Attached files
file | filename |
---|---|
EX-32.2 - EXHIBIT 32.2 - Macquarie Equipment Leasing Fund, LLC | v417442_ex32-2.htm |
EX-31.2 - EXHIBIT 31.2 - Macquarie Equipment Leasing Fund, LLC | v417442_ex31-2.htm |
EX-32.1 - EXHIBIT 32.1 - Macquarie Equipment Leasing Fund, LLC | v417442_ex32-1.htm |
EX-31.1 - EXHIBIT 31.1 - Macquarie Equipment Leasing Fund, LLC | v417442_ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2015
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 |
(State or Other Jurisdiction of | (IRS Employer |
Incorporation or Organization) | Identification No.) |
225 Franklin St, 17th Floor, Suite 1740
Boston, Massachusetts 02110
(Address of Principal Executive Offices) (Zip Code)
(617) 457-0645
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report): N/A
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 Website, 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 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. (Check one):
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
There were 9,331,312 shares of limited liability company membership interests outstanding at August 14, 2015.
MACQUARIE EQUIPMENT LEASING FUND, LLC
Table of Contents
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.
2 |
Item 1. | Financial Statements |
MACQUARIE EQUIPMENT LEASING FUND, LLC
BALANCE SHEETS
(Unaudited)
June 30, 2015 | December 31, 2014 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 1,431,096 | $ | 5,707,071 | ||||
Restricted cash | 1,375,159 | 1,248,967 | ||||||
Net investment in finance leases | 909,543 | 686,558 | ||||||
Loans receivable | 511,290 | 532,987 | ||||||
Participating interest - loans receivable (related party) | 8,708,297 | 3,290,219 | ||||||
Accrued interest receivable (related party) | 40,285 | 22,746 | ||||||
Lease receivables | 150,215 | - | ||||||
Maintenance reserve and other receivables | 93,458 | 92,390 | ||||||
Other assets | 8,931 | 5,038 | ||||||
Total Current Assets | 13,228,274 | 11,585,976 | ||||||
Non-current Assets | ||||||||
Net investment in finance leases | 3,757,223 | 3,541,973 | ||||||
Leased equipment at cost (net of accumulated depreciation of $15,410,509 as of June 30, 2015 and $12,977,988 as of December 31, 2014) | 61,946,615 | 64,379,136 | ||||||
Total Non-current Assets | 65,703,838 | 67,921,109 | ||||||
Total Assets | $ | 78,932,112 | $ | 79,507,085 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Current Liabilities | ||||||||
Fees payable (related party) | $ | 276,084 | $ | 7,433 | ||||
Deferred rental income | 1,052,940 | 1,131,590 | ||||||
Distribution payable | 616,203 | 638,436 | ||||||
Other payables | 206,189 | 235,802 | ||||||
Maintenance reserve | 1,424,649 | - | ||||||
Total Current Liabilities | 3,576,065 | 2,013,261 | ||||||
Non-current Liabilities | ||||||||
Maintenance reserve | - | 1,292,892 | ||||||
Other payables | 672,281 | 672,281 | ||||||
Total Non-current Liabilities | 672,281 | 1,965,173 | ||||||
Total Liabilities | $ | 4,248,346 | $ | 3,978,434 | ||||
Commitments and Contingencies (Note 9) | ||||||||
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: 9,371,480 shares as of June 30, 2015 and 9,396,317 shares as of December 31, 2014, net of repurchases of 286,637 and 261,800, respectively | 63,161,379 | 63,361,376 | ||||||
Accumulated surplus | 11,522,387 | 12,167,275 | ||||||
Total Members’ Equity | 74,683,766 | 75,528,651 | ||||||
Total Liabilities and Members’ Equity | $ | 78,932,112 | $ | 79,507,085 |
See accompanying notes to Financial Statements.
