements to the Managing Member are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred. The Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be recovered in future years to the extent of the cumulative limit. As of March 31, 2012, the Company has not exceeded the annual and/or cumulative limitations discussed above.

During the three months ended March 31, 2012 and 2011, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):

   
  Three Months Ended
March 31,
     2012   2011
Costs reimbursed to Managing Member and/or affiliates   $       210     $        227  
Asset management fees to Managing Member and/or affiliates     154       192  
     $ 364     $ 419  

7. Non-recourse debt:

At March 31, 2012, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 6.16% to 6.66%. The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2012, gross operating lease rentals and future payments on direct financing leases totaled approximately $23.3 million over the remaining lease terms; and the carrying value of the pledged assets is $16.8 million. The notes mature from 2015 through 2017.

The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Non-recourse debt: - (continued)

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

     
  Principal   Interest   Total
Nine months ending December 31, 2012   $       3,032     $         939     $         3,971  
Year ending December 31, 2013     4,279       1,015       5,294  
2014     4,568       726       5,294  
2015     4,616       420       5,036  
2016     3,743       133       3,876  
2017     178       1       179  
     $ 20,416     $ 3,234     $ 23,650  

8. Receivable funding program:

Prior to August 2011, the Company had a $60 million receivables funding program (the “RF Program”) with a receivables financing company that issued commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investors Service. Under the RF Program, the lender held liens against the Company’s assets. The lender was in a first position against certain specified assets and was in either a subordinated or shared position against the remaining assets. The RF Program provided for borrowing at a variable interest rate; and, for the Company to enter into interest rate swap agreements with certain hedge counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable interest rate note. The RF Program did not contain any credit risk related default contingencies. As of August 22, 2011, all advances under the RF Program were repaid in full and the program was terminated.

9. Commitments and Contingencies:

At March 31, 2012, the Company had no commitments to purchase lease assets or fund new loans.

Gain Contingency

ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 – 2007 (of which the Company’s portion is an approximate $350 thousand). Such amounts are not considered material to any of the Funds in any given year. While the Funds’ recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge and a new trial date has been set for June of 2012. The outcome of this claim remains uncertain.

10. Guarantees:

The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Members’ capital:

As of March 31, 2012 and December 31, 2011, 12,055,016 Units were issued and outstanding. The Company was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units).

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

As defined in the Operating Agreement, the Company’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Members and 7.5% to AFS. In accordance with the terms of the Operating Agreement, additional allocations of income were made to AFS during three months ended March 31, 2012 and 2011. The amounts allocated were determined to bring AFS’s ending capital account balance to zero at the end of each period.

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

   
  Three Months Ended
March 31,
     2012   2011
Distributions declared   $      1,808     $       1,808  
Weighted average number of Units outstanding     12,055,016       12,055,016  
Weighted average distributions per Unit   $ 0.15     $ 0.15  

12. Fair value measurements:

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

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

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

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

The Company had no assets or liabilities that require measurement at fair value on a recurring or non-recurring basis at March 31, 2012 and December 31, 2011. However, during the first three quarters of 2011, the company did record adjustments to reflect the fair value of impaired assets. Amounts reflected at December 31, 2011 are indicative of the fair value of existing impaired assets as of such date.

The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

The measurement methodologies are as follows:

Impaired operating lease and off-lease equipment

The Company had no fair value adjustments relative to impaired equipment as of March 31, 2012 and December 31, 2011. During the first three quarters of 2011, the Company had recorded fair value adjustments of $65 thousand which reduced the cost basis of certain off-lease equipment deemed impaired at September 30, 2011. The aforementioned fair value adjustments were all non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of such impaired off-lease equipment are classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of the assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.

Impaired investment securities

The Company’s investment securities are not registered for public sale and are carried at cost. The investment securities are adjusted for impairment, if any, based upon factors which include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company had no fair value adjustments relative to impaired investment securities as of March 31, 2012 and December 31, 2011.

During the first three quarters of 2011, the Company had recorded a fair value adjustment of $41 thousand which reduced the cost basis of an investment security deemed impaired at March 31, 2011. The non-recurring fair value adjustment was a result of an approximate 66% reduction in valuation based upon cash payments received in a private transaction whereby the Fund liquidated its warrant position. Such transaction was pursuant to the investee’s acquisition by a third party. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired investment is classified within Level 3 of the valuation hierarchy as the third party’s valuation of the investee included significant inputs that are unobservable in the market.

