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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 March 31, 2012

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

(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 9,653,595 shares of limited liability company membership interests outstanding at May 15, 2012.

 

 

 


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

Table of Contents

 

Part I.

 

Financial Information

  

Item 1.

 

Financial Statements

  
 

Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011

     3   
 

Statements of Operations for the Quarters Ended March 31, 2012 and 2011 (Unaudited)

     4   
 

Statements of Cash Flows for the Quarters Ended March 31, 2012 and 2011 (Unaudited)

     5   
 

Statements of Changes in Members’ Equity for the Quarter Ended March 31, 2012 (Unaudited)

     6   
 

Notes to Financial Statements (Unaudited)

     7   

Item 2.

 

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

     14   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     16   

Item 4.

 

Controls and Procedures

     16   

Part II.

 

Other Information

  

Item 1.

 

Legal Proceedings

     17   

Item 1A.

 

Risk Factors

     17   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     17   

Item 3.

 

Defaults Upon Senior Securities

     17   

Item 4.

 

Mine Safety Disclosures

     17   

Item 5.

 

Other Information

     17   

Item 6.

 

Exhibits

     17   

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


Table of Contents

Part I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

MACQUARIE EQUIPMENT LEASING FUND, LLC

BALANCE SHEETS

(Unaudited)

 

     March 31, 2012      December 31, 2011  

ASSETS

     

Current Assets

     

Cash and cash equivalents

   $ 31,610,243       $ 10,328,871   

Restricted cash

     1,602,713         1,540,298   

Participating interest - Future lease income (related party)

     —           695,229   

Net investment in finance lease

     305,069         295,011   

Lease receivable

     1,432,618         527,856   

Maintenance reserve and other receivables

     231,399         302,802   

Receivables (related party)

     7,299,716         —     
  

 

 

    

 

 

 

Total Current Assets

     42,481,758         13,690,067   

Non-current Assets

     

Participating interest - Residual value (related party)

     —           3,823,018   

Participating interest - Future lease income (related party)

     —           1,087,000   

Net investment in finance lease

     375,128         455,273   

Leased equipment at cost (net of accumulated depreciation of $3,210,977 and $2,058,143, respectively)

     40,768,129         41,920,963   
  

 

 

    

 

 

 

Total Non-current Assets

     41,143,257         47,286,254   
  

 

 

    

 

 

 

Total Assets

   $ 83,625,015       $ 60,976,321   
  

 

 

    

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

     

Current Liabilities

     

Commissions and fees payable (related party)

   $ 163,990       $ 311,812   

Capital contributions received in advance

     —           10,000   

Deferred finance and rental income

     337,628         570,551   

Distribution payable

     609,245         465,674   

Other payable

     89,725         174,757   
  

 

 

    

 

 

 

Total Current Liabilities

     1,200,588         1,532,794   

Non-current Liabilities

     

Maintenance reserves

     1,831,307         1,647,676   
  

 

 

    

 

 

 

Total Non-current Liabilities

     1,831,307         1,647,676   
  

 

 

    

 

 

 

Total Liabilities

   $ 3,031,895       $ 3,180,470   
  

 

 

    

 

 

 

Commitments and Contingencies

     —           —     

Members’ Equity

     

Shares of membership interests, $10.00 par value as may be reduced (i) under a distribution reinvestment plan, (ii) for volume discounts, or (iii) for reductions in selling commissions

     

Authorized: 15,800,500 shares;

     

Issued and outstanding: 9,590,116 shares as of March 31, 2012 and 7,109,357 shares as of December 31, 2011, net of repurchases

     78,382,016         58,091,682   

Accumulated surplus (deficit)

     2,211,104         (295,831
  

 

 

    

 

 

 

Total Members’ Equity

     80,593,120         57,795,851   
  

 

 

    

 

 

 

Total Liabilities and Members’ Equity

   $ 83,625,015       $ 60,976,321   
  

 

 

    

 

 

 

See accompanying notes to the Financial Statements.

