Item 1. Business
Except as otherwise specified, “we,” “us,” and “our” refer to Macquarie Equipment Leasing Fund, LLC (the “Fund”), a Delaware limited liability company. “Manager” refers to our manager, Macquarie Asset Management Inc., a Delaware limited liability company.
Macquarie Equipment Leasing Fund, LLC
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, interest, and other revenues, through the sale of leased equipment and through other portfolio investments. The Fund’s year end is December 31.
The manager of the Fund is Macquarie Asset Management Inc. (the “Manager”), a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager has made a total of $1,505,00 in capital contributions to the Fund. The Manager earns fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. The Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and other equipment-related investments.
The initial closing date for the Fund was March 5, 2010, the date at which the Fund raised over $2,500,000 and reached the minimum offering amount. The Fund’s offering period ceased on March 19, 2012 and the operating period commenced.
As of December 31, 2013, the Fund had 9,459,384 shares of limited liability company interest (“shares”) outstanding..
Investment Objectives
The Fund’s principal investment objectives are to:
• Preserve, protect and return invested capital. The Fund intends to build a portfolio of equipment, equipment leases and other equipment-related investments with the objective of preserving, protecting and returning invested capital.
• Generate regular monthly cash distributions. The Fund will develop a portfolio of varied equipment types, transaction types, clients and transaction durations with the objective of receiving regular cash from its investments. The Fund intends to generate cash through rental payments from its clients, from the sale of equipment, from the sale of leases and from other investments. In turn, the Fund intends to make regular monthly cash distributions beginning the month after the initial closing date of its offering and up to the end of its operating period.
• Reduce the Fund’s overall risk through diversification of its portfolio. The Fund intends to diversify its portfolio by acquiring, directly or indirectly, different types of assets, by entering into or acquiring leases of different durations and by acquiring equipment and investing in other equipment-related transactions in different geographies and industries. Diversification of the Fund’s portfolio will reduce its risk of changes in any particular market sector or of any particular client’s willingness or ability to make payments under a lease.
• Generate investment returns that are not correlated to returns from listed stock and bond markets. The Fund intends to generate investment returns for its members that will not be correlated to listed stock and bond markets. The Fund’s Shares will not be traded on any listed exchange and the value of the Shares will not be subject to fluctuations on those exchanges.
• Generate a favorable total return on investments. The Fund’s portfolio will be structured with the objective of providing its members with a favorable total return on their investment.
The Fund has contemplated investing in equipment classes which include rail equipment, such as freight cars or locomotives, maritime equipment, aviation equipment, such as commercial jet engines and aircraft, road transportation equipment, manufacturing equipment, mining and construction equipment, technological and communications equipment, utilities equipment and/or other types of equipment that the Manager determines may meet the Fund’s investment objectives. The Fund has to date invested in equipment located both within and outside the U.S. All equipment purchased by the Fund to date is leased to corporate clients.
When contemplating investments in equipment, the Manager may consider a range of factors including the remaining economic useful life of the equipment, the anticipated residual value of the equipment, whether the equipment is new or used and the condition of the equipment, equipment registration and regulatory considerations, portfolio diversification, client considerations such as available financial information about the client and how essential the equipment is to the operations of the client, the cash flow profile of the equipment and the depth of the equipment market and exit mechanisms.
The Manager
The Fund’s manager is Macquarie Asset Management Inc. The Fund’s investment decisions are made by the Manager’s board of directors.
The Manager is a member of the Macquarie Group. Macquarie Group is a global financial services provider. It acts primarily as an investment intermediary for institutional, corporate and retail clients and counterparties around the world. Macquarie Group has built a uniquely diversified business. It has established leading market positions as a global specialist in a wide range of sectors, including resources, agriculture and commodities, energy and infrastructure, with a deep knowledge of Asia-Pacific financial markets.
Alignment of interests is a longstanding feature of Macquarie Group’s client-focused business, demonstrated by its willingness to both invest alongside clients and closely align the interests of shareholders and staff. Macquarie Group’s diverse range of services includes corporate finance and advisory, equities research and broking, funds and asset management, foreign exchange, fixed income and commodities trading, lending and leasing and private wealth management.
Macquarie Group Limited is listed on the Australia Stock Exchange (ASX:MQG; ADR:MQBKY) and is regulated by APRA, the Australian banking regulator, as the owner of Macquarie Bank Limited, an authorized deposit taker. Macquarie Group also owns a bank in the UK, Macquarie Bank International Limited, which is regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Founded in 1969, Macquarie employs more than 13,900 people in 28 countries. As of September 30, 2013, Macquarie had assets under management of AUD $385 billion.
The Manager forms part of the division responsible for the majority of Macquarie Group’s equipment leasing activities. As of September 30, 2013, the Macquarie Group’s equipment leasing business had approximately AUD $15.8 billion of equipment leases under management for its own account with approximately 978 employees located in North America, Europe, Asia and Australia / New Zealand . These employees variously specialize in:
• lease origination across various equipment classes and industries;
• residual value investment determination and management;
• physical remarketing of equipment;
• technical assessment of equipment;
• client and asset management;
• equipment leasing technology platforms; and
• accounting, legal, tax and compliance services for equipment leases.
Examples of equipment currently or previously financed by the Macquarie Group under various lease structures include railcars, locomotives and trams, railway infrastructure, commercial jet aircraft engines, aircraft, semiconductor manufacturing equipment, maritime vessels, information technology equipment, utility equipment, telecommunications equipment, medical equipment, road transportation equipment, power stations, electricity grids, marshalling yards, handling equipment, environmental and energy equipment and construction equipment.
In managing the Fund, the Manager has access to the experienced leasing, funds management, and other resources of the Macquarie Group.
Industry
Both in the U.S. and abroad, the equipment leasing industry is large, segmented and highly competitive across products and geographic regions. The Fund carries on business in the U.S. and in foreign jurisdictions. The following figures as published by World Leasing Yearbook 2013	 provide an overview of the size of the global equipment leasing industry:
• Annual world leasing volume is in excess of $616 billion.
• North America comprises approximately 34.6% of annual world leasing volume, Europe 34.4% and Asia 24.1%.