3 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | |||||||||||||
REVENUE | ||||||||||||||||
Finance and rental income | 3,102,972 | 3,162,020 | 6,193,806 | 6,271,728 | ||||||||||||
Net gain on sale of leased equipment | - | (8,900 | ) | - | 42,545 | |||||||||||
Interest income | 11,818 | - | 23,885 | - | ||||||||||||
Interest income (related party) | 79,928 | - | 103,478 | - | ||||||||||||
Other income | 3,158 | 1,058 | 27,012 | 2,157 | ||||||||||||
Total revenue | 3,197,876 | 3,154,178 | 6,348,181 | 6,316,430 | ||||||||||||
EXPENSES | ||||||||||||||||
Operating expenses (related party) | 110,511 | 119,933 | 234,079 | 243,637 | ||||||||||||
Management fees (related party) | 161,349 | 165,870 | 321,393 | 331,884 | ||||||||||||
Depreciation | 1,138,444 | 1,264,817 | 2,266,965 | 2,499,137 | ||||||||||||
Impairment loss | 165,556 | - | 165,556 | - | ||||||||||||
Other expenses | 171,404 | 311,623 | 285,204 | 444,412 | ||||||||||||
Total expenses | 1,747,264 | 1,862,243 | 3,273,197 | 3,519,070 | ||||||||||||
Net income | $ | 1,450,612 | $ | 1,291,935 | $ | 3,074,984 | $ | 2,797,360 | ||||||||
Basic and diluted earnings per share | $ | 0.15 | $ | 0.14 | $ | 0.33 | $ | 0.30 | ||||||||
Weighted average number of shares outstanding: basic and diluted | 9,371,480 | 9,435,344 | 9,376,772 | 9,442,543 |
See accompanying notes to Financial Statements.
4 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended | ||||||||
June 30, 2015 | June 30, 2014 | |||||||
Cash flow from operating activities: | ||||||||
Net income | $ | 3,074,984 | $ | 2,797,360 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 2,266,965 | 2,499,137 | ||||||
Impairment loss | 165,556 | - | ||||||
Net gain on sale of leased equipment | - | (42,545 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Fees payable (related party) | 268,651 | 208,989 | ||||||
Lease receivables | (150,215 | ) | 635,274 | |||||
Interest receivable (related party) | (17,539 | ) | - | |||||
Net investment in finance leases | 418,516 | 402,787 | ||||||
Other receivables | 4,497 | (61,509 | ) | |||||
Other payables | (29,613 | ) | 76,482 | |||||
Deferred finance and rental income | (78,650 | ) | 26,165 | |||||
Other assets | (3,893 | ) | 10,655 | |||||
Net cash provided by operating activities | 5,919,259 | 6,552,795 | ||||||
Cash flow from investing activities: | ||||||||
Purchase of equipment | - | (1,214,017 | ) | |||||
Investment in capital leased equipment | (856,751 | ) | (2,479,233 | ) | ||||
Proceeds from sale of leased equipment | - | 613,218 | ||||||
Participating interest - loans receivable (related party) | (13,704,276 | ) | - | |||||
Repayment of participating interest - loans receivable (related party) | 8,286,198 | - | ||||||
Repayment of loans by others | 21,697 | - | ||||||
Restricted cash | (126,192 | ) | (118,338 | ) | ||||
Security deposit | - | 90,000 | ||||||
Net cash used in investing activities | (6,379,324 | ) | (3,108,370 | ) | ||||
Cash flow from financing activities: | ||||||||
Distribution paid to members | (3,742,105 | ) | (3,767,172 | ) | ||||
Repurchase of shares | (199,997 | ) | (246,457 | ) | ||||
Maintenance reserve | 126,192 | 118,338 | ||||||
Net cash used in financing activities | (3,815,910 | ) | (3,895,291 | ) | ||||
Net decrease in cash and cash equivalents | (4,275,975 | ) | (450,866 | ) | ||||
Cash and cash equivalents, beginning of the period | 5,707,071 | 9,090,632 | ||||||
Cash and cash equivalents, end of the period | $ | 1,431,096 | $ | 8,639,766 | ||||
Supplemental disclosures of cash flow information | ||||||||
Non cash investing and financing activities | ||||||||
Maintenance reserve | $ | 5,565 | $ | (54,411 | ) | |||
Distribution Payable | $ | 616,203 | $ | 620,073 |
See accompanying notes to Financial Statements.
