Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 | |
| For the fiscal year ended December 31, 2009 | |
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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| SECURITIES EXCHANGE ACT OF 1934 | |
| For the transitional period from _____ to _____ |
Commission
file number: 000-53919
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(Exact
name of registrant as specified in its charter)
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Delaware
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26-3215092
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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100
Fifth Avenue, 4th
Floor
New York,
New York
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10011
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(Address
of principal executive offices)
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(Zip
Code)
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(212)
418-4700
(Registrant’s
telephone number, including area code)
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 if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes
No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes
No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes
No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) 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.
þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer Accelerated filer
Non-accelerated filer þ Smaller
reporting company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes
No þ
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 business day of the registrant’s most recently completed second fiscal
quarter: Not
applicable. There is no established market for
units of limited partnership interests of the
registrant.
Number of
outstanding units of limited partnership interests of the registrant on March
19,
2010 is 96,360.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
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Forward-Looking
Statements
Certain
statements within this Annual Report on Form 10-K may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (“PSLRA”). These statements are being made pursuant to the
PSLRA, with the intention of obtaining the benefits of the “safe harbor”
provisions of the PSLRA, and, other than as required by law, we assume no
obligation to update or supplement such statements. Forward-looking
statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may
predict, forecast, indicate or imply future results, performance, achievements
or events. You can identify these statements by the use of words such
as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,”
“continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and
variations of these words or comparable words or phrases of similar
meaning. These forward-looking statements reflect our current beliefs
and expectations with respect to future events and are based on assumptions and
are subject to risks and uncertainties and other factors outside our control
that may cause actual results to differ materially from those
projected. We undertake no obligation to update publicly or review
any forward-looking statement, whether as a result of new information, future
developments or otherwise.
Our
History
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P. (the “Partnership”)
was formed on August 20, 2008 as a Delaware limited partnership. The
Partnership will continue until December 31, 2020, unless terminated
sooner. When used in this Annual Report on Form 10-K, the terms “we,”
“us,” “our” or similar terms refer to the Partnership and its consolidated
subsidiaries.
Our
general partner is ICON GP 14, LLC, a Delaware limited liability company (the
“General Partner”), which is a wholly-owned subsidiary of ICON Capital Corp., a
Delaware corporation (“ICON Capital”). Our General Partner manages
and controls the business affairs of the Partnership, including, but not limited
to, the business-essential equipment and corporate infrastructure (collectively,
“Capital Assets”) the Partnership invests in pursuant to the terms of the
Partnership’s limited partnership agreement (the “Partnership
Agreement”). Pursuant to the terms of an investment management
agreement, our General Partner has engaged ICON Capital as an investment manager
(the “Investment Manager”) to, among other things, facilitate the acquisition
and servicing of the Partnership’s investments. Additionally, our
General Partner has a 1% interest in the profits, losses, cash distributions and
liquidation proceeds of the Partnership.
We are
currently in our offering period, which commenced on May 18, 2009 and is
anticipated to end no later than May 2011. Our initial capitalization
was $1,001, which consisted of $1 from our General Partner and $1,000 from ICON
Capital. We are offering limited partnership interests (“Interests”)
on a “best efforts” basis with the intention of raising up to $418,000,000 of
capital, consisting of 420,000 Interests, of which 20,000 have been reserved for
our distribution reinvestment plan (the “DRIP Plan”). The DRIP Plan
allows limited partners to purchase Interests with distributions received from
us and/or certain affiliates managed by our Investment Manager at a discounted
price of $900 per Interest. As of December 31, 2009, approximately
830 Interests have been issued in connection with our DRIP Plan. On
June 19, 2009, upon raising the minimum of $1,200,000, limited partners were
admitted.
Our
Business
We
operate as an equipment leasing and finance fund in which the capital our
partners invest is pooled together to make investments in Capital Assets, pay
fees and establish a small reserve. We primarily invest in Capital Assets,
including, but not limited to, Capital Assets that are already subject to lease,
Capital Assets that we purchase and lease to domestic and global businesses,
loans that are secured by Capital Assets, and ownership rights to leased Capital
Assets at lease expiration. In the case of leases where there is significant
current cash flow generated during the primary term of the lease and the value
of the Capital Assets at the end of the term will be minimal or is not
considered a primary reason for making the investment, the rental payments due
under the lease are expected to be, in the aggregate, sufficient to provide a
return of and a return on the purchase price of the leased Capital Assets. In
the case of secured loans and other financing transactions, the principal and
interest payments due under the loan are expected to provide a return of and a
return on the amount we lend to borrowers. We will also make investments in
Capital Assets subject to operating leases and leveraged leases, interests or
options to purchase interests in the residual value of Capital Assets, and other
investments in Capital Assets that we expect will generate enough net proceeds
from either the sale or re-lease of such Capital Assets, as applicable, to
provide a satisfactory rate of return.
We divide
the life of the fund into three distinct phases:
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(1)
Offering Period:
We expect to invest most of the net proceeds from the sale of Interests in
Capital Assets.
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(2)
Operating Period:
After the close of the offering period, we expect to continue to reinvest
the cash generated from our initial investments to the extent that cash is
not needed for our expenses, reserves and distributions to limited
partners. We anticipate that the operating period will extend until five
years from the end of our offering period. However, we may, at
our General Partner’s discretion, extend the operating period for up to an
additional three years.
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(3)
Liquidation
Period: After the operating period, we will then sell our assets in
the ordinary course of business. Our goal is to complete the liquidation
period in two years after the end of the operating period, but it may take
longer to do so.
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At
December 31, 2009 and 2008, we had total assets of $59,567,064 and $1,001,
respectively. For the year ended December 31, 2009, we had two lessees that
accounted for 100% of our total rental income of $1,044,930. We had net loss for
the period ended December 31, 2009 of $1,584,298.
Our
initial closing date was June 19, 2009 (the “Commencement of Operations”), the
date at which we had raised $1,200,000 and limited partners were
admitted. During the period from May 18, 2009 to December 31, 2009,
we sold 68,411 Interests, representing $68,300,139 of capital contributions, and
admitted 2,116 limited partners. In addition, pursuant to the terms of our
offering, we established a reserve in the amount of 0.50% of the gross offering
proceeds from the sale of our Interests. As of December 31, 2009, the reserve is
in the amount of $341,501. Beginning with the Commencement of Operations, we
have paid or accrued sales commissions to third parties. We have also paid or
accrued various fees to our General Partner and its affiliates. For
the period from the Commencement of Operations through December 31, 2009, we
have paid or accrued $4,709,330 of sales commissions to third parties and
$2,026,388 of underwriting fees to ICON Securities Corp., the dealer-manager of
our offering and an affiliate of our General Partner (“ICON Securities”). In
addition, our General Partner and its affiliates, on our behalf, incurred
$1,577,572 of organizational and offering expenses. For the period from the
Commencement of Operations through December 31, 2009, $391,203 of organizational
and offering expenses were recorded as a reduction of partners’
equity.
At
December 31, 2009, our portfolio, which we hold either directly or through joint
ventures, consisted primarily of the following investments:
Telecommunications
Equipment
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We,
through our wholly-owned subsidiary, ICON Global Crossing VI, LLC (“ICON
Global Crossing VI”), own telecommunications equipment that is
subject to two 36-month leases with Global Crossing
Telecommunications, Inc. (“Global Crossing”). The leases
expire in September and November 2012.
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Packaging
Equipment
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We,
through our wholly-owned subsidiary, ICON Exopack, LLC (“ICON Exopack”),
own packaging equipment that is subject to two 60-month leases with
Exopack, LLC (“Exopack”). The leases expire in September 2014
and October 2014.
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Gas
Compressors
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We
have a 45% ownership interest in ICON Atlas, LLC (“ICON Atlas”), which
owns eight Ariel natural gas compressors (“Gas Compressors”) that were
purchased from AG Equipment Co. (“AG”). The Gas Compressors are subject to
48-month leases with Atlas Pipeline Mid-Continent, LLC (“APMC”) that
expire on August 31,
2013.
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Notes
Receivable Secured by Analog Seismic System Equipment
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We
have a 45% ownership interest in ICON ION, LLC (“ICON ION”), which
provided secured term loans (the “ION Loans”) to ARAM Rentals Corporation,
a Canadian bankruptcy remote Nova Scotia unlimited liability company
(“ARC”) and ARAM Seismic Rentals Inc., a U.S. bankruptcy remote Texas
corporation (“ASR,” together with ARC, collectively referred to as the
“ARAM Borrowers”). Interest accrues at the rate of 15% per year
and the ION Loans are payable monthly in arrears for a period of 60 months
beginning on August 1, 2009. The ION Loans are secured by (i) a
first priority security interest in all of the ARAM analog seismic system
equipment owned by the ARAM Borrowers and (ii) a pledge of all of the
equity interests in the ARAM
Borrowers.
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Note
Receivable Secured by Rail Support Construction Equipment
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We
have a 45% ownership interest in ICON Quattro, LLC (“ICON Quattro”), which
participated in a £24,800,000 loan facility by making a second priority
secured term loan (the “Quattro Loan”) to Quattro Plant Limited (“Quattro
Plant”), a wholly-owned subsidiary of Quattro Group Limited. The loan is
secured by (i) all of Quattro Plant’s rail support construction equipment,
which consists of railcars, attachments to railcars, bulldozers,
excavators, tractors, lowboy trailers, street sweepers, service trucks,
forklifts (collectively, the “Construction Equipment”) and any other
existing or future asset owned by Quattro Plant, (ii) all of Quattro
Plant’s accounts receivable, and (iii) a mortgage over certain real estate
in London, England owned by the majority shareholder of Quattro
Plant. In addition, ICON Quattro will receive a key man
insurance policy insuring the life of the majority shareholder of ICON
Quattro in an amount not less than £5,500,000 and not more than
£5,800,000. Interest accrues at the rate of 20% per year and the Quattro
Loan will be repaid over a period of 33 months commencing on January 1,
2010.
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For a
discussion of the significant transactions that we engaged in during the years
ended December 31, 2009 and 2008, please refer to “Item 7. General Partner’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Segment
Information
We are
engaged in one business segment, the business of investing in Capital Assets,
including, but not limited to, Capital Assets that are already subject to lease,
Capital Assets that we purchase and lease to domestic and global businesses,
loans that are secured by Capital Assets and ownership rights to leased Capital
Assets at lease expiration.
Competition
The
commercial leasing and financing industry is highly competitive and is
characterized by competitive factors that vary based upon product and geographic
region. Our competitors are varied and include other equipment leasing and
finance funds, hedge funds, captive and independent finance companies,
commercial and industrial banks, manufacturers and vendors. Competition from
both traditional competitors and new market entrants has intensified in recent
years due to growing marketplace liquidity and increasing recognition of the
attractiveness of the commercial leasing and finance industry.
Other
equipment finance companies and equipment manufacturers or their affiliated
financing companies may be in a position to offer equipment to prospective
customers on financial terms that are more favorable than those that we can
offer. There are numerous other potential entities, including entities organized
and managed similarly to us, seeking to make investments in Capital Assets. Many
of these potential competitors are larger and have greater financial resources
than us.
We
compete primarily on the basis of pricing, terms and structure, particularly on
structuring flexible, responsive, and customized financing solutions for our
customers. Our investments are often made directly rather than through
competition in the open market. This approach limits the competition for our
typical investment, which may enhance returns. We believe our investment model
may represent the best way for individual investors to participate in investing
in Capital Assets. Nevertheless, to the extent that our competitors compete
aggressively on any combination of the foregoing factors, we could fail to
achieve our investment objectives. For additional information about our
competition and other risks related to our operations, please see “Item 1A. Risk
Factors.”
Employees
We have
no direct employees. Our General Partner and/or our Investment
Manager supervise and control our business affairs and originate and service our
investments.
Available
Information
Our
Annual Report on Form 10-K, our most recent Quarterly Reports on Form 10-Q and
any amendments to those reports and our Current Reports on Form 8-K and any
amendments to those reports are available free of charge on our Investment
Manager’s internet website at http://www.iconcapital.com as soon as reasonably
practicable after such reports are electronically filed with or furnished to the
Securities and Exchange Commission (the “SEC”). The information contained on our
Investment Manager’s website is not deemed part of this Annual Report on Form
10-K. Our reports are also available on the SEC’s website at http://www.sec.gov.
Financial
Information Regarding Geographic Areas
We have
long-lived assets, which include finance leases and operating leases, and we
generate revenues in geographic areas outside of the United States. For
additional information, see Note 8 to our consolidated financial
statements.
We are
subject to a number of risks. Careful consideration should be given
to the following risk factors, in addition to the other information included in
this Annual Report. The risks and uncertainties described below are not the only
ones we may face. Each of these risk factors could adversely affect
our business operating results and/or financial condition, as well as adversely
affect the value of an investment in our Interests. In addition to
the following disclosures, please refer to the other information contained in
this Annual Report including the consolidated financial statements and the
related notes.
General
Investment Risks
All
or a substantial portion of your distributions may be a return of capital and
not a return on capital, which will not necessarily be indicative of our
performance.
The
portion of total distributions that is a return of capital and the portion that
is economic return will depend upon a number of factors that cannot be
determined until all of our investments have been sold or otherwise matured. At
that time, you will be able to compare the total amount of all cash
distributions you receive to your total capital invested in order to determine
your economic return.
The
Internal Revenue Service (the “IRS”) may deem the majority of your distributions
to be a return of capital for tax purposes during our early years. Distributions
would be deemed to be a return of capital for tax purposes to the extent that we
are distributing cash in an amount greater than our taxable income. The fact
that the IRS deems distributions to be a return of capital in part and we report
an adjusted tax basis to you on Form K-1 is not an indication that we are
performing greater than or less than expectations and cannot be utilized to
forecast what your final return might be.
Your
ability to resell your Interests is limited by the absence of a public trading
market and, therefore, you should be prepared to hold your Interests for the
life of the fund, which is anticipated to be approximately nine
years.
We do not
anticipate that a public market will develop for our Interests, our Interests
will not be listed on any national securities exchange at any time, and we will
take steps to assure that no public trading market develops for our Interests.
In addition, our Partnership Agreement imposes significant restrictions on your
right to transfer your Interests.
We have
established these restrictions to comply with federal and State securities laws
and so that we will not be considered to be a publicly traded partnership that
is taxed as a corporation for federal income tax purposes. Your ability to sell
or otherwise transfer your Interests is extremely limited and will depend on
your ability to identify a buyer. Thus, you will probably not be able to sell or
otherwise liquidate your Interests in the event of an emergency and if you were
able to arrange a sale, the price you receive would likely be at a substantial
discount to the price you paid for your Interests.
As a
result, you must view your investment in our Interests as a long-term, illiquid
investment that may last for up to nine years.
If
you choose to request that we repurchase your Interests, you may receive
significantly less than you would receive if you were to hold your Interests for
the life of the fund.
After you
have been admitted as a limited partner and have held your Interests for at
least one year, you may request that we repurchase up to all of your Interests.
We are under no obligation to do so, however, and will have only limited cash
available for this purpose. If we repurchase your Interests, the repurchase
price has been unilaterally set and, depending upon when you request repurchase,
the repurchase price may be less than the unreturned amount of your investment.
If your Interests are repurchased, the repurchase price may provide you a
significantly lower value than the value you would realize by retaining your
Interests for the duration of the fund.
You
may not receive cash distributions every month and, therefore, you should not
rely on any income from your Interests.
You
should not rely on the cash distributions from your Interests as a source of
income. While we intend to make monthly cash distributions, we may determine it
is in our limited partners’ best interest to periodically change the amount of
the cash distributions you receive or not make any distributions in some months.
Losses from our operations of the types described in these risk factors and
unexpected liabilities could result in a reduced level of distributions to you.
Additionally, during the liquidation period, although we expect that lump sums
will be distributed from time to time if and when financially significant assets
are sold, regularly scheduled distributions will decrease because there will be
fewer investments available to generate cash flow.
Your
Interests may be diluted.
Some
investors, including our General Partner and its officers, directors and other
affiliates, may have purchased or may purchase Interests at discounted prices
and generally will share in our revenues and distributions based on the number
of Interests that they purchase, rather than the discounted subscription price
paid by them for their Interests. As a result, investors who pay discounted
prices for their investments will receive higher returns on their investments in
us as compared to investors who pay the entire $1,000 per Interest.
Our
assets may be plan assets for ERISA purposes, which could subject our General
Partner and/or our Investment Manager to additional restrictions on their
ability to operate our business.
The
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the
Internal Revenue Code of 1986, as amended (the “Code”) may apply what is known
as the look-through rule to an investment in our Interests. Under that rule, the
assets of an entity in which a qualified plan or IRA has made an equity
investment may constitute assets of the qualified plan or IRA. If you are a
fiduciary of a qualified plan or IRA, you should consult with your advisors and
carefully consider the effect of that treatment if that were to occur. If the
look-through rule were to apply, our General Partner and/or our Investment
Manager may be viewed as an additional fiduciary with respect to the qualified
plan or IRA to the extent of any decisions relating to the undivided interest in
our assets represented by the Interests held by such qualified plan or IRA. This
could result in some restriction on our General Partner’s and/or our Investment
Manager’s willingness to engage in transactions that might otherwise be in the
best interest of all Interest holders due to the strict rules of ERISA regarding
fiduciary actions.
An
investment in our Interests may not satisfy the requirements of ERISA or other
applicable laws.
When
considering an investment in our Interests, an individual with investment
discretion over assets of any pension plan, profit-sharing plan, retirement
plan, IRA or other employee benefit plan covered by ERISA or other applicable
laws should consider whether the investment satisfies the requirements of
Section 404 of ERISA or other applicable laws. In particular, attention should
be paid to the diversification requirements of Section 404(a)(1)(C) of ERISA in
light of all the facts and circumstances, including the portion of the plan’s
portfolio of which the investment will be a part. All plan investors should also
consider whether the investment is prudent and meets plan liquidity requirements
as there are significant restrictions on the ability to sell or otherwise
dispose of our Interests, and whether the investment is permissible under the
plan’s governing instrument. We have not, and will not, evaluate whether an
investment in our Interests is suitable for any particular plan. Rather, we will
accept subscribers as limited partners if a subscriber otherwise meets our
suitability standards. In addition, we can provide no assurance that any
statements of estimated value of our Interests will not be subject to challenge
by the IRS if used for any tax (income, estate, gift or otherwise) valuation
purposes as an indicator of the fair value of the Interests.
The
statements of value that we include in this Annual Report on Form 10-K and
future Annual Reports on Form 10-K and that we will send to fiduciaries of plans
subject to ERISA and to certain other parties is only an estimate and may not
reflect the actual value of our Interests.
The
statements of estimated value are based on the estimated value of each Interest
(i) as of the close of our fiscal year, for the annual statements included in
this and future Annual Reports on Form 10-K and (ii) as of September 30 of each
fiscal year, for annual statements sent to fiduciaries of plans subject to ERISA
and certain other parties. Management, in part, will rely upon third-party
sources and advice in arriving at this estimated value. No independent
appraisals on the particular value of our Interests will be obtained and the
value will be based upon an estimated fair market value as of the referenced
date for such value. Because this is only an estimate, we may subsequently
revise any valuation that is provided. We cannot assure that:
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this estimate of value could actually be realized by us or by our limited partners upon liquidation; |
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limited
partners could realize this estimate of value if they were to attempt to
sell their Interests;
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this
estimate of value reflects the price or prices that our Interests would or
could trade at if they were listed on a national stock exchange or
included for quotation on a national market system, because no such market
exists or is likely to develop; or
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the
statement of value, or the method used to establish value, complies with
any reporting and disclosure or valuation requirements under ERISA, Code
requirements or other applicable
law.
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Business
Risks
Our
business could be hurt by economic downturns.
Our
business is affected by a number of economic factors, including the level of
economic activity in the markets in which we operate. A decline in economic
activity in the United States or internationally could materially affect our
financial condition and results of operations. The equipment leasing and
financing industry is influenced by factors such as interest rates, inflation,
employment rates and other macroeconomic factors over which we have no control.
Any decline in economic activity as a result of these factors typically results
in a decrease in the number of transactions in which we participate and in our
profitability.
Uncertainties
associated with the equipment leasing and financing industry may have an adverse
effect on our business and may adversely affect our ability to give you any
economic return from our Interests or a complete return of your
capital.
There are
a number of uncertainties associated with the equipment leasing and financing
industry that may have an adverse effect on our business and may adversely
affect our ability to make cash distributions to you that will, in total, be
equal to a return of all of your capital, or provide for any economic return
from our Interests. These include:
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fluctuations in demand for Capital Assets and fluctuations in interest rates and inflation rates; |
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fluctuations
in the availability and cost of credit for us to borrow to make and/or
realize on some of our investments;
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the
continuing economic life and value of Capital Assets at the time our
investments mature;
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the
technological and economic obsolescence of Capital
Assets;
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potential defaults by lessees, borrowers or other counterparties; |
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supervision
and regulation by governmental authorities, including the approval from
certain State securities authorities for our continuing the offering of
our Interests for more than one year after it commences;
and
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increases
in our expenses, including taxes and insurance
expenses.
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The
risks and uncertainties associated with the industries of our lessees,
borrowers, and other counterparties may indirectly affect our business,
operating results and financial condition.
We are
indirectly subject to a number of uncertainties associated with the industries
of our lessees, borrowers, and other counterparties. We invest in a pool of
Capital Assets by, among other things, acquiring Capital Assets subject to
lease, purchasing Capital Assets and leasing Capital Assets to third-party end
users, financing Capital Assets for third-party end users, acquiring ownership
rights to items of leased Capital Assets at lease expiration, and acquiring
interests or options to purchase interests in the residual value of Capital
Assets. The lessees, borrowers, and other counterparties to these transactions
operate in a variety of industries. As such, we are indirectly subject to the
various risks and uncertainties that affect our lessees’, borrowers’, and other
counterparties’ businesses and operations. If such risks or uncertainties were
to affect our lessees, borrowers, or other counterparties, we may indirectly
suffer a loss on our investment, lose future revenues or experience adverse
consequences to our business, operating results and financial
condition.
Instability
in the credit markets could have a material adverse effect on our results of
operations, financial condition and ability to meet our investment
objectives.
If debt
financing is not available on terms and conditions we find acceptable, we may
not be able to obtain financing for some of our investments. Recently, domestic
and international financial markets have experienced unusual volatility and
uncertainty. If this volatility and uncertainty persists, our ability to borrow
to finance the acquisition of some of our investments could be significantly
impacted. If we are unable to borrow on terms and conditions that we find
acceptable, we may have to reduce the number of and possibly limit the type of
investments we will make, and the return on some of the investments we do make
could be lower. All of these events could have a material adverse effect on our
results of operations, financial condition and ability to meet our investment
objectives.
Because
we may borrow money to make our investments, losses as a result of lessee,
borrower or other counterparty defaults may be greater than if such borrowings
were not incurred.
