Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - ATEL 14, LLCv421686_exh32x2.htm
EX-31.2 - EXHIBIT 31.2 - ATEL 14, LLCv421686_exh31x2.htm
EX-31.1 - EXHIBIT 31.1 - ATEL 14, LLCv421686_exh31x1.htm
EX-32.1 - EXHIBIT 32.1 - ATEL 14, LLCv421686_exh32x1.htm

 

 

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

For the quarterly period ended September 30, 2015    

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

For the transition period from         to         

Commission File number 000-54356

ATEL 14, LLC

(Exact name of registrant as specified in its charter)

 
California   26-4695354
(State or other jurisdiction of
Incorporation or organization)
  (I. R. S. Employer
Identification No.)

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111

(Address of principal executive offices)

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

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

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

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

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

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

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

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

The number of Limited Liability Company Units outstanding as of October 31, 2015 was 8,367,055

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, September 30, 2015 and December 31, 2014     3  
Statements of Income for the three and nine months ended September 30, 2015
and 2014
    4  
Statements of Changes in Members’ Capital for the year ended December 31, 2014 and for the nine months ended September 30, 2015     5  
Statements of Cash Flows for the three and nine months ended September 30, 2015
and 2014
    6  
Notes to the Financial Statements     8  

Item 2.

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

    27  

Item 4.

Controls and Procedures

    34  

Part II.

Other Information

    36  

Item 1.

Legal Proceedings

    36  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    36  

Item 3.

Defaults Upon Senior Securities

    36  

Item 4.

Mine Safety Disclosures

    36  

Item 5.

Other Information

    36  

Item 6.

Exhibits

    36  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 14, LLC
 
BALANCE SHEETS
 
SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(In Thousands)

   
  September 30,
2015
  December 31,
2014
     (Unaudited)
ASSETS
                 
Cash and cash equivalents   $ 3,732     $ 6,646  
Accounts receivable, net of allowance for doubtful accounts of $18 at September 30, 2015 and $5 at December 31, 2014     139       175  
Notes receivable, net of unearned interest income of $72 and allowance for credit losses of $63 at September 30, 2015 and net of unearned interest income of $209 and allowance for credit losses of $0 at December 31, 2014     528       1,454  
Investment in securities     333       318  
Fair value of warrants     588       595  
Investments in equipment and leases, net of accumulated depreciation of $28,599 at September 30, 2015 and $25,888 at December 31, 2014     41,282       49,108  
Due from affiliates           154  
Prepaid expenses and other assets     101       105  
Total assets   $ 46,703     $ 58,555  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 74     $ 66  
Affiliates     39        
Accrued distributions to Other Members     813       816  
Other     259       285  
Deposits due lessees           25  
Non-recourse debt     13,549       19,279  
Long-term debt     2,068       2,068  
Unearned operating lease income     382       516  
Total liabilities     17,184       23,055  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     29,519       35,500  
Total Members’ capital     29,519       35,500  
Total liabilities and Members’ capital   $ 46,703     $ 58,555  

See accompanying notes.

3


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
STATEMENTS OF INCOME
 
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2015 AND 2014
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2015   2014   2015   2014
Revenues:
                                   
Leasing and lending activities:
                                   
Operating leases   $ 2,708     $ 3,316     $ 8,566     $ 10,255  
Direct financing leases     3       14       18       45  
Interest on notes receivable     17       51       71       228  
Gain on sales of lease assets and early termination of notes receivable     35       869       483       1,477  
Gain on sales or dispositions of investment in securities           22       8       79  
Unrealized loss on fair valuation of warrants     (24 )      (144 )      (7 )      (245 ) 
Other     23       13       48       28  
Total revenues     2,762       4,141       9,187       11,867  
Expenses:
                                   
Depreciation of operating lease assets     1,921       2,556       6,339       7,992  
Asset management fees to Managing Member     136       181       457       566  
Acquisition expense           138             303  
Cost reimbursements to Managing Member and/or affiliates     282       393       966       1,167  
Provision for (reversal of) credit losses     39       (21 )      76       10  
Impairment losses on equipment                       42  
Amortization of initial direct costs     15       25       56       87  
Interest expense     112       162       372       516  
Professional fees     13       21       104       117  
Outside services     18       12       52       50  
Taxes on income and franchise fees     23       5       68       20  
Bank charges     24       50       108       149  
Railcar maintenance     73       73       251       355  
Other     46       37       135       140  
Total expenses     2,702       3,632       8,984       11,514  
Net income   $ 60     $ 509     $ 203     $ 353  
Net income (loss):
                                   
Managing Member   $ 152     $ 153     $ 458     $ 459  
Other Members     (92 )      356       (255 )      (106 ) 
     $ 60     $ 509     $ 203     $ 353  
Net (loss) income per Limited Liability Company Unit (Other Members)   $ (0.01 )    $ 0.04     $ (0.03 )    $ (0.01 ) 
Weighted average number of Units outstanding     8,368,927       8,386,015       8,380,198       8,386,015  

See accompanying notes.

4


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2014
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2015
(In Thousands Except for Units and Per Unit Data)

       
  Other Members   Managing
Member
  Total
     Units   Amount
Balance December 31, 2013     8,386,015     $ 42,886     $     $ 42,886  
Distributions to Other Members ($0.90 per Unit)           (7,548 )            (7,548 ) 
Distributions to Managing Member                 (612 )      (612 ) 
Net income           162       612       774  
Balance December 31, 2014     8,386,015       35,500             35,500  
Repurchase of Units     (18,960 )      (74 )            (74 ) 
Distributions to Other Members ($0.67 per Unit)           (5,652 )            (5,652 ) 
Distributions to Managing Member                 (458 )      (458 ) 
Net (loss) income           (255 )      458       203  
Balance September 30, 2015 (Unaudited)     8,367,055     $ 29,519     $     $ 29,519  

See accompanying notes.