5 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
(Unaudited)
Membership interests | Accumulated surplus | |||||||||||||||||||||||
Members' shares | Additional members (1) | Managing member | Additional members (1) | Managing member | Total | |||||||||||||||||||
Balance at December 31, 2014 | 9,396,317 | $ | 62,410,244 | $ | 951,132 | $ | 12,047,939 | $ | 119,336 | $ | 75,528,651 | |||||||||||||
Repurchase of shares | (24,837 | ) | (199,997 | ) | - | (199,997 | ) | |||||||||||||||||
Distribution to members | - | - | - | (3,655,688 | ) | (64,184 | ) | (3,719,872 | ) | |||||||||||||||
Net income | - | - | - | 3,021,930 | 53,054 | 3,074,984 | ||||||||||||||||||
Balance at June 30, 2015 | 9,371,480 | $ | 62,210,247 | $ | 951,132 | $ | 11,414,181 | $ | 108,206 | $ | 74,683,766 |
(1) | Additional members represent all members other than the Manager. |
See accompanying notes to Financial Statements.
6 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BUSINESS OPERATIONS
Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company (the “Fund”), was formed on August 21, 2008 for the purpose of being an equipment leasing program that acquires a diversified portfolio of equipment, equipment leases and other equipment-related investments. The majority of the equipment leased by the Fund is 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”), 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 and its affiliates earn 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. The Fund’s liquidation period is scheduled to begin on July 1, 2016 and can last for up to three years.
This report covers the three and six months ended June 30, 2015 and 2014, respectively.
The accompanying unaudited financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). In the opinion of management, all material adjustments, consisting only of normal recurring adjustments, considered necessary for a fair statement of the interim period financial statements have been made. Interim period results are not necessarily indicative of results for a full-year period. These financial statements and the notes thereto should be read in conjunction with the Fund’s financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on February 18, 2015.
The prior period amounts for participating interest - loans receivable (related party) and accrued interest (related party) on the Fund’s balance sheet have been reclassified to conform to the current period presentation.
2. 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, which at times may be in excess of federal insurance limits.
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.
7 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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.
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 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 three and six months ended June 30, 2015 and 2014, 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 residual values based on 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.
If no impairment is deemed to exist and if the current assessment of the residual value is determined to be lower than the current value, the Fund adjusts the residual value downward and prospectively adjusts depreciation expense over the remaining life of the lease.
In June 2015, the Fund reassessed the residual value of its operating lease for self-service checkout equipment. Due to a decline in the market value of this type of equipment the residual value was adjusted downward. The adjustment of the self-service checkout equipment’s residual value resulted in the recoverable amount being lower than the assets’ carrying amount and an impairment charge of $165,556 was recognized for the three and six months ended June 30, 2015. There were no impairment charges recorded during the three and six months ended June 30, 2015 and 2014.
8 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
Net Investment in Finance Leases
If a lease meets specific criteria under ASC 840 at its inception, 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 as the outstanding principal balance, plus costs incurred to originate the loans. Unearned income, discounts and premiums are amortized to interest income in the 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.
Loans with related parties are disclosed separately in the Fund’s financial statements. See Note 5 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) the loan’s cost approximates fair value.
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 Sheet when paid by lessee. As 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 for the cost of the aircraft’s maintenance and the 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. No such payments were made during the three and six months ended June 30, 2015 and 2014, respectively. The maintenance reserve liability was reclassified from non-current to current on the Fund’s balance sheet as of June 30, 2015 due to the fact that the lease expires within one year.
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. There were no such sales during the three and six months ended June 30, 2015. The Fund recognized a loss on the sale of leased equipment of $8,900 during the three months ended June 30, 2014 and gain on the sale of leased equipment of $42,545 during the six months ended June 30, 2014.
9 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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
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 June 30, 2015 or December 31, 2014, respectively. No allowance was recorded or reversed in the Fund’s Statement of Operations during the three and six months ended June 30, 2015 and 2014, 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’s 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 the Fund determines that it is probable that it 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.
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 June 30, 2015 or December 31, 2014, respectively.
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. No write offs were recorded for the three and six months ended June 30, 2015 and 2014, respectively.
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 May 2014, FASB issued Accounting Standards Update (“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, 2018, 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.
10 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 its financial statements.
In June 2015, FASB issued ASU No. 2015-10 to clarify the codification, correct unintended application of guidance, eliminate inconsistencies, and to improve the codification's presentation of guidance for a wide range of topics in the codification. Transition guidance varies based on the amendments included. The amendments that require transition guidance are effective for annual periods, and interim periods within those fiscal periods, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance. The Fund is currently in the process of evaluating the transition provisions of the amendment and impact on its future financial statements. However, the Fund has adopted the amendment related to a clarification of the disclosure requirements for nonrecurring fair value measurements made during the period.