Although
we acquired some of our investments for cash, we may in the future borrow a
substantial portion of the purchase price of certain of our investments and
there is no limit to the amount of indebtedness that we may incur when making
our investments. While we believe the use of leverage will result in more
investments with less risk than if leverage is not utilized, there can be no
assurance that the benefits of greater size and diversification of our portfolio
will offset the heightened risk of loss in an individual investment using
leverage. With respect to non-recourse borrowings, if we are unable to pay our
debt service obligations because a lessee, borrower or other counterparty
defaults, a lender could foreclose on the investment securing the non-recourse
indebtedness. This could cause us to lose all or part of our investment or could
force us to meet debt service payment obligations so as to protect our
investment subject to such indebtedness and prevent it from being subject to
repossession.
Additionally,
while we expect the majority of our borrowings to be non-recourse, we are
jointly and severally liable for recourse indebtedness incurred under a
revolving line of credit facility with California Bank & Trust (“CB&T”)
that is secured by certain of our assets that are not otherwise pledged to other
lenders. CB&T has a security interest in such assets and the right to sell
those assets to pay off the indebtedness if we default on our payment
obligations. This recourse indebtedness may increase our risk of loss because we
must meet the debt service payment obligations regardless of the revenue we
receive from the investment that is subject to such secured
indebtedness.
Restrictions
imposed by the terms of our indebtedness may limit our financial
flexibility.
We,
together with certain of our affiliates, entities managed by our Investment
Manager, specifically ICON Income Fund Eight B L.P. (“Fund Eight B”), ICON
Income Fund Nine, LLC (“Fund Nine”), ICON Income Fund Ten, LLC (“Fund Ten”),
ICON Leasing Fund Eleven, LLC (“Fund Eleven”) and ICON Leasing Fund Twelve, LLC
(“Fund Twelve”), are party to a revolving line of credit agreement with
CB&T, as amended. The terms of that agreement could restrict us from paying
distributions to our limited partners if such payments would cause us to not be
in compliance with our financial covenants in that agreement. For additional
information on the terms of our credit agreement, see “Item 7. General Partner’s
Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources.”
Guarantees
made by the guarantors of some of our lessees, borrowers and other
counterparties may be voided under certain circumstances and we may be required
to return payments received from such guarantors.
Under
federal bankruptcy law and comparable provisions of State fraudulent transfer
laws, a guarantee could be voided, or claims in respect of a guarantee could be
subordinated to all other debts of that guarantor if, among other things, the
guarantor, at the time it incurred the indebtedness evidenced by its
guarantee:
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received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and |
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was
insolvent or rendered insolvent by reason of such incurrence;
or
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was
engaged in a business or transaction for which the guarantor’s remaining
assets constituted unreasonably small capital;
or
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intended
to incur, or believed that it would incur, debts beyond its ability to pay
such debts as they mature.
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In
addition, any payment by that guarantor pursuant to its guarantee could be
voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The
measures of insolvency for purposes of these fraudulent transfer laws will vary
depending upon the law applied in any proceeding to determine whether a
fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
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the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; |
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if
the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
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it
could not pay its debts as they become
due.
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We cannot
assure you as to what standard a court would apply in making these
determinations or that a court would agree with our conclusions in this regard.
We also cannot make any assurances as to the standards that courts in foreign
jurisdictions may use or that courts in foreign jurisdictions will take a
position similar to that taken in the United States.
If
the value of our investments declines more rapidly than we anticipate, our
financial performance may be adversely affected.
A
significant part of the value of a significant portion of the Capital Assets
that we invest in is expected to be the potential value of the Capital Assets
once the lease term expires (with respect to leased Capital Assets). Generally,
a Capital Asset is expected to decline in value over its useful life. In making
these types of investments, we assume a residual value for the Capital Assets at
the end of the lease or other investment that, at maturity, is expected to be
enough to return the cost of our investment in the Capital Assets and provide a
rate of return despite the expected decline in the value of the Capital Assets
over the term of the investment. However, the actual residual value of the
Capital Assets at maturity and whether that value meets our expectations will
depend to a significant extent upon the following factors, many of which are
beyond our control:
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our ability to acquire or enter into agreements that preserve or enhance the relative value of the Capital Assets; |
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our
ability to maximize the value of the Capital Assets at
maturity;
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market
conditions prevailing at maturity;
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the
cost of new Capital Assets at the time we are remarketing used Capital
Assets;
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the extent to which technological or regulatory developments reduce the market for such used Capital Assets; |
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the
strength of the economy; and
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the
condition of the Capital Assets at
maturity.
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We cannot
assure you that our assumptions with respect to value will be accurate or that
the Capital Assets will not lose value more rapidly than we
anticipate.
If
a Capital Asset is not properly maintained, its residual value may be less than
expected.
If a
lessee or other counterparty fails to maintain Capital Assets in accordance with
the terms of our agreements, we may have to make unanticipated expenditures to
repair the Capital Assets in order to protect our investment. In addition, some
of the Capital Assets we invest in may be used Capital Assets. While we plan to
inspect most used Capital Assets prior to making an investment, there is no
assurance that an inspection of a used Capital Asset prior to purchasing it will
reveal any or all defects and problems with the Capital Asset that may occur
after it is acquired by us.
We
typically obtain representations from the sellers and lessees of used Capital
Assets that:
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the Capital Assets have been maintained in compliance with the terms of applicable agreements; |
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that
neither the seller nor the lessee is in violation of any material terms of
such agreements; and
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the
Capital Assets are in good operating condition and repair and that, with
respect to leases, the lessee has no defenses to the payment of rent for
the Capital Assets as a result of the condition of such Capital
Assets.
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We would
have rights against the seller of Capital Assets for any losses arising from a
breach of representations made to us and against the lessee for a default under
the lease. However, we cannot assure you that these rights would make us whole
with respect to our entire investment in the Capital Assets or our expected
returns on the Capital Assets, including legal costs, costs of repair and lost
revenue from the delay in being able to sell or re-lease the Capital Assets due
to undetected problems or issues. These costs and lost revenue could negatively
affect our liquidity and cash flows, and could negatively affect our
profitability if we are unable to recoup such costs from the lessee or other
third parties.
If
a lessee, borrower or other counterparty defaults on its obligations to us, we
could incur losses.
We may
enter into transactions with parties that have senior debt rated below
investment grade or no credit ratings. We do not require such parties to have a
minimum credit rating. Lessees, borrowers, and other counterparties with lower
or no credit ratings may default on payments to us more frequently than lessees,
borrowers or other counterparties with higher credit ratings. For example, if a
lessee does not make lease payments to us or to a lender on our behalf or a
borrower does not make loan payments to us when due, or violates the terms of
its contract in another important way, we may be forced to terminate our
agreements with such parties and attempt to recover the Capital Assets. We may
do this at a time when we may not be able to arrange for a new lease or to sell
our investment right away, if at all. We would then lose the expected revenues
and might not be able to recover the entire amount or any of our original
investment. The costs of recovering Capital Assets upon a lessee’s or borrower’s
default, enforcing the obligations under the contract, and transporting,
storing, repairing, and finding a new lessee or purchaser for the Capital Assets
may be high and may negatively affect the value of our investment in the Capital
Assets. These costs could also negatively affect our liquidity and cash flows,
and could negatively affect our profitability.
If
a lessee, borrower or other counterparty files for bankruptcy, we may have
difficulty enforcing the terms of the contract and may incur
losses.
If a
lessee, borrower or other counterparty files for protection under the bankruptcy
laws, the remaining term of the lease, loan or other financing contract could be
shortened or the contract could be rejected by the bankruptcy court, which could
result in, among other things, any unpaid pre-bankruptcy lease, loan or other
contractual payments being cancelled as part of the bankruptcy proceeding. We
may also experience difficulties and delays in recovering Capital Assets from a
bankrupt lessee or borrower that is involved in a bankruptcy proceeding or has
been declared bankrupt by a bankruptcy court. If a contract is rejected in a
bankruptcy, we would bear the cost of retrieving and storing the Capital Assets
and then have to remarket such Capital Assets. In addition, the bankruptcy court
would treat us as an unsecured creditor for any amounts due under the lease,
loan or other contract. These costs and lost revenues could also negatively
affect our liquidity and cash flows and could negatively affect our
profitability.
We
may invest in options to purchase Capital Assets that could become worthless if
the option grantor files for bankruptcy.
We may
acquire options to purchase Capital Assets, usually for a fixed price at a
future date. In the event of a bankruptcy by the party granting the option, we
might be unable to enforce the option or recover the option price paid, which
could negatively affect our profitability.
Investing
in Capital Assets in foreign countries may be riskier than domestic investments
and may result in losses.
While we
expect to make investments in Capital Assets in the United States with domestic
parties, we also expect to make investments in Capital Assets for use by
domestic or foreign parties outside of the United States. We may have difficulty
enforcing our rights under foreign transaction documents. In addition, we may
have difficulty repossessing our Capital Assets if a foreign party defaults and
enforcement of our rights outside the United States could be more expensive.
Moreover, foreign jurisdictions may confiscate our Capital Assets. Use of
Capital Assets in a foreign country will be subject to that country’s tax laws,
which may impose unanticipated taxes. While we seek to require lessees,
borrowers, and other counterparties to reimburse us for all taxes imposed on the
use of the Capital Assets and require them to maintain insurance covering the
risks of confiscation of the Capital Assets, we cannot assure you that we will
be successful in doing so or that insurance reimbursements will be adequate to
allow for recovery of and a return on foreign investments.
In
addition, we may invest in Capital Assets that may travel to or between
locations outside of the United States. Regulations in foreign countries may
adversely affect our interest in Capital Assets in those countries. Foreign
courts may not recognize judgments obtained in U.S. courts and different
accounting or financial reporting practices may make it difficult to judge the
financial viability of a lessee, borrower or other counterparty, heightening the
risk of default and the loss of our investment in such Capital Assets, which
could have a material adverse effect on our results of operations and financial
condition.
In
addition to business uncertainties, our investments may be affected by
political, social, and economic uncertainty affecting a country or region. Many
financial markets are not as developed or as efficient as those in the U.S. and,
as a result, liquidity may be reduced and price volatility may be higher. The
legal and regulatory environment may also be different, particularly with
respect to bankruptcy and reorganization. Financial accounting standards and
practices may also differ and there may be less publicly available information
with respect to such companies. While our General Partner and Investment Manager
consider these factors when making investment decisions, no assurance can be
given that we will be able to fully avoid these risks or generate sufficient
risk-adjusted returns.
We
could incur losses as a result of foreign currency fluctuations.
We have
the ability to invest in Capital Assets where payments to us are not made in
U.S. dollars. In these cases, we may then enter into a contract to protect these
payments from fluctuations in the currency exchange rate. These contracts, known
as hedge contracts, would allow us to receive a fixed number of U.S. dollars for
any fixed, periodic payments due under the transactional documents even if the
exchange rate between the U.S. dollar and the currency of the transaction
changes over time. If the payments to us were disrupted due to default by the
lessee, borrower or other counterparty, we would try to continue to meet our
obligations under the hedge contract by acquiring the foreign currency
equivalent of the missed payments, which may be available at unfavorable
exchange rates. If a transaction is denominated in a major foreign currency such
as the pound sterling, which historically has had a stable relationship with the
U.S. dollar, we may consider hedging to be unnecessary to protect the value of
the payments to us, but our assumptions concerning currency stability may turn
out to be incorrect. Our investment returns could be reduced in the event of
unfavorable currency fluctuation when payments to us are not made in U.S.
dollars.
Furthermore,
when we acquire a residual interest in foreign Capital Assets, we may not be
able to hedge our foreign currency exposure with respect to the value of such
residual interests because the terms and conditions of such hedge contracts
might not be in the best interests of our limited partners. Even with
transactions requiring payments in U.S. dollars, the Capital Assets may be sold
at maturity for an amount that cannot be pre-determined to a buyer paying in a
foreign currency. This could positively or negatively affect our income from
such a transaction when the proceeds are converted into U.S.
dollars.
Sellers
of leased Capital Assets could use their knowledge of the lease terms for gain
at our expense.
We may
acquire Capital Assets subject to lease from leasing companies that have an
ongoing relationship with the lessees. A seller could use its knowledge of the
terms of the lease, particularly the end of lease options and date the lease
ends, to compete with us. In particular, a seller may approach a lessee with an
offer to substitute similar Capital Assets at lease end for lower rental
amounts. This may adversely affect our opportunity to maximize the residual
value of the Capital Assets and potentially negatively affect our
profitability.
Investment
in joint ventures may subject us to risks relating to our co-investors that
could adversely impact the financial results of such joint
ventures.
We have
the ability to invest in joint ventures with other businesses our Investment
Manager and its affiliates manage, as well as with unrelated third parties.
Investing in joint ventures involves additional risks not present when acquiring
leased Capital Assets that will be wholly owned by us. These risks include the
possibility that our co-investors might become bankrupt or otherwise fail to
meet financial commitments, thereby obligating us to pay all of the debt
associated with the joint venture, as each party to a joint venture may be
required to guarantee all of the joint venture’s obligations. Alternatively, the
co-investors may have economic or business interests or goals that are
inconsistent with our investment objectives and want to manage the joint venture
in ways that do not maximize our return. Among other things, actions by a
co-investor might subject leases that are owned by the joint venture to
liabilities greater than those contemplated by the joint venture agreement.
Also, when none of the joint owners control a joint venture, there might be a
stalemate on decisions, including when to sell the Capital Assets or the prices
or terms of a lease. Finally, while we typically have the right to buy out the
other joint owner’s interest in the Capital Assets in the event of the sale, we
may not have the resources available to do so. These risks could negatively
affect our profitability and could result in legal and other costs, which would
negatively affect our liquidity and cash flows.
We
may not be able to obtain insurance for certain risks and would have to bear the
cost of losses from non-insurable risks.
Capital
Assets may be damaged or lost. Fire, weather, accidents, theft or other events
can cause damage or loss of Capital Assets. While our transaction documents
generally require lessees and borrowers to have comprehensive insurance and
assume the risk of loss, some losses, such as from acts of war, terrorism or
earthquakes, may be either uninsurable or not economically feasible to insure.
Furthermore, not all possible liability claims or contingencies affecting
Capital Assets can be anticipated or insured against, and, if insured, the
insurance proceeds may not be sufficient to cover a loss. If such a disaster
occurs to the Capital Assets, we could suffer a total loss of any investment in
the affected Capital Assets. In investing in some types of Capital Assets, we
may be exposed to environmental tort liability. Although we use our best efforts
to minimize the possibility and exposure of such liability including by means of
attempting to obtain insurance, we cannot assure you that our assets will be
protected against any such claims. These risks could negatively affect our
profitability and could result in legal and other costs, which would negatively
affect our liquidity and cash flows.
We
could suffer losses from failure to maintain our Capital Assets’ registration
and from unexpected regulatory compliance costs.
Many
types of transportation assets are subject to registration requirements by U.S.
governmental agencies, as well as foreign governments if such Capital Assets are
to be used outside of the United States. Failing to register the Capital Assets,
or losing such registration, could result in substantial penalties, forced
liquidation of the Capital Assets and/or the inability to operate and lease the
Capital Assets. Governmental agencies may also require changes or improvements
to Capital Assets and we may have to spend our own funds to comply if the
lessee, borrower or other counterparty is not required to do so under the
transaction documents. These changes could force the Capital Assets to be
removed from service for a period of time. The terms of the transaction
documents may provide for payment reductions if the Capital Assets must remain
out of service for an extended period of time or are removed from service. We
may then have reduced income from our investment for these Capital Assets. If we
do not have the funds to make a required change, we might be required to sell
the affected Capital Assets. If so, we could suffer a loss on our investment,
lose future revenues and experience adverse tax consequences.
If
any of our investments become subject to usury laws, we could have reduced
revenues or possibly a loss on such investments.
In
addition to credit risks, we may be subject to other risks in Capital Asset
financing transactions in which we are deemed to be a lender. For example,
equipment leases have sometimes been held by U.S. courts to be loan transactions
subject to State usury laws, which limit the interest rate that can be charged.
Uncertainties in the application of some laws may result in inadvertent
violations that could result in reduced investment returns or, possibly, loss on
our investment in the affected Capital Assets. Although part of our business
strategy is to enter into or acquire leases that we believe are structured so
that they avoid being deemed loans, and would therefore not be subject to usury
laws, we cannot assure you that we will be successful in doing so. In addition,
as part of our business strategy, we also make or acquire secured loans, which
are also subject to usury laws and, while we attempt to structure these to avoid
being deemed in violation of usury laws, we cannot assure you that we will be
successful in doing so. Loans at usurious interest rates are subject to a
reduction in the amount of interest due under such loans and, if an equipment
lease or secured loan is held to be a loan with a usurious rate of interest, the
amount of the lease or loan payment could be reduced and adversely affect our
revenue.
State
laws determine what rates of interest are deemed usurious, when the applicable
rate of interest is determined, and how it is calculated. In addition, some U.S.
courts have also held that certain lease and loan features, such as equity
interests, constitute additional interest. Although we generally seek assurances
and/or opinions to the effect that our transactions do not violate applicable
usury laws, a finding that our transactions violate usury laws could result in
the interest obligation to us being declared void and we could be liable for
damages and penalties under applicable law. We cannot assure you as to what
standard a court would apply in making these determinations or that a court
would agree with our conclusions in this regard. We also cannot make any
assurances as to the standards that courts in foreign jurisdictions may use or
that courts in foreign jurisdictions will take a position similar to that taken
in the United States.
We
compete with a variety of financing sources for our investments, which may
affect our ability to achieve our investment objectives.
The
commercial leasing and financing industry is highly competitive and is
characterized by competitive factors that vary based upon product and geographic
region. Our competitors are varied and include other equipment leasing and
finance funds, hedge funds, captive and independent finance companies,
commercial and industrial banks, manufacturers and vendors. Competition from
both traditional competitors and new market entrants has intensified in recent
years due to growing marketplace liquidity and increasing recognition of the
attractiveness of the commercial leasing and finance industry.
We
compete primarily on the basis of pricing, terms and structure. To the extent
that our competitors compete aggressively on any combination of those factors,
we could fail to achieve our investment objectives.
Some of
our competitors are substantially larger and have considerably greater
financial, technical and marketing resources than either we or our General
Partner and its affiliates have. For example, some competitors may have a lower
cost of funds and access to funding sources that are not available to us. A
lower cost of funds could enable a competitor to offer leases or loans at rates
that are less than ours, potentially forcing us to lower our rates or lose
potential lessees, borrowers or other counterparties.
Organization
and Structure Risks
You
have limited voting rights and are required to rely on our General Partner
and/or our Investment Manager to make all of our investment decisions and
achieve our investment objectives.
Our
General Partner and/or our Investment Manager will make all of our investment
decisions, including determining the investments and dispositions we make. Our
success will depend upon the quality of the investment decisions our General
Partner and/or our Investment Manager makes, particularly relating to our
investments in Capital Assets and the realization of such investments. You are
not permitted to take part in managing, establishing or changing our investment
objectives or policies. Accordingly, you should not invest unless you are
willing to entrust all aspects of our management to our General Partner and/or
our Investment Manager.
The
decisions of our General Partner and our Investment Manager may be subject to
conflicts of interest.
The
decisions of our General Partner and our Investment Manager may be subject to
various conflicts of interest arising out of their relationship to us and their
affiliates. Our General Partner and our Investment Manager could be confronted
with decisions where either or both will, directly or indirectly, have an
economic incentive to place its respective interests or the interests of its
affiliates above ours. As of December 31, 2009, our Investment Manager, an
affiliate of our General Partner, is managing seven other equipment leasing and
finance funds. See “Item 13. Certain Relationships and Related Transactions, and
Director Independence.” These conflicts may include:
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our Investment Manager may receive more fees for making investments if we incur indebtedness to fund these investments than if indebtedness is not incurred; |
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our
Partnership Agreement does not prohibit our General Partner or any of its
affiliates from competing with us for investments and engaging in other
types of business;
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our
Investment Manager may have opportunities to earn fees for referring a
prospective investment opportunity to
others;
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the
dealer-manager, which is an affiliate of our General Partner and not an
independent securities firm, reviewed and performed due diligence and will
continue to review and perform due diligence on us and the information in
our prospectus and thus its review cannot be considered an independent
review and may not be as meaningful as a review conducted by an
unaffiliated broker-dealer;
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the lack of separate legal representation for us, our General Partner, and our Investment Manager and lack of arm’s-length negotiations regarding compensation payable to our General Partner and our Investment Manager; |
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our
General Partner is our tax matters partner and is able to negotiate with
the IRS to settle tax disputes that would bind us and our limited partners
that might not be in your best interest given your individual tax
situation; and
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our
General Partner and/or our Investment Manager can make decisions as to
when and whether to sell a jointly-owned asset when the co-owner is
another business it manages.
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The
Investment Committee of our Investment Manager is not independent.
Any
conflicts in determining and allocating investments between us and our General
Partner or Investment Manager, or between us and another fund managed by our
General Partner or Investment Manager, are resolved by our Investment Manager’s
investment committee, which also serves as our investment committee and the
investment committee for other funds managed by our Investment Manager and its
affiliates. Since all of the members of our Investment Manager’s investment
committee are officers of our General Partner and our Investment Manager and
certain of their affiliates and are not independent, matters determined by such
investment committee, including conflicts of interest between us and our General
Partner, our Investment Manager and their respective affiliates involving
investment opportunities, may not be as favorable to you and our other investors
as they would be if independent members were on the committee. Generally, if an
investment is appropriate for more than one fund, our Investment Manager’s
investment committee will allocate the investment to a fund (which includes us)
after taking into consideration at least the following factors:
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whether the fund has the cash required for the investment; |
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whether
the amount of debt to be incurred with respect to the investment is
acceptable for the fund;
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the
effect the investment would have on the fund’s cash
flow;
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whether
the investment would further diversify, or unduly concentrate, the fund’s
investments in a particular lessee/borrower, class or type of Capital
Asset, location, industry, etc.;
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whether the term of the investment is within the term of the fund; and |
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which
fund has been seeking investments for the longest period of
time.
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Notwithstanding
the foregoing, our Investment Manager’s investment committee may make exceptions
to these general policies when, in our Investment Manager’s judgment, other
circumstances make application of these policies inequitable or economically
undesirable. In addition, our Partnership Agreement permits our General Partner
and its affiliates to engage in Capital Asset acquisitions, financing secured
loans, refinancing, leasing and releasing opportunities on their own behalf or
on behalf of other funds even if they compete with us.
Our
General Partner’s and our Investment Manager’s officers and employees manage
other businesses and will not devote their time exclusively to managing us and
our business.
We do not
and will not employ our own full-time officers, managers or employees. Instead,
our General Partner and/or our Investment Manager will supervise and control our
business affairs. Our General Partner’s officers and employees are also officers
and employees of our Investment Manager and our Investment Manager’s officers
and employees will also be spending time supervising the affairs of other
equipment leasing and finance funds it manages. Therefore, such officers and
employees devote and will devote the amount of time that they think is necessary
to conduct our business, which may not be the same amount of time that would be
devoted to us if we had separate officers and employees.
