UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2014

or

¨

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: 000-53904

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

(Exact name of registrant as specified in its charter)

Delaware	26-3291543
(Jurisdiction of Incorporation	(IRS Employer
or Organization)	Identification No.)

225 Franklin St, 17th Floor, Suite 1700

Boston, Massachusetts 02110

(Address of principal executive offices) (Zip Code)

(617)457-0645

(Registrant’s telephone number, including area code)

 

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

Securities registered pursuant to Section 12(g) of the Act: Shares of Limited Liability Company Interest

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those Sections.

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

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

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

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

Large Accelerated Filer  ¨

Accelerated Filer  ¨

Non-Accelerated Filer  ¨

Smaller Reporting Company x

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Not applicable.

 

There were 9,382,123 shares of limited liability company membership interests outstanding as of February 18, 2015.

 

 

TABLE OF CONTENTS

 

PART I
Item 1.	Business	4
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	7
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Mine Safety Disclosures	7
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8
Item 6.	Selected Financial Data	9
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 8.	Financial Statements and Supplementary Data	15
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	31
Item 9A.	Controls and Procedures	31
Item 9B.	Other Information	31
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	32
Item 11.	Executive Compensation	33
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
Item 13.	Certain Relationships and Related Transactions, and Director Independence	33
Item 14.	Principal Accountant Fees and Services	34
PART IV
Item 15.	Exhibits and Financial Statement Schedules	35
	Signatures	36

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements within this Annual Report on Form 10-K may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. In particular, 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 Fund’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-K. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Macquarie Equipment Leasing Fund, LLC is not an authorized deposit-taking institution for the purposes of the Banking Act 1959 (Commonwealth of Australia) and its obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Equipment Leasing Fund, LLC.

 

 

PART I

 

Item 1.    Business 

 

Except as otherwise specified, the “Fund," the "Company,” “we,” “us,” and “our” refer to Macquarie Equipment Leasing Fund, LLC (the “Fund”), a Delaware limited liability company. “Manager” refers to our manager, Macquarie Asset Management Inc., a Delaware limited liability company.

 

Macquarie Equipment Leasing Fund, LLC

 

The Fund was formed on August 21, 2008 for the purpose of being an equipment leasing program that will finance a diversified portfolio of equipment, equipment leases and other equipment-related investments. The majority of the equipment is expected to be leased to corporate clients. The Fund’s objective is to generate income through the collection of lease rentals, interest, and other revenues, as well as through the sale of leased and off lease equipment and other portfolio investments. The Fund’s fiscal year end is December 31.

 

The manager of the Fund is Macquarie Asset Management Inc., a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager has made a total of $1,505,000 in capital contributions to the Fund since the Fund’s formation. The Manager earns fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions, financings, and disposals, asset management and administrative, reporting and regulatory services. The Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment leases, loans, and other equipment-related investments. The Fund has one reportable segment, all information and disclosures herein are related to that segment.

 

The initial closing date for the Fund was March 5, 2010 the Fund’s offering period continued until March 19, 2012. The operating period commenced on thereafter.

 

This report covers the years ended December 31, 2014 and 2013, respectively.

 

Investment Objectives

 

The Fund’s principal investment objectives are to:

 

•   Preserve, protect and return invested capital. The Fund intends to build a portfolio of equipment, equipment leases and other equipment-related investments with the objective of preserving, protecting and returning invested capital.

 

•   Generate regular monthly cash distributions. The Fund will develop a portfolio of varied equipment types, transaction types, clients and transaction durations with the objective of receiving regular cash from its investments. The Fund intends to generate cash through rental payments from its clients, from the sale of equipment, from the sale of leases and from other investments. In turn, the Fund intends to make regular monthly cash distributions beginning the month after the initial closing date of its offering and up to the end of its operating period.

 

•   Reduce the Fund’s overall risk through diversification of its portfolio. The Fund intends to diversify its portfolio by acquiring, directly or indirectly, different types of assets, by entering into or acquiring leases of different durations and by acquiring equipment and investing in other equipment-related transactions in different geographies and industries. Diversification of the Fund’s portfolio will reduce its risk of changes in any particular market sector or of any particular client’s willingness or ability to make payments under a lease.

 

•   Generate investment returns that are not correlated to returns from listed stock and bond markets. The Fund intends to generate investment returns for its members that will not be correlated to listed stock and bond markets. The Fund’s shares will not be traded on any listed exchange and the value of the shares will not be subject to fluctuations on those exchanges.

 

•   Generate a favorable total return on investments. The Fund’s portfolio will be structured with the objective of providing its members with a favorable total return on their investment.

 

The Fund has contemplated investing in equipment classes which include rail equipment, such as freight cars or locomotives, maritime equipment, aviation equipment, such as commercial jet engines and aircraft, road transportation equipment, manufacturing equipment, mining and construction equipment, technological and communications equipment, utilities equipment and/or other types of equipment that the Manager determines may meet the Fund’s investment objectives. The Fund has to date invested in equipment located both within and outside the U.S. All equipment purchased by the Fund to date is leased to corporate clients.

 

 

When contemplating investments in equipment, the Manager may consider a range of factors including the remaining economic useful life of the equipment, the anticipated residual value of the equipment, whether the equipment is new or used and the condition of the equipment, equipment registration and regulatory considerations, portfolio diversification, client considerations such as available financial information about the client and how essential the equipment is to the operations of the client, the cash flow profile of the equipment and the depth of the equipment market and exit mechanisms.

 

The Manager

 

The Fund’s manager is Macquarie Asset Management Inc. The Fund’s investment decisions are made by the Manager’s board of directors.

 

The Manager is a member of the Macquarie Group. Macquarie Group is a global financial services provider. It acts primarily as an investment intermediary for institutional, corporate and retail clients and counterparties around the world. Macquarie Group has built a uniquely diversified business. It has established leading market positions as a global specialist in a wide range of sectors, including resources, agriculture and commodities, energy and infrastructure, with a deep knowledge of Asia-Pacific financial markets.

 

Alignment of interests is a longstanding feature of Macquarie Group’s client-focused business, demonstrated by its willingness to both invest alongside clients and closely align the interests of shareholders and staff. Macquarie Group’s diverse range of services includes corporate finance and advisory, equities research and broking, funds and asset management, foreign exchange, fixed income and commodities trading, lending and leasing and private wealth management.

 

Macquarie Group Limited is listed on the Australia Stock Exchange (ASX:MQG; ADR:MQBKY) and is regulated by the Australian Prudential Regulation Authority, the Australian banking regulator, as the owner of Macquarie Bank Limited, an authorized deposit taker. Macquarie Group also owns a bank in the UK, Macquarie Bank International Limited, which is regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

 

Founded in 1969, Macquarie employs more than 14,100 people in over 28 countries. As of September 30, 2014, Macquarie had assets under management of $A425 billion.

 

The Manager forms part of the division responsible for the majority of Macquarie Group’s equipment leasing activities. As of September 30, 2014, the Macquarie Group’s equipment leasing business had approximately $A17.5 billion of equipment leases under management for its own account with over 1,000 employees located in North America, Europe, Asia and Australia/New Zealand. These employees variously specialize in:

 

•   lease origination across various equipment classes and industries;

 

•   residual value investment determination and management;

 

•   physical remarketing of equipment;

 

•   technical assessment of equipment;

 

•   client and asset management;

 

•   equipment leasing technology platforms; and

 

•   accounting, legal, tax and compliance services for equipment leases.

 

Examples of equipment currently or previously financed by the Macquarie Group under various lease structures include railcars, locomotives and trams, railway infrastructure, commercial jet aircraft engines, aircraft, semiconductor manufacturing equipment, maritime vessels, information technology equipment, utility equipment, telecommunications equipment, medical equipment, road transportation equipment, power stations, electricity grids, marshalling yards, handling equipment, environmental and energy equipment and construction equipment.

 

In managing the Fund, the Manager has access to the experienced leasing, funds management, and other resources of the Macquarie Group.

 

Industry

 

Both in the U.S. and abroad, the equipment leasing industry is large, segmented and highly competitive across products and geographic regions. The Fund carries on business in the U.S. and in foreign jurisdictions. The following figures as published by World Leasing Yearbook 2014 provide an overview of the size of the global equipment leasing industry:

 

•   Annual world leasing volume is in excess of $616 billion.

 

•   North America comprises approximately 34.6% of annual world leasing volume, Europe 34.4% and Asia 24.1%.

 

•   The top 10 countries, measured by way of annual leasing volume (in parentheses), are as follows: U.S. ($194 billion), China ($64 billion). Germany ($53 billion), Japan ($51 billion), France ($31 billion), Italy ($25 billion), Russia ($21 billion),Canada ($16 billion), Brazil ($14 billion), and United Kingdom ($13 billion).

 

 

•   Since 1988, the global aggregate annual leasing volume has grown from $194 billion to over $616 billion.

 

The Fund operates across a number of segments within the equipment leasing industry. The equipment leasing industry and its participants may be categorized in numerous ways. These categories often overlap. The Fund is primarily a global leasing company with a focus on providing primarily non-full payout (operating) leases to mainly corporate clients across a number of equipment classes, although it has and will continue to enter into small ticket lease transactions and full payout loans and leases. Its returns are influenced by competitive conditions existing within the equipment leasing industry, including general economic conditions and its ability to provide lease pricing and terms and structures which are attractive versus competitors.

 

Existing Portfolio – Status Report

 

As of December 31, 2014, our portfolio is represented by the investments as described below, aggregating to a total investment amount of $82,711,002 (net of disposals). The Fund disposed of certain of its furniture and GA8-TC320 Airvan aircraft during the year ended December 31, 2014. As of December 31, 2014 and 2013, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment in certain sectors as follows:

 

				Percentage of Total Equipment Cost
Sector		Asset Type		2014				2013
Aviation		Aircraft engines (2 x CFM56-7B jet engines)			31	%			32	%
Aviation		Aircraft Bombardier CRJ 700 ER			12	%			12	%
Technology		Self-serve checkout equipment			*				*
Railcars		Flat bed rail cars			*				*
Technology/Transportation		Racetrack equipment			*				*
Technology		Smart safes			*				*
Manufacturing Equipment		Machine tool equipment			*				*
Aviation		Aircraft (Airbus model A320-200)			24	%			25	%
Retirement Community/Assisted Living		Furniture			*				*
Aviation		GA8-TC320 Airvan Aircraft			*				**

 

*

Less than 10%

**

Not in Existence

 

The Fund also entered into loan transactions for $5,540,000 during the year ended December 31, 2014, of which, a balance of $3,823,206 was outstanding as of December 31, 2014.

