New Leasing Proposals Continue to Draw Heat

FASB and the IASB respond to criticism as they prepare a new exposure draft for lease accounting.

The lease accounting debate rages on as the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) pore over nearly 800 public comment letters that question proposed new leasing standards. Board officials hit the conference circuit last month to answer detractors, clarify the exposure drafts they released to the public in August 2010, and talk about adjustments they are making to the original proposals.

Among the topics continuing to grab plenty of attention is the “right-of-use” asset concept, which, if approved, would require companies to capitalize operating leases they could traditionally keep off their balance sheets, such as those for real estate and equipment. The boards are also modifying their treatment of lease-renewal options, short-term leases, and variable lease payments.

Under the original exposure draft, companies would have been required to include in their lease term (and record on the balance sheet) any renewal period they were likely to exercise. Under the new proposal, lessees would account for a renewal period only if they had “significant economic incentive to exercise” that option.
In a client advisory earlier this year, Ernst & Young said such an economic incentive might include renewal rates priced at a bargain, penalty payments for relocating, or significant installment costs expended. One possible scenario suggested by Bill Bosco, a member of the IASB working group (external subject-matter experts who provide input to the board): a company that invests millions of dollars to renovate a store may be required to account for the renewal period because it would be compelled to recover its costs by extending the lease. This adjustment to the lease term, Bosco says, pushes the standard closer to current generally accepted accounting principles.
The proposed adjustments also remove some of the complexity for companies that hold leases for less than one year; under the draft rules, those short-term leases would still be considered a rent expense and would not be placed on the balance sheet. The new exposure draft also allows companies to keep certain variable lease payments off their balance sheets.
While those moves may placate some of the criticism leveled at the new proposals, one of the most controversial, and central, aspects of the lease-accounting changes has not been modified: abandoning the use of a straight-line average rent expense over a contract’s term in favor of a system requiring companies to front-load their rent expense on the income statement by splitting it into an amortization expense and an interest expense.
This aspect of the standard, Bosco says, does not reflect the reality of most leases. “We’d rather that companies’ lease costs. . .be represented in their financial statements in a way that represents the economic effect of a lease transaction, which we think is a level, monthly lease cost,” he says.
Ultimately, the proposed standard leaves more to interpretation than current rules, says Mindy Berman, managing director at Jones Lang Lasalle, a real-estate services firm. “There are a lot of subjective evaluations and a lot of nuances that will definitely affect companies’ implementation,” she says. Berman believes finance will have to partner more closely with business units to sort through them all.
The IASB and FASB plan to release the revised exposure draft for further public comment at the beginning of 2012, and hope to have a final rule in place by the end of the year.

Companies to lose equipment-finance tax breaks in 2012

Two generous tax breaks small-business owners received during the recession are going to shrink dramatically in 2012. That makes year-end tax planning more important than usual.

The changes affect the deductions for purchases of equipment. One is called the Section 179 deduction, named for a provision of the Internal Revenue Code. The other is called bonus depreciation. Congress approved the breaks to make it easier for small businesses to expand and hire workers. Although the economy is still slow, the breaks are being scaled back.

Ed Smith, a tax partner at the accounting and consulting firm BDO in Boston, says he's talking with clients about whether it makes sense to buy equipment before the changes take effect.

"Understand that we're not going to have this deduction in the next couple of years," he said.

The Section 179 deduction allows a small business to deduct upfront rather than depreciate the cost of equipment, such as computers, vehicles, machines in manufacturing, office furniture and sheds.

The deduction for 2011 is $500,000. In 2012, it will drop to $125,000. And in 2013, it's expected to fall to $25,000 — the amount it was back in 2002.

Bonus depreciation allows small businesses to take a deduction for equipment expenses beyond the amount allowed under Section 179. For 2011, the bonus depreciation is 100 percent. The maximum that can be deducted under the two deductions combined is $2 million. In 2012, bonus depreciation drops to 50 percent.

Under normal depreciation rules, the cost of equipment is deducted over a number of years according to a formula set by the IRS. So the Section 179 and bonus depreciation provisions have given small businesses accelerated tax savings.

You can learn more about the deductions in IRS Publication 946, "How to Depreciate Property." It goes into detail about the deductions and the regulations that govern how they can be taken. For example, the Section 179 deduction can't be used for your new heating and air conditioning unit. But that equipment can be depreciated.

It's also a good idea to discuss your plans with an accountant or tax attorney.

Changes in the tax law shouldn't be the biggest reason for buying equipment. Deductions aren't worth it if you're wasting your money on something your business doesn't need. But if you've been debating whether to buy tablet computers for your employees or install manufacturing equipment in 2011 or in 2012, it might make sense to move the purchase into this year. If you can get a better price than you would next year, that's another reason to buy now.

A big caveat: The equipment has to be up and running by Dec. 31. You can't order a new server or drill press this year, have it delivered in January and still take the deduction. You have to be able to use it — which means it needs to be installed — by the end of the year. However, it's OK if you don't pay for the equipment until next year, or if you're going to take several years to pay it off.

Something else to think about is whether you want to take advantage of these deductions now. You're not required to use Section 179 and bonus depreciation. In fact, you need to elect to take a Section 179 deduction when you file IRS Form 4562, "Depreciation and Amortization."

Depending on what your profits look like this year, and what they're likely to be in the coming years, you might prefer to use regular depreciation. So you might want to postpone your purchase until next year.