• The top 10 countries, measured by way of annual leasing volume (in parentheses), are as follows: U.S. ($194 billion), China ($64 billion). Germany ($53 billion), Japan ($51 billion), France ($31 billion), Italy ($25 billion), Russia ($21 billion),Canada ($16 billion), Brazil ($14 billion), and United Kingdom ($13 billion).
• Since 1988, the global aggregate annual leasing volume has grown from $194 billion to over $616 billion.
The Fund operates across a number of segments within the equipment leasing industry. The equipment leasing industry and its participants may be categorized in numerous ways. These categories often overlap. The Fund is primarily a global leasing company with a focus on providing primarily non-full payout (operating) leases to mainly corporate clients across a number of equipment classes, although it has and will continue to enter into small ticket type transactions. Its returns are influenced by competitive conditions existing within the equipment leasing industry, including general economic conditions and its ability to provide lease pricing and terms and structures which are attractive versus competitors.
Existing Portfolio - Status Report
As of December 31, 2013, our portfolio is represented by the investments as described below, aggregating to a total investment amount of $78,641,555 (net of disposals). The Fund disposed of certain of its furniture and smart safe assets during the year ended December 31, 2013. As of December 31, 2013 and 2012, there were concentrations (greater than 10% as a percentage of total equipment cost) of equipment in certain sectors as follows:
*Less than 10%
**Not in Existence
Equipment Leasing Activities
The Fund has acquired a diversified portfolio of equipment. The following tables set forth the transactions entered into by the Fund during the year ended December 31, 2013 and the types of asset financed:
*Less than 10%
The Fund has disposed of equipment during the year. The following table set forth the transactions entered into by the Fund during the year ended December 31, 2013 and the types of assets disposed of:
During the year ended December 31, 2013, certain leases generated significant portions (defined as 10% or more) of the Fund’s total leasing revenues. Each asset type listed below relates to one lessee. Concentrations were as follows:
*Less than 10%
**Not in Existence
These percentages are not expected to be comparable in future periods.
Employees
The Fund has no direct employees. The Manager has full and exclusive control over the Fund’s management and operations.
Available Information
Our Annual Report on Form 10-K, our most recent Quarterly Reports on Form 10-Q and any amendments to those reports and our Current Reports on Form 8-K and any amendments to those reports are available free of charge on our Manager’s internet website at http://www.macquarie.com/mami following their electronic filing with the Securities and Exchange Commission (the “SEC”). The information contained on our Manager’s website is not deemed part of this Annual Report on Form 10-K. Our reports are also available on the SEC’s website at http://www.sec.gov.
Item 1A.
Item 1A. Risk Factors
Not Applicable
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
The Fund does not own or lease any real property, plant or material physical properties other than the equipment that may be held for lease or resale from time to time as contemplated in Item 1 of this Annual Report on Form 10-K.
Item 3.
Item 3. Legal Proceedings
None.
Item 4.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
There are certain material conditions and restrictions on the transfer of Shares imposed by the terms of the Fund’s operating agreement between the Fund and the Manager. Consequently, there is no public market for Shares and it is not anticipated that a public market for Shares will develop.
Members
As of December 31, 2013, the Fund has a total of 2,624 members.
Distributions
The Fund began making monthly cash distributions on April 15, 2010. We paid cash distributions to our members in the amount of $7,594,029 for the year ended December 31, 2013.
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. Each distribution may contain a return of capital.
Share Valuation
In order for Financial Industry Regulatory Authority, Inc. (“FINRA”) members and their associated persons to participate in the offering and sale of shares pursuant to our offering or to participate in any future offering of our shares, we are required pursuant to FINRA Rule 2310(b)(5) to disclose in each annual report distributed to our members a “per share” estimated value of our shares, the method by which we developed the estimated value, and the date used to develop the estimated value. In addition, our Manager prepares statements of our estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of Employee Retirement Income Security Act (“ERISA”) in the preparation of their reports relating to an investment in our shares. For these purposes, the estimated value of our shares is deemed to be $10.08 per share as of December 31, 2013. This estimated value is provided to assist plan fiduciaries in fulfilling their annual valuation and reporting responsibilities and should not be used for any other purpose. Because this is only an estimate, we may subsequently revise this valuation.
During the offering of our shares, and for a period of up to 18 months after the end of our offering period, the value of our shares was estimated to be the offering price of $10.00 per share (without regard to purchase price discounts for certain categories of purchasers), as adjusted for any special distribution of net sales proceeds. Our offering ended on March 19, 2012.
Following the termination of the offering of our shares, the estimated value of our shares is based on the estimated amount that a holder of a share would receive if all of our assets were sold in an orderly liquidation as of the close of our fiscal year and all proceeds from such sales, without reduction for transaction costs and expenses, together with any cash held by us, were distributed to the members upon liquidation. To estimate the amount that our members would receive upon such liquidation, we calculate the sum of (i) the fair market value of our leases, equipment held for sale or lease, and other assets, and (ii) our cash on hand. From this amount, we then subtract our total debt outstanding and then divide that sum by the total number of shares outstanding. The value of our shares as of December 31, 2013 is estimated to be $10.08 per share.
The foregoing valuation is an estimate only. The methodology utilized by our management in estimating our per share value is subject to various limitations and are based on a number of assumptions and estimates that may or may not be accurate or complete. No liquidity discounts or discounts relating to the fact that we are currently externally managed were applied to our estimated per share valuation, and no attempt was made to value us as an enterprise.
As noted above, the foregoing valuation was performed solely for the ERISA and FINRA purposes described above and was based solely on our Manager’s perception of market conditions and the types and amounts of our assets as of the reference date for such valuation and should not be viewed as an accurate reflection of the value of our shares or our assets. No independent valuation was sought. In addition, as stated above, as there is no significant public trading market for our shares at this time and none is expected to develop, there can be no assurance that limited partners could receive $10.08 per share if such a market did exist and they sold their shares or that they will be able to receive such amount for their shares in the future. Furthermore, there can be no assurance:
·as to the amount investors may actually receive if and when we seek to liquidate our assets or the amount of lease payments and asset disposition proceeds we will actually receive over our remaining term; the total amount of distributions our members may receive may be less than $10.08 per share primarily due to the fact that the funds initially available for investment were reduced from the gross offering proceeds in order to pay selling commissions, underwriting fees, organizational and offering expenses, and acquisition or formation fees;
·that the foregoing valuation, or the method used to establish value, will satisfy the technical requirements imposed on plan fiduciaries under ERISA; or
·that the foregoing valuation, or the method used to establish value, will not be subject to challenge by the IRS if used for any tax (income, estate, gift or otherwise) valuation purposes as an indicator of the current value of the Interests.