3. LEASED EQUIPMENT AT COST
The Fund did not acquire or sell any leased equipment during the six months ended June 30, 2015.
Leased equipment at cost net of accumulated depreciation consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Aircraft engines (2 x CFM56-7B jet engines) | $ | 25,338,321 | $ | 25,338,321 | ||||
Aircraft Bombardier CRJ 700 ER | 9,786,555 | 9,786,555 | ||||||
Aircraft (Airbus model A320-200) | 19,551,352 | 19,551,352 | ||||||
Self-serve checkout equipment | 2,097,353 | 2,097,353 | ||||||
Flat bed rail cars | 7,777,356 | 7,777,356 | ||||||
Racetrack equipment | 3,763,611 | 3,763,611 | ||||||
Smart safes | 3,273,610 | 3,273,610 | ||||||
Machine tool equipment | 5,768,966 | 5,768,966 | ||||||
Less: Accumulated depreciation | (15,410,509 | ) | (12,977,988 | ) | ||||
$ | 61,946,615 | $ | 64,379,136 |
Annual minimum future rentals receivable related to the Fund’s operating leases over the next five years consist of the following:
For the period July 1 to December 31, 2015 | $ | 4,283,180 | ||
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 | |||
$ | 25,280,213 |
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 LEASES
The Fund’s net investments in finance leases primarily relate to race track equipment, furniture, eight-seater aircrafts, manufacturing equipment and smart safes.
Manufacturing Equipment
In April 2015, the Fund entered into a lease for manufacturing equipment with a leading bus manufacturing company based in Australia for $854,333. The lease consists of $613,813 on an existing lease to the bus manufacturing company and $240,520 acquired through a sale and leaseback arrangement with the bus manufacturing company. At the end of the lease term of 36 months all of Fund’s right, title and interest in the equipment will be transferred to the lessee. The lease was classified as a finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.
11 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
Net investment in finance lease (current and non-current) consists of the following:
June 30, 2015 | December 31, 2014 | |||||||
Minimum lease payments receivable | $ | 3,099,882 | $ | 2,703,429 | ||||
Estimated residual values of leased property (unguaranteed) | 2,436,311 | 2,436,311 | ||||||
Less: Unearned income | (869,427 | ) | (911,209 | ) | ||||
Net investment in finance leases | $ | 4,666,766 | $ | 4,228,531 |
Annual minimum future rentals receivable related to the Fund’s finance leases over the next 5 years consist of the following:
For the period July 1 to December 31, 2015 | $ | 710,835 | ||
For the year ending December 31, 2016 | 1,279,700 | |||
For the year ending December 31, 2017 | 857,341 | |||
For the year ending December 31, 2018 | 252,006 | |||
For the year ending December 31, 2019 | - | |||
$ | 3,099,882 |
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.
The Fund recognized interest income on the loan of $11,818 and $23,885 for the three and six months ended June 30, 2015, respectively, and $0 for the three and six months ended June 30, 2014.
6. PARTICIPATING INTEREST (RELATED PARTY)
In June 2015, 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 $3,745,028 to participate in an existing facility previously provided by MBL UK to a UAE information technology distribution company. The loan has a term of 60 days from disbursement. The Fund’s advance was 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. The 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. In July 2015, the Fund provided additional funding of $1,150,800 to MBL UK under the same terms.
In March 2015, the Fund entered into a participation agreement with Macquarie Equipment Capital, Inc. (“MECI”), a member of the Macquarie Group of companies, to provide financing of $4,995,979 to participate in an existing facility previously provided by MECI to a U.S. information technology distribution company. The loan has a term of 44 days from disbursement. The Fund’s advance was paid to MECI and the Fund received principal and interest payments from MECI. Repayment was predicated on MECI receiving principal and interest payments from the underlying counterparty. The transaction was recorded as a participating interest – loan receivable (related party) on the Fund’s Balance Sheet and recognized at amortized cost. The Fund recognized interest income using the effective interest method. The loan was unsecured with the Fund being entitled to a pro-rata portion of MECI’s credit insurance in the event of a default. The loan was fully repaid in May 2015. In May and June 2015, the Fund provided additional financing of $4,963,269 to MECI under the same agreement. The loan for such additional financing was fully repaid in July 2015.
