UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-K





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


For the year ended December 31, 2010





 ̈
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
(I. R. S. Employerincorporation 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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ̈  No  x





If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934.  Yes  ̈  No x





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 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 ̈No ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ̈            Accelerated filer ̈            Non-accelerated filer ̈            Smaller reporting companyx


(Do not check if a smaller reporting company)




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




State the aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable





State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days.  (See definition of affiliate in Rule 12b-2 of the Exchange Act.)  Not applicable





The number of Limited Liability Company Units outstanding as of February 28, 2011 was 12,055,016.





DOCUMENTS INCORPORATED BY REFERENCE


Prospectus dated January 16, 2001, filed pursuant to Rule 424(b) (Commission File No. 333-47196) is hereby incorporated by reference into Part IV hereof.









PART I





Item 1.  BUSINESS





General Development of Business





ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) 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 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 (acquiring equipment to engage in equipment leasing, lending and sales activities). 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 December 31, 2010, 12,055,016 Units remain issued and outstanding.





The Company’s principal objectives have been 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.





The Company has incurred debt to finance the purchase of a portion of its equipment portfolio. The amount of borrowings in connection with any equipment acquisition transaction is determined by, among other things, the credit of the lease, the terms of the lease, the nature of the equipment and the condition of the money market. There is no limit on the amount of debt that may be incurred in connection with any single acquisition of equipment. However the Company may not incur aggregate outstanding indebtedness in excess of 50% of the total cost of all equipment as of the date of the final commitment of the offering proceeds and, thereafter, as of the date of any subsequent indebtedness is incurred. The Company has borrowed amounts within such maximum debt level in order to fund a portion of its equipment
acquisitions. There can be no assurance that such financing will continue to be available to the Company in the future.





The Company also incurred long-term recourse debt in the form of asset securitization transactions in order to obtain lower interest rates or other more desirable terms than may be available for individual non-recourse debt transactions. In an “asset securitization,” the lender would receive a security interest in a specified pool of “securitized” Company assets or a general lien against all of the otherwise unencumbered assets of the Company. It had been the intention of AFS to use asset securitization primarily to finance assets leased to those credits which, in the opinion of AFS, had a relatively lower potential risk of lease default than those lessees with equipment financed with non-recourse debt. AFS expected that an asset securitization financing would involve borrowing at a variable
interest rate based on an established reference rate, and sought to limit the Company’s exposure to increases in the interest rate by engaging in hedging transactions that would effectively fix the interest rate obligation. As of December 31, 2010 and 2009, the amount of such securitized borrowings was $415 thousand and $2.4 million, respectively.





Pursuant to the terms of the Operating Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Company (See Note 7 to the financial statements included in Item 8 of this report). 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.




2




Narrative Description of Business





The Company has acquired various types of equipment to lease pursuant to “Operating” leases and “High Payout” leases, whereby “Operating” leases are defined as being leases in which the minimum lease payments during the initial lease term do not recover the full cost of the equipment and “High Payout” leases recover at least 90% of such cost. It is the intention of AFS that a majority of the aggregate purchase price of equipment will represent equipment leased under operating leases upon final investment of the net proceeds of the offering and that no more than 20% of the aggregate purchase price of equipment will be invested in equipment acquired from a single manufacturer.





The Company has only purchased equipment under pre-existing leases or for which a lease will be entered into concurrently at the time of the purchase. Through December 31, 2010, the Company had purchased equipment with a total acquisition price of $177.4 million. The Company also had investments in notes receivable of which $2.7 million remained outstanding at December 31, 2010.





The Company’s objective has been to lease a minimum of 75% of the equipment acquired with the net proceeds of the offering to lessees that (i) have an aggregate credit rating by Moody’s Investors Service of Baa or better, or the credit equivalent as determined by AFS, with the aggregate rating weighted to account for the original equipment cost for each item leased or (ii) are established hospitals with histories of profitability or municipalities. The balance of the original equipment portfolio may include equipment leased to lessees which, although deemed creditworthy by AFS, would not satisfy the general credit rating criteria for the portfolio. In excess of 75% of the equipment acquired with the net proceeds of the offering (based on original purchase cost) was originally leased to lessees with an
aggregate credit rating of Baa or better or to such hospitals or municipalities, as described in (ii) above.





During 2010 and 2009, a certain lessee generated significant portions (defined as 10% or more) of the Company’s total leasing and lending revenues as follows:





Percentageof Total

Leasing and Lending RevenuesLessee

Type of Equipment

2010


2009The Sabine Mining Company

Mining


24
%


16
%





These percentages are not expected to be comparable in future periods.





The equipment leasing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an alternative to the purchase of most types of equipment with payment terms that vary widely depending on the lease term, type of equipment and creditworthiness of the lessee. The ability of the Company to keep the equipment leased and/or operating and the terms of the acquisitions, leases and dispositions of equipment depends on various factors (many of which are not in the control of AFS or the Company), such as raw material costs to manufacture equipment as well as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand for various types of equipment resulting from, among other things, technological and economic
obsolescence.





AFS limited the amount invested in equipment to any single lessee to not more than 20% of the aggregate purchase price of equipment owned at any time during the Reinvestment Period.





The business of the Company is not seasonal. The Company has no full time employees. AFS’ employees provide the services the Company requires to effectively operate. The cost of these services is reimbursed by the Company to AFS per the Operating Agreement.





Equipment Leasing Activities





The Company has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries.




3




The following tables set forth the types of equipment acquired by the Company through December 31, 2010 and the industries to which the assets have been leased (dollars in thousands):





Asset Types

Purchase Price

Excluding

Acquisition Fees


Percentage of

Total

AcquisitionsMining equipment

$
45,530



25.67
%Materials handling


35,106



19.79
%Transportation, other


17,169



9.68
%Construction


16,352



9.22
%Aviation


13,644



7.69
%Transportation, rail


13,458



7.59
%Marine vessels


12,841



7.24
%Computers


6,143



3.46
%Logging/Lumber


4,176



2.35
%Manufacturing


4,004



2.26
%Agriculture


1,152



0.65
%Other


7,809



4.40
%$
177,384



100.00
%





Industry of Lessee

Purchase Price

Excluding

Acquisition Fees


Percentage of

Total

AcquisitionsMining

$
44,228



24.93
%Transportation, other


25,960



14.63
%Manufacturing


19,256



10.86
%Electronics


16,926



9.54
%Retail


9,048



5.10
%Oil /Gas


8,709



4.91
%Health services


7,704



4.34
%Communications


7,561



4.26
%Transportation, rail


7,467



4.21
%Wood/Lumber products


7,307



4.12
%Transportation, marine


6,241



3.52
%Construction


5,365



3.02
%Paper products


4,549



2.56
%Other


7,063



4.00
%$
177,384



100.00
%





From inception to December 31, 2010, the Company has disposed of certain leased assets as set forth below (in thousands):




OriginalEquipment CostExcludingAsset Types

Acquisition Fees


Sale Price


Gross RentsMaterials handling

$
18,461


$
2,585


$
19,105Aviation


12,612



9,681



8,575Mining equipment


9,788



4,754



8,584Construction


6,295



2,631



6,179Computers


5,894



745



5,580Manufacturing


2,703



808



2,736Transportation, other


2,242



421



2,271Marine vessels


1,025



-



1,058Transportation, rail


171



125



88Other


4,958



2,209



4,198$
64,149


$
23,959


$
58,374






4




Proceeds from sales of lease assets are not expected to be consistent from one period to another. The Company is a finite life equipment leasing fund, which had acquired leasing transactions during the period ending six years after completion of its public offering. On the termination of leases, assets may be re-leased or sold. Sales of assets are not scheduled and are created by opportunities within the marketplace. The Company sought to acquire and lease a wide variety of assets and to enter into leases on a variety of terms. Some assets will be expected to have little or no value for re-lease or sale upon termination of the initial leases, and the anticipated residual values are a key factor in pricing and terms structured for each lease. The Company’s goal is to seek maximum return on its leased assets. It
will determine when and under what terms to dispose of such assets during the course of its term. As of December 31, 2010 and 2009, the utilization percentage of existing assets under lease was 92% and 83%, respectively.





For further information regarding the Company’s equipment lease portfolio performance, depreciation and impairment experience as of December 31, 2010 and 2009, see Note 6 to the financial statements, Investments in equipment and leases, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.





Notes Receivable Activities





The Company finances a diversified portfolio of assets in diverse industries. The following tables set forth the types of assets financed by the Company through December 31, 2010 and the industries to which the assets have been financed (dollars in thousands):





Asset Types

Amount Financed

Excluding

Acquisition Fees


Percentage of

Total

AcquisitionsComputers

$
3,880



26.81
%Aircraft


2,680



18.52
%Storage facility


2,503



17.29
%Research


1,977



13.66
%Manufacturing


1,083



7.48
%Telecommunications


503



3.48
%Furniture/Fixtures


320



2.21
%Other


1,528



10.55
%$
14,474



100.00
%





Industry of Borrower

Amount Financed

Excluding

Acquisition Fees


Percentage of

Total

AcquisitionsManufacturing

$
4,086



28.23
%Communications


3,360



23.21
%Transportation


2,680



18.52
%Business services


1,911



13.20
%Health services


1,440



9.95
%Waste and recycling


500



3.45
%Electronics


350



2.42
%Industrial machinery


147



1.02
%$
14,474



100.00
%




5




From inception to December 31, 2010, assets financed by the Company that are associated with terminated loans are as follows (in thousands):




Amount FinancedExcluding


Disposition


Total PaymentsAsset Types

Acquisition Fees


Proceeds


ReceivedComputers

$
3,719


$
264


$
3,255Research


1,977



79



1,752Manufacturing


1,083



-



1,127Telecommunications


503



287



374Furniture/Fixtures


320



-



272Other


28



-



20$
7,630


$
630


$
6,800




For further information regarding the Company’s notes receivable portfolio as of December 31, 2010, see Note 4 to the financial statements, Notes receivable, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.