 

3


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENTS OF OPERATIONS

(Unaudited)

 

     Quarter ended  
     March 31, 2012      March 31, 2011  

REVENUE

     

Participating interest income (related party)

   $ 36,637       $ 42,932   

Finance and rental income

     2,142,641         255,338   

Gain on sale of participating interest (related party)

     1,859,964         —     

Other income

     —           401   
  

 

 

    

 

 

 

Total revenue

     4,039,242         298,671   

EXPENSES

     

Operating expenses (related party)

     145,363         123,200   

Management fees (related party)

     109,958         25,045   

Depreciation

     1,152,834         129,170   

Other expenses

     124,152         86,160   
  

 

 

    

 

 

 

Total expenses

     1,532,307         363,575   
  

 

 

    

 

 

 

Net income (loss)

   $ 2,506,935       $ (64,904
  

 

 

    

 

 

 

Basic and diluted gain (loss) per share

   $ 0.30       $ (0.03

Weighted average number of shares outstanding: basic and diluted

     8,299,816         2,584,605   
  

 

 

    

 

 

 

See accompanying notes to the Financial Statements.

 

4


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Quarter ended  
     March 31, 2012     March 31, 2011  

Cash flow from operating activities:

    

Net income (loss)

   $ 2,506,935      $ (64,904

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation

     1,152,834        129,170   

Gain on sale of participating interest

     (1,859,964     —     

Changes in operating assets and liabilities:

    

Commission and fees payable (related party)

     40,922        56,523   

Lease receivable

     (904,762     76,722   

Net investment in finance lease

     70,088        41,456   

Prepayment (related party)

     —          (1,918

Other receivable

     192,618        —     

Other payable

     (85,032     65,714   

Deferred finance and rental income

     (232,923     61,716   
  

 

 

   

 

 

 

Net cash provided by operating activities

     880,716        364,479   
  

 

 

   

 

 

 

Cash flow from investing activities:

    

Proceeds from participating interest - Future lease income (related party)

     165,495        130,324   

Purchase of equipment

     (223,000     (9,698,934

Investment in capital leased asset

     —          (166,009

Restricted cash

     (62,415     (1,236,497
  

 

 

   

 

 

 

Net cash used in investing activities

     (119,920     (10,971,116
  

 

 

   

 

 

 

Cash flow from financing activities:

    

Proceeds from issuance of shares

     24,002,606        8,495,418   

Payment of offering related expenses

     (2,554,654     (1,053,048

Distribution paid to members

     (979,791     (311,818

Capital contributions received in advance

     (10,000     694,800   

Repurchase of shares

     —          (4,000

Maintenance reserves

     62,415        1,236,497   
  

 

 

   

 

 

 

Net cash provided by financing activities

     20,520,576        9,057,849   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     21,281,372        (1,548,788

Cash and cash equivalents, beginning of the period

     10,328,871        8,970,075   
  

 

 

   

 

 

 

Cash and cash equivalents, end of the period

   $ 31,610,243      $ 7,421,287   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information

    

Non cash investing and financing activities

    

Issuance of shares under distribution reinvestment plan

   $ 500,092      $ 130,810   

Accrued purchase of equipment and investment in capital leased asset

   $ —        $ 60,890   

Accrued offering cost

   $ 123,067      $ —     

Maintenance reserve receivable

   $ 228,594      $ —     

See accompanying notes to the Financial Statements.

 

5


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

STATEMENT OF CHANGES IN MEMBERS’ EQUITY

(Unaudited)

 

     Members’ shares      Additional
members’ equity (1)
    Managing
member’s equity
    Total  

Balance at December 31, 2011

     7,109,357       $ 56,676,723      $ 1,119,128      $ 57,795,851   

Issuance of members’ shares

     2,425,194         24,002,606        —          24,002,606   

Issuance of members’ shares - Distribution Reinvestment Plan

     55,566         500,092        —          500,092   

Offering - related expenses

     —           (2,588,910     —          (2,588,910

Distribution to members

     —           (1,591,185     (32,269     (1,623,454

Net income

     —           2,464,642        42,294        2,506,935   
  

 

 

    

 

 

   

 

 

   

 

 

 

Balance at March 31, 2012

     9,590,116         79,463,968        1,129,152        80,593,120   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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

See accompanying notes to the Financial Statements.

 

6


Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BUSINESS OPERATIONS

Macquarie Equipment Leasing Fund, LLC ( the “Fund” or the “Company”), 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 Fund’s objective is to generate income through the collection of lease rentals and other revenues, through the sale of leased equipment and through 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 earns fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. Further, the Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and other equipment-related investments.

The Fund filed Post-Effective Amendment No. 5 to Registration Statement on Form S-1 (the “Registration Statement on Form S-1”) with the Securities and Exchange Commission on December 16, 2011. The Manager made an initial capital contribution of $5,000. The Manager made additional capital contributions to the fund on March 31, 2010 and June 22, 2010 for $500,000 and $1,000,000, respectively. The Fund’s offering period ceased on March 19, 2012 and the operating period commenced.

