Attached files
Table of Contents
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, 2010
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 Incorporation or Organization) |
(IRS Employer Identification No.) |
225 Franklin St, 17th Floor, Suite 1700
Boston, Massachusetts 02110
(Address of Principal Executive Offices) (Zip Code)
(617) 457-0645
(Registrants 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark 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 1,189,940 shares of limited liability company membership interests outstanding at August 9, 2010.
Table of Contents
MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
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.
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Item 1. | Financial Statements |
MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
(Unaudited)
June 30, 2010 | December 31, 2009 | |||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 2,188,759 | $ | 4,474 | ||||
Participating interestFuture lease income (current) |
696,734 | | ||||||
Taxes receivable (related party) |
84 | 218 | ||||||
Total Current Assets |
2,885,577 | 4,692 | ||||||
Non-current Assets |
||||||||
Participating interestResidual value |
3,797,959 | | ||||||
Participating interestFuture lease income |
1,899,247 | | ||||||
Total Non-current Assets |
5,697,206 | | ||||||
Total Assets |
$ | 8,582,783 | $ | 4,692 | ||||
LIABILITIES AND MEMBERS EQUITY |
||||||||
Current Liabilities: |
||||||||
Commissions and fees payable |
$ | 310,583 | $ | | ||||
Capital contributions received in advance |
175,000 | | ||||||
Lease payments received in advance |
28,876 | |||||||
Distribution payable |
56,219 | |||||||
Total Liabilities |
570,678 | | ||||||
Commitments and Contingencies |
| | ||||||
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: 988,045 shares as of June 30, 2010 and 500 shares as of December 31, 2009 |
8,488,590 | 5,000 | ||||||
Deficit accumulated during development stage |
(476,485 | ) | (308 | ) | ||||
Total Members Equity |
8,012,105 | 4,692 | ||||||
Total Liabilities and Members Equity |
$ | 8,582,783 | $ | 4,692 | ||||
See accompanying notes to the Financial Statements.
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
(Unaudited)
Period from August 21, 2008 (inception of the Fund) to June 30, 2010 |
Quarter Ended | Six Months Ended | |||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | ||||||||||||||||
REVENUE |
|||||||||||||||||||
Participating interest income |
$ | 41,440 | 39,361 | $ | | $ | 41,440 | $ | | ||||||||||
Other income |
213 | 57 | | 213 | | ||||||||||||||
Total Revenue |
41,653 | 39,418 | | 41,653 | | ||||||||||||||
EXPENSES |
|||||||||||||||||||
Operating expenses |
310,583 | 193,275 | | 310,583 | | ||||||||||||||
Acquisition fees |
195,000 | 99,000 | | 195,000 | | ||||||||||||||
Management fees |
8,817 | 8,494 | | 8,817 | | ||||||||||||||
Other expenses |
3,956 | 3,318 | 163 | 3,430 | 239 | ||||||||||||||
Total Expenses |
518,356 | 304,087 | 163 | 517,830 | 239 | ||||||||||||||
Net loss before income taxes |
(476,703 | ) | (264,669 | ) | (163 | ) | (476,177 | ) | (239 | ) | |||||||||
Income tax benefit |
218 | | 67 | | 99 | ||||||||||||||
Net loss |
$ | (476,485 | ) | (264,669 | ) | $ | (96 | ) | $ | (476,177 | ) | $ | (140 | ) | |||||
Basic and diluted loss per share |
$ | (4.13 | ) | (0.95 | ) | $ | | $ | (1.10 | ) | $ | | |||||||
Weighted average number of shares outstanding: basic and diluted |
115,425 | 277,814 | | 430,991 | |
See accompanying notes to the Financial Statements.