The Company operates in one reportable operating segment in the United States. For further information regarding the Company’s geographic revenues and assets, and major customers, see Notes 2 and 3 to the financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data.





Item 2.  PROPERTIES





The Company does not own or lease any real property, plant or material physical properties other than the equipment held for lease as set forth in Item 1, Business.





Item 3.  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 4.  [RESERVED]




6




PART II





Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Market Information





There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.





Holders





As of December 31, 2010, a total of 3,091 investors were Unitholders of record holders in the Company.





ERISA Valuation





In order to permit ERISA fiduciaries who hold Units to satisfy their annual reporting requirements, AFS estimated the value per Unit of the Company’s assets as of December 31, 2010. AFS calculated the estimated liquidation proceeds that would be realized by the Company, assuming an orderly disposition of all of the Company’s assets as of December 31, 2010. The estimates were based on the amount of remaining lease payments on existing Company leases, and the estimated residual values of the equipment held by the Company upon the termination of those leases. This valuation was based solely on AFS’s perception of market conditions and the types and amounts of the Company’s assets. No independent valuation was sought.





After calculating the aggregate estimated disposition proceeds, AFS then calculated the portion of the aggregate estimated value of the Company assets that would be distributed to Unitholders on liquidation of the Company, and divided the total so distributable by the number of outstanding Units. As of December 31, 2010, the value of the Company’s assets, calculated on this basis, was approximately $3.60 per Unit. The foregoing valuation was performed solely for the ERISA purposes described above. There is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unitholder would receive if he were to seek to sell his Units. Furthermore, there can be no assurance as to the amount the Company may actually receive if and when it seeks to liquidate its assets or the
amount of lease payments and equipment disposition proceeds it will actually receive over the remaining term of the Company.





Distributions





The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement.





AFS has sole discretion in determining the amount of distributions; provided, however, that AFS will not reinvest in equipment, but will distribute, subject to payment of any obligations of the Company, such available cash from operations and cash from sales or refinancing as may be necessary to cause total distributions to the Members for each year during the Reinvestment Period to equal an amount between $0.90 and $1.10 per Unit which will be determined by AFS.





A total of four periodic distributions were paid in 2010. The rate for each distribution was $0.125 per Unit. The rate for monthly distributions from 2009 operations was $0.075 per Unit for the period from January through December 2009. The rate for each of the quarterly distributions paid in 2009 was $0.225 per Unit.





The following table presents summarized information regarding distributions to members other than the Managing Member (“Other Members”):





2010


2009Net income per Unit, based on weighted average Units outstanding

$
0.39


$
0.14Return of investment


0.11



0.76Distributions declared per Unit, based on weighted average Other Member Units outstanding


0.50



0.90Differences due to timing of distributions


-



-Actual distributions paid per Unit

$
0.50


$
0.90





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.




7




Item 6.   SELECTED FINANCIAL DATA





A smaller reporting company is not required to present selected financial data in accordance with item 301(c) of Regulation S-K.





Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





Statements contained in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-K, 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, 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 Fund’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 markets 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-K. 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-K or to reflect the occurrence of unanticipated events, other than as required by law.





Overview
 
 ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) 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 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 Operating Agreement, the Company commenced liquidation phase activities subsequent to the end of the Reinvestment Period which ended on December 31, 2009. Periodic distributions are paid at the discretion of the Managing Member.





Results of Operations





As of December 31, 2010 and 2009, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:





2010


2009Mining


30
%


32
%Manufacturing


21
%


23
%Rail transportation


13
%


12
%Health Care


13
%


*Marine transportation/Transportation, other


12
%


16
%





* Less than 10%




8




During 2010 and 2009, a certain lessee generated significant portions (defined as 10% or more) of the Company’s total leasing and lending revenues as follows:





Percentageof Total

Leasing and Lending RevenuesLessee

Type of Equipment

2010


2009The Sabine Mining Company

Mining


24
%


16
%





These percentages are not expected to be comparable in future periods due to the expiration of lessee contracts during the Fund’s liquidation period which commenced on January 1, 2010.





It is the Company’s objective to maintain a 100% utilization rate for all equipment purchased in any given year. All equipment transactions are acquired subject to binding lease commitments, so equipment utilization is expected to remain high throughout the reinvestment stage. Initial lease terms of these leases are generally from 36 to 120 months, and as they expire, the Company will attempt to re-lease or sell the equipment; as such, utilization rates may tend to decrease during the liquidation stage of the Company. All of the Company’s equipment on lease was acquired in the years 2001 through 2010. The utilization percentage of existing assets under lease was 92% and 83% as of December 31, 2010 and 2009, respectively.





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 total 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 December 31, 2010, the Company has not exceeded the annual and/or cumulative limitations discussed above.





2010 versus 2009





The Company had net income of $5.2 million and $2.6 million for the years ended December 31, 2010 and 2009, respectively. Results for 2010 reflect a decrease in total operating expenses offset, in part, by a decrease in total revenues.





Revenues





Total revenues for 2010 decreased by $873 thousand, or 5%, as compared to the prior year. The net reduction in total revenues was primarily a result of decreases in revenues from operating leases and gain on sales of lease assets partially offset by increases in direct financing lease revenues and other revenue.





The decrease in revenues from operating leases totaled $3.6 million and was primarily attributable to the termination of a significant operating lease which was subsequently renewed as two direct financing leases during the second half of 2009, run-off of the lease portfolio and dispositions of lease assets. Gain on sales of lease assets declined by $791 thousand largely due to a year over year decline in the number of assets and the change in the mix of assets sold.





Partially offsetting the aforementioned decreases in revenues were increases in direct financing lease revenues and other revenue totaling $3.1 million and $447 thousand, respectively. The increase in direct financing lease revenue was primarily attributable to new leases which commenced during the latter half of 2009. Other revenue increased largely due to additional billings for excess wear and tear on returned equipment.





Expenses





Total expenses for 2010 decreased by $3.6 million, or 24%, as compared to the prior year. The net decline in expenses was primarily due to decreases in depreciation expense, impairment losses, professional fees, other expense, asset management fees paid to AFS, costs reimbursed to AFS, and marine vessel maintenance costs offset, in part, by increases in interest expense and acquisition expense.




9




The decrease in depreciation expense totaled $3.1 million and was primarily attributable to run-off and lease asset sales since December 31, 2009. The decrease in impairment losses totaled $693 thousand and was largely due to a higher amount of 2009 adjustments made to certain leased and off-lease lease assets, including material handling equipment, deemed impaired by the Company. During 2009, the secondary market for some material handling equipment deteriorated, and the reduced estimated realizable secondary market values for such items of the Company’s leased and off-lease equipment resulted in the recognition of impairment losses. The Company attributed these market conditions to the continued weak economy and low demand for these types of assets. The Company had consulted with various third party
marketing agents to help determine any necessary residual value adjustments caused by such market conditions. The Company did not consider such impairment to create any concentration of risk in its portfolio based on geographic region, type of asset, customer or industry group. Based on the Fund’s experience during 2010, such magnitude of deterioration appears to have somewhat abated.





Moreover, professional fees decreased by $175 thousand on lower legal fees as the prior year amount included legal expenses relative to the restructuring of certain contracts and other matters. Other expense decreased by $148 thousand largely as a result of lower tax related accruals offset, in part, by higher maintenance costs on certain aging railcars, higher printing and postage costs related to investor communication, and increased vessel storage fees. Asset management fees paid to AFS declined by $112 thousand, due to a year over year decrease in managed assets and related rents.





In addition, costs reimbursed to AFS declined by $93 thousand largely as a result of the resolution of certain items previously held in suspense; and, marine vessel maintenance costs decreased by $80 thousand largely due to prior year incremental costs incurred to prepare the vessel for a new lessee.





The aforementioned decreases in expenses were partially offset by increases in interest expense and acquisition expense totaling $803 thousand and $69 thousand, respectively. The increase in interest expense was largely as a result of higher non-recourse debt balance as approximately $24.9 million of new non-recourse debt was utilized during the latter half of 2009 to refurbish certain existing lease assets which were subsequently re-leased as direct financing leases. Acquisition expense increased as a result of significantly higher lease asset purchase activity during 2010 as compared to the prior year as certain lease purchase commitments at year-end 2009 were funded during the current year.





Other





The Company recorded other income, net totaling $64 thousand and $164 thousand for the years ended December 31, 2010 and 2009, respectively. The $100 thousand unfavorable variance was a result of a $24 thousand favorable change in foreign currency transaction gains and losses recognized during the current year, and a $124 thousand unfavorable change in the fair value of the Company’s interest rate swap contracts.