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 at March 31, 2012, the Fund has received and accepted cumulative subscriptions for 9,590,116 shares (including the Distribution Reinvestment Plan, or “DRP”, shares and net of repurchase of shares) of limited liability company interest (“shares”) for $84,271,577 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.

Restricted Cash

Restricted cash consists of cash collected for aircraft maintenance reserves as discussed in Note 4, Leased Equipment at Cost.

Income Taxes

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, on their share of net taxable income from the Fund. Interest, dividends and other income realized by the Fund may be subject to withholding tax in the jurisdiction in which the income is sourced.

Leased Equipment at Cost

Investment in leased equipment is stated at cost less accumulated depreciation. Leased equipment is depreciated on a straight-line basis over the lease term to the assets’ residual value. Initial direct cost associated with the leases are included as cost of the component and depreciated over the lease term. The residual values are determined by the Fund’s Manager and are calculated using information from both internal (i.e. from affiliates) and external sources, such as trade publications, auction data, internal sales data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators.

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

Maintenance reserve

Where the lessee is responsible for maintenance and repairs, including major maintenance events over the term of the lease, the lessee pays additional rentals based on the usage of the equipment. This is recognized as a liability on the Fund’s Balance Sheet. As the maintenance is performed, the lessee is reimbursed for costs incurred up to, but not exceeding, the related additional rentals the Fund receives from the lessee. For each maintenance event, the difference between the liability and reimbursement paid to the lessee is recorded as revenue when management is satisfied that the remaining reserve is considered sufficient to cover future maintenance or repairs. Refer to Note 4, Leased Equipment at Cost for further detail.

Revenue recognition

For finance leases, at inception date, 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 in Net Investment in Finance Lease. Unearned income represents the difference between the sum of the minimum lease payments receivable, plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income in the Statement of Operations 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.

Allowance for doubtful accounts

The Fund evaluates the collectability of its receivables by analyzing the counterparties’ payment history, general creditworthiness and current economic trends. The Fund records an allowance when the analysis indicates that the probability of full collection is unlikely. No allowance was recorded for the quarters ended March 31, 2012 and 2011.

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 quarters ended March 31, 2012 and 2011.

Impairments

The significant 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 includes review of published values for similar assets, recent transactions for similar assets, lease terms, asset condition, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset. No impairment charges were recorded for the quarters ended March 31, 2012 and 2011.

New Accounting Pronouncements

In May 2011, the FASB issued new guidance ASU 2011-4, Fair Value Measurements—amendments to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This new guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. The adoption of this new guidance during the quarter did not have a significant impact on the Fund’s financial statements.

In June 2011, the FASB issued new guidance ASU 2011-5, Presentation of Comprehensive Income. This new guidance requires the presentation of comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update was effective January 1, 2012, and required retrospective application. The Fund does not have other comprehensive income items and therefore, the adoption of this new guidance during quarter did not have an impact on the Fund’s financial statements.

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

3. PARTICIPATING INTEREST (RELATED PARTY)

In March 2010, the Fund entered into a participation agreement with Macquarie Bank Limited (“MBL”) a member of the Macquarie Group of companies, to acquire an economic interest of up to 10% ($6,500,000) in a sale leaseback transaction. 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”) which are 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, a member of the Macquarie Group of companies, 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.

The Fund paid MBL $6,500,000 (approximately 10% of the transaction value). The Fund is entitled to receive cash payments of $57,752 per month and approximately 10% of the residual value. The $6,500,000 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 Interest—Engine 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. This asset is tested for impairment as in accordance with ASC 360-10-35 Subsequent Measurement. To date, no losses have been recorded.

2) Participating Interest—Future lease income: Representing the present value of the discounted future cash flows as of each balance sheet date based on the accounting guidance of ASC 470-10-25 Sales of Future Revenues or Various Other Measures of Income.

On September 26, 2011, MBL entered into a conditional sale agreement to sell the engines that the Fund has the participating interest in. The sale was completed on March 29, 30 and 31, 2012. The Fund realized a gain of $1,859,964 from the sale and derecognized the Participating Interest assets. A receivable of $7,299,716 was recorded for the proceeds from the sale. The Fund received payment for the receivable in April, 2012. All agreements with MBL relating to the participating interest have ceased as a result of the sale.