 

Equipment Leasing Activities

 

The Fund has acquired a diversified portfolio of equipment. The following table sets forth the transactions entered into by the Fund during the year ended December 31, 2014 and the types of asset financed:

 

Sector		Asset Type		Purchase Price				Percentage of Total Acquisitions
Railcars		Flat bed rail cars		$	1,032,186				17	%
Technology		Smart safes			210,151				*
Aviation		GA8-TC320 Airvan Aircraft			4,683,690				79	%
				$	5,926,027

 

*   Less than 10%

 

The Fund has disposed of certain equipment during the year. The following table sets forth the sale transactions entered into by the Fund during the years ended December 31, 2014 and 2013, and the types of assets disposed of:

 

 

				2014								2013
Sector		Asset Type		Sale Price				Gain (Loss) on Sale				Sale Price				Gain (Loss) on Sale
Retirement Community/Assisted Living		Furniture		$	132,953			$	95,910			$	297,626			$	225,272
Aviation		GA8-TC320 Airvan Aircraft			1,450,563				(28,607	)			-				-
Technology		Smart safes			-				-				104,323				38,829
				$	1,583,516			$	67,303			$	401,949			$	264,101

 

During the years ended December 31, 2014 and 2013, certain leases generated significant portions (defined as 10% or more) of the Fund’s total leasing revenues. Each asset type listed below relates to one lessee. Concentrations were as follows:

 

				Percentage of Total Leasing Revenues
Sector		Asset Type		2014				2013
Aviation		Aircraft engines (2 x CFM56-7B jet engines)			18	%			20	%
Aviation		Aircraft Bombardier CRJ 700 ER			16	%			20	%
Technology		Self-serve checkout equipment			*				*
Railcars		Flat bed rail cars			12	%			12	%
Technology/Transportation		Racetrack equipments			*				10	%
Manufacturing Equipment		Machine tool equipment			11	%			10	%
Aviation		Aircraft (Airbus model A320-200)			23	%			17	%
Technology		Smart safes			*				*
Retirement Community/Assisted Living		Furniture			*				*
Aviation		GA8-TC320 Airvan Aircraft			*				**

 

*

Less than 10%

**

Not in Existence

 

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

 

Employees

 

The Fund has no direct employees. The Manager has full and exclusive control over the Fund’s management and operations.

 

Available Information

 

Our Annual Report on Form 10-K, our most recent Quarterly Reports on Form 10-Q and any amendments to those reports and our Current Reports on Form 8-K and any amendments to those reports are available free of charge on our Manager’s internet website at http://www.macquarie.com/mami following their electronic filing with the Securities and Exchange Commission (the “SEC”). The information contained on our Manager’s website is not deemed part of this Annual Report on Form 10-K. Our reports are also available on the SEC’s website at http://www.sec.gov.

 

Item 1A.

Risk Factors

 

Not Applicable

 

Item 1B.

Unresolved Staff Comments

 

None.

 

Item 2.

Properties

 

The Fund does not own or lease any real property, plant or material physical properties other than the equipment that may be held for lease or resale from time to time as contemplated in Item 1 of this Annual Report on Form 10-K.

 

Item 3.

Legal Proceedings

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not Applicable.

 

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

There are certain material conditions and restrictions on the transfer of shares imposed by the terms of the Fund’s operating agreement between the Fund and the Manager. Consequently, there is no public market for shares and it is not anticipated that a public market for shares will develop.

 

Members

 

As of December 31, 2014, the Fund has a total of 2,621 members.

 

Share Valuation

 

In order for Financial Industry Regulatory Authority, Inc. (“FINRA”) members and their associated persons to participate in the offering and sale of shares pursuant to our offering or to participate in any future offering of our shares, we are required pursuant to FINRA Rule 2310(b)(5) to disclose in each annual report distributed to our members a “per share” estimated value of our shares, the method by which we developed the estimated value, and the date used to develop the estimated value. In addition, our Manager prepares statements of our estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of Employee Retirement Income Security Act (“ERISA”) in the preparation of their reports relating to an investment in our shares. For these purposes, the estimated value of our shares is deemed to be $9.82 per share as of December 31, 2014. This estimated value is provided to assist plan fiduciaries in fulfilling their annual valuation and reporting responsibilities and should not be used for any other purpose. Because this is only an estimate, we may subsequently revise this valuation.

 

During the offering of our shares, and for a period of up to 18 months after the end of our offering period, the value of our shares was estimated to be the offering price of $10.00 per share (without regard to purchase price discounts for certain categories of purchasers), as adjusted for any special distribution of net sales proceeds. Our offering ended on March 19, 2012.

 

Following the termination of the offering of our shares, the estimated value of our shares is based on the estimated amount that a holder of a share would receive if all of our assets were sold in an orderly liquidation as of the close of our fiscal year and all proceeds from such sales, without reduction for transaction costs and expenses, together with any cash held by us, were distributed to the members upon liquidation. To estimate the amount that our members would receive upon such liquidation, we calculate the sum of (i) the fair market value of our leases, equipment held for sale or lease, and other assets, and (ii) our cash on hand. From this amount, we then subtract our total debt outstanding and then divide that sum by the total number of shares outstanding. The value of our shares as of December 31, 2014 is estimated to be $9.82 per share.

 

The foregoing valuation is an estimate only. The methodology utilized by our management in estimating our per share value is subject to various limitations and are based on a number of assumptions and estimates that may or may not be accurate or complete. No liquidity discounts or discounts relating to the fact that we are currently externally managed were applied to our estimated per share valuation, and no attempt was made to value us as an enterprise.

 

As noted above, the foregoing valuation was performed solely for the ERISA and FINRA purposes described above and was based solely on our Manager’s perception of market conditions and the types and amounts of our assets as of the reference date for such valuation and should not be viewed as an accurate reflection of the value of our shares or our assets. No independent valuation was sought. In addition, as stated above, as there is no significant public trading market for our shares at this time and none is expected to develop, there can be no assurance that limited partners could receive $9.82 per share if such a market did exist and they sold their shares or that they will be able to receive such amount for their shares in the future. Furthermore, there can be no assurance:

 

·

as to the amount investors may actually receive if and when we seek to liquidate our assets or the amount of lease payments and asset disposition proceeds we will actually receive over our remaining term; the total amount of distributions our members may receive may be less than $9.82 per share primarily due to the fact that the funds initially available for investment were reduced from the gross offering proceeds in order to pay selling commissions, underwriting fees, organizational and offering expenses, and acquisition or formation fees;

 

·

that the foregoing valuation, or the method used to establish value, will satisfy the technical requirements imposed on plan fiduciaries under ERISA; or

 

·

that the foregoing valuation, or the method used to establish value, will not be subject to challenge by the IRS if used for any tax (income, estate, gift or otherwise) valuation purposes as an indicator of the current value of the Interests.

 

The repurchase price we offer in our repurchase plan utilizes a different methodology than that which we use to determine the current value of our shares for the ERISA and FINRA purposes described above and, therefore, the $9.82 per share does not reflect the amount that a member would currently receive under our repurchase plan. In addition, there can be no assurance that a member will be able to redeem their shares under our repurchase plan.

 

 

Share Repurchases

 

We repurchased 63,067 shares during the year ended December 31, 2014 compared to repurchases of 105,430 during the year ended December 31, 2013. The repurchase amounts are calculated according to a specified repurchase formula pursuant to our operating agreement. Repurchased shares have no voting rights and do not share in distributions with other members. Our operating agreement limits the number of shares that can be repurchased in any one year and repurchased shares may not be reissued.

 

A summary of the shares repurchases during the quarter ended December 31, 2014 is as follows:

 

		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
October 1 to October 31, 2014			22,872			$	7.79				22,872
November 1 to November 30, 2014			-				-				-
December 1 to December 31, 2014			-				-				-
Total			22,872			$	7.79				22,872

 

Distributions

 

The Fund declared monthly distributions to our members totaling $7,538,554 and $7,586,865 during the years ended December 31, 2014 and 2013, respectively.

 

While the Fund anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.

 

Item 6.

Selected Financial Data

 

Not applicable.

 

Item 7.

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

 

The following is a discussion of our current financial position and results of operations as of and for the year ended December 31, 2014. This discussion should be read together with the Fund’s financial statements contained under Item 8 of this Annual Report on Form 10-K. This discussion should also be read in conjunction with the disclosures above regarding “Forward-Looking Statements.”

 

Overview

Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company, was formed on August 21, 2008 for the purpose of acquiring a diversified portfolio of equipment and equipment leases. The Fund also makes investments in loans collateralized by equipment, and other equipment-related transactions which will allow it to directly or indirectly participate in the benefits and risks of equipment ownership or usage.

 

The Fund’s offering was for a total of 15,000,000 shares at a price of $10.00 per share, subject to certain reductions. The Fund also offered up to 800,000 shares pursuant to its Distribution Reinvestment Plan (“DRP”) at a public offering price of $9.00 per share. The Manager has contributed a total of $1,505,000. The Fund’s fiscal year end is December 31.

 

The Fund’s offering period ended on March 19, 2012 and the Fund’s operating period commenced on that date. The Fund will continue to acquire and dispose of equipment, equipment leases and other equipment-related transactions or make loans secured by equipment collateral during the operating period. During the operating period, the Fund generates cash from equipment leases. In addition, as owned equipment comes off lease, the Fund will either sell or re-lease that equipment. Thus, the Fund also generates cash through the sale of owned equipment. The Fund intends to reinvest equipment sale proceeds and cash generated from equipment investments into additional equipment during the operating period to the extent that the cash is not required to pay distributions and expenses or be set aside as reserves. The Fund’s revenue is impacted by the timing of when sales proceeds can be invested in new equipment transactions. During any fiscal period, the Fund’s revenue may be higher or lower depending on when equipment comes off lease and the time it takes to re-lease or sell the equipment.