The repurchase price we offer in our repurchase plan utilizes a different methodology than that which we use to determine the current value of our shares for the ERISA and FINRA purposes described above and, therefore, the $10.08 per share does not reflect the amount that a member would currently receive under our repurchase plan. In addition, there can be no assurance that a member will be able to redeem their shares under our repurchase plan.
Our Manager consented to our repurchase of 105,430 Shares during the year ending December 31, 2013. The repurchase amounts are calculated according to a specified repurchase formula pursuant to our operating agreement. Repurchased shares have no voting rights and do not share in distributions with other members. Our operating agreement limits the number of shares that can be repurchased in any one year and repurchased shares may not be reissued.
Item 6.
Item 6. Selected Financial Data
Not applicable
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion of our current financial position and results of operations. This discussion should be read together with the Fund’s financial statements contained under Item 8 of this Annual Report on Form 10-K. This discussion should also be read in conjunction with the disclosures above regarding “Forward-Looking Statements.”
Overview
Macquarie Equipment Leasing Fund, LLC, a Delaware limited liability company, was formed on August 21, 2008 for the purpose of acquiring a diversified portfolio of equipment and equipment leases. The Fund 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 or make loans secured by equipment collateral.
The Fund offering was for a total of 15,000,000 Shares for a price of $10.00 per share, subject to certain reductions. The Fund offered up to 800,000 Shares pursuant to its Distribution Reinvestment Plan (“DRP”) at a public offering price of $9.00 per Share. The Manager has contributed a total of $1,505,000. The Fund’s fiscal year end is December 31.
The Fund’s offering period ended on March 19, 2012 and the Fund’s operating period commenced on that date. The Fund will continue to acquire and dispose of equipment, equipment leases and other equipment-related transactions or make loans secured by equipment collateral during the operating period. During the operating period, the Fund generates cash from equipment leases. In addition, as owned equipment comes off lease, the Fund will either sell or re-lease that equipment. Thus, the Fund also generates cash through the sale of owned equipment. The Fund intends to reinvest equipment sale proceeds and cash generated from equipment investments into additional equipment during the operating period to the extent that the cash is not required to pay distributions and expenses or be set aside as reserves. The Fund’s revenue is impacted by the timing of when sales proceeds can be invested in new equipment transactions. During any fiscal period, the Fund’s revenue may be higher or lower depending on when equipment comes off lease and the time it takes to re-lease or sell the equipment.
Equipment leasing activity levels are impacted by general activity in the global and local economies and more specifically business appetite for investment in new and used equipment. The availability of liquidity to finance equipment for counterparties on satisfactory terms as well as business confidence to invest in equipment throughout the cycles impacts on the equipment leasing volumes and pricing in the marketplace. Pricing in the global market has become more competitive in recent years in line with the reduction in interest rates as the U.S. and the Eurozone attempt to address their fiscal and debt crises and stimulate economic growth.
Recent Transactions
We engaged in the following transactions during 2013:
Purchase of additional smart safe equipment
In March and July 2013, as part of a master lease program, the Fund purchased additional new smart safes for $407,037 and $620,905 respectively, including initial direct costs, from a U.S. safe manufacturer. These safes are on lease for a period of 60 months to a company that owns, operates or franchises restaurants. The safes are deployed in restaurants throughout the U.S. No leverage was used to finance this acquisition by the Fund. Rentals of $6,936 and $12,346 are received monthly for the safes purchased in March and July, respectively. The lease term begins when the Fund signs the acceptance certificate and continues over the period of lease. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment under a renewed lease agreement. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term. The Fund has simultaneously entered into a Service and Remarketing agreement with a major U.S. cash logistics company who has been appointed as the exclusive service provider for the Fund and is responsible for billing, collecting and servicing the safes. In certain circumstances, the service provider has an option to request the purchase of the safes from the Fund at fair market value at the end of the lease term of 60 months. Fair market value in this case cannot exceed 29% of the asset’s cost. No leverage was used to finance this acquisition.
On July 31, 2013, the Fund sold 10 smart safes to the lessee for $104,323 and realized a gain on sale of $38,829.
Purchase of machine tool equipment
In March 2013, the Fund entered into a sale and leaseback arrangement and purchased a machine tool equipment line for $5,768,966. The equipment is used in the manufacture of aluminum wheels and consists of seventeen individual high volume automated precision machine tool items including a Mori Seiki 5 Axis Milling Center and an Okuma Vertical Turning Center. The equipment is on lease to a U.S. manufacturer and supplier of steel and aluminum wheels for a period of 55 months. No leverage was used to finance this acquisition. Rentals of $118,215 are received monthly. At the end of the lease term, the lessee may continue to rent the equipment under a renewed lease agreement or purchase the equipment. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term. No leverage was used to finance this acquisition.
Purchase of Airbus A320-200 aircraft
The Fund acquired an Airbus A320-200 aircraft for $19,551,352 on May 5, 2013. The aircraft is a 2003 vintage Airbus model A320-200 aircraft equipped with two engines. The aircraft is on lease to an airline based in Oceania that operates internationally. Rentals of $705,000 are received quarterly in advance until the end of the lease in September 2015, at which time the airline may return the aircraft or continue to rent it under a renewed lease agreement. No leverage was used to finance this acquisition.
Sale of furniture and fixtures equipment
In November 2013, the Fund entered into a sale agreement with the lessee to sell part of furniture and fixtures equipment for $297,626. The Fund received the sales proceeds in December 2013 and realized a gain of $225,272.
Renewal of railcar portfolio
In October 2013, the Fund renewed the leases for its railcar portfolio consisting of 300 flat bed railcars which was initially acquired in April 2012. These railcars are on lease to the U.S. subsidiary of a leading global manufacturer of wind turbines. The lease was extended for a period of five years with monthly rentals of $108,000. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.