4. LEASED EQUIPMENT AT COST

In March 2011, the Fund entered into an agreement to purchase a 2002 vintage Bombardier CRJ-700ER aircraft (“the Aircraft”). The Aircraft is on lease until April 2014 to an airline which is wholly owned by the Government of India and will be used by the airline for its domestic routes in India. The purchase price for the aircraft, including the estimated initial direct costs was $9,758,734. The Fund also inherited the related maintenance reserve of $1,236,497, which is recorded as a liability on the Balance Sheet. No leverage was used to finance this acquisition by the Fund. At the end of the lease term, the lessee may return or continue to rent the equipment. Rentals of $181,000 are received monthly by the Fund. In addition to the inherited maintenance reserve balance, the Fund is entitled to receive additional rentals based on the usage of the aircraft during the lease term. Cash received for the additional rentals is presented as restricted cash in the Fund’s Balance Sheet and will be used to reimburse the lessee for the maintenance of the aircraft.

In July 2011, the Fund acquired an ETS-364B Test System, an item of semiconductor testing equipment manufactured by Teradyne, Inc. This equipment is on lease to the U.S. subsidiary of a semiconductor manufacturing company headquartered in Germany. The lease is for 36 months and the equipment will be used in the client’s U.S. facilities. The purchase price for the equipment, including the initial direct cost, was $383,898. No leverage was used to finance this acquisition by the Fund. The first rental was $92,729, including an amount of revenue which will be deferred for accounting purposes. For the subsequent monthly rental periods, rentals of $8,211 are to be received by the Fund. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value. The lease is recorded as an operating lease with rental income recognized on a straight line basis over the lease term.

In September 2011, the Fund entered into a sale and assignment agreement with Macquarie Electronics USA Inc. (“MEUI”), a member of the Macquarie group of companies, to acquire semiconductor manufacturing tools of various makes on lease to a major global manufacturer of semiconductor products. The remaining term of the lease is for 10 months and the equipment will be used in the client’s U.S. facilities. The purchase price for the equipment, including the initial direct cost, was $6,400,800. No leverage was used to finance this acquisition by the Fund. The first rental was $699,129, including an amount of revenue which will be deferred for accounting purposes. For the subsequent quarterly rental periods, rentals of $699,129 are to be received by the Fund. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value. The lease is recorded as an operating lease with rental income recognized on a straight line basis over the lease term.

 

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Table of Contents

MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

In October 2011, the Fund entered into a sale and leaseback arrangement with a leading Dubai airline over two new CFM56-7B aircraft jet engines (“Engines”) to power the airline’s fleet of 737NG aircraft. The Engines are on lease for a 108 month period. The purchase price for the Engines, including the estimated initial direct costs, was $25,338,321. No leverage was used to finance this acquisition by the Fund. The first engine was delivered in October 2011, and the second engine was delivered in December 2011. Rentals of $186,131 are received monthly by the Fund in U.S. dollars. At the end of the lease term, the lessee may return the Engines, purchase them at their then fair market value, or continue to rent them. Certain maintenance reserves will also accrue to the Fund in the form of two irrevocable Letters of Credit.

Leased equipment at cost consists of the following:

 

     March 31, 2012     December 31, 2011  

Aircraft engines

   $ 25,338,321      $ 25,338,321   

Aircraft

     9,758,734        9,758,734   

Semiconductor Tools

     6,400,800        6,400,800   

Self-serve checkout equipment

     2,097,353        2,097,353   

Semiconductor Equipment

     383,898        383,898   

Less: Accumulated depreciation

     (3,210,977     (2,058,143
  

 

 

   

 

 

 
   $ 40,768,129      $ 41,920,963   
  

 

 

   

 

 

 

Annual minimum future rental receivable over the next 5 years consist of the following:

 

For the period April 1 to December 31, 2012

   $ 5,855,076   

For the year ending December 31, 2013

     4,964,438   

For the year ending December 31, 2014

     3,466,394   

For the year ending December 31, 2015

     2,578,823   

For the year ending December 31, 2016

     2,233,572   

Thereafter

     8,562,357   
  

 

 

 
   $ 27,660,660   
  

 

 

 

The Fund is exposed to risks under these transactions, including risk associated with a leasing client's creditworthiness and risk associated with the future market value of the equipment. Although the Fund currently has no reason to believe that their clients will fail to meet its contractual obligations, a risk of loss to the Fund exists should a client fail to meet its payment obligations under the lease. As at March 31, 2012 and December 31, 2011, the Fund did not have a reserve for allowance for credit losses for its lease receivables.