Smith says the money owners will save on their taxes from Section 179 and bonus depreciation can help them pay for the equipment they've bought. But using these deductions will eliminate any tax savings you would have had from depreciating equipment over time. Smith points out that when equipment is depreciated under regular rules, the tax savings from that can be used to cover principal payments if the equipment was financed. And the interest on financing is deductible.

Again, it's a good idea to consult a tax professional to decide which approach makes the most sense for your business. Source http://www.modbee.com/2011/10/26/v-print/1919770/tax-breaks-on-business-equipment.html

Equipment Leasing Slowly Rising

U.S. business borrowing for equipment up in Sept.

Oct 24 (Reuters) - U.S. companies borrowed more to buy or lease capital equipment in September and did a better job of keeping up to date on their existing debts, boosting a key measure of business activity, a lender group said on Monday.

The Equipment Leasing and Finance Association said U.S. businesses originated $7.1 billion in new loans, leases and lines of credit last month, up from $5.7 billion in August.

Companies use that money to invest in everything from tool-and-die machines and delivery trucks to office furniture and computer software.

"It's a replacement environment," ELFA President William Sutton said in a phone interview. "People aren't in a growth or expansion mode."

Demand for finance was up in the agriculture, healthcare and information technology sectors, Sutton said. The construction and trucking sectors remained weak.

The group, which represents the lenders who finance half the capital investment in the United States each year, said 2.3 percent of borrowers were 30 days or more behind in paying their debts, down from 2.5 percent in August and the lowest reading since late 2006, before the recession.

ELFA's confidence index rose to 50.7 in October, up from 47.6 in September. The diffusion index centers around 50, with any reading above that point positive and one below negative.

Source: Reuters

http://www.reuters.com/article/2011/10/24/usa-economy-elfa-idUSN1E79N0JS20111024

Medical equipment leasing holds steady

It may come as a surprise in the current economy, but prospects for medical equipment leasing are looking good – and not just compared to other vertical markets.

And those figures aren’t small. The U.S. Bureau of Economic Analysis estimates that businesses invested about $81.6 billion in health care equipment in the year 2010. With approximately 62 percent of all U.S. health care equipment being financed, that brings the health care equipment finance marketplace to an estimated $506 billion in 2010, according to the Bureau, as reported by the Equipment Leasing and Finance Association (ELFA).

According to a 2011 survey by the Independent Equipment Company together with ELFA, medical equipment has been rated – for the sixth year in a row – as the type of equipment finance companies anticipate to have the greatest total dollar amount of new business volume.

Recent statistics bear this out; ELFA has found that member companies financed for medical imaging and electronic devices increased from 4.4 percent in 2009 to 4.5 percent in 2010.

This is not a decades-long trend, according to Global Industry Analysts (GIA). The research firm notes that medical equipment lease financing in the United States had been relatively low until five or six years ago, due to lack of awareness about leasing, reduction in reimbursements, and heavy regulations influencing physician referrals. But recently, note the researchers, health care institutions have come to see leasing medical equipment as an affordable and quick solution that saves working capital, provides options for purchasing the equipment, and facilitates upgrades to new technology.

IT is the “it” product

While medical equipment leasing has been stable, the software arena has experienced tremendous growth, particularly with the added interest in electronic medical records (EMR). “Every year over the past three years, medical leasing in IT has almost doubled,” explains French. “The tax incentive is definitely driving the market. It’s a phenomenon.”

The trend is expected to continue. GIA anticipates that medical IT equipment leasing and rentals will reach $56 billion by 2017. Interestingly, GIA notes that Europe is the single largest regional market for medical equipment rental and leasing worldwide, with the practice being particularly popular in Germany, France, and the United Kingdom. The United States is next in line in market share.

Read entire article: http://www.dotmed.com/news/story/16907

Mazuma Capital: Chairman Ben S. Bernanke

Mazuma Capital: Chairman Ben S. Bernanke: Economic Outlook and Recent Monetary Policy Actions Before the Joint Economic Committee, U.S. Congress, Washington, D.C. October 4, 2011 ...

Chairman Ben S. Bernanke

Economic Outlook and Recent Monetary Policy Actions

Before the Joint Economic Committee, U.S. Congress, Washington, D.C.

October 4, 2011

http://www.mazumacapital.com/?p=1344

Time for Stimulus

Diamond: We Need Stimulus Now

Peter Diamond, who won the 2010 Nobel prize in economics but ultimately abandoned a bid to serve on the Federal Reserve, talks with WSJ's Kelly Evans about why he supports "Operation Twist," and why more fiscal stimulus is need to fix the U.S. jobs problem.

http://online.wsj.com/video/diamond-we-need-stimulus-now/B5170210-C45C-486A-85F3-D3F7BCF527EE.html

Mazuma Capital Partners: Survey: US Capital-Equipment Financing Strengthene...

Mazuma Capital Partners: Survey: US Capital-Equipment Financing Strengthene...: Equipment Leasing and Finance Association survey shows rising loan and leasing activity for capital equipment --Choppy month-to-month activ...

Mazuma Capital Funds Hires David M. Eckman as Vice President of Vendor Services

FOR IMMEDIATE RELEASE-

DRAPER, UTAH SEPTEMBER 23, 2011–Mazuma Capital Corp announced that David M. Eckman has joined Mazuma Capital as the Vice President, of Vendor Services. The Vendor Services division will provide turnkey financing services to vendors, manufacturers and distributors seeking $100,000- $20,000,000.

