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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2003
-------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 Commission File Number 33-94458
ICON Cash Flow Partners L.P. Seven
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3835387
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, 10th Floor, New York, New York 10011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 418-4700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last day of the registrant's most recently completed second fiscal
quarter: Not applicable. There is no established market for units of limited
partnership interest in the registrant.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business 3-4
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 5
6. Selected Consolidated Financial Data 5
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
7A. Qualitative and Quantitative Disclosures About Market Risk 13
8. Financial Statements 14-41
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
9A. Controls and Procedures 42
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 42-43
11. Executive Compensation 43
12. Security Ownership of Certain Beneficial Owners
and Management 43-44
13. Certain Relationships and Related Transactions 44
14. Principal Accounting Fees and Services 44
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 44-45
SIGNATURES 46
Certifications 47-50
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
PART I
Item 1. Business
--------
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. From January 19, 1996 through September 16, 1998 (the final
closing date) 973,628.86 additional units were admitted representing $97,362,886
of capital contributions bringing the total admission to 999,996.81 units
aggregating $99,999,681 in capital contributions. The Partnership redeemed
12,449 limited partnership units during the years 1997 through 2003, leaving
987,548 limited partnership units outstanding at December 31, 2003.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner manages and controls
the business affairs of the Partnership including equipment, leases and
financing transactions under a management agreement with the Partnership.
The Partnership's reinvestment period ended November 2002, and the
disposition period began immediately thereafter. During the disposition period,
the Partnership has and will continue to distribute substantially all
distributable cash from operations and equipment sales to the partners and
continue the orderly termination of its operations and affairs. The Partnership
has and will not invest in any additional finance or lease transactions during
the disposition period.
Segment Information
The Partnership has only one operating segment: the business of acquiring
equipment subject to leases with companies that the Partnership believes to be
creditworthy.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal
investment objective of the Partnership is to obtain the maximum economic return
from its investments for the benefit of its partners. To achieve this objective
the Partnership has: (1) acquired a diversified portfolio of leases and
financing transactions; (2) made monthly cash distributions to its limited
partners commencing with each limited partner's admission to the Partnership,
(3) re-invested substantially all undistributed cash from operations and cash
from sales of equipment and financing transactions during the reinvestment
period; and (4) commenced the disposition period and begun to sell the
Partnership's investments and distribute the cash from sales of such investments
to its partners.
The Partnership had leases which accounted for 10% or more of total revenue
for the years ended December 31, 2003, 2002 and 2001. For the year ended
December 31, 2003, Fedex Corporation, Seacor Offshore and Seacor Marine
accounted for 14%, 10% and 17%, respectively. For the year ended December 31,
2002, Fedex Corporation, Seacor Smit and Seacor Marine accounted for 31%, 16%,
and 14, respectively. For the year ended December 31, 2001, Fedex Corporation,
Seacor Smit, Seacor Marine, and Seacor Offshore accounted for 21%, 19%, 18%, and
13%, respectively.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
The Partnership has no direct employees. The General Partner has full and
exclusive discretion in management and control of the Partnership.
Lease and Financing Transactions
During the years ended December 31, 2003 and 2002 the Partnership did not
purchase any equipment. The Partnership disposed of equipment that were on lease
after lease expiration in 2003, for a gain of $120,524.
Item 2. Properties
----------
The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs.
Item 3. Legal Proceedings
-----------------
The Partnership, from time-to-time, in the ordinary course of business,
commences legal actions when necessary to protect or enforce the rights of the
Partnership. We are not a defendant party to any litigation and are not aware of
any pending or threatened litigation against the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
The Partnership's limited partnership interests are not publicly traded nor
is there currently a market for the Partnership's limited partnership units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of February 29, 2004
-------------- ------------------------
Limited Partners 4,597
General Partner 1
The Partnership made distributions on a monthly basis, totaling $1,645,916
and $10,129,308 for the years ended December 31, 2003 and 2002, respectively. In
2003, the Partnership's last distribution payment was in April 2003.
Item 6. Selected Consolidated Financial Data
Year Ended December 31,
-----------------------
2003 2002 2001 2000 1999
---- ---- ---- ----
Total revenue $ 1,576,532 $ 8,326,025 $ 9,159,492 $ 14,713,736 $ 19,572,257
============== ================ =============== ============== =============
Net (loss) income $ (17,300,236) $ (3,661,408) $ (1,477,016) $ 1,293,261 $ 3,514,436
============== ================ =============== ============== =============
Net (loss) income allocable
to Limited Partners $ (17,127,234) $ (3,624,794) $ (1,462,246) $ 1,280,328 $ 3,479,291
============== ================ =============== ============== =============
Net (loss) income allocable
to the General Partner $ (173,002) $ (36,614) $ (14,770) $ 12,933 $ 35,145
============== ================ =============== ============== =============
Weighted average limited
partnership units outstanding 987,458 988,099 989,112 989,929 992,719
============== ================ =============== ============== =============
Net (loss) income per weighted
average limited partnership unit $ (17.34) $ (3.67) $ (1.48) $ 1.29 $ 3.50
============== ================ =============== ============== =============
Distributions to limited partners $ 1,645,916 $ 10,129,308 $ 10,632,716 $ 10,641,411 $ 10,677,316
============== ================ =============== ============== =============
Distributions per weighted average
limited Partnership units $ 1.67 $ 10.25 $ 10.75 $ 10.75 $ 10.75
============== ================ =============== ============== =============
Distributions to the
General Partner $ 16,627 $ 102,316 $ 100,023 $ 107,493 $ 107,872
============== ================ =============== ============== =============
December 31,
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Total assets $ 52,063,566 $ 74,009,303 $ 104,334,907 $ 130,936,301 $ 172,007,288
============== ================ =============== ============== =============
Notes Payable $ 36,156,703 $ 38,769,665 $ 50,984,856 $ 81,889,191 $ 100,544,315
============== ================ =============== ============== =============
Partners' Equity $ 15,403,333 $ 34,366,112 $ 48,294,920 $ 60,551,684 $ 70,045,138
============== ================ =============== ============== =============
The selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in Item 8 of this
report.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited consolidated financial statements
included herein. Certain statements within this document may constitute
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995. These statements are
identified by words such as "anticipate," "believe," "estimate," "expects,"
"intend," "predict" or "project" and similar expressions. This information may
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Although the Partnership
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected.
Overview - The results of operations reflect the risk factors outlined in
the Partnership's prospectus. Such risk factors include, but are not limited to,
the decline in the value of the Partnership's equipment, no guarantee of
profitability, the potential of lessee default, and economic factors such as
prevailing interest rates. These risk factors affect the Partnership's ability
to realize income, in that they increase the Partnership's expenses by way of
additional depreciation, impairment loss, and provision for bad debts. In
addition, as the Partnership liquidates its portfolio and leases expire the cash
flow will decrease.
Under the Operating Agreement of the Partnership, the term of the
Partnership is limited within the life-span of the leases remaining in the
portfolio during the liquidation period. Therefore, as the leases mature, the
expected revenue from the portfolio will decline. However, the Partnership's
expenses, while declining during the liquidation period will increase as a
percentage of lease revenue as certain expenses are fixed; thereby decreasing
the partnership's cash flow.
As the Partnership is currently operating in its liquidation period, the
General Partner diligently monitors the portfolio for any trends that would
affect equipment values.