5


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
STATEMENTS OF CASH FLOWS
 
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2015 AND 2014
(In Thousands)
(Unaudited)

       
  Three Months Ended September 30,   Nine Months Ended September 30,
     2015   2014   2015   2014
Operating activities:
                                   
Net income   $ 60     $ 509     $ 203     $ 353  
Adjustment to reconcile net income to cash provided by operating activities:
                                   
Gain on sales of lease assets and early termination of notes receivable     (35 )      (869 )      (483 )      (1,477 ) 
Depreciation of operating lease assets     1,921       2,556       6,339       7,992  
Amortization of initial direct costs     15       25       56       87  
Provision for (reversal of) credit losses     39       (21 )      76       10  
Impairment losses on equipment                       42  
Gain on sales or dispositions of investment in securities           (22 )      (8 )      (79 ) 
Unrealized loss on fair valuation of warrants     24       144       7       245  
Changes in operating assets and liabilities:
                                   
Accounts receivable     20       112       23       72  
Prepaid expenses and other assets           (33 )      4       3  
Accounts payable, Managing Member     (26 )            8        
Accounts payable, other     16       19       (26 )      22  
Accrued liabilities, affiliates     13       (31 )      193       1  
Deposits due lessees     (21 )            (25 )       
Unearned operating lease income     (119 )      3       (134 )      52  
Net cash provided by operating activities     1,907       2,392       6,233       7,323  
Investing activities:
                                   
Purchases of equipment and improvements on operating
leases
          (15 )      (21 )      (105 ) 
Purchase of securities                 (15 )      (25 ) 
Proceeds from sales of lease assets and early termination of notes receivable     282       491       1,849       2,719  
Principal payments received on direct financing leases     98       86       258       245  
Proceeds from sales or dispositions of investment in securities           22       8       79  
Principal payments received on notes receivable     181       311       691       1,453  
Net cash provided by investing activities     561       895       2,770       4,366  
Financing activities:
                                   
Borrowings under non-recourse debt                       3,189  
Repayments under non-recourse debt     (1,666 )      (2,429 )      (5,730 )      (7,335 ) 
Distributions to Other Members     (1,883 )      (1,887 )      (5,655 )      (5,661 ) 
Distributions to Managing Member     (152 )      (153 )      (458 )      (459 ) 
Repurchase or rescissions of Units     (11 )            (74 )       
Net cash used in financing activities     (3,712 )      (4,469 )      (11,917 )      (10,266 ) 
Net (decrease) increase in cash and cash equivalents     (1,244 )      (1,182 )      (2,914 )      1,423  
Cash and cash equivalents at beginning of period     4,976       5,695       6,646       3,090  
Cash and cash equivalents at end of period   $ 3,732     $ 4,513     $ 3,732     $ 4,513  

6


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
STATEMENTS OF CASH FLOWS – (continued)
 
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2015 AND 2014
(In Thousands)
(Unaudited)

       
  Three Months Ended September 30,   Nine Months Ended September 30,
     2015   2014   2015   2014
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for interest   $     94     $     145     $     318     $     470  
Cash paid during the period for taxes   $ 2     $     $ 70     $ 49  
Schedule of non-cash transactions:
                                   
Distributions payable to Other Members at period-end   $ 813     $ 816     $ 813     $ 816  
Distributions payable to Managing Member at period-end   $ 66     $ 66     $ 66     $ 66  
Improvements to equipment on operating leases   $     $ 7     $     $ 7  
Amount due from sale of lease assets   $     $ 3,185     $     $ 3,185  

See accompanying notes.

7


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability company. Prior to May 9, 2011, the Manager was named ATEL Associates 14, LLC. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group. The Fund may continue until December 31, 2030. Contributions in the amount of $500 were received as of May 8, 2009, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of December 2, 2009, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the first quarter of 2010. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on February 12, 2010, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on October 6, 2011.

As of September 30, 2015, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $84.0 million (inclusive of the $500 initial Member’s capital investment) have been received. As of the same date, 8,367,055 Units were issued and outstanding.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unitholders, with any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Company’s public offering of Units) and (iii) provide additional cash distributions following the Reinvestment Period and until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by the ATEL 14, LLC amended and restated limited liability company operating agreement dated October 7, 2009 (the “Operating Agreement”).

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

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission.

8


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature.

Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.

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

In preparing the accompanying unaudited financial statements, the Managing Member has reviewed, as determined necessary by the Managing Member, events that have occurred after September 30, 2015, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements, and adjustments thereto.

Use of estimates:

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

Segment reporting:

The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

The primary geographic region in which the Company seeks leasing opportunities is North America and Europe. For the nine months ended September 30, 2015 and 2014, and as of September 30, 2015 and December 31, 2014, all of the Company’s operating revenues and long-lived assets relate to customers domiciled in North America.

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. The Company had $333 thousand and $318 thousand of purchased securities at September 30, 2015 and December 31, 2014, respectively. There were no sales or dispositions of securities during the three and nine months ended September 30, 2015 and 2014.

9


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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 reflected at an estimated fair value on the balance sheet as determined by the Managing Member. During the respective three and nine months ended September 30, 2015, the Company recorded unrealized losses of $24 thousand and $7 thousand on fair valuation of its warrants. By comparison, during the respective three and nine months ended September 30, 2014, the Company recorded unrealized losses of $144 thousand and $245 thousand on fair valuation of its warrants. The unrealized losses recorded during the current year period decreased the estimated fair value of the Company’s portfolio of warrants to $588 thousand at September 30, 2015 from $595 thousand at December 31, 2014. In addition, the Company realized $8 thousand of gains from the net exercise of warrants during the nine months ended September 30, 2015, none of which was recognized during the current year third quarter. By comparison, during the prior year three- and nine-month periods, the Company realized $22 thousand and $79 thousand, respectively, of gains from the net exercise of warrants.

Per Unit data:

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

Recent Accounting Pronouncements:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts from Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU-2014-15”). The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management does not expect the adoption of ASU 2014-15 to have a material impact on the Company’s financial statements or related disclosures.

3. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. The original terms of the notes receivable are from 36 to 42 months and bear interest at rates ranging from 12.35% to 18.00% per annum. The notes are generally secured by the equipment financed. The notes mature from 2015 through 2016.