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
(Unaudited)
Period from August 21, 2008 (inception of the Fund) to June 30, 2010 |
Six Months Ended | |||||||||||
June 30, 2010 | June 30, 2009 | |||||||||||
Cash flow from operating activities: |
||||||||||||
Net loss |
$ | (476,485 | ) | $ | (476,177 | ) | $ | (140 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Changes in assets and liabilities: |
||||||||||||
Commission and fees payable |
310,583 | 310,583 | | |||||||||
Taxes receivablerelated party |
(84 | ) | 134 | (99 | ) | |||||||
Income received in advance |
28,876 | 28,876 | ||||||||||
Net cash used in operating activities |
(137,110 | ) | (136,584 | ) | (239 | ) | ||||||
Cash flow from investing activities: |
||||||||||||
Payment for participating interestResidual value and Future lease income |
(6,500,000 | ) | (6,500,000 | ) | | |||||||
Proceeds from participating interestFuture lease income |
106,060 | 106,060 | | |||||||||
Net cash used in investing activities |
(6,393,940 | ) | (6,393,940 | ) | | |||||||
Cash flow from financing activities: |
||||||||||||
Proceeds from issuance of shares |
9,651,576 | 9,646,576 | | |||||||||
Payment of offering related expenses |
(1,016,457 | ) | (1,016,457 | ) | | |||||||
Distribution paid to members |
(90,310 | ) | (90,310 | ) | ||||||||
Capital contributions received in advance |
175,000 | 175,000 | | |||||||||
Net cash provided by financing activities |
8,719,809 | 8,714,809 | | |||||||||
Net increase (decrease) in cash and cash equivalents |
2,188,759 | 2,184,285 | (239 | ) | ||||||||
Cash and cash equivalents, beginning of the period |
| 4,474 | 4,884 | |||||||||
Cash and cash equivalents, end of the period |
$ | 2,188,759 | $ | 2,188,759 | $ | 4,645 | ||||||
Supplemental disclosures of cash flow information |
||||||||||||
Non cash financing activities |
||||||||||||
Issuance of shares under distribution reinvestment plan |
$ | 17,996 | $ |
17,996 |
|
$ | |
See accompanying notes to the Financial Statements.
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STATEMENT OF CHANGES IN MEMBERS EQUITY
(a development stage enterprise)
Period from August 21, 2008 (inception of the Fund) to June 30, 2010
(Unaudited)
Members shares | Additional members equity (1) |
Managing members equity |
Total | |||||||||||
Opening balanceAugust 21, 2008 |
500 | $ | | $ | 5,000 | $ | 5,000 | |||||||
Issuance of members shares |
985,545 | 8,146,576 | 1,500,000 | 9,646,576 | ||||||||||
Issuance of members sharesdistribution reinvestment plan |
2,000 | 17,996 | | 17,996 | ||||||||||
Offering related expenses |
| (928,828 | ) | (87,629 | ) | (1,016,457 | ) | |||||||
Distribution to members |
| (152,152 | ) | (12,373 | ) | (164,525 | ) | |||||||
Net loss |
| (408,307 | ) | (68,178 | ) | (476,485 | ) | |||||||
Closing balanceJune 30, 2010 |
988,045 | $ | 6,675,285 | $ | 1,336,820 | $ | 8,012,105 |
(1) | Additional members represent all members other than the Managing member |
See accompanying notes to the Financial Statements.
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
(Unaudited)
1. ORGANIZATION AND BUSINESS OPERATIONS
Macquarie Equipment Leasing Fund, LLC ( the Fund), a Delaware limited liability 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 Funds objective is to generate income through the collection of lease rentals and other revenues, through the sale of leased equipment and other portfolio investments. The Funds 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 expects to 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, asset management and administrative, reporting and regulatory services. Further, the Fund expects to reimburse the Manager for costs incurred by them in managing the Fund and the Funds portfolio of equipment, equipment lease and other equipment related investments.
The Fund received Post-Effective Amendment No. [2] to Registration Statement on Form S-1 (the Registration Statement on Form S-1) from the Securities and Exchange Commission on June 8, 2010. The Fund is considered to be a development stage enterprise as limited operations have commenced since its first effectiveness order received on June 19, 2009 . The initial capital contribution to the Fund was for $5,000 from the Manager and the Manager made additional contribution of $1,500,000 to the Fund. The Fund is offering membership interests on a best efforts basis with the intention of raising up to $157,200,000 of equity. The Fund expects the share offering period to last for up to 24 months from the date of the its first effectiveness order.
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. As of June 30, 2010, the Fund has received and accepted cumulative subscriptions for 988,045 shares of limited liability company interest (Shares) for $8,653,115, net of offering costs, including the capital contributions from the Manager.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting and Use of Estimates
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. 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 an original maturity of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained with one financial institution.
Income Taxes
Until the initial closing date of March 5, 2010, the Fund was a single member Limited Liability Company and used the liability method for accounting for income taxes in accordance with Accounting Standards Codification 740, Income Taxes. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting basis and tax basis of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation reserves are established when it is determined that it is more than likely than not that the deferred income tax asset will not be realized.