The following table presents the fair value measurement of assets and liabilities measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2011 (in thousands):

       
  December 31,
2011
  Level 1
Estimated
Fair Value
  Level 2
Estimated
Fair Value
  Level 3
Estimated
Fair Value
Assets measured at fair value on a non-recurring basis:
                                   
Impaired off-lease assets   $        88     $      —     $      —     $      88  

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

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ATEL CAPITAL EQUIPMENT FUND IX, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents

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

Notes receivable

The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for impaired loans as deemed necessary.

Investment in securities

The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.

Non-recourse debt

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

Commitments and Contingencies

Management has determined that the fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.

The following table presents a summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s balance sheet at March 31, 2012 and December 31, 2011 (in thousands):

         
  Fair Value Measurements at March 31, 2012
     Carrying Amount   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $      5,892     $      5,892     $         —     $        —     $       5,892  
Notes receivable, net     1,548                   1,548       1,548  
Investment in securities     5                   5       5  
Financial liabilities:
                                            
Non-recourse debt     20,416                   21,508       21,508  

   
  December 31, 2011
     Carrying
Amount
  Estimated
Fair Value
Financial assets:
                 
Cash and cash equivalents   $     5,593     $      5,593  
Notes receivable, net     1,721       1,721  
Investment in securities            
Financial liabilities:
                 
Non-recourse debt     21,394       22,674  

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

Overview

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

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

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

Results of Operations

The three months ended March 31, 2012 versus the three months ended March 31, 2011

The Company had net income of $1.6 million and $1.3 million for the three months ended March 31, 2012 and 2011, respectively. The results for the first quarter of 2012 reflect a decrease in total operating expenses offset, in part, by a decrease in total revenues when compared to the prior year period.

Revenues

Total revenues for the first quarter of 2012 decreased by $51 thousand, or 1%, as compared to the prior year period. The net reduction in total revenues was primarily a result of decreases in direct financing lease revenues and gain on sale or disposition of investment securities offset, in part, by increases in operating lease revenues and gain on sales of lease assets.

Direct financing lease revenues declined by $260 thousand primarily due to run-off of the portfolio, and the early termination of a direct financing lease contract at the end of the second quarter of 2011. Gain on sale or disposition of securities decreased by $42 thousand as the prior year period included gains from the disposition of warrants relative to certain notes receivable. By comparison, there were no warrants sold or disposed of during the current year period.

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The aforementioned decreases in revenues were partially offset by a $180 thousand increase in operating lease revenues and a $79 thousand increase in gain on sales of lease assets. Operating lease revenues increased largely due to incremental revenue from certain off-lease equipment that were leased in the third quarter of 2011, and higher rental income from the Fund’s vessel which was in drydock status for a portion of the prior year period. Such increases in operating lease revenues were partially offset by the impact of continued run-off and dispositions of lease assets consistent with a Fund in liquidation. Gain on sales of lease assets increased primarily as a result of a period over period increase in volume and a change in the mix of assets sold.

Expenses

Total expenses for the first quarter of 2012 decreased by $439 thousand, or 18%, as compared to the prior year period. The net decline in expenses was primarily due to decreases in depreciation expense, interest expense, provision for losses on investment securities, and management fees paid to AFS offset, in part, by increases in the net provision for credit losses and other expense.

The decrease in depreciation expense totaled $355 thousand and was primarily attributable to run-off and sales of lease assets, and an increase in the number of assets that have been fully depreciated since the first quarter of 2011. Interest expense was reduced by $66 thousand mainly due to an approximate $4.1 million net decrease in outstanding borrowings since March 31, 2011.

Moreover, the provision for losses on investment in securities declined by $41 thousand due to a first quarter 2011 fair value adjustment on an investment as a result of an approximate 66% reduction in valuation as determined by cash payments received in a private transaction whereby the Fund liquidated its warrant position. There were no fair value adjustments on investment securities during the current year period. Finally, management fees paid to AFS decreased by $38 thousand largely due to the continued decline in managed assets and related rents.

Partially offsetting the aforementioned decreases in expenses were increases in the net provision for credit losses and in other expense totaling $42 thousand and $32 thousand, respectively. The net provision for credit losses increased largely due to a period over period decrease in recovery of amounts previously reserved. Other expense increased mainly due to higher management fees paid to a third party manager resulting from increased marine vessel activity, higher state tax and franchise fees, and printing expenses offset, in part, by lower property taxes and storage fees.