Results of Operations for the Year Ended December 31,
Our offering period ended on March 19, 2012 and our operating period commenced on that date. During our operating period, we have made and will continue to reinvest the cash generated from our investments to the extent that the cash is not used for expenses, reserves and distributions. We expect to incur gains or losses on our investments compared to the carrying value during our operating period.
Total revenue for the year ended December 31, 2013 decreased by $2,778,695 compared to the year ended December 31, 2012 primarily due to non-recurring gains of $4,173,733 from sale of semi conductor equipment and of $1,859,964 from sale of an interest in a portfolio of aircraft engines on lease in Australia in the year ended December 31, 2012. This decrease is partially offset by an increase in rental income of $3,012,783 from additional equipment purchased by the Fund during 2013. These additional lease transactions include assets such as various items of machine tool equipment, an Airbus A320-200 aircraft, and smart safes. The Fund also realized a gain of $264,101 from sale of furniture and fixtures and smart safes during 2013.
Total expenses for the year ended December 31, 2013 increased by $1,096,790 compared to the year ended December 31, 2012 primarily due to an increase in depreciation expense of $896,840 and asset management fee expense of $192,901. The increase in expenses and related increase in revenue was driven by the purchase of additional equipment during 2013.
As a result, the Fund’s net income for the year ended December 31, 2013 was $5,088,973.
The Fund evaluated a number of equipment transactions during 2013 and closed some of these transactions. To date, the Fund has not used leverage to finance these transactions. The Fund is almost fully invested and continues to pursue additional equipment investment opportunities as well as debt leverage opportunities on the existing equipment portfolio.
Financial Condition
This section discusses the major balance sheet variances from 2013 compared to 2012.
Total Assets
Total assets decreased by $1,749,222, from $84,481,477 as of December 31, 2012 to $82,732,255 as of December 31, 2013. The decrease in total assets was due to the following: cash decreased during the year due to the acquisition of leased assets for a total of $26,349,422 and cash distributions to members of $(7,594,029), partially offset by an increase in rents collected. Operating lease assets increased during the year due to the aforementioned acquisitions and was partially offset by depreciation expense of $4,626,584. Net investment in finance leases decreased by $717,365 during the year due to the amortization of unearned revenue, the collection of rentals, and the expiration and subsequent sale of a finance lease asset during 2013.
Total Liabilities
Total liabilities increased by $1,666,014, from $3,430,819 as of December 31, 2012 to $5,096,833 as of December 31, 2013. The increase in total liabilities is primarily the result of rental income received in advance for certain of the Fund’s leases, particularly for the Airbus A320-200 aircraft, for which the lessee is required to pay quarterly rentals of $705,000 in advance. Liabilities were further increased by the receipt of a security deposit for $354,645 and an increase in maintenance reserves of $459,325 during 2013.
Equity
Equity decreased by $3,415,236, from $81,050,658 as of December 31, 2012 to $77,635,422 as of December 31, 2013. The decrease in equity is primarily due to distributions of $7,586,865 made to investors and 105,430 shares which were redeemed for $917,344 during the year ended December 31, 2013. This decrease was offset by net income of $5,088,973 for the same period.
Liquidity and Capital Resources
Cash Flows Summary
The following table sets forth summary cash flow data for the year ended December 31, 2013 and 2012.
See Statements of Cash Flows included in “Item 1. Financial Statements” of this Yearly Report on Form 10-K for additional information.
As of December 31, 2013, the Fund had cash and cash equivalents of $9,090,632. The amount of cash provided by operating activities for the year ended December 31, 2013 of $11,072,837 is primarily attributable to an increase in equipment rentals and where applicable, rentals received in advance on certain leases.
The cash used in investing activities for the year ended December 31, 2013 is primarily attributable to the purchase of the Airbus A320-200 aircraft for $19,551,352, purchase of machine tool equipment for $5,768,966 and the purchase of additional new smart safes for $1,027,942. This is partially offset by the lease rentals security deposit of $354,645 received from the lessee of the machine tool equipment and due to sale proceeds of $297,626 received from the sale of furniture and fixtures and $104,323 received from the sale of smart safes.
The cash used in financing activities for the year ended December 31, 2013 is primarily attributable to distributions to members and repurchase of shares.
Cash and cash equivalents include cash in banks and highly liquid investments with original maturities of three months or less. Until offering proceeds are used for the acquisition or operation of the Fund’s portfolio, the offering proceeds are held in operating and money market accounts at Wells Fargo Bank, N.A.
Sources and Uses of Cash
Our offering period ended and our operating period commenced on March 19, 2012. During our offering period we were focused on receiving and accepting subscriptions of our shares. As of December 31, 2013, the Fund had 9,459,384 shares outstanding.
The Fund’s main activities and our main use of cash has been to acquire a diversified portfolio of equipment, equipment leases and other equipment-related investments which are denominated in US dollars and are on lease to corporate clients around the world. We will also make investments in other equipment-related transactions which will allow us to directly or indirectly participate in the benefits and risks of equipment ownership or usage.
As of February 18, 2014 we have used approximately $94,810,416 of the offering and equipment sale proceeds to acquire the following assets:
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 operating activities and from debt borrowings, if required, will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, funding of new investment opportunities, payment of management fees, equipment maintenance events, and administrative expense reimbursements. Our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our lessees’ businesses that are beyond our control.
The Fund’s liquidity may be adversely affected by unanticipated or greater than anticipated operating costs or losses, including the inability of a client of the Fund to make timely lease payments or costs associated with off lease assets or assets available for sale. The Fund anticipates that it will fund its operations from cash flow generated by operating and financing activities. The Manager has no intent to permanently fund any cash flow deficit of the Fund or provide other financial assistance to the Fund.
The Fund also intends to incur indebtedness 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.
Distributions
The Fund began making monthly cash distributions on April 15, 2010 and paid cash distributions to our members in the amount of $7,594,029 during the year ended December 31, 2013.
While the Fund anticipates making monthly cash distributions, it may vary the amount of, or completely suspend making distributions at any time and without notice.