David brings phenomenal expertise to Mazuma Captial through his extensive background in diversified management and finance.  Prior to joining Mazuma David worked with several financial institutions including Orix Credit Alliance, where he maintained the integrity of transaction fundings and regulatory processes.  David holds a B.S. Business Administration / Finance degree from, Oregon State University.

Mazuma Capital CEO Jared Belnap said, “We are excited about adding David to head up our Vendor Services division.  This division will provide a wide range of customized programs, turnkey solutions, and outstanding service.  David has a strong customer base and process history of developing these programs into successful ventures from his years at Orix and we’re thrilled to see him parlay this expertise into meaningful production, adding to Mazuma’s strong brand and market presence.”

 “I am very excited to join the Mazuma Capital team, and look forward to the continued growth and success of the Vendor Program.   Mazuma has the knowledge, expertise, and resources to position itself strategically into a formidable competitor in Vendor Origination and I’m thrilled to be at the helm in this endeavor.  I look forward to building on Mazuma’s already impeccable reputation as a dependable funding source with the highest level of hands on service.”  Said David M. Eckman, VP of Vendor Services.

About Mazuma: Mazuma Capital is committed to our client’s success. Our unique capabilities and innovative product offerings provide solutions accelerating financial growth. Servicing both rising companies and established businesses, Mazuma continues to secure its position as the middle-market industry leader. We build long-term relationships by delivering on our commitments. Mazuma co-authored the Utah Best Practices Alliance and subscribes to the ELFA Code of Fair Business Practices.

# # #

Media Contact: Julie Fuchs, 801-816-0800 Ext. X291, jfuchs@mazumacapital.com

FASB’s Leasing Convergence Timeline Moves to Next Year

Accounting Today reported that in an interview with staff members, FASB board chairman Leslie Seidman said many of the priority projects slated for convergence with the IASB probably won’t be settled until next year at the earliest.

Commenting on the completion of FASB’s re-deliberation discussions with the IASB on the leasing project, Accounting Today quotes Seidman as saying, “We are continuing to work through the issues that were raised with the exposure draft.” Seidman added, “We have already decided to re-expose that as well, which again was an extremely well-received decision because people do want an opportunity to look at the revised conclusions in the context of the standard as a whole.”

Once those discussions conclude late this fall, Seidman said the leasing proposals would be re-exposed for 120 days with the IASB. “Likewise, we’re looking at a timeframe of sometime next spring to start the re-deliberations on leasing, depending on the feedback that we get, and we’re looking at re-deliberations after that, with a goal of trying to conclude leasing in 2012,” Seidman is quoted as saying by Accounting Today.

Read entire article:

http://www.accountingtoday.com/news/FASB-Convergence-Timeline-Moves-Next-Year-60035-1.html

2013- The Tax Cliff

President Obama unveiled part two of his American Jobs Act on Monday, and it turns out to be another permanent increase in taxes to pay for more spending and another temporary tax cut. No surprise there. What might surprise Americans, however, is how the President is setting up the U.S. economy for one of the biggest tax increases in history in 2013.

Mr. Obama said last week that he wants $240 billion in new tax incentives for workers and small business, but the catch is that all of these tax breaks would expire at the end of next year. To pay for all this, White House budget director Jack Lew also proposed $467 billion in new taxes that would begin a mere 16 months from now. The tax list includes limiting deductions for those earning more than $200,000 ($250,000 for couples), limiting tax breaks for oil and gas companies, and a tax increase on carried interest earned by private equity firms. These tax increases would not be temporary.

What this means is that millions of small-business owners had better enjoy the next 16 months, because come January 2013 they are going to get hit with a giant tax bill. Let's call the expensive roll:

• First comes the new tax hikes that Mr. Obama proposed on Monday. Capping itemized deductions and exemptions for the rich would take $405 billion from the private economy for 10 years starting in 2013. Taxing carried interest would raise $18 billion, and repealing tax incentives for oil and gas production would get $41 billion.

• These increases would coincide with the expiration of the tax credits, 100% expensing provisions and payroll tax breaks in Mr. Obama's new jobs program. This would mean a tax hit of $240 billion on small business and workers. That's the downside of temporary tax breaks and other job-creation gimmicks: The incentives quickly vanish, and perhaps so do the jobs.

So even if the White House is right that its latest stimulus plan will create "millions of jobs" through 2012, by this logic a $240 billion tax hike on small businesses in 2013 would cost the economy jobs. This tax wallop would arrive when even the White House says the unemployment rate will still be 7.4%.

• January 2013 is also the same month that Mr. Obama wants the

Bush-era tax rates to expire on Americans earning more than $200,000. That would raise the highest individual income tax rate to about 42%, including deduction phaseouts, from 35% today. Congress's Joint Committee on Taxation found in 2009 that $437 billion of business income would be taxed at higher tax rates under the Obama plan. And since some 4.5 million small-business owners file their annual tax returns as subchapter S firms under the individual tax code, this tax increase would often apply to the same people who Mr. Obama is targeting with his new tax credits.

The capital gains and dividend taxes would also rise to an expected 20% rate from 15% today. The 10-year hit to the private economy for all of these expiring Bush rates: about $750 billion.

• Also starting in 2013 are two of ObamaCare's biggest tax increases: an additional 0.9-percentage point levy on top of the 2.9% Medicare tax for those earning more than $200,000, and a new 2.9% surcharge on investment income, including interest income. This will further increase the top tax rate on capital gains and dividends to 23.8%, for a roughly 60% increase in investment taxes in one year.