The Fund recorded its benefit for income taxes as amounts due based upon the estimated taxes that would be due if the Fund had filed its income tax returns on a separate entity basis and will be settled via an informal tax sharing agreement with the Manager. The Funds share of current and deferred federal and state tax benefits or obligations were recorded as taxes receivable (related party) in the balance sheet as of December 31, 2009.
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS(Continued)
(Unaudited)
The Fund received and accepted subscriptions for a minimum offering amount on March 5, 2010. From that date the above guidance no longer applies. The Fund is treated as a partnership for federal and state income tax purposes. As a partnership, the Fund itself is not subject to federal and state income taxes, while each member will be individually liable for income taxes, if any, of its 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.
Development Stage Company
The Fund complies with the reporting requirements of Accounting Standards Codification 915, Development Stage Entities.
New Accounting Pronouncements
In May 2009, the FASB issued Accounting Standards Codification (ASC) 855 Subsequent Events, which sets forth the accounting and disclosure requirements for subsequent events; events that occur after the balance sheet date, but before financial statements are issued or are available to be issued. This guidance requires disclosure of the date through which subsequent events have been evaluated. If the subsequent events are not recognized in the financial statements, this guidance also requires disclosure of the nature and effect of such in the financial statements. The guidance was effective for interim or annual financial periods ending after June 15, 2009. In February 2010, FASB issued ASU 2010-09 Amendments to Certain Recognition and Disclosure Requirements. The guidance requires an entity that is either an SEC filer or a conduit bond obligor for conduit debt securities that are traded in a public market to evaluate subsequent events through the dates financial statements are issued. All other entities are required to evaluate subsequent events through the date financial statements are available to be issued. It also requires all entities excluding the SEC filers to disclose the dates through which the subsequent events have been evaluated. The Fund adopted the amended guidance in the first quarter of 2010. The adoption of the new guidance had no effect on the Funds financial statements.
3. PARTICIPATING INTEREST
On March 24, 2010, the Fund entered into a participation agreement with Macquarie Bank Limited (MBL) to acquire an economic interest of up to 10% ($6.5 million) in a sale leaseback transaction of a subsidiary of MBL. Pursuant to the participation agreement, the Fund made installment payments to, and will receive monthly payments from, MBL in a manner which mirrors the cash flows arising in connection with the commercial aircraft engines leased by a third party (the underlying airline) subject to leases of between 51 to 69 months. MBL will pay the Fund approximately 10% (consistent with the investment percentage) of the monthly lease payments received from the third party and approximately 10% of the engine sales proceeds, remaining maintenance reserves and damages and insurance proceeds (collectively referred to as residual value), at the end of the lease term when the engines have been successfully remarketed. Under a separate agreement, the Fund shall pay Macquarie Aviation Capital Limited, via its fund manager, a fee (5% of the lease rental receipts) for the ongoing management of the engines and for the collection and remittance of rentals.
As of June 30, 2010, the Fund has paid MBL $6.5 million (approximately 10% of the transaction value). Therefore, the Fund is entitled to receive cash payments of $57,752 per month and approximately 10% of the residual value. The $6.5 million investment has been bifurcated on the face of the balance sheet into two assets based upon relative fair value in accordance with the accounting guidance described below:
1) Participating InterestEngine residual value: Representing the present value of the residual engine value as of the time of investment. The recognition of the asset upon investment is in accordance with ASC 360-10-25 Acquisition of the Residual Value in Leased Asset by a Third Party for an acquisition of the residual value in leased assets by a third party. The asset will be tested for impairment as in accordance with ASC 320 InvestmentsDebt and Equity Securities.
2) Participating InterestFuture lease income: Representing the present value of the discounted cash flows as of June 30, 2010, based on the accounting guidance of ASC 470-10-25, Sales of Future Revenues or Various Other Measures of Income.
The proceeds related to the residual value will be recouped if remarketing of the engines at the end of the lease term is successful. Any gains or losses on the residual value will be recognized based on the difference between the proceeds and the carrying amount. Income associated with the cash flows will be recognized monthly based on an effective yield over the lease term, based on the accounting guidance of ASC 470-10-25.