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

5. NET INVESTMENT IN FINANCE LEASE

In November 2010, the Fund entered into a lease agreement with a U.S. owner and operator of senior housing and retirement communities, to provide various items of furniture and other related equipment for use in model display apartments and office equipment for use in the administrative offices. To date, $1,012,843 has been purchased which is subject to leases of between 36 and 39 months. For the assets acquired and leased out during the year ended December 31, 2011, the quarterly rentals are $5,410, $7,861 and $15,481 and for the asset acquired and leased out during the year ended December 31, 2010, the monthly rental is $21,646. No leverage was used to finance the above acquisitions by the Fund. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

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

 

     March 31, 2012     December 31, 2011  

Minimum lease payments receivable

   $ 667,823      $ 761,512   

Estimated residual values of leased property (unguaranteed)

     109,398        109,398   

Less: Unearned income

     (97,024     (120,626
  

 

 

   

 

 

 

Net investment in finance lease

   $ 680,197      $ 750,284   
  

 

 

   

 

 

 

Annual minimum future rental receivable over the next 5 years consist of the following:

 

For the year ending December 31, 2012

   $ 281,066   

For the year ending December 31, 2013

     331,463   

For the year ending December 31, 2014

     55,294   

For the year ending December 31, 2015

     —     

For the year ending December 31, 2016

     —     
  

 

 

 
   $ 667,823   
  

 

 

 

The Fund is exposed to risks under this transaction, including risk associated with the leasing client’s creditworthiness and risk associated with the future market value of the equipment. Although the Fund currently has no reason to believe that the client will fail to meet its contractual obligations, a risk of loss to the Fund exists should the client fail to meet its payment obligations under the lease. As at March 31, 2012 and December 31, 2011, the Fund did not have a reserve for allowance for credit losses for its lease receivables.

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

6. 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.

Macquarie Capital (USA) Inc. (the “dealer manager”), a member of the Macquarie Group of companies, acts as dealer manager for the Fund and manages a group of selling dealers, including other unaffiliated broker dealers.

The Manager and the dealer manager 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 Manager and its affiliates and the number of shares sold, payable to the Manager.

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 Fund’s 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.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

The Fund pays the Manager and its affiliates’ fees for operating services performed during the offering period and on an ongoing 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 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 of services the Manager provides to the Fund.

 

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MACQUARIE EQUIPMENT LEASING FUND, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

 

For the quarters ended March 31, 2012 and 2011, the Fund has accrued, in commissions and fees payable (related party) in the Fund’s balance sheet, or paid to the Manager or its affiliates the following amounts:

 

               Quarter ended  

Entity

  

Capacity

  

Description

   March 31, 2012      March 31, 2011  

Maquarie Asset Management Inc.

  

Manager

  

Organization and Offering expense allowance (1)

   $ 410,293       $ 208,242   

Macquarie Capital (USA) Inc.

  

Dealer Manager

  

Selling commission and Dealer Manager fees (1)

   $ 540,027       $ 186,348   

Macquarie Capital (USA) Inc.

  

Dealer Manager

  

Due diligence expense (1)

   $ 2,083       $ 27,918   

Maquarie Asset Management Inc.

  

Manager

  

Acquisition fees (2)

   $ —         $ 278,520   

Maquarie Asset Management Inc.

  

Manager

  

Management fee (3)

   $ 109,958       $ 25,045   

Maquarie Asset Management Inc.

  

Manager

  

Operating Expenses (3)

   $ 145,363       $ 123,200   

Maquarie Asset Management Inc.

  

Manager

  

Outperformance fee (3)

   $ 14,799       $ 4,427   

 

(1) Amount charged directly to members’ equity.
(2) Amount either charged directly to operations or capitalized and depreciated.
(3) Amount charged directly to operations.

7. EQUITY CONTRIBUTION

As at March 31, 2012, the Fund has received and accepted subscriptions for 9,590,116 shares of limited liability company interest (including the DRP shares and net of repurchase of shares) for $84,271,577 net of offering costs. The subscriptions received include total contributions of $1,505,000 from the Manager, excluding the offering costs.