The White House's economic logic seems to be that its new spending and temporary tax cuts will so fire up investment and hiring in the next 16 months that the economy will be growing much faster in 2013 and could thus absorb a leap off the tax cliff. But this requires its own leap of faith.

The White House also predicted a similar economic takeoff from the 2009 stimulus that was supposed to make a tax hike possible in 2011. Then last December Mr. Obama proposed new tax incentives only for 2011 because the economy was supposed to be cooking by 2012. Now it wants to extend those tax breaks so the economy will be cruising in 2013.

All of this assumes that American business owners aren't smart enough to look beyond the next few months. They can surely see the new burdens they'll face in 2013, and they aren't about to load up on new employees or take new large risks if they aren't sure what their costs will be in 16 months. They can also reasonably wonder whether Mr. Obama's tax hike will hurt the overall economy in 2013—another reason to be cautious now.

For the White House, the policy calendar is dictated above all by the political necessities of the 2012 election. Mr. Obama will take his chances on 2013 if he can cajole the private economy to create enough new jobs over the next year to win re-election, even if those jobs and growth are temporary. Business owners and workers who would prefer to prosper beyond Election Day aren't likely to share Mr. Obama's enthusiasm once they see the great tax cliff approaching. Look out below.

Source: WSJ

Now Through December 31st 4.9% Financing Available for Qualified Customers.

Now Through December 31st 4.9% Financing Available for Qualified Customers.

Mazuma Capital has allocated $25M in funds to offer qualified customers 4.9% financing available through the end of Q4!

Flexible Lease Options Available $250K- $20M. We work with vendors and brokers as well. Contact us today for a bid on your next capital project 801-816-0800.

President Calls for Expensing for Plants and Equipment for 2012 as Component of Jobs Package

On September 8, President Obama unveiled a proposal calling for a 100% tax deduction for plants and equipment for 2012 as a key component of the Administration’s new $447 billion American Jobs Act. The proposal calls for a full deduction of qualified capital investments through December 31, 2012 and allows all firms-large and small-to take an immediate deduction on investment in new plants and equipment.

Under current law, business are generally allowed to immediately deduct 100% of the cost of qualified property placed in service in 2011, and take 50% "bonus depreciation" on the cost of property placed in service in 2012. The President's proposal would extend the 100% expensing provision through the end of 2012. For the 100% expensing provision, this proposal also extends the longer placed in service date for property placed in service before January 1, 2014 for certain longer-lived and transportation property. The 50% bonus depreciation provision is not changed, but would be subsumed by the 100% expensing proposal in 2012. The expensing proposal is estimated to cost $5 billion over a ten year budget window.

On September 12, the President announced his recommendations to pay for his jobs plan including proposals to: tax "carried interest" in investment partnerships as ordinary income, repeal certain oil and gas provisions, limit certain individual itemized deductions and exclusions to a 28% tax rate, and lengthen the depreciation schedule for general or corporate aircraft to seven years.

Notably, the President recommended that new bicameral, 12-member congressional Joint Select Committee on the Deficit (the “Supercommittee”), be charged with finding the necessary revenue to pay for this plan as well as finding an additional $1.5 trillion in deficit reduction cuts over the next ten years (2012-2021).

FMV & OLV – More Than What Meets the Eye

FMV & OLV – More Than What Meets the Eye

Mazuma Capital Corp Funds Used Heavy Machinery for U.S. Central Appalachian Coal Producer - Yahoo! Finance

Mazuma Capital Corp Funds Used Heavy Machinery for U.S. Central Appalachian Coal Producer - Yahoo! Finance:

'via Blog this'

Fed Faces Old Foe as Hazard Returns .

To seasoned investors, last week's sharp market swings were a fresh reminder of a problem tormenting financial markets: moral hazard.
Stocks jumped, then sank and then rose again, as investors tried to bet on whether the Federal Reserve is going to intervene again to support financial markets.
Economists sometimes refer to that kind of market behavior as moral hazard, which refers to risky investing done in the hope that government will bail people out of any trouble they get into.

Global Bank Capital Regime at Risk as Regulators Spar Over Rules

Capital standards designed to fortify the global financial system are eroding as European officials, beset by a debt crisis, rewrite the regulations and U.S. rulemaking stalls.

The 27 member-states of the Basel Committee on Banking Supervision fought over the new regime, known as Basel III, for more than a year before agreeing in December to require banks to bolster capital and reduce reliance on borrowing. Now, as they put the standards into effect in their own countries, European Union lawmakers are revising definitions of capital, while the U.S. is struggling to reconcile the Basel mandates with financial reforms imposed by the Dodd-Frank Act.

http://www.bloomberg.com/news/2011-08-19/global-bank-capital-regime-at-risk-as-regulators-spar-over-rules.html

Equipment Finance Industry Confidence Declines in August

 Washington, DC, August 19, 2011 –- The Equipment Leasing & Finance Foundation (the Foundation) releases the August 2011 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) today.  Designed to collect leadership data, the index reports a qualitative assessment of both the prevailing business conditions and expectations for the future as reported by key executives from the $521 billion equipment finance sector.  Overall, confidence in the equipment finance market is 50.0, down from the July index of 56.2, indicating apparent industry reaction to U.S. economic conditions and federal government fiscal management and policies.