The Partnership - The Partnership was formed on May 23, 1995 as a Delaware
limited partnership. The Partnership's maximum offering was $100,000,000. The
Partnership commenced business operations on its initial closing date, January
19, 1996 with the admission of 26,367.95 limited partnership units at $100 per
unit representing $2,636,795 of capital contributions. From January 19, 1996
through September 16, 1998 (the final closing date) 973,628.86 additional units
were admitted representing $97,362,886 of capital contributions bringing the
total admission to 999,996.81 units aggregating $99,999,681 in capital
contributions. The Partnership redeemed 12,449 limited partnership units during
the years 1997 through 2003, leaving 987,548 limited partnership units
outstanding at December 31, 2003.
The Partnership's portfolio consists of net investments in finance leases,
investments in estimated unguaranteed residual values, net investments in
leveraged leases, investments in operating leases, equipment held for sale or
lease and equity investments in unconsolidated joint ventures.
Results of Operations for the Years Ended December 31, 2003 and 2002
Revenues for the year ended December 31, 2003 were $1,576,532 as compared
to $8,326,025 for the year ended December 31, 2002 representing a decrease of
$6,749,493. The decrease in revenues resulted primarily from decreases in income
from leveraged leases of $2,075,270, rental income of $1,162,981, income from
investment in unconsolidated joint ventures of $211,760, finance income of
$823,942, and gain on sales of equipment of $2,591,211. The decrease in gain on
sales of equipment was due to a sale of equipment in the third quarter of 2002
whereas no similar sale occurred in 2003. The decrease in rental income was due
to equipment, previously held as investments in operating leases, which were
subsequently reclassified as equipment held for sale or lease during 2003. The
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
decrease in finance income resulted primarily from a decrease in the average
size of the Partnership's lease portfolio. The decrease in income from
investment in unconsolidated joint ventures was due to net losses in the
operations of several of the unconsolidated joint ventures in 2003 which the
Partnership has an interest in. The decrease in income from leveraged leases was
due to a reduction in the estimated unguaranteed residual value of $3,400,000 of
one of the aircraft as a result of a recent appraisal and a leveraged lease
which came to term in the first quarter of 2003, which was subsequently
reclassified as an investment in operating leases.
Expenses for the year ended December 31, 2003 were $18,876,768 as compared
to $11,987,433 for the year ended December 31, 2002, representing an increase of
$6,889,335. The increase in expenses was primarily attributable to an increase
in depreciation expense of $1,025,613, due primarily to equipment being
reclassified from finance leases or investment in leveraged leases to operating
leases in the third quarter of 2002 and the third quarter of 2003. An increase
in provision for impairment of 7,500,000 due to a decrease in the value of
several of the Partnership's equipment held for sale or lease. An increase in
vessel maintenance of $551,157 was due to the storage and remarketing costs
associated with the off-lease vessels during 2003. The increase in expenses was
partially offset by a decrease in interest expense of $833,118, a decrease in
management fees - General Partner of $380,485, a decrease in administrative
expense reimbursements - General Partner of $176,875, and a decrease in
amortization of initial direct costs of $200,523. The decrease in interest
expense was due to a decrease in the average debt outstanding from 2002 to 2003.
The decreases in management fees - General Partner and administrative expense
reimbursement - General Partner resulted from the overall decrease in the
average size of the Partnership's lease portfolio. The decrease in amortization
of initial direct costs resulted from the decrease in the average size of the
Partnership's finance lease portfolio.
Net loss for the years ended December 31, 2003 and 2002 was $17,300,236 and
$3,661,408, respectively. The net loss per weighted average limited partnership
unit outstanding was $17.34 and $3.67, for the year ended December 31, 2003 and
2002, respectively.
Results of Operations for the Years Ended December 31, 2002 and 2001
Revenues for the year ended December 31, 2002 were $8,326,025 as compared
to $9,159,492 for the year ended December 31, 2001 representing a decrease of
$833,467. The decrease in revenues resulted primarily from decreases in income
from leveraged leases of $1,528,696, finance income of $2,893,964 and rental
income of $827,620. The decrease in revenue was partially offset by increases in
income from investments in unconsolidated joint ventures of $2,006,568 and gain
on sales of equipment of $2,340,354. The decrease in income from leveraged
leases was due to a reduction in the estimated unguaranteed residual value of
$1,835,000 of one of the aircraft as a result of a recent appraisal which
indicated a lower value at lease termination than initially estimated. The
decrease in finance income resulted primarily from (1) a decrease in the average
size of the Partnership's lease portfolio; (2) certain leases which were renewed
and are generating lower levels of finance income during the respective renewal
terms; and (3) certain finance leases which came to term in 2002 and were either
(a) renewed in 2002 and classified as operating leases during their renewal
terms or (b) are currently off lease. The decrease in rental income from 2001
resulted from the rentals associated with equipment which was reclassified to
equipment held for sale or re-lease subsequent to 2001. The increase in income
from equity investment in joint ventures resulted primarily from a provision for
bad debts of $1,825,000 recorded by one of the ventures in 2001 which did not
occur in 2002. Gain on sale of equipment increased primarily due to a sale of
certain equipment which generated a gain of $2,686,609.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
Expenses for the year ended December 31, 2002 were $11,987,433 as compared
to $10,636,508 for the year ended December 31, 2001, representing an increase of
$1,350,925. The increase in expenses was primarily attributable to increases in
depreciation expense of $2,185,030, an impairment of unguaranteed residual value
of $350,000, and vessel maintenance of $351,386. The decrease in expenses was
partially offset by decreases in interest expense of $444,255, management fees -
General Partner of $983,113, administrative expense reimbursements - General
Partner of $241,735 and amortization of initial direct costs of $523,246. The
increase in depreciation expense was due principally to depreciation associated
with equipment reclassified from finance leases to operating leases or equipment
held for sale or lease subsequent in 2001. The increase in loss on writedown of
unguaranteed residual value was due to a reduction in the estimated unguaranteed
residual value of a direct finance lease as a result of a management estimate
which indicated a lower value at lease termination than initially estimated. The
principal reason for the increase in vessel maintenance was the storage and
remarketing costs associated with the off-lease vessels during 2002. The
decreases in management fees - General Partner and administrative expense
reimbursement - General Partner resulted from the overall decrease in the
average size of the Partnership's lease investment portfolio and the timing of
rentals received. The decrease in amortization of initial direct costs was due
to a decrease in the average size of the Partnership's lease portfolio and
certain finance leases which came to term in 2002.
Net loss for the years ended December 31, 2002 and 2001 was $3,661,408 and
$1,477,016, respectively. The loss per weighted average limited partnership unit
outstanding was $3.67 and $1.48, for the years ended December 31, 2002 and 2001,
respectively.
Liquidity and Capital Resources
The Partnership's primary source of liquidity in 2003 were borrowings of
$690,000, proceeds from the sale of equipment of $1,050,865 and distributions
received from unconsolidated joint ventures of $671,137. Distributions to
partners aggregated $1,662,543, the Partnership repaid recourse debt of $453,901
and used cash in operating activities for $1,249,206. As a result of this
activity the Partnership's liquidity was reduced.
The Partnership's cash flow from operating activities may be less than the
Partnership's current level of expenses. To the extent that cash flow is
insufficient to pay such expenses, the Partnership may be required to sell
assets prior to maturity or borrow against future cash flows.
The Partnership's notes payable at December 31, 2003 totaled $36,156,703.
These amounts consisted of $23,790,254 of non-recourse notes and $12,366,449 of
recourse notes payable. $5,751,009 of the recourse notes are secured by the
investments in three aircraft residuals with an aggregate carrying value at
$4,686,758 at December 31, 2003. The recourse notes payable also include amounts
outstanding under the lines of credit discussed below. The non-recourse notes
are secured by, and are payable from the proceeds of sale or lease of various
aircraft and vessels.