Our
General Partner and its affiliates will receive expense reimbursements and
substantial fees from us and those reimbursements and fees are likely to exceed
the income portion of distributions made to you during our early
years.
Before
making any distributions to our limited partners, we will reimburse our General
Partner and its affiliates for expenses incurred on our behalf, and pay our
General Partner and its affiliates substantial fees, for our organization,
selling our Interests and acquiring, managing, and realizing our investments for
us. The expense reimbursements and fees of our General Partner and its
affiliates were established by our General Partner in compliance with the NASAA
Guidelines (the North American Securities Administrators Association guidelines
for publicly offered, finite-life equipment leasing and finance funds) in effect
on the date of our prospectus, are not based on arm’s-length negotiations, but
are subject to the limitations set forth in our Partnership Agreement.
Nevertheless, the amount of these expense reimbursements and fees is likely to
exceed the income portion of distributions made to you in our early
years.
In
general, expense reimbursements and fees are paid without regard to the amount
of our cash distributions to our limited partners, and regardless of the success
or profitability of our operations. Some of those fees and expense
reimbursements will be required to be paid as we acquire our portfolio and we
may pay other expenses, such as accounting and interest expenses, costs for
supplies, etc., even though we may not yet have begun to receive revenues from
all of our investments. This lag between the time when we must pay fees and
expenses and the time when we receive revenues may result in losses to us during
our early years, which our General Partner believes is typical for a start-up
company such as us.
Furthermore,
we are likely to borrow a significant portion of the purchase price of our
investments. This use of indebtedness should permit us to make more investments
than if borrowings were not utilized. As a consequence, we will pay greater fees
to our Investment Manager than if no indebtedness were incurred because
management and acquisition fees are based upon the gross payments earned or
receivable from, or the purchase price (including any indebtedness incurred) of,
our investments. Also, our General Partner and/or our Investment Manager will
determine the amount of cash reserves that we will maintain for future expenses,
contingencies or investments. The reimbursement of expenses, payment of fees or
creation of reserves could adversely affect our ability to make distributions to
our limited partners.
Our
Investment Manager may have difficulty managing its growth, which may divert its
resources and limit its ability to expand its operations
successfully.
The
amount of assets that our Investment Manager manages has grown substantially
since our Investment Manager was formed in 1985 and our Investment Manager and
its affiliates intend to continue to sponsor and manage, as applicable, funds
similar to us that may be concurrent with us and they expect to experience
further growth in their respective assets under management. Our Investment
Manager’s future success will depend on the ability of its and its affiliates’
officers and key employees to implement and improve their operational, financial
and management controls, reporting systems and procedures, and manage a growing
number of assets and investment funds. They, however, may not implement
improvements to their management information and control systems in an efficient
or timely manner and they may discover deficiencies in their existing systems
and controls. Thus, our Investment Manager’s anticipated growth may place a
strain on its administrative and operations infrastructure, which could increase
its costs and reduce its efficiency and could negatively impact our operations,
business and financial condition.
Operational
risks may disrupt our business and result in losses.
We may
face operational risk from errors made in the execution, confirmation or
settlement of transactions. We may also face operational risk from our
transactions not being properly recorded, evaluated or accounted for. We rely
heavily on our Investment Manager’s financial, accounting, and other software
systems. If any of these systems fail to operate properly or become disabled, we
could suffer financial loss and a disruption of our business.
In
addition, we are highly dependent on our Investment Manager’s information
systems and technology. There can be no assurance that these information systems
and technology will be able to accommodate our growth or that the cost of
maintaining such systems will not increase from its current level. Such a
failure to accommodate growth, or an increase in costs related to such
information systems, could also negatively affect our liquidity and cash flows,
and could negatively affect our profitability.
Furthermore,
we depend on the headquarters of our General Partner and Investment Manager,
which are located in New York City, for the operation of our business. A
disaster or a disruption in the infrastructure that supports our businesses,
including a disruption involving electronic communications or other services
used by us or third parties with whom we conduct business, or directly affecting
our headquarters, may have an adverse impact on our ability to continue to
operate our business without interruption that could have a material adverse
effect on us. Although we have disaster recovery programs in place, there can be
no assurance that these will be sufficient to mitigate the harm that may result
from such a disaster or disruption. In addition, insurance and other safeguards
might only partially reimburse us for any losses.
Finally,
we rely on third-party service providers for certain aspects of our business,
including certain accounting and financial services. Any interruption or
deterioration in the performance of these third parties could impair the quality
of our operations and could adversely affect our business and result in
losses.
Our
internal controls over financial reporting may not be effective or our
independent registered public accounting firm may not be able to certify as to
their effectiveness, which could have a significant and adverse effect on our
business.
Our
General Partner is required to evaluate our internal controls over financial
reporting in order to allow management to report on, and if and when required,
our independent registered public accounting firm to attest to, our internal
controls over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations of the SEC
thereunder, which we refer to as ‘‘Section 404.’’ During the course of testing,
our General Partner may identify deficiencies that it may not be able to
remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404. We cannot be
certain as to the timing of completion of our evaluation, testing and any
remediation actions or the impact of the same on our operations. If we are not
able to complete our annual evaluations required by Section 404 in a
timely manner or with adequate compliance, we may be subject to sanctions or
investigation by regulatory authorities, such as the SEC. As a result, we may be
required to incur costs in improving our internal control system and the hiring
of additional personnel. Any such action could negatively affect our results of
operations and the achievement of our investment objectives.
We
are subject to certain reporting requirements and are required to file certain
periodic reports with the SEC.
We are
subject to reporting requirements under the Securities Exchange Act of 1934,
including the filing of quarterly and annual reports. Prior public funds
sponsored by our Investment Manager have been and are subject to the same
requirements. Some of these funds have been required to amend previously filed
reports to, among other things, restate the audited or unaudited financial
statements filed in such reports. As a result, the prior funds have been
delinquent in filing subsequent quarterly and annual reports when they became
due. If we experience delays in the filing of our reports, our limited partners
may not have access to timely information concerning us, our operations, and our
financial results.
Your
ability to institute a cause of action against our General Partner and its
affiliates is limited by our Partnership Agreement.
Our
Partnership Agreement provides that neither our General Partner nor any of its
affiliates will have any liability to us for any loss we suffer arising out of
any action or inaction of our General Partner or an affiliate if the General
Partner or affiliate determined, in good faith, that the course of conduct was
in our best interests and did not constitute negligence or misconduct. As a
result of these provisions in our Partnership Agreement, your right to institute
a cause of action against our General Partner may be more limited than it would
be without these provisions.
General
Tax Risks
If
the IRS classifies us as a corporation rather than a partnership, your
distributions would be reduced under current tax law.
We did
not and will not apply for an IRS ruling that we will be classified as a
partnership for federal income tax purposes. Although counsel rendered an
opinion to us at the time of our offering that we will be taxed as a
partnership and not as a corporation, that opinion is not binding on the IRS and
the IRS has not ruled on any federal income tax issue relating to us. If the IRS
successfully contends that we should be treated as a corporation for federal
income tax purposes rather than as a partnership, then:
|
·
|
our realized losses would not be passed through to you; |
|
·
|
our
income would be taxed at tax rates applicable to corporations, thereby
reducing our cash available to distribute to you;
and
|
|
·
|
your
distributions would be taxed as dividend income to the extent of current
and accumulated earnings and
profits.
|
In
addition, we could be taxed as a corporation if we are treated as a publicly
traded partnership by the IRS. To minimize this possibility, our Partnership
Agreement places significant restrictions on your ability to transfer our
Interests.
We
could lose cost recovery or depreciation deductions if the IRS treats our leases
as sales or financings.
We expect
that, for federal income tax purposes, we will be treated as the owner and
lessor of the Capital Assets that we lease. However, the IRS may challenge the
leases and instead assert that they are sales or financings. If the IRS
determines that we are not the owner of our leased Capital Assets, we would not
be entitled to cost recovery, depreciation or amortization deductions, and our
leasing income might be deemed to be portfolio income instead of passive
activity income. The denial of such cost recovery or amortization deductions
could cause your tax liabilities to increase.
Our
investments in secured loans will not give rise to depreciation or cost recovery
deductions and may not be offset against our passive activity losses. Any losses
on such loans may constitute capital losses, the deductibility of which is
limited.
We expect
that, for federal income tax purposes, we will not be treated as the owner and
lessor of the Capital Assets that we invest in through our lending activities.
As a result, we will not be able to take depreciation or cost recovery
deductions with respect to such Capital Assets. Depending on our level of
activity with respect to these types of financings, we may take the position
that we are in the trade or business of lending. Generally, trade or business
income can be considered passive activity income. However, because we expect
that the source of funds we lend to others will be the capital contributed by
our partners and the funds generated from our operations (rather than money we
borrow from others), you may not be able to offset your share of our passive
activity losses from our leasing activities with your share of our interest
income from our lending activities. Instead, your share of our interest income
from our lending activities would be taxed as portfolio income. Alternatively,
we (or the IRS) may treat our lending activities as investment activities and
not trade or business activities if our level of lending activity is not
significant. In such circumstances, gains or losses from the loans could not be
offset against passive activity gain or loss and any such losses would be
capital losses that, except to a limited extent, could only be deducted to the
extent you have capital gains.
You
may incur tax liability in excess of the cash distributions you receive in a
particular year.
In any
particular year, your tax liability from owning our Interests may exceed the
cash distributions you receive from this investment. While we expect that your
net taxable income from owning our Interests for most years will be less than
your cash distributions in those years, to the extent any of our debt is repaid
with income or proceeds from Capital Asset sales, taxable income could exceed
the amount of cash distributions you receive in those years. Additionally, a
sale of our investments may result in taxes in any year that are greater than
the amount of cash from the sale, resulting in a tax liability in excess of cash
distributions. Your tax liability could also exceed the amount of cash
distributions you receive due to allocations designed to cause our limited
partners’ capital accounts (as adjusted by certain items) to be equal on a per
Interest basis. Therefore, you will have to pay any excess tax liability with
funds from another source, because the distributions we make may not be
sufficient to pay such excess tax liability. Further, due to the operation of
the various loss disallowance rules, in a given tax year you may have taxable
income when, on a net basis, we have a loss, or you may recognize a greater
amount of taxable income than our net income because, due to a loss
disallowance, income from some of our activities cannot be offset by losses from
some of our other activities.
You
may be subject to greater income tax obligations than originally anticipated due
to special depreciation rules.
We may
acquire Capital Assets subject to lease that the Code requires us to depreciate
over a longer period than the standard depreciation period. Similarly, some of
the Capital Assets that we purchase may not be eligible for accelerated
depreciation under the Modified Accelerated Costs Recovery System, which was
established by the Tax Reform Act of 1986 to set forth the guidelines for
accelerated depreciation under the Code. Further, if we acquire Capital Assets
that the Code deems to be tax-exempt use property and the leases do not satisfy
certain requirements, losses attributable to such Capital Assets are suspended
and may be deducted only against income we receive from those Capital Assets or
when we dispose of such Capital Assets. Depending on the Capital Assets that we
acquire and their eligibility for accelerated depreciation under the Code, we
may have less depreciation deductions to offset gross lease revenue, thereby
increasing our taxable income.
There
are limitations on your ability to deduct our losses.
Your
ability to deduct your share of our losses is limited to the amounts that you
have at risk from owning our Interests. This is generally the amount of your
investment, plus any profit allocations and minus any loss allocation and
distributions. This determination is further limited by a tax rule that applies
the at-risk-rules on an activity by activity basis, further limiting losses from
a specific activity to the amount at risk in that activity. Based on the tax
rules, we expect that we will have multiple activities for purposes of the
at-risk rules. Specifically, our lending activities must be analyzed separately
from our leasing activities, and our leasing activities must be further divided
into separate year-by-year groups according to the tax year the Capital Assets
are placed in service. As such, you cannot aggregate income and loss from our
separate activities for purposes of determining your ability to deduct your
share of our losses under the at-risk rules.
Additionally,
your ability to deduct losses attributable to passive activities is restricted.
Some of our operations will constitute passive activities and you can only use
our losses from such activities to offset passive activity income in calculating
tax liability. Furthermore, passive activity losses may not be used to offset
portfolio income. As stated above, we expect our lending activities to generate
portfolio income from the interest we receive, even though the income may be
attributable to a lending trade or business. Any gains or losses we recognize
from those lending activities that are associated with a trade or business are
generally allowable as either passive activity income or loss, as applicable.
Gains and losses we recognize from lending activities not associated with a
trade or business pass through as capital gains and losses and can be offset by
other capital gains and losses you may have.
The
IRS may allocate more taxable income to you than our Partnership Agreement
provides.
The IRS
might successfully challenge our allocations of taxable income or losses. If so,
the IRS would require reallocation of our taxable income and loss, resulting in
an allocation of more taxable income or less loss to you than our Partnership
Agreement allocates.
If
you are a tax-exempt organization, you will have unrelated business taxable
income from this investment.
Tax-exempt
organizations are subject to income tax on unrelated business taxable income
(“UBTI”). Such organizations are required to file federal income tax returns if
they have UBTI from all sources in excess of $1,000 per year. Our leasing income
will constitute UBTI. Furthermore, tax-exempt organizations in the form of
charitable remainder trusts will be subject to an excise tax equal to 100% of
their UBTI. Thus, an investment in our Interests may not be appropriate for a
charitable remainder trust and such entities should consult their own tax
advisors with respect to an investment in our Interests.
To the
extent that we borrow money in order to finance our lending activities, a
portion of our income from such activities will be treated as attributable to
debt-financed property and, to the extent so attributable, will constitute UBTI.
We presently do not expect to finance our lending activities with borrowed
funds. Nevertheless, the debt-financed UBTI rules are broad and there is much
uncertainty in determining when, and the extent to which, property should be
considered debt-financed. Thus, the IRS might assert that a portion of the
assets we acquire as part of our lending activities are debt-financed property
generating UBTI, especially with regard to any indebtedness we incur to fund
working capital at a time when we hold loans we have acquired or made to others.
If the IRS were to successfully assert that debt we believed should have been
attributed to our leasing activities should instead be attributed to our lending
activities, the amount of our income that constitutes UBTI would be
increased.
This
investment may cause you to pay additional taxes.
You may
be required to pay alternative minimum tax in connection with owning our
Interests, since you will be allocated a proportionate share of our tax
preference items. Our General Partner’s and/or our Investment Manager’s
operation of our business affairs may lead to other adjustments that could also
increase your alternative minimum tax. In addition, if all or a portion of our
lending activities are not generated from a trade or business, then a portion of
our management fees and other costs related to those investments could be
considered investment expenses rather than trade or business expenses. To the
extent that a portion of our fees are considered investment expenses, they are
not deductible for alternative minimum tax purposes and are subject to a
limitation for regular tax purposes. Alternative minimum tax is treated in the
same manner as the regular income tax for purposes of making estimated tax
payments.
You
may incur State tax and foreign tax liabilities and have an obligation to file
State or foreign tax returns.
You may
be required to file tax returns and pay foreign, State or local taxes, such as
income, franchise or personal property taxes, as a result of an investment in
our Interests, depending upon the laws of the jurisdictions in which the Capital
Assets that we own are located.
Any
adjustment to our tax return as a result of an audit by the IRS may result in
adjustment to your tax return.
If we
adjust our tax return as a result of an IRS audit, such adjustment may result in
an examination of other items in your returns unrelated to us, or an examination
of your tax returns for prior years. You could incur substantial legal and
accounting costs in contesting any challenge by the IRS, regardless of the
outcome. Further, because you will be treated for federal income tax purposes as
a partner in a partnership by investing in our Interests, an audit of our tax
return could potentially lead to an audit of your individual tax return.
Finally, under certain circumstances, the IRS may automatically adjust your
personal return without the opportunity for a hearing if it adjusts our tax
return.
Some
of the distributions on our Interests will be a return of capital, in whole or
in part, which will complicate your tax reporting and could cause unexpected tax
consequences at liquidation.
As we
depreciate our investments in leased Capital Assets over the term of our
existence and/or borrowers repay loans we have made to them, it is very likely
that a portion of each distribution will be considered a return of capital,
rather than income. Therefore, the dollar amount of each distribution should not
be considered as necessarily being all income to you. As your capital in our
Interests is reduced for tax purposes over the life of your investment, you will
not receive a lump sum distribution upon liquidation that equals the purchase
price you paid for our Interests, such as you might expect if you had purchased
a bond. Also, payments made upon our liquidation will be taxable to the extent
that such payments are not a return of capital.
As you
receive distributions throughout the life of your investment, you will not know
at the time of the distribution what portion of the distribution represents a
return of capital and what portion represents income. The Schedule K-1 statement
you receive from us each year will specify the amounts of capital and income you
received throughout the prior year.
None.
We
neither own nor lease office space or any other real property in our business at
the present time.
In the
ordinary course of conducting our business, we may be subject to certain claims,
suits, and complaints filed against us. In our General Partners’s
opinion, the outcome of such matters, if any, will not have a material impact on
our consolidated financial position or results of operations. We are
not aware of any material legal proceedings that are currently pending against
us or against any of our assets.
Our
Interests are not publicly traded and there is no established public trading
market for our Interests. It is unlikely that any such market will
develop.
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Number
of Partners
|
|
|
Title of Class
|
as of March 19, 2010
|
|
General
Partner
|
1
|
|
Limited
partners
|
2,874
|
We, at
our General Partner’s discretion, pay monthly distributions to each of our
limited partners beginning the first month after each such limited partner is
admitted through the end of our operating period, which we currently anticipate
will be in May 2016. We paid distributions to limited partners
totaling $964,235 for the period from the Commencement of Operations through
December 31, 2009. Additionally, we paid our General Partner distributions of
$9,636 for the period from the Commencement of Operations through December 31,
2009. The terms of our loan agreement with CB&T, as amended, could restrict
us from paying cash distributions to our partners if such payment would cause us
to not be in compliance with our financial covenants. See “Item 7. General
Partner’s Discussion and Analysis of Financial Condition and Results of
Operations – Liquidity and Capital Resources.”
In order
for Financial Industry Regulatory Authority, Inc. (“FINRA”) members and their
associated persons to participate in the offering and sale of Interests pursuant
to the offering or to participate in any future offering of our Interests, we
are required pursuant to FINRA Rule 2310(b)(5) to disclose in each annual report
distributed to our limited partners a per Interest estimated value of our
Interests, the method by which we developed the estimated value, and the date
used to develop the estimated value. In addition, our Investment Manager
prepares statements of our estimated Interest values to assist fiduciaries of
retirement plans subject to the annual reporting requirements of ERISA in the
preparation of their reports relating to an investment in our
Interests. For these purposes, the estimated value of our Interests
is deemed to be $1,000 per Interest as of December 31, 2009. This
estimated value is provided to assist plan fiduciaries in fulfilling their
annual valuation and reporting responsibilities and should not be used for any
other purpose. Because this is only an estimate, we may subsequently
revise this valuation.
During
the offering of our Interests, the value of our Interests is estimated to be the
offering price of $1,000 per Interest (without regard to purchase price
discounts for certain categories of purchasers), as adjusted for any special
distribution of net sales proceeds. Our Interests are currently being
offered and no special distribution of net sales proceeds has been made;
therefore, the value of our Interests is estimated to be $1,000 per
Interest.
Following
the termination of the offering of our Interests, the estimated value of our
Interests is based on the estimated amount that a holder of an Interest would
receive if all of our assets were sold in an orderly liquidation as of the close
of our fiscal year and all proceeds from such sales, without reduction for
transaction costs and expenses, together with any cash held by us, were
distributed to the partners upon liquidation. To estimate the amount
that our partners would receive upon such liquidation, we calculate the sum
of: (i) the unpaid finance lease and note receivable payments on our
existing finance leases and notes receivable, discounted at the implicit yield
for each such transaction, (ii) the fair market value of our operating leases,
equipment held for sale or lease, and other assets, as determined by the most
recent third-party appraisals we have obtained for certain assets or our
Investment Manager’s estimated values of certain other assets, as applicable,
and (iii) our cash on hand. From this amount, we then subtract our
total debt outstanding and then divide that sum by the total number of Interests
outstanding.
The
foregoing valuation is an estimate only. The appraisals that we
obtain and the methodology utilized by our management in estimating our per
Interest value are subject to various limitations and are based on a number of
assumptions and estimates that may or may not be accurate or complete. No
liquidity discounts or discounts relating to the fact that we are currently
externally managed were applied to our estimated per Interest valuation, and no
attempt was made to value us as an enterprise.
As noted
above, the foregoing valuation was performed solely for the ERISA and FINRA
purposes described above and was based solely on our Investment Manager’s
perception of market conditions and the types and amounts of our assets as of
the reference date for such valuation and should not be viewed as an accurate
reflection of the value of our Interests or our assets. Except for independent
third-party appraisals of certain assets, no independent valuation was sought.
In addition, as stated above, as there is no significant public trading market
for our Interests at this time and none is expected to develop, there can be no
assurance that limited partners could receive $1,000 per Interest if such a
market did exist and they sold their Interests or that they will be able to
receive such amount for their Interests in the future. Furthermore, there can be
no assurance:
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as
to the amount limited partners may actually receive if and when we seek to
liquidate our assets or the amount of lease and note receivable payments
and asset disposition proceeds we will actually receive over our remaining
term; the total amount of distributions our limited partners may receive
may be less than $1,000 per Interest primarily due to the fact that the
funds initially available for investment were reduced from the gross
offering proceeds in order to pay selling commissions, underwriting fees,
organizational and offering expenses, and acquisition or formation
fees;
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that
the foregoing valuation, or the method used to establish value, will
satisfy the technical requirements imposed on plan fiduciaries under
ERISA; or
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·
|
that
the foregoing valuation, or the method used to establish value, will not
be subject to challenge by the IRS if used for any tax (income, estate,
gift or otherwise) valuation purposes as an indicator of the current value
of the Interests.
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The
repurchase price we offer in our repurchase plan utilizes a different
methodology than that which we use to determine the current value of our
Interests for the ERISA and FINRA purposes described above and, therefore, the
$1,000 per Interest does not reflect the amount that a limited partner would
currently receive under our repurchase plan. In addition, there can
be no assurance that a limited partner will be able to redeem its Interests
under our repurchase plan.
From
January 1, 2010 through March 26, 2010, we received additional capital
contributions in the amount of $30,036,795. For the period from January 1, 2010
through March 26, 2010, we have paid or accrued sales commissions to unrelated
third parties of $2,027,694 and underwriting commissions to ICON Securities of
$871,481. In addition, organizational and offering expenses in the amount of
$141,305 were paid or incurred by us, our General Partner or its affiliates
during this period. Net offering proceeds to us after deducting the expenses
described were $26,996,315. See the disclosure under “Recent Significant
Transactions” in Item 7 for a discussion of the investments that we have made
with our net offering proceeds.