Other

The Company recorded other expense, net totaling $3 thousand for the three months ended March 31, 2012 as compared to other income, net of $6 thousand for the three months ended March 31, 2011. The $9 thousand unfavorable variance represents the impact of a $6 thousand unfavorable change in foreign currency translation transactions and the absence of a $3 thousand prior year period gain from the fair valuation of interest rate swap contracts which terminated in August 2011.

The unfavorable change in foreign currency transaction gains and losses was due to the period over period strength of the U.S. currency against the British pound at the time of the transactions. The Company’s foreign currency transactions are primarily denominated in British pounds.

Capital Resources and Liquidity

At March 31, 2012 and December 31, 2011, the Company’s cash and cash equivalents totaled $5.9 million and $5.6 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

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

If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Company’s leased assets may increase as the costs of similar assets increase. However, the Company’s revenues from existing leases would not increase; as such leasing rents and payments are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the lease rates that the Company can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.

The Company currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. AFS envisions no such requirements for operating purposes.

Cash Flows

The following table sets forth summary cash flow data (in thousands):

   
  Three Months Ended
March 31,
     2012   2011
Net cash provided by (used in):
                 
Operating activities   $     2,487     $      2,685  
Investing activities     745       934  
Financing activities     (2,933 )      (3,050 ) 
Net increase in cash and cash equivalents   $ 299     $ 569  

The three months ended March 31, 2012 versus the three months ended March 31, 2011

During the first quarters of 2012 and 2011, the Company’s primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company realized $254 thousand and $460 thousand of proceeds from sales or dispositions of equipment and investment securities during the first quarters of 2012 and 2011, respectively.

During the same periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling a combined $2.0 million for each of the first quarters of 2012 and 2011. Cash was also used to partially pay down $1.0 million and $1.1 million of debt during the respective first quarters of 2012 and 2011; and, to pay invoices related to management fees and expenses. During the first quarter of 2011, the Company used $442 thousand to pay for capitalized improvements on its marine vessel.

Non-Recourse Long-Term Debt

As of March 31, 2012, the Company had non-recourse long-term debt totaling $20.4 million. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.

The Operating Agreement limits aggregate borrowings to 50% of the total cost of equipment. For detailed information on the Company’s non-recourse debt obligation, see Note 7 in Item 1. Financial Statements.

Receivable funding program

Prior to August 2011, the Company had a $60 million receivables funding program (the “RF Program”) with a receivables financing company that issued commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investors Service. Under the RF Program, the lender held liens against the Company’s assets. The lender was in a first

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position against certain specified assets and was in either a subordinated or shared position against the remaining assets. The ability to draw down on the RF Program terminated on July 31, 2008. As of August 22, 2011, all advances under the RF Program were repaid in full and the program was terminated.

Distributions

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2001. The monthly distributions were discontinued in 2010 as the Company entered its liquidation phase. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Manager.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2012, the Company had no commitments to purchase lease assets or fund new loans.

Gain Contingency

ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 – 2007 (of which the Company’s portion is an approximate $350 thousand). Such amounts are not considered material to any of the Funds in any given year. While the Funds’ recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge and a new trial date has been set for June of 2012. The outcome of this claim remains uncertain.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited).

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America 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. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.

The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the Company’s critical accounting policies since December 31, 2011.

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Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

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

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

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

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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.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved].

Item 5. Other Information.

None.

Item 6. Exhibits.

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 Dean L. Cash
31.2 Certification of Paritosh K. Choksi
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

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SIGNATURES

Pursuant to the requirements of 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: May 9, 2012

ATEL CAPITAL EQUIPMENT FUND IX, LLC
(Registrant)

 
    

By:

ATEL Financial Services, LLC
Managing Member of Registrant

 

By:

/s/ Dean L. Cash
Dean L. Cash
President and Chief Executive Officer of
ATEL Financial Services, LLC (Managing Member)

    

By:

/s/ Paritosh K. Choksi
Paritosh K. Choksi
Executive Vice President and Chief Financial Officer and
Chief Operating Officer of ATEL Financial Services, LLC
(Managing Member)

    

By:

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

    

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