On May 30 2002, the Partnership entered into a $17,500,000 joint and
several line of credit agreement dated shared with Income Fund Eight-A L.P. and
Income Fund Eight B L.P. (the "Initial Funds"), with Comerica Bank as lender.
Under the terms of the agreement, the Partnership may borrow at a rate equal to
the Comerica Bank base rate plus 1% (together, 5.00% at December 31, 2003) and
all borrowings are to be jointly and severally collateralized by the present
values of rents receivable and equipment owned by all of the Initial Funds
sharing in the joint line of credit. On December 12, 2002, the agreement was
amended to admit Income Fund Nine LLC, collectively along with the Initial Funds
(the "Funds"), as a borrower sharing the $17,500,000 joint line of credit
agreement. The Funds have entered into a Contribution Agreement, dated as of May
30, 2002, as amended December 12, 2002, pursuant to which the Funds have agreed
to restrictions on the amount and the terms of their respective borrowings under
the line of credit in order to minimize the risk that a Fund would not be able
to repay its allocable portion of the outstanding revolving loan obligation at
any time, including restrictions on any Fund borrowing in excess of the lesser
of (A) an amount each Fund could reasonably expect to repay in one year out of
its projected free cash flow, or (B) the greater of (i) the Borrowing Base (as
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
defined in the line of credit agreement) as applied to such Fund, and (ii) 50%
of the net worth of such Fund. The Contribution Agreement provides that, in the
event a Fund pays an amount under the agreement in excess of its allocable share
of the obligation under the agreement whether by reason of an Event of Default
or otherwise, the other Funds will immediately make a contribution payment to
such Fund in such amount that the aggregate amount paid by each Fund reflects
its allocable share of the aggregate obligations under the agreement.
The Funds' obligations to each other under the Contribution Agreement are
collateralized by a subordinate lien on the assets of each participating Fund.
The line of credit was extended for twelve additional months expiring May 31,
2004. As of December 31, 2003, the Partnership had $6,615,440 outstanding under
the line. Aggregate borrowing by all Funds under the line of credit agreement
aggregated $12,779,986 on December 31, 2003.
The Partnership entered into a $5,000,000 line of credit agreement (the
"Facility") with a bank in 1998 which is secured by certain receivables and
residuals and accrues interest at prime plus one half percent (4.75% at December
31, 2002). At December 31, 2002, the Partnership had $453,901 outstanding under
the Facility. The Facility originally expired in December 2002 and was renewable
on a bi-annual basis. The Partnership did not exercise its renewal option and
paid the outstanding amount in full in February 2003 in the amount of $460,382.
The Partnership has the following contractual obligations as of December
31, 2003. This obligation arises mainly from the acquisition of equipment
subject to lease. Rental payments from the leases associated with this equipment
are assigned to paydown such obligations.
Payments Due By Period
----------------------
Total 2004 2005 2006
----- ---- ---- ----
Long-term obligation (Notes payable) $ 36,156,702 $ 20,405,665 $ - $ 15,751,037
See Note 9 to the consolidated financial statements, as set forth in Part
II, Item 8, Consolidated Financial Statements for information regarding
non-recourse and recourse debt.
Cash distributions to the limited partners for the years ended December 31,
2003 and 2002, which were paid over four months and twelve months respectively,
totaled $1,645,916 and $10,129,308, respectively, which was a return of capital.
The monthly annualized cash distribution rate to limited partners for the years
ended December 31, 2003 and 2001 was 1.67% and 10.25% respectively, which was a
return of capital.
It is anticipated that cash distributions, if any, will not be significant
until the realization of proceeds from the sale or release of equipment
currently on or off lease. There were no cash distributions to the limited
partners since April 2003.
The Partnership's reinvestment period ended November 2002, and the
disposition period began immediately thereafter. During the disposition period,
the Partnership has and will continue to distribute substantially all
distributable cash from operations and equipment sales to the partners and
continue the orderly termination of its operations and affairs. The Partnership
has and will not invest in any additional finance or lease transactions during
the disposition period.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
As of December 31, 2003 there were no known trends or demands, commitments,
events or uncertainties apart from those mentioned above which are likely to
have any material effect on liquidity. As cash is realized from operations and
additional borrowings, the Partnership will continue to invest in equipment
leases and financings where it deems it to be prudent while retaining sufficient
cash to meet its reserve requirements and recurring obligations.
We do not consider the impact of inflation to be material in the analysis
of our overall operations.
Critical Accounting Policies and Management Estimates
The policies discussed below are considered by the General Partner to be
critical to an understanding of the Partnership's consolidated financial
statements because their application places the most significant demands on the
General Partner's judgments, with financial reporting results relying on
estimation about the effect of matters that are inherently uncertain. Specific
risks for these critical accounting policies are described in the following
paragraphs. For all of these policies, the General Partner cautions that future
events rarely develop exactly as forecast, and the best estimates routinely
require adjustment.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the dates of the financial statements and
revenues and expenses during the reporting periods. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as finance leases, leveraged leases, or
operating leases, as appropriate. Initial direct costs are capitalized and are
amortized over the terms of the related leases using the interest method.
For finance leases, the Partnership records, at the inception of the lease,
the total minimum lease payments receivable, the estimated unguaranteed residual
values, the initial direct costs related to the leases and the related unearned
income. Unearned income represents the difference between the sum of the minimum
lease payments receivable plus the estimated unguaranteed residual minus the
cost of the leased equipment. Unearned income is recognized as finance income
over the terms of the related leases using the interest method.
The Partnership's net investment in leveraged leases consists of minimum
lease payments receivable, the estimated unguaranteed residual values and the
initial direct costs related to the leases, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income from leveraged leases over the life of the lease at a
constant rate of return on the positive net investment.
For operating leases, equipment is recorded and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
Credit Risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
The Partnership records a provision for doubtful accounts to provide for
estimated credit losses in its portfolio. The allowance for doubtful accounts is
based on an analysis of delinquency, an assessment of overall risk and a review
of historical loss experience. The Partnership's write-off policy is based on an
analysis of the aging of the Partnership's portfolio, a review of the
non-performing receivables and leases, and prior collection experience. An
account is fully reserved for or written-off when the analysis indicates that
the probability of collection of the account is remote.
Equipment Held for Sale or Lease - The vessels that are held for sale or
lease are carried at cost less accumulated depreciation, subject to the
Partnership's impairment policy discussed below.
Investments in Estimated Unguaranteed Residual Values - The Partnership
carries its investments in the future estimated unguaranteed residual values of
assets at cost, which is equal to or less than market values, subject to the
Partnership's policy relating to impairment of review. Proceeds received are
recognized as a recovery of cost due to the uncertainty of ultimate realization.
Proceeds received in excess of costs are recognized as gain.
Impairment - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates of undiscounted future rents. The residual value assumes, among
other things, that the asset is utilized normally in an open, unrestricted and
stable market. Short-term fluctuations in the market place disregarded and it is
assumed that there is no necessity either to dispose of a significant number of
the assets simultaneously, if held in quantity, or to dispose of the asset
quickly. Impairment is measured as the difference between the fair value of the
assets and its carrying value on the measurement date.
New Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. The
Statement requires that contracts with comparable characteristics be accounted
for similarly and clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except in
certain circumstances, and for hedging relationships designated after June 30,
2003. The adoption of this standard did not have a material effect on the
Partnership's financial position or results of operations.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Partnership's financial
position or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a
Partnership's consolidated financial statements. A Partnership that holds
variable interests in an entity is required to consolidate the entity if the
Partnership's interest in the VIE is such that the Partnership will absorb a
majority of the VIE's expected losses and/or receive a majority of the entity's
expected residual returns, if any. VIE's created after January 31, 2003, but
prior to January 1, 2004, may be accounted for either based on the original
interpretation or the Revised Interpretations. However, the Revised
Interpretations must be applied no later than the first quarter of fiscal year
2004. VIE's created after January 1, 2004 must be accounted for under the
Revised Interpretations. There has been no material impact to the Partnership's
financial statements and there is no expected impact from the adoption of the
deferred provisions in the first quarter of fiscal year 2004.
The Partnership does not believe that any other recently issued, but not
yet effective, accounting standards will have a material effect on the
Partnership's financial position or results of operations.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
----------------------------------------------------------
The Partnership is exposed to certain market risks, including changes in
interest rates and the demand for equipment (and the related residuals) owned by
the Partnership and its investees. Except as described below, the Partnership
believes its exposure to other market risks are insignificant to both its
financial position and results of operations.
The Partnership manages its interest rate risk by obtaining fixed rate debt
for most of its obligations. The fixed rate debt service obligation streams are
generally matched by fixed rate lease receivables streams generated by the
Partnership's lease investments.
The Partnership also borrows funds under a floating rate line of credit and
is therefore exposed to interest rate risk until the floating rate lines of
credit are repaid. The Partnership's aggregate borrowings under the floating
rate line of credit as of December 31, 2003 was $6,615,440. The Partnership
believes the risk associated with rising interest rates under these lines are
not significant.
The Partnership manages its exposure to equipment and residual risk by
monitoring the equipment leasing market and maximizing remarketing proceeds
through either releasing or sale of equipment.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 2003
Item 8. Consolidated Financial Statements
---------------------------------
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Reports 16-17
Consolidated Balance Sheets as of December 31, 2003 and 2002 18-19
Consolidated Statements of Operations for the Years Ended December 31, 2003,
2002 and 2001 20
Consolidated Statement of Changes in Partners' Equity for the Years Ended
December 31, 2001, 2002 and 2003 21
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2003, 2002 and 2001 22-24
Notes to Consolidated Financial Statements 25-41
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 2003
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Partners
ICON Cash Flow Partners L.P. Seven
We have audited the accompanying consolidated balance sheets of ICON Cash Flow
Partners L.P. Seven (a Delaware limited partnership) and subsidiaries as of
December 31, 2003 and 2002 and the related consolidated statements of
operations, changes in partners' equity and cash flows for each of the two years
in the period ended December 31, 2003. These consolidated financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ICON Cash Flow
Partners L.P. Seven and subsidiaries as of December 31, 2003 and 2002 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1, the Partnership's reinvestment period ended November 9,
2002 and its disposition period commenced. During the disposition period the
Partnership will distribute substantially all distributable cash from operations
and equipment sales to the partners and begin the orderly termination of its
operations and affairs.
/s/ Hays & Company LLP
March 19, 2004
New York, New York
Independent Auditors' Report
----------------------------
The Partners
ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying consolidated statements of operations,
partners' equity, and cash flows of ICON Cash Flow Partners L.P. Seven (a
Delaware limited partnership) for the year ended December 31, 2001. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of the operations and the cash
flows of ICON Cash Flow Partners L.P. Seven for the year ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States of America.
/s/KPMG LLP
May 20, 2002
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 2003 and 2002
2003 2002
Assets
Cash and cash equivalents $ 301,256 $ 1,257,947
-------------- --------------
Investment in finance leases and financings
Minimum rents receivable 904,811 2,252,134
Estimated unguaranteed residual values 1,188,402 1,717,816
Initial direct costs, net 1,299 36,455
Unearned income (55,036) (137,106)
Allowance for doubtful accounts (239,516) (289,301)
------------- --------------
1,799,960 3,579,998
-------------- ---------------
Net investment in leveraged leases 19,631,879 27,877,708
------------- --------------
Equipment held for sale or lease, net 15,569,831 19,343,546
------------- --------------
Investment in operating leases
Equipment at cost 6,352,370 14,195,791
Accumulated depreciation (1,614,224) (1,703,583)
------------- --------------
4,738,146 12,492,208
------------- --------------
Investments in estimated unguaranteed residual values 4,686,758 4,686,758
------------- --------------
Investments in unconsolidated joint ventures 4,000,169 3,360,145
------------- --------------
Due from General Partner and affiliates 369,071 161,458
------------- --------------
Other assets, net 966,486 1,249,535
------------- --------------
Total assets $ 52,063,556 $ 74,009,303
============= ==============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets (continued)
December 31, 2003 and 2002
2003 2002
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse $ 23,790,254 $ 27,186,863
Note payable - recourse 12,366,449 11,582,802
Due to affiliates 51,522 155,542
Security deposits, deferred credits and other payables 429,127 664,692
Minority interest in joint venture 22,871 53,292
----------------- ----------------
Total liabilities 36,660,223 39,643,191
----------------- ----------------
Commitments and Contingencies
Partners' equity
General Partner (694,873) (505,244)
Limited partners (987,548 outstanding,
$100 per unit original issue price) 16,098,206 34,871,356
---------------- -----------------
Total partners' equity 15,403,333 34,366,112
Total liabilities and partners' equity $ 52,063,556 $ 74,009,303
================= =================
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
Revenues
Rental income $ 1,365,201 $ 2,528,092 $ 3,355,712
Finance income 82,070 906,012 3,799,976
(Loss) income from leveraged leases, net (1,488,462) 586,808 2,115,504
Net gain on sales of equipment and investments 120,524 2,711,735 371,381
Income (loss) from investments
in unconsolidated joint ventures 1,241,857 1,453,617 (552,951)
Interest income and other 255,342 139,761 69,870
Total revenues 1,576,532 8,326,025 9,159,492
============== ============== ==============
Expenses
Interest 2,682,524 3,515,642 3,959,897
Depreciation expense 5,795,265 4,769,652 2,584,622
Management fees - General Partner 595,157 975,642 1,958,755
Vessel maintenance 902,543 351,386 -
General and administrative expense 651,659 1,215,877 1,019,905
Administrative expense
reimbursements - General Partner 242,909 419,784 661,519
Amortization of initial direct costs 184,089 384,612 907,858
Provision from impairment 7,850,000 350,000 -
Minority interest (income) expense (27,378) 4,838 43,952
(Reversal of) provision for bad debts - - (500,000)
Total expenses 18,876,768 11,987,433 10,636,508
============== ============= ==============
Net loss $ (17,300,236) $ (3,661,408) $ (1,477,016)
============== ============= ===============
Net loss allocable to:
Limited partners $ (17,127,234) $ (3,624,794) $ (1,462,246)
General Partner (173,002) (36,614) (14,770)
============== ============== ===============
$ (17,300,236) $ (3,661,408) $ (1,477,016)
Weighted average number of limited
partnership units outstanding 987,548 988,099 989,112
============= ============== ==============