The
selected financial data should be read in conjunction with the consolidated
financial statements and related notes included in “Item 8. Consolidated
Financial Statements and Supplementary Data” contained elsewhere in this Annual
Report on Form 10-K.
|
Period from June 19, 2009 (Commencement of
Operations) through December 31, 2009
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||||
|
Total
revenue
|
$ | 1,761,154 | ||
|
Net
loss
|
$ | (1,584,298 | ) | |
|
Net
loss allocable to Limited Partners
|
$ | (1,568,455 | ) | |
|
Net
loss allocable to General Partner
|
$ | (15,843 | ) | |
|
Weighted
average number of limited
|
||||
|
partnership
interests outstanding
|
32,161 | |||
|
Net
loss per weighted average
|
||||
|
limited
partnership interest
|
$ | (48.77 | ) | |
|
Distributions
to limited partners
|
$ | 964,235 | ||
|
Distributions
per weighted average
|
||||
|
limited
partnership interest
|
$ | 29.98 | ||
|
Distributions
to the General Partner
|
$ | 9,636 | ||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Total
assets
|
$ | 59,567,064 | $ | 1,001 | ||||
|
Partners'
equity
|
$ | 58,615,050 | $ | 1,001 | ||||
Our General Partner’s Discussion and
Analysis of Financial Condition and Results of Operations relates to our
consolidated financial statements and should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Annual Report
on Form 10-K. Statements made in this section may be considered
forward-looking. These statements are not guarantees of future
performance and are based on current expectations and assumptions that are
subject to risks and uncertainties. Actual results could differ
materially because of these risks and assumptions, including, among other
things, factors discussed in “Part I. Forward-Looking Statements” and “Item 1A.
Risk Factors” located elsewhere in this Annual Report on Form
10-K.
Overview
We
operate as an equipment leasing and finance fund in which the capital our
partners invested is pooled together to make investments in Capital Assets, pay
fees and establish a small reserve. We commenced operations on June
19, 2009. We will use a substantial portion of the proceeds from the
sale of our Interests to invest in Capital Assets, including, but not limited
to, Capital Assets that are already subject to lease, Capital Assets that we
purchase and lease to domestic and global businesses, loans that are secured by
Capital Assets, and ownership rights to leased Capital Assets at lease
expiration. After these proceeds have been invested, it is anticipated that
additional investments will be made with the cash generated from our initial
investments to the extent that cash is not needed for our expenses, reserves and
distributions to limited partners. The investment in additional Capital Assets
in this manner is called “reinvestment.” We anticipate investing and reinvesting
in Capital Assets from time to time for five years from the date we complete the
offering. This time frame is called the “operating period” and may be extended,
at our General Partner’s discretion, for up to an additional three years. After
the operating period, we will then sell our assets in the ordinary course of
business, during a time frame called the “liquidation period.”
We will
seek to make investments in Capital Assets that we believe will provide our
investors with a satisfactory rate of return on their investment from (a)
current cash flow generated by the payment of rent in the case of leases and
principal and/or interest in the case of secured loans, (b) deferred cash flow
from the realization of the value of the Capital Assets or interests therein at
the maturity of the investment or the exercise of an option to purchase Capital
Assets or (c) a combination of both.
With
respect to (a) above, we will seek to make investments in Capital Assets subject
to lease and in secured loans with lessees and borrowers, respectively, that we
believe to be creditworthy based on such lessees’ and borrowers’ financial
position, business, industry, and the underlying value of the Capital Assets. In
our opinion, this increases the probability that all of the scheduled rental or
loan payments, as applicable, will be paid when due. In the case of leases where
there is significant current cash flow generated during the primary term of the
lease and the value of the Capital Assets at the end of the term will be minimal
or is not considered a primary reason for making the investment, the rental
payments due under the lease are expected to be, in the aggregate, sufficient to
provide a return of and a return on the purchase price of the leased Capital
Assets. In the case of secured loans, the principal and interest payments due
under the loan are expected to provide a return of and a return on the amount we
lend to borrowers.
With
respect to (b) above, we will seek to make investments in Capital Assets subject
to operating leases and leveraged leases, interests or options to purchase
interests in the residual value of Capital Assets, and other investments in
Capital Assets that we expect will generate enough net proceeds from either the
sale or re-lease of such Capital Assets, as applicable, to provide a
satisfactory rate of return. In the case of these types of investments, we will
seek to make investments in Capital Assets that decline in value at a slow rate
due to the long economic life of such assets. In the case of operating leases
(leases where there is limited cash flow during the primary term of the lease
and the value of the Capital Assets at the end of the term was the primary
reason for making the investment), most, if not all, of the return of and return
on that investment will generally be realized upon the sale or re-lease of the
Capital Assets. In the case of leveraged leases (leases where a substantial
portion of the cash flow and potentially a portion of the residual value has
been pledged to a lender on a non-recourse basis and the value will be realized
upon the sale or re-lease of the Capital Assets), the rental income received in
cash will be less than the purchase price of the Capital Assets because we will
structure these transactions to utilize some or all of the lease rental payments
to reduce the amount of non-recourse indebtedness used to acquire such assets.
In our experience, the residual value may provide a return of and a return on
the purchase price of the equipment even if all rental payments received during
the initial term were paid to a lender.
In some
cases with respect to the above investments, we may acquire equity interests, as
well as warrants or other rights to acquire equity interests in the borrower or
lessee, which may increase our expected return on our investment.
Our
General Partner manages and controls our business affairs, including, but not
limited to, our investments in Capital Assets, under the terms of our
Partnership Agreement. Our Investment Manager, an affiliate of our General
Partner, will originate and service our investments. Our Investment Manager also
sponsored and manages seven other equipment leasing and finance
funds.
We are
currently in our offering period, which commenced on May 18, 2009 and is
anticipated to end no later than May 2011. The minimum offering of
$1,200,000 was achieved on June 19, 2009, the Commencement of Operations. From
the Commencement of Operations through December 31, 2009, we raised total equity
of $68,300,139. Investors from the Commonwealth of Pennsylvania and the State of
Tennessee were not admitted until we raised total equity in the amount of
$20,000,000, which we achieved on August 27, 2009.
Current
Business Environment and Outlook
Recent
trends indicate that domestic and global equipment financing volume is
correlated to overall business investments in equipment, which are typically
impacted by general economic conditions. As the economy slows or builds
momentum, the demand for productive equipment generally slows or builds and
equipment financing volume generally decreases or increases, depending on a
number of factors. These factors include the availability of liquidity to
provide equipment financing and/or provide it on terms satisfactory to
borrowers, lessees, and other counterparties, as well as the desire to upgrade
equipment and/or expand operations during times of growth, but also in times of
recession in order to, among other things, seize the opportunity to obtain
competitive advantage over distressed competitors and/or increase business as
the economy recovers.
Industry
Trends Prior to the Recent “Credit Crisis”
The U.S.
economy experienced a downturn from 2001 through 2003, resulting in a decrease
in equipment financing volume during that period. From 2004 through most of
2007, however, the economy in the United States and the global economy in
general experienced significant growth, including growth in business investment
in equipment and equipment financing volume. According to information
provided by the Equipment Leasing and Finance Foundation, a non-profit
foundation dedicated to providing research regarding the equipment leasing and
finance industry (“ELFF”), based on information from the United States
Department of Commerce Bureau of Economic Analysis and Global Insight, Inc., a
global forecasting company, total domestic business investment in equipment and
software increased annually from approximately $922 billion in 2002 to
approximately $1,205 billion in 2006 and 2007. Similarly, during the same
period, total domestic equipment financing volume increased from approximately
$515 billion in 2002 to approximately $684 billion in 2007.
According
to the World Leasing Yearbook
2010, which was published by Euromoney Institutional Investor PLC, global
equipment leasing volume increased annually from approximately $462 billion in
2002 to approximately $760 billion in 2007. The most significant source of that
increase was due to increased volume in Europe, Asia, and South America. For
example, during the same period, total equipment leasing volume in Europe
increased from approximately $162 billion in 2002 to approximately $367 billion
in 2007, total equipment leasing volume in Asia increased from approximately $71
billion in 2002 to approximately $119 billion in 2007, and total equipment
leasing volume in South America increased from approximately $3 billion in 2002
to approximately $41 billion in 2007. It is believed that global business
investment in equipment, and global equipment financing volume, including
equipment loans and other types of equipment financing, increased as well during
the same period.
Current
Industry Trends
In
general, the U.S. and global credit markets have deteriorated significantly over
the past two years. The U.S. economy entered into a recession in December 2007
and global credit markets continue to experience dislocation and
tightening. Many financial institutions and other financing providers have
failed or significantly reduced financing operations, creating both uncertainty
and opportunity in the finance
industry.
Commercial
and Industrial Loan Trends. According
to information provided by the U.S. Federal Deposit Insurance Corporation
(“FDIC”), the change in the volume of outstanding commercial and industrial
loans issued by FDIC-insured institutions started to decline dramatically
beginning in the fourth quarter of 2007. Thereafter, the change in volume
turned negative for the first time since 2002 in the fourth quarter of 2008,
with reductions of approximately $61 billion between the last quarter of 2008
and the first quarter of 2009, approximately $68 billion between the first and
second quarters of 2009, and approximately $89 billion between the second and
third quarters of 2009.
While
some of the reduction is due to voluntary and involuntary deleveraging by
corporate borrowers, some of the other main factors cited for the decline in
outstanding commercial lending and financing volume include the
following:
|
·
|
lack
of liquidity to provide new financing and/or
refinancing;
|
|
·
|
heightened
credit standards and lending criteria (including ever-increasing spreads,
fees, and other costs, as well as lower advance rates and shorter tenors,
among other factors) that have hampered some demand for and issuance of
new financing and/or refinancing;
|
|
·
|
net
charge offs of and write-downs on outstanding financings;
and
|
|
·
|
many
lenders being sidetracked from providing new lending by industry
consolidation, management of existing portfolios and relationships, and
amendments (principally covenant relief and “amend and
extend”).
|
In
addition, the volume of issuance of high yield bonds and, to a lesser extent,
investment grade bonds has risen significantly over the past few quarters, a
significant portion of the proceeds of which have been used to pay down and/or
refinance existing commercial and industrial loans. As a result of all of
these factors affecting the commercial and industrial finance segment of the
finance industry, financial institutions and other financing providers with
liquidity to provide financing can do so selectively, at higher spreads and
other more favorable terms than have been available in many years. As
noted below, this trend in the wider financing market is also prevalent in the
specific market for equipment financing.
Equipment Financing Trends.
According
to information provided by the Equipment Leasing and Finance Association, an
equipment finance trade association and affiliate of ELFF (“ELFA”), total
domestic business investment in equipment and software decreased to $1,187
billion in 2008. Similarly, during the same period, total domestic
equipment financing volume decreased to $671 billion in 2008. Global business
investment in equipment, and global equipment financing volume, decreased as
well during the same period. According to the World Leasing Yearbook 2010, global equipment
leasing volume decreased to approximately $644 billion in 2008. For 2009,
domestic business investment in equipment and software is forecasted to drop to
an estimated $1,011 billion with a corresponding decrease in equipment financing
volume to an estimated $518 billion. Nevertheless, ELFA projects that
domestic investment in equipment and software and equipment financing volume
will begin to recover in 2010, with domestic business investment in equipment
and software projected to increase to an estimated $1,108 billion in 2010 and
$1,255 billion in 2011 and corresponding increases in equipment financing volume
to an estimated $583 billion in 2010 and $668 billion in
2011.
Prior to
the recent credit crisis, a substantial portion of equipment financing was
provided by the leasing and lending divisions of commercial and industrial
banks, large independent leasing and finance companies, and captive and vendor
leasing and finance companies. These institutions (i) generally provided
financing to companies seeking to lease small ticket and micro ticket equipment,
(ii) used credit scoring methodologies to underwrite a lessee’s
creditworthiness, and (iii) relied heavily on the issuance of commercial paper
and/or lines of credit from other financial institutions to finance new
business. Many of these financial institutions and other financing providers
have failed or significantly reduced their financing operations. By
contrast, we (i) focus on financing middle- to large-ticket, business-essential
equipment and other capital assets, (ii) generally underwrite and structure such
financing in a manner similar to providers of senior indebtedness (i.e., our
underwriting includes both creditworthiness and asset due diligence and
considerations and our structuring often includes guarantees, equity pledges,
warrants, liens on related assets, etc.), and (iii) are not significantly
reliant on receiving outside financing to meet our investment objectives. In
short, in light of the tightening of the credit markets, our Investment Manager
in its role as the sponsor and manager of other equipment financing funds has,
since the onset of the “credit crisis,” reviewed and expects to continue to
review more potential financing opportunities than it has in its
history.
Recent
Significant Transactions
We
engaged in the following significant transactions from the Commencement of
Operations through December 31, 2009:
Telecommunications
Equipment
On
September 30, 2009, we, through our wholly-owned subsidiary, ICON Global
Crossing VI, purchased telecommunications equipment for the purchase price of
approximately $5,323,000. Simultaneously with the purchase, ICON
Global Crossing VI leased the equipment to Global Crossing. The lease
is for a period of 36 months commencing on October 1, 2009. We paid
an acquisition fee to our Investment Manager in the amount of approximately
$133,000 in connection with this transaction. On November 12, 2009, ICON Global
Crossing VI purchased additional telecommunications equipment for the purchase
price of approximately $2,136,000 and simultaneously leased the equipment to
Global Crossing. The lease period is for 36 months and expires on November 30,
2012. We paid an acquisition fee to the Investment Manager in the amount of
approximately $53,000 in connection with this transaction.
Packaging
Equipment
On July
31, 2009, we, through our wholly-owned subsidiary, ICON Exopack, purchased a
3-layer blown film extrusion line from Exopack for the purchase price of
approximately $2,713,000. Simultaneously with the purchase of the
equipment, ICON Exopack entered into a lease with Exopack. The lease
is for a period of 60 months commencing on August 1, 2009. On
September 30, 2009, ICON Exopack purchased an eight color 48” – 52” flexographic
printing press from Exopack for the purchase price of approximately
$3,662,000. Simultaneously with that purchase, ICON Exopack entered
into a second schedule to the lease with Exopack. That lease is for a
period of 60 months commencing on October 1, 2009. The obligations of
Exopack are guaranteed by its parent company, Exopack Holding
Corp. We paid aggregate acquisition fees to our Investment Manager in
the amount of approximately $159,000 in connection with these
transactions.
Gas
Compressors
On June
26, 2009, we and Fund Twelve entered into a joint venture, ICON Atlas, for the
purpose of investing in eight new Gas Compressors from AG. On June
26, 2009, ICON Atlas purchased four of the Gas Compressors from AG for
approximately $4,270,000. Simultaneously with the purchase, ICON Atlas entered
into a lease with APMC, an affiliate of Atlas Pipeline Partners, L.P.
(“APP”).
On August
17, 2009, ICON Atlas purchased the other four Gas Compressors from AG for
approximately $7,028,000. Simultaneously with that purchase, ICON
Atlas entered into a second schedule to the lease with APMC. Each
schedule is for a period of 48 months and expires on August 31,
2013. The obligations of APMC are guaranteed by its parent company,
APP. As of September 30, 2009, we contributed approximately
$5,084,000 to ICON Atlas, after which our and Fund Twelve’s ownership interests
in ICON Atlas were 45% and 55%, respectively. We paid an acquisition
fee to our Investment Manager in the amount of approximately $127,000 in
connection with this transaction.
Notes
Receivable Secured by Analog Seismic System Equipment
On June
29, 2009, we and Fund Twelve entered into a joint venture, ICON ION, for the
purpose of making the ION Loans in the aggregate amount of $20,000,000 to ARC
and ASR. On that date, ICON ION funded the first tranche of the ION
Loans in the amounts of $8,825,000 and $3,675,000 to ARC and ASR,
respectively. On July 20, 2009, ICON ION funded the second tranche of
the ION Loans to ARC in the amount of $7,500,000.
The ARAM
Borrowers are wholly-owned subsidiaries of ION Geophysical Corporation, a
Delaware corporation (“ION”). The ION Loans are secured by (i) a
first priority security interest in all of the ARAM analog seismic system
equipment owned by the ARAM Borrowers and (ii) a pledge of all of the equity
interests in the ARAM Borrowers. In addition, ION guaranteed all
obligations of the ARAM Borrowers under the ION Loans. Interest
accrues at the rate of 15% per year and the ION Loans are payable monthly in
arrears for a period of 60 months beginning on August 1, 2009. As of
September 30, 2009, we contributed $9,000,000 to ICON ION, after which our and
Fund Twelve’s ownership interests in ICON ION were 45% and 55%,
respectively. We paid an acquisition fee to our Investment Manager in
the amount of $225,000 in connection with this transaction.
Note
Receivable Secured by Rail Support Construction Equipment
On
December 23, 2009, ICON Quattro, a joint venture owned 45% by us and 55% by Fund
Twelve, made a second priority secured term loan to Quattro Plant in the amount
of £5,800,000. Quattro Plant is a wholly-owned subsidiary of Quattro Group
Limited (“Quattro Group”). The loan is secured by (i) all of Quattro
Plant’s Construction Equipment and any other existing or future asset owned by
Quattro Plant, (ii) all of Quattro Plant’s accounts receivable, and (iii) a
mortgage over certain real estate in London, England owned by the majority
shareholder of Quattro Plant. In addition, ICON Quattro will receive
a key man insurance policy insuring the life of the majority shareholder of ICON
Quattro in an amount not less than £5,500,000 and not more than
£5,800,000. All of Quattro Plant’s obligations under the loan are
guaranteed by Quattro Group and its subsidiaries, Quattro Hire Limited and
Quattro Occupational Academy Limited (collectively, the “Quattro
Companies”).
Interest
on the secured term loan accrues at a rate of 20% per year and the loan will be
amortized to a balloon payment of 15% of the principal at the end of
the term. The loan is payable monthly in arrears for a period of 33
months, which began on January 1, 2010. Quattro Plant has the option to
prepay the entire outstanding amount of the loan beginning January 1, 2012 in
consideration for a fee of 5% of the amount being prepaid.
Simultaneously
with ICON Quattro's loan, KBC Bank N.V. (“KBC”) participated in the £24,800,000
loan facility by making a loan of £19,000,000 to Quattro Plant (the “KBC
Loan”). The KBC Loan is secured by (i) a first priority security interest
in all of Quattro Plant’s Construction Equipment and any other
existing or future asset owned by Quattro Plant and (ii) a first priority
security interest in all of Quattro Plant’s accounts receivable.
Simultaneously
with the consummation of ICON Quattro’s loan and the KBC Loan, ICON Quattro,
KBC, Quattro Plant, Quattro Group and the Quattro Companies entered into an
intercreditor deed governing the relationship between ICON Quattro and
KBC. In the event either ICON Quattro or KBC seeks to enforce its security
interest under its respective loan, the proceeds from the enforcement of any
security interest shall be applied (i) first, to pay all costs and expenses
incurred by or on behalf of ICON Quattro or KBC, (ii) second, to KBC in an
amount that would allow KBC to receive its return on its investment, and (iii)
third, to ICON Quattro in an amount that would allow ICON Quattro to receive its
return on its investment. We paid an acquisition fee to the
Investment Manager of approximately $327,000 relating to this
transaction.
Recently
Adopted Accounting Pronouncements
In 2009,
we adopted the accounting pronouncement regarding the general standards of
accounting for, and disclosure of, events that occur after the balance sheet
date, but before the financial statements are issued. This
pronouncement was effective prospectively for interim and annual reporting
periods ending after June 15, 2009. See Note 2 to our consolidated
financial statements.
In 2009,
we adopted Accounting Standards Codification 105, “Generally Accepted Accounting
Principles,” which establishes the Financial Accounting Standards Board
Accounting Standards Codification (the “Codification”), which supersedes all
existing accounting standard documents and is the single source of authoritative
non-governmental U.S. Generally Accepted Accounting Principles (“US
GAAP”). All other accounting literature not included in the
Codification is considered non-authoritative. This accounting
standard is effective for interim and annual periods ending after September 15,
2009. The Codification did not change or alter existing US GAAP and
it did not result in a change in accounting practices for us upon adoption.
We conformed our consolidated financial statements and related notes to the new
Codification for the year ended December 31, 2009. See Note 2
to our consolidated financial statements.
Critical
Accounting Policies
An
understanding of our critical accounting policies is necessary to understand our
financial results. The preparation of financial statements in conformity with US
GAAP requires our General Partner to make estimates and assumptions that affect
the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities as of the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
Significant estimates primarily include the determination of allowance for
doubtful accounts, depreciation and amortization, impairment losses, estimated
useful lives and residual values. Actual results could differ from
those estimates. We applied our critical accounting policies and estimation
methods consistently in all periods presented. We consider the following
accounting policies to be critical to our business:
|
·
|
Lease
classification and revenue
recognition;
|
|
·
|
Asset
impairments;
|
|
·
|
Depreciation;
|
|
·
|
Notes
receivable;
|
|
·
|
Initial
direct costs; and
|
|
·
|
Acquisition
fees.
|
Lease
Classification and Revenue Recognition
Each
equipment lease we enter into is classified as either a finance lease or an
operating lease, which is determined based upon the terms of each lease.
For a finance lease, initial direct costs are capitalized and amortized over the
lease term. For an operating lease, initial direct costs are included as a
component of the cost of the equipment and depreciated over the estimated useful
life of the equipment.
For
finance leases, we record, at lease inception, the total minimum lease payments
receivable from the lessee, the estimated unguaranteed residual value of the
equipment at lease termination, the initial direct costs related to the lease
and the related unearned income. Unearned income represents the difference
between the sum of the minimum lease payments receivable, plus the estimated
unguaranteed residual value, minus the cost of the leased equipment.
Unearned income is recognized as finance income over the term of the lease
using the effective interest rate method.
For
operating leases, rental income is recognized on a straight-line basis over the
lease term. Billed operating lease receivables are included in
accounts receivable until collected. Deferred revenue is the difference between
the timing of the receivables billed and the income recognized on a
straight-line basis.
Our
Investment Manager has an investment committee that approves each new equipment
lease and other financing transaction. As part of its process, the investment
committee determines the residual value, if any, to be used once the investment
has been approved. The factors considered in determining the residual
value include, but are not limited to, the creditworthiness of the potential
lessee, the type of equipment considered, how the equipment is integrated into
the potential lessee’s business, the length of the lease and the industry in
which the potential lessee operates. Residual values are reviewed for
impairment in accordance with our impairment review policy.
The
residual value assumes, among other things, that the asset would be utilized
normally in an open, unrestricted and stable market. Short-term fluctuations in
the marketplace are disregarded and it is assumed that there is no necessity
either to dispose of a significant number of the assets, if held in quantity,
simultaneously or to dispose of the asset quickly. The residual value
is calculated using information from various external sources, such as trade
publications, auction data, equipment dealers, wholesalers and industry experts,
as well as inspection of the physical asset and other economic
indicators.
For
notes receivable, we use the effective interest rate method to recognize
interest income, which produces a constant periodic rate of return on the
investment, when earned.