The Fund is exposed to the credit risk of the underlying airline. Neither MBL nor any other member of the Macquarie Group guarantees the payment obligations of the airline, and the Fund has no recourse against any member of the Macquarie Group in the event the airline fails to meet its payment obligations. Although the Fund currently has no reason to believe that the airline will fail to meet its contractual obligations, a risk of loss to the Fund exists to the extent that the airline fails to meet its payment obligations and the net remarketing proceeds from the sale of (repossessed) equipment are not sufficient to reimburse the Fund for its investment in the transaction. The Fund also faces risk of loss should MBL fail to meet its payment obligation under the participation agreement.
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS(Continued)
(Unaudited)
4. TRANSACTIONS WITH AFFILIATES
As discussed in Note 1, the Fund is required to pay fees to the Manager 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.
Macquarie Capital (USA) Inc. (the dealer manager) will act as dealer manager for the Fund and will manage a group of selling dealers, including other unaffiliated broker dealers.
The Manager and the dealer manager will receive fees from the Fund for offering services during the offering period including:
| Selling commission of up to 7% of the offering proceeds from each share sold by the dealer manager or selling dealers, payable to the dealer manager (and re-allowed to unaffiliated selling dealers); |
| Due diligence expense reimbursement for detailed and itemized bona fide accountable due diligence expenses, payable to the dealer manager (and re-allowed to unaffiliated selling dealers); |
| Dealer manager fees of 3% of the offering proceeds from each share sold, payable to the dealer manager; and |
| Organization and offering expense allowance, which varies based upon the actual organization and offering expenses incurred by the Company and its affiliates and the number of shares sold, payable to the Company. |
The organization and offering expense allowance will not exceed the actual fees and expenses incurred by the Manager or its affiliates in connection with the Funds organization and offering and will be calculated as follows:
| up to 2.433% of the offering proceeds from each share sold for the first 3,500,000 shares; |
| up to 2.09% of the offering proceeds from each share sold for shares sold that exceed 3,500,000 but amount to 7,500,000 or fewer shares; and |
| up to 1.60% of the offering proceeds from each share sold for shares sold that exceed 7,500,000 shares. |
The Fund will pay the Manager and its affiliates fees for operating services performed during the offering period and on an on-going basis once the Fund has commenced operations, 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 company 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 Managers 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 Funds 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 Funds equipment and similar services; or (b) the amount of fees which are competitive for similar services; |
| Remarketing fees the amount 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 Funds members and 1.0% to the Manager. After the time that investor return is achieved, cash distributions will be made 81.0% to the Funds members and 19.0% to the Manager and |
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MACQUARIE EQUIPMENT LEASING FUND, LLC
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS(Continued)
(Unaudited)
| Reimbursement of operating expenses depending upon the scope of services the Manager provides to the Fund. |
As of June 30, 2010 the Fund has accrued or paid to the Manager or its affiliates the following amounts:
Entity |
Capacity |
Description |
Amount | ||||
Maquarie Asset Management Inc. | Manager | Organization and Offering expense allowance (1) | $ | 239,783 | |||
Macquarie Capital (USA) Inc. | Dealer Manager | Selling commissions and Dealer manager fees (1) | $ | 195,404 | |||
Maquarie Asset Management Inc. | Manager | Acquisition fees (2) | $ | 195,000 | |||
Maquarie Asset Management Inc. | Manager | Management fee | $ | 8,817 | |||
Maquarie Asset Management Inc. | Manager | Operating Expenses | $ | 310,583 | |||
Maquarie Asset Management Inc. | Manager | Outperformance fee | $ | 1,085 |
(1) | Amount charged directly to members equity. |
(2) | Amount charged directly to operations. |
5. EQUITY CONTRIBUTION
As of June 30, 2010, the Fund has received and accepted subscriptions for 988,045 shares of limited liability company interest for $8,653,115, net of offering costs. The subscriptions received include total contributions of $1,505,000 from the Manager, excluding the offering costs.
6. SUBSEQUENT EVENTS
As of August 9, 2010 the Fund has raised and accepted additional cumulative subscription for 201,895 shares of limited liability company interest for $1,768,263, net of offering cost.