10


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net: - (continued)

As of December 31, 2014, the Company had four notes receivable which were on non-accrual status, two of which were fully paid on February 24, 2015 with the remaining two still on non-accrual status at September 30, 2015.

The two notes fully paid in February 2015 were originally placed on non-accrual status during the second quarter of 2014. Such notes had net recorded investments approximating $85 thousand and $105 thousand as of December 31, 2014 and were considered impaired relative to their payment terms. The terms of these notes were modified to defer the repayment of principal until November 1, 2014 while maintaining interest-only payments at their original rate of 12.00%. Upon the resumption of principal and interest payments in November 2014, the monthly payments were adjusted such that the ultimate total payments would reflect interest earned at a composite rate of 18.00% per annum as related to the entire term of the indebtedness from the original funding date. Payments received on these notes have been fully applied against the principal pursuant to the Company’s policy on non-accrual notes. Interest not recorded relative to the original terms of the non-accrual notes approximated $18 thousand from September 2014 to February 2015. The notes remained current with respect to their restructured terms; and, management has determined that no adjustment was necessary to reflect fair value through their termination dates. The Fund recognized gains totaling $88 thousand from the February 24, 2015 settlement of the two notes on proceeds of $199 thousand.

The two notes remaining on non-accrual status as of September 30, 2015 had a combined net recorded investment of $102 thousand and $111 thousand as of September 30, 2015 and December 31, 2014, respectively. Both notes have a stated annual interest rate of 11.73%. There were no related fair value adjustments recorded through December 31, 2014. During the first quarter of 2015, management continued to deem the notes impaired and recorded fair value adjustments totaling $33 thousand. Additional fair value adjustments were recorded during the third quarter of 2015 totaling a combined $30 thousand which brought the nine-month total to $63 thousand. As of September 30, 2015, the fair value of such notes totaled $39 thousand. Effective January 1, 2015, the notes were modified to defer the repayment of principal while maintaining interest-only payments at their original rates through June 30, 2015. During the second quarter of 2015, an additional modification was made to the notes which extended the interest only payments through October 31, 2015. As of November 1, 2015, the entire balance outstanding on these notes will be due. The payments will be adjusted such that the ultimate amounts paid will reflect interest earned at a composite rate of 18.00% per annum as related to the entire term of the indebtedness from the original funding date. Payments received on these non-accrual notes have been fully applied against principal pursuant to the Company’s policy on non-accrual notes. Interest not recorded relative to the original terms of the non-accrual notes approximated $7 thousand from December 2014 to September 2015.

As of September 30, 2015, the minimum future payments receivable are as follows (in thousands):

 
Three months ending December 31, 2015   $ 287  
Year ending December 31, 2016     375  
       662  
Less: portion representing unearned interest income     (72 ) 
       590  
Unamortized initial direct costs     1  
Less: allowance for credit losses     (63 ) 
Notes receivable, net   $    528  

11


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net: - (continued)

Initial direct costs (“IDC”) amortization expense related to notes receivable and the Company’s operating and direct finance leases for the three and nine months ended September 30, 2015 and 2014 are as follows (in thousands):

       
  Three Months
Ended September 30,
  Nine Months
Ended September 30,
     2015   2014   2015   2014
IDC amortization – notes receivable   $     $ 2     $ 2     $ 11  
IDC amortization – lease assets     15       23       54       76  
Total   $     15     $     25     $     56     $     87  

4. Allowance for credit losses:

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

           
  Accounts Receivable Allowance for
Doubtful Accounts
  Valuation Adjustments on
Financing Receivables
  Total
Allowance for
Credit Losses
     Notes
Receivable
  Finance
Leases
  Operating
Leases
  Notes
Receivable
  Finance
Leases
Balance December 31, 2013   $     $     $ 15     $     $     $ 15  
Reversal of provision for credit losses                 (10 )                  (10 ) 
Balance December 31, 2014                 5                   5  
Provision for credit losses                 13       63             76  
Balance September 30, 2015   $    —     $    —     $    18     $    63     $    —     $    81  

Accounts receivable

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

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.

Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.

Financing receivables

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

Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the

12


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

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

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace 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.

As of September 30, 2015 and December 31, 2014, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):

     
September 30, 2015   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $       63     $       —     $       63  
Ending balance: individually evaluated for impairment   $ 63     $     $ 63  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 5911     $ 41     $ 632  
Ending balance: individually evaluated for impairment   $ 591     $ 41     $ 632  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
1 Includes $1 of unamortized initial direct costs.

     
December 31, 2014   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $       —     $       —     $       —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 1,4542     $ 296     $ 1,750  
Ending balance: individually evaluated for impairment   $ 1,454     $ 296     $ 1,750  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
2 Includes $3 of unamortized initial direct costs.

13


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

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

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

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

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 September 30, 2015 and December 31, 2014, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

       
  Notes Receivable   Finance Leases
     September 30,
2015
  December 31,
2014
  September 30,
2015
  December 31,
2014
Pass   $ 488     $ 1,149     $ 41     $ 296  
Special mention           302              
Substandard     102                    
Doubtful                        
Total   $     590     $     1,451     $     41     $     296  

14


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

As of September 30, 2015, the Company’s impaired loans were as follows (in thousands):

         
  Impaired Loans
     Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
With no related allowance recorded
                                            
Notes receivable   $     $     $     $     $  
With an allowance recorded
                                            
Notes receivable     102       102       63       105        
Total   $      102     $      102     $      63     $      105     $      —  

There were no impaired loans as of December 31, 2014.

At September 30, 2015 and December 31, 2014, the investment in financing receivables is aged as follows (in thousands):

             
September 30, 2015   31 – 60 Days Past Due   61 – 90 Days Past Due   Greater Than 90 Days   Total Past Due   Current   Total
Financing
Receivables
  Recorded Investment
> 90 Days and Accruing
Notes receivable   $     $     $     $     $ 590     $ 590     $  
Finance leases     6                   6       35       41        
Total   $     6     $     —     $     —     $     6     $     625     $     631     $     —  

             
December 31, 2014   31 – 60 Days Past Due   61 – 90 Days Past Due   Greater Than 90 Days   Total Past Due   Current   Total
Financing
Receivables
  Recorded Investment
> 90 Days and Accruing
Notes receivable   $     $     $     $     $ 1,451     $ 1,451     $  
Finance leases                             296       296        
Total   $     —     $     —     $     —     $     —     $     1,747     $     1,747     $     —  

As of December 31, 2014, the Company had four notes receivable which were on non-accrual status, two of which were fully paid on February 24, 2015 with the remaining two still on non-accrual status at September 30, 2015 (See Note 3).