8. SUBSEQUENT EVENTS

From April 1, 2012 through May 15, 2012 the Fund raised and accepted additional cumulative subscription for 63,479 shares of limited liability company interest for $570,271, net of offering costs.

On March 31, 2012, the Fund agreed to enter into an arrangement to lease items of furniture and fixtures for use in the administrative offices of an existing client for approximately $0.6 million. The client is a leading U.S. owner and operator of senior housing and retirement communities, and the equipment is on lease for a period of 48 months. The equipment was delivered on April 4, 2012. Rentals are to be received monthly by the Fund. At the end of the lease term, the lessee may return the equipment, continue to rent the equipment, or purchase the equipment for its then fair market value. No leverage was used to finance this acquisition by the Fund.

On April 24, 2012, the Fund purchased 300 flat bed rail cars for approximately $6.5 million. These rail cars are on lease to the US subsidiary of a leading global manufacturer of wind turbines. The rail cars are on two lease schedules which expire in September and December, 2013. Rent was received by the Fund for the full month of April, and will be received monthly in the future. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment. No leverage was used to finance this acquisition by the Fund.

On May 7, 2012, the Fund has agreed to enter into a sale agreement to sell ETS-364B Test System, an item of semiconductor testing equipment to a U.S. Equipment Leasing Company. The Fund is expected to receive a sale consideration of $302,000 which includes the rentals receivable of $32,844. The expected loss on the sale is approximately $43,000.

 

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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 15, 2012, 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 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 (“DRP”) at a public offering price of $9.00 per Share. The Fund’s manager, Macquarie Asset Management Inc. (“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 at March 31, 2012, the Fund has received and accepted subscriptions for 9,590,116 shares of limited liability company interest (including the DRP shares and net of repurchase of shares) for $84,271,577 net of offering costs. The subscriptions received include total contributions of $1,505,000 from the Manager, excluding the offering costs. As of May 15, 2012, the Fund has received and accepted cumulative subscriptions for 9,653,595 shares (including the DRP shares and net of repurchase of shares) for $ 84,841,848, net of offering costs.

Recent Transactions

Sale of participating interest (related party)

On September 26, 2011, Macquarie Bank Limited (“MBL”) entered into a conditional sale agreement to sell the engines that the Fund has the participating interest in. The sale was completed on March 29, 30 and 31, 2012. The Fund realized a gain of $1,859,964 from the sale and derecognized the Participating Interest assets. A receivable of $7,299,716 was recorded for the proceeds from the sale. The Fund received payment for the receivable in April, 2012. All agreements with MBL relating to the participating interest have ceased as a result of the sale.

Results of Operations for the Quarters Ended March 31, 2012 and 2011

Total revenue for the quarter ended March 31, 2012 increased by $3,740,571, as compared to quarter ended March 31, 2011. The increase in revenue was primarily due to finance and rental income on self serve checkout kiosks, furniture and fixture, an aircraft, several semiconductor equipments and aircraft engines which are on lease to various lessees. Also, there is a profit of $1,859,964 on sale of participating interest in the engines.

Total expenses for the quarter ended March 31, 2012, increased by $1,168,732, as compared to quarter ended March 31, 2011. The increase is primarily due to increase in depreciation recognized on assets purchased for various leases. As a result of the foregoing factors, the net income for the quarter ended March 31, 2012 was $2,506,935.

 

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Liquidity and Capital Resources

Cash Flows Summary

The following table sets forth summary cash flow data for the quarters ended March 31, 2012 and 2011.

 

     March 31, 2012     March 31, 2011  

Net cash (used in) provided by:

    

Operating activities

   $ 880,716      $ 364,479   

Investing activities

     (119,920     (10,971,116

Financing activities

     20,520,576        9,057,849   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ 21,281,372      $ (1,548,788
  

 

 

   

 

 

 

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

At March 31, 2012, the Fund had cash and cash equivalents of $31,610,243. The increase from cash provided by operating activities is primarily attributable to cash generated from finance and rental income. Cash from financing activities increased primarily due to proceeds from the issuance of shares during the quarter offset by payment of offering costs and distributions to the members.

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 Fund’s portfolio, the offering proceeds will be held in an operating account at Wells Fargo Bank, National Association.