The favorable change in foreign currency transaction gains and losses was largely due to the year over year weakness 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. The decline in the value of the interest rate swaps was mostly driven by the lower interest rate environment, which adversely impacts the Company as the fixed rate payer in the swap contracts.





Capital Resources and Liquidity





At December 31, 2010 and 2009, the Company’s cash and cash equivalents totaled $2.8 million and $10.2 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.





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.





In a normal economy, 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.




10




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):





December 31,2010


2009Net cash provided by (used in):Operating activities

$
5,170


$
9,662Investing activities


4,422



(6,119
)Financing activities


(16,999
)


4,504Net (decrease) increase in cash and cash equivalents

$
(7,407
)

$
8,047





Operating Activities





Cash provided by operating activities during 2010 decreased by $4.5 million as compared to the prior year. The net decrease in cash flow was mainly attributable to the year over year reduction in depreciation of lease assets, increased amortization of unearned income on direct financing leases and notes receivable funded during the latter half of 2009, lower liabilities, and higher receivables offset, in part, by a decline in amortization of unearned rents as prepaid rents received during the current year declined as compared to 2009.





The lower level of liabilities was largely attributable to the 2010 application of prior year customer overpayments, which was held in a liability account, to their open receivable balances combined with higher 2010 payments made on marine vessel related costs. The higher receivables balance was largely a result of increased billings accrued at year-end 2010.





Investing Activities





Net cash provided by investing activities during 2010 totaled $4.4 million as compared to net cash used in investing activities totaling $6.1 million during the prior year, an increase of $10.5 million. The net increase in cash flow reflects a decrease in cash used to purchase lease assets as well as increases in payments received on direct financing lease and notes receivable offset, in part, by a reduction in proceeds from sales of lease assets and increased cash used to fund loans.





The year over year net decrease in cash used to purchase lease assets improved cash flow by $9.7 million. During 2009, approximately $13.5 million was used to refurbish existing assets relative to new direct financing leases and to purchase new lease assets, as compared to $3.8 million of cash used to purchase lease assets during 2010. The increase in payments received on direct financing leases further improved cash flow by $3.2 million as cash flow was realized from new direct financing leases which commenced during the second half of 2009. Likewise, the increase in payments received on notes receivable improved cash flow by $330 thousand. Such increase was due to loans funded at the end of 2009.





The aforementioned increases in cash flow was partially offset by a $2.1 million decrease in proceeds from sales of lease assets, which decreased due to the decline in the number of assets and the change in the mix of assets sold, and a $661 thousand increase in funding of new loans.





Financing Activities





Net cash used in financing activities during 2010 increased by $21.5 million as compared to the prior year. The increased use of cash (decrease in cash flow) was primarily a result of a decline in net borrowing activity, and the payment of amounts due to certain affiliates offset, in part, by a reduction in distributions paid to Unitholders.




11




The decline in net borrowing activity totaled $21.7 million and was comprised of a $28.9 million decrease in cash flow resulting from the absence of Company borrowings during the current year offset, in part, by a $7.2 million net reduction in repayments. During the prior year, the Company had approximately $24.9 million of new non-recourse debt related to the refurbishment and re-leasing of certain existing assets. Moreover, cash flow was reduced by the payment of an approximate $3.7 million settlement related to a December 31, 2009 reassignment of operating lease assets and investments in notes receivables from certain affiliates.





Partially offsetting the aforementioned decreases in cash flow was an increase of $3.9 million resulting from a year over year reduction in distributions paid to both Other Members and the Managing Member. Such distributions were based on cash available, net of any short-term payables and reserves as determined by the Managing Member.





Revolving credit facility





On December 30, 2009, the Company’s participation in a revolving credit facility with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.





Prior to December 30, 2009, the Company participated with AFS and certain of its affiliates in a revolving credit facility comprised of a working capital facility to AFS, an acquisition facility and a warehouse facility to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions.





Receivable funding program





As of December 31, 2010, the Company had amounts outstanding under 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 Investor Services. Under the RF Program, the lender holds liens against the Company’s assets. The lender is in a first position against certain specified assets and is 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, and the RF Program matures in August 2011 at which time advances under the RF Program are to be repaid in full.





Compliance with covenants





The RF Program includes certain financial and non-financial covenants applicable to the Company as borrower. Such covenants include covenants typically found in credit facilities of the size and nature of the RF Program, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all covenants under the RF Program as of December 31, 2010. The Company considers certain financial covenants to be material to its ongoing use of the RF Program and these covenants are described below.





Material financial covenants





Under the RF Program, the Company is required to maintain a specific tangible net worth and leverage ratio, and to comply with other terms expressed in the RF Program, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies. The material financial covenants are summarized as follows:





Minimum Tangible Net Worth:  $15 million


Leverage Ratio (leverage to Tangible Net Worth):  not to exceed 2.00 to 1





“Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under GAAP, and after certain other adjustments permitted under the agreements.





The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the RF Program. As of December 31, 2010, the Company’s Tangible Net Worth requirement was $15 million, and the permitted maximum leverage ratio under the RF Program was 2.00 to 1. The Company was in compliance with each of these financial covenants with a minimum Tangible Net Worth and leverage ratio of $19.7 million and 1.30 to 1, respectively, as of December 31, 2010. As such, as of December 31, 2010, the Company was in compliance with all such material financial covenants.




12




Events of default, cross-defaults, recourse and security





The terms of the RF Program include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the RF Program should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Company’s request.





The Company is currently in compliance with its obligations under the RF Program. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.





Non-Recourse Long-Term Debt





As of December 31, 2010, the Company had non-recourse long-term debt totaling $25.2 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 debt obligations, see Notes 8 to 10 to the financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data.





Distributions





The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2001. See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities, for additional information regarding the distributions.





Other





Due to the April 2009 bankruptcy of a major lessee, Chrysler Corporation, the Company, in accordance with its accounting policy for allowance for doubtful accounts, has placed all operating leases with Chrysler on non-accrual status pending resumption of recurring payment activity. As a result, the Company, in accordance with its accounting policy for delinquent operating leases, has reversed the billed but not yet paid amounts, and placed each of these respective operating leases on a non-accrual and cash basis pending resumption of recurring payment activity. The Company also considered the equipment underlying the lease contracts for impairment and believes that such equipment is not impaired as of December 31, 2010.





At December 31, 2010, the net book value of such equipment was approximately $306 thousand. Such investment in Chrysler represents the total net investment in equipment underlying lease contracts placed on a cash basis as of December 31, 2010. As of the same date, management has concluded that the status of these leases will not have a material impact on either of the Company’s capital resources or liquidity. At December 31, 2009, the total net investment in equipment underlying lease contracts placed on a cash basis totaled $557 thousand, of which $546 thousand was related to Chrysler.





At December 31, 2010 and 2009, the Company has certain other leases that have related 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.




13




Commitments and Contingencies and Off-Balance Sheet Transactions





Commitments and Contingencies





At December 31, 2010, the Company had no commitments to purchase lease assets.





Gain Contingency





ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATEL’s plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Company’s portion approximates $350 thousand, of under-remitted revenues from marine vessel leasing covering years 2005-2007. 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. Court proceedings are scheduled to commence during March 2011 and the outcome, either via negotiation or court mandate, is currently indeterminable.





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 II, Item 8, Financial Statements and Supplementary Data.





Critical Accounting Policies and Estimates





The policies discussed below are considered by management of the Company to be critical to an understanding of the Company’s financial statements because their application requires significantly complex or subjective judgments, decisions, or assessments, with financial reporting results relying on estimation about the effect of matters that are inherently uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. The Company also states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and analysis. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.


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.




14




Equipment on operating leases and related revenue recognition:





Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.





Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.





Operating leases 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 considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, all payments received are applied only against outstanding principal balances.





The Company earns revenues from its marine vessel based on charter utilization of the vessel or a fixed term lease. When the vessel is chartered, contingent rentals and the associated expenses are recorded when earned and/or incurred. From time to time, the Company incurs “drydocking” costs on its vessel. Drydocking costs include labor and material costs related to refurbishing, overhauling and/or replacing engine and other major mechanical components of the vessel, hull maintenance and other repairs that bring the vessel into seaworthy compliance with U.S. marine codes in order to have it certified as available for charter. Such drydocking costs are capitalized and added to the equipment cost and depreciated over the period between scheduled
drydockings, which generally occur every 24 to 30 months.




Direct financing leases and related revenue recognition:





Income from direct financing lease transactions is reported using the financing method of accounting, in which the Company’s investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.





Allowances for losses on direct financing leases are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are charged off to the allowance as they are deemed uncollectible.





Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) and deemed impaired when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related direct financing leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, all payments received are applied only against outstanding principal balances.





Notes receivable, unearned interest income and related revenue recognition:





The Company records all future payments of principal and interest on notes as notes receivable which is then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.




Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. 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 payments 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 written off to the allowance for losses as they are deemed uncollectible.




15





Notes 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 note payments outstanding less than 90 days. Based upon management’s judgment, notes may be placed in a non-accrual status. 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, all payments received are applied only against outstanding principal balances.