5. Investments in equipment and leases, net:

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

       
  Balance
December 31,
2014
  Reclassifications,
Additions/
Dispositions and
Impairment
Losses
  Depreciation/
Amortization
Expense or
Amortization of
Leases
  Balance
September 30, 2015
Net investment in operating leases   $ 48,600     $ (1,411 )    $ (6,339 )    $ 40,850  
Net investment in direct financing leases     296       3       (258 )      41  
Assets held for sale or lease, net     101       233             334  
Initial direct costs, net of accumulated amortization of $203 at September 30, 2015 and $277 at December 31, 2014     111             (54 )      57  
Total   $     49,108     $     (1,175 )    $     (6,651 )    $     41,282  

15


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Impairment of investments in leases:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. 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 residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. 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 marketplace 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. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.

As a result of these reviews, the Company determined that no impairment losses existed during the first nine months of 2015. By comparison, during the first nine months of 2014, the Company recorded fair value adjustments totaling $42 thousand to reduce the cost basis of certain impaired off-lease computer hardware.

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $1.9 million and $2.6 million for the respective three months ended September 30, 2015 and 2014, and $6.3 million and $8.0 million for the respective nine months ended September 30, 2015 and 2014.

IDC amortization expense related to operating leases and direct financing leases totaled $15 thousand and $23 thousand for the respective three months ended September 30, 2015 and 2014, and $54 thousand and $76 thousand for the respective nine months ended September 30, 2015 and 2014. (See Note 3).

Operating leases:

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

       
  Balance
December 31,
2014
  Additions   Reclassifications
or Dispositions
  Balance
September 30,
2015
Marine vessel   $ 19,410     $     $     $ 19,410  
Transportation, rail     19,079       21       (263 )      18,837  
Manufacturing     7,858             (22 )      7,836  
Transportation     8,028             (512 )      7,516  
Materials handling     11,074             (3,893 )      7,181  
Construction     5,353             (949 )      4,404  
Research     2,250                   2,250  
Agriculture     851                   851  
Air support equipment     120                   120  
Office automation     27             (27 )       
Other     119             (6 )      113  
       74,169       21       (5,672 )      68,518  
Less accumulated depreciation     (25,569 )      (6,339 )      4,240       (27,668 ) 
Total   $     48,600     $     (6,318 )    $     (1,432 )    $     40,850  

16


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

The average estimated residual value for assets on operating leases was 40% and 39% of the assets’ original cost at September 30, 2015 and December 31, 2014, respectively. There were no operating leases in non-accrual status at September 30, 2015 and December 31, 2014.

All of the Company’s leased property was acquired during the years from 2010 through 2015.

Direct financing leases:

As of September 30, 2015, investment in direct financing leases consists of various types of materials handling equipment. As of December 31, 2014, such investment consisted of various types of materials handling, computer-related equipment and cleaning and maintenance equipment. The components of the Company’s investment in direct financing leases as of September 30, 2015 and December 31, 2014 are as follows (in thousands):

   
  September 30,
2015
  December 31,
2014
Total minimum lease payments receivable   $ 31     $ 306  
Estimated residual values of leased equipment (unguaranteed)     13       11  
Investment in direct financing leases     44       317  
Less unearned income     (3 )      (21 ) 
Net investment in direct financing leases   $     41     $     296  

As of September 30, 2015 and December 31, 2014, there were no investments in direct financing leases in non-accrual status.

At September 30, 2015, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

     
  Operating
Leases
  Direct
Financing
Leases
  Total
Three months ending December 31, 2015   $ 1,939     $ 10     $ 1,949  
Year ending December 31, 2016     6,072       21       6,093  
2017     4,842             4,842  
2018     3,541             3,541  
2019     1,004             1,004  
     $     17,398     $     31     $     17,429  

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 2015, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

 
Equipment category   Useful Life
Transportation, rail     35 – 40  
Marine vessel     20 – 30  
Air support equipment     15 – 20  
Manufacturing     10 – 15  
Agriculture     7 – 10  
Cleaning and Maintenance     7 – 10  
Construction     7 – 10  
Materials handling     7 – 10  
Transportation     7 – 10  
Research     5 – 7  

17


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Related party transactions:

The terms of the Operating Agreement provide that the Managing Member 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 the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel, and lease and equipment documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments.

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

Cost reimbursements to the Managing Member or its affiliates 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 Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.

The Managing Member and/or affiliates earned fees and billed for reimbursements of costs and expenses, pursuant to the Operating Agreement, during the three and nine months ended September 30, 2015 and 2014 as follows (in thousands):

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2015   2014   2015   2014
Administrative costs reimbursed to Managing Member and/or affiliates   $      282     $      393     $      966     $      1,167  
Asset management fees to Managing Member     136       181       457       566  
Acquisition and initial direct costs paid to Managing Member           138             303  
     $ 418     $ 712     $ 1,423     $ 2,036  

7. Non-recourse debt:

At September 30, 2015, 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 1.50% to 3.00% per annum. The notes are secured by assignments of lease payments and pledges of assets. At September 30, 2015, gross operating lease rentals totaled approximately $14.1 million over the remaining lease terms; and the carrying value of the pledged assets is $28.0 million. The notes mature at various dates from 2015 through 2019.