Asset
Impairments
The
significant assets in our portfolio are periodically reviewed, no less
frequently than annually or when indicators of impairment exist, to determine
whether events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. An impairment loss will be recognized only if
the carrying value of a long-lived asset is not recoverable and exceeds its fair
market value. If there is an indication of impairment, we will
estimate the future cash flows (undiscounted and without interest charges)
expected from the use of the asset and its eventual disposition. Future cash
flows are the future cash inflows expected to be generated by an asset less the
future outflows expected to be necessary to obtain those inflows. If an
impairment is determined to exist, the impairment loss will be measured as the
amount by which the carrying value of a long-lived asset exceeds its fair value
and recorded in the consolidated statement of operations in the period the
determination is made.
The
events or changes in circumstances that generally indicate that an asset may be
impaired are (i) the estimated fair value of the underlying equipment is less
than its carrying value or (ii) the lessee is experiencing financial
difficulties and it does not appear likely that the estimated proceeds from the
disposition of the asset will be sufficient to satisfy the residual position in
the asset and, if applicable, the remaining obligation to the non-recourse
lender. Generally in the latter situation, the residual position
relates to equipment subject to third-party non-recourse debt where the lessee
remits its rental payments directly to the lender and we do not recover our
residual position until the non-recourse debt is repaid in full. The preparation
of the undiscounted cash flows requires the use of assumptions and estimates,
including the level of future rents, the residual value expected to be realized
upon disposition of the asset, estimated downtime between re-leasing events and
the amount of re-leasing costs. Our Investment Manager’s review for impairment
includes a consideration of the existence of impairment indicators including
third-party appraisals, published values for similar assets, recent transactions
for similar assets, adverse changes in market conditions for specific asset
types and the occurrence of significant adverse changes in general industry and
market conditions that could affect the fair value of the asset.
Depreciation
We record
depreciation expense on equipment when the lease is classified as an operating
lease. In order to calculate depreciation, we first determine the
depreciable equipment cost, which is the cost less the estimated residual
value. The estimated residual value is our estimate of the value of the
equipment at lease termination. Depreciation expense is recorded by
applying the straight-line method of depreciation to the depreciable equipment
cost over the lease term.
Notes
Receivable
Notes
receivable are reported on the consolidated balance sheets at the outstanding
principal balance net of any costs, unamortized deferred fees, premiums or
discounts on purchased loans. Unearned income, discounts and premiums are
amortized using the effective interest rate method. Interest
receivable resulting from the unpaid principal is reported separately from the
outstanding balance.
Initial
Direct Costs
We
capitalize initial direct costs associated with the origination and funding of
leased assets and other financing transactions in accordance with the accounting
pronouncement related to nonrefundable fees and costs associated with
originating or acquiring loans and initial direct costs of leases. The costs are
amortized on a lease by lease basis based on the actual lease term using a
straight-line method for operating leases and the effective interest rate method
for finance leases and notes receivable. Costs related to leases or other
financing transactions that are not consummated are expensed as an acquisition
expense.
Acquisition
Fees
We pay
acquisition fees to our Investment Manager equal to 2.50% of the total purchase
price paid by us or on our behalf for each of our investments, including, but
not limited to, the cash paid, and indebtedness incurred or assumed, plus all
fees and expenses incurred in connection therewith. These fees are capitalized
and included in the cost of the investment.
Results
of Operations for the Period from Commencement of Operations through December
31, 2009 (the “2009 Period”)
We are
currently in our offering period and are in the process of raising capital and
making investments in Capital Assets. We will invest in Capital Assets with the
net proceeds from our offering. After the close of the offering
period, we will enter our operating period. During our operating period, we will
continue to make investments with the cash generated from our initial
investments to the extent that the cash is not used for expenses, reserves
and distributions to limited partners. As our investments mature, we may
reinvest the proceeds in additional investments in Capital Assets. We anticipate
incurring gains or losses on our investments during our operating period.
Additionally, we expect to see our rental income and finance income increase, as
well as related expenses such as depreciation and amortization expense and
interest expense. We anticipate that the fees we pay our Investment Manager to
manage our investment portfolio will increase during this period as the size and
value of activity in our investment portfolio will increase.
Revenue
for the 2009 Period is summarized as follows:
|
Period
from the
|
||||
|
Commencement
of
|
||||
|
Operations
through
|
||||
|
December 31, 2009
|
||||
|
Rental
income
|
$ | 1,044,930 | ||
|
Income
from investments in joint ventures
|
695,281 | |||
|
Interest
and other income
|
20,943 | |||
|
Total
revenue
|
$ | 1,761,154 | ||
Total
revenue for the 2009 Period was $1,761,154 which was primarily comprised of
rental income from ICON Exopack and ICON Global Crossing VI. Income from
investments in joint ventures is our proportionate share of the results of
operations of ICON Atlas, ICON ION and ICON Quattro.
Expenses
for the 2009 Period are summarized as follows:
|
Period
from the
|
||||
|
Commencement
of
|
||||
|
Operations
through
|
||||
|
December 31, 2009
|
||||
|
Management
fees
|
$ | 76,559 | ||
|
Administrative
expense reimbursements
|
1,924,682 | |||
|
General
and administrative
|
666,592 | |||
|
Depreciation
and amortization
|
670,286 | |||
|
Interest
|
7,333 | |||
|
Total
expenses
|
$ | 3,345,452 | ||
Total
expenses for the 2009 Period were $3,345,452, which were comprised primarily of
administrative expense reimbursements to our Investment Manager in the amount of
$1,924,682. Administrative expense reimbursements are costs incurred by our
General Partner and its affiliates that are necessary to our operations. These
costs include our General Partner’s and its affiliates’ legal, accounting,
investor relations and operations personnel costs, as well as professional fees
and other costs, that are charged to us based upon the percentage of time such
personnel dedicate to us. General and administrative expenses consisted
primarily of professional fees of approximately $648,575. We recorded
depreciation expense of $649,453 related to equipment on lease to Exopack and
Global Crossing.
Net
Loss
As a
result of the foregoing factors, the net loss for the 2009 Period was
$1,584,298. The net loss per weighted average Interest for the 2009 Period was
$48.77.
Financial
Condition
This
section discusses the major balance sheet items as of December 31,
2009.
Total Assets
Our total
assets at December 31, 2009 were $59,567,064. The assets consisted
primarily of telecommunications and packaging equipment, investments in three
joint ventures, and cash received from the sale of our Interests.
Total
Liabilities
Our total
liabilities at December 31, 2009 were $952,014, which consisted primarily of a
related party payable to our General Partner for administrative expenses,
deferred revenue related to our leases with Exopack and Global Crossing and
accrued liabilities related to commissions and professional fees.
Partners’ Equity
Our
partners’ equity at December 31, 2009 was $58,615,050. The majority
of this balance is associated with our equity raise, which was partially offset
by the distributions paid to our partners, the amortization of organizational
and offering fees, sales commissions to third parties and underwriting fees paid
to ICON Securities.
Liquidity
and Capital Resources
Sources
and Uses of Cash
At
December 31, 2009, we had cash and cash equivalents of $27,074,324. In addition,
pursuant to the terms of our offering, we have established a reserve in the
amount of 0.50% of the gross offering proceeds from the sale of our Interests.
During our offering period, our main source of cash has been from financing
activities and our main use of cash has been in investing
activities.
We are
offering our Interests on a “best efforts” basis with the current intention of
raising up to $418,000,000. As additional Interests are sold, we will experience
a relative increase in liquidity as cash is received and then a relative
decrease in liquidity as cash is expended to make investments.
We are
using the net proceeds of the offering to invest in Capital Assets located in
North America, Europe and other developed markets, including those in Asia,
South America and elsewhere. We will seek to acquire a portfolio of Capital
Assets that is comprised of both (a) transactions that provide current cash flow
in the form of rental payments (in the case of leases) and payments of principal
and/or interest (in the case of secured loans) and (b) transactions that
generate deferred cash flow from realizing the value of the Capital Assets or
interests therein at the maturity of the investment or exercise of an option to
purchase Capital Assets, or (c) a combination of both.
For the
period from the Commencement of Operations through December 31, 2009, we sold
68,411 Interests, representing $68,300,139 of capital contributions. We admitted
2,116 limited partners. For the period from the Commencement of
Operations through December 31, 2009, we have paid or accrued sales commissions
to third parties of $4,709,330 and underwriting commissions to ICON Securities
of $2,026,388. In addition, organizational and offering expenses of $1,577,572
were paid or incurred by us, our General Partner or its affiliates during this
period.
Cash
Flows
The
following table sets forth summary cash flow data:
|
Period from the Commencement of Operations through
December 31, 2009
|
||||
|
Net
cash (used in) provided by:
|
||||
|
Operating
activities
|
$ | (265,962 | ) | |
|
Investing
activities
|
(31,922,818 | ) | ||
|
Financing
activities
|
59,262,103 | |||
|
Net
increase in cash and cash equivalents
|
$ | 27,073,323 | ||
Note:
See the Consolidated Statements of Cash Flows included in “Item 8. Consolidated
Financial Statements and Supplementary Data” of this Annual Report on Form 10-K
for additional information.
Operating
Activities
Cash used
in operating activities of $265,962 primarily relates to payments of
administrative expenses of approximately $2,237,000, which were partially offset
by rental income of approximately $1,045,000, deferred revenue of approximately
$227,000, and income from investments in joint ventures of approximately
$695,000.
Investing
Activities
Cash used
in investing activities of $31,922,818 primarily relates to the purchase or
financing of equipment in the amount of approximately $14,180,000 and our
investments in three joint ventures in the amount of approximately $18,807,000,
which were partially offset by distributions from joint ventures in the amount
of approximately $1,064,000.
Financing
Activities
Cash
provided by financing activities of $59,262,103 primarily relates to sale of
Interests in the amount of approximately $68,300,000, which was partially offset
by sales and offering expenses paid and/or deferred in the amount of
approximately $8,063,000 and distributions to partners in the amount of
approximately $974,000.
Sources
of Liquidity
Cash
generated from the sale of Interests pursuant to our offering will be our most
significant source of liquidity during our offering period. We believe that cash
generated from the sale of Interests pursuant to our offering and other
financing activities, as well as the expected results of our operations, will be
sufficient to finance our liquidity requirements for the foreseeable future,
including distributions to our partners, general and administrative expenses,
new investment opportunities, management fees and administrative expense
reimbursements. In addition, our revolving line of credit had $27,640,000
available as of December 31, 2009 for additional working capital needs or new
investment opportunities. Our revolving line of credit is discussed in further
detail in “Financings and Borrowings” below.
Our
ability to generate cash in the future is subject to general economic,
financial, competitive, regulatory and other factors that affect us and our
lessees’ and borrowers’ businesses that are beyond our control. See
“Item 1A. Risk Factors.”
Financings
and Borrowings
Revolving
Line of Credit, Recourse
Certain
of our affiliates, entities managed by our Investment Manager, Fund Eight B,
Fund Nine, Fund Ten, Fund Eleven and Fund Twelve, are parties to a Commercial
Loan Agreement, as amended (the “Loan Agreement”), with CB&T. We
(collectively with Fund Eight B, Fund Nine, Fund Ten, Fund Eleven and Fund
Twelve, the “ICON Borrowers”) were added as a borrower under the Loan Agreement
on August 12, 2009.
The Loan
Agreement provides for a revolving line of credit of up to $30,000,000 pursuant
to a senior secured revolving loan facility (the “Facility”), which is secured
by all assets of the ICON Borrowers not subject to a first priority lien, as
defined in the Loan Agreement. Each of the ICON Borrowers is jointly and
severally liable for all amounts borrowed under the Facility. At December 31,
2009, no amounts were accrued related to our joint and several obligations under
the Facility. Amounts available under the Facility are subject to a borrowing
base that is determined, subject to certain limitations, on the present value of
the future receivables under certain lease agreements and loans in which the
ICON Borrowers have a beneficial interest.
The
Facility expires on June 30, 2011 and the ICON Borrowers may request a one year
extension to the revolving line of credit within 390 days of the then-current
expiration date, but CB&T has no obligation to extend. The interest rate for
general advances under the Facility is CB&T’s prime rate and the interest
rate on up to five separate non-prime rate advances that are permitted to be
made under the Facility is the rate at which U.S. dollar deposits can be
acquired by CB&T in the London Interbank Eurocurrency Market plus 2.50% per
year, provided that neither interest rate is permitted to be less than 4.00% per
year. The interest rate at December 31, 2009 was 4.00%. In addition, the ICON
Borrowers are obligated to pay a quarterly commitment fee of 0.50% on unused
commitments under the Facility.
Aggregate
borrowings by all ICON Borrowers under the Facility amounted to $2,360,000 at
December 31, 2009. We had no borrowings outstanding under the Facility as of
such date. The balances of $100,000 and $2,260,000 were borrowed by Fund Ten and
Fund Eleven, respectively. As of March 24, 2010, Fund Ten and Fund
Eleven had outstanding borrowings under the Facility of $700,000 and $0,
respectively.
Pursuant
to the Loan Agreement, the ICON Borrowers are required to comply with certain
covenants. At December 31, 2009, the ICON Borrowers were in
compliance with all covenants. For additional information, see Note 5
to our consolidated financial statements.
Distributions
We, at
our General Partner’s discretion, pay monthly distributions to each of our
limited partners beginning with the first month after each such limited
partner’s admission and expect to continue to pay such distributions until the
termination of our operating period. We paid distributions to our limited
partners and General Partner in the amount of $964,235 and $9,636, respectively,
in 2009.
Commitments
and Contingencies and Off-Balance Sheet Transactions
Commitments
and Contingencies
At the
time we acquire or divest of an interest in Capital Assets, we may, under very
limited circumstances, agree to indemnify the seller or buyer for specific
contingent liabilities. Our General Partner believes that any
liability that may arise as a result of any such indemnification obligations
will not have a material adverse effect on our consolidated financial condition
taken as a whole. We are a
party to the Facility, as discussed in “Financings and Borrowings” above. We had
no borrowings under the Facility at December 31, 2009.
Off-Balance
Sheet Transactions
None.
Subsequent
Events
ICON
Global Crossing VI, LLC
On
February 25, 2010, we, through our wholly-owned subsidiary, ICON Global
Crossing VI, purchased and simultaneously leased back
telecommunications equipment to Global Crossing. The purchase price
for the equipment was approximately $4,300,000. The lease is for a
period of thirty-six months and expires in February of 2013. We paid
an acquisition fee to the Investment Manager of approximately $107,000 relating
to this transaction.
ICON
Northern Leasing III, LLC
On
March 3, 2010, we, through our wholly-owned subsidiary, ICON Northern Leasing
III, LLC (“ICON NL III”), provided a senior secured term loan in the aggregate
amount of $9,857,589 to Northern Capital Associates XVIII, L.P. (“NCA XVIII”),
Northern Capital Associates XV, L.P. (“NCA XV”) and Northern Capital Associates
XIV, L.P. (“NCA XIV”). The loan is secured by (i) an underlying pool
of leases for credit card machines of NCA XVIII; (ii) an underlying pool of
leases for credit card machines of NCA XV (subject only to the first priority
security interest of ICON Northern Leasing II, LLC (“ICON NL II”)), and (iii) an
underlying pool of leases for credit card machines of NCA XIV (subject only to
the first priority security interest of ICON Northern Leasing, LLC and second
priority security interest of ICON NL II). Interest on the secured
term loan accrues at a rate of 18% per year. The loan is payable
monthly in arrears for a period of 48 months. The obligations of NCA
XVIII, NCA XV and NCA XIV are guaranteed by Northern Leasing Systems,
Inc. We paid an acquisition fee to the Investment Manager of
approximately $379,000 relating to this transaction.
ICON
Coach II, LLC
On March
9, 2010, we, through our wholly-owned subsidiary, ICON Coach II, LLC (“ICON
Coach II”), purchased eleven 2010 MCI J4500 motor coach buses from Motor Coach
Industries, Inc. (“MCI”) for the purchase price of
$4,502,715. Simultaneously with the purchase, ICON Coach II entered
into a sixty-month lease with Dillon's Bus Service, Inc. (“DBS”) and Lakefront
Lines, Inc. (“Lakefront”) and Schedule 1 to the lease with DBS. DBS will
pay interim rent for the period from April 1, 2010 through May 31, 2010 unless
the base term commences earlier. Prior to June 1, 2010, ICON Coach
II will purchase fifteen 2010 MCI J4500 motor coach buses from MCI for the
purchase price of $5,865,450 and simultaneously lease the buses to Lakefront
pursuant to Schedule 2 to the lease. The obligations of DBS and
Lakefront are guaranteed by Coach America Holdings, Inc. and CUSA,
LLC. We paid an acquisition fee to the Investment Manager of
approximately $259,000 relating to this transaction.
Inflation
and Interest Rates
The
potential effects of inflation on us are difficult to predict. If the general
economy experiences significant rates of inflation, however, it could affect us
in a number of ways. We do not currently have or expect to have rent
escalation clauses tied to inflation in our leases. The anticipated residual
values to be realized upon the sale or re-lease of equipment upon lease
termination (and thus the overall cash flow from our leases) may increase with
inflation as the cost of similar new and used equipment increases.
If
interest rates increase significantly, leases already in place would generally
not be affected.
We, like
most other companies, are exposed to certain market risks, which include changes
in interest rates and the demand for equipment owned by us. We
believe that our exposure to other market risks, including foreign currency
exchange rate risk, commodity risk and equity price risk, are insignificant at
this time to both our financial position and our results of
operations.
We
currently have a recourse revolving line of credit, which is subject to a
variable interest rate. We have no outstanding borrowings under our
revolving line of credit. Our Investment Manager has evaluated the
impact of the condition of the credit markets on our future cash flows and we do
not expect any adverse impact on our cash flows should credit conditions in
general remain the same or deteriorate further.
Although
certain of our transactions are denominated in pounds sterling, substantially
all of our transactions are denominated in the U.S. dollar, therefore reducing
our risk to currency translation exposures. To date, our exposure to exchange
rate volatility has not been significant. Nevertheless, there can be no
assurance that currency translation exposures will not have a material impact on
our financial position, results of operations or cash flow in the
future.
We manage
our exposure to equipment and residual risk by monitoring the markets our
equipment is in and maximizing remarketing proceeds through the re-lease or sale
of equipment.
The
Partners
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
We have
audited the accompanying consolidated balance sheets of ICON Equipment and
Corporate Infrastructure Fund Fourteen, L.P. (the “Company”) as of December 31,
2009 and 2008, and the related consolidated statements of operations, changes in
partners’ equity, and cash flows for the period from June 19, 2009 (Commencement
of Operations) through December 31, 2009. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of ICON Equipment and
Corporate Infrastructure Fund Fourteen, L.P. at December 31, 2009 and 2008 and
the consolidated results of its operations and its cash flows for the period
from June 19, 2009 (Commencement of Operations) through December 31, 2009, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young,
LLP
March 31,
2010
New York,
New York
|
(A
Delaware Limited Partnership)
|
||||||||
|
Consolidated
Balance Sheets
|
||||||||
|
Assets
|
||||||||
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Cash
and cash equivalents
|
$ | 27,074,324 | $ | 1,001 | ||||
|
Leased
equipment at cost (less accumulated depreciation of
|
||||||||
|
$649,453
and $0, respectively)
|
13,530,536 | - | ||||||
|
Investments
in joint ventures
|
17,742,829 | - | ||||||
|
Deferred
charges, net
|
1,186,369 | - | ||||||
|
Other
assets, net
|
33,006 | - | ||||||
|
Total
Assets
|
$ | 59,567,064 | $ | 1,001 | ||||
|
Liabilities
and Partners' Equity
|
||||||||
|
Liabilities:
|
||||||||
|
Deferred
revenue
|
$ | 227,161 | $ | - | ||||
|
Due
to General Partner and affiliates
|
566,964 | - | ||||||
|
Accrued
expenses and other current liabilities
|
157,889 | - | ||||||
|
Total
Liabilities
|
952,014 | - | ||||||
|
Commitments
and contingencies (Note 10)
|
||||||||
|
Partners'
(Deficit) Equity:
|
||||||||
|
General
Partner
|
(25,478 | ) | 1 | |||||
|
Limited
Partners
|
58,640,528 | 1,000 | ||||||
|
Total
Partners' Equity
|
58,615,050 | 1,001 | ||||||
|
Total
Liabilities and Partners' Equity
|
$ | 59,567,064 | $ | 1,001 | ||||
See
accompanying notes to financial statements.
|
(A
Delaware Limited Partnership)
|
||||
|
Consolidated
Statement of Operations
|
||||
|
Period from June 19, 2009 (Commencement of
Operations) through December 31, 2009
|
||||
|
Revenue:
|
||||
|
Rental
income
|
$ | 1,044,930 | ||
|
Income
from investments in joint ventures
|
695,281 | |||
|
Interest
and other income
|
20,943 | |||
|
Total
revenue
|
1,761,154 | |||
|
Expenses:
|
||||
|
Management
fees
|
76,559 | |||
|
Administrative
expense reimbursements
|
1,924,682 | |||
|
General
and administrative
|
666,592 | |||
|
Depreciation
and amortization
|
670,286 | |||
|
Interest
|
7,333 | |||
|
Total
expenses
|
3,345,452 | |||
|
Net
loss
|
$ | (1,584,298 | ) | |
|
Net
loss allocable to:
|
||||
|
Limited
Partners
|
$ | (1,568,455 | ) | |
|
General
Partner
|
(15,843 | ) | ||
| $ | (1,584,298 | ) | ||
|
Weighted
average number of limited
|
||||
|
partnership
interests outstanding
|
32,161 | |||
|
Net
loss per weighted average
|
||||
|
limited
partnership interest
|
$ | (48.77 | ) | |
See
accompanying notes to financial statements.
|
(A
Delaware Limited Partnership)
|
||||||||||||||||
|
Consolidated
Statement of Changes in Partners' Equity
|
||||||||||||||||
|
Limited
|
Total
|
|||||||||||||||
|
Partnership
|
Limited
|
Partners'
|
||||||||||||||
|
Interests
|
Partners
|
General Partner
|
Equity
|
|||||||||||||
|
Opening
balance, June 19, 2009
|
1 | $ | 1,000 | $ | 1 | $ | 1,001 | |||||||||
|
Net
loss
|
(1,568,455 | ) | (15,843 | ) | (1,584,298 | ) | ||||||||||
|
Redemption
of limited partnership interest
|
(1 | ) | (1,000 | ) | - | (1,000 | ) | |||||||||
|
Proceeds
from sale of limited partnership interests
|
68,411 | 68,300,139 | - | 68,300,139 | ||||||||||||
|
Sales
and offering expenses
|
(7,126,921 | ) | - | (7,126,921 | ) | |||||||||||
|
Cash
distributions
|
- | (964,235 | ) | (9,636 | ) | (973,871 | ) | |||||||||
|
Balance,
December 31, 2009
|
68,411 | $ | 58,640,528 | $ | (25,478 | ) | $ | 58,615,050 | ||||||||
See accompanying notes to financial statements.
|
(A
Delaware Limited Partnership)
|
||||
|
Consolidated
Statement of Cash Flows
|
||||
|
Period from June 19, 2009 (Commencement of
Operations) through December 31, 2009
|
||||
|
Cash
flows from operating activities:
|
||||
|
Net
loss
|
$ | (1,584,298 | ) | |
|
Adjustments
to reconcile net loss to net cash
|
||||
|
provided
by operating activities:
|
||||
|
Income
from investments in joint ventures
|
(695,281 | ) | ||
|
Depreciation
and amortization
|
670,286 | |||
|
Changes
in operating assets and liabilities:
|
||||
|
Other
assets
|
(53,839 | ) | ||
|
Deferred
revenue
|
227,161 | |||
|
Due
to General Partner and affiliates
|
411,270 | |||
|
Accrued
expenses and other liabilities
|
63,458 | |||
|
Distributions
from joint ventures
|
695,281 | |||
|
Net
cash used in operating activities
|
(265,962 | ) | ||
|
Cash
flows from investing activities:
|
||||
|
Purchase
of equipment
|
(14,179,989 | ) | ||
|
Investments
in joint ventures
|
(18,807,294 | ) | ||
|
Distributions
received from joint ventures in excess of profits
|
1,064,465 | |||
|
Net
cash used in investing activities
|
(31,922,818 | ) | ||
|
Cash
flows from financing activities:
|
||||
|
Sale
of limited partnership interests
|
68,300,139 | |||
|
Sales
and offering expenses paid
|
(6,641,287 | ) | ||
|
Deferred
charges
|
(1,421,878 | ) | ||
|
Cash
distributions to partners
|
(973,871 | ) | ||
|
Redemption
of limited partnership interest
|
(1,000 | ) | ||
|
Net
cash provided by financing activities
|
59,262,103 | |||
|
Net
increase in cash and cash equivalents
|
27,073,323 | |||
|
Cash
and cash equivalents, beginning of the period
|
1,001 | |||
|
Cash
and cash equivalents, end of the period
|
$ | 27,074,324 | ||
|
Supplemental
disclosure of non-cash investing and financing activities:
|
||||
|
Organizational
and offering expenses due to Investment Manager
|
$ | 155,694 | ||
|
Sales
commissions due to third parties
|
$ | 94,431 | ||
|
Organizational
and offering expenses charged to equity
|
$ | 391,203 | ||
See
accompanying notes to financial statements.