12 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
In November 2014, the Fund entered into a participation agreement with MBL UK 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 was 58 days from disbursement. The Fund’s advances were paid to MBL UK and the Fund received principal and interest payments from MBL UK. Repayment was predicated on MBL UK receiving principal and interest payments from the underlying counterparty. This transaction was recorded as a participating interest – loan receivable (related party) on the Fund’s Balance Sheet and recognized at amortized cost. The Fund recognized interest income using the effective interest method. The loan was 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.
The Fund recognized interest income from related parties of $79,928 and $103,478 for the three and six months ended June 30, 2015, respectively and $0 for the three and six months ended June 30, 2014.
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 participation agreements with MBL UK and MECI, members of the Macquarie Group of companies and affiliates 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 |
• | Reimbursement of operating expenses depending upon the scope and volume of services the Manager provides to the Fund. |
For the three and six months ended June 30, 2015 and 2014, the Fund paid management fees to Macquarie Aircraft Leasing Services (“MALS”), an affiliate of the Manager, for management services related to the aircraft lease for the Airbus model A320-200. The fees paid by the Fund to MALS are 3% of gross rental receipts and are expensed as incurred and included in the Fund’s Statements of Operations.
For the three and six months ended June 30, 2015 and 2014, 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:
13 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||||
Entity | Capacity | Description | June 30, 2015 | June 30, 2014 | June 30, 2015 | June 30, 2014 | ||||||||||||||
Macquarie Asset Management Inc. | Manager | Acquisition fees (1) | $ | 25,630 | $ | 10,500 | $ | 25,630 | $ | 105,668 | ||||||||||
Macquarie Asset Management Inc. | Manager | Management fee (2) | 140,199 | 144,720 | 279,093 | 310,734 | ||||||||||||||
Macquarie Asset Management Inc. | Manager | Operating Expenses (2) | 110,511 | 119,933 | 234,079 | 243,637 | ||||||||||||||
Macquarie Asset Management Inc. | Manager | Outperformance fee (2) | 18,904 | 19,027 | 37,421 | 37,671 | ||||||||||||||
Macquarie Rail Inc. | Affiliate | Due diligence (1) | - | - | - | 41,267 | ||||||||||||||
Macquarie Aircraft Leasing Services | Affiliate | Management fee (2) | 21,150 | 21,150 | 42,300 | 21,150 |
(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 June 30, 2015 and December 31, 2014, the Fund had 9,371,480 and 9,396,317 shares of limited liability company interest outstanding, respectively (including the DRP shares and net of repurchase of shares). As of June 30, 2015 and December 31, 2014, the cumulative number of shares repurchased since inception was 286,637 and 261,800, respectively.
The Fund declared distributions of $1,869,157 during the three months ended June 30, 2015, of which $1,252,954 were paid and $616,203 were payable as of June 30, 2015.
9. FAIR VALUE MEASUREMENTS
The Fund is required to disclose the fair value of financial instruments, as defined. None of the Fund’s assets and liabilities are carried at fair value on the Fund’s balance sheet on a recurring basis.
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.
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 Fund’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.
Non-recurring fair value measurements
On June 1, 2015, the Fund measured its operating lease asset for self-service checkout equipment at a fair value of $367,670 as part of its impairment analysis in order to determine the impairment charge of $165,556 recognized in the Fund’s Statement of Operations for the three and six months ended June 30, 2015 (Note 2). The self-service checkout equipment was measured at fair value on a non-recurring basis, which the Fund considers a Level 3 measurement. In determining the value of the self-service checkout equipment the Fund utilized recent sales transactions of the same equipment at a similar age at or near the end of its lease term plus an estimation of remaining rental income owed by the lessee.
Fair value of financial instruments
The Fund’s financial instruments, which are not carried on the Fund’s balance sheet at fair value on a recurring basis, are carried at contracted amounts which approximate fair value. As of June 30, 2015 and December 31, 2014, they consist of cash and cash equivalents and restricted cash, which are classified as Level 1 under the hierarchy defined above, and loans receivable and participating interests - loans receivable (related party), which are classified as Level 3, based on the fact that they were valued using inputs that are generally unobservable and are supported by little or no market data. The Fund uses projected cash flows to estimate the fair value of these financial assets. Fair value information with respect to certain financial instruments which are not carried on the balance sheet at fair value is not separately provided given that fair value disclosures of lease arrangements are not required and the carrying value of the Fund’s other financial instruments approximates fair value due to the fact that they have short term maturities (all less than one year) and credit risk is deemed low.