The non-recourse debt does not contain any material financial covenants. The debt is secured by a specific lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders has recourse only to the following collateral: the 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

18


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Non-recourse debt: - (continued)

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   Total
Three months ending December 31, 2015   $     1,252     $     85     $     1,337  
Year ending December 31, 2016     4,136       270       4,406  
2017     3,932       166       4,098  
2018     3,233       71       3,304  
2019     996       8       1,004  
     $ 13,549     $ 600     $ 14,149  

8. Long-term debt:

As of September 30, 2015, the $2.1 million of long-term debt consists of a note payable to a lender. Such debt was utilized during the fourth quarter of 2013 to partially fund the marine vessel and related bareboat charter purchased by the Fund and its affiliate, ATEL 15, LLC. The note bears interest at a fixed-rate of 3.5% per annum, to accrue in arrears on a monthly basis. The full pro rata principal amount of $2.1 million plus all outstanding accrued and unpaid interest of approximately $400 thousand shall be paid in one payment of $2.5 million due on May 25, 2019. The note is recourse to the residual value of the vessel which is expected to be well in excess of the note amount. In addition, the lender has recourse to the Fund’s general assets up to $2.5 million. The note does not contain any material financial covenants and is guaranteed as a senior obligation of the Fund.

9. Borrowing facilities:

The Company participates with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate. The Credit Facility was for an amount up to $60.0 million and set to expire in June 2014. During January 2014, the line was increased to $75.0 million, an affiliated participant added, and the expiration extended to June 2015. During April 2015, the line was reduced to $56.0 million and an affiliated company, ATEL 12, LLC, was removed effective December 30, 2014. At June 30, 2015, the line was further reduced to $41.1 million coincidental with a restructure of the lending group; and, the expiration extended to September 2015. As of September 30, 2015, the Credit Facility was amended to increase the line to $75.0 million, add certain institutional fund affiliates as borrowers and extend the expiration date to June 30, 2017. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

19


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

9. Borrowing facilities: - (continued)

As of September 30, 2015 and December 31, 2014, borrowings under the Credit Facility were as follows (in thousands):

   
  September 30,
2015
  December 31,
2014
Total available under the financing arrangement   $ 75,000     $ 75,000  
Amount borrowed by the Company under the acquisition facility            
Amounts borrowed by affiliated partnerships and limited liability companies under the venture, acquisition and warehouse facilities     (11,807 )      (1,150 ) 
Total remaining available under the venture, acquisition and warehouse facilities   $     63,193     $     73,850  

The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of September 30, 2015, the aggregate amount of the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under the Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing.

As of September 30, 2015, the Company’s Tangible Net Worth requirement under the Credit Facility was $10.0 million, the permitted maximum leverage ratio was not to exceed 1.25 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $29.5 million, 0.53 to 1, and 21.92 to 1, respectively, as of September 30, 2015. As such, as of September 30, 2015, the Company was in compliance with all material financial covenants, and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing.

Fee and interest terms

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. There were no borrowings outstanding at September 30, 2015 and December 31, 2014.

Warehouse facility

To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC is a pro rata participant in the Warehousing Trust, as described below. When a program no longer has a need for short-term financing provided by the Warehousing Facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these new entities are added.

As of September 30, 2015, the investment program participants were the Company, ATEL 15, LLC and ATEL 16, LLC. Effective December 30, 2014, ATEL 12, LLC was formally removed as a participant of the

20


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

9. Borrowing facilities: - (continued)

Credit Facility. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding liabilities under the Warehouse Facility, inure to each of such entities based upon each entity’s pro-rata share in the Warehousing Trust estate. The “pro-rata share” is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally liable for the pro-rata portion of the obligations of each of the affiliated limited liability companies participating under the Warehouse Facility. Transactions are financed through this Warehouse Facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of proceeds of a draw under the Acquisition Facility, and the asset is removed from the Warehouse Facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.

There were no borrowings under the Warehouse Facility as of September 30, 2015 and December 31, 2014.

10. Commitments:

At September 30, 2015, there were no commitments to fund investments in notes receivable and to purchase lease assets.

11. 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.

12. Members’ capital:

A total of 8,367,055 Units and 8,386,015 Units were issued and outstanding at September 30, 2015 and December 31, 2014, respectively, including the 50 Units issued to the initial Member (Managing Member). The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.

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

21


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

12. Members’ capital: - (continued)

The Fund’s net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, net income and net loss were allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss are to be allocated 92.5% to the Other Members and 7.5% to the Managing Member.

Fund distributions are to be allocated 7.5% to the Managing Member and 92.5% to the Other Members. The Company commenced periodic distributions in December 2009.

Distributions to the Other Members for the three and nine months ended September 30, 2015 and 2014 were as follows (in thousands except Units and per Unit data):

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2015   2014   2015   2014
Distributions declared   $ 1,882     $ 1,887     $ 5,652     $ 5,661  
Weighted average number of Units outstanding     8,368,927       8,386,015       8,380,198       8,386,015  
Weighted average distributions per Unit   $     0.22     $     0.23     $     0.67     $     0.68  

13. Fair value measurements:

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

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

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

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

At September 30, 2015 and December 31, 2014, only the Company’s warrants were measured on a recurring basis. In addition, the Company recorded non-recurring adjustments to reflect the fair values of certain impaired notes receivable during the nine months ended September 30, 2015 and those of impaired off-lease assets during 2014.

The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

22


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. Fair value measurements: - (continued)

Such fair value adjustments utilized the following methodology:

Warrants (recurring)

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s). As of September 30, 2015 and December 31, 2014, the calculated fair value of the Fund’s warrant portfolio approximated $588 thousand and $595 thousand, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.

The following table reconciles the beginning and ending balances of the Company’s Level 3 recurring assets (in thousands):

 
  Level 3
Assets
Balance at December 31, 2014   $ 595  
Unrealized loss on warrants, net recorded during the period     (7 ) 
Balance at September 30, 2015   $       588  

Impaired notes receivable

The fair value of the Company’s notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans) or discounted cash flow analyses (by discounting estimated future cash flows) using the effective interest rate contained in the terms of the original loan. During the first nine months of 2015, the Company recorded fair value adjustments totaling $63 thousand relative to two impaired notes. Of such amount, a total of $30 thousand was recorded during the third quarter of 2015. The Company had no fair value adjustments relative to impaired notes receivable during the first nine months of 2014 and through December 31, 2014.