Net loss per weighted average
limited partnership unit $ (17.34) $ (3.67) $ (1.48)
============== ============= ===============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statement of Changes in Partners' Equity
For the Years Ended December 31, 2001, 2002 and 2003
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
(Per weighted average unit)
Balance at
January 1, 2001 $ 60,803,205 $ (251,521) $ 60,551,684
Limited partnership units
redeemed (939 units) (47,009) - (47,009)
Cash distributions to partners $ 10.75 $ - (10,632,716) (100,023) (10,732,739)
Net loss (1,462,246) (14,770) (1,477,016)
================ ============= ===============
Balance at
December 31, 2001 48,661,234 (366,314) 48,294,920
Limited partnership units
redeemed (1,101 units) (35,776) - (35,776)
Cash distributions to partners $ 10.25 $ - (10,129,308) (102,316) (10,231,624)
Net loss (3,624,794) (36,614) (3,661,408)
Balance at
December 31, 2002 34,871,356 (505,244) 34,366,112
Cash distributions to partners $ 1.67 $ - (1,645,916) (16,627) (1,662,543)
Net loss (17,127,234) (173,002) (17,300,236)
Balance at
December 31, 2003 $ 16,098,206 $ (694,873) $ 15,403,333
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
Cash flows from operating activities:
Net loss $ (17,300,236) $ (3,661,408) $ (1,477,016)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Net gain on sales of equipment and investments (120,524) (2,711,735) (371,381)
Finance income portion of receivables
paid directly to lenders by lessees - (568,035) (3,127,075)
Rental income paid directly to lender by lessees (674,894) (2,528,092) (2,711,700)
Amortization of initial direct costs 184,089 384,612 907,858
Depreciation expense 5,795,265 4,769,652 2,584,622
(Reversal of) provision for bad debts - - (500,000)
Provision for impairment 7,850,000 350,000 -
Interest expense on non-recourse
financings paid directly by lessees and
interest accreted 1,676,212 2,536,757 3,810,182
Loss (income) from leveraged leases, net 1,488,462 (586,808) (2,115,504)
(Income) loss from investments in
unconsolidated joint ventures (1,241,857) (1,453,617) 552,951
Minority interest (income) expense (27,378) 4,838 43,952
Changes in operating assets and liabilities:
Collection of principal - non-financed
receivables 1,385,804 3,449,559 1,185,981
Due from General Partner and affiliates (207,613) (161,458) -
Other assets, net 283,049 650,162 183,106
Due to affiliates (104,020) (3,740,307) 3,836,727
Security deposits, deferred credits and other payables (235,565) (446,136) 53,875
Total adjustments 16,051,030 (50,608) 4,333,594
Net cash (used in) provided by operating activities (1,249,206) (3,712,016) 2,856,578
Cash flows from investing activities:
Proceeds from the sales of equipment 1,050,865 6,184,106 7,771,021
Proceeds from sale of minority interests
in consolidated joint ventures - - 3,273,407
Distributions received from unconsolidated joint ventures 671,137 1,288,983 255,047
Investments in unconsolidated joint ventures - - (283)
Net cash provided by investing activities 1,722,002 7,473,089 11,299,192
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
Cash flows from financing activities:
Proceeds from notes payable - non-recourse - - 2,111,726
Principal payments on notes payable - non-recourse - (250,000) (3,868,718)
Proceeds from note payable - recourse 690,000 10,800,439 -
Principal payments on notes payable - recourse (453,901) (5,120,036) (4,369,065)
Distribution to minority interest in joint venture (3,043) - -
Cash distributions to partners (1,662,543) (10,231,624) (10,732,739)
Redemption of limited partnership units - (35,776) (47,009)
Net cash used in financing activities (1,429,487) (4,836,997) (16,905,805)
Net decrease in cash and cash equivalents (956,691) (1,075,924) (2,750,035)
Cash and cash equivalents at beginning of year 1,257,947 2,333,871 5,083,906
Cash and cash equivalents at end of year $ 301,256 $ 1,257,947 $ 2,333,871
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2003, 2002 and 2001
Supplemental Disclosures of Cash Flow Information
During the years ended December 31, 2003, 2002 and 2001, non-cash
activities included the following:
2003 2002 2001
Principal and interest on finance receivables
paid directly to lenders by lessees $ 4,397,927 $ 2,269,884 $ 12,831,791
Rental income assigned - operating lease receivable 674,894 2,528,092 2,711,700
Principal and interest on non-recourse
financings (5,072,821) (4,797,976) (15,543,491)
$ - $ - $ -
Transfer of investment in finance leases
to investments in operating leases $ 2,565,000 $ 9,647,253 $ 30,137,598
Transfer of investment in operating leases, net of
accumulated depreciation, to equipment held for
sale or lease $ 10,389,766 $ 3,258,314 $ 18,769,730
Interest paid directly to lenders by lessees
pursuant to non-recourse financings $ 1,676,212 $ 2,536,757 $ 3,810,182
Interest expense on recourse notes - paid 1,006,312 978,885 149,715
Total interest expense $ 2,682,524 $ 3,515,642 $ 3,959,897
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2003, 2002 and 2001
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. From January 19, 1996 through September 16, 1998 (the final
closing date) 973,628.86 additional units were admitted representing $97,362,886
of capital contributions bringing the total admission to 999,996.81 units
aggregating $99,999,681 in capital contributions. The Partnership redeemed
12,449.00 limited partnership units during the years 1997 through 2003, leaving
987,547.81 limited partnership units outstanding at December 31, 2003.
The Partnership is an equipment leasing income fund. The principal
investment objective of the Partnership is to obtain the maximum economic return
from its investments for the benefit of its partners. To achieve this objective
the Partnership has: (1) acquired a diversified portfolio of leases and
financing transactions; (2) made monthly cash distributions to its limited
partners commencing with each limited partner's admission to the Partnership,
(3) re-invested substantially all undistributed cash from operations and cash
from sales of equipment and financing transactions during the reinvestment
period; and (4) commenced the disposition period and begun to sell the
Partnership's investments and distribute the cash from sales of such investments
to its partners.
On November 9 2002 the Partnership's Reinvestment Period ended and the
Disposition Period began. During this period the Partnership will distribute
substantially all distributable cash from operations and sales to the partners
and begin the orderly termination of its operations. The Partnership will not
reinvest in any additional leased equipment during the Disposition period.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner manages and controls
the business affairs of the Partnership including equipment, leases and
financing transactions under a management agreement with the Partnership.
Profits, losses, cash distributions and disposition proceeds are allocated
99% to the limited partners and 1% to the General Partner until each limited
partner has received cash distributions and disposition proceeds sufficient to
reduce its adjusted capital contribution account to zero and receive, in
addition, other distributions and allocations which would provide a 10% per
annum cumulative return, compounded daily, on its outstanding adjusted capital
contribution account. After such time, the distributions will be allocated 90%
to the limited partners and 10% to the General Partner.
2. Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiaries. All inter-company
accounts and transactions have been eliminated in consolidation. The Partnership
accounts for its interests in 50% or less owned joint ventures under the equity
method of accounting. In such cases, the Partnership's original investments are
recorded at cost and adjusted for its share of earnings, losses and
distributions.
Cash and Cash Equivalents - Cash and cash equivalents include cash in banks
and highly liquid investments with original maturity dates of three months or
less. The Partnership's cash and cash equivalents are held principally at one
financial institution and at times may exceed insured limits.
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as finance leases, leveraged leases, or
operating leases, as appropriate. Initial direct costs are capitalized and are
amortized over the terms of the related leases using the interest method.
For finance leases, the Partnership records, at the inception of the lease,
the total minimum lease payments receivable, the estimated unguaranteed residual
values, the initial direct costs related to the leases and the related unearned
income. Unearned income represents the difference between the sum of the minimum
lease payments receivable plus the estimated unguaranteed residual minus the
cost of the leased equipment. Unearned income is recognized as finance income
over the terms of the related leases using the interest method.