 

Equipment leasing activity levels are impacted by general economic conditions in global and local economies and more specifically business appetite for investment in new and used equipment. The availability of liquidity to finance equipment for counterparties on satisfactory terms as well as business confidence to invest in equipment throughout the cycles impacts on the equipment leasing volumes and pricing in the marketplace. Pricing in the global market has become more competitive in recent years due to the reduction in interest rates in the U.S. and Europe.

 

 

Recent Transactions

 

We engaged in the following transactions during 2014:

 

Participating Interest in a Finance Facility

 

In November 2014, the Fund entered into a participation agreement with Macquarie Bank Limited London Branch (“MBL UK”), a member of the Macquarie Group of companies, to provide financing of $5,000,000 to participate in an existing facility previously provided by MBL UK to a European technology distribution company to finance technology equipment. The term of each advance is 58 days from disbursement. The Fund’s advances were paid to MBL UK and it will receive principal and interest payments from MBL UK. Repayment is predicated on MBL UK receiving principal and interest payments from the underlying counterparty. This transaction is recorded as a participating interest – loan receivable (related party) on the Fund’s balance sheet and recognized at amortized cost. The Fund recognizes interest income using the effective interest method. The loan is unsecured with the Fund being entitled to a pro-rata portion of MBL UK’s credit insurance in the event of a default. The loan was fully repaid in February 2015.

 

Finance Facility

 

In November 2014, the Fund entered into an agreement with an Australian aircraft manufacturer to provide a finance facility of $540,000 for a period of 12 months. The Australian aircraft manufacturer is required to pay monthly installments of $7,597 over the term of the facility and a final installment of $496,260 on the first day of the last month in the term. The loan is secured by a GA8-TC320 aircraft. The loan is recorded as a loan receivable and recorded at amortized cost on the balance sheet. The Fund will recognize interest income using the effective interest method.

 

Extension of Bombardier CRJ 700 ER Aircraft Lease

 

In July 2014, the Fund entered into a lease extension agreement for its Bombardier CRJ 700 ER Aircraft which was initially acquired in March 2011. The aircraft is on lease to an airline which is wholly owned by the Government of India and will continue to be used by the airline for its domestic routes in India. The lease was extended for a period of 24 months. At expiration of the lease the airline may return the aircraft to the Fund or extend the lease for an additional 24 month period. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.

 

In July 2014, as part of the lease extension agreement, the Fund and the lessee agreed to offset the outstanding rent and maintenance reserve of $1,271,897 owed by the lessee with maintenance reimbursements of $1,386,401 owed to the lessee, with the difference credited to the lessee’s rent.

 

Smart Safe Equipment

 

In March 2014, as part of a master lease program, the Fund purchased additional smart safes for $210,150, including initial direct costs, from a U.S. safe manufacturer, $189,066 were classified as operating leases and $21,084 as finance leases. These safes are on lease for a period of 60 months to a company that owns, operates or franchises restaurants. The safes are deployed in restaurants throughout the U.S. No leverage was used to finance this acquisition by the Fund. The lease term begins when the Fund signs the acceptance certificate and continues over the period of the lease. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment under a renewed lease agreement. The Fund has simultaneously entered into a Service and Remarketing agreement with a major U.S. cash logistics company who has been appointed as the exclusive service provider for the Fund and is responsible for billing, collecting and servicing the safes. In certain circumstances, the service provider has an option to request the purchase of the safes from the Fund at fair market value at the end of the lease term of 60 months. If the Fund consents to the service provider's request, fair market value in this case cannot exceed 29% of the asset’s respective cost.

 

Railcar Portfolio

 

In March 2014, the Fund purchased a portfolio of flat bed rail cars for $1,032,186 including initial direct costs. The rail cars are on lease to the U.S. subsidiary of a leading global manufacturer of wind turbines for a period of 60 months. No leverage was used to finance this acquisition. At the end of the lease term, the lessee may return, continue to rent or purchase the equipment for its fair market value. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.

 

GA8-TC320 Airvan Aircraft

 

Throughout 2014 the Fund entered into finance lease transactions with an Australian aircraft manufacturer for GA8-TC320 Airvan aircrafts. All of the transactions were sales and leasebacks expect for the acquisition in September 2014 and one of the acquisitions in October 2014. Under all of the lease agreements the lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised by the end of the lease term, ownership of the aircraft is transferred back to the lessee for an agreed-upon price. All of the leases are classified as finance leases on the Fund’s balance sheet; no leverage was used to finance any of the transactions. The below table summarizes the details of all the GA8-TC320 acquisitions for the year ended December 31, 2014.

 

 

Acquisition Date		Lease Term*		Purchase Price **
January 2014***		48		$	572,274
January 2014		48			529,845
January 2014***		48			529,845
January 2014***		48			465,683
May 2014		44			360,500
September 2014		42			660,000
October 2014		42			616,596
October 2014		42			500,000
December 2014		42			448,947
				$	4,683,690

 

* Lease term is in months

** Purchase price includes initial direct costs

*** Asset was sold in 2014

 

Sale of Finance Lease Assets

 

In March 2014, on expiration of one of the Fund’s leases for office equipment, the lessee exercised its option to buy the equipment subject to the lease. The lessee paid a purchase price of $70,953 and the Fund recognized a gain of $51,445, based on the carrying value of the equipment.

 

In May 2014, the lessee exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 97.4% of the aircraft’s original cost. Additionally, the Fund received a percentage of the proceeds over an agreed-upon threshold from the lessee’s sale of the aircraft to a third party. The lessee paid a purchase price of $542,265 and the Fund recognized a loss on sale of $8,900, which was attributable to capitalized costs included in the acquisition price.

 

In August 2014, the lessee exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 95.4% of the aircraft’s original cost. The lessee paid a purchase price of $488,448 and the Fund recognized a loss on sale of $10,757, which was attributable to capitalized costs included in the acquisition price.

 

In September 2014, on expiration of one of the Fund’s leases for office equipment, the lessee exercised its option to buy the equipment subject to the lease. The lessee paid a purchase price of $62,000 and the Fund recognized a gain of $44,465, based on the carrying value of the equipment.

 

In December 2014, the lessee exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 93.3% of the aircraft’s original cost. The lessee paid a purchase price of $419,850 and the Fund recognized a loss of $8,951, which was attributable to capitalized costs included in the acquisition price.

 

Results of Operations for the Year Ended December 31, 2014

 

Total revenue for the year ended December 31, 2014 increased by $1,267,141 when compared to the year ended December 31, 2013 primarily due to an increase in rental income of $1,437,352 and interest income of $46,376. The increase in rental income was due to additional equipment purchased by the Fund during 2014 as described in the Recent Transactions section above. These additional lease transactions include assets such as smart safes, nine GA8-TC320 Airvan aircraft, and a portfolio of railcars. The Fund also realized a gain of $95,910 from the sale of office equipment and a loss of $28,608 from the sale of three GA8-TC320 Airvan aircrafts in 2014. The gain realized from sale of leased equipments in 2014 decreased by $196,799 when compared to 2013.

 

Total expenses for the year ended December 31, 2014 increased by $407,884 when compared to the year ended December 31, 2013 primarily due to an increase in depreciation expense of $164,768, other expenses of $122,205, operating expenses of $72,795 and asset management fees of $48,116. The increase in depreciation and management fees were driven by the purchase of additional equipment during 2014 as described above. The increase in other expenses was due to transaction costs incurred during 2014 which were expensed when it became more likely than not that the transaction would not be completed.

 

As a result, the Fund’s net income for the year ended December 31, 2014 was $5,948,230 as compared to $5,088,973 for the year ended December 31, 2013.

 

 

The Fund evaluated a number of equipment transactions during 2014 and closed some of these transactions. To date, the Fund has not used leverage to finance these transactions. The Fund continues to pursue additional equipment investments as well as leverage opportunities on the existing equipment portfolio.

 

Financial Condition

 

This section discusses the major balance sheet variances from 2014 compared to 2013.

 

Total Assets

 

Total assets decreased by $3,225,170, from $82,732,255 as of December 31, 2013 to $79,507,085 as of December 31, 2014. The decrease in total assets during 2014 was primarily due to a decrease in cash and cash equivalents of $3,383,561, lease receivables of $1,147,674 and maintenance reserve receivables of $539,528. Cash decreases were driven by the acquisition of leased assets for a total of $5,946,612, finance facility of $5,540,000 and cash distributions to members of $7,542,838. Cash increases were driven by rents collected and rentals received in advance from certain lessees, in addition to loan principal repayments of $1,716,794. Lease and maintenance reserve receivables were decreased due to the payment of outstanding rentals and the offset of outstanding rentals and maintenance reserve receivable on the extension of the lease for the Fund’s Bombardier CRJ 700 ER Aircraft. Operating lease assets decreased by $3,549,514 due to depreciation expense of $4,791,352, partially offset by the acquisition of a railcar portfolio. Net investment in finance leases increased by $2,363,992 due to new acquisitions, partially offset by the sale of five finance lease assets, amortization of unearned revenue and the collection of rentals.

 

Total Liabilities

 

Total liabilities decreased by $1,118,399, from $5,096,833 as of December 31, 2013 to $3,978,434 as of December 31, 2014. The decrease in total liabilities is the result of a decrease in maintenance reserve payable of $1,293,740. When the Fund extended its lease for the Bombardier CRJ 700 ER Aircraft, the Fund agreed to offset maintenance reimbursements it owed to the lessee with rentals and maintenance reserve payments owed to the Fund. The maintenance costs offset as part of the agreement totaled, $1,386,401. This decrease is partially offset by an increase in rental income received in advance of $177,715 as certain of the Fund’s lessees paid January rent in December. Fees payable to related parties decreased by $87,563 as the Fund had outstanding asset management fees payable as of December 31, 2013, no asset management fees were outstanding as of December 31, 2014.