The fair value adjustments were non-recurring and were based upon an estimated valuation of underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable is classified within Level 3 of the valuation hierarchy. The valuation utilizes a market approach technique and uses inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral.

The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at September 30, 2015 (in thousands):

       
  September 30,
2015
  Level 1
Estimated
Fair Value
  Level 2
Estimated
Fair Value
  Level 3
Estimated
Fair Value
Assets measured at fair value on a non-recurring basis:
                                   
Impaired notes receivable, net   $     39     $     —     $     —     $     39  

23


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. Fair value measurements: - (continued)

Impaired off-lease equipment

During the first nine months of 2014, the Company recorded fair value adjustments totaling $42 thousand to reduce the cost basis of certain off-lease equipment (assets) deemed impaired. Such adjustments were all recorded prior to the third quarter of 2014. By comparison, there were no fair value adjustments during the first nine months of 2015.

The fair value adjustments were non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets were 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. As of the third quarter of 2014, all previously impaired off-lease equipment had been disposed.

The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation/adjustments categorized as Level 3 in the fair value hierarchy at September 30, 2015 and December 31, 2014:

       
September 30, 2015
Name   Valuation
Frequency
  Valuation
Technique
  Unobservable Inputs   Range of
Input Values
Warrants     Recurring       Black-Scholes formulation       Stock price       $0.15 – $1,000.00  
                         Exercise price       $0.05 – $1,000.00  
                         Time to maturity (in years)       0.87 – 7.34  
                         Risk-free interest rate       0.25% – 1.78%  
                         Annualized volatility       13.63% – 100.00%  
Notes
Receivable
    Non-recurring       Market Approach       Third Party Agents’ estimate
  of the value of collateral
      $6,530 – $17,051  
                         Condition of collateral
  (equipment)
      Poor to Average  

       
December 31, 2014
Name   Valuation
Frequency
  Valuation
Technique
  Unobservable Inputs   Range of
Input Values
Warrants     Recurring       Black-Scholes formulation       Stock price       $0.05 – $1,000.00  
                         Exercise price       $0.05 – $1,000.00  
                         Time to maturity (in years)       1.62 – 8.09  
                         Risk-free interest rate       0.50% – 2.04%  
                         Annualized volatility       15.88% – 100.00%  

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

24


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. Fair value measurements: - (continued)

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 generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.

Investment in securities

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

Non-recourse debt and Long-term debt

The fair value of the Company’s non-recourse and long-term 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 no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.

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

The following tables present 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 September 30, 2015 and December 31, 2014 (in thousands):

         
  Fair Value Measurements at September 30, 2015
     Carrying
Value
  Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     3,732     $     3,732     $     —     $     —     $     3,732  
Notes receivable, net     528                   528       528  
Investment in securities     333                   333       333  
Fair value of warrants     588                   588       588  
Financial liabilities:
                                            
Non-recourse debt     13,549                   13,644       13,644  
Long-term debt     2,068                   2,258       2,258  

25


 
 

TABLE OF CONTENTS

ATEL 14, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. Fair value measurements: - (continued)

         
  Fair Value Measurements at December 31, 2014
     Carrying
Value
  Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     6,646     $     6,646     $     —     $     —     $     6,646  
Notes receivable, net     1,454                   1,454       1,454  
Investment in securities     318                   318       318  
Fair value of warrants     595                   595       595  
Financial liabilities:
                                            
Non-recourse debt     19,279                   19,287       19,287  
Long-term debt     2,068                   2,170       2,170  

26


 
 

TABLE OF CONTENTS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

ATEL 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of December 2, 2009, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the first quarter of 2010. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on February 12, 2010, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on October 6, 2011 with a total of 8,402,515 Units subscribed, representing contributions, net of rescissions and repurchases, approximating $84.0 million. As of September 30, 2015, 8,367,055 Units were issued and outstanding.

During 2011, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company has reinvested cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilized its credit facilities to acquire additional equipment. Throughout the Reinvestment Period, which ends December 31, 2017, the Company anticipates continued reinvestment of cash flow in excess of minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended.

The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

The three months ended September 30, 2015 versus the three months ended September 30, 2014

The Company had net income of $60 thousand and $509 thousand for the three months ended September 30, 2015 and 2014, respectively. Results for the third quarter of 2015 reflect decreases in both total revenues and total expenses when compared to the prior year period.

27


 
 

TABLE OF CONTENTS

Revenues

Total revenues for the third quarter of 2015 decreased by $1.4 million, or 33%, as compared to the prior year period. Such decrease was largely due to reductions in gains on sales of lease assets and early termination of notes receivable and operating lease revenues offset, in part, by a period over period decrease in unrealized losses recorded on the Fund’s portfolio of warrants.

Gains on sales of lease assets and early termination of notes receivable declined by $834 thousand primarily due to $680 thousand of gains realized during the prior year period relative to the sale of two drill rigs associated with a terminated lease. Operating lease revenues decreased by $608 thousand mainly due to run-off and dispositions of lease assets.

Partially offsetting the aforementioned decreases in revenues was a $120 thousand increase attributable to a period over period decline in unrealized losses recorded on the Fund’s portfolio of warrants, resulting from the required periodic revaluation of the warrants in the Company’s portfolio of investments.

Expenses

Total expenses for the third quarter of 2015 decreased by $930 thousand, or 26%, as compared to the prior year period. Such decrease was primarily a result of decreases in depreciation expense, acquisition expense, costs reimbursed to the Managing Member and interest expense offset, in part, by an increase in the provision for credit losses.

The decrease in depreciation expense totaled $635 thousand and was largely a result of run-off and sales of lease assets. Acquisition expense decreased by $138 thousand largely due to a decline in lease acquisition and loan funding activities coupled with a lower level of spending related to identifying potential acquisition and funding transactions. Costs reimbursed to the Managing Member were reduced by $111 thousand as a result of lower allocated costs based, in part, on the Fund’s declining asset base; and, interest expense decreased by $50 thousand due to a $7.8 million decline in outstanding debt since September 30, 2014.

Partially offsetting the aforementioned decreases in expenses was a $60 thousand increase in the provision for credit losses. Such increase was largely attributable to the fair value adjustments recorded on two impaired notes.