The Partnership's net investment in leveraged leases consists of minimum
lease payments receivable, the estimated unguaranteed residual values and the
initial direct costs related to the leases, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income from leveraged leases over the life of the lease at a
constant rate of return on the positive net investment.
For operating leases, equipment is recorded and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
Credit Risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
The Partnership records a provision for doubtful accounts to provide for
estimated credit losses in its portfolio. The allowance for doubtful accounts is
based on an analysis of delinquency, an assessment of overall risk and a review
of historical loss experience. The Partnership's write-off policy is based on an
analysis of the aging of the Partnership's portfolio, a review of the
non-performing receivables and leases, and prior collection experience. An
account is fully reserved or written off when the analysis indicates that the
probability of collection of the account is remote.
Equipment Held for Sale or Lease - As of December 31, 2003, the Partnership
had aircraft parts and rotables that came off lease in 2002 and five vessels
that came off lease in 2001. This equipment is recorded at original equipment
cost less accumulated depreciation, and is subject to the Partnership's
impairment review policy.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Impairment - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates of undiscounted future rents. The residual value assumes, among
other things, that the asset is utilized normally in an open, unrestricted and
stable market. Short-term fluctuations in the market place are disregarded and
it is assumed that there is no necessity either to dispose of a significant
number of the assets, simultaneously if held in quantity, or to dispose of the
asset quickly. Impairment is measured as the difference between the fair value
of the assets and its carrying value on the measurement date.
Investments in Estimated Unguaranteed Residual Values - The Partnership
carries its investments in the future estimated unguaranteed residual values of
assets at unrecovered cost, which is equal to or less than market value, and is
subject to the Partnership's policy relating to impairment review. Proceeds
received are recognized as a recovery of cost due to uncertainty of ultimate
realization. Proceeds received in excess of costs are recognized as gains.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Values of Financial
Instruments," requires disclosures about the fair value of financial
instruments, except for lease related assets and liabilities. Separate
disclosure of fair value information as of December 31, 2003 and 2002 with
respect to the Partnership's assets and liabilities is not separately provided
since (i) SFAS No. 107 does not require fair value disclosures of lease
arrangements and (ii) the carrying value of financial assets, other than lease
related investments, and the recorded value of payables approximates market
value.
Redemption of Limited Partnership Units - The General Partner consented to
the Partnership redeeming 939 units in 2001, 1,101 units in 2002 and no
redemptions in 2003. The redemption amounts are calculated following the
specified redemption formula in accordance with the Partnership Agreement.
Redeemed units have no voting rights and do not share in distributions. The
Partnership Agreement limits the number of units which can be redeemed in any
one year and redeemed units may not be reissued. Redeemed limited partnership
units are accounted for as a reduction from partners' equity.
Income Taxes - No provision for income taxes has been recorded since the
liability for such taxes is that of each of the partners rather than the
Partnership. The Partnership's income tax returns are subject to examination by
the federal and state taxing authorities, and changes, if any could adjust the
individual income tax of the partners.
Reclassifications - Certain items from prior years have been reclassified
to conform to the 2003 classifications.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Recent Accounting Pronouncements - In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. The Statement requires
that contracts with comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except in certain
circumstances, and for hedging relationships designated after June 30, 2003. The
adoption of this standard did not have a material effect on the Partnership's
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Partnership's financial
position or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity is required to consolidate the entity if the company's interest in the
VIE is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the entity's expected residual returns, if any.
VIE's created after January 31, 2003, but prior to January 1, 2004, may be
accounted for either based on the original interpretation or the Revised
Interpretations. However, the Revised Interpretations must be applied no later
than the first quarter of fiscal year 2004. VIE's created after January 1, 2004
must be accounted for under the Revised Interpretations. There has been no
material impact to the Partnership's financial statements and there is no
expected impact from the adoption of the deferred provisions in the first
quarter of fiscal year 2004.
The Partnership does not believe that any other recently issued, but not
yet effective, accounting standards will have a material effect on the
Partnership's financial position or results of operations.
3. Joint Venture
The Partnership and its affiliates, entities in which ICON Capital Corp, is
also the general partner formed eight ventures discussed below for the purpose
of acquiring and managing various assets. The Partnership and its affiliates
have identical investment objectives and participate on the same terms and
conditions. The Partnership has a right of first refusal to purchase the
equipment, on a pro-rata basis, if any of the affiliates desire to sell their
interests in the equipment.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Consolidated Joint Venture
The joint venture described below is majority owned and is consolidated
with the Partnership.
ICON Cash Flow Partners L.L.C. III
In December 1996, the Partnership and an affiliate, ICON Cash Flow
Partners, L.P., Series E ("Series E") formed ICON Cash Flow Partners L.L.C. III
("ICON Cash Flow L.L.C. III"), for the purpose of acquiring and managing an
aircraft which was on lease to Continental Airlines, Inc. The aircraft is a 1976
McDonnell Douglas DC-10-30 with an original cost of $11,429,751. The original
lease, which was accounted for as a leveraged lease, expired on April 30, 2003.
Effective May 1, 2003, the aircraft was re-leased to World Airways, Inc. (see
Note 5) on a power-by-the-hour basis and the asset was reclassified as an
investment in operating lease. Profits, losses, excess cash and disposition
proceeds are allocated 99% to the Partnership and 1% to Series E. The
Partnership's financial statements include 100% of the assets and liabilities
and 100% of the revenue and expenses of ICON Cash Flow L.L.C. III. Series E's
investment in ICON Cash Flow L.L.C. III is reflected as minority interest in
consolidated joint venture on the accompanying consolidated balance sheets.
Unconsolidated Joint Ventures
The seven joint ventures described below are 50% or less owned and are
accounted for under the equity method.
ICON Receivables 1997-A LLC
In March and September 1997, the Partnership and affiliates, ICON Cash Flow
Partners L.P. Six ("L.P. Six") and ICON Cash Flow Partners L.P. Series D
("Series D") and Series E contributed and assigned equipment lease and finance
receivables and residuals to ICON Receivables 1997-A LLC ("1997-A") for the
purpose of securitizing their cash flow collections. As of December 31, 2003,
the Partnership, Series E, L.P. Six and Series D own 19.97%, 31.19%, 31.03% and
17.81% interests, respectively, in 1997-A.
Information as to the financial position and results of operations of
1997-A as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
Assets $ 810,802 $ 694,761
Liabilities $ 595,106 $ 390,389
Equity $ 215,696 $ 304,372
Partnership's share of equity $ 43,080 $ 60,784
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net (loss) income $ (88,676) $ 155,235
Partnership's share of net (loss) income $ (17,704) $ 31,001
ICON Receivables 1997-B LLC
In August 1997, the Partnership and affiliates, Series E and L.P. Six,
formed ICON Receivables 1997-B LLC ("1997-B") for the purpose of securitizing
their cash flow collections. The Partnership, Series E and L.P. Six each
contributed cash, equipment leases and residuals and received a 16.67%, 75.00%
and 8.33% interest, respectively, in 1997-B.