 

Equity

 

Equity decreased by $2,106,771, from $77,635,422 as of December 31, 2013 to $75,528,651 as of December 31, 2014. The decrease in equity is primarily due to distributions declared to investors of $7,538,554, of which $6,900,118 were paid and $638,436 were payable as of December 31, 2014. Additionally, 63,067 shares were redeemed for $516,447 during the year ended December 31, 2014. This decrease was offset by net income of $5,948,230 for the same period.

 

Liquidity and Capital Resources

 

Cash Flows Summary

 

The following table sets forth summary cash flow data for the year ended December 31, 2014 and 2013.

 

		December 31, 2014				December 31, 2013
Net cash provided by/(used in) :
Operating activities		$	12,772,026			$	11,072,837
Investing activities			(7,299,677	)			(25,853,248	)
Financing activities			(8,855,910	)			(8,250,954	)
Net decrease in cash and cash equivalents		$	(3,383,561	)		$	(23,031,365	)

 

See Statements of Cash Flows included in “Item 1. Financial Statements” of this Annual Report on Form 10-K for additional information.

 

As of December 31, 2014, the Fund had cash and cash equivalents of $5,707,071. The amount of cash provided by operating activities for the year ended December 31, 2014 of $12,772,026 consisted primarily of rentals collected during 2014 from equipment assets on lease.

 

The cash used in investing activities for the year ended December 31, 2014 is primarily attributable to the purchase of nine GA8-TC320 Airvan aircraft for $4,683,690, the purchase of additional railcars for $1,032,186, the purchase of additional smart safes for $210,150, and loans of $5,540,000. This decrease is partially offset by proceeds of $1,450,563 received from sale of three GA8-TC320 Airvan aircraft and $132,953 received from sale of office equipment and the security deposit of $90,000 received from the lessee of the GA8-TC320 Airvan aircraft.

 

 

The cash used in financing activities for the year ended December 31, 2014 is primarily attributable to distributions to members and share repurchases.

 

Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less and are held in operating and money market accounts at Wells Fargo Bank, N.A.

 

Sources and Uses of Cash

 

The Fund’s main activities and our main use of cash has been to acquire a diversified portfolio of equipment, equipment leases and other equipment-related investments which are denominated in US dollars and are on lease to corporate clients around the world. We will also make investments in other equipment-related transactions which will allow us to directly or indirectly participate in the benefits and risks of equipment ownership or usage and make loans collaterized by equipment.

 

As of February 18, 2015 we have used approximately $104,185,335 of the offering and equipment sale proceeds to acquire the following assets:

 

		Purchase Price
Participation interest in Commercial jet aircraft engines (sold in March 2012)		$	6,500,000
Aircraft Bombardier CRJ 700 ER			9,786,555
Self-serve checkout equipment			2,097,353
ETS-364B semiconductor test system (sold in May 2012)			383,898
Furniture, office and other related equipments			669,010
Furniture, office and other related equipments (sold in Nov 2013, Mar 2014 & Sep 2014)			1,012,843
Semiconductor manufacturing tools (sold in June 2012)			6,400,800
Aircraft engines (2 x CFM56-7B jet engines)			25,338,321
Flat bed rail cars			7,777,356
Racetrack equipment			5,311,507
Smart safes			3,294,695
Smart safes (sold in July 2013)			68,989
Machine tool equipment			5,768,966
Aircraft (Airbus model A320-200)			19,551,352
GA8-TC320 Airvan Aircraft			3,115,888
GA8-TC320 Airvan Aircraft (sold in May 2014, Aug 2014 & Dec 2014)			1,567,802
Financing provided to aircraft manufacturer			540,000
Participating interest in loan receivable (related party)			5,000,000
		$	104,185,335

 

Sources of Liquidity

 

We believe that cash generated from our operating activities and from debt borrowings, if required, will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, funding of new investment opportunities, payment of management fees, equipment maintenance events, and administrative expense reimbursements. Our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ businesses that are beyond our control.

 

The Fund’s liquidity may be adversely affected by unanticipated or greater than anticipated operating costs or losses, including the inability of a client of the Fund to make timely lease payments or costs associated with off lease assets or assets available for sale. The Fund anticipates that it will fund its operations from cash flow generated by operating and financing activities. The Manager has no intent to permanently fund any cash flow deficit of the Fund or provide other financial assistance to the Fund.

 

The Fund also intends to incur indebtedness on future acquisitions for its portfolio. During periods of general illiquidity in financial markets, it may not be possible for the Manager to source debt on the Fund’s behalf at an appropriate interest rate, on appropriate terms, at appropriate levels or at all.

 

 

Distributions

 

The Fund paid total cash distributions of $7,542,838 and $7,594,029 to our members during the years ended December 31, 2014 and 2013, respectively.

 

While the Fund anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.

 

Commitments, Contingencies and Off-Balance Sheet Transactions

 

Other than obligations associated with our investing activities or as set forth in our operating agreement, we have no contractual obligations and commitments, contingencies or off-balance sheet transactions as of December 31, 2014.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is presented in Note 2, “Significant Accounting Policies”, in our consolidated financial statements in “Financial Statements and Supplementary Data” in Part II, Item 8, of this Form 10-K for a summary of the Company’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.

 

We believe the following critical accounting policies could have a significant impact on our results of operations, financial position and financial statement disclosures, and may require subjective and complex estimates and judgments.

 

Leased Equipment at Cost

 

Leased equipment at cost represents our largest asset class. We depreciate leased equipment using the straight-line method over an asset’s lease term to its estimated residual value. Any change in the residual value changes the depreciation expense and could have a significant impact on our results for any one period. The Fund’s significant assets and their residual values are reviewed at least annually for impairment.

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

 

As of March 5, 2010, the Fund received the minimum offering amount of $2,500,000 and commenced making investments in equipment, equipment leases and other equipment-related transactions. Since that time, the Fund has been, and will continue to be, exposed to certain risks. Among these are the risks that equipment the Fund purchases will be worth less than anticipated at the end of the term of the lease; the risk that the Fund’s clients will fail to pay rent as required under its leases or make interest and principal loan repayments; and the risk that the Fund may not be able to source appropriate or attractive investments given the highly competitive nature of the equipment leasing industry.

 

To date, all of the Fund’s investments are subject to fixed interest rate leases and all are denominated in U.S. dollars. We believe that our exposure to foreign currency exchange rate risk, commodity risk (other than our residual value investments in equipment) and equity price risk are insignificant at this time to both our financial position and our results of operations. As of December 31, 2014, the Fund has no exposure to derivative financial instruments and has not incurred any debt in the acquisition of its investments, though it may incur debt in the future.

 

 

Item 8.

Financial Statements and Supplementary Data

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

INDEX TO THE FINANCIAL STATEMENTS

 

	Page Number
Balance Sheets as of December 31, 2014 and December 31, 2013	17
Statements of Operations for the years ended December 31, 2014 and December 31, 2013	18
Statements of Cash Flows for the years ended December 31, 2014 and December 31, 2013	19
Statements of Changes in Members’ Equity for the years ended December 31, 2014 and December 31, 2013	20
Notes to Financial Statements	21

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Members of

Macquarie Equipment Leasing Fund, LLC

 

In our opinion, the accompanying balance sheets and the related statements of operations, of changes in members’ equity and of cash flows present fairly, in all material respects, the financial position of Macquarie Equipment Leasing Fund, LLC at December 31, 2014 and December 31, 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ PricewaterhouseCoopers LLP

 

New York, New York

February 18, 2015

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

BALANCE SHEETS

 

		December 31, 2014				December 31, 2013
ASSETS
Current Assets
Cash and cash equivalents		$	5,707,071			$	9,090,632
Restricted cash			1,248,967				2,045,592
Net investment in finance lease			686,558				614,232
Loan receivables			532,987				-
Participating interest - loan receivable (related party)			3,312,965				-
Lease receivables			-				1,147,674
Maintenance reserve and other receivables			92,390				631,918
Other assets			5,038				23,250
Total Current Assets			11,585,976				13,553,298
Non-current Assets
Net investment in finance lease			3,541,973				1,250,307
Leased equipment at cost (net of accumulated depreciation of $12,977,988 and $8,186,636, respectively)			64,379,136				67,928,650
Total Non-current Assets			67,921,109				69,178,957
Total Assets		$	79,507,085			$	82,732,255
LIABILITIES AND MEMBERS’ EQUITY
Current Liabilities
Fees payable (related party)		$	7,433			$	94,996
Deferred finance and rental income			1,131,590				953,875
Distribution payable			638,436				642,721
Other payables			235,802				236,328
Maintenance reserve			-				2,586,632
Total Current Liabilities			2,013,261				4,514,552
Non-current Liabilities
Maintenance reserve			1,292,892				-
Other payables			672,281				582,281
Total Non-current Liabilities			1,965,173				582,281
Total Liabilities			3,978,434				5,096,833
Commitments and Contingencies
Members' Equity
Shares of membership interests, $10.00 par value as may be reduced (i) under a distribution reinvestment plan, (ii) for volume discounts, or (iii) for reductions in selling commissions
Authorized: 15,800,500 shares;
Issued and outstanding: 9,396,317 shares as of December 31, 2014 and 9,459,384 shares as of December 31, 2013, net of repurchases of 261,800 and 198,733, respectively			63,361,376				63,877,823
Accumulated surplus			12,167,275				13,757,599
Total Members’ Equity			75,528,651				77,635,422
Total Liabilities and Members’ Equity		$	79,507,085			$	82,732,255

 

See accompanying notes to Financial Statements

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

STATEMENTS OF OPERATIONS

 

		Year ended
		December 31, 2014				December 31, 2013
REVENUE
Finance and rental income		$	12,420,118			$	10,982,766
Net gain on sale of leased equipment			67,302				264,101
Interest income			8,181				-
Interest income (related party)			38,195				-
Other income			33,113				52,901
Total revenue			12,566,909				11,299,768
EXPENSES
Operating expenses (related party)			469,140				396,345
Management fees (related party)			648,915				600,799
Depreciation			4,791,352				4,626,584
Other expenses			709,272				587,067
Total expenses			6,618,679				6,210,795
Net income		$	5,948,230			$	5,088,973
Basic and diluted earnings per share		$	0.63			$	0.54
Weighted average number of shares outstanding: basic and diluted			9,426,840				9,491,397