The nine months ended September 30, 2015 versus the nine months ended September 30, 2014

The Company had net income of $203 thousand and $353 thousand for the nine months ended September 30, 2015 and 2014, respectively. Results for the first nine months of 2015 reflect decreases in both total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the first nine months of 2015 decreased by $2.7 million, or 23%, as compared to the prior year period. Such decrease was largely due to reductions in operating lease revenues, gain on sales of lease assets and early termination of notes receivable, interest on notes receivable and gain on sales or dispositions of investment in securities offset, in part, by a period over period reduction in unrealized losses recorded on the Fund’s portfolio of warrants.

The decrease in operating lease revenues totaled $1.7 million and was mainly due to run-off and dispositions of lease assets. Gain on sales of lease assets and early termination of notes receivable decreased by $994 thousand largely due to a change in the mix of assets sold. The prior period amount included $1.2 million of gains recognized on the sale of two drill rigs associated with a terminated lease and 99 railcars for scrap; no comparable transaction occurred during the current year period.

In addition, interest on notes receivable was reduced by $157 thousand largely due to the early termination of certain notes and the impact of scheduled loan amortization, which resulted in an approximate $1.3 million decrease in notes receivable since September 30, 2014. Finally, gain on sales or dispositions of investment in securities declined by $71 thousand primarily as a result of lower gains recognized on the net exercise of certain warrants.

28


 
 

TABLE OF CONTENTS

Partially offsetting the aforementioned decreases in revenue was a $238 thousand increase caused by a period over period decline in unrealized losses recorded on the Fund’s portfolio of warrants, resulting from the required periodic revaluation of the warrants in the Company’s portfolio of investments.

Expenses

Total operating expenses for the first nine months of 2015 decreased by $2.5 million, or 22%, as compared to the prior year period. The decrease in total expenses was largely a result of reductions in depreciation expense, acquisition expense, costs reimbursed to the Manager, interest expense, asset management fees paid to the Manager and railcar maintenance costs.

The decrease in depreciation expense totaled $1.7 million and was largely a result of run-off and sales of lease assets. Acquisition expense declined by $303 thousand primarily due to a decline in lease acquisition and loan funding activities and a lower level of spending related to identifying potential acquisition and funding transactions; and, costs reimbursed to the Manager declined by $201 thousand as a result of lower allocated costs based, in part, on the Fund’s declining asset base.

Moreover, interest expense decreased by $144 thousand due to a $7.8 million reduction in outstanding debt since September 30, 2014. Asset management fees paid to the Manager were reduced by $109 thousand largely due to a decrease in managed assets and related rents; and, railcar maintenance costs were lower by $104 thousand mainly due to railcar sales and an overall decline in required maintenance and repairs on the Fund’s remaining railcars.

Capital Resources and Liquidity

At September 30, 2015 and December 31, 2014, the Company’s cash and cash equivalents totaled $3.7 million and $6.6 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The Company currently believes it has adequate reserves available 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. The Managing Member envisions no such requirements for operating purposes.

Cash Flows

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

       
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
     2015   2014   2015   2014
Net cash provided by (used in):
                                   
Operating activities   $ 1,907     $ 2,392     $ 6,233     $ 7,323  
Investing activities     561       895       2,770       4,366  
Financing activities     (3,712 )      (4,469 )      (11,917 )      (10,266 ) 
Net (decrease) increase in cash and cash equivalents   $    (1,244 )    $    (1,182 )    $    (2,914 )    $     1,423  

The three months ended September 30, 2015 versus the three months ended September 30, 2014

During the three months ended September 30, 2015 and 2014, the Company’s primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company realized $282 thousand and $491 thousand of proceeds from sales of lease assets and/or the early termination of notes receivable during the respective three months ended September 30, 2015 and 2014.

29


 
 

TABLE OF CONTENTS

During the same comparative periods, cash was primarily used to pay distributions to both Other Members and the Managing Member, and to repay debt. Distributions paid to both Other Members and Managing Member totaled $2.0 million for each of the three months ended September 30, 2015 and 2014; while cash used to repay debt totaled $1.7 million and $2.4 million for the respective three months ended September 30, 2015 and 2014.

The nine months ended September 30, 2015 versus the nine months ended September 30, 2014

During the nine months ended September 30, 2015 and 2014, the Company’s primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company realized $1.8 million and $2.7 million of proceeds from sales of lease assets and/or the early termination of notes receivable during the respective nine months ended September 30, 2015 and 2014. During the prior year period, the Company also utilized borrowings totaling $3.2 million.

During the same comparative periods, cash was primarily used to repay debt and to pay distributions to both Other Members and the Managing Member. Cash used to repay debt totaled $5.7 million and $7.3 million for the respective nine months ended September 30, 2015 and 2014; while distributions paid to both Other Members and Managing Member totaled $6.1 million for each of the aforementioned nine month-periods.

Revolving credit facility

Effective June 15, 2010, the Company participated with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate. Such Credit Facility was for an amount up to $60.0 million and set to expire in June 2014. During January 2014, the line was increased to $75.0 million, an affiliated participant added, and the expiration extended to June 2015. During April 2015, the line was reduced to $56.0 million and an affiliated company, ATEL 12, LLC, was removed effective December 30, 2014. At June 30, 2015, the line was further reduced to $41.1 million coincidental with a restructure of the lending group; and, the expiration extended to September 2015. As of September 30, 2015, the Credit Facility was amended to increase the line to $75.0 million, add certain institutional fund affiliates as borrowers and extend the expiration date to June 30, 2017. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

Compliance with covenants

The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all applicable covenants under the Credit Facility as of September 30, 2015. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.

Material financial covenants

Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies.

30


 
 

TABLE OF CONTENTS

As of September 30, 2015, the material financial covenants are summarized as follows:

Minimum Tangible Net Worth: $10.0 million
Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1
Collateral Value: Collateral value under the Warehouse Facility must be no less than the outstanding borrowings under that facility
EBITDA to Interest Ratio: Not to be less than 2 to 1 for the four fiscal quarters just ended

“EBITDA” is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. “Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting there from (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 accounting principles generally accepted in the United States of America (“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 Credit Facility. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as calculated per the Credit Facility agreement of $29.5 million, 0.53 to 1, and 21.92 to 1, respectively, as of September 30, 2015. As such, as of September 30, 2015, the Company was in compliance with all such material financial covenants.