14 |
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
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 June 30, 2015 and December 31, 2014, respectively.
11. SUBSEQUENT EVENTS
In July 2015, the Fund provided additional financing of $4,474,501 under the participation agreement with MECI. In August 2015, the Fund provided additional $1,914,379 financing under the participation agreement with MBL UK. Both advances were provided under the same terms as the respective agreements described in Note 6.
15 |
Item 2. | 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. This discussion should be read together with our unaudited financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the audited financial statements and related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on February 18, 2015, and with our Registration Statement on Form S-1 as filed with the Securities and Exchange Commission on October 15, 2008, as amended (“Registration Statement”). This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements.”
As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include Macquarie Equipment Leasing Fund, LLC (the “Fund”).
Forward-Looking Statements
Certain statements within this Quarterly Report on Form 10-Q 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. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
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 and loans collateralized by 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 liquidation period is scheduled to begin on July 1, 2016 and can last for up to three years.
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 make investments in equipment, equipment leases and other equipment-related transactions. As of June 30, 2015, the Fund had 9,371,480 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).
As of August 14, 2015, the Fund had 9,331,312 shares of limited liability company interest outstanding (including the DRP shares and net of repurchase of shares).
Second Quarter Transactions
Participating Interest in a Finance Facility
In June 2015, 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 $3,745,028 to participate in an existing facility previously provided by MBL UK to a UAE information technology distribution company. The loan was provided for a maximum term of 60 days from disbursement. The Fund’s advance was 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. The 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. In July 2015, the Fund provided additional funding of $1,150,800 to MBL UK under the same terms.
16 |
In March 2015, the Fund entered into a participation agreement with Macquarie Equipment Capital, Inc. (“MECI”), a member of the Macquarie Group of companies, to provide financing of $4,995,979 to participate in an existing facility previously provided by MECI to an U.S. information technology distribution company. The loan had a term of 44 days from disbursement. The Fund’s advance was paid to MECI and the Fund received principal and interest payments from MECI. Repayment was predicated on MECI receiving principal and interest payments from the underlying counterparty. The loan was unsecured, with the Fund being entitled to a pro-rata portion of MECI’s credit insurance in the event of a default. The loan was fully repaid in May 2015. In May and June 2015, the Fund provided additional financing of $4,963,269 to MECI under the same agreement. The loan for such additional financing was fully repaid in July 2015.
Manufacturing Equipment
In April 2015, the Fund entered into a lease for manufacturing equipment with a leading bus manufacturing company based in Australia for $854,333. The lease consists of $613,813 on an existing lease to the bus manufacturing company and $240,520 acquired through a sale and leaseback arrangement with the bus manufacturing company. At the end of the lease term of 36 months all of Fund’s right, title and interest in the equipment will be transferred to the lessee. The lease was classified as a finance lease on the Fund’s balance sheet. No leverage was used to finance this acquisition.
Results of Operations for the Three and Six Months Ended June 30, 2015 and 2014
Total revenue for the three months ended June 30, 2015 was $3,197,876 compared to $3,154,178 for the three months ended June 30, 2014. This increase of $43,698 was primarily due to an increase in interest income of $91,746. The increase in interest income is driven by the Fund’s loan and participation agreements with MBL UK and MECI, which were entered in the fourth quarter of 2014 and first half of 2015. The increase was partially offset by a decrease in rental income of $59,048, driven by the decrease in monthly rentals received on the Fund’s Bombardier CRJ 700 ER aircraft.
Total expenses for the three months ended June 30, 2015 were $1,747,264 compared to $1,862,243 for the three months ended June 30, 2014. This decrease of $114,979 was driven by a decrease in depreciation expense of $126,373 and a decrease in other expenses of $140,219. The decrease in depreciation expense was due to the lease renewal for the Fund’s Bombardier CRJ 700 ER aircraft in July 2014. The decrease in other expenses was due to one-off transaction costs for a deal that did not proceed that were incurred during the three months ended June 30, 2014. This decrease was partially offset by recognition of an impairment loss of $165,556 for one of the Fund’s operating leases.
As a result, the Fund’s net income for the three months ended June 30, 2015 increased by $158,677 when compared to the three months ended June 30, 2014.