 

See accompanying notes to Financial Statements

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

STATEMENTS OF CASH FLOWS

 

		Year Ended
		December 31, 2014				December 31, 2013
Cash flow from operating activities:
Net income		$	5,948,230			$	5,088,973
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			4,791,352				4,626,584
Net gain on sale of leased equipment			(67,302	)			(264,101	)
Changes in operating assets and liabilities:
Fees payable (related party)			(87,563	)			61,212
Lease receivables			1,147,674				171,959
Interest receivable (related party)			(22,746	)			-
Net investment in finance lease			824,568				645,011
Other receivables			42,412				(22,814	)
Other payables			(526	)			51,079
Deferred finance and rental income			177,715				738,184
Other assets			18,212				(23,250	)
Net cash provided by operating activities			12,772,026				11,072,837
Cash flow from investing activities:
Proceeds from sale of leased equipment			1,583,516				401,949
Purchase of equipment			(1,241,838	)			(26,349,422	)
Investment in capital leased equipment			(4,704,774	)			-
Payment for participating interest (related party)			(5,000,000	)			-
Repayment of particpating interest (related party)			1,709,781				-
Advance of loans receivable			(540,000	)			-
Repayment of loans receivable			7,013				-
Restricted cash paid/(received)			796,625				(260,420	)
Security deposit			90,000				354,645
Net cash used in investing activities			(7,299,677	)			(25,853,248	)
Cash flow from financing activities:
Distribution paid to members			(7,542,838	)			(7,594,029	)
Repurchase of shares			(516,447	)			(917,344	)
Maintenance reserve (paid)/received			(796,625	)			260,419
Net cash used in financing activities			(8,855,910	)			(8,250,954	)
Net decrease in cash and cash equivalents			(3,383,561	)			(23,031,365	)
Cash and cash equivalents, beginning of the period			9,090,632				32,121,997
Cash and cash equivalents, end of the period		$	5,707,071			$	9,090,632
Supplemental disclosures of cash flow information
Non cash investing and financing activities
Maintenance reserve		$	(497,116	)		$	198,906
Accrued purchase of equipment		$	-			$	8,733
Distribution Payable		$	638,436			$	642,721

 

See accompanying notes to Financial Statements

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

STATEMENT OF CHANGES IN MEMBERS’ EQUITY

 

						Membership interests								Accumulated surplus
		Members' shares				Additional members (1)				Managing member				Additional members (1)				Managing member				Total
Balance at December 31, 2012			9,564,814			$	71,301,468			$	1,080,564			$	8,608,829			$	59,797			$	81,050,658
Repurchase of shares			(105,430	)			(917,344	)			-				-				-				(917,344	)
Distribution to members			-				(7,457,433	)			(129,432	)			-				-				(7,586,865	)
Net income			-				-				-				5,002,103				86,870				5,088,973
Balance at December 31, 2013			9,459,384			$	62,926,691			$	951,132			$	13,610,932			$	146,667			$	77,635,422
Repurchase of shares			(63,067	)			(516,447	)			-				-				-				(516,447	)
Distribution to members			-				-				-				(7,409,122	)			(129,432	)			(7,538,554	)
Net income			-				-				-				5,846,129				102,101				5,948,230
Balance at December 31, 2014			9,396,317			$	62,410,244			$	951,132			$	12,047,939			$	119,336			$	75,528,651

 

(1)	Additional members represent all members other than the Managing member.

 

See accompanying notes to Financial Statements

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company (the “Fund” or the “Company”), was formed on August 21, 2008 for the purpose of being an equipment leasing program that will acquire a diversified portfolio of equipment, equipment leases and other equipment-related investments. The majority of the equipment is expected to be leased to corporate clients. The Fund’s objective is to generate income through the collection of lease rentals and other revenues, as well as through the sale of leased and off lease equipment and other portfolio investments. The Fund’s fiscal year end is December 31.

 

The manager of the Fund is Macquarie Asset Management Inc. (the “Manager” or the “Managing member”), a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager has made a total of $1,505,000 in capital contributions to the Fund. The Manager earns fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, equipment loans, asset management and administrative, reporting and regulatory services. The Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and loans, and other equipment-related investments. The Fund has one reportable segment, all information and disclosures herein are related to that segment.

 

The initial closing date for the Fund was March 5, 2010, the date at which the Fund raised over $2,500,000 and reached the minimum offering amount. The Fund’s offering period ceased on March 19, 2012 and the operating period commenced on that date.

 

This report covers the years ended December 31, 2014 and 2013, respectively.

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Accounting and Use of Estimates

 

The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). This 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. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Fund considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained with one financial institution.

 

Restricted Cash

 

Restricted cash consists of cash collected from the lessee of the CRJ 700 ER aircraft for maintenance costs.

 

Income Taxes

 

The Fund is treated as a partnership for federal and state income tax purposes. As a partnership, the Fund is not subject to federal and state income taxes, while each member will be individually liable for income taxes, if any, on their share of net taxable income from the Fund. Interest, dividends and other income realized by the Fund may be subject to withholding tax in the jurisdiction in which the income is sourced.

 

Leased Equipment at Cost

 

Investment in leased equipment is stated at cost less accumulated depreciation. Leased equipment is depreciated on a straight-line basis over the lease term to the assets’ residual value. Initial direct costs (such as freight, installation, acquisition fees and expenses, legal fees and inspection fees) associated with the leases are capitalized as part of the cost of the leased equipment and depreciated over the lease term.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

The lease term from the acquisition date by the Fund of each item of equipment is as follows:

 

		Lease
		term (in years)
Aircraft engines (2 x CFM56-7B jet engines)		9
Aircraft Bombardier CRJ 700 ER		2
Aircraft (Airbus model A320-200)		2.5
Self-serve checkout equipment		5
Flat bed rail cars		5
Racetrack equipment		4
Smart safes		5
Machine tool equipment		5

 

The residual value and useful life are determined by the Fund’s Manager and are calculated using information from both internal (i.e. from affiliates) and external sources, such as trade publications, industry valuers, auction data, internal and external sales data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical assets. Once an asset comes off lease or is re-leased, the Fund reassesses its useful life and residual value.

 

Costs incurred in extending the useful life and/or increasing the resale value of leased equipment are capitalized into the cost of an asset. No such costs have been incurred to date.

 

If the equipment is returned at the end of a lease term and the lessee has not met the return conditions as set out in the lease, the Fund is entitled, in certain cases, to additional compensation from the lessee. The Fund’s accounting policy for recording such payments is to treat the payments as revenue. No such payments were received for the year ended December 31, 2014 and 2013, respectively.

 

The lessee is generally responsible for the ongoing maintenance costs of the equipment under net lease arrangements.

 

The significant operating lease assets in the Fund’s portfolio are reviewed for impairment at least annually or when indicators of impairment exist. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. The Manager’s assessment for impairment (i.e. undiscounted cash flows used in the recoverability assessment) includes review of published values for similar assets, recent transactions for similar assets, lease terms, asset condition, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset. No impairment charges were recorded for the year ended December 31, 2014 and 2013, respectively.

 

Net investment in finance lease

 

If a lease meets specific criteria under ASC 840 at its inception, then the Fund recognizes the lease as a net investment in finance lease on its balance sheet. Net investment in finance leases consist of lease receivables plus the estimated unguaranteed residual value of the leased equipment on the lease termination date, less the unearned income.

 

The residual values of the Fund’s significant finance lease assets are reviewed at least annually. If the review results in a lower estimate than had been previously established, the Fund will determine whether the decline in the estimated residual value is other than temporary. If the decline in estimated residual value is judged to be other than temporary, the accounting for the transaction shall be revised using the changed estimate and the resulting reduction in the net investment shall be recognized as a loss in the period in which the estimate is changed. An upward adjustment of a leased asset’s estimated residual value shall not be made.

 

Loans receivable

 

Loans receivable are reported on the Fund’s balance sheet at the outstanding principal balance, plus costs incurred to originate the loans. Unearned income, discounts and premiums are amortized to interest income in our statement of operations using the effective interest method. Interest receivable related to the unpaid principal is recorded in the carrying amount of the loan. Upon the repayment of a loan receivable, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of interest income in the statement of operations.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

Loans with related parties are disclosed separately in the Fund’s financial statements. See Note 6 for disclosures relating the Fund’s participating interest in a loan receivable.

 

Due to the short term nature of the Fund’s outstanding loans receivable (all outstanding loans have maturities less than one year) fair value of the loans approximates their cost.

 

Maintenance reserve

 

Under the lease agreement for the Fund’s Bombardier CRJ 700 ER aircraft, the lessee is responsible for the costs of major maintenance on the components of the aircraft, including the engines, airframe, auxiliary power unit and landing gear at an approved maintenance facility in accordance with the manufacturer’s recommended maintenance guidelines. The lessee is required to pay the Fund for maintenance, calculated monthly, which is based on the prior month’s flight hours and flight cycles. These payments are set aside for future maintenance costs and are recognized as restricted cash on the Fund’s Balance Sheets when paid by lessee. As the maintenance is performed, and to the extent that the lessee has met all of its obligations under the lease, the lessee is reimbursed for costs incurred up to, but not exceeding, the related payments the Fund receives from the lessee for maintenance. At the completion of each major maintenance event, the difference between the liability and reimbursement paid to the lessee is recorded as revenue if management is satisfied that the remaining reserve is considered sufficient to cover future maintenance or repairs.

 

As part of the lease extension described in Note 3, the Fund agreed to offset maintenance reimbursements owed to the lessee for shop visits in 2013 of $1,386,401 with rental and maintenance reserve payments owed to the Fund.

 

Cash is only collected for maintenance costs on the Fund’s CRJ 700 ER aircraft.

 

Revenue recognition

 

At inception of a finance lease the Fund records the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination, the initial direct costs related to the lease, and the related unearned income. Unearned income represents the total minimum lease payments receivable plus the estimated unguaranteed residual value minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

 

For operating leases, rental income is recognized on a straight-line basis over the lease term. From time to time, the Fund receives rental payments in advance. These advance payments are recognized on the Fund's Balance as deferred revenue and recognized as income in the month they are earned.