Initial direct costs:





The Company capitalizes initial direct costs (“IDC”) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual contract term using a straight-line method for operating leases and the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease or loan assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible
for capitalization as initial direct costs and are expensed as acquisition expense.





Asset valuation:





Recorded values of the Company’s leased asset portfolio are periodically reviewed for impairment. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their 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 assets and its carrying value on the measurement date.





Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 17 through 41.




16


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Members


ATEL Capital Equipment Fund IX, LLC





We have audited the accompanying balance sheets of ATEL Capital Equipment Fund IX, LLC (the “Company”) as of December 31, 2010 and 2009, and the related statements of income, changes in members’ capital, and cash flows for the years then ended. These financial statements are the responsibility of the Management of the Company’s Managing Member. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL Capital Equipment Fund IX, LLC as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.





/s/ Moss Adams LLP





San Francisco, California


March 22, 2011




17




ATEL CAPITAL EQUIPMENT FUND IX, LLC





BALANCE SHEETS





DECEMBER 31, 2010 AND 2009


(In Thousands)





2010


2009ASSETSCash and cash equivalents

$
2,782


$
10,189Accounts receivable, net of allowance for doubtful accounts of $239 at December 31, 2010 and $275 at December 31, 2009


1,001



814Notes receivable, net of unearned interest income of $515 at December 31, 2010 and $653 at December 31, 2009


2,712



2,628Prepaid expenses and other assets


39



46Investment in securities


70



70Investments in equipment and leases, net of accumulated depreciation of $42,468 at December 31, 2010 and $45,823 at December 31, 2009


40,095



45,466Total assets

$
46,699


$
59,213LIABILITIES AND MEMBERS’ CAPITALAccounts payable and accrued liabilities:Managing Member

$
82


$
325Due to affiliates


-



3,595Accrued distributions to Other Members


-



1,209Other


893



1,340Deposits due lessees


90



90Non-recourse debt


25,150



28,663Interest rate swap contracts


5



53Receivables funding program obligation


415



2,405Unearned operating lease income


419



585Total liabilities


27,054



38,265Commitments and contingenciesMembers’ capital:Managing Member


-



-Other Members


19,645



20,948Total Members’ capital


19,645



20,948Total liabilities and Members’ capital

$
46,699


$
59,213





See accompanying notes.




18




ATEL CAPITAL EQUIPMENT FUND IX, LLC





STATEMENTS OF INCOME





FOR THE YEARS ENDED


DECEMBER 31, 2010 AND 2009


(In Thousands Except for Units and Per Unit Data)





2010


2009Revenues:Leasing activities:Operating leases

$
10,402


$
14,050Direct financing leases


4,994



1,933Interest on notes receivable


261



203Gain on sales of assets


559



1,350Other revenue


506



59Total revenues


16,722



17,595Expenses:Depreciation of operating lease assets


6,242



9,295Asset management fees to Managing Member


723



835Acquisition expense


195



126Cost reimbursements to Managing Member


577



670Provision for credit losses


128



175Impairment losses


353



1,046Amortization of initial direct costs


84



143Other management fees


106



79Interest expense


1,823



1,020Professional fees


188



363Outside services


62



102Insurance


120



88Marine vessel maintenance and other operating costs


719



799Other


253



401Total operating expenses


11,573



15,142Other income, net


64



164Net income

$
5,213


$
2,617Net income:Managing Member

$
489


$
880Other Members


4,724



1,737$
5,213


$
2,617Net income per Limited Liability Company Unit (Other Members)

$
0.39


$
0.14Weighted average number of Units outstanding


12,055,016



12,055,016





See accompanying notes.




19




ATEL CAPITAL EQUIPMENT FUND IX, LLC





STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL





FOR THE YEARS ENDED


DECEMBER 31, 2010 AND 2009


(In Thousands Except for Units and Per Unit Data)





Other Members


ManagingUnits


Amount


Member


TotalBalance December 31, 2008


12,055,016


$
30,060


$
-


$
30,060Distributions to Other Members ($0.90 per Unit)


-



(10,849
)


-



(10,849
)Distributions to Managing Member


-



-



(880
)


(880
)Net income


-



1,737



880



2,617Balance December 31, 2009


12,055,016



20,948



-



20,948Distributions to Other Members ($0.50 per Unit)


-



(6,027
)


-



(6,027
)Distributions to Managing Member


-



-



(489
)


(489
)Net income


-



4,724



489



5,213Balance December 31, 2010


12,055,016


$
19,645


$
-


$
19,645





See accompanying notes.




20




ATEL CAPITAL EQUIPMENT FUND IX, LLC


STATEMENTS OF CASH FLOWS


FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009


(In Thousands)





2010


2009Operating activities:Net income

$
5,213


$
2,617Adjustment to reconcile net income to cash provided by operating activities:Gain on sales of lease assets


(559
)


(1,350
)Depreciation of operating lease assets


6,242



9,295Amortization of initial direct costs


84



143Amortization of unearned income on direct financing leases


(4,994
)


(1,933
)Amortization of unearned income on notes receivable


(261
)


(203
)Provision for credit losses


128



175Impairment losses


353



1,046Gain on interest rate swap contracts


(48
)


(172
)Changes in operating assets and liabilities:Accounts receivable


(315
)


(33
)Prepaid and other assets


7



5Accounts payable, Managing Member


(146
)


153Accounts payable, affiliates


79



8Accounts payable, other


(447
)


318Deposits due lessees


-



(39
)Unearned operating lease income


(166
)


(368
)Net cash provided by operating activities


5,170



9,662Investing activities:Purchases of equipment on operating leases


(3,784
)


(2,125
)Purchases of equipment on direct financing leases


-



(11,359
)Proceeds from sales of lease assets


1,667



3,766Payments of initial direct costs


(13
)


(97
)Payments received on direct financing leases


6,372



3,185Notes receivable advances


(661
)


-Payments received on notes receivable


841



511Net cash provided by (used in) investing activities


4,422



(6,119
)Financing activities:Borrowings under acquisition facility


-



4,000Repayments under acquisition facility


-



(6,000
)Repayments under receivables funding program


(1,990
)


(5,604
)Proceeds of non-recourse debt


-



24,877Repayments of non-recourse debt


(3,513
)


(1,040
)Repayments of amount due to affiliates


(3,674
)


-Distributions to Other Members


(7,236
)


(10,849
)Distributions to Managing Member


(586
)


(880
)Net cash (used in) provided by financing activities


(16,999
)


4,504Net (decrease) increase in cash and cash equivalents


(7,407
)


8,047Cash and cash equivalents at beginning of year


10,189



2,142Cash and cash equivalents at end of year

$
2,782


$
10,189Supplemental disclosures of cash flow information:Cash paid during the year for interest

$
1,784


$
964Cash paid during the year for taxes

$
90


$
196Schedule of non-cash transactions:Transfer of operating lease assets from affiliates

$
-


$
2,674Transfer of investments in notes receivable from affiliates

$
-


$
1,000Distributions payable to Other Members at year end

$
-


$
1,209





See accompanying notes.




21




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





1.  Organization and Limited Liability Company matters:





ATEL Capital Equipment Fund IX, LLC (the “Company” or the “Fund”) 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 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 (acquiring equipment to engage in equipment leasing, lending and sales activities). 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 December 31, 2010, 12,055,016 Units remain issued and outstanding.





The Company’s principal objectives have been 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 and reimbursements for services rendered on behalf of the Company (See Note 7). 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.





2.  Summary of significant accounting policies:





Basis of presentation:





The accompanying balance sheets as of December 31, 2010 and 2009, and the related statements of income, changes in members’ capital, and cash flows for the years then ended, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission. Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on capital or net income.





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





In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after December 31, 2010, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.


22


ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):





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.





Cash and cash equivalents:





Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.





Credit risk:





Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating and direct financing lease receivables, notes receivable and accounts receivable. The Company places the majority of its cash deposits and temporary cash investments in U.S. Treasury denominated instruments with the remainder placed in financial institutions with no less than $10 billion in assets, so as to meet ongoing working capital requirements. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts and notes receivable represent amounts due from lessees or borrowers in various industries, related to equipment on operating and direct financing leases or notes receivable.





Accounts receivable:





Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are due to the Company. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and invoiced amounts. Accounts receivable deemed uncollectible are charged off to the allowance on specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.





Equipment on operating leases and related revenue recognition:





Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.





Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.





Operating leases 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 considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, all payments received are applied only against outstanding principal balances.




23




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):




The Company earns revenues from its marine vessel based on charter utilization of the vessel or a fixed term lease. When the vessel is chartered, contingent rentals and the associated expenses are recorded when earned and/or incurred. From time to time, the Company incurs “drydocking” costs on its vessel. Drydocking costs include labor and material costs related to refurbishing, overhauling and/or replacing engine and other major mechanical components of the vessel, hull maintenance and other repairs that bring the vessel into seaworthy compliance with U.S. marine codes in order to have it certified as available for charter. Such
drydocking costs are capitalized and added to the equipment cost and depreciated over the period between scheduled drydockings, which generally occur every 24 to 30 months.


Direct financing leases and related revenue recognition:





Income from direct financing lease transactions is reported using the financing method of accounting, in which the Company’s investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.





Allowances for losses on direct financing leases are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are charged off to the allowance as they are deemed uncollectible.