When asked about the outlook for the future, survey respondent Russell Nelson, President, Farm Credit Leasing Services Corporation, said, “Pent-up demand for replacement assets and improving conditions in select industries may continue to drive strong results for the remainder of 2011.   The key to future business confidence rests with leadership in Washington, DC, and their ability to craft a budget that Wall Street, Main Street, and the global community view positively.”

August 2011 Survey Results:

The overall MCI-EFI is 50.0, a decrease from the July index of 56.2.

•  When asked to assess their business conditions over the next four months, 13.2% of executives responding said they believe business conditions will improve over the next four months, slightly decreased from 14.0% in July.  65.8% of respondents believe business conditions will remain the same over the next four months, a decrease from 81.4% in July.  21.1% of executives believe business conditions will worsen, a sharp increase from 4.7% in July. 
• 21.1% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, an increase from 14% in July.  57.9% believe demand will “remain the same” during the same four-month time period, a decrease from 74.4% the previous month.  21.1% believe demand will decline, up from 11.6% who believed so in July. 

• 21.1% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 23% in July.  73.7% of survey respondents indicate they expect the “same” access to capital to fund business, a decrease from 76.7% the previous month.  5.3% of survey respondents expect “less” access to capital, the first time in nine months any respondents said they expect “less” access to capital.
• When asked, 23.7% of the executives reported they expect to hire more employees over the next four months, down from 32.6% in July.  65.8% expect no change in headcount over the next four months, an increase from 58% last month, while 10.5% expect fewer employees, an increase from 9.6% in July.   

• 55.3% of the leadership evaluate the current U.S. economy as “fair,” down from 72% who did in July.  44.7% rate it as “poor,” up from 27.9% last month. 

• 5.3% of survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 9.3% in July.  63.2% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, down from 79% in July.  31.6% responded that they believe economic conditions in the U.S. will worsen over the next six months, up from 11.6% who believed so last month.   

• In August, 28.9% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 44.2% in July.  68.4% believe there will be “no change” in business development spending, up from 55.8% last month, and 2.6% believe there will be a decrease in spending, up from no one who believed so last month.  

 August 2011 MCI Survey Comments from Industry Executive Leadership:

Depending on the market segment they represent, executives have differing points of view on the current and future outlook for the industry.

Bank, Middle Ticket

“Until such time that the federal government can remove the unpredictability related to taxes and fiscal policy the economy will continue to sputter as the business community will be very cautious with respect to additional investment. This scenario will not bode well for the equipment finance industry.”  Executive, Middle Ticket, Bank

Independent, Middle Ticket

“Growth is slower than expected but we are seeing some positive signs of larger capital expenditures.”  Aylin Cankardes, President, Rockwell Financial Group

 Bank, Small Ticket

“Recent actions in D.C. make our environment very uncertain.” Executive, Small Ticket, Bank

Why an MCI-EFI?

Confidence in the U.S. economy and the capital markets is a critical driver to the equipment finance industry. Throughout history, when confidence increases, consumers and businesses are more apt to acquire more consumer goods, equipment and durables, and invest at prevailing prices. When confidence decreases, spending and risk-taking tend to fall. Investors are said to be confident when the news about the future is good and stock prices are rising.

Who participates in the MCI-EFI?

The respondents are comprised of a wide cross section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies.  The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity.  Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry's confidence.

How is the MCI-EFI designed?

The survey consists of seven questions and an area for comments, asking the respondents’ opinions about the following:

1. Current business conditions
2. Expected product demand over the next four months
3. Access to capital over the next four months
4. Future employment conditions
5. Evaluation of the current U.S. economy
6. U.S. economic conditions over the next six months
7. Business development spending expectations
8. Open-ended question for comment

IASB Pushes Back

Decision On Lease Accounting Rule Changes Likely Pushed Back Until 2012

Inundated with comments and complaints, international accounting rule makers have decided to resubmit proposed changes on how companies account for real estate and capital equipment leases for public comment, a move that will probably delay issuance of a new lease accounting standard until well into next year.

Equipment Finance Industry Concerns Linger in May

The Equipment Leasing & Finance Foundation said the May 2011 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI) showed overall, confidence in the equipment finance market is 52.6, down from the May index of 63.2, indicating lingering industry concerns over the sputtering economic recovery and uncertainties in lease accounting changes.

June 2011 Survey Results:

• When asked to assess their business conditions over the next four months, 5% of executives responding said they believe business conditions will improve, a decrease from 30% in May. 79.5% of respondents believe business conditions will remain the same, an increase from 70% in May. 15.4% of executives believe business conditions will worsen.

• 12.8% of survey respondents believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 22% in May. 77% believe demand will “remain the same” during the same four-month time period, a slight decrease from 78% the previous month. 10% believe demand will decline.

• 23% of executives expect more access to capital to fund equipment acquisitions over the next four months, down from 44% in May. 77% of survey respondents indicate they expect the “same” access to capital to fund business, up from 56% the previous month. In the last seven months’ surveys, no one responded that they expect “less” access to capital.

• When asked, 33.3% of the executives reported they expect to hire more employees over the next four months, down from 41% in May. 53.8% expect no change in headcount over the next four months, an increase from 52% last month, while 12.8% expect fewer employees, an increase from 7.0% in May.

• 66.7% of the leadership evaluate the current U.S. economy as “fair,” down from 93% who did in May. 33.3% rate it as “poor,” up from 7.0% last month.