Commitments, Contingencies and Off-Balance Sheet Transactions
Other than obligations associated with our investing activities or as set forth in our Operating Agreement, we have no contractual obligations and commitments, contingencies or off-balance sheet transactions as of December 31, 2013.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of the financial statements. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies is presented in Note 2, “Significant Accounting Policies”, in our consolidated financial statements in “Financial Statements and Supplementary Data” in Part II, Item 8, of this Form 10-K for a summary of the Company’s significant accounting policies, including a discussion of recently adopted and issued accounting pronouncements.
We believe the following critical accounting policies could have a significant impact on our results of operations, financial position and financial statement disclosures, and may require subjective and complex estimates and judgments.
Leased Equipment at Cost
Leased equipment at cost represents our largest asset class. We depreciate leased equipment using the straight-line method over an asset’s lease term to its estimated residual value. Any change in the residual value changes the depreciation expense and could have a significant impact on our results for any one period. The Fund’s significant assets and their residual values are reviewed at least annually for impairment.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As of March 5, 2010, the Fund received the minimum offering amount of $2,500,000 and commenced making investments in equipment, equipment leases and other equipment-related transactions. Since that time, the Fund has been, and will continue to be, exposed to certain risks. Among these are the risks that equipment the Fund purchases will be worth less than anticipated at the end of the term of the lease; the risk that the Fund’s clients will fail to pay rent as required under its leases; and the risk that the Fund may not be able to source appropriate or attractive investments given the highly competitive nature of the equipment leasing industry.
To date, all of the Fund’s investments are subject to fixed interest rate leases and all are denominated in U.S. dollars. We believe that our exposure to foreign currency exchange rate risk, commodity risk (other than our residual value investments in equipment) and equity price risk are insignificant at this time to both our financial position and our results of operations. As of December 31, 2013, the Fund has no exposure to derivative financial instruments and has not incurred any debt in the acquisition of its investments, though it may incur debt in the future.
Item 8.
Item 8. Financial Statements and Supplementary Data
MACQUARIE EQUIPMENT LEASING FUND, LLC
INDEX TO THE FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Macquarie Equipment Leasing Fund, LLC
In our opinion, the accompanying balance sheets and the related statements of operations, of changes in members’ equity and of
cash flows present fairly, in all material respects, the financial position of Macquarie Equipment Leasing Fund, LLC at December 31, 2013 and December 31, 2012, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 18, 2014
MACQUARIE EQUIPMENT LEASING FUND, LLC
BALANCE SHEETS
See accompanying notes to Financial Statements
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENTS OF OPERATIONS
See accompanying notes to Financial Statements
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENTS OF CASH FLOWS
See accompanying notes to Financial Statements
MACQUARIE EQUIPMENT LEASING FUND, LLC
STATEMENT OF CHANGES IN MEMBERS’ EQUITY
(1) Additional members represent all members other than the Managing member.
See accompanying notes to Financial Statements
MACQUARIE EQUIPMENT LEASING FUND, LLC
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Macquarie Equipment Leasing Fund, LLC ( 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, as well as through the sale of leased and off lease equipment and other portfolio investments. The Fund’s fiscal year end is December 31.
The manager of the Fund is Macquarie Asset Management Inc. (the “Manager” or the “Managing member”), a member of the Macquarie Group of Companies which is comprised of Macquarie Group Limited and its subsidiaries and affiliates worldwide (the “Macquarie Group”). Macquarie Group Limited is headquartered in Australia and is listed on the Australian Stock Exchange. The Manager has made a total of $1,505,00 in capital contributions to the Fund.. The Manager earns fees by providing or arranging all services necessary and desirable for the operations of the Fund, including those relating to equipment acquisitions and disposals, asset management and administrative, reporting and regulatory services. The Fund reimburses the Manager for costs incurred for managing the Fund and the Fund’s portfolio of equipment, equipment lease and other equipment-related investments.
The initial closing date for the Fund was March 5, 2010, the date at which the Fund raised over $2,500,000 and reached the minimum offering amount. The Fund’s offering period ceased on March 19, 2012 and the operating period commenced on that date.
2. SUMMARY OF 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 original maturities of three months or less at the time of purchase to be cash equivalents. Cash and cash equivalents are maintained with one financial institution.
Restricted Cash
Restricted cash consists of cash collected from the lessee of the CRJ 700 ER aircraft for maintenance costs.
Income Taxes
The Fund is treated as a partnership for federal and state income tax purposes. As a partnership, the Fund is not subject to federal and state income taxes, while each member will be individually liable for income taxes, if any, on their share of net taxable income from the Fund. Interest, dividends and other income realized by the Fund may be subject to withholding tax in the jurisdiction in which the income is sourced.
Leased Equipment at Cost
Investment in leased equipment is stated at cost less accumulated depreciation. Leased equipment is depreciated on a straight-line basis over the lease term to the assets’ residual value. Initial direct costs (such as freight, installation, acquisition fees and expenses, legal fees and inspection fees) associated with the leases are capitalized as part of the cost of the leased equipment and depreciated over the lease term.
The lease term from the acquisition date by the Fund of each item of equipment is as follows:
The residual value and useful life are determined by the Fund’s Manager and are calculated using information from both internal (i.e. from affiliates) and external sources, such as trade publications, industry valuers, auction data, internal sales data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators. Once an asset comes off lease or is re-leased, the Fund reassesses its useful life and residual value.
Costs incurred in extending the useful life and/or increasing the resale value of leased equipment are capitalized into the cost of an asset. No such costs have been incurred to date.
Upon the end of a lease term, if the lessee has not met the return conditions as set out in the lease, the Fund is entitled in certain cases to additional compensation from the lessee. The Fund’s accounting policy for recording such payments is to treat such payments as revenue. No such compensation was received for the year ended December 31, 2013.
The lessee is generally responsible for the ongoing maintenance costs of the equipment under net lease arrangements.
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 (i.e. undiscounted cash flows used in the recoverability assessment) includes review of published values for similar assets, recent transactions for similar assets, lease terms, asset condition, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset. No impairment charges were recorded for the years ended December 31, 2013 and 2012.