Direct financing leases are generally placed in a non-accrual status (i.e., no revenue is recognized) and deemed impaired when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related direct financing leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, all payments received are applied only against outstanding principal balances.





Notes receivable, unearned interest income and related revenue recognition:





The Company records all future payments of principal and interest on notes as notes receivable which is then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.





Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. Notes are considered impaired when, based on current information and events, it is probably 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 payments 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 for losses as they are deemed uncollectible.





Notes 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 note payments outstanding less than 90 days. Based upon management’s judgment, notes may be placed in a non-accrual status. 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, all payments received are applied only against outstanding principal balances.




24




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):





Initial direct costs:





The Company capitalizes initial direct costs (“IDC”) associated with the origination and funding of lease assets and investments in notes receivable. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease and loan originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease (or note by note) basis based on actual contract term using a straight-line method for operating leases and the effective interest rate method for direct financing leases and notes receivable. Upon disposal of the underlying lease or loan assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible
for capitalization as initial direct costs and are expensed as acquisition expense.





Acquisition expense:





Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.





Asset valuation:





Recorded values of the Company’s leased asset portfolio are periodically reviewed for impairment. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their 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.





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 Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around
geographic areas.




25




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):





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 the years ended December 31, 2010 and 2009 and long-lived assets as of December 31, 2010 and 2009 (dollars in thousands):





For the year ended December 31,2010


% of Total


2009


% of TotalRevenueUnited States

$
15,517



92
%

$
15,889



90
%United Kingdom


768



5
%


1,330



8
%Canada


437



3
%


376



2
%Total International


1,205



8
%


1,706



10
%Total

$
16,722



100
%

$
17,595



100
%





As of December 31,2010


% of Total


2009


% of TotalLong-lived assetsUnited States

$
38,238



96
%

$
42,552



94
%United Kingdom


907



2
%


1,532



3
%Canada


950



2
%


1,382



3
%Total International


1,857



4
%


2,914



6
%Total

$
40,095



100
%

$
45,466



100
%





Derivative financial instruments:





The Company records all derivatives as either assets or liabilities in the balance sheet, measures those instruments at fair value and recognizes the offsetting gains or losses as adjustments to net income (loss). Credit exposure from derivative financial instruments that are assets arises from the risk of a counterparty default on the derivative contract. The amount of the loss created by the default is the replacement cost or current positive fair value of the defaulted contract.





Foreign currency transactions:





Foreign currency transaction gains and losses are reported in the results of operations as “other income” or “other expense” in the period in which they occur. Currently, the Company does not use derivative instruments to hedge its economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions risks to date have not been significant. During the years ended December 31, 2010 and 2009, the Company recognized foreign currency gains totaling $16 thousand and foreign currency losses totaling $8 thousand, respectively, which are included in other income, net for each of the reporting years.





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. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. Accordingly, such
investment is stated at cost at December 31, 2010 and 2009.




26


ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):





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 December 31, 2010 and 2009, the Managing Member estimated the fair value of the warrants to be nominal in amount.





Unearned operating lease income:





The Company records prepayments on operating leases as a liability, unearned operating lease income.  The liability is recorded when the prepayments are received and recognized as operating lease revenue ratably over the period to which the prepayments relate.





Income taxes:





The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Company has provided current income taxes for only those states which levy income taxes on partnerships. For the years ended December 31, 2010 and 2009, the related provision for state income taxes was approximately $50 thousand and $272 thousand, respectively. The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is generally subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of a tax return.





The tax bases of the Company’s net assets and liabilities vary from the amounts presented in these financial statements at December 31, 2010 and 2009 (in thousands):





2010


2009Financial statement basis of net assets

$
19,645


$
20,948Tax basis of net assets (unaudited)


17,611



20,971Difference

$
2,034


$
(23
)





The primary differences between the tax bases of net assets and the amounts recorded in the financial statements are the result of differences in accounting for syndication costs and differences between the depreciation methods used in the financial statements and the Company’s tax returns.





The following reconciles the net income reported in these financial statements to the income reported on the Company’s federal tax return (unaudited) for each of the years ended December 31, 2010 and 2009 (in thousands):





2010


2009Net income per financial statements

$
5,213


$
2,617Tax adjustments (unaudited):Adjustment to depreciation expense


(3,441
)


604Provision for losses and doubtful accounts


(36
)


175Adjustments to revenues / other expenses


1,201



986Adjustments to gain on sales of assets


2,150



(320
)Other


(624
)


824Income per federal tax return (unaudited)

$
4,463


$
4,886




27




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





2.  Summary of significant accounting policies (continued):





Other income, net:





Other 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 income, net for the years ended December 31, 2010 and 2009 (in thousands):





2010


2009Foreign currency gain (loss)

$
16


$
(8
)Change in fair value of interest rate swap contracts


48



172$
64


$
164





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 January 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods
ending after June 15, 2011. The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations.
 
 In July 2010, the FASB issued ASU No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 requires entities to provide disclosures designed to facilitate financial statement users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowance for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses, and class of financing receivable, which is generally a disaggregation of portfolio
segment. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. ASU 2010-20 is effective as of December 31, 2010, as it relates to disclosures required as of the end of a reporting period. Disclosures that relate to activity during a reporting period will be required for the Company’s financial statements that include periods beginning on or after December 15, 2010. The adoption of this ASU did not have a material effect on the Company’s financial position or results of operations; however, it did add additional disclosures which have been included in Notes 2 and 5.
 
 In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosure about Fair Value Measurement.” ASU 2010-06 requires additional disclosures related to recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements, and information on purchases, sales, issuances, and settlements in a rollforward reconciliation of Level 3 fair-value measurements. Except for the Level 3 reconciliation disclosures, which are effective for fiscal years beginning after December 15, 2010, the guidance became effective for the Company beginning January 1, 2010 and was adopted during the first quarter of 2010 with no impact on the Company’s financial position, results of operations or cash flows.




28




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





3.  Concentration of credit risk and major customers:





The Company leases equipment to lessees and provides debt financing to borrowers in diversified industries. Leases and notes receivable are subject to AFS’s credit committee review. The leases and notes receivable provide for the return of the equipment to the Company upon default.





As of December 31, 2010 and 2009, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:





2010


2009Mining


30
%


32
%Manufacturing


21
%


23
%Rail transportation


13
%


12
%Health Care


13
%


*Marine transportation/Transportation, other


12
%


16
%





* Less than 10%





During 2010 and 2009, a certain lessee generated significant portions (defined as 10% or more) of the Company’s total leasing and lending revenues as follows:




Percentageof Total

Leasing and Lending RevenuesLessee

Type of Equipment

2010


2009The Sabine Mining Company

Mining


24
%


16
%





4.  Notes receivable, net:





The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At December 31, 2010, 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 neither impaired notes nor notes placed in non-accrual status as of December 31, 2010 and 2009. As of December 31, 2010, the minimum future payments receivable are as follows (in thousands):





Year ending December 31, 2011

$
1,0582012


1,0212013


5582014


229Thereafter


3553,221Less: portion representing unearned interest income


(515
)2,706Unamortized indirect costs


6Notes receivable, net

$
2,712





IDC amortization expense related to notes receivable and the Company’s operating and direct financing leases for the years ended December 31, 2010 and 2009 are as follows (in thousands):





2010


2009IDC amortization - notes receivable

$
4


$
2IDC amortization - lease assets


80



141Total

$
84


$
143




29




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





5.  Provision for credit losses:





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





Allowance for

Doubtful

AccountsBalance January 1, 2009

$
100Provision


175Balance December 31, 2009


275Provision


128Charge-offs and/or recoveries


(164
)Balance December 31, 2010

$
239





At December 31, 2010 and 2009, the allowance for doubtful accounts represents reserves against financing receivables as well as operating lease receivables.





For the year ended December 31, 2010, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded net investment in financing receivables were as follows (in thousands):





NotesReceivable


Finance Leases


TotalAllowance for credit losses:Ending balance, December 31, 2010

$
-


$
-


$
-Ending balance: individually evaluated for impairment

$
-


$
-


$
-Ending balance: collectively evaluated for impairment

$
-


$
-


$
-Ending balance: loans acquired with deteriorated credit quality

$
-


$
-


$
-Financing receivables, net:Ending balance, December 31, 2010

$
2,712
1

$
17,288
2

$
20,000Ending balance: individually evaluated for impairment

$
2,712


$
17,288


$
20,000Ending balance: collectively evaluated for impairment

$
-


$
-


$
-Ending balance: loans acquired with deteriorated credit quality

$
-


$
-


$
-





1 Includes $6 of unamortized initial direct costs.


2 Includes $56 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.




30




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





5.  Provision for credit losses (continued):





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.





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 December 31, 2010, 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


FinanceReceivable


Leases2010


2010Pass

$
1,339


$
16,982Special mention


1,367



250Substandard


-



-Doubtful


-



-Total

$
2,706


$
17,232





At December 31, 2010, the net investment in financing receivables is aged as follows (in thousands):





RecordedGreater








Total


Investment>30-59 Days


60-89 Days


Than 90


Total Past





Financing


90 Days andPast Due


Past Due


Days


Due


Current


Receivables


AccruingNotes receivable

$
-


$
-


$
-


$
-


$
2,706


$
2,706


$
-Finance leases


3



2



54



59



17,173



17,232



-Total

$
3


$
2


$
54


$
59


$
19,879


$
19,938


$
-





The Company did not carry an impairment reserve on its financing receivables at both December 31, 2010 and 2009. Accounts receivable related to net investments in financing receivables 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.