Information as to the financial position and results of operations of
1997-B as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
Assets $ 1,756,597 $ 3,241,761
Liabilities $ 1,681,931 $ 2,825,588
Equity $ 74,666 $ 416,173
Partnership's share of equity $ 12,448 $ 69,377
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net (loss) income $ (341,507) $ 223,402
Partnership's share of net (loss) income $ (56,929) $ 37,241
Distributions $ - $ 196,226
Partnership's share of distributions $ - $ 32,711
ICON/Boardman Facility LLC
In December 1998, the Partnership and three affiliates, ICON Cash Flow
Partners, L.P., Series C ("Series C"), L.P. Six and ICON Income Fund Eight A
L.P. ("Fund Eight A"), formed ICON Boardman /Facility LLC ("ICON BF"), for the
purpose of acquiring a coal handling facility on lease with Portland General
Electric, a utility company. The purchase price totaled $27,421,810 and was
funded with cash and the assumption of non-recourse debt. The Partnership,
Series C, L.P. Six, and Fund Eight A received a .5%, .5%, .5% and 98.5%
interest, respectively, in ICON BF.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
In 2001 the other joint venturers in ICON BF acquired Series C's interest
in accordance with their proportionate shares of ICON BF, at an aggregate cost
of $56,370, which represented Series C's carrying value of the investment. The
Partnership's share of the purchase price was $283. The remaining venturers'
shares in ICON BF were increased to .5025%, .5025%, and 98.995% for the
Partnership, L.P. Six, and Fund Eight A, respectively.
Information as to the financial position and results of operations of ICON
BF as of and for the years ended December 31, 2003 and 2002 is summarized below:
December 31, 2003 December 31, 2002
Assets $ 21,366,282 $ 23,193,438
Liabilities $ 7,314,376 $ 10,583,632
Equity $ 14,051,906 $ 12,609,806
Partnership's share of equity $ 70,611 $ 63,364
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net income $ 1,442,100 $ 1,343,365
Partnership's share of net income $ 7,247 $ 6,750
ICON/AIC Trust
In 1999, ICON/AIC Trust ("AIC Trust") was formed to own and manage a
portfolio of leases for equipment located in England. The Partnership, L.P. Six
and Fund Eight A own 30.76%, 25.51% and 43.73% interests in AIC Trust,
respectively.
On December 28, 2001, AIC Trust sold its remaining leases, subject to the
related debt in exchange for a note receivable of (Pound)2,575,000 ($3,744,822
converted at the exchange rate at December 28, 2001) which is payable in six
installments through June 2004. At December 31, 2003, the remaining amount
receivable is (Pound)750,000 ($1,330,633 converted at the exchange rate at
December 31, 2003).
Information as to the financial position and results of operations of AIC
Trust as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
Assets $ 1,330,632 $ 2,572,522
Liabilities $ - $ -
Equity $ 1,330,632 $ 2,572,522
Partnership's share of equity $ 409,303 $ 791,308
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net income $ 37,009 $ 212,349
Partnership's share of net income $ 11,384 $ 65,319
Distributions $ 1,396,948 $ 1,752,885
Partnership's share of distributions $ 429,701 $ 539,188
ICON Aircraft 24846 LLC
In 2000, the Partnership and two affiliates, Fund Eight A and ICON Income
Fund Eight B L.P. ("Fund Eight B"), formed ICON Aircraft 24846 LLC ("ICON
Aircraft 24846") for the purpose of acquiring an investment in a 767-300 ER
aircraft originally leased to Scandinavian Airline Systems ("SAS") for a
purchase price of $44,515,416. The purchase price was funded with cash of
$2,241,371 and the assumption of non-recourse debt in the amount of $42,274,045.
The lenders have a security interest in the aircraft and an assignment of the
rental payments under the lease. The lease with SAS expired in March 2003, at
which time the balance of the non-recourse debt outstanding was approximately
$34,500,000. The Partnership has been making contributions toward interest only
payments on the outstanding non-recourse debt, during the remarketing of the
aircraft by the General Partner. The Partnership, Fund Eight-A and Fund Eight-B
have ownership interests of 2.0%, 2.0% and 96.0%, respectively, in ICON Aircraft
24846.
Information as to the financial position and results of operations of ICON
Aircraft 24846 as of and for the years ended December 31, 2003 and 2002 is
summarized below:
December 31, 2003 December 31, 2002
Assets $ 36,430,187 $ 39,175,547
Liabilities $ 34,493,632 $ 35,419,214
Equity $ 1,938,555 $ 3,756,333
Partnership's share of equity $ 38,771 $ 75,126
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net (loss) income $ (3,467,329) $ 749,434
Partnership's share of net (loss) income $ (69,347) $ 14,988
Contributions $ 1,649,551 $ -
Partnership's share of contributions $ 32,992 $ -
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
ICON Cheyenne LLC
In December 2000, the Partnership and three affiliates, L.P. Six, Fund
Eight A and Fund Eight B formed ICON Cheyenne LLC ("ICON Cheyenne") for the
purpose of acquiring a portfolio of leases for an aggregate purchase price of
$29,705,716. The purchase price consisted of cash of $11,401,151 and the
assumption of non-recourse debt of $18,304,565. The non-recourse debt is
structured so as to be amortized with rentals due under the leases. The leases
expire on various dates through September 2006. The Partnership, L.P. Six, Fund
Eight A and Fund Eight B have ownership interests of 10.31%, 1.0%, 1.0% and
87.69%, respectively, in ICON Cheyenne.
Information as to the financial position and results of operations of ICON
Cheyenne as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
Assets $ 10,440,643 $ 14,765,333
Liabilities $ 3,204,090 $ 5,141,481
Equity $ 7,236,553 $ 9,623,852
Partnership's share of equity $ 746,088 $ 992,219
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net (loss) income $ (45,540) $ 1,445,607
Partnership's share of (loss) income $ (4,695) $ 149,042
Distributions $ 2,341,759 $ 4,545,920
Partnership's share
of distributions $ 241,436 $ 468,684
North Sea (Connecticut) Limited Partnership
In 2000, a joint venture, North Sea (Connecticut) Limited Partnership
("North Sea"), in which the Partnership is a 50% Class C limited partner,
exercised its option to acquire a drilling rig and simultaneously leased the
drilling rig to the operator. The lease was then financed on a non recourse
basis with a bank and the proceeds were used to pay for the exercise of the
option, with the excess loan proceeds of $20,002,567 distributed to the joint
venturers ($10,001,284 represented the Partnership's 50% share). The other joint
venturers are not affiliates of the Partnership or General Partner.
The Partnership has guaranteed an amount between the stipulated loss value
provided for in the financing and the loan balance. The maximum amount for which
the Partnership is potentially liable at December 31, 2003 under this guarantee
was approximately $103,000.
Information as to the financial position and results of operations of North
Sea as of and for the years ended December 31, 2003 and 2002 is summarized
below:
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
December 31, 2003 December 31, 2002
Assets $ 9,839,209 $ 10,504,336
Liabilities $ 19,574,474 $ 22,983,403
Partners' equity (deficit) $ (9,735,265) $ (12,479,067)
Partnership's share of equity (1) $ 2,679,868 $ 1,307,967
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net income $ 2,743,802 $ 2,298,551
Partnership's share of net income $ 1,371,901 $ 1,149,276
Distributions $ - $ 496,800
Partnership's share of distributions $ - $ 248,400
(1) The Partnership has a positive share of equity due to prior years'
distributions being allocated to the co-venturer.
4. Investments in Estimated Unguaranteed Residual Values
In July 1997, the Partnership entered into an option to acquire the
residual interests in three Boeing 737-300 aircraft currently on lease to
Continental Airlines. The Partnership subsequently exercised its options and
became the owner of the future estimated unguaranteed residual values. The
residual investments cost $20,811,758 and the leases for each aircraft were
scheduled to expire in the fourth quarter of 2003.