The Fund has evaluated subsequent events through August 9, 2010 which is the date the financial statements were issued.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The following is a discussion of our current financial position. 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 statement and related notes included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 15, 2010, 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 will also make investments in 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 is currently in its offering period, which commenced on June 19, 2009 and is anticipated to end in June 2011. It is currently in the process of raising capital. On March 5, 2010, subscriptions for the minimum number of limited liability company interest (Shares), being 290,509 Shares for $2,837,350, excluding subscriptions from Pennsylvania investors, had been received. As a result, subscription proceeds were released from escrow to commence principal operations and reimburse organization and offering fees and expenses. Subsequent capital contributions will be used to fund operations, invest in equipment, equipment leases and other equipment related transactions and pay fees and expenses as described in the Funds Registration Statement. As of August 9, 2010, the Fund has received and accepted cumulative subscriptions for 1,189,940 Shares for $10,421,378, net of offering costs. When the Funds offering period ends, the Fund will enter into its operating period, whereupon it may continue to make investments in equipment, equipment leases and other equipment related transactions.
The Fund is offering a total of 15,000,000 Shares for a price of $10.00 per share, subject to certain reductions. The Fund is also offering up to 800,000 Shares pursuant to its distribution reinvestment plan at a public offering price of $9.00 per Share. The Funds manager, Macquarie Asset Management Inc. (Manager), has contributed a total of $1,505,000. The Funds fiscal year end is December 31.
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Recent Transaction
In accordance with the terms of the Funds Operating Agreement, on March 24, 2010, the Fund entered into a participation agreement with Macquarie Bank Limited (MBL) and invested in a portfolio of eight commercial jet aircraft engines. The engines, purchased by a wholly owned member of the Macquarie Group Limited group of companies (the Macquarie Group), are subject to leases of between 51 and 69 months to a major Australian commercial passenger airline. Six of the engines were manufactured by CFM International, Inc. (a joint venture between General Electric and SNECMA, a French Government owned engine manufacturer) for use on Boeing 737 New Generation aircraft, and two of the engines were manufactured by General Electric for use on the Embraer 190 and 195 aircraft. The engines have a remaining useful life of between approximately 15 and 30 years.
Under the participation agreement, the Fund is entitled to receive from MBL an amount equal to approximately 10% of the cashflows associated with the portfolio of engines. These cashflows include rentals, engine sales proceeds, damages and insurance proceeds, and any residual maintenance reserves. For the right to participate in these cashflows, the Fund paid a participation price of $6.5 million dollars to the Macquarie Group, representing approximately 10% of the costs incurred to purchase the engines. This amount consists entirely of investor capital with no debt, or leverage, having been incurred to fund payment of the participation price installment.
The Fund is exposed to the credit risk of the underlying airline. Neither MBL nor any other member of the Macquarie Group guarantees the payment obligations of the airline, and the Fund has no recourse against any member of the Macquarie Group in the event the airline fails to meet its payment obligations. Although the Fund currently has no reason to believe that the airline will fail to meet its contractual obligations, a risk of loss to the Fund exists to the extent that the airline fails to meet its payment obligations and the net remarketing proceeds from the sale of (repossessed) equipment are not sufficient to reimburse the Fund for its investment in the transaction. The Fund also faces risk of loss should MBL fail to meet its payment obligation under participant agreement.
The engines are located in Australia. All payments under the participation agreement and in the underlying leases are in U.S. dollars.
Critical Accounting Policies
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.
Investments in Participating Interest
Our participating interest in the sales leaseback transaction consists of the sum of the total fair value of the future minimum lease payments receivable plus the estimated fair value of the unguaranteed residual value of the leased equipment. Bifurcation of the investment into the portions attributable to the Residual Value and the Future Lease Income and the timing of income recognition has been based on estimates. Assumptions have been made regarding engine utilization, condition and maintenance costs based on independent third party data.
Results of Operations for the Quarter and Six Months Ended June 30, 2010
We are currently in our offering period. The minimum offering of $2,500,000 was achieved on March 5, 2010. Through June 30, 2010, we have received and accepted cumulative subscription of $8,653,115, net of offering costs and as at August 9, 2010, the Fund had raised total equity of $10,421,378, net of offering costs. Investors from the Commonwealth of Pennsylvania, where a minimum offering amount of $7,500,000 applies, were admitted as members of the Fund in June.
Total revenue for the quarter and six months ended June 30, 2010 were $39,418 and $41,653, respectively, which was primarily due to the income recognized from our investment in a participation agreement with Macquarie Bank Limited in connection with a portfolio of eight commercial jet aircraft engines.