• Five percent of survey respondents believe that U.S. economic conditions will get “better” over the next six months, down from 30% in May. 82% of survey respondents indicate they believe the U.S. economy will “stay the same” over the next six months, up from 63% in May. 12.8% responded that they believe economic conditions in the U.S. will worsen over the next six months, up from 7.0% who believed so last month.

• In June, 28% of respondents indicate they believe their company will increase spending on business development activities during the next six months, down from 37% in May. 69% believe there will be “no change” in business development spending, up from 56% last month, and 2.6% believe there will be a decrease in spending, down from 7.0% who believed so last month.

MCI-EFI respondents are composed of a wide cross section of industry executives, including large-ticket, middle-market and small-ticket banks, independents and captive equipment finance companies. The MCI-EFI uses the same pool of 50 organization leaders to respond monthly to ensure the survey’s integrity. Since the same organizations provide the data from month to month, the results constitute a consistent barometer of the industry’s confidence.

The Equipment Leasing & Finance Foundation is a 501c3 non-profit organization that provides vision for the equipment leasing and finance industry through future-focused information and research. Primarily funded through donations, the Foundation is the only organization dedicated to future-oriented, in-depth, independent research for the leasing industry. Visit the Foundation online at http://www.LeaseFoundation.org.

Follow the Foundation: Twitter @ LeaseFoundation Facebook: Equipment Leasing & Finance Foundation Linked In: http://www.linkedin.com/groups?gid=89692.

Companies Spend on Equipment, Not Workers

Companies that are looking for a good deal aren’t seeing one in new workers.


 Workers are getting more expensive while equipment is getting cheaper, and the combination is encouraging companies to spend on machines rather than people.

“I want to have as few people touching our products as possible,” said Dan Mishek, managing director ofVista Technologies in Vadnais Heights, Minn. “Everything should be as automated as it can be. We just can’t afford to compete with countries like China on labor costs, especially when workers are getting even more expensive.”

Vista, which makes plastic products for equipment manufacturers, spent $450,000 on new technology last year. During the same period, it hired just two new workers, whose combined annual salary and benefits are $160,000.

Two years into the recovery, hiring is still painfully slow. The economy is producing as much as it was before the downturn, but with seven million fewer jobs. Since the recovery began, businesses’ spending on employees has grown 2 percent as equipment and software spending has swelled 26 percent, according to the Commerce Department. A capital rebound that sharp and a labor rebound that slow have been recorded only once before — after the 1982 recession.

With equipment prices dropping, and tax incentives to subsidize capital investments, these trends seem likely to continue.

“Firms are just responding to incentives,” said Dean Maki, chief United States economist at Barclays Capital. “And capital has gotten much cheaper relative to labor.”

Indeed, equipment and software prices have dipped 2.4 percent since the recovery began, thanks largely to foreign manufacturing. Labor costs, on the other hand, have risen 6.7 percent, according to the Labor Department. The rising compensation costs are driven in large part by costlier health care benefits, so those lucky workers who do have jobs do not exactly feel richer.

Corporate profits, meanwhile, are at record highs, and companies are hoarding cash. Many of the companies that are considering hiring say they are scared off by the uncertain future costs of health care and other benefits. But with the blessings of their accountants, these same companies are snatching up cheap, tax-subsidized tractors, computers and other goods.

“We had an opportunity to buy equipment at a very discounted rate,” Mr. Mishek explains of his decision to make bigger investments in equipment than in workers. “Now that the economy has turned around a little bit, it made sense to upgrade.”

Hiring has some hidden costs, as well as the expenses of salary and benefits, Mr. Mishek added.

“I dread the process we have to go through when we want to bring somebody on,” he said. “When we have a job posting these days, we get a flurry of résumés from people who aren’t qualified at all: people with misspellings on their résumés, who have never been in the industry and want a career move from real estate or something. It’s a huge distraction to sort through all those.”

Culling the résumés takes three days. Then he must make time to interview applicants, and spend $150 for each drug test.

Once a worker is hired, that person must complete a federally mandated safety program, which Vista pays an outside contractor a flat fee of $7,000 annually to handle. Finally, Vista’s best employees spend several months training the new hire, reducing their own productivity.

“You don’t have to train machines,” Mr. Mishek observes.

Usually economists cheer on capital spending, and have supported Congress’s tax breaks for capital investment, like bonus depreciation, which lets companies expense the full cost of purchases immediately instead of waiting several years. That is because capital and labor can be complementary: a business that buys a new truck often hires a new driver, too.

But with the rising costs of hiring, companies like Vista are finding ways to use capital to replace workers whose jobs are relatively routine.

“If you’re doing something that can be written down in a programmatic, algorithmic manner, you’re going to be substituted for quickly,” said Claudia Goldin, an economist at Harvard.

To add insult to injury, much of the equipment used to replace American workers is made by workers abroad, meaning that capital spending is going overseas. Of the four pieces of equipment Vista bought last year, one was made domestically. The others came from Israel, Switzerland and Germany. (“I try to avoid buying Chinese at the workplace and at home,” Mr. Mishek said.)

Of course the shift to more automated production predates the Great Recession. And in the long run, better technology lowers prices, raises living standards and helps workers move into higher-paying jobs. This was the case with the mechanization of farming, which a century ago employed 41 percent of the American work force.

“We don’t have 11 million unemployed farmers today because over time farmers and their children transitioned into different sectors,” says William C. Dunkelberg, chief economist at the National Federation of Independent Business. “We don’t usually have this kind of shock, though, that displaces a lot of workers at once.”