Sources and Uses of Cash

Our offering period ended on March 19, 2012 at which time our operating period commenced. As at March 31, 2012, the Fund has received and accepted cumulative subscriptions for 9,590,116 shares (including the Distribution Reinvestment Plan, or “DRP”, shares and net of repurchase of shares) of limited liability company interest (“shares”) for $84,271,577 net of offering costs, including the capital contributions from the Manager. We raised less than the maximum $157,200,000 in total capital in the period from the inception of the Fund to the end of our offering period. The rate of our capital raising was initially impacted by poor general economic conditions in the U.S., which produced a number of consequential industry effects which further dampened our rate of capital raising. We believe that this amount is sufficient to meet our investment objectives.

As at March 31, 2012, we sold 9,590,116 shares (including the DRP shares and net of repurchase of shares), representing $84,271,577 of capital contributions, net of offering costs. For the period from the commencement of our operations on March 5, 2010 through March 31, 2012, we have paid or accrued sales commissions to third parties of $6,984,888, dealer manager commissions to Macquarie Capital (USA) Inc. of $2,342,818 and due diligence expense to Macquarie Capital (USA) Inc. of $48,377. In addition, organization and offering expenses of $2,148,150 were paid or incurred by us to our Manager or its affiliates during this period.

Sources of Liquidity

Cash generated from our financing activities was our most significant source of liquidity during our offering period. We believe that cash generated from our financing activities (from debt borrowings), 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, new investment opportunities, 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. 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 Fund’s behalf at an appropriate interest rate, on appropriate terms, at appropriate levels or at all.

 

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Table of Contents

Distributions

The Fund began making monthly cash distributions on April 15, 2010. We paid cash distributions to our members in the amount of $979,791, net of DRP, for the quarter ended March 31, 2012.

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

Commitments, Contingencies and Off-Balance Sheet Transactions

Other than obligations associated with our investing activities or as set forth in our Operating Agreement, we have no contractual obligations and commitments, contingencies or off-balance sheet transactions at March 31, 2012.

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 our consolidated financial statements in “Financial Statements and Supplementary Data” in Part I, Item 1, of this Form 10-Q for financial information and further discussions, for a summary of the Company’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.

 

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 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 March 31, 2012. 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 quarter ended March 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

 

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Table of Contents

PART II. OTHER INFORMATION

 

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. 3 to Registration Statement on Form S-1, dated April 11, 2011.

 

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

(a) None.

(b) We registered 15,800,000 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 DRP at $9.00 per share.

As at May 15, 2012, we received capital contributions in the amount of $84,841,848, net of offering costs. From inception through to May 15, 2012, we have paid or accrued sales commissions to third parties of $7,016,341, organization and offering expense to our Manager of $2,154,693, and dealer manager, selling commissions and due diligence expense to Macquarie Capital (USA) Inc. of $2,400,636.

As at May 15, 2012 we have used approximately $58.62 million of the offering proceeds to acquire a participation interest in a portfolio of commercial jet aircraft engines (sold in March 2012), a 2002 vintage Bombardier CRJ-700ER aircraft , 451 self-serve kiosks on lease to a major U.S. retailer, an ETS-364B semiconductor test system; various items of furniture, office and other related equipments on lease to leading U.S owner and operator of senior housing and retirement communities, semiconductor manufacturing tools of various makes on lease to a major global manufacturer of semiconductor products, aircraft engines on lease to a leading Dubai based low cost airline and flat bed rail cars to the U.S. subsidiary of a leading global manufacturer of wind turbines.

 

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 E-1.

 

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SIGNATURES

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

 

MACQUARIE EQUIPMENT LEASING FUND, LLC
By:  

/S/    DAVID FAHY        

Name:   David Fahy
Title:   President of the Manager and Principal Executive
  Officer of Registrant

Date: May 15, 2012

By:  

/S/    FRANK V. SARACINO        

Name:   Frank V. Saracino
Title:   Principal Financial Officer of the Manager and Principal
  Accounting Officer of Registrant

Date: May 15, 2012

 

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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
101.0**   The following materials from the Quarterly Report on Form 10-Q of Macquarie Equipment Leasing Fund, LLC for the quarter ended March 31, 2012, filed on May 15, 2012, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011, (ii) the Statement of Operations for the Quarters Ended March 31, 2012 and 2011 (Unaudited), (iii) the Statements of Cash Flows for the Quarters Ended March 31, 2012 and 2011 (Unaudited) (iv) the Statements of Changes in Members’ Equity for the Quarter Ended March 31, 2012 (Unaudited) and (v) the Notes to Financial Statements (Unaudited).

 

* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

E-1

 

19