 

Gains or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s Statements of Operations.

 

Certain of the Fund’s leases contain provisions for late fees on past due rent. The Fund recognizes late fees as income when they become chargeable and collection is reasonably assured.

 

The Fund recognizes interest income on its loans receivable using the effective interest method.

 

Allowance for doubtful accounts and provision for credit losses

 

The Fund is exposed to risks under its leasing transactions, including risk associated with a lessee’s creditworthiness, repossession and remarketing and the future market value of the equipment. The Fund evaluates the collectability of its lease receivables by analyzing the counterparties’ payment history, general credit worthiness and current economic trends. Although the Fund currently has no reason to believe that the lessees will fail to meet their contractual obligations, a risk of loss to the Fund exists should a lessee fail to meet its payment obligations under a lease. The Fund records an allowance when the analysis indicates that the probability of full collection is unlikely. No allowance was recorded as of December 31, 2014 or December 31, 2013, respectively.

 

An allowance or provision for credit losses is established if there is evidence that the Fund will be unable to collect all amounts due according to the original contractual terms of the loan or finance lease receivable. The allowance for credit losses is reported as a reduction of the loan receivable carrying value on the balance sheet. Additions to the allowance and provision for credit losses are recorded in the statement of operations. Allowances and provisions for credit losses are evaluated periodically and on an individual asset and customer level. Loans receivable are considered impaired when we determine that it is probable that we will not be able to collect all amounts due according to the original contractual terms. Individual credit exposures are evaluated based on the realizable value of any collateral, and payment history. The estimated recoverable amount is the value of the expected future cash flows, including amounts that may be realized with the repossession of the collateral.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

Allowances for specific credit losses are established for the difference between the carrying amount and the estimated recoverable amount. The accrual of interest income based on the original terms of the loan receivable is discontinued based on the facts and circumstances of the individual credit exposure, and any future interest income is recorded based on cash receipts. Any subsequent changes to the amounts and timing of the expected future cash flows compared with the prior estimates result in a change in the allowance for credit losses and are charged or credited to the statement of operations. An allowance is generally reversed only when cash is received in accordance with the original contractual terms of the note.

 

The Fund does not provision for credit losses on a collective basis.

 

Due to the credit rating of the counterparties, the short-term nature of loans, and payment history, the Fund has not recorded a provision for credit losses on its loans receivable as of December 31, 2014.

 

Write offs

 

The Fund takes write offs when it determines that a receivable is uncollectible and when all economically sensible means of recovery have been exhausted. For the year ended December 31, 2014, the Fund wrote off receivables of $1,992 related to reimbursable deal costs for a transaction the Fund did not proceed with when it became more likely than not that the Fund wouldn’t recover the costs. No write offs were recorded for the year ended December 31, 2013.

 

Comprehensive Income

 

The Fund follows the requirements of ASC 220 Comprehensive Income, for the reporting and presentation of comprehensive income and its components. The Fund does not have any components of other comprehensive income, thus it is not presented separately in the Fund’s financial statements.

 

Distributions

 

The Manager has sole discretion to determine what portion, if any, of cash on hand will be distributed to the members. Distributions are made on a monthly basis and accrued at the end of each month. Cash distributions are paid on the 15th day of the following month and reflected in the Statement of Changes in Members’ Equity. Distributions accrued but not paid are recorded as a distribution payable on the Fund’s Balance Sheet.

 

New Accounting Pronouncements

 

In June 2013 FASB issued ASU 2013-08, Investment Companies - Amendments to the Scope, Measurement, and Disclosure Requirements. The new guidance changes the approach to the investment company assessment in ASC 946 to clarify the characteristics of an investment company and provide comprehensive guidance for assessing whether an entity is an investment company. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2013. The Fund did not meet the amended definition of an investment company and as such, adoption of this guidance did not have an impact on the Fund’s financial statements.

 

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. The adoption of this standard becomes effective on January 1, 2017, including interim periods within that reporting period. Early adoption is not permitted. The adoption of this standard is not expected to have an impact on the Fund’s financial statements.

 

In August 2014, FASB issued ASU No. 2014-15, Preparation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This standard provides guidance about 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 adoption of this standard becomes effective for the fiscal year ended December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The Fund is currently in the process of evaluating the impact of the adoption of this standard on the Fund’s financial statements.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

3. LEASED EQUIPMENT AT COST

 

Following transactions were entered by the Fund during 2014:

 

Extension of Bombardier CRJ 700 ER Aircraft Lease

 

In July 2014, the Fund entered into a lease extension agreement for its Bombardier CRJ 700 ER Aircraft which was initially acquired in March 2011. The aircraft is on lease to an airline which is wholly owned by the Government of India and will continue to be used by the airline for its domestic routes in India. The lease was extended for a period of 24 months. At expiration of the lease the airline may return the aircraft to the Fund or extend the lease for an additional 24 month period. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.

 

In July 2014, as part of the lease extension agreement, the Fund and the lessee agreed to offset the outstanding rent and maintenance reserve of $1,271,897 owed by the lessee with maintenance reimbursements of $1,386,401 owed to the lessee, with the difference credited to the lessee’s rent.

 

Smart Safe Equipment

 

In March 2014, as part of a master lease program, the Fund purchased additional smart safes for $189,066, including initial direct costs, from a U.S. safe manufacturer. These safes are on lease for a period of 60 months to a company that owns, operates or franchises restaurants. The safes are deployed in restaurants throughout the U.S. No leverage was used to finance this acquisition by the Fund. The lease term begins when the Fund signs the acceptance certificate and continues over the period of lease. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment under a renewed lease agreement. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term. The Fund has simultaneously entered into a Service and Remarketing agreement with a major U.S. cash logistics company who has been appointed as the exclusive service provider for the Fund and is responsible for billing, collecting and servicing the safes. In certain circumstances, the service provider has an option to request the purchase of the safes from the Fund at fair market value at the end of the lease term of 60 months. If the Fund consents to the service provider's request, fair market value in this case cannot exceed 29% of the asset’s respective cost.

 

Railcar Portfolio

 

In March 2014, the Fund purchased a portfolio of flat bed rail cars for $1,032,186 including initial direct costs. The rail cars are on lease to the U.S. subsidiary of a leading global manufacturer of wind turbines for a period of 60 months. No leverage was used to finance this acquisition. At the end of the lease term, the lessee may return, continue to rent or purchase the equipment for its fair market value. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.

 

Leased equipment at cost net of accumulated depreciation consists of the following:

 

		December 31, 2014				December 31, 2013
Aircraft engines (2 x CFM56-7B jet engines)		$	25,338,321			$	25,338,321
Aircraft Bombardier CRJ 700 ER			9,786,555				9,758,734
Self-serve checkout equipment			2,097,353				2,097,353
Flat bed rail cars			7,777,356				6,752,405
Racetrack equipment			3,763,611				3,763,611
Smart safes			3,273,610				3,084,544
Machine tool equipment			5,768,966				5,768,966
Aircraft (Airbus model A320-200)			19,551,352				19,551,352
Less: Accumulated depreciation			(12,977,988	)			(8,186,636	)
		$	64,379,136			$	67,928,650

 

Annual minimum future rentals receivable related to the Fund’s operating leases over the next five years consist of the following:

 

For the year ending December 31, 2015		$	10,050,841
For the year ending December 31, 2016		$	7,513,805
For the year ending December 31, 2017		$	5,527,837
For the year ending December 31, 2018		$	3,812,928
For the year ending December 31, 2019		$	2,280,822
Thereafter		$	1,861,641
		$	31,047,874

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

A risk of loss or lower than expected returns exists if the market value of the equipment at the end of the lease term is lower than assumed.

 

4. NET INVESTMENT IN FINANCE LEASE

 

The Fund’s net investments in finance leases primarily relate to racing track equipment, furniture, demo aircrafts and smart safes. Acquisitions in 2014 consisted of the following.

 

GA8-TC320 Airvan Aircraft

 

In January 2014, the Fund entered into a sale and leaseback arrangement with an Australian aircraft manufacturer where the Fund purchased four GA8-TC320 Airvan aircraft for $2,097,647 including initial direct costs. The lease terms are 48 months for each lease. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircraft is transferred back to the lessee for an agreed-upon price. The leases are classified as finance leases on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

In May 2014, the Fund purchased an additional GA8-TC320 Airvan aircraft for $360,500, including direct costs, from the Australian aircraft manufacturer and entered into a sale and leaseback arrangement with the manufacturer for a period of 44 months. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircraft is transferred back to the lessee for an agreed upon payment. The lease is classified as a finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

In September 2014, the Fund purchased an additional GA8-TC320 Airvan aircraft for $660,000, including direct costs, from a U.S. aircraft dealer and entered into a lease agreement with the Australian aircraft manufacturer for a period of 42 months. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircraft is transferred back to the lessee for an agreed upon payment. The lease is classified as finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

In October 2014, the Fund purchased two additional GA8-TC320 Airvan aircrafts – one from a U.S. aircraft dealer for $616,596 and the other through a sale and leaseback transaction with the Australian aircraft manufacturer for $500,000, including direct costs, and entered into a lease arrangement for both of the aircraft with the Australian aircraft manufacturer for a period of 42 months. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircrafts is transferred back to the lessee for an agreed upon payment. The leases are classified as finance leases on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

In December 2014, the Fund purchased an additional GA8-TC320 Airvan aircraft for $448,947, including direct costs, from the Australian aircraft manufacturer and entered into a sale and leaseback arrangement with the manufacturer for a period of 42 months. The lessee has the option to purchase the aircraft from the Fund at any point during the lease term in certain circumstances for agreed upon amounts. If the repurchase options have not been exercised at the end of the lease, ownership of the aircraft is transferred back to the lessee for an agreed upon payment. The lease is classified as finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.