45
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(1)
|
Organization
|
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P. (the “Partnership”)
was formed on August 20, 2008 as a Delaware limited partnership. The
Partnership is engaged in one business segment, the business of investing in
business-essential equipment and corporate infrastructure (collectively,
“Capital Assets”), including, but not limited to, Capital Assets that are
already subject to lease, Capital Assets that the Partnership purchases and
leases to domestic and global businesses, loans that are secured by Capital
Assets, and ownership rights to leased Capital Assets at lease
expiration. The Partnership will continue until December 31, 2020,
unless terminated sooner.
The
Partnership’s principal investment objective is to obtain the maximum economic
return from its investments for the benefit of its partners. To
achieve this objective, the Partnership: (i) acquires a diversified portfolio by
making investments in Capital Assets; (ii) makes monthly cash distributions, at
the Partnership’s general partner’s discretion, to its partners commencing the
month following each partner’s admission to the Partnership, continuing until
the end of the operating period; (iii) will reinvest substantially all
undistributed cash from operations and cash from sales of investments in Capital
Assets during the operating period; and (iv) will dispose of its investments and
distribute the excess cash from such dispositions to its partners beginning with
the commencement of the liquidation period.
The
general partner of the Partnership is ICON GP 14, LLC, a Delaware limited
liability company (the “General Partner”), which is a wholly-owned subsidiary of
ICON Capital Corp., a Delaware corporation (“ICON Capital”). The
General Partner manages and controls the business affairs of the Partnership,
including, but not limited to, the Capital Assets the Partnership invests in
pursuant to the terms of the Partnership’s limited partnership agreement (the
“Partnership Agreement”). Pursuant to the terms of an investment
management agreement, the General Partner has engaged ICON Capital as an
investment manager (the “Investment Manager”) to, among other things, facilitate
the acquisition and servicing of the Partnership’s
investments. Additionally, the General Partner has a 1% interest in
the profits, losses, cash distributions and liquidation proceeds of the
Partnership.
The
Partnership is currently in its offering period, which commenced on May 18, 2009
and is anticipated to end no later than May 2011. With the proceeds
from the limited partnership interests (“Interests”) sold, the Partnership
intends to invest in a diverse pool of Capital Assets and establish a cash
reserve in the amount of 0.50% of the gross offering proceeds from the sale of
our Interests. The initial capitalization of the Partnership was
$1,001, which consisted of $1 from the General Partner and $1,000 from ICON
Capital. The Partnership is offering Interests on a “best efforts”
basis with the intention of raising up to $418,000,000 of capital, consisting of
420,000 Interests, of which 20,000 have been reserved for the Partnership’s
distribution reinvestment plan (the “DRIP Plan”). The DRIP Plan
allows limited partners to purchase Interests with distributions received from
the Partnership and/or certain affiliates of the Partnership. At any
time prior to May 18, 2011, the Partnership may, at its sole discretion,
increase the offering to a maximum of up to $618,000,000 of capital, consisting
of 600,000 Interests, provided that the offering period is not extended in
connection with such change.
46
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(1)
|
Organization
- continued
|
The
Partnership’s initial closing date was June 19, 2009 (the “Commencement of
Operations”), the date at which the Partnership had raised $1,200,000 and
limited partners were admitted. Upon the Commencement of Operations,
the Partnership returned the initial capital contribution of $1,000 to ICON
Capital. During the period from May 18, 2009 to December 31, 2009,
the Partnership sold 68,411 Interests to 2,116
limited partners, representing $68,300,139 of capital
contributions. Investors from the Commonwealth of Pennsylvania and
the State of Tennessee were not admitted until the Partnership raised total
equity in the amount of $20,000,000, which the Partnership achieved on August
27, 2009. Beginning with the Commencement of Operations, the
Partnership has paid or accrued sales commissions to third
parties. The Partnership has also paid or accrued various fees to the
General Partner and its affiliates. For the period from the
Commencement of Operations through December 31, 2009, the Partnership has paid
or accrued the following fees in connection with its offering of its
Interests: (i) sales commissions to third parties in the amount of
$4,709,330 and (ii) underwriting fees in the amount of $2,026,388 to ICON
Securities Corp., an affiliate of the General Partner and the dealer-manager of
the Partnership’s offering (“ICON Securities”). In addition, the
General Partner and its affiliates, on behalf of the Partnership, incurred
organizational and offering expenses in the amount of $1,577,572. For the period from the
Commencement of Operations through December 31, 2009, organizational and
offering expenses in the amount of $391,203 were recorded as a reduction of
partners’ equity.
Partners’
capital accounts are increased for their initial capital contribution plus their
proportionate share of earnings and decreased by their proportionate share of
losses and distributions. Profits, losses, cash distributions and liquidation
proceeds are allocated 99% to the limited partners and 1% to the General Partner
until the aggregate amount of cash distributions paid to limited partners equals
the sum of the limited partners’ aggregate capital contributions plus an 8%
cumulative annual return on their aggregate unreturned capital contributions,
compounded daily. After such time, distributions will be allocated
90% to the limited partners and 10% to the General Partner.
|
(2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation and Consolidation
The
accompanying consolidated financial statements of the Partnership have been
prepared in accordance with U.S. generally accepted accounting principles (“US
GAAP”). In the opinion of the General Partner, all adjustments
considered necessary for a fair presentation have been included.
The
consolidated financial statements include the accounts of the Partnership and
its majority-owned subsidiaries and other controlled entities. All
intercompany accounts and transactions have been eliminated in
consolidation. In joint ventures where the Partnership has majority
ownership, the financial condition and results of operations of the joint
venture are consolidated. Noncontrolling interest represents the
minority owner’s proportionate share of its equity in the joint
venture. The noncontrolling interest is adjusted for the minority
owner’s share of the earnings, losses, investments and distributions of the
joint venture.
The
Partnership accounts for its noncontrolling interests in joint ventures where
the Partnership has influence over financial and operational matters, generally
50% or less ownership interest, 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. The Partnership accounts for investments in joint
ventures where the Partnership has virtually no influence over financial and
operational matters using the cost method of accounting. In such
cases, the Partnership’s original investments are recorded at cost and any
distributions received are recorded as revenue. All of the
Partnership’s investments in joint ventures are subject to its impairment review
policy.
47
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(2)
|
Summary
of Significant Accounting Policies -
continued
|
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 two financial
institutions and at times may exceed insured limits. The Partnership
has placed these funds in high quality institutions in order to minimize risk
relating to exceeding insured limits.
Risks and
Uncertainties
In the
normal course of business, the Partnership is exposed to two significant types
of economic risk: credit and market. Credit risk is the risk of a
lessee, borrower or other counterparty’s inability or unwillingness to make
contractually required payments. Concentrations of credit risk with
respect to lessees, borrowers or other counterparties are dispersed across
different industry segments within the United States of America and throughout
the world. Although the Partnership does not currently foresee a
concentrated credit risk associated with its lessees, borrowers or other
counterparties, contractual payments are dependent upon the financial stability
of the industry segments in which such counterparties operate. See Note 7 for a
discussion of concentrations of risk.
Market
risk reflects the change in the value of debt instruments and credit
facilities due to changes in interest rate spreads or other market factors.
The Partnership believes that the carrying value of its investments is
reasonable, taking into consideration these risks, along with estimated
collateral values, payment history and other relevant information.
Leased
Equipment at Cost
Investments
in leased equipment are stated at cost less accumulated
depreciation. Leased equipment is depreciated on a straight-line
basis over the lease term, which typically ranges from 3 to 8 years,
to the asset’s residual value.
The
Investment Manager has an investment committee that approves each new equipment
lease and other financing transaction. As part of its process, the
investment committee determines the residual value, if any, to be used once the
investment has been approved. The factors considered in determining
the residual value include, but are not limited to, the creditworthiness of the
potential lessee, the type of equipment considered, how the equipment is
integrated into the potential lessee’s business, the length of the lease and the
industry in which the potential lessee operates. Residual values are
reviewed for impairment in accordance with the Partnership’s impairment review
policy.
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
marketplace are disregarded and it is assumed that there is no necessity either
to dispose of a significant number of the assets, if held in quantity,
simultaneously or to dispose of the asset quickly. The residual value
is calculated using information from various external sources, such as trade
publications, auction data, equipment dealers, wholesalers and industry experts,
as well as inspection of the physical asset and other economic
indicators.
48
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Asset
Impairments
The
significant assets in the Partnership’s portfolio are periodically reviewed, no
less frequently than annually or when indicators of impairment exist, to
determine whether events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. An impairment loss will be recognized
only if the carrying value of a long-lived asset is not recoverable and exceeds
its fair market value. If there is an indication of impairment, the Partnership
will estimate the future cash flows (undiscounted and without interest charges)
expected from the use of the asset and its eventual disposition. Future cash
flows are the future cash inflows expected to be generated by an asset less the
future outflows expected to be necessary to obtain those inflows. If an
impairment is determined to exist, the impairment loss will be measured as the
amount by which the carrying value of a long-lived asset exceeds its fair value
and recorded in the consolidated statement of operations in the period the
determination is made.
The
events or changes in circumstances that generally indicate that an asset may be
impaired are (i) the estimated fair value of the underlying equipment is less
than its carrying value or (ii) the lessee is experiencing financial
difficulties and it does not appear likely that the estimated proceeds from the
disposition of the asset will be sufficient to satisfy the residual position in
the asset and, if applicable, the remaining obligation to the non -recourse
lender. Generally in the latter situation, the residual position relates to
equipment subject to third-party non-recourse debt where the lessee remits its
rental payments directly to the lender and the Partnership does not recover its
residual position until the non-recourse debt is repaid in full. The preparation
of the undiscounted cash flows requires the use of assumptions and estimates,
including the level of future rents, the residual value expected to be realized
upon disposition of the asset, estimated downtime between re-leasing events and
the amount of re-leasing costs. The Investment Manager’s review for impairment
includes a consideration of the existence of impairment indicators including
third-party appraisals, published values for similar assets, recent transactions
for similar assets, adverse changes in market conditions for specific asset
types and the occurrence of significant adverse changes in general industry and
market conditions that could affect the fair value of the asset.
Deferred
Charges
Pursuant to the Partnership Agreement,
the costs of organizing the Partnership and offering the Interests are
capitalized by the Partnership and amortized as a reduction of equity over the
estimated offering period, generally two years from the effective date of the
offering. The unamortized balance of these costs is reflected on the
consolidated balance sheets as deferred charges, net.
Revenue
Recognition
The
Partnership provides financing to third parties, generally in the form of leases
and loans. Additionally, the Partnership may make loans to borrowers
secured by Capital Assets. With respect to leases of Capital Assets, each lease
is classified as either a finance lease or an operating lease, which is based
upon the terms of the lease. Loans are typically classified as notes
receivable.
For
finance leases and notes receivable, the Partnership records finance and
interest income, respectively, on the consolidated statements of operations
using the effective interest rate method, which results in a constant rate of
return over the lease or loan term, as applicable. For operating
leases, rental income is recognized on a straight-line basis over the lease
term. Billed operating lease receivables are included in accounts
receivable until collected. Deferred revenue is the difference
between the timing of the receivables billed and the income recognized on a
straight-line basis.
49
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(2)
|
Summary
of Significant Accounting Policies -
continued
|
The
recognition of revenue may be suspended when deemed appropriate by the General
Partner, in accordance with the Partnership’s policy on doubtful
accounts.
Notes
Receivable
Notes
receivable are reported on the consolidated balance sheets at the outstanding
principal balance net of any costs, unamortized deferred fees, premiums or
discounts on purchased loans. Unearned income, discounts and premiums
are amortized using the effective interest rate method. Interest
receivable resulting from the unpaid principal is reported separately from the
outstanding balance.
Initial
Direct Costs
Initial
direct costs associated with operating leases are capitalized as a component of
the cost of the equipment and depreciated. Initial direct costs
associated with finance leases and notes receivable are amortized using the
effective interest rate method. Costs related to leases or other
financing transactions that are not consummated are expensed in the period
negotiations terminate.
Acquisition
Fees
The
Partnership pays acquisition fees to the Investment Manager equal to 2.50% of
the total purchase price paid by or on behalf of the Partnership for each of the
Partnership’s investments, including, but not limited to, the cash paid,
indebtedness incurred or assumed, plus all fees and expenses incurred in
connection therewith (the “Purchase Price”). These fees are
capitalized and included in the cost of the investment.
Income
Taxes
The
Partnership is taxed as a partnership for federal and State income tax
purposes. 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.
Per
Interest Data
Net
income (loss) per weighted average Interest is based upon the weighted average
number of Interests outstanding during the applicable period.
Interest
Repurchase
The
Partnership may, at its discretion, repurchase Interests from a limited number
of its limited partners, as provided for in the Partnership
Agreement. The repurchase price for any Interests approved for
repurchase is based upon a formula, as provided in the Partnership
Agreement. Limited partners are required to hold their Interests for
at least one year before repurchases will be permitted.
50
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(2)
|
Summary
of Significant Accounting Policies - continued
|
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP requires the
General Partner to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities as of the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting
period. Significant estimates primarily include the determination of
allowance for doubtful accounts, depreciation and amortization, impairment
losses, estimated useful lives and residual values. Actual results
could differ from those estimates.
Recently
Adopted Accounting Pronouncements
In 2009,
the Partnership adopted the accounting pronouncement regarding the general
standards of accounting for, and disclosure of, events that occur after the
balance sheet date, but before the financial statements are
issued. This pronouncement was effective prospectively for interim
and annual reporting periods ending after June 15, 2009. The
adoption of this accounting pronouncement did not have a significant impact on
the Partnership’s consolidated financial statements.
In 2009,
the Partnership adopted Accounting Standards Codification 105, “Generally
Accepted Accounting Principles,” which establishes the Financial Accounting
Standards Board Accounting Standards Codification (the “Codification”), which
supersedes all existing accounting standard documents and is the single source
of authoritative non-governmental US GAAP. All other accounting
literature not included in the Codification is considered
non-authoritative. This accounting standard is effective for interim
and annual periods ending after September 15, 2009. The Codification
did not change or alter existing US GAAP and it did not result in a change in
accounting practices for the Partnership upon adoption. The
Partnership conformed its consolidated financial statements and related notes to
the new Codification for the year ended December 31, 2009.
|
(3)
|
Leased
Equipment at Cost
|
Leased
equipment at cost consisted of the following at December 31, 2009:
|
2009
|
||||
|
Packaging
equipment
|
$ | 6,535,061 | ||
|
Telecommunications
equipment
|
7,644,928 | |||
| 14,179,989 | ||||
|
Less:
Accumulated depreciation
|
(649,453 | ) | ||
| $ | 13,530,536 | |||
Depreciation
expense was $649,453 for the year ended December 31, 2009.
Packaging
Equipment
On July 31, 2009, the Partnership,
through its wholly-owned subsidiary, ICON Exopack, LLC (“ICON Exopack”),
purchased a 3-layer blown film extrusion line from Exopack, LLC (“Exopack”) for
the purchase price of approximately $2,713,000. Simultaneously with
the purchase of the equipment, ICON Exopack entered into a lease with
Exopack. The lease is for a period of 60 months commencing on August
1, 2009. On September 30, 2009, ICON Exopack purchased an eight color
48” – 52” flexographic printing press from Exopack for the purchase price of
approximately $3,662,000. Simultaneously with that purchase, ICON
Exopack entered into a second schedule to the lease with
Exopack. That lease is for a period of 60 months commencing on
October 1, 2009. The obligations of Exopack are guaranteed by its
parent company, Exopack Holding Corp. The Partnership paid aggregate
acquisition fees to the Investment Manager in the amount of approximately
$159,000 in connection with these transactions.
51
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(3)
|
Leased
Equipment at Cost - continued
|
Telecommunications
Equipment
On September 30, 2009, the Partnership,
through its wholly-owned subsidiary, ICON Global Crossing VI, LLC (“ICON Global
Crossing VI”), purchased telecommunications equipment for the purchase price of
approximately $5,323,000. Simultaneously with the purchase, ICON
Global Crossing VI leased the equipment to Global Crossing Telecommunications,
Inc. (“Global Crossing”). The lease is for a period of 36 months
commencing on October 1, 2009. The Partnership paid an acquisition
fee to the Investment Manager in the amount of approximately $133,000 in
connection with this transaction. On November 12, 2009, ICON Global Crossing VI
purchased additional telecommunications equipment for the purchase price of
approximately $2,136,000 and simultaneously leased the equipment to Global
Crossing. The lease is for 36 months and expires on November 30, 2012. The
Partnership paid an acquisition fee to the Investment Manager in the amount of
approximately $53,000 in connection with this transaction.
Aggregate
annual minimum future rentals receivable from the Partnership’s non-cancelable
leases over the next five years consisted of the following at December 31,
2009:
|
Years Ending December 31,
|
||||
|
2010
|
$ | 4,212,468 | ||
|
2011
|
4,212,468 | |||
|
2012
|
3,668,306 | |||
|
2013
|
1,338,644 | |||
|
2014
|
478,280 | |||
| $ | 13,910,166 | |||
|
(4)
|
Investments
in Joint Ventures
|
On June
26, 2009, the Partnership and ICON Leasing Fund Twelve, LLC, an entity managed
by the Investment Manager (“Fund Twelve”), entered into a joint venture, ICON
Atlas, LLC (“ICON Atlas”), for the purpose of investing in eight new Ariel
natural gas compressors (the “Gas Compressors”) from AG Equipment Co.
(“AG”). On June 26, 2009, ICON Atlas purchased four of the Gas
Compressors from AG for approximately $4,270,000. Simultaneously with the
purchase, ICON Atlas entered into a lease with Atlas Pipeline Mid-Continent, LLC
(“APMC”), an affiliate of Atlas Pipeline Partners, L.P. (“APP”).
On August
17, 2009, ICON Atlas purchased the four additional Gas Compressors from AG for
approximately $7,028,000. Simultaneously with that purchase, ICON
Atlas entered into a second schedule to the lease with APMC. Each
schedule is for a period of 48 months and expires on August 31,
2013. The obligations of APMC are guaranteed by its parent company,
APP. As of September 30, 2009, the Partnership contributed
approximately $5,084,000 to ICON Atlas, after which the Partnership’s and Fund
Twelve’s ownership interests in ICON Atlas were 45% and 55%,
respectively. The Partnership paid an acquisition fee to the
Investment Manager in the amount of approximately $127,000 in connection with
this transaction.
52
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(4)
|
Investments
in Joint Ventures - continued
|
Information
as to the results of operations of ICON Atlas is summarized below:
|
Period from June 26, 2009 through December 31,
2009
|
||||
|
Revenue
|
$ | 1,052,362 | ||
|
Net
income
|
$ | 655,411 | ||
|
Partnership's
share of net income
|
$ | 263,874 | ||
On June
29, 2009, the Partnership and Fund Twelve entered into a joint venture, ICON
ION, LLC (“ICON ION”), for the purpose of making secured term loans (the “ION
Loans”) in the aggregate amount of $20,000,000 to ARAM Rentals Corporation, a
Canadian bankruptcy remote Nova Scotia unlimited liability company (“ARC”) and
ARAM Seismic Rentals Inc., a U.S. bankruptcy remote Texas corporation (“ASR,”
together with ARC, collectively referred to as the “ARAM
Borrowers”). On that date, ICON ION funded the first tranche of the
ION Loans in the amounts of $8,825,000 and $3,675,000 to ARC and ASR,
respectively. On July 20, 2009, ICON ION funded the second tranche of
the ION Loans to ARC in the amount of $7,500,000.
The ARAM
Borrowers are wholly-owned subsidiaries of ION Geophysical Corporation, a
Delaware corporation (“ION”). The ION Loans are secured by (i) a
first priority security interest in all of the ARAM analog seismic system
equipment owned by the ARAM Borrowers and (ii) a pledge of all of the equity
interests in the ARAM Borrowers. In addition, ION guaranteed all
obligations of the ARAM Borrowers under the ION Loans. Interest
accrues at the rate of 15% per year and the ION Loans are payable monthly in
arrears for a period of 60 months beginning on August 1, 2009. As of
September 30, 2009, the Partnership contributed $9,000,000 to ICON ION, after
which the Partnership’s and Fund Twelve’s ownership interests in ICON ION were
45% and 55%, respectively. The Partnership paid an acquisition fee to
the Investment Manager in the amount of $225,000 in connection with this
transaction.
The
ultimate ownership of both ICON Atlas and ICON ION was intended to be such that
the Partnership and Fund Twelve would have ownership interests equal to 45% and
55%, respectively, which was achieved in each case on or prior to September 1,
2009. All capital contributions to either joint venture by the
Partnership and related distributions to Fund Twelve were effectuated so that
the aggregate amount of capital contributed by the Partnership did not exceed
the aggregate amount of capital contributed by Fund Twelve, adjusted for any
income received and expenses paid or incurred by the respective joint venture
and any compensation that the General Partner and any of its affiliates were
otherwise entitled to receive pursuant to the Partnership
Agreement. Neither the General Partner nor any of its affiliates
realized any benefit, other than compensation for its services, if any,
permitted by the Partnership Agreement as a result of these
transactions.