Reconciliation to GAAP of EBITDA

For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.

The following is a reconciliation of net income to EBITDA, as defined in the loan agreement, for the twelve months ended September 30, 2015 (in thousands):

 
Net income – GAAP basis   $ 624  
Interest expense     520  
Depreciation and amortization     8,668  
Amortization of initial direct costs     79  
Impairment losses     67  
Provision for credit losses     56  
Unrealized gain on fair valuation of warrants     (49 ) 
Principal payments received on direct financing leases     343  
Principal payments received on notes receivable     1,090  
EBITDA (for Credit Facility financial covenant calculation only)   $ 11,398  

Events of default, cross-defaults, recourse and security

The terms of the Credit Facility 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 Credit Facility 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.

31


 
 

TABLE OF CONTENTS

The Company is currently in compliance with its obligations under the Credit Facility. 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.

The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.

The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Company’s consolidated Tangible Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility.

Non-Recourse Long-Term Debt

As of September 30, 2015 and December 31, 2014, the Company had non-recourse long-term debt totaling $13.5 million and $19.3 million, respectively. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a specific 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 leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.

Long-Term Debt

As of September 30, 2015 and December 31, 2014, the Company had long-term debt totaling $2.1 million. The debt was utilized during the fourth quarter of 2013 to partially fund the marine vessel and related bareboat charter purchased by the Fund and its affiliate, ATEL 15, LLC. The full pro rata principal amount of $2.1 million plus all outstanding accrued and unpaid interest of approximately $400 thousand shall be paid in one payment of $2.5 million due on May 25, 2019. The note is recourse to the residual value of the vessel which is expected to be well in excess of the note amount. In addition, the lender has recourse to the Fund’s general assets up to $2.5 million. The note does not contain any material financial covenants and is guaranteed as a senior obligation of the Fund.

For detailed information on the Company’s debt obligations, see Notes 7 through 9 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).

Distributions

The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of December 2009. Additional distributions have been consistently made through September 30, 2015.

Cash distributions were paid by the Fund to Unitholders of record as of August 31, 2015, and paid through September 30, 2015. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the Prospectus under “Income, Losses and Distributions — Reinvestment.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

32


 
 

TABLE OF CONTENTS

Cash distributions were based on current and anticipated gross revenues from the leases and loans acquired. During the Fund’s acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund’s actual and anticipated gross revenues to be generated from the binding initial terms of the leases and loans acquired.

The following table summarizes distribution activity for the Fund from inception through September 30, 2015 (in thousands except for Units and Per Unit Data):

                 
                 
Distribution Period(1)   Paid   Return of
Capital
    Distribution of Income     Total
Distribution
    Total Distribution per Unit(2)   Weighted
Average Units
Outstanding(3)
Monthly and quarterly distributions
                                                                                
Oct 2009 – Feb 2010
                                                                                
(Distribution of escrow interest)     Jan – Mar 2010     $              $              $              $       n/a  
Dec 2009 – Dec 2010     Jan 2010 – 
Jan 2011
      2,003                               2,003                0.90       2,214,171  
Jan 2011 – Nov 2011     Feb – Dec 2011       4,855                               4,855                0.87       5,597,722  
Dec 2011 – Nov 2012     Jan – Dec 2012       7,562                               7,562                0.90       8,400,238  
Dec 2012 – Nov 2013     Jan – Dec 2013       7,550                               7,550                0.90       8,389,923  
Dec 2013 – Nov 2014     Jan – Dec 2014       7,548                               7,548                0.90       8,386,015  
Dec 2014 – Aug 2015     Jan – Sept 2015       5,655                         5,655             0.67       8,382,172  
           $ 35,173           $           $ 35,173           $ 5.14        
Source of distributions
                                                                                
Lease and loan payments received            $ 33,173       94.31 %    $       0.00 %    $ 33,173       94.31 %                   
Interest Income                    0.00 %            0.00 %            0.00 %                   
Debt against non-cancellable firm
term payments on leases and
loans
          2,000       5.69 %            0.00 %      2,000       5.69 %             
           $ 35,173       100.00 %    $       0.00 %    $ 35,173       100.00 %             

(1) Investors may elect to receive their distributions either monthly or quarterly (See “Timing and Method of Distributions” on Page 73 of the Prospectus).
(2) Total distributions per Unit represents the per Unit distribution rate for those units which were outstanding for all of the applicable period.
(3) Balances shown represent weighted average units for the year ended December 31, 2010, and the periods from January 1 — November 30, 2011, December 1, 2011 — November 30, 2012, December 1, 2012 — November 30, 2013, December 1, 2013 — November 30, 2014 and December 1, 2014 — August 31, 2015, respectively.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At September 30, 2015, there were no commitments to fund investments in notes receivable and to purchase lease assets.

Off-Balance Sheet Transactions

None.

33


 
 

TABLE OF CONTENTS

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts from Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU-2014-15”). The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management does not expect the adoption of ASU 2014-15 to have a material impact on the Company’s financial statements or related disclosures.

Critical Accounting Policies and Estimates

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

The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes to the Company’s critical accounting policies since December 31, 2014.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-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, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer 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

34


 
 

TABLE OF CONTENTS

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.

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 September 30, 2015 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.

35


 
 

TABLE OF CONTENTS

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Documents filed as a part of this report
1. Financial Statement Schedules

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

2. Other Exhibits

 
31.1   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
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

36


 
 

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 12, 2015

ATEL 14, LLC
(Registrant)

   
By:   ATEL Managing Member, LLC
Managing Member of Registrant
    
         

By:

/s/ Dean L. Cash

Dean L. Cash
Chairman of the Board, President and
Chief Executive Officer of
ATEL Managing Member, LLC (Managing Member)

         

By:

/s/ Paritosh K. Choksi

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

         

By:

/s/ Samuel Schussler

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