Total revenue for the six months ended June 30, 2015 was $6,348,181 compared to $6,316,430 for the six months ended June 30, 2014. This increase of $31,751 was primarily due to an increase in interest income of $127,363. The increase in interest income is driven by the Fund’s loan and participation agreements with MBL UK and MECI. All of these agreements were entered in the fourth quarter of 2014 and first half of 2015. This increase was partially offset by a decrease in rental income of $77,922, due to the decrease in monthly rentals received on the Fund’s Bombardier CRJ 700 ER aircraft. The Fund also realized a net gain of $42,545 from sale of office equipment in the first six months of 2014, no gains were recorded during the six months ended June 30, 2015. Other income increased by $24,855 when compared to the six months ended June 30, 2014.
Total expenses for the six months ended June 30, 2015 were $3,273,197 compared to $3,519,070 for the six months ended June 30, 2014. This decrease of $245,873 was primarily due to a decrease in depreciation expense of $232,172 and a decrease in other expenses of $159,208. The decrease in depreciation expense is related to the Bombardier CRJ 700 ER Aircraft described above. The decrease in other expenses is due to one off transaction costs incurred during the six months ended June 30, 2014 described above. This decrease was partially offset by recognition of an impairment loss of $165,556 for one of the Fund’s operating leases.
As a result, the Fund’s net income for the six months ended June 30, 2015 increased by $277,624 when compared to the six months ended June 30, 2014.
The Fund evaluated a number of equipment transactions during the first six months of 2015. 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 June 30, 2015 compared to December 31, 2014.
Total Assets
Total assets decreased by $574,973, from $79,507,085 as of December 31, 2014 to $78,932,112 as of June 30, 2015. The decrease in total assets was primarily due to a decrease in cash and cash equivalents of $4,275,975 and operating lease assets of $2,432,521. Cash decreases were driven by funding new participation agreements of $13,704,276, cash distributions to members of $3,742,105, and an acquisition of leased assets for $856,751. Cash increases were driven by rents collected and loan principal repayments of $3,290,219 by MBL UK and $4,995,979 by MECI. Operating lease assets decreased during the six months due to depreciation expense of $2,266,965 and an impairment loss of $165,556. The decrease in cash and operating lease assets was partially offset by a net increase in loans receivable (related party) of $5,435,617 from new participation agreements, an increase in net investment in finance leases of $438,235 due to the aforementioned acquisition, and an increase in lease receivables of $150,215.
17 |
Total Liabilities
Total liabilities increased by $269,912, from $3,978,434 as of December 31, 2014 to $4,248,346 as of June 30, 2015. The increase in total liabilities is the result of an increase in fees payable to related parties of $268,651 and an increase in maintenance reserve payable of $131,757. Fees payable to related parties increased due to asset management fees and operating expenses incurred during the six months ended June 30, 2015. Fees payable to the Manager are allocated to the Fund on a quarterly basis and are settled annually in December. This increase is partially offset by a decrease in deferred rental income of $78,650 and a decrease in other payables of $29,613.
Equity
Equity decreased by $844,885, from $75,528,651 as of December 31, 2014 to $74,683,766 as of June 30, 2015. The decrease in equity is primarily due to distributions declared to investors of $3,719,872, of which $3,103,669 were paid and $616,203 were payable as of June 30, 2015. Additionally, 24,837 shares were redeemed for $199,997 during the six months ended June 30, 2015. This decrease was offset by net income of $3,074,984 for the same period.
Liquidity and Capital Resources
Cash Flows Summary
The following table sets forth summary cash flow data for the six months ended June 30, 2015 and 2014.
June 30, 2015 | June 30, 2014 | |||||||
Net cash provided by (used in) : | ||||||||
Operating activities | $ | 5,919,259 | $ | 6,552,795 | ||||
Investing activities | (6,379,324 | ) | (3,108,370 | ) | ||||
Financing activities | (3,815,910 | ) | (3,895,291 | ) | ||||
Net decrease in cash and cash equivalents | $ | (4,275,975 | ) | $ | (450,866 | ) |
See the Statements of Cash Flows included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q for additional information.
As of June 30, 2015, the Fund had cash and cash equivalents of $1,431,096. The amount of cash provided by operating activities for the six months ended June 30, 2015 of $5,919,259 consisted primarily of rentals collected during the six months from leased assets.