On
December 23, 2009, ICON Quattro, LLC (“ICON Quattro”), a joint venture owned 45%
by the Partnership and 55% by Fund Twelve, participated in a £24,800,000 loan
facility by making a second priority secured term loan to Quattro Plant Limited
(“Quattro Plant”) in the amount of £5,800,000. Quattro Plant is a
wholly-owned subsidiary of Quattro Group Limited (“Quattro Group”). The
loan is secured by (i) all of Quattro Plant’s rail support construction
equipment, which consists of railcars, attachments to railcars, bulldozers,
excavators, tractors, lowboy trailers, street sweepers, service trucks,
forklifts (collectively,
the “Construction Equipment”) and any other existing or future asset
owned by Quattro Plant, (ii) all of Quattro Plant’s accounts receivable, and
(iii) a mortgage over certain real estate in London, England owned by the
majority shareholder of Quattro Plant. In addition, ICON Quattro will
receive a key man
insurance policy insuring the life of the majority shareholder of ICON Quattro
in an amount not less than £5,500,000 and not more than £5,800,000. All of
Quattro Plant’s obligations under the loan are guaranteed by Quattro Group and
its subsidiaries, Quattro Hire Limited and Quattro Occupational Academy Limited
(collectively, the "Quattro Companies").
53
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(4)
|
Investments
in Joint Ventures - continued
|
Interest
on the secured term loan accrues at a rate of 20% per year and the loan will be
amortized to a balloon payment of 15% of the principal at the end of term.
The loan is payable monthly in arrears for a period of 33 months, which began on
January 1, 2010. Quattro Plant has the option to prepay the entire
outstanding amount of the loan beginning January 1, 2012 in consideration for a
fee of 5% of the amount being prepaid.
Simultaneously
with ICON Quattro's loan, KBC Bank N.V. (“KBC”) participated in the
£24,800,000 loan facility by making a loan of £19,000,000 to Quattro Plant (the
“KBC Loan”). The KBC Loan is secured by (i) a first priority security
interest in all of Quattro Plant’s Construction
Equipment and any other existing or future asset owned by Quattro Plant
and (ii) a first priority security interest in all of Quattro Plant’s accounts
receivable.
Simultaneously
with the consummation of ICON Quattro’s loan and the KBC Loan, ICON Quattro,
KBC, Quattro Plant, Quattro Group and the Quattro Companies entered into an
intercreditor deed governing the relationship between ICON Quattro and
KBC. In the event either ICON Quattro or KBC seeks to enforce its security
interest under its respective loan, the proceeds from the enforcement of any
security interest shall be applied (i) first, to pay all costs and expenses
incurred by or on behalf of ICON Quattro or KBC, (ii) second, to KBC in an
amount that would allow KBC to receive its return on its investment, and (iii)
third, to ICON Quattro in an amount that would allow ICON Quattro to receive its
return on its investment. The Partnership paid an acquisition fee to
the Investment Manager of approximately $327,000 relating to this
transaction.
|
(5)
|
Revolving
Line of Credit, Recourse
|
Certain
affiliates of the Partnership, entities managed by the Investment Manager, ICON
Income Fund Eight B L.P. (“Fund Eight B”), ICON Income Fund Nine, LLC (“Fund
Nine”), ICON Income Fund Ten, LLC (“Fund Ten”), ICON Leasing Fund Eleven, LLC
(“Fund Eleven”) and Fund Twelve, are parties to a Commercial Loan Agreement, as
amended (the “Loan Agreement”), with California Bank & Trust
(“CB&T”). The Partnership (collectively with Fund Eight B, Fund
Nine, Fund Ten, Fund Eleven and Fund Twelve, the “ICON Borrowers”) was added as
a borrower under the Loan Agreement on August 12, 2009.
The Loan
Agreement provides for a revolving line of credit of up to $30,000,000 pursuant
to a senior secured revolving loan facility (the “Facility”), which is secured
by all assets of the ICON Borrowers not subject to a first priority lien, as
defined in the Loan Agreement. Each of the ICON Borrowers is jointly and
severally liable for all amounts borrowed under the Facility. At December 31,
2009, no amounts were accrued related to the Partnership’s joint and several
obligations under the Facility. Amounts available under the Facility are subject
to a borrowing base that is determined, subject to certain limitations, on the
present value of the future receivables under certain lease agreements and loans
in which the ICON Borrowers have a beneficial interest.
54
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(5)
|
Revolving
Line of Credit, Recourse -
continued
|
The
Facility expires on June 30, 2011 and the ICON Borrowers may request a one year
extension to the revolving line of credit within 390 days of the then-current
expiration date, but CB&T has no obligation to extend. The interest rate for
general advances under the Facility is CB&T’s prime rate and the interest
rate on up to five separate non-prime rate advances that are permitted to be
made under the Facility is the rate at which U.S. dollar deposits can be
acquired by CB&T in the London Interbank Eurocurrency Market plus 2.50% per
year, provided that neither interest rate is permitted to be less than 4.00% per
year. The interest rate at December 31, 2009 was 4.00%. In addition,
the ICON Borrowers are obligated to pay a quarterly commitment fee of 0.50% on
unused commitments under the Facility.
The ICON
Borrowers are also parties to a Contribution Agreement (the “Contribution
Agreement”), pursuant to which the ICON Borrowers agreed to certain restrictions
on the amounts and terms of their respective borrowings under the Facility in
order to minimize the risk that an ICON Borrower would be unable to repay its
portion of the outstanding obligations under the Facility at any
time. The Contribution Agreement also provides that, in the event
that an ICON Borrower pays an amount under the Contribution Agreement in excess
of its share of the total obligations under the Facility, whether by reason of
an event of default or otherwise, the other ICON Borrowers will immediately make
a contribution payment to such ICON Borrower in such amount that the aggregate
amount paid by each ICON Borrower reflects its allocable share of the aggregate
obligations under the Facility. The ICON Borrowers’ obligations to
each other under the Contribution Agreement are collateralized by a subordinate
lien on the assets of each ICON Borrower.
Aggregate borrowings by all ICON
Borrowers under the Facility amounted to $2,360,000 at December 31,
2009. The Partnership had no borrowings outstanding under the
Facility as of such date. The balances of $100,000 and $2,260,000
were borrowed by Fund Ten and Fund Eleven, respectively. As of March
24, 2010, Fund Ten and Fund Eleven had outstanding borrowings under the Facility
of $700,000 and $0, respectively.
The ICON
Borrowers were in compliance with all covenants under the Loan Agreement at
December 31, 2009. As of such date, no amounts were due or payable by the
Partnership under the Contribution Agreement.
|
(6)
|
Transactions
with Related Parties
|
The
Partnership has entered into certain agreements with the General Partner, the
Investment Manager and ICON Securities, whereby the Partnership pays certain
fees and reimbursements to these parties. ICON Securities is entitled
to receive a 3% underwriting fee from the gross proceeds from sales of the
Partnership’s Interests.
The
Partnership pays the Investment Manager (i) an annual management fee, payable
monthly, equal to 3.50% of the gross periodic payments due and paid from the
Partnership’s investments and (ii) acquisition fees, through the end of the
operating period, equal to 2.50% of the Purchase Price of each investment the
Partnership makes in Capital Assets.
In addition, the Partnership reimburses
the General Partner and its affiliates for organizational and offering expenses
incurred in connection with the Partnership’s organization and
offering. The reimbursement of these expenses will be capped at the
lesser of 1.44% of the gross offering proceeds (assuming all of the Interests
are sold in the offering) and the actual costs and expenses incurred by the
General Partner and its affiliates. Accordingly, the General Partner
and its affiliates may ultimately be reimbursed for less than the actual costs
and expenses incurred. These costs may include,
but are not limited to, legal, accounting, printing, advertising,
administrative, investor relations and promotional expenses for registering,
offering and distributing the Partnership’s Interests to the
public. The General Partner also has a 1% interest in the
Partnership’s profits, losses, cash distributions and liquidation
proceeds.
55
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(6)
|
Transactions
with Related Parties - continued
|
In
addition, the General Partner and its affiliates are reimbursed for
administrative expenses incurred in connection with the Partnership’s
operations. Administrative expense reimbursements are costs incurred
by the General Partner or its affiliates that are necessary to the Partnership’s
operations. These costs include the General Partner’s and its affiliates’
legal, accounting, investor relations and operations personnel costs, as well as
professional fees and other costs that are charged to the Partnership based upon
the percentage of time such personnel dedicate to the Partnership. Excluded
are salaries and related costs, office rent, travel expenses and other
administrative costs incurred by individuals with a controlling interest in the
General Partner.
Fees and
other expenses paid or accrued by the Partnership to the General Partner or its
affiliates were as follows:
|
Entity
|
Capacity
|
Description
|
Period from the Commencement of Operations through
December 31, 2009
|
|||||
| ICON Capital Corp. | Investment Manager |
Organizational
and offering expense reimbursements (1)
|
$ | 1,577,572 | ||||
|
ICON
Securities Corp.
|
Dealer-Manager
|
Underwriting
fees (2)
|
2,026,388 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Acquisition
fees (3)
|
1,025,143 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Management
fees (4)
|
76,559 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Administrative
expense reimbursements (4)
|
1,924,682 | |||||
| $ | 6,630,344 | |||||||
|
(1) Amount
capitalized and amortized to partners' equity.
|
||||||||
|
(2) Amount
charged directly to partners' equity.
|
||||||||
|
(3) Amount
capitalized and amortized to operations over the estimated service period
in accordance with the Partnership's accounting
policies.
|
||||||||
|
(4) Amount
charged directly to operations.
|
||||||||
At
December 31, 2009, the Partnership had a net payable of $566,964 due to the General
Partner and its affiliates that primarily consisted of administrative expense
reimbursements in the amount of approximately $428,540.
From
January 1, 2010 to March 26, 2010, the Partnership raised an additional
$30,036,795 in capital contributions and has paid or accrued underwriting fees
to ICON Securities in the amount of $871,481.
|
(7)
|
Concentrations
of Risk
|
At times,
the Partnership's cash and cash equivalents may exceed insured limits. The
Partnership has placed these funds in high quality institutions in order to
minimize the risk of loss relating to exceeding insured limits.
56
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(7)
|
Concentrations
of Risk - continued
|
For the
year ended December 31, 2009, two lessees accounted for 100% of the
Partnership’s rental income.
At
December 31, 2009, equipment on lease to two lessees
accounted for approximately 22.70% of total assets.
|
(8)
|
Geographic
Information
|
Geographic
information for revenue, based on the country of origin, and long-lived assets,
which includes finance leases, operating leases (net of accumulated
depreciation) and investments in joint ventures, were as follows:
|
Year
Ended December 31, 2009
|
||||||||||||
|
United
|
United
|
|||||||||||
|
States
|
Kingdom
|
Total
|
||||||||||
|
Revenue:
|
||||||||||||
|
Rental
income
|
$ | 1,044,930 | $ | - | $ | 1,044,930 | ||||||
|
Income
from investments in joint ventures
|
$ | 751,812 | $ | (56,531 | ) | $ | 695,281 | |||||
|
At
December 31, 2009
|
||||||||||||
|
United
|
United
|
|||||||||||
|
States
|
Kingdom
|
Total
|
||||||||||
|
Long-lived
assets:
|
||||||||||||
|
Leased
equipment at cost, net
|
$ | 13,530,536 | $ | - | $ | 13,530,536 | ||||||
|
Investments
in joint ventures
|
$ | 13,502,011 | $ | 4,240,818 | $ | 17,742,829 | ||||||
|
(9)
|
Selected
Quarterly Financial
Data
|
The
following table is a summary of selected financial data, by
quarter:
| (unaudited) |
Year
ended
|
|||||||||||||||||||
|
Quarters
Ended in 2009
|
December
31,
|
|||||||||||||||||||
|
March
31,
|
June
30,
|
September
30,
|
December
31,
|
2009
|
||||||||||||||||
|
Total
revenue
|
$ | - | $ | - | $ | 362,768 | $ | 1,398,386 | $ | 1,761,154 | ||||||||||
|
Net
loss allocable to
|
||||||||||||||||||||
|
limited
partners
|
$ | - | $ | (651,669 | ) | $ | (600,426 | ) | $ | (316,360 | ) | $ | (1,568,455 | ) | ||||||
|
Weighted
average number of limited partnership
|
||||||||||||||||||||
|
interests
outstanding
|
- | 3,552 | 17,423 | 50,641 | 32,161 | |||||||||||||||
|
Net
loss per weighted average
|
||||||||||||||||||||
|
limited
partnership interest
|
$ | - | $ | (183.47 | ) | $ | (34.46 | ) | $ | (6.25 | ) | $ | (48.77 | ) | ||||||
57
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(10)
|
Commitments
and Contingencies and Off-Balance Sheet
Transactions
|
At the
time the Partnership acquires or divests of its interest in a Capital Asset, the
Partnership may, under very limited circumstances, agree to indemnify the seller
or buyer for specific contingent liabilities. The General Partner
believes that any liability that may arise as a result of any such
indemnification obligations will not have a material adverse effect on the
consolidated financial condition of the Partnership taken as a
whole.
|
(11)
|
Income
Tax Reconciliation
(unaudited)
|
No
provision for income taxes has been recorded by the Partnership since the
liability for such taxes is the responsibility of each of the individual
partners rather than the Partnership. The Partnership’s income tax
returns are subject to examination by federal and State taxing authorities, and
changes, if any, could adjust the individual income taxes of the
partners.
At
December 31, 2009 and 2008, the partners’ equity included in the consolidated
financial statements totaled $58,615,050 and $1,001, respectively. The partners’
capital for federal income tax purposes at December 31, 2009 and 2008 totaled
$49,420,827 and $0, respectively. The difference arises primarily
from sales and offering expenses reported as a reduction in the limited
partners’ capital accounts for financial reporting purposes, but not for federal
income tax reporting purposes, and differences in depreciation and amortization
between financial reporting purposes and federal income tax
purposes.
The
following table reconciles net loss for financial statement reporting purposes
to the net loss for federal income tax purposes for the year ended December 31,
2009:
|
2009
|
||||
|
Net
loss per consolidated financial statements
|
$ | (1,584,298 | ) | |
|
Rental
income
|
210,820 | |||
|
Depreciation
and amortization
|
(6,396,843 | ) | ||
|
Tax
(loss) gain from consolidated joint venture
|
(1,915,676 | ) | ||
|
Other
|
213,117 | |||
|
Net
loss for federal income tax purposes
|
$ | (9,472,880 | ) | |
|
(12)
|
Subsequent
Events
|
ICON
Global Crossing VI, LLC
On
February 25, 2010, the Partnership, through its wholly-owned subsidiary, ICON
Global Crossing VI, purchased and simultaneously leased back
telecommunications equipment to Global Crossing. The purchase price
for the equipment was approximately $4,300,000. The lease is for a
period of thirty-six months and expires in February of 2013. The
Partnership paid an acquisition fee to the Investment Manager of approximately
$107,000 relating to this transaction.
ICON
Northern Leasing III, LLC
On March
3, 2010, the Partnership, through its wholly-owned subsidiary, ICON Northern
Leasing III, LLC (“ICON NL III”), provided a senior secured term loan in the
aggregate amount of $9,857,589 to Northern Capital Associates XVIII, L.P. (“NCA
XVIII”), Northern Capital Associates XV, L.P. (“NCA XV”) and Northern Capital
Associates XIV, L.P. (“NCA XIV”). The loan is secured by (i) an
underlying pool of leases for credit card machines of NCA XVIII; (ii) an
underlying pool of leases for credit card machines of NCA XV (subject only to
the first priority security interest of ICON Northern Leasing II, LLC (“ICON NL
II”)), and (iii) an underlying pool of leases for credit card machines of NCA
XIV (subject only to the first priority security interest of ICON Northern
Leasing, LLC and second priority security interest of ICON NL
II). Interest on the secured term loan accrues at a rate of 18% per
year. The loan is payable monthly in arrears for a period of 48
months. The obligations of NCA XVIII, NCA XV and NCA XIV are
guaranteed by Northern Leasing Systems, Inc. The Partnership paid an
acquisition fee to the Investment Manager of approximately $379,000 relating to
this transaction.
58
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(A
Delaware Limited Partnership)
Notes to
Consolidated Financial Statements
December
31, 2009
|
(12)
|
Subsequent
Events -
continued
|
ICON
Coach II, LLC
On March
9, 2010, the Partnership, through its wholly-owned subsidiary, ICON Coach II,
LLC (“ICON Coach II”), purchased eleven 2010 MCI J4500 motor coach buses
from Motor Coach Industries, Inc. (“MCI”) for the purchase price of
$4,502,715. Simultaneously with the purchase, ICON Coach II entered
into a sixty-month lease with Dillon's Bus Service, Inc. (“DBS”) and Lakefront
Lines, Inc. (“Lakefront”) and Schedule 1 to the lease with DBS. DBS will
pay interim rent for the period from April 1, 2010 through May 31, 2010 unless
the base term commences earlier. Prior to June 1, 2010, ICON Coach
II will purchase fifteen 2010 MCI J4500 motor coach buses from MCI for the
purchase price of $5,865,450 and simultaneously lease the buses to Lakefront
pursuant to Schedule 2 to the lease. The obligations of DBS and
Lakefront are guaranteed by Coach America Holdings, Inc. and CUSA, LLC. The
Partnership paid an acquisition fee to the Investment Manager of approximately
$259,000 relating to this transaction.
None.
Evaluation of disclosure controls
and procedures
In
connection with the preparation of this Annual Report on Form 10-K for the
period ended December 31, 2009, as well as the financial statements for our
General Partner, our General Partner carried out an evaluation, under the
supervision and with the participation of the management of our General Partner,
including its Co-Chief Executive Officers and the Chief Financial Officer, of
the effectiveness of the design and operation of our General Partner’s
disclosure controls and procedures as of the end of the period covered by this
report pursuant to the Securities Exchange Act of 1934, as amended. Based on the
foregoing evaluation, the Co-Chief Executive Officers and the Chief Financial
Officer concluded that our General Partner’s disclosure controls and procedures
were effective.
In
designing and evaluating our General Partner’s disclosure controls and
procedures, our General Partner recognized that disclosure controls and
procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Our General Partner’s disclosure controls
and procedures have been designed to meet reasonable assurance standards.
Disclosure controls and procedures cannot detect or prevent all error and fraud.
Some inherent limitations in disclosure controls and procedures include costs of
implementation, faulty decision-making, simple error and mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based, in part, upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all anticipated and
unanticipated future conditions. Over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with established
policies or procedures.
Our
General Partner’s Co-Chief Executive Officers and Chief Financial Officer have
determined that no weakness in disclosure controls and procedures had any
material effect on the accuracy and completeness of our financial reporting and
disclosure included in this Annual Report on Form 10-K.
Evaluation
of internal control over financial reporting
Our
General Partner is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended, as a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that
(1) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the company's assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Our
General Partner assessed the effectiveness of its internal control over
financial reporting as of December 31, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in "Internal Control —
Integrated Framework."
Based on
its assessment, our General Partner believes that, as of December 31, 2009, its
internal control over financial reporting is effective.
This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our General
Partner’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this Annual
Report.
Not
applicable.
Our
General Partner
Our
General Partner was formed as a Delaware limited liability company in August
2008 to act as our general partner. Its principal office is located at 100 Fifth
Avenue, Fourth Floor, New York, New York 10011, and its telephone number is
(212) 418-4700. The sole member of our General Partner is ICON Capital Corp.,
our Investment Manager.
|
Name
|
Age
|
Title
|
||
|
Michael
A. Reisner
|
39
|
Co-Chief
Executive Officer, Co-President, and Director
|
||
|
Mark
Gatto
|
37
|
Co-Chief
Executive Officer, Co-President, and Director
|
||
|
Joel
S. Kress
|
37
|
Executive
Vice President — Business and Legal Affairs and
Secretary
|
||
|
Anthony
J. Branca
|
41
|
Senior
Vice President and Chief Financial Officer
|
||
|
Craig
A. Jackson
|
51
|
Senior
Vice President — Remarketing and Asset
Management
|
Biographical
information regarding the officers and directors of our General Partner follows
the table setting forth information regarding our Investment Manager’s current
executive officers and directors.
Our
Investment Manager
Our
Investment Manager, ICON Capital Corp., a Delaware corporation (“ICON”), was
formed in 1985. Our Investment Manager's principal offices are located at 100
Fifth Avenue, 4th
Floor, New York, New York 10011, and its telephone number is (212)
418-4700.
In
addition to the primary services related to our making and disposing of
investments, our Investment Manager provides services relating to the day-to-day
management of our investments. These services include collecting payments due
from lessees, borrowers, and other counterparties; remarketing Capital Assets
that are off-lease; inspecting Capital Assets; serving as a liaison with
lessees, borrowers, and other counterparties; supervising Capital Asset
maintenance; and monitoring performance by lessees, borrowers, and other
counterparties of their obligations, including payment of contractual payments
and all operating expenses.
|
Name
|
Age
|
Title
|
||
|
Michael
A. Reisner
|
39
|
Co-Chairman,
Co-Chief Executive Officer and Co-President
|
||
|
Mark
Gatto
|
37
|
Co-Chairman,
Co-Chief Executive Officer and Co-President
|
||
|
Joel
S. Kress
|
37
|
Executive
Vice President — Business and Legal Affairs
|
||
|
Anthony
J. Branca
|
41
|
Senior
Vice President and Chief Financial Officer
|
||
|
H.
Daniel Kramer
|
58
|
Senior
Vice President and Chief Marketing Officer
|
||
|
David
J. Verlizzo
|
37
|
Senior
Vice President — Business and Legal Affairs
|
||
|
Craig
A. Jackson
|
51
|
Senior
Vice President — Remarketing and Asset Management
|
||
|
Harry
Giovani
|
35
|
Senior
Vice President — Credit
|
Michael A.
Reisner, Co-Chairman, Co-Chief Executive Officer and Co-President, joined
ICON in 2001. Mr. Reisner has been a Director since May 2007. Mr. Reisner was
formerly Chief Financial Officer from January 2007 through April 2008. Mr.
Reisner was also formerly Executive Vice President – Acquisitions from February
2006 through January 2007. Mr. Reisner was Senior Vice President and General
Counsel from January 2004 through January 2006. Mr. Reisner was Vice President
and Associate General Counsel from March 2001 until December 2003. Previously,
from 1996 to 2001, Mr. Reisner was an attorney with Brodsky Altman &
McMahon, LLP in New York, concentrating on commercial
transactions. Mr. Reisner received a J.D. from New York Law School
and a B.A. from the University of Vermont.