 

Smart Safe Equipment

 

In connection with the Fund’s acquisition of additional smart safes in March 2014 as described in Note 3, one lease was classified as a finance lease. The cost of the safes classified as a finance lease was $21,084, including initial direct costs. The lease term is 60 months. The lease term begins when the Fund signs the acceptance certificate and continues over the period of lease. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment under a renewed lease agreement. The Fund has simultaneously entered into a Service and Remarketing agreement with a major U.S. cash logistics company who has been appointed as the exclusive service provider for the Fund and is responsible for billing, collecting and servicing the safes. In certain circumstances, the service provider has an option to request the purchase of the safes from the Fund at fair market value at the end of the lease term of 60 months. If the Fund consents to the service provider's request, fair market value in this case cannot exceed 29% of the asset’s respective cost.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

Sale of Finance Lease Assets

 

In May 2014, the Australian aircraft manufacturer exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 97.4% of the original cost of the aircraft to the Fund. Additionally, the Fund received a percentage of the proceeds over an agreed upon threshold from the lessee’s sale of the aircraft to a third party. The lessee paid a purchase price of $542,265 and the Fund recognized a loss of $8,900.

 

In August 2014, the Australian aircraft manufacturer exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 95.4% of the original cost of the aircraft to the Fund. The lessee paid a purchase price of $488,448 and the Fund recognized a loss of $10,757.

 

In December 2014, the Australian aircraft manufacturer exercised the early buyout option and repurchased one of the GA8-TC320 Airvan aircraft from the Fund at an agreed buyout rate of 93.3% of the original cost of the aircraft to the Fund. The lessee paid a purchase price of $419,850 and the Fund recognized a loss of $8,951.

 

In March 2014, on expiration of one of the Fund’s leases for office furniture, the lessee exercised its option to buy the equipment subject to the lease. The lessee paid a purchase price of $70,953 and the Fund recognized a gain of $51,445 over the carrying value.

 

In September 2014, on expiration of one of the Fund’s leases for office furniture, the lessee exercised its option to buy the equipment subject to the lease. The lessee paid a purchase price of $62,000 and the Fund recognized a gain of $44,465 over the carrying value.

 

Net investment in finance lease (current and non-current) consists of the following:

 

		December 31, 2014				December 31, 2013
Minimum lease payments receivable		$	2,703,429			$	1,786,413
Estimated residual values of leased property			2,436,311				406,140
Less: Unearned income			(911,209	)			(328,014	)
Net investment in finance lease		$	4,228,531			$	1,864,539

 

Annual minimum future rentals receivable related to the Fund’s finance leases over the next 5 years consist of the following:

 

For the year ending December 31, 2015		$	1,101,182
For the year ending December 31, 2016			942,500
For the year ending December 31, 2017			520,141
For the year ending December 31, 2018			139,606
For the year ending December 31, 2019			-
		$	2,703,429

 

A risk of loss or lower than expected returns exists if the market value of the equipment at the end of the lease term is lower than the asset’s residual value.

 

5. LOANS RECEIVABLE

 

In November 2014, the Fund entered into an agreement with an Australian aircraft manufacturer to provide a finance facility of $540,000 for a period of 12 months. The Australian aircraft manufacturer is required to pay monthly installments of $7,597 over the term of the facility and a final installment of $496,260 on the first day of the last month in the term. The loan is secured by a GA8-TC320 aircraft. The loan is recorded as a loan receivable and held at amortized cost on the balance sheet. The Fund recognizes interest income using the effective interest method.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

For the years ended December 31, 2014 and 2013, the Fund recognized interest income on the loan of $8,181 and $0, respectively.

 

6. PARTICIPATING INTEREST (RELATED PARTY)

 

In November 2014, the Fund entered into a participation agreement with Macquarie Bank Limited London Branch (“MBL UK”), a member of the Macquarie Group of companies, to provide financing of $5,000,000 to participate in an existing facility previously provided by MBL UK to a European technology distribution company to finance technology equipment. The term of each advance is 58 days from disbursement. The Fund’s advances were paid to MBL UK and the Fund will receive principal and interest payments from MBL UK. Repayment is predicated on MBL UK receiving principal and interest payments from the underlying counterparty. This transaction is recorded as a participating interest – loan receivable (related party) on the Fund’s balance sheet and recognized at amortized cost. The Fund recognizes interest income using the effective interest method. The loan is unsecured with the Fund being entitled to a pro-rata portion of MBL UK’s credit insurance in the event of a default.

 

As of December 31, 2014, the Fund has received principal repayments of $1,709,781.

 

For the years ended December 31, 2014 and 2013, the Fund recognized interest income on the loan of $38,195 and $0, respectively.

 

The loan was fully repaid in February 2015.

 

7. TRANSACTIONS WITH AFFILIATES

 

As discussed in Note 1, the Fund is required to pay fees to the Manager and its affiliates for providing or arranging all services necessary for its operations, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. As discussed in Note 6, the Fund entered into a participation agreement with MBL UK, a member of the Macquarie Group of companies and an affiliate of the Manager.

 

The Fund pays the Manager and its affiliates’ fees for operating services performed including:

 

·

Acquisition fees of 3% of the purchase price that the Fund pays for each item of equipment or direct or indirect interest in equipment acquired, including under lease agreements, trading transactions, residual value guarantees, pay per use agreements, forward purchase agreements, total lease return swaps, participation agreements, equipment purchase options, other equipment-related transactions, joint ventures, special purpose vehicles and other Fund arrangements;

 

·

Asset management fees equal to the lesser of: (a) (i) 5% of gross rental payments from non-full payout leases (except that 1% of gross rental payments shall be payable with respect to non-full payout leases for which management services are performed by non-affiliates under the Manager’s supervision); (ii) 2% of gross rental payments from full payout leases which contain net lease provisions; and (iii) 7% of gross rental payments from equipment for which the Fund provides services in addition to equipment management relating to the continued and active operation of the Fund’s equipment such as, but not limited to, ongoing marketing and re-leasing of equipment and hiring or arranging for the hiring of crews or operating personnel for the Fund’s equipment and similar services; or (b) the amount of fees which are competitive for similar services;

 

·

Remarketing fees equal to the lesser of (i) 3% of the purchase price paid to the Fund by the purchaser of the investment, or (ii) one-half of reasonable, customary and competitive brokerage fees paid for services rendered in connection with the sale of equipment of similar size, type and location. Payment of remarketing fees shall be subordinated until such time when investor return has been achieved. “Investor return” means such time when the aggregate amount of distributions to the members equals, as of any determination date, an amount equal to a pre-tax eight percent (8.0%) per annum internal rate of return compounded daily on all capital contributions of members;

 

·

Out-performance fees depending upon the extent to which Investor Return has been achieved. Prior to the time that Investor Return is achieved, cash distributions will be made 99.0% to the Fund’s members and 1.0% to the Manager. After the time that Investor Return is achieved, cash distributions will be made 81.0% to the Fund’s members and 19.0% to the Manager; and

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

·

Reimbursement of operating expenses depending upon the scope and volume of services the Manager provides to the Fund.

 

As part of the railcar portfolio acquisition completed in March 2014, the Fund engaged Macquarie Rail Inc., an affiliate of the Manager, to provide due diligence services. The fees were capitalized as part of the cost of the assets. The Fund incurred total fees of $50,000 for the transaction, of which $8,733 were incurred during the year ended December 31, 2013 with the remaining $41,267 incurred during the year ended December 31, 2014.

 

During the year ended December 31, 2014 the Fund engaged Macquarie Aircraft Leasing Services (“MALS”), an affiliate of the Manager, to provide management services for the Aircraft (Airbus model A320-200) lease described in Note 3. MALS is paid for its services from the management fee charged by the manager. The fees are expensed as incurred and included in the Fund’s Statements of Operations. No such fees were incurred for the year ended December 31, 2013.

 

For the year ended December 31, 2014 and 2013, the Fund has accrued, in fees payable (related party) on the Fund’s Balance Sheet, or paid to the Manager or its affiliates the following amounts:

 

						Year ended
Entity		Capacity		Description		December 31, 2014				December 31, 2013
Macquarie Asset Management Inc.		Manager		Acquisition fees (1)		$	123,668			$	766,440
Macquarie Asset Management Inc.		Manager		Management fee (2)		$	585,465			$	600,799
Macquarie Asset Management Inc.		Manager		Operating Expenses (2)		$	469,140			$	396,345
Macquarie Asset Management Inc.		Manager		Outperformance fee (2)		$	75,428			$	75,940
Macquarie Rail Inc.		Affiliate		Due dilligence (1)		$	41,267			$	8,733
Macquarie Aircraft Leasing Services		Affiliate		Management fee (2)		$	63,450			$	-

 

 

(1) Amount is capitalized into the cost of an asset when it is classified as an operating or a finance lease.

(2) Amount charged directly to operations.

 

8. EQUITY

 

As of December 31, 2014 and 2013, the Fund had 9,396,317 and 9,459,384 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares). As of December 31, 2014 and 2013 the cumulative number of shares repurchased was 261,800 and 198,733, respectively.

 

The subscriptions received include total contributions of $1,505,000 from the Manager, before offering costs.

 

The Fund declared distributions of $7,538,554 during 2014, of which $6,900,118 were paid and $638,436 were payable as of December 31, 2014.

 

9. FAIR VALUE MEASUREMENTS

 

The Company is required to report the fair value of financial instruments, as defined. Substantially all of the Company’s assets and liabilities are carried at contracted amounts which approximate fair value and are classified as Level 1 under the hierarchy defined below. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

 

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.

 

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

 

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.

 

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

 

For the years ended December 31, 2014 and 2013, the Fund did not have any financial assets which were measured at fair value on a recurring basis.

 

Certain of the Fund’s financial assets, which include loans receivable, for which fair value is required to be disclosed, were valued using inputs that are generally unobservable and are supported by little or no market data and are therefore classified within Level 3. The Fund uses projected cash flows to estimate the fair value of these financial assets. Fair value information with respect to certain other assets is not separately provided given fair value disclosures of lease arrangements are not required and the carrying value of the Fund’s other assets, including loans receivable, approximates fair value due to the fact that their maturities are all less than one year.

 

10. COMMITMENTS AND CONTINGENCIES

 

Other than obligations associated with investing activities or as set forth in the Fund’s operating agreement, there were no contractual obligations, commitments or contingencies as of December 31, 2014 and 2013, respectively.