On August 29, 2003, the Partnership re-negotiated its investment in the
unguaranteed residual values with AAR Aircraft & Engine Sales Leasing, Inc.
which originally gave the Partnership the rights to purchase three Boeing
737-300 aircraft. The Partnership was originally obligated to repay its
investment cost which had consisted of three promissory notes aggregating
$3,612,091 accruing interest at 8.5% per annum through the maturity date of
November 27, 2003. The modified agreement converted these notes to a single
recourse promissory note of $5,751,009, accruing interest at 5% per annum. The
maturity date has been extended to November 27, 2006. As of December 31, 2003,
the outstanding principal was $5,751,009.
The modification agreement provides the Partnership with an investment in
the unguaranteed residual value of the three aircraft, which was recorded by the
Partnership at $4,686,758. If any or all of the aircraft are sold prior to the
maturity date of the recourse promissory note, then the Partnership may have all
or portion of its then outstanding balance of the recourse promissory note
forgiven. If the aircraft are sold after the maturity date of the recourse
promissory note, then the Partnership would be entitled to receive one-third of
the net proceeds in excess of the net book value of aircraft, as defined by the
modification agreement.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The Partnership also prepaid $500,000 of interest related to the recourse
promissory note during the quarter ended December 31, 2003. In addition, the
Partnership is required to repay a portion of the recourse promissory note with
50% of the sales proceeds from any of its assets which are not subject to senior
secured debt.
5. Net Investment in Leveraged Leases
In August 1996, the Partnership acquired an interest in an aircraft on
lease with Federal Express. The aircraft is a McDonnell Douglas DC-10-30F built
in 1996, and the lease expires in July 2004. The original purchase price was
$40,973,585.
In December 1996, the Partnership and Series E (see Note 3) acquired an
aircraft on lease with Continental Airlines, Inc. The lease was accounted for as
a leveraged lease. The aircraft is a McDonnell Douglas DC-10-30 built in 1976,
and the lease expired in March 2003. The original purchase price was
$11,429,751. On April 1, 2003 the aircraft was leased to World Airways, Inc.,
and the asset was reclassified as an investment in operating leases (see Note
6), at its remaining residual value of $2,565,000.
The net investment in the leveraged leases as of December 31, 2003 and 2002
consisted of the following:
2003 2002 2001
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) $ 5,810,360 $ 10,002,727 $ 10,002,727
Estimated unguaranteed residual values 14,900,000 20,865,000 22,700,000
Initial direct costs, net 29,411 181,010 335,456
Unearned income (1,107,892) (3,171,029) (5,747,283)
$ 19,631,879 $ 27,877,708 $ 27,290,900
During 2003 and 2002, the Company reduced the estimated unguaranteed
residual value of one of the aircraft and recorded impairment provisions of
$3,400,000 and $1,835,000, respectively as a result of management's periodic
review of the Partnership's assets which indicated lower values at lease
termination than initially estimated. The impairment provisions have been
recorded as a reduction in income from leveraged leases. No impairment was
recognized in 2001.
Non-cancelable minimum rents receivable relating to the remaining leveraged
lease at December 31, 2003 are $5,810,360 which are all due through July 2004.
6. Investment in Operating Leases
On April 1, 2003 the Partnership re-leased the McDonnell Douglas DC-10-30
aircraft formerly on lease to Continental Airlines to World Airlines, Inc. on a
power-by-the-hour basis through December 2004.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The investment in operating leases at December 31, 2003 and 2002 consisted
of the following:
2003 2002 2001
Equipment at cost, beginning of the year $ 14,195,791 $ 9,678,415 $ -
Transfer of investment in leverage leases and equipment
held for sale or lease to operating leases 6,352,370 9,647,253 30,137,598
Transfer of operating lease equipment to equipment
held for sale or lease (14,195,791) (5,129,877) (20,459,183)
Equipment at cost, end of year 6,352,370 14,195,791 9,678,415
Accumulated depreciation, beginning of year (1,703,583) (895,169) -
Depreciation expense (5,795,265) (4,769,652) (2,584,622)
Accumulated depreciation transferred to equipment
held for sale or lease 5,884,624 3,961,238 1,689,453
Accumulated depreciation, end of year (1,614,224) (1,703,583) (895,169)
Investment in operating leases, end of year $ 4,738,146 $ 12,492,208 $ 8,783,246
7. Equipment held for sale or lease
The Partnership is the sole owner of two special purpose entities ("SPE's")
that own five marine vessels originally on charter to affiliates of Seacor Smit.
The financial position and results of operations each of the SPE's are
consolidated with the Partnership. These vessels are subject to outstanding
non-recourse debt with a lender. Under the original loan agreements with the
SPE's, all charter revenue was paid to the lender to amortize the outstanding
debt. At the end of the original charter term of each vessel, it was expected
that the individual vessels would either be re-chartered or sold with proceeds
paid to the lender until the debt was fully repaid. Several of the vessels had
been re-chartered during depressed periods of bareboat charter rates. As such,
the lender has not received the full payment and the non-recourse notes have
been declared in default. The total outstanding debt balance as of December 31,
2003 is approximately $7.25 million.
On September 4, 2003, the lender took control of the vessels and commenced
remarketing efforts. The General Partner also continues to look for potential
sale or re-charter opportunities on behalf of the SPE's. The SPE's remains the
titled owner of the vessels and as such are entitled to sale proceeds above the
outstanding debt balance regardless of whether it is the General Partner's or
the lender's remarketing activities that produces a sale. Both the General
Partner and the lender are seeking a sale in line with recent appraised values.
Based upon its recent remarketing efforts and appraisals received by the
Partnership, the General Partner determined that the net book value of the
vessels was in excess of their current market value, and, has recorded a
provision for impairment of $7,850,000 during the year ended December 31, 2003.
The Partnership did not record any impairment in the years 2002 and 2001 on its
investment in operating leases or equipment held for sale or lease.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
8. Receivables Due In Installments
Non-cancelable minimum rental amounts due on finance leases and financings
are all due during the year ending December 31, 2004 or are currently past due.
The allowance for doubtful accounts relating to finance lease receivables
and financings consists of the following:
Amount
Balance at January 1, 2001 $ 1,477,221
Reversal of provision for bad debts (500,000)
Writeoffs (61,236)
Balance at December 31, 2001 915,985
Writeoffs (626,684)
Balance at December 31, 2002 289,301
Write-offs (49,785)
Balance at December 31, 2003 $ 239,516
9. Notes Payable
Notes payable at December 31, 2003 consists of non-recourse obligations of
$23,790,254 and recourse obligations of $12,366,449. The recourse obligations
include (i) $5,751,009 associated with the investment in estimated unguaranteed
residual values (see Note 4), and (ii) $6,615,439 relating to the line of credit
agreement discussed below. The non-recourse notes are secured by the
Partnership's leased equipment, bear interest at rates ranging from 7.9% to 9.5%
per annum.
Notes payable at December 31, 2002 consisted of non-recourse obligations of
$27,186,863 and recourse obligations of $11,582,802.
Included in notes payable - non-recourse is $1,750,000 owed to ICON Cash
Flow Partners L.P., Series D an affiliate of the Partnership. In 1997, the
Partnership financed a portion of the free cash flow relating to a leveraged
lease it owned. The lease expires in July of 2004 at which time all unpaid
amounts will be due to the affiliate. During 2002, the Partnership prepaid
$250,000 of the financing.
Principal maturities of the Partnership's notes payable are as follows:
Year Ending Notes Payable - Note Payable -
December 31, Non-Recourse Recourse Total
2004 $ 13,790,226 $ 6,615,439 $ 20,405,665
2005 - -