Mark
Gatto, Co-Chairman, Co-Chief Executive Officer and Co-President, has been
a Director since May 2007. Mr. Gatto originally joined ICON in 1999 and was
previously Executive Vice President and Chief Acquisitions Officer from May 2007
to January 2008. Mr. Gatto was formerly Executive Vice President –
Business Development from February 2006 to May 2007 and Associate General
Counsel from November 1999 through October 2000. Before serving as
Associate General Counsel, Mr. Gatto was an attorney with Cella & Goldstein
in New Jersey, concentrating on commercial transactions and general litigation
matters. From November 2000 to June 2003, Mr. Gatto was Director of Player
Licensing for the Topps Company and, in July 2003, he co-founded ForSport
Enterprises, LLC, a specialty business consulting firm in New York City, and
served as its managing partner before re-joining ICON in April
2005. Mr. Gatto received an M.B.A. from the W. Paul Stillman School
of Business at Seton Hall University, a J.D. from Seton Hall University School
of Law, and a B.S. from Montclair State University.
Joel S.
Kress, Executive Vice President – Business and Legal Affairs, started his
tenure with ICON in August 2005 as Vice President and Associate General
Counsel. In February 2006, he was promoted to Senior Vice President
and General Counsel, and in May 2007, he was promoted to his current
position. Previously, from September 2001 to July 2005, Mr. Kress was
an attorney with Fried, Frank, Harris, Shriver & Jacobson LLP in New York
and London, England, concentrating on mergers and acquisitions, corporate
finance and financing transactions (including debt and equity issuances) and
private equity investments. Mr. Kress received a J.D. from Boston
University School of Law and a B.A. from Connecticut College.
Anthony J.
Branca has been Chief Financial Officer since May 2008. Mr. Branca was
formerly Senior Vice President – Accounting and Finance from January 2007
through April 2008. Mr. Branca was Director of Corporate Reporting &
Analysis for The Nielsen Company (formerly VNU) from March 2004 until January
2007, was International Controller of an internet affiliate from May 2002 to
March 2004 and held various other management positions with The Nielsen Company
from July 1997 through May 2002. Previously, from 1995 through 1997,
Mr. Branca was employed at Fortune Brands. Mr. Branca started his career as
an auditor with KPMG Peat Marwick in 1991. Mr. Branca received a
B.B.A. from Pace University.
H. Daniel
Kramer, Senior Vice President and Chief Marketing Officer, joined ICON in
February 2008. Mr. Kramer has more than 30 years of equipment leasing
and structured finance experience. Most recently, from October 2006 to February
2008, Mr. Kramer was part of CIT Commercial Finance, Equipment Finance Division,
offering equipment leasing and financing solutions to complement public and
private companies’ capital structure. Prior to that role, from
February 2003 to October 2006, Mr. Kramer was Senior Vice President, National
Sales Manager with GMAC Commercial Equipment Finance, leading a direct sales
organizational team; from 2001 to 2003, Senior Vice President and National Sales
Manager for ORIX Commercial Structured Equipment Finance division; and President
of Kramer, Clark & Company for 12 years, providing financial consulting
services to private and public companies, including structuring and syndicating
private placements, equipment leasing and recapitalizations. Mr. Kramer received
a B.S. from Glassboro State College.
David J.
Verlizzo has been Senior Vice President – Business and Legal Affairs
since July 2007. Mr. Verlizzo was formerly Vice President and Deputy
General Counsel from February 2006 to July 2007 and was Assistant Vice President
and Associate General Counsel from May 2005 until January
2006. Previously, from May 2001 to May 2005, Mr. Verlizzo was an
attorney with Cohen Tauber Spievack & Wagner LLP in New York,
concentrating on public and private securities offerings, securities law
compliance and corporate and commercial
transactions. Mr. Verlizzo received a J.D. from Hofstra
University School of Law and a B.S. from The University of
Scranton.
Craig A.
Jackson has been Senior Vice President – Remarketing and Asset Management
since March 2008. Mr. Jackson was previously Vice President – Remarketing and
Portfolio Management from February 2006 through March 2008. Previously, from
October 2001 to February 2006, Mr. Jackson was President and founder of
Remarketing Services, Inc., a transportation equipment remarketing company.
Prior to 2001, Mr. Jackson served as Vice President of Remarketing and Vice
President of Operations for Chancellor Fleet Corporation (an equipment leasing
company). Mr. Jackson received a B.A. from Wilkes
University.
Harry
Giovani, Senior Vice President – Credit, joined ICON in April 2008. Most
recently, from March 2007 to January 2008, Mr. Giovani was Vice President for
FirstLight Financial Corporation, responsible for underwriting and syndicating
middle market leveraged loan transactions. Previously, from April 2004 to March
2007, he worked at GE Commercial Finance, initially as an Assistant Vice
President in the Intermediary Group, where he was responsible for executing
middle market transactions in a number of industries including manufacturing,
steel, paper, pharmaceutical, technology, chemicals and automotive, and later as
a Vice President in the Industrial Project Finance Group, where he originated
highly structured project finance transactions. Mr. Giovani started his career
in 1997 at Citigroup’s Citicorp Securities and CitiCapital divisions, where he
spent six years in a variety of roles of increasing responsibility including
underwriting, origination and strategic marketing/business development. Mr.
Giovani graduated from Cornell University in 1996 with a B.S. in
Finance.
Code
of Ethics
Our
General Partner, on our behalf, has adopted a code of ethics for its Co-Chief
Executive Officers and Chief Financial Officer. The Code of Ethics is
available free of charge by requesting it in writing from our General
Partner. Our General Partner’s address is 100 Fifth Avenue, 4th
Floor, New York, New York 10011.
We have
no directors or officers. Our General Partner and its affiliates were paid or
accrued the following compensation and reimbursement for costs and
expenses:
|
Entity
|
Capacity
|
Description
|
Period from the Commencement of Operations through
December 31, 2009
|
|||||
|
|
|
|
||||||
| ICON Capital Corp. | Investment Manager |
Organizational
and offering expense reimbursements (1)
|
$ | 1,577,572 | ||||
|
ICON
Securities Corp.
|
Dealer-Manager
|
Underwriting
fees (2)
|
2,026,388 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Acquisition
fees (3)
|
1,025,143 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Management
fees (4)
|
76,559 | |||||
|
ICON
Capital Corp.
|
Investment
Manager
|
Administrative
expense reimbursements (4)
|
1,924,682 | |||||
| $ | 6,630,344 | |||||||
|
(1) Amount
capitalized and amortized to partners' equity.
|
||||||||
|
(2) Amount
charged directly to partners' equity.
|
||||||||
|
(3) Amount
capitalized and amortized to operations over the estimated service period
in accordance with our accounting policies.
|
||||||||
|
(4) Amount
charged directly to operations.
|
||||||||
Our
General Partner also has a 1% interest in our profits, losses, cash
distributions and liquidation proceeds. We paid distributions to our
General Partner of $9,636 for the year ended December 31, 2009. Our General
Partner’s interest in our net loss was $15,843 for the year ended December 31,
2009.
|
|
(a)
|
We
do not have any securities authorized for issuance under any equity
compensation plan. No person of record owns, or is known by us to own,
beneficially more than 5% of any class of our
securities.
|
|
|
(b)
|
As
of March 19, 2010, no directors or officers of our General Partner own any
of our equity securities.
|
|
|
(c)
|
Neither
we nor our General Partner are aware of any arrangements with respect to
our securities, the operation of which may at a subsequent date result in
a change of control of us.
|
See “Item
11. Executive Compensation” for a discussion of our related party
transactions. See Notes 4 and 6 to our consolidated financial statements
for a discussion of our investments in joint ventures and transactions with
related parties, respectively.
Because
we are not listed on any national securities exchange or inter-dealer quotation
system, we have elected to use the Nasdaq Stock Market’s definition of
“independent director” in evaluating whether any of our General Partner’s
directors are independent. Under this definition, the board of directors of our
General Partner has determined that our General Partner does not have any
independent directors, nor are we required to have any.
During
the years ended December 31, 2009 and 2008, our auditors provided audit services
relating to our Registration Statement on Form S-1, our Annual Report on Form
10-K and our Quarterly Reports on Form 10-Q. Additionally, our auditors
provided other services in the form of tax compliance work. The
following table presents the fees for both audit and non–audit services rendered
by Ernst & Young LLP for the years ended December 31, 2009 and
2008:
|
2009
|
2008
|
|||||||
|
Audit
Fees
|
$ | 297,000 | $ | 111,550 | ||||
|
Tax
Fees
|
40,000 | - | ||||||
| $ | 337,000 | $ | 111,550 | |||||
|
(a)
|
1.
Financial Statements
|
|
See
index to financial statements included as Item 8 to this Annual Report on
Form 10-K hereof.
|
|
|
2. Financial
Statement Schedules
|
|
|
Schedules
not listed above have been omitted because they are not applicable or the
information required to be set forth therein is included in the financial
statements or notes thereto.
|
|
|
3.
Exhibits:
|
|
|
3.1 Certificate
of Limited Partnership of Registrant (Incorporated by reference to Exhibit
3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC
on October
3, 2008 (File No. 333-153849)).
|
|
|
4.1 Limited
Partnership Agreement of Registrant (Incorporated by reference to Exhibit
A to Registrant’s Prospectus filed with the SEC on May 18, 2009 (File No.
333- 153849)).
|
|
|
10.1
Investment
Management Agreement, by and between ICON Equipment and Corporate
Infrastructure Fund Fourteen, L.P. and ICON Capital Corp., dated as of May
18, 2009
(Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2009, filed
August 13, 2009).
|
|
|
10.2
Commercial
Loan Agreement, by and between California Bank & Trust and ICON Income
Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten,
LLC
and ICON Leasing Fund Eleven, LLC, dated as of August 31, 2005
(Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly
Report on Form 10-Q for the
quarterly period ended June 30, 2009, filed August 13,
2009).
|
|
|
10.3
Loan
Modification Agreement, by and between California Bank & Trust and
ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income
Fund Ten, LLC
and ICON Leasing Fund Eleven, LLC, dated as of December 26, 2006
(Incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly
Report on Form 10-Q for
the quarterly period ended June 30, 2009, filed August 13,
2009).
|
|
|
10.4
Loan
Modification Agreement, by and between California Bank & Trust and
ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income
Fund Ten, LLC,
ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC, dated as
of June 20, 2007 (Incorporated by reference to Exhibit 10.4 to
Registrant’s Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2009, filed
August 13, 2009).
|
|
|
10.5 Third
Loan Modification Agreement, by and between California Bank & Trust
and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income
Fund
Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC,
dated as of May 1, 2008 (Incorporated by reference to Exhibit 10.5 to
Registrant’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2009, filed August 13,
2009).
|
|
|
10.6 Fourth
Loan Modification Agreement, by and between California Bank
& Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine,
LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON
Leasing Fund Twelve, LLC and ICON Equipment and Corporate Infrastructure
Fund Fourteen, L.P., dated as of August 12, 2009 (Incorporated by
reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2009, filed August 13,
2009).
|
|
|
31.1 Rule
13a-14(a)/15d-14(a) Certification of Co-Chief Executive
Officer.
|
|
|
31.2 Rule
13a-14(a)/15d-14(a) Certification of Co-Chief Executive
Officer.
|
|
|
31.3 Rule
13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.
|
|
|
32.1 Certification
of Co-Chief Executive Officer pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2 Certification
of Co-Chief Executive Officer pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.3 Certification
of Chief Financial Officer pursuant to 18 U.S.C. §
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
(b)
|
1.
Financial Statements of ICON ION,
LLC.
|
ICON ION,
LLC
(A
Delaware Limited Liability Company)
Table of
Contents
The
Members
ICON ION,
LLC
We have
audited the accompanying balance sheet of ICON ION, LLC (the “Company”) as of
December 31, 2009, and the related statements of operations, changes in members’
equity, and cash flows for the period from June 29, 2009 (commencement of
operations) through December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of ICON ION, LLC at December 31, 2009,
and the results of its operations and its cash flows for the period from June
29, 2009 (commencement of operations) through December 31, 2009 in conformity
with U.S. generally accepted accounting principles.
/s/ Ernst & Young,
LLP
March 31,
2010
New York,
New York
|
(A
Delaware Limited Liability Company)
|
||||
|
Balance
Sheet
|
||||
|
Assets
|
||||
|
December
31,
|
||||
|
2009
|
||||
|
Current
assets:
|
||||
|
Cash
|
$ | 36,986 | ||
|
Interest
receivable
|
303,710 | |||
|
Current
portion of notes receivable
|
3,051,789 | |||
|
Other
current assets
|
166,092 | |||
|
Total
current assets
|
3,558,577 | |||
|
Non-current
assets:
|
||||
|
Notes
receivable, less current portion
|
16,027,940 | |||
|
Other
non-current assets, net
|
298,425 | |||
|
Total
non-current assets
|
16,326,365 | |||
|
Total
Assets
|
$ | 19,884,942 | ||
|
Liabilities
and Members’ Equity
|
||||
|
|
||||
|
Current
liabilities:
|
||||
|
Deferred
revenue
|
$ | 251,090 | ||
|
Other
current liabilities
|
36,986 | |||
|
Total
current liabilities
|
288,076 | |||
|
Total
Liabilities
|
288,076 | |||
|
Commitments
and contingencies
|
||||
|
Members’
Equity:
|
||||
|
Total
Members’ Equity
|
19,596,866 | |||
|
Total
Liabilities and Members’ Equity
|
$ | 19,884,942 | ||
See accompanying notes to financial
statements.
|
(A
Delaware Limited Liability Company)
|
||||
|
Statement
of Operations
|
||||
|
For
the period from June 29, 2009 (Commencement of Operations) through
December 31, 2009
|
||||
|
Revenue:
|
||||
|
Interest
income - notes receivable
|
$ | 1,542,050 | ||
|
Total
revenue
|
1,542,050 | |||
|
Expenses:
|
||||
|
Amortization
|
90,483 | |||
|
Total
expenses
|
90,483 | |||
|
Net
income
|
$ | 1,451,567 | ||
See
accompanying notes to financial statements.
|
(A
Delaware Limited Liability Company)
|
||||
|
Statement
of Changes in Members’ Equity
|
||||
|
Members’ Equity
|
||||
|
Balance,
June 29, 2009 (Commencement of Operations)
|
$ | - | ||
|
Equity
investment from members
|
20,555,000 | |||
|
Net
income
|
1,451,567 | |||
|
Cash
distributions
|
(2,409,701 | ) | ||
|
Balance,
December 31, 2009
|
$ | 19,596,866 | ||
See
accompanying notes to financial statements.
|
(A
Delaware Limited Liability Company)
|
||||
|
Statement
of Cash Flows
|
||||
|
For the period from June 29, 2009 (Commencement of
Operations) through December 31, 2009
|
||||
|
Cash
flows from operating activities:
|
||||
|
Net
income
|
$ | 1,451,567 | ||
|
Adjustments
to reconcile net income to net cash provided by
|
||||
|
operating
activities:
|
||||
|
Amortization
|
90,483 | |||
|
Changes
in operating assets and liabilities:
|
||||
|
Interest
receivable
|
(303,710 | ) | ||
|
Deferred
revenue
|
251,090 | |||
|
Other
current liabilities
|
36,986 | |||
|
Net
cash provided by operating activities
|
1,526,416 | |||
|
Cash
flows from investing activities:
|
||||
|
Investment
in term loans
|
(20,555,000 | ) | ||
|
Proceeds
received from repayment of term loans
|
920,271 | |||
|
Net
cash used in investing activities
|
(19,634,729 | ) | ||
|
Cash
flows from financing activities:
|
||||
|
Equity
investment from members
|
20,555,000 | |||
|
Cash
distributions to members
|
(2,409,701 | ) | ||
|
Net
cash provided by financing activities
|
18,145,299 | |||
|
|
||||
|
Net
increase in cash
|
36,986 | |||
|
|
||||
|
Cash,
beginning of period
|
- | |||
|
Cash,
end of period
|
$ | 36,986 | ||
See
accompanying notes to financial statements.
70
(A
Delaware Limited Liability Company)
Notes to
Financial Statements
December
31, 2009
|
(1)
|
Organization
|
ICON ION,
LLC (the “LLC”) was formed on June 29, 2009, as a Delaware limited liability
company, for the purpose of making secured term loans (the “ION Loans”) in the
aggregate amount of $20,000,000 to ARAM Rentals Corporation, a Canadian
bankruptcy remote Nova Scotia unlimited liability company (“ARC”) and ARAM
Seismic Rentals Inc., a U.S. bankruptcy remote Texas corporation (“ASR,”
together with ARC, collectively referred to as the “ARAM Borrowers”). The LLC is
a joint venture between two affiliated entities, ICON Leasing Fund Twelve, LLC
(“Fund Twelve”) and ICON Equipment and Corporate Infrastructure Fund Fourteen,
L.P. (“Fund Fourteen”) (collectively, the “LLC’s Members”). Fund Twelve and Fund
Fourteen have a 55% and 45% ownership interest, respectively, in the LLC’s
profits, losses and cash distributions. The LLC is engaged in one business
segment, the business of making secured term loans.
The
Manager of the LLC’s Members is ICON Capital Corp., a Delaware corporation (the
“Manager”). The Manager manages and controls the business affairs of the LLC,
including, but not limited to, the financing transactions that the LLC entered
into pursuant to the terms of the respective limited partnership or limited
liability company agreement of each of the LLC’s Members.
|
(2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation
The
accompanying financial statements of the LLC have been prepared in accordance
with U.S. generally accepted accounting principles (“US GAAP”). In
the opinion of the Manager, all adjustments considered necessary for a fair
presentation have been included.
Risks and
Uncertainties
In the
normal course of business, the LLC is exposed to two significant types of
economic risk: credit and market. Credit risk is the risk of a
borrower or other counterparty’s inability or unwillingness to make
contractually required payments.
Market
risk reflects the risk that material events will change the borrower’s business
and its ability to pay. The LLC believes that the carrying value of its
investment is reasonable, taking into consideration these risks, along with
estimated collateral values, payment history and other relevant
information.
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP requires the
Manager to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Significant estimates primarily include
the determination of allowance for doubtful accounts, amortization and
impairment losses. Actual results could differ from those
estimates.
Cash
The LLC’s
cash is held principally at one financial institution and at times may exceed
insured limits. The LLC has placed these funds in a high quality institution in
order to minimize risk relating to exceeding insured limits.
71
ICON ION,
LLC
(A
Delaware Limited Liability Company)
Notes to
Financial Statements
December
31, 2009
|
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Revenue
Recognition
The LLC
uses the effective interest rate method to recognize interest income, which
produces a constant periodic rate of return on the investment, when
earned.
Notes
Receivable
Notes
receivable are reported at the outstanding principal balance net of any
unamortized deferred fees. Costs on originated loans are reported as other
current and other non-current assets. Unearned income is amortized as an
adjustment to the yield using the effective interest rate method. Interest
receivable resulting from the unpaid principal is recorded separately from the
outstanding balance.
Allowance
for Doubtful Accounts
When
evaluating the adequacy of the allowance for doubtful accounts, the LLC
estimates the collectibility of its notes receivable by analyzing the borrowers’
creditworthiness and current economic trends. The LLC records an allowance for
doubtful accounts when the analysis indicates that the probability of full
collection is unlikely. No allowance was deemed necessary at December 31,
2009.
Initial
Direct Costs
The LLC
capitalizes initial direct costs associated with the origination and funding of
financing transactions in accordance with the accounting pronouncement that
accounts for nonrefundable fees and costs associated with originating or
acquiring loans. The costs are amortized using the effective interest rate
method and included in amortization expense on the accompanying statement of
operations.
Income
Taxes
The LLC
is taxed as a partnership for federal and State income tax purposes. No
provision for income taxes has been recorded since the liability for such taxes
is that of each of the LLC’s Members rather than the LLC. The LLC'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 LLC’s
Members.
|
(3)
|
Notes
Receivable
|
On June
29, 2009, the LLC funded the first tranche of the ION Loans in the amounts of
$8,825,000 and $3,675,000 to ARC and ASR, respectively. On July 20,
2009, the LLC funded the second tranche of the ION Loans to ARC in the amount of
$7,500,000. The LLC paid an acquisition fee to the Manager in the amount of
$555,000 in connection with this transaction.
The ARAM
Borrowers are wholly-owned subsidiaries of ION Geographical Corporation, a
Delaware corporation (“ION”). The ION Loans are secured by (i) a
first priority security interest in all of the ARAM analog seismic system
equipment owned by the ARAM Borrowers and (ii) a pledge of all of the equity
interests in the ARAM Borrowers. In addition, ION guaranteed all
obligations of the ARAM Borrowers under the ION Loans. Interest
accrues at the rate of 15% per year and the ION Loans are payable monthly in
arrears for a period of 60 months beginning on August 1, 2009.
72
ICON ION,
LLC
(A
Delaware Limited Liability Company)
Notes to
Financial Statements
December
31, 2009
|
(4)
|
Transactions
with Related Parties
|
In the
normal course of operations, the LLC’s Members will pay certain operating and
general and administrative expenses on behalf of the LLC in proportion to their
membership interests.
The financial condition and results of
operations of the LLC, as reported, are not necessarily indicative of the
results that would have been reported had the LLC operated completely
independently.
|
(5)
|
Fair
Value Measurements
|
The LLC is required, on a nonrecurring
basis, to adjust the carrying value or provide valuation allowances for certain
assets and liabilities using fair value measurements. The estimated
fair value of the LLC’s notes receivable was based on the discounted value of
future cash flows expected to be received from the loans based on terms
consistent with the range of the LLC’s internal pricing strategies for
transactions of this type.
|
December
31, 2009
|
||||||||
|
Carrying Amount
|
Fair Value
|
|||||||
|
Fixed
rate notes receivable
|
$ | 19,079,729 | $ | 19,689,696 | ||||
|
(6)
|
Concentrations
of Risk
|
For the
period from June 29, 2009 (Commencement of Operations) through December 31,
2009, the LLC had two affiliated borrowers that accounted for 100% of
interest income.
For the
period from June 29, 2009 (Commencement of Operations) through December 31,
2009, the LLC had two affiliated borrowers that accounted for 100% of the notes
receivable balance.
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(Registrant)
By: ICON
GP 14, LLC
(General
Partner of the Registrant)
March 31,
2010
|
By:
/s/ Michael A.
Reisner
|
|
Michael
A. Reisner
|
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
|
By:
/s/ Mark
Gatto
|
|
Mark
Gatto
|
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
ICON
Equipment and Corporate Infrastructure Fund Fourteen, L.P.
(Registrant)
By: ICON
GP 14, LLC
(General
Partner of the Registrant)
March 31, 2010
|
By:
/s/ Michael A.
Reisner
|
|
Michael
A. Reisner
|
|
Co-Chief
Executive Officer, Co-President and Director
(Co-Principal
Executive Officer)
|
|
By:
/s/ Mark
Gatto
|
|
Mark
Gatto
|
|
Co-Chief
Executive Officer, Co-President and Director
(Co-Principal
Executive Officer)
|
|
By:
/s/ Anthony J.
Branca
|
|
Anthony
J. Branca
|
|
Chief
Financial Officer
(Principal
Accounting and Financial Officer)
|
|
74
|