 

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the direction and with the participation of the Manager’s President and Principal Financial Officer, the Fund evaluated its disclosure controls and procedures (as such term is defined under Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Manager’s President and Principal Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of December 31, 2014.

 

Management’s Annual Report on Internal Controls over Financial Reporting

 

The management of the Manager is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Fund, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2014. All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

 

Management of the Manager assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2014. In making this assessment; management of the Manager used the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013. Based on its assessment, management of the Manager concluded that the Fund’s internal control over financial reporting was effective as of December 31, 2014.

 

This Annual Report does not include an attestation report of the Fund’s independent registered public accounting firm regarding internal control over financial reporting. Management’s assessment was not subject to attestation by the Fund’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Fund to provide only management’s assessment in this Annual Report.

 

Changes in Internal Control

 

There has been no change in the Fund’s internal control over financial reporting during the year ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 

Item 9B. Other Information

 

None.

 

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The Fund is a manager-managed limited liability company and has no directors or executive officers. The Fund’s Manager is Macquarie Asset Management Inc. The Fund’s investment decisions will be made by the Manager’s board of directors, which at the date of this Annual Report on Form 10-K is comprised of David Fahy, Tom O’Neill and James A. Pitts. The Manager and the persons making the Fund’s investment decisions can be contacted at:

 

•   the Manager’s principal office at 225 Franklin St, 17th Floor, Suite 1700, Boston, Massachusetts, 02110; or

 

•   the Manager’s telephone number, 866-965-7622.

 

The Manager is a member of the Macquarie Group. In managing the Fund, the Manager will have access to the experienced leasing, funds management and other resources of the Macquarie Group. The Manager was formed in 2008 and this is the first public equipment leasing fund that it has managed.

 

The following table provides information regarding the members of the board of directors and the executive officers of the Manager.

 

Name		Age		Title
David Fahy		52		Director and President
Tom O’Neill		53		Director and Vice President
James A. Pitts		74		Independent Director

 

David Fahy has been President of the Manager since its inception on August 21, 2008. Mr. Fahy has been with the Macquarie Group since joining its equipment leasing division in September 1998. Since June 2006, Mr. Fahy has been responsible for global equipment leasing investment and co-investment opportunities for both institutional and retail investors. Mr. Fahy is situated in Sydney, Australia, and is in frequent attendance at our Manager’s office in Boston. From July 2001 to June 2006, Mr. Fahy was responsible for the Macquarie Group’s structured technology syndication investments business. Prior to joining Macquarie, Mr. Fahy was employed at Coopers and Lybrand in Sydney, Australia from January 1987 to September 1998 in a number of roles, including that of Tax Director, and at Ernst & Young in Dublin, Ireland from September 1982 to December 1986 in a number of roles, including that of chartered accountant. Mr. Fahy holds a Bachelor of Commerce from University College Galway, Ireland and is a Fellow of the Institute of Chartered Accountants in Ireland and a member of the Institute of Chartered Accountants in Australia.

 

Tom O’Neill, Director and Vice President of the Manager, joined the Macquarie Group in July 2008 as a Senior Vice President, and acted as head of distribution for the Macquarie Equipment Leasing Fund. As of September 5, 2011, Mr. O’ Neill was appointed as an officer and director of the Manager. Prior to joining the Macquarie Group, Mr. O’Neill was employed as Senior Vice President of Operations at Realty Capital Securities, LLC, from October 2007 until July 2008, where he was responsible for overseeing operations, due diligence and product management and at Boston Capital Securities, from August 2003 until June 2007 in a number of roles including Sales Desk Manager, Assistant Vice President, and Vice President, Director of Sales and Operations. From January 1998 until August 2003 he was employed as a Financial Advisor at Merrill Lynch & Co. Mr. O’Neill currently resides west of Boston. He earned a Diploma in Business Studies from the Institute of Technology, Carlow, in Ireland, and holds FINRA securities licenses 7, 63, and 24.

 

James A. Pitts, Independent Director of our Manager, joined the board of directors of our Manager in March, 2009. Situated in Boston, at present Mr. Pitts is a member of the board of directors of Laboure College, which is a 120 year old Catholic college that focuses on nursing and health care education, located in Milton MA. Mr. Pitts was appointed as a member to the Laboure Board during June 2013 and he serves on the Nominating and Governance Committee and on the Finance and Risk Committee. Mr. Pitts was a Director of Wainwright Bank & Trust Company, a NASDAQ listed community bank, from May 2005 until November 2010, when the bank was sold. Mr. Pitts had been Chair of Wainwright Bank & Trust Company’s Audit Committee since January 2008 and had been a rotating member of its Executive Committee since April 2006. Mr. Pitts served as a Director of the National Association of Corporate Directors New England Chapter and the Chair of its Audit Committee from June of 2005 until June of 2011 at which time he was elected to the organization’s newly formed Senior Advisory Board. During the period of March 2009 until October 2010, Mr. Pitts was the sole independent member of the Advisory Board of Boston Coach, a Fidelity Company. From 1996 to May 2004, Mr. Pitts served as the Chief Financial Officer and Treasurer of The Boston Foundation, a $650 million community foundation, and from June 2004 to August 2004, Mr. Pitts served as the Chief Investment Officer and Treasurer of The Boston Foundation. From 1988 to 1996, Mr. Pitts held positions including Executive Vice President and Chief Financial Officer of Clean Harbors, Inc., a NASDAQ listed environmental disposal and service firm, as well as Chief Financial Officer of Bain and Company, an international consulting firm. Prior to that time, Mr. Pitts also held senior financial roles in publicly traded multinational corporations where he held wide responsibilities for SEC reporting, financial statement preparation, internal audit, risk management and compliance and regulatory matters. In his roles as Chief Financial Officer, Mr. Pitts has reviewed and overseen various equipment leasing transactions. Mr. Pitts holds a MBA from the University of Connecticut and a BBA from Niagara University, New York. Mr. Pitts is a Certified Public Accountant and holds a Certificate of Director Education.

 

 

Under the Fund’s operating agreement, the board of directors of the Manager must consist of at least one independent director, except for a period of 90 days after the death, removal or resignation of an independent director. An independent director may not, directly or indirectly (including through a member of his or her immediate family), be associated with the Manager or its affiliates within the last two years before becoming a director and at such time an independent director may not own any interest in, be employed by, have any material business or professional relationship with, serve as an officer or director of the Manager’s affiliates or perform services (other than as an independent director) for the Fund.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Based solely on a review of Forms 3, 4 and 5, the Fund is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2014.

 

Code of Ethics

 

The Manager of the Fund has adopted a code of ethics that applies to the Manager’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics contains written standards that are reasonably designed to deter wrongdoing and to promote: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in reports and documents that the Fund files with, or submits to, the SEC and in other public communications made by the Fund; (3) compliance with applicable governmental laws, rules and regulations; (4) the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (5) accountability for adherence to the code. The code of ethics is available without charge upon request from our Manager, 225 Franklin St, 17th Floor, Suite 1700, Boston, Massachusetts, 02110.

 

Item 11. Executive Compensation

 

The Fund is a manager-managed limited liability company and has no directors or executive officers.

Our Manager and its affiliates were paid compensation and reimbursement for costs and expenses. The amount of such expenses for the year ended December 31, 2014 is set forth in Item 8 of this report under the caption “Financial Statements and Supplementary Data—Notes to Financial Statements—Transactions with Affiliates,” at Note 7 thereof, which information is hereby incorporated by reference.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

(a) We do not have any securities authorized for issuance under any equity compensation plan.

 

(b) As of December 31, 2014, our Manager owned approximately 2% of our shares. No person of record owns, or is known by us to own, beneficially more than 5% of any class of our securities.

 

(c) As of December 31, 2014, no directors or officers of our Manager own any of our equity securities.

 

(d) Neither we nor our Manager are aware of any arrangements with respect to our securities, the operation of which may at a subsequent date result in a change of control of us.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

See Item 11 to this Annual Report on Form 10-K for a discussion of compensation and reimbursement to the Manager. See Item 8 of this report under the caption "Financial Statements and Supplementary Data - Notes to Financial Statements - Transactions with Affiliates," at Note 7 thereof, which information is hereby incorporated by reference.

 

 

Item 14. Principal Accountant Fees and Services

 

During the year ended December 31, 2014 and 2013, the Manager incurred audit, audit-related and other fees with its principal auditors, PricewaterhouseCoopers LLP, as follows:

 

		For the year ended December 31, 2014				For the year ended December 31, 2013
Audit fees		$	109,522			$	97,876
Audit related fees			-				-
Tax fees			-				-
Other fees			-				-
		$	109,522			$	97,876

 

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

 

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules

 

(a) Financial Statements and Schedules

 

The index of financial statements and schedules are set forth in Item 8 of this Annual Report on Form 10-K.

 

(b) Exhibits

 

Exhibit No.		Description
3.1		Certificate of Formation(1)
3.2		Amended and Restated Limited Liability Company Agreement(1)
31.1		Rule 13a-14(a)/15d-14(a) Certification of President of the Manager †
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the †
32.1		Section 1350 Certification of President of the Manager and Principal Executive Officer †
32.2		Section 1350 Certification of Principal Financial Officer of the Manager and Principal Accounting Officer †
101.0		The following materials from the Annual Report on Form 10-K of Macquarie Equipment Leasing Fund, LLC for the year ended December 31, 2014, filed on February 18, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of December 31, 2014 and December 31, 2013, (ii) the Statement of Operations for the year ended December 31, 2014 and December 31, 2013, (iii) the Statements of Cash Flows for the year ended December 31, 2014 and December 31, 2013, (iv) the Statements of Changes in Members’ Equity for the year ended December 31, 2014 and December 31, 2013 and (v) the Notes to Financial Statements. †

 

(1)

Incorporated by reference to the Fund’s Registration Statement on Form S-1 (No. 333-154278), as amended.

†

Filed herewith.

 

 

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.

 

MACQUARIE EQUIPMENT LEASING FUND, LLC

 

	By:	/S/ David Fahy
		David Fahy President of the Manager and Principal Executive Officer of Registrant.

 

	By:	/S/ John Papatsos
		John Papatsos
		Principal Financial Officer of the Manager and Principal
		Accounting Officer of Registrant

 

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