31




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





6.  Investment in equipment and leases, net:





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





Reclassifications,


Depreciation/Additions /


AmortizationBalance


Dispositions and


Expense or


BalanceDecember 31,


Impairment


Amortization


December 31,2009


Losses


of Leases


2010Net investment in operating leases

$
25,997


$
1,649


$
(6,220
)

$
21,426Net investment in direct financing leases


18,444



167



(1,379
)


17,232Assets held for sale or lease, net


862



509



(22
)


1,349Initial direct costs, net of accumulated amortization of $86 and $467 at December 31, 2010 and 2009, respectively


163



5



(80
)


88Total

$
45,466


$
2,330


$
(7,701
)

$
40,095





For the years ended December 31, 2010 and 2009, IDC amortization expense related to operating leases and direct financing leases was $80 thousand and $141 thousand, respectively (See Note 4).





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. In both 2010 and 2009, the Company deemed certain operating lease and off-lease assets to be impaired. Accordingly, the Company recorded fair value adjustments of approximately $353 thousand and $1.0 million for the years ended December 31, 2010 and 2009, respectively, which reduced the cost basis of the assets.





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 and impairment losses on the Company’s equipment for the years ended December 31, 2010 and 2009 are as follows (in thousands):





2010


2009Depreciation of operating lease assets

$
6,242


$
9,295Impairment losses


353



1,046Total

$
6,595


$
10,341





All of the leased property was acquired during the years 2001 through 2010.




32




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





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





Operating leases:





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





Balance

December 31,

2009


Additions


Reclassifications,

Dispositions

and Impairment

Losses


Balance

December 31,

2010Transportation, other

$
18,161


$
1,469


$
(1,629
)

$
18,001Transportation, rail


13,300



-



(12
)


13,288Materials handling


12,234



241



(2,271
)


10,204Marine vessels


10,116



-



(3,300
)


6,816Manufacturing


6,824



-



(1,810
)


5,014Natural gas compressors


1,671



-



-



1,671Construction


1,076



839



(321
)


1,594Agriculture


-



1,151



-



1,151Office furniture


560



-



(401
)


159Other


-



84



-



8463,942



3,784



(9,744
)


57,982Less accumulated depreciation


(37,945
)


(6,220
)


7,609



(36,556
)Total

$
25,997


$
(2,436
)

$
(2,135
)

$
21,426





The average estimated residual value for assets on operating leases was 19% and 23% of the assets’ original cost at December 31, 2010 and 2009, respectively.





The Company earns revenues from its marine vessel based on charter utilization of the vessel 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. For the year ended December 31, 2009, the revenues associated with such rentals are included as a component of Operating Lease Revenues and totaled $841 thousand. In June of 2009, the Company’s vessel was leased under a two-year fixed term leasing arrangement. As such, there were no revenues from contingent rentals during 2010.





On April 30, 2009, a major lessee, Chrysler Corporation filed for bankruptcy protection under Chapter 11. Under a pre-package agreement, a new company was formed to purchase the assets of old Chrysler – its plants, brands, land, equipment, as well as its contracts with the union, dealers and suppliers – from the bankruptcy court. Under this agreement, the Company had its leases with the old, bankrupt Chrysler assumed by the new Chrysler, Chrysler Group, LLC, which is 25% owned by Fiat. The new Chrysler has remitted payments relative to the affirmed leases. However, at December 31, 2010, payments on certain operating leases still remained delinquent. The Company, in accordance with its accounting policy for delinquent operating leases, has reversed the billed but not yet paid amounts, and placed these
respective operating leases on a non-accrual and cash bases pending resumption of recurring payment activity. The Company also considered the equipment underlying the lease contracts for impairment and believes that such equipment is not impaired as of December 31, 2010.





As of December 31, 2010, the total net investment in equipment underlying lease contracts placed in non-accrual status totaled $306 thousand, all of which was related to Chrysler. At December 31, 2009, the net book value of such equipment was approximately $557 thousand, of which $546 thousand was related to Chrysler. At December 31, 2010 and 2009, the Company has certain other leases that have related 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.




33


ATEL CAPITAL EQUIPMENT FUND IX, LLC
 
 NOTES TO FINANCIAL STATEMENTS


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





Direct financing leases:





As of December 31, 2010, such investment consists of materials handling, mining, research and construction equipment. As of December 31, 2009, investment in direct financing leases consists of mining and materials handling equipment as well as office furniture. The following lists the components of the Company’s investment in direct financing leases as of December 31, 2010 and 2009 (in thousands):





2010


2009Total minimum lease payments receivable

$
29,415


$
35,093Estimated residual values of leased equipment (unguaranteed)


3,666



3,864Investment in direct financing leases


33,081



38,957Less unearned income


(15,849
)


(20,513
)Net investment in direct financing leases

$
17,232


$
18,444Net investment in direct financing leases placed in non-accrual status

$
54


$
48





At December 31, 2010, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):





Operating

Leases


Direct

Financing

Leases


TotalYear ending December 31, 2011

$
5,956


$
6,040


$
11,9962012


4,031



6,324



10,3552013


3,066



4,467



7,5332014


1,837



4,450



6,2872015


1,058



4,450



5,508Thereafter


363



3,684



4,047$
16,311


$
29,415


$
45,726





7.  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 services 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 total assets, number of investors or contributed capital based upon the type of cost incurred.


34




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





7.  Related party transactions (continued):





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 December 31, 2010, the Company has not exceeded the annual and/or cumulative limitations discussed above.





AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to the Operating Agreement as follows during each of the years ended December 31, 2010 and 2009 (in thousands):





2010


2009Costs reimbursed to Managing Member and/or affiliates

$
577


$
670Asset management fees to Managing Member


723



835Acquisition and initial direct costs paid to Managing Member


221



192$
1,521


$
1,697





During December 2009, operating lease assets with an original cost of $2.7 million and investments in notes receivable totaling $1.0 million were transferred to the Company by certain affiliates, resulting in an amount due to affiliates equivalent to the original cost of the assets. Such amounts due to affiliates were settled in January 2010.





8.  Non-recourse debt:





At December 31, 2010, 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 December 31, 2010, gross operating lease rentals and future payments on direct financing leases totaled approximately $30.0 million over the remaining lease terms; and the carrying value of the pledged assets is $18.8 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.





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





Principal


Interest


TotalYear ending December 31, 2011

$
3,757


$
1,537


$
5,2942012


4,009



1,285



5,2942013


4,279



1,015



5,2942014


4,568



726



5,2942015


4,616



420



5,036Thereafter


3,921



134



4,055$
25,150


$
5,117


$
30,267




35




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





9.  Borrowing facilities:





On December 30, 2009, the Company’s participation in a revolving credit facility (the “Credit Facility”) with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.





Prior to December 30, 2009, the Company participated with AFS and certain of its affiliates in the Credit Facility including an acquisition facility and a warehouse facility to the Company and affiliates, with a syndicate of financial institutions. The Credit Facility is for an amount up to $75 million and includes certain financial covenants. The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility.





During the third quarter of 2009, the Company repaid all outstanding borrowings under the Credit Facility. The weighted average interest rate on borrowings was 2.44% for the year ended December 31, 2009.





10.  Receivables funding program:





As of December 31, 2010, the Company had amounts outstanding under 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 holds liens against the Company’s assets. The lender is in a first position against certain specified assets and is in either a subordinated or shared position against the remaining assets. The RF Program does not contain any credit risk related default contingencies and is scheduled to mature in August 2011 at which time advances under the RF Program are to be repaid in full.





The RF Program provides for borrowing at a variable interest rate and 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 allows the Company to have a more cost effective means of obtaining debt financing than available for individual non-recourse debt transactions.





The Company had approximately $415 thousand and $2.4 million outstanding under the RF Program at December 31, 2010 and 2009, respectively. During the years ended December 31, 2010 and 2009, the Company paid program fees, as defined in the receivables funding agreement, totaling $5 thousand and $26 thousand, respectively. The RF Program fees are included in interest expense in the Company’s statements of income.





As of December 31, 2010, the Company has entered into interest rate swap agreements to receive or pay interest on a notional principal of $415 thousand based on the difference between nominal rates ranging from 3.75% to 4.81% and the variable rates that ranged from 0.23% to 0.35%. As of December 31, 2009, the Company had interest rate swap agreements to receive or pay interest on a notional principal of $2.4 million based on the difference between nominal rates ranging from 3.75% to 4.81% and the variable rates that ranged from 0.24% to 0.55%. No actual borrowing or lending is involved. The termination of the swaps coincides with the maturity of the debt. Through the swap agreements, the interest rates have been effectively fixed. The differential to be paid or received is accrued as interest rates change and is
recognized currently as an adjustment to interest expense related to the debt. The interest rate swaps are not designated as hedging instruments and are carried at fair value on the balance sheet with unrealized gain/loss included in the statements of income in other income (expense), net.