The cash used in investing activities for the six months ended June 30, 2015 is primarily attributable to the participation in new finance facilities of $13,704,276 and acquisition of leased assets of $856,751. These cash outflows were partially offset by the principal repayments received during the six months ended June 30, 2015 of $3,290,219 from MBL UK and $4,995,979 from MECI.
The cash used in financing activities for the six months ended June 30, 2015 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, loans 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 collateralized by equipment.
18 |
As of August 14, 2015 we have used approximately $126,283,624 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 lessor | 540,000 | |||
Financing provided to affiliate (fully repaid) | 16,793,998 | |||
Financing provided to affiliate | 9,449,958 | |||
Bus manufacturing equipment | 854,333 | |||
$ | 126,283,624 |
The Fund believes it has sufficient working capital to continue existing operations for the next 12 months and through its liquidation phase, which begins on July 1, 2016.
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 $1,890,426 and $1,902,741 to our members during the three months ended June 30, 2015 and 2014, respectively and cash distributions of $3,742,105 and $3,767,172 to our members during the six months ended June 30, 2015 and 2014, 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.
19 |
Commitments, Contingencies and Off-Balance Sheet Arrangements
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 arrangements as of June 30, 2015 and December 31, 2014, respectively.
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.
Accounting Policies, Accounting Changes and Future Application of Accounting Standards
See Note 2, “Significant Accounting Policies”, in Part I, Item 1, for a summary of the Fund’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Although this information is not required to be disclosed for smaller reporting companies, we believe that there have been no material changes to the disclosures reported in our Form 10-K, dated February 18, 2015.
Item 4. | Controls and Procedures |
Under the direction and with the participation of our Manager’s President and Principal Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) or Rule 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 our disclosure controls and procedures were effective as of June 30, 2015. There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act) that occurred during the three months ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. | Legal Proceedings |
In the ordinary course of conducting our business, there may be certain claims, suits and complaints filed against us. In the opinion of management, the outcome of such matters, if any, will not have a material impact on our financial position. No material legal proceedings are currently pending or threatened, to our knowledge, against us or against any of our assets.
Item 1a. | Risk Factors |
Not applicable.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) None.
(b) None.
(c) A summary of the share repurchases during the quarter 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 | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (1) | |||||||||||||
April 1 to April 30, 2015 | 10,642 | $ | 8.30 | 10,642 | - | |||||||||||
May 1 to May 31, 2015 | - | - | - | - | ||||||||||||
June 1 to June 30, 2015 | - | - | - | - | ||||||||||||
Total | 10,642 | $ | 8.30 | 10,642 | - |
(1) Our operating agreement, dated June 19, 2009, and which does not have an expiration date, allows for the repurchase of shares according to a specified repurchase formula set forth therein. Our operating agreement limits the number of shares that can be repurchased in any one year, but there is no maximum number of shares that may be repurchased over time. Repurchased shares may not be reissued.
20 |
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Other Information |
None.
Item 6. | Exhibits |
An exhibit index has been filed as part of this Report on page 23.
21 |
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 | |
Name: | David Fahy | |
Title: | President of the Manager and Principal Executive | |
Officer of Registrant | ||
Date: August 14, 2015 | ||
By: | /s/ John Papatsos | |
Name: | John Papatsos | |
Title: | Principal Financial Officer of the Manager and Principal | |
Accounting Officer of Registrant | ||
Date: August 14, 2015 |
22 |
Exhibit Index
Exhibit Number |
Description | |
31.1* | Rule 13a-14(a)/15d-14(a) Certification of President of the Manager and Principal Executive Officer of Registrant. | |
31.2* | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant | |
32.1** | Section 1350 Certification of President of the Manager and Principal Executive Officer of Registrant | |
32.2** | Section 1350 Certification of Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant | |
101.0* | The following materials from the Quarterly Report on Form 10-Q of Macquarie Equipment Leasing Fund, LLC for the three months ended June 30, 2015, filed on August 14, 2015, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014, (ii) the Statement of Operations for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited), (iii) the Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited) (iv) the Statements of Changes in Members’ Equity for the Six Months Ended June 30, 2015 (Unaudited) and (v) the Notes to Financial Statements (Unaudited). |
* | Filed herewith. |
** | Furnished, rather than filed herewith. |
23 |