Net investment in finance lease
If a lease meets specific criteria under ASC 840 at the inception of the lease, then the Fund recognizes the lease as a net investment in finance lease on its Balance Sheets. The amounts recognized for finance leases consist of lease receivables, plus the estimated unguaranteed residual value of the leased equipment on the lease termination date, less the unearned income.
The residual values of the Fund’s finance lease assets are reviewed at least annually. If the review results in a lower estimate than had been previously established, the Fund will determine whether the decline in the estimated residual value is other than temporary. If the decline in estimated residual value is judged to be other than temporary, the accounting for the transaction shall be revised using the changed estimate and the resulting reduction in the net investment shall be recognized as a loss in the period in which the estimate is changed. An upward adjustment of a leased asset’s estimated residual value (including any guaranteed portion) shall not be made.
Maintenance reserve
Under the lease agreement for the Fund’s Bombardier CRJ 700 ER aircraft, the lessee is responsible for the costs of major maintenance on the components of the aircraft, including the engines, airframe and landing gear at an approved maintenance facility in accordance with the manufacturer’s recommended maintenance guidelines. The lessee is required to pay the Fund additional rentals, calculated monthly, which are based on the prior month’s flight hours and flight cycles. These additional rentals are set aside for future maintenance costs and are recognized as restricted cash on the Fund’s Balance Sheets when paid by lessee. As the maintenance is performed, and to the extent that the lessee has met all of its obligations under the lease, the lessee is reimbursed for costs incurred up to, but not exceeding, the related additional rentals the Fund receives from the lessee for maintenance. At the completion of each major maintenance event, the difference between the liability and reimbursement paid to the lessee is recorded as revenue if management is satisfied that the remaining reserve is considered sufficient to cover future maintenance or repairs. During 2013, one of the two CF 34 8C1 engines from the Bombardier CRJ 700 ER aircraft completed a maintenance shop visit. As of December 31, 2013, the second CF 34 8C1 engine was undergoing a maintenance shop visit. The Fund did not recognize any revenue or any additional costs from this shop visit. The lease expires within 12 months; as such the maintenance reserve payable has been reclassified from non-current to current liabilities.
Cash is only collected for maintenance costs on the Fund’s CRJ 700 ER aircraft.
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. 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 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.
Gains or losses from sales of leased and off lease equipment are recorded on a net basis in the Fund’s Statements of Operations.
Certain of the Fund’s leases contain provisions for late fees on past due rent. The Fund recognizes late fees as income when they become chargeable and collection is reasonably assured.
Allowance for doubtful accounts
The Fund evaluates the collectability of its lease receivables by analyzing the counterparties’ payment history, general credit worthiness 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 as of December 31, 2013 and December 31, 2012.
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 years ended December 31, 2013 and 2012.
3. LEASED EQUIPMENT AT COST
Following transactions were entered by the Fund during 2013:
Smart Safe Equipment
In March and July 2013, as part of a master lease program, the Fund purchased additional new smart safes for $407,037 and $620,905 respectively, including initial direct costs, from a U.S. safe manufacturer. These safes are on lease for a period of 60 months to a company that owns, operates or franchises restaurants. The safes are deployed in restaurants throughout the U.S. No leverage was used to finance this acquisition by the Fund. Rentals of $6,936 and $12,346 are received monthly for the safes purchased in March and July, respectively. The lease term begins when the Fund signs the acceptance certificate and continues over the period of lease. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment under a renewed lease agreement. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term. The Fund has simultaneously entered into a Service and Remarketing agreement with a major U.S. cash logistics company who has been appointed as the exclusive service provider for the Fund and is responsible for billing, collecting and servicing the safes. In certain circumstances, the service provider has an option to request the purchase of the safes from the Fund at fair market value at the end of the lease term of 60 months. Fair market value in this case cannot exceed 29% of the asset’s cost. No leverage was used to finance this acquisition.
On July 31, 2013, the Fund sold 10 smart safes to the lessee for $104,323 and realized a gain on sale of $38,829.
Machine Tool Equipment
In March 2013, the Fund entered into a sale and leaseback arrangement and purchased a machine tool equipment line for $5,768,966. The equipment is used in the manufacture of aluminum wheels and consists of seventeen individual high volume automated precision machine tool items including a Mori Seiki 5 Axis Milling Center and an Okuma Vertical Turning Center. The equipment is on lease to a U.S. manufacturer and supplier of steel and aluminum wheels for a period of 55 months. No leverage was used to finance this acquisition. Rentals of $118,215 are received monthly. At the end of the lease term, the lessee may continue to rent the equipment under a renewed lease agreement or purchase the equipment. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term. No leverage was used to finance this acquisition.
Airbus A320-200 aircraft
The Fund acquired an Airbus A320-200 aircraft for $19,551,352 on May 5, 2013. The aircraft is a 2003 vintage Airbus model A320-200 aircraft equipped with two engines. The aircraft is on lease to an airline based in Oceania that operates internationally. Rentals of $705,000 are received quarterly in advance until the end of the lease in September 2015, at which time the airline may return the aircraft or continue to rent it under a renewed lease agreement. No leverage was used to finance this acquisition.
Renewal of railcar portfolio
In October 2013, the Fund renewed the leases for its railcar portfolio consisting of 300 flat bed railcars which was initially acquired in April 2012. These railcars are on lease to the U.S. subsidiary of a leading global manufacturer of wind turbines. The lease was extended for a period of five years with monthly rentals of $108,000. At the end of the lease term, the lessee may return the equipment or continue to rent the equipment. The lease is recorded as an operating lease with rental income recognized on a straight-line basis over the lease term.
Leased equipment at cost consists of the following as of December 31, 2013 and 2012:
Annual minimum future rentals receivable related to the Fund’s operating leases over the next 5 years consist of the following:
The Fund is exposed to risks under these transactions, including risk associated with a lessee’s creditworthiness, repossession and remarketing and the future market value of the equipment. Although the Fund currently has no reason to believe that the lessee will fail to meet their contractual obligations, a risk of loss to the Fund exists should a lessee fail to meet its payment obligations under the lease. As of December 31, 2013 and December 31, 2012, 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.