36




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





10.  Receivables funding program (continued):





At December 31, 2010 and 2009, borrowings and interest rate swap agreements under the RF Program are as follows (dollars in thousands):





Notional


Swap


Payment RateOriginal


Balance


Balance


Value


On InterestAmount


December 31,


December 31,


December 31,


SwapDate Borrowed

Borrowed


2010


2010


2010


AgreementFebruary 14, 2005

$
20,000


$
80


$
80


$
(1
)


3.75
%March 22, 2005


9,892



277



277



(4
)


4.31
%December 15, 2005


13,047



30



30



-



4.80
%January 9, 2006


2,500



28



28



-



4.81
%$
45,439


$
415


$
415


$
(5
)





Notional


Swap


Payment RateOriginal


Balance


Balance


Value


On InterestAmount


December 31,


December 31,


December 31,


SwapDate Borrowed

Borrowed


2009


2009


2009


AgreementFebruary 14, 2005

$
20,000


$
466


$
466


$
(8
)


3.75
%March 22, 2005


9,892



762



762



(21
)


4.31
%December 15, 2005


13,047



827



827



(15
)


4.80
%January 9, 2006


2,500



350



350



(9
)


4.81
%$
45,439


$
2,405


$
2,405


$
(53
)





At December 31, 2010, the minimum repayment schedule under the RF Program totals $415 thousand, all of which is due during the year ended December 31, 2011. As of the same date, there are specific leases that are identified as collateral under the Program with expected future lease receivables of approximately $485 thousand at their discounted present value.





The weighted average interest rate on the RF Program, including interest on the swap contracts, were 5.25% and 6.22% during the years ended December 31, 2010 and 2009, respectively. The RF Program discussed above includes certain financial and non-financial covenants applicable to the Company as borrower. The Company was in compliance with all covenants as of December 31, 2010.





11.  Commitments and contingencies:





At December 31, 2010, the Company had no commitments to purchase lease assets.





Gain Contingency




ATEL has chosen to litigate a claim on behalf of certain of its Funds for the under-reporting of revenue by a previous fleet manager of its marine vessels. Litigation continues relative to ATEL’s plaintiff position, seeking to recover an estimated total of $2.8 million, of which the Company’s portion approximates $350 thousand, of under-remitted revenues from marine vessel leasing covering years 2005-2007. 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. Court proceedings are scheduled to commence during March 2011 and the outcome, either via negotiation or court mandate, is currently indeterminable.


37




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





12.  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.





13.  Members’ capital:





As of December 31, 2010 and 2009, 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 member (50 Units).





The Company has the right, exercisable in the Manager’s discretion, but not the obligation, to repurchase Units of a Unit holder 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 unit-holder 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 in 2010 and 2009. The amounts allocated were determined to bring AFS’s ending capital account balance to zero at the end of each year.





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





2010


2009Distributions declared

$
6,027


$
10,849Weighted average number of Units outstanding


12,055,016



12,055,016Weighted average distributions per Unit

$
0.50


$
0.90





14.  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.




38




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





14.  Fair value measurements (continued):





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.





At December 31, 2010 and 2009, only the fair value of the Company’s interest rate swap contracts was measured on a recurring basis. In addition, at December 31, 2010 and 2009, the Company measured the fair value of impaired operating lease and/or off-lease equipment on a non-recurring basis. Such estimate of measurement methodology is as follows:





Interest rate swaps





The fair value of interest rate swaps is estimated using a valuation method (discounted cash flow) with inputs that are defined or that can be corroborated by observable market data. The discounted cash flow approach utilizes each swap’s notional amount, payment and termination dates, swap coupon, and the prevailing market rate and pricing data to determine the present value of the future swap payments. Accordingly, such swap contracts are classified within Level 2 of the valuation hierarchy.





Impaired operating lease and off-lease equipment





During 2010, the Company deemed certain operating lease and off-lease equipment (assets) to be impaired. Accordingly, the Company recorded fair value adjustments of approximately $353 thousand which reduced the cost basis of the assets. During 2009, the Company recognized an approximate $1.0 million impairment loss which reduced the cost basis of certain operating lease and off-lease equipment. The fair value adjustments are non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired leased and off-lease equipment are classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such 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.





The following table presents the fair value measurement of assets and liabilities measured at fair value on a recurring and non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2010 and 2009 (in thousands):





December 31,

2010


Level 1

Estimated

FairValue


Level 2

Estimated

FairValue


Level 3

Estimated

FairValueAssets measured at fair value on a non-recurring basis:Impaired operating lease and off-lease assets

$
297


$
-


$
-


$
297Liabilities measured at fair value on a recurring basis:Interest rate swaps

$
5


$
-


$
5


$
-





December 31,

2009


Level 1

Estimated

FairValue


Level 2

Estimated

FairValue


Level 3

Estimated

FairValueAssets measured at fair value on a non-recurring basis:Impaired operating lease and off-lease assets

$
860


$
-


$
-


$
860Liabilities measured at fair value on a recurring basis:Interest rate swaps

$
53


$
-


$
53


$
-




39




ATEL CAPITAL EQUIPMENT FUND IX, LLC





NOTES TO FINANCIAL STATEMENTS





14.  Fair value measurements (continued):




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.





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. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. 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 discounted cash flow analyses, based upon current market rates for similar types of lending arrangements.





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.





Receivables funding program





The carrying amount of these variable rate obligations approximate fair value based on current borrowing rates for similar types of borrowings.





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.





Limitations





The fair value estimates presented herein were based on pertinent information available to the Company as of December 31, 2010 and 2009. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.




40




ATEL CAPITAL EQUIPMENT FUND IX, LLC
 
 NOTES TO FINANCIAL STATEMENTS


14.  Fair value measurements (continued):





The following table presents estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at December 31, 2010 and 2009 (in thousands):





December 31, 2010


December 31, 2009Carrying

Amount


Estimated

Fair Value


Carrying

Amount


Estimated

Fair ValueFinancial assets:Cash and cash equivalents

$
2,782


$
2,782


$
10,189


$
10,189Notes receivable


2,712



2,712



2,628



2,628Investment in securities


70



70



70



70Financial liabilities:Non-recourse debt


25,150



26,076



28,663



28,662Receivables funding program


415



415



2,405



2,405Interest rate swap contracts


5



5



53



53




41


Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS’ ON ACCOUNTING AND FINANCIAL DISCLOSURES





None.





Item 9A.  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, who 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 they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.





Management’s Annual Report on Internal Control over Financial Reporting





The Management of the Managing Member is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2010. The internal control process of the Managing Member, as it is applicable to the Company, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:





(1)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Company’s receipts and expenditures are being made only in accordance with authorization of the Management of the Managing Member; and





(2)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.





All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.





Management of the Managing Member assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Company, as of December 31, 2010. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its assessment, Management of the Managing Member concluded that the Managing Member’s internal control over financial reporting, as it is applicable to the Company, was effective as of December 31, 2010.




42




This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers from Section 404(b) of the Sarbanes-Oxley Act of 2002.





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 December 31, 2010 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.




43




PART III





Item 10.  DIRECTORS AND EXECUTIVE OFFICERS





The registrant is a Limited Liability Company and, therefore, has no officers or directors.





ATEL Financial Services, LLC (“AFS”) is the Company’s Managing Member or Manager. AFS is controlled by ATEL Capital Group (“ACG” or “ATEL”), a holding company formed to control ATEL and affiliated companies. The outstanding voting capital stock of ATEL Capital Group is owned 100% by Dean Cash.





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; and investor relations, communications and general administrative services are performed by AFS.





The officers and directors of ATEL and its affiliates are as follows:





Dean L. Cash
President and Chief Executive Officer of ATEL Financial Services, LLC(Managing Member)Paritosh K. Choksi
Executive Vice President and Chief Financial Officer and Chief Operating Officer ofATEL Financial Services, LLC (Managing Member)Vasco H. Morais
Executive Vice President, Secretary and General Counsel ofATEL Financial Services, LLC (Managing Member)





Dean L. Cash, age 60, joined ATEL as director of marketing in 1980 and has been a vice president since 1981, executive vice president since 1983 and a director since 1984. He has been President and CEO since April 2001. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A.
degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association.





Paritosh K. Choksi, age 57, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenix’s capital market needs. He also served on the credit committee overseeing all corporate investments, including its venture lease portfolio. Mr. Choksi was a part of the
executive management team which caused Phoenix’s portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi is a member of the board of directors of Syntel, Inc. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley.





Vasco H. Morais, age 52, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of America’s equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the corporate and securities legal department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A.
degree in 1982 from the University of California in Berkeley, a J.D. degree in 1986 from Golden Gate University Law School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais has been an active member of the State Bar of California since 1986.




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Audit Committee





The board of directors of the Managing Member acts as the audit committee of the Company. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of the Managing Member and are deemed to be financial experts. They are not independent of the Company.





Section 16(a) Beneficial Ownership Reporting Compliance





Based solely on a review of Forms 3, 4 and 5, the Company is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2010.





Code of Ethics





A Code of Ethics that is applicable to the Company, including the Chief Executive Officer and Chief Financial Officer and Chief Operating Officer of its Managing Member, AFS, or persons acting in such capacity on behalf of the Company, is included as Exhibit 14.1 to this report.