Total expenses for the quarter and six months ended June 30, 2010 were $304,087 and $517,830 respectively, which were comprised primarily of operating expenses, management and acquisition fees to the Manager. As a result of the foregoing factors, the net loss for the quarter and six months ended June 30, 2010 were $264,669 and $476,177, respectively.
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Liquidity and Capital Resources
Cash Flows Summary
At June 30, 2010, the Fund had cash and cash equivalents of $2,188,759. During our offering period, our main source of cash will be from financing activities and our main use of cash will be to acquire a diversified portfolio of equipment, equipment leases and other equipment related-investments. 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.
Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less. Until offering proceeds are used for the acquisition or operation of the Funds portfolio, the offering proceeds will be held in an operating account at Wells Fargo Bank, National Association. In addition, pursuant to the terms of our offering, the Fund will establish working capital reserves of approximately 1.0% of the gross offering proceeds.
Sources and Uses of Cash
The Fund will continue to sell its shares until the end of the offering period. As additional shares are sold, the Fund will experience an increase in liquidity as cash is received. As the Fund uses cash to acquire equipment or other equipment-related investments, its liquidity will decrease. The Funds maximum offering amount is $150,000,000, plus up to an additional $7,200,000 under the Funds distribution reinvestment plan
For the period from the commencement of our operations on March 5, 2010 through June 30, 2010, we sold 988,045 Shares, representing $8,653,115 of capital contributions, net of offering cost. For the period from the commencement of our operations on March 5, 2010 through June 30, 2010, we have paid or accrued sales commissions to third parties of $520,170 and dealer manager commissions to Macquarie Capital (USA) Inc. of $195,404. In addition, organization and offering expenses of $239,783 were paid or incurred by us to our Manager or its affiliates during this period.
Sources of Liquidity
Cash generated from our financing activities will be our most significant source of liquidity during our offering period. We believe that cash generated from our financing activities, as well as the expected results of our operations, will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, Manager and administrative expenses, new investment opportunities, management fees 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 Funds 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. 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 in purchasing its portfolio. During periods of general illiquidity in financial markets, it may not be possible for the Manager to source debt on the Funds behalf at an appropriate interest rate, on appropriate terms, at appropriate levels or at all.
Distributions
The Fund began making monthly cash distributions on April 15, 2010. We paid distributions to the members in the amount of $90,310 for the quarter and six months ended June 30, 2010
While the Manager anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.
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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 at June 30, 2010.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not Applicable.
Item 4. | Controls and Procedures |
Under the direction and with the participation of our Managers President and Principal Financial Officer, we evaluated our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Managers President and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2010. There has been no change in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the quarter ended June 30, 2010 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 |
There have been no material changes from the risk factors disclosed in our Post-Effective Amendment No. 2 to Registration Statement on Form S-1, dated June 8, 2010.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(a) None.
(b) We registered 15,800,00 shares of limited liability company interest, (SEC File No. 333-154278, effective June 19, 2009), of which we registered 15,000,000 shares at $10.00 per share to be offered to the public in a primary offering and 800,000 shares offered to our investors pursuant to our Distribution Reinvestment plan at $9.00 per share. The Fund is currently in its offering period, which commenced on June 19, 2009 and is anticipated to end in June 2011.
Through August 9, 2010, we received capital contributions in the amount of $10,421,378, net of offering costs. Through August 9, 2010, we have paid or accrued sales commissions to third parties of $664,957 and dealer manager commissions to Macquarie Capital (USA) Inc. of $228,605.
As of August 9, 2010 we have used $6.5 million of the offering proceeds to acquire a participation interest in a portfolio of commercial jet aircraft engines, described in further detail under Managements Discussion and Analysis of Financial Condition and Result of OperationsRecent Transaction.
Item 3. | Defaults Upon Senior Securities |
Not applicable.
Item 4. | [Removed and Reserved] |
Item 5. | Other Information |
None.
Item 6. | Exhibits |
An exhibit index has been filed as part of this Report on page E-1.
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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 9, 2010 | ||
By: |
/s/ FRANK V. SARACINO | |
Name: |
Frank V. Saracino | |
Title: |
Principal Financial Officer of the Manager and Principal Accounting Officer of Registrant | |
Date: August 9, 2010 |
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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 |
* Filed herewith.
E-1