4. NET INVESTMENT IN FINANCE LEASE
The Fund’s net investments in finance leases primarily relate to racing track equipment and furniture and fixtures equipment.
In November 2013, the Fund entered into a sale agreement with the lessee to sell part of furniture and fixtures equipment for $297,626. The Fund received the sales proceeds in December 2013 and realized a gain of $225,272.
Net investment in finance lease (current and non-current) consists of the following:
Annual minimum future rentals receivable related to the Fund’s finance leases over the next 5 years consist of the following:
The Fund is exposed to risks under this transaction, including risk associated with the lessee’s creditworthiness, repossession and remarketing and risk associated with the future market value of the equipment. Although the Fund currently has no reason to believe that the lessee will fail to meet their contractual obligations, a risk of loss to the Fund exists should a lessee fail to meet its payment obligations under the lease. As of December 31, 2013 and December 31, 2012, 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. 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, acted as dealer manager for the Fund during the Fund offering period and managed a group of selling dealers, including other unaffiliated broker dealers.
The Manager and the dealer manager received fees from the Fund for offering services during the offering period (ceased on March 19, 2012) 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 allowances were required not to exceed the actual fees and expenses incurred by the Manager or its affiliates in connection with the Fund’s organization and offering and were 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 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.
For the years ended December 31, 2013 and 2012, the Fund has accrued, in fees payable (related party) on the Fund’s Balance Sheet, or paid to the Manager or its affiliates the following amounts:
(1) Amount charged directly to member's equity.
(2) Amount is capitalized into the cost of an asset when it is classified as an operating or a finance lease.
(3) Amount charged directly to operations.
6. EQUITY CONTRIBUTION
The Fund’s offering period ended on March 19, 2012 and the operating period commenced. As of December 31, 2013, the Fund received and accepted subscriptions (including the DRP shares and net of repurchase of shares) of 9,459,384 shares of limited liability company interest. The subscriptions received include total contributions of $1,505,000 from the Manager, before offering costs.
7. SUBSEQUENT EVENTS
In January 2014 the Fund completed the acquisition of four GA8-TC320 Airvan Aircraft for $2,098,928. The aircraft are leased to an Australian airline company.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the direction and with the participation of the Manager’s President and Principal Financial Officer, the Fund evaluated its disclosure controls and procedures (as such term is defined under Rule 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Manager’s President and Principal Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of December 31, 2013.
Management’s Annual Report on Internal Controls over Financial Reporting
The management of the Manager is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Fund, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2013. All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Manager assessed the effectiveness of the Fund’s internal control over financial reporting as of December 31, 2013.In making this assessment; it used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management of the Manager concluded that the Fund’s internal control over financial reporting was effective as of December 31, 2013.
This Annual Report does not include an attestation report of the Fund’s independent registered public accounting firm regarding internal control over financial reporting. Management’s assessment was not subject to attestation by the Fund’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Fund to provide only management’s assessment in this Annual Report.
Changes in Internal Control
There has been no change in the Fund’s internal control over financial reporting during the year ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Fund’s internal control over financial reporting.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The Fund is a manager-managed limited liability company and has no directors or executive officers. The Fund’s Manager is Macquarie Asset Management Inc. The Fund’s investment decisions will be made by the Manager’s board of directors, which at the date of this Annual Report on Form 10-K is comprised of David Fahy, Tom O’Neill and James A. Pitts. The Manager and the persons making the Fund’s investment decisions can be contacted at:
• the Manager’s principal office at 225 Franklin St, 17th Floor, Suite 1700, Boston, Massachusetts, 02110; or
• the Manager’s telephone number, 866-965-7622.
The Manager is a member of the Macquarie Group. In managing the Fund, the Manager will have access to the experienced leasing, funds management and other resources of the Macquarie Group. While the directors of the Manager have relevant experience in equipment leasing, the Manager is a newly formed entity which has never managed a private or public equipment leasing fund or program.
The following table provides information regarding the members of the board of directors and the executive officers of the Manager.
David Fahy has been President of the Manager since its inception on August 21, 2008. Mr. Fahy has been with the Macquarie Group since joining its equipment leasing division in September 1998. Since June 2006, Mr. Fahy has been responsible for global equipment leasing investment and co-investment opportunities for both institutional and retail investors. Mr. Fahy is situated in Sydney, Australia, and is in frequent attendance at our Manager’s office in Boston. From July 2001 to June 2006, Mr. Fahy was responsible for the Macquarie Group’s structured technology syndication investments business. Prior to joining Macquarie, Mr. Fahy was employed at Coopers and Lybrand in Sydney, Australia from January 1987 to September 1998 in a number of roles, including that of Tax Director, and at Ernst & Young in Dublin, Ireland from September 1982 to December 1986 in a number of roles, including that of chartered accountant. Mr. Fahy holds a Bachelor of Commerce from University College Galway, Ireland and is a Fellow of the Institute of Chartered Accountants in Ireland and a member of the Institute of Chartered Accountants in Australia.
Tom O’Neill, Director and Vice President of the Fund’s manager, joined the Macquarie Group in July 2008 as a Senior Vice President, and acted as head of distribution for the Macquarie Equipment Leasing Fund. As of September 5, 2011, Mr. O’ Neill was appointed as an officer and director of Macquarie Asset Management Inc., the entity serving as fund manager. Prior to joining the Macquarie Group, Mr. O’Neill was employed as Senior Vice President of Operations at Realty Capital Securities, LLC, from October 2007 until July 2008, where he was responsible for overseeing operations, due diligence and product management and at Boston Capital Securities, from August 2003 until June 2007 in a number of roles including Sales Desk Manager, Assistant Vice President, and Vice President, Director of Sales and Operations. From January 1998 until August 2003 he was employed as a Financial Advisor at Merrill Lynch & Co. Mr. O’Neill currently resides west of Boston. He earned a Diploma in Business Studies from the Institute of Technology, Carlow, in Ireland, and holds FINRA securities licenses 7, 63, 24, 99 and 79.