Better technologies may eventually offer better job opportunities, but only if people can upgrade their skills quickly enough to qualify. That is hard to do in the short run, especially when so many displaced workers need to be retrained at once.

“People don’t seem to come in with the right skill sets to work in modern manufacturing,” Mr. Mishek said, complaining that job applicants were often deficient in computer, mathematics, science and accounting skills. “It seems as if technology has evolved faster than people.”

Some economists support policies that might shift the balance away from capital spending. Andrew Sum, an economist at Northeastern University, advocates tax incentives for hiring that mirror those for capital investment. Congress passed a hiring tax credit along these lines last year, but it was not well publicized, and some said it waspoorly devised. The proposal is reportedly floating around Washington once again.

Made in America: Manufacturing Jobs Are Coming Home

The tale of American manufacturing has long been one of woeful decline. Just about a year ago, China replaced the U.S. as the world’s No. 1 maker of things, and that seemed a sure sign that the glory days had faded for good. But all of a sudden the talk is of a “manufacturing renaissance,” to quote a new study by the Boston Consulting Group.
The BCG study, “The Return of U.S. Manufacturing,” makes an interesting case. China’s wages are rising by 15 to 20 percent a year, while its productivity will improve at half that rate. The yuan is gaining in value, too, and Chinese-made products are destined to become more expensive. There is a shortage of skilled workers even in major manufacturing centers such as Shanghai and Tianjin.
In the U.S., wage increases have been minimal for years and will remain at 3 percent or so annually. U.S. productivity will remain higher than China’s by a wide margin, and government incentives are also a factor in attracting U.S. manufacturers back home. “Reinvesting in the U.S. will accelerate,” the study says, “as it becomes one of the cheapest locations for manufacturing in the developed world.”
The math that went into this study is impressive, and it works like this: Right now, labor costs in China are slightly less than half those of the U.S. when the difference in productivity is factored in. In five years’ time, labor costs on the mainland will be 70 percent of the U.S. figure. Counting costs such as inventory and shipping, the study says, the Chinese cost advantage will drop to single digits or disappear entirely.
It’s a convergence theory of a kind, and one forecasted result is that outsourcing jobs to China will turn out to have a beginning, middle, and end. “China will no longer be the default low-cost location for supplying the U.S. market,” the BCG study asserts. “The economics are becoming marginal for many products.”
Some interesting figures support the study’s argument. U.S. manufacturing grew at an estimated annual rate of 9.1 percent in the first quarter of this year, compared with a disappointing 1.8 percent for the economy as a whole. There are also some curious cases of prodigal industrial companies already returning home:

• Caterpillar, which has a major presence in China, is building its next plant to make excavating equipment in Texas, tripling its capacity for such equipment in the U.S.
• Ford is repatriating 2,000 jobs from China after reaching an agreement with the United Auto Workers that it says it can live with.
• NCR has already brought its production of automated teller machines back from China to shrink the time from production to market, to stitch divisions closer together and lower operating costs.
• The toy maker Wham-o (and this is my favorite) is repatriating half of its production of Hula Hoops and Frisbees, most from China, some from Mexico.

“It’s very early days, but this trend’s beginning,” says Hal Sirkin, a senior partner at Boston Consulting. “It’s all based on simple economics: wage rates, relative exchange rates, and productivity levels. Over four or five years, manufacturers will be indifferent to producing in China or the U.S. If it’s for the Chinese market, make it in China; if they’re producing for U.S. consumption, make it in the U.S.” 
A couple of myths seem about to explode. One was that manufacturing is finished in the U.S., another that we live in a post-industrial economy. The first is patently untrue—though manufacturing as a share of GDP has been declining for half a century, and steeply for the past decade. As to the second, there is no such thing, in my view, as a post-industrial economy. No one survives without making things.
President Obama is entirely on the right track in declaring a revival of industrial production as one of his economic priorities. But the Boston Consulting study starts to look more than a touch rosy (and too statistics-driven) when you consider a few of the harder facts:

• Recent growth in manufacturing is due partly to a come-from-behind context. True, the U.S. has added 250,000 manufacturing jobs since the start of 2010. Also true: It lost almost 6 million jobs in the past decade, including a third of all employment in manufacturing. 
• Growth in industrial production is concentrated in a few sectors such as oil and computers. “The Case for a National Manufacturing Strategy,” a new study by the Information Technology and Innovation Foundation, a Washington public-policy group, indicates that 15 of 19 sectors, accounting for almost 80 percent of U.S. industrial output—apparel, metals fabrication, machinery, printing, and so on—declined over the past decade.
• The U.S. strategy, such as it has one, is fundamentally different from those of Europe and Japan. Their manufacturing sectors are stable or better because they have automated drastically (Japan) or gone into high-end production (much of Europe). The U.S., by contrast, has lagged in capital investment and appears set to compete primarily by way of low wages and often costly packages of tax breaks and other incentives.