Item 11.  EXECUTIVE COMPENSATION





The registrant is a Limited Liability Company and, therefore, has no officers or directors.





Set forth hereinafter is a description of the nature of remuneration paid and to be paid to AFS and its affiliates. The amount of such remuneration paid in 2010 and 2009 is set forth in Item 8 of this report under the caption “Financial Statements and Supplementary Data - Notes to Financial Statements - Related party transactions,” at Note 7 thereof, which information is hereby incorporated by reference.





Asset Management Fee





The Company pays AFS an Asset Management Fee in an amount equal to 4% of Operating Revenues, which includes Gross Lease Revenues and Cash From Sales or Refinancing. The Asset Management Fee is paid on a monthly basis. The amount of the Asset Management Fee payable in any year is reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee is paid for services rendered by AFS and its affiliates in determining portfolio and investment strategies (i.e., establishing and maintaining the composition of the Equipment portfolio as a whole and the Company’s overall debt structure) and generally managing or supervising the management of the Equipment.





AFS supervises performance of among others activities, collection of lease revenues, monitoring compliance by lessees with the lease terms, assuring that Equipment is being used in accordance with all operative contractual arrangements, paying operating expenses and arranging for necessary maintenance and repair of Equipment in the event a lessee fails to do so, monitoring property, sales and use tax compliance and preparation of operating financial data. AFS intends to delegate all or a portion of its duties and the Asset Management Fee to one or more of its affiliates who are in the business of providing such services.





Asset Management Fee Limit:





The Asset Management Fee is subject to the Asset Management Fee Limit. The Asset Management Fee Limit is calculated each year during the Company’s term by calculating the total fees that would be paid to AFS if AFS were to be compensated on the basis of an alternative fee schedule, to include an Equipment Management Fee, Incentive Management Fee, and Equipment Resale/Re-Leasing Fee, plus AFS’s Carried Interest, as described below. To the extent that the amount paid to AFS as the Asset Management Fee plus its Carried Interest for any year would exceed the aggregate amount of fees calculated under this alternative fee schedule for the year, the Asset Management Fee and/or Carried Interest for that year is reduced to equal the maximum aggregate fees under the alternative fee schedule.





To the extent any such fees are reduced, the amount of such reduction will be accrued and deferred, and such accrued and deferred compensation would be paid to AFS in a subsequent period, but only if and to the extent that such deferred compensation would be payable within the Asset Management Fee Limit for the subsequent period. Any deferred fees which cannot be paid under the applicable limitations in any subsequent period through the date of liquidation would be forfeited by AFS upon liquidation.




45





Alternative Fee Schedule:





For purposes of the Asset Management Fee Limit, the Company will calculate an alternative schedule of fees, including a hypothetical Equipment Management Fee, Incentive Management Fee, Equipment Resale/Re-Leasing Fee, and Carried Interest as follows:





An Equipment Management Fee will be calculated to equal the lesser of (i) 3.5% of annual Gross Revenues from Operating Leases and 2% of annual Gross Revenues from Full Payout Leases which contain Net Lease Provisions, or (ii) the fees customarily charged by others rendering similar services as an ongoing public activity in the same geographic location and for similar types of equipment. If services with respect to certain Operating Leases are performed by nonaffiliated persons under the active supervision of AFS or its affiliate, then the amount so calculated shall be 1% of Gross Revenues from such Operating Leases.





An Incentive Management Fee will be calculated to equal 4% of Distributions of Cash from Operations until Holders have received a return of their Original Invested Capital plus a Priority Distribution, and, thereafter, to equal a total of 7.5% of Distributions from all sources, including Sale or Refinancing Proceeds. In subordinating the increase in the Incentive Management Fee to a cumulative return of a Holder’s Original Invested Capital plus a Priority Distribution, a Holder would be deemed to have received Distributions of Original Invested Capital only to the extent that Distributions to the Holder exceed the amount of the Priority Distribution.





An Equipment Resale/Re-Leasing Fee will be calculated in an amount equal to the lesser of (i) 3% of the sale price of the Equipment, or (ii) one-half the normal competitive equipment sale commission charged by unaffiliated parties for resale services. Such fee would apply only after the Holders have received a return of their Original Invested Capital plus a Priority Distribution. In connection with the releasing of Equipment to lessees other than previous lessees or their affiliates, the fee would be in an amount equal to the lesser of (i) the competitive rate for comparable services for similar equipment, or (ii) 2% of the gross rental payments derived from the re-lease of such Equipment, payable out of each rental payment received by the Company from such re-lease.





A Carried Interest equal to 7.5% of all Distributions of Cash from Operations and Cash from Sales or Refinancing.





See Note 7 to the financial statements included in Item 8, Financial Statements and Supplementary Data, for amounts paid.





Managing Member’s Interest in Operating Proceeds





As defined in the Limited Liability Company 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 in 2010 and 2009. The amounts allocated were determined to bring AFS’s ending capital account balance to zero at the end of each year. See financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data, of this report for amounts allocated to AFS in 2010 and 2009.





Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





Security Ownership of Certain Beneficial Owners





At December 31, 2010, no investor is known to hold beneficially more than 5% of the issued and outstanding Units.





Security Ownership of Management





The parent of AFS is the beneficial owner of Limited Liability Company Units as follows:





(1)

(2)


(3)


(4)Title of Class

Name and Address of

Beneficial Owner


Amount and Nature of

Beneficial Ownership


Percent of

ClassLimited Liability Company Units

ATEL Capital Group

600 California Street, 6th Floor

San Francisco, CA 94108


Initial Limited Liability

Company Units

50 Units ($500)



0.0004
%


46





Changes in Control





The Members have the right, by vote of the Members owning more than 50% of the outstanding Limited Liability Company Units, to remove a Managing Member.





AFS may at any time call a meeting of the Members or a vote of the Members without a meeting, on matters on which they are entitled to vote, and shall call such meeting or for vote without a meeting following receipt of a written request therefore of members holding 10% or more of the total outstanding Limited Liability Company Units.





Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS





The responses to Item 1 of this report under the caption “Equipment Leasing Activities,” Item 8 of this report under the caption “Financial Statements and Supplementary Data - Notes to Financial Statements - Related party transactions” at footnote 7 thereof, and Item 11 of this report under the caption “Executive Compensation,” are hereby incorporated by reference.




Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES





During the most recent two years, the Company incurred audit and audit related fees with its principal auditors as follows (in thousands):





2010


2009Audit fees

$
113


$
130Other


2



8$
115


$
138





Audit fees consist of the aggregate fees and expenses billed in connection with the audit of the Company’s annual financial statements and the review of the financial statements included in the Company’s quarterly reports on Form 10-Q.





Other fees represent costs incurred in connection with various Agreed-Upon Procedures engagements.





The board of directors of the Managing Member acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief Financial Officer of the Managing Member acting on behalf of the board of directors of the Managing Member in its role as the audit committee of the Company.





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PART IV





Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K





(a)
Financial Statements and Schedules


1.
Financial Statements


Included in Part II of this report:


Report of Independent Registered Public Accounting Firm


Balance Sheets at December 31, 2010 and 2009


Statements of Income for the years ended December 31, 2010 and 2009


Statements of Changes in Members’ Capital for the years ended December 31, 2010 and 2009


Statements of Cash Flows for the years ended December 31, 2010 and 2009


Notes to Financial Statements





2.
Financial Statement Schedules


All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.





(b)
Exhibits





(3) and (4) Amended and Restated Limited Liability Company Agreement, included as Exhibit B to the Prospectus included in the registrant’s registration statement on form S-1 effective January 16, 2001, (File Number 333-47196) is hereby incorporated herein by reference.


(14.1)  Code of Ethics


(31.1)  Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash


(31.2)  Rule 13a-14(a)/ 15d-14(a) 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




48




SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




Date: March 22, 2011




ATEL Capital Equipment Fund IX, LLC (Registrant)




By:
ATEL Financial Services, LLC 
Managing Member of Registrant





By:
/s/ Dean L. CashDean L. Cash,President and Chief Executive Officer ofATEL Financial Services, LLC (Managing Member)By:
/s/ Paritosh K. ChoksiParitosh K. Choksi,Executive Vice President and Chief Financial Officer and

Chief Operating Officer of ATEL Financial Services, LLC

(Managing Member)By:
/s/ Samuel SchusslerSamuel Schussler,Vice President and Chief Accounting Officer of ATEL Financial

Services, LLC (Managing Member)





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons in the capacities and on the dates indicated.





SIGNATURE

CAPACITIES

DATE/s/ Dean L. Cash

President and Chief Executive Officer ofDean L. Cash

ATEL Financial Services, LLC (Managing Member)

March 22, 2011/s/ Paritosh K. Choksi

Executive Vice President and Chief Financial Officer and ChiefParitosh K. Choksi

Operating Officer of  ATEL Financial Services, LLC (Managing
Member)

March 22, 2011/s/ Samuel Schussler

Vice President and Chief Accounting Officer of ATEL FinancialSamuel Schussler

Services, LLC (Managing Member)

March 22, 2011





No proxy materials have been or will be sent to security holders. An annual report will be furnished to security holders subsequent to the filing of this report on Form 10-K, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders.




49