James A. Pitts, Independent Director of our Manager, joined the board of directors of our Manager in March, 2009. Situated in Boston, at present Mr. Pitts is a member of the board of directors of Laboure College, which is a 120 year old Catholic college that focuses on nursing and health care education, located in Milton MA. Mr. Pitts was appointed as a member to the Laboure Board during June 2013 and he serves on the Nominating and Governance Committee and on the Finance and Risk Committee. Mr. Pitts was a Director of Wainwright Bank & Trust Company, a NASDAQ listed community bank, from May 2005 until November 2010, when the bank was sold. Mr. Pitts had been Chair of Wainwright Bank & Trust Company’s Audit Committee since January 2008 and had been a rotating member of its Executive Committee since April 2006. Mr. Pitts served as a Director of the National Association of Corporate Directors New England Chapter and the Chair of its Audit Committee from June of 2005 until June of 2011 at which time he was elected to the organization’s newly formed Senior Advisory Board. During the period of March 2009 until October 2010, Mr. Pitts was the sole independent member of the Advisory Board of Boston Coach, a Fidelity Company. From 1996 to May 2004, Mr. Pitts served as the Chief Financial Officer and Treasurer of The Boston Foundation, a $650 million community foundation, and from June 2004 to August 2004, Mr. Pitts served as the Chief Investment Officer and Treasurer of The Boston Foundation. From 1988 to 1996, Mr. Pitts held positions including Executive Vice President and Chief Financial Officer of Clean Harbors, Inc., a NASDAQ listed environmental disposal and service firm, as well as Chief Financial Officer of Bain and Company, an international consulting firm. Prior to that time, Mr. Pitts also held senior financial roles in publicly traded multinational corporations where he held wide responsibilities for SEC reporting, financial statement preparation, internal audit, risk management and compliance and regulatory matters. In his roles as Chief Financial Officer, Mr. Pitts has reviewed and overseen various equipment leasing transactions. Mr. Pitts holds a MBA from the University of Connecticut and a BBA from Niagara University, New York. Mr. Pitts is a Certified Public Accountant and holds a Certificate of Director Education.
Under the Fund’s operating agreement, the board of directors of the Manager must consist of at least one independent director, except for a period of 90 days after the death, removal or resignation of an independent director. An independent director may not, directly or indirectly (including through a member of his or her immediate family), be associated with the Manager or its affiliates within the last two years before becoming a director and at such time an independent director may not own any interest in, be employed by, have any material business or professional relationship with, serve as an officer or director of the Manager’s affiliates or perform services (other than as an independent director) for the Fund.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4 and 5, the Fund is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2013.
Code of Ethics
The Manager of the Fund has adopted a code of ethics that applies to the Manager’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The code of ethics contains written standards that are reasonably designed to deter wrongdoing and to promote: (1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) full, fair, accurate, timely, and understandable disclosure in reports and documents that the Fund files with, or submits to, the SEC and in other public communications made by the Fund; (3) compliance with applicable governmental laws, rules and regulations; (4) the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (5) accountability for adherence to the code. The code of ethics is available without charge upon request from our Manager, 225 Franklin St, 17th Floor, Suite 1700, Boston, Massachusetts, 02110.
Item 11.
Item 11. Executive Compensation
The Fund is a manager-managed limited liability company and has no directors or executive officers.
Our Manager and its affiliates were paid compensation and reimbursement for costs and expenses. The amount of such expenses for the year ended December 31, 2013 is set forth in Item 8 of this report under the caption “Financial Statements and Supplementary Data-Notes to Financial Statements-Transactions with Affiliates,” at Note 5 thereof, which information is hereby incorporated by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a) We do not have any securities authorized for issuance under any equity compensation plan.
(b) As of December 31, 2013, our Manager owned approximately 2% of our shares. No person of record owns, or is known by us to own, beneficially more than 5% of any class of our securities.
(c) As of December 31, 2013, no directors or officers of our Manager own any of our equity securities.
(d) Neither we nor our Manager are aware of any arrangements with respect to our securities, the operation of which may at a subsequent date result in a change of control of us.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
See Item 11 to this Annual Report on Form 10-K for a discussion of compensation and reimbursement to the Manager. See Note 6 to the Fund’s financial statements contained under Item 8 of this Annual Report on Form 10-K for a discussion of the Fund’s transactions with the Manager and its affiliates.
Item 14.
Item 14. Principal Accountant Fees and Services
During the year ended December 31, 2013 and 2012, the Manager incurred audit, audit-related and other fees with its principal auditors, PricewaterhouseCoopers LLP, as follows:
Audit fees consist of the aggregate fees and expenses billed in connection with the audit of the Fund’s annual financial statements and the review of the financial statements included in the Fund’s quarterly reports on Form 10-Q.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
(a) Financial Statements and Schedules
The financial statements Item 8 of this annual report on Form 10-K and schedule listed in the accompanying exhibit index are filed as part of this report.
(b) Exhibits
Exhibit No.
Description
3.1
Certificate of Formation(1)
3.2
Amended and Restated Limited Liability Company Agreement(1)
31.1
Rule 13a-14(a)/15d-14(a) Certification of President of the Manager †
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the †
32.1
Section 1350 Certification of President of the Manager and Principal Executive Officer †
32.2
Section 1350 Certification of Principal Financial Officer of the Manager and Principal Accounting Officer †
101.0
The following materials from the Annual Report on Form 10-K of Macquarie Equipment Leasing Fund, LLC for the year ended December 31, 2013, filed on February 18, 2014, formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets as of December 31, 2013 and December 31, 2012, (ii) the Statement of Operations for the year ended December 31, 2013 and December 31, 2012, (iii) the Statements of Cash Flows for the year ended December 31, 2013 and December 31, 2012, (iv) the Statements of Changes in Members’ Equity for the year ended December 31, 2013 and December 31, 2012 and (v) the Notes to Financial Statements(2).
(1)
Incorporated by reference to the Fund’s Registration Statement on Form S-1 (No. 333-154278), as amended.
(2)
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.
_____________________
(1) † Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MACQUARIE EQUIPMENT LEASING FUND, LLC
By:
/S/ David Fahy
David Fahy
President of the Manager and Principal Executive
Officer of Registrant.
By: /S/ JOHN PAPATSOS
John Papatsos
Principal Financial Officer of the Manager and Principal
Accounting Officer of Registrant
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.