The question is obvious: Do Americans want to make their country a low-cost production platform? Ford is coming (fractionally) home because it can pay auto workers $14 an hour—about 10 bucks less than it paid them when it eliminated those jobs. Henry Ford famously thought his workers should be able to afford the products they made; he believed in a vital middle class. So other questions are obvious, too: What will a manufacturing renaissance, if it arrives, do for this country’s middle-income wage-earners? What will a decade or so of intense outsourcing have cost them in net terms when the jobs come home?
Related Links:
Manufacturing Is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring (Boston Consulting Group)
The Case for a National Manufacturing Strategy (Information Technology and Innovation Foundation)
U.S. Manufacturing Rebound Is a Myth (The Market Oracle)
China Poised to Eclipse U.S. Manufacturing (Open Salon)

A Fragile Recovery for Banks

Commercial banks are facing strong headwinds to growing their business, even as they put their underwriting missteps behind them. A lack of lending and negative effects from regulation have put banks in a "revenue drought," says Lee Kyriacou, a partner at Novantas, a financial services consulting firm.
According to the Federal Deposit Insurance Corp.'s latest quarterly banking report, released on Tuesday, net interest income (the money banks earn primarily from lending) had its first year-over-year drop in 22 years, falling 3% in the first quarter of 2011. The FDIC attributed the downtrend to narrower net interest margins and weak growth in interest-earning assets. Battered by lower revenues from deposit account service charges and reduced trading income, banks also experienced a decline in noninterest income, which fell by $2.2 billion, or 3.7%. In total, banks' first-quarter net operating revenue was off 3.2%.

http://www.cfo.com/article.cfm/14578393/c_14578920

Mazuma Capital Funds Multimillion Dollar Transaction for Environmentally Conscience Ground Clearing and Reclamation Services Provider

DRAPER, UT, MAY 25, 2011–Mazuma Capital, an elite national direct lender, announces it has funded a $2.5 million dollar transaction for a privately owned services company. The company is a prominent national player in the ground clearing and reclamation services industry.  Well known for administering environmentally friendly solutions in order to maintain a miniscule ecological footprint.
With major growth and expansions over the past 18 months the company sought funding for new equipment.  The equipment was engineered with superior fuel efficiency in mind; as well as being able to withstand extreme stress and tough terrain while performing its functions. The equipment was vital as it was needed to accommodate the large amount of growth and expanding service contracts in the oil and gas sector, while still providing a level of environmental responsibility. 
The company had obtained new contracts throughout the country to work with utility providers in need of reclamation and mulching services.  The challenge was finding a structure to meet the needs of the company's growth and financial requirements, while not requiring personal guarantees. Mazuma Capital Corp provided a lease structure to procure the ground clearing and mulching equipment for the company.
Mazuma Capital’s experienced underwriters brought their ability to think outside the box, using innovation and their proven track record in securing funding for growing companies to the table. Mazuma was able to structure the lease to meet the company's needs while ensuring it would foster the current growth and help to facilitate new growth.
“Working with Mazuma Capital allowed us to ride the tailwind of our newly signed service contracts with the right equipment in place.  The flexibility Mazuma offered us was refreshing and it was a great fit for our needs,” said the CEO of the Services Company. “The team at Mazuma did not feel like your typical lender/banker, their business is relationship based on every level.  The dynamic throughout Mazuma’s staff was one of professionalism with an added level of personalized service. Working with a top notch lender that provided exactly what we needed was a great experience.”
About Mazuma: Mazuma Capital is committed to our client’s success. Our unique capabilities and innovative product offerings provide solutions accelerating financial growth. Servicing both rising companies and established businesses, Mazuma continues to secure its position as the middle-market industry leader. We build long-term relationships by delivering on our commitments. Mazuma co-authored the Utah Best Practices Alliance and subscribes to the ELFA Code of Fair Business Practices.

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Media Contact: Julie Fuchs, 801-816-0800 Ext. X291, jfuchs@mazumacapital.com, http://mazumacapital.com

FASB, IASB Revert to One Model for Lease Accounting

Never mind, the Financial Accounting Standards Board has decided on its plan to allow two different accounting methods for leases. They like their original, single-model idea best after all.
In deciding how companies should account for leases, the FASB and the International Accounting Standards Board initially proposed all leases would be treated like financing transactions, with companies recognizing a liability to make lease payments and putting an asset on the balance sheet reflecting the right to use the asset for the term of the lease. Both would be measured at the present value of the lease payments. The liability would be measured in subsequent periods using the effective interest method while the asset would be amortized or written down based on the pattern of consumption and the expected future economic benefit it would produce.
Companies swallowed the treatment for long-term lease agreements that look and feel a lot like the financed purchase of an asset, but they cried foul for short-term leases that look and feel more like simple rental agreements. FASB and IASB acquiesced and agreed they would work on a two-model approach.
The boards determined “finance leases” would be treated like installment purchases, much the way today's capital leases are booked in the financial statements. “Other than finance” leases would be treated like today's operating leases, with an even amount recognized as expense each period over the life of the lease. Such a recognition pattern would more closely match the actual cash flows as companies pay down their lease obligations, companies argued and the boards conceded. FASB and IASB instructed their staff to define the criteria that would be needed to distinguish between the two types of leases.
Now, however, the boards have reversed course and decided they won't establish a two-model approach. In a joint meeting last week, FASB and IASB said they're going to stick with their original idea as described in the exposure draft for a single model for all leases. They promised to give some further thought to how to address concerns about the presentation and disclosure of information related to amortization, interest expense on the liability to make lease payments, total lease expense, and lease payment cash flows.
The lease project is one of four key accounting standards FASB and IASB are developing jointly to try to bridge major differences between U.S. and international accounting rules. The board continue to mull over how they want map out the accounting requirements for lessors as well.

See entire article:  http://www.complianceweek.com/fasb-iasb-revert-to-one-model-for-lease-accounting/article/203665/