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
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SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31,
2009
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OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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For the transitional period from _____ to _____ |
Commission
file number: 000-50654
ICON
Income Fund Ten, LLC
(Exact
name of registrant as specified in its charter)
Delaware
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35-2193184
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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: Shares of Limited Liability Company
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
shares of limited liability company interests of the
registrant.
Number of
outstanding shares of limited liability company interests of the registrant on
March
19, 2010 is 148,050.
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
Income Fund Ten, LLC (the “LLC” or “Fund Ten”) was formed on January 2, 2003 as
a Delaware limited liability company. The LLC will continue until
December 31, 2023, unless terminated sooner. When used in this Annual
Report on Form 10-K, the terms “we,” “us,” “our” or similar terms refer to the
LLC and its consolidated subsidiaries.
Our
manager is ICON Capital Corp., a Delaware corporation (our
“Manager”). Our Manager manages and controls our business affairs,
including, but not limited to, our equipment leases and other financing
transactions that we enter into pursuant to the terms of our amended and
restated operating agreement (our “LLC Agreement”).
We are
currently in our operating period. Our offering period began in June
2003 and ended in April 2005. Our initial capitalization was $1,000,
which was contributed by our Manager. We offered our shares of
limited liability company interests (“Shares”) with the intention of raising up
to $150,000,000 of capital and we commenced operations on our initial closing
date, August 22, 2003, when we issued 5,066 Shares, representing $5,065,736 of
capital contributions. Between June 2, 2003 and April 5, 2005, our
final closing date, we sold 144,928 Shares representing $144,928,766 of capital
contributions, bringing the total sale of Shares and capital contributions to
149,994 and $149,994,502, respectively. Through December 31, 2009, we
redeemed 1,783 Shares, bringing the total number of outstanding Shares to
148,211.
Our
Business
We
operate as an equipment leasing program in which the capital our members
invested was pooled together to make investments, pay fees and establish a small
reserve. We primarily engage in the business of purchasing equipment
and leasing or servicing it to third parties, equipment financing, acquiring
equipment subject to lease and, to a lesser degree, acquiring ownership rights
to items of leased equipment at lease expiration. Some of our
equipment leases will be acquired for cash and are expected to provide current
cash flow, which we refer to as “income” leases. For our other
equipment leases, we finance the majority of the purchase price through
borrowings from third parties. We refer to these leases as “growth”
leases. These growth leases generate little or no current cash flow
because substantially all of the rental payments received from the lessee are
used to service the indebtedness associated with acquiring or financing the
lease. For these leases, we anticipate that the future value of the
leased equipment will exceed the cash portion of the purchase
price.
We divide
the life of the program into three distinct phases:
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(1)
Offering Period:
We invested most of the net proceeds from the sale of Shares in equipment
leases and other financing
transactions.
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(2)
Operating Period:
After the close of the offering period, we reinvested and 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
members. We anticipate that the operating period will end five
years from the end of our offering period, or April
2010. However, our Manager may, at its sole discretion, extend
the operating period for up to an additional three
years.
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(3)
Liquidation
Period: After the operating period ends, we will begin to sell our
assets in the ordinary course of business. Our goal is to
complete the liquidation period within three years from 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 $77,033,616 and $88,999,197,
respectively. For the year ended December 31, 2009, two lessees
accounted for approximately 69.3% of our total rental and finance income of
$15,114,542. In January 2009, we acquired 51% of the business of
Pretel Group Limited (“Pretel”). Pretel generated $5,716,849 of our
servicing income, which accounted for 21.2% of our total revenue of
$26,945,465. We had net income attributable to us for the year ended
December 31, 2009 of $6,218,546. For the year ended December 31,
2008, three lessees accounted for approximately 79.7% of our total rental and
finance income of $22,432,084. We had net income attributable to us
for the year ended December 31, 2008 of $12,593,752. For the year
ended December 31, 2007, three lessees accounted for approximately 78.2% of our
total rental and finance income of $31,467,931. We had net income
attributable to us for the year ended December 31, 2007 of
$4,887,060.
At
December 31, 2009, our portfolio, which we hold either directly or through joint
ventures, consisted primarily of the following investments:
Marine
Vessels
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We
own two container vessels, the M/V ZIM Canada (the “ZIM Canada”) and the
M/V ZIM Korea (the “ZIM Korea”), which are subject to bareboat charters
with ZIM Israel Navigation Co. Ltd. (“ZIM”). The charter for
the ZIM Canada expires on March 31, 2017 and the charter for the ZIM Korea
expires on March 31, 2016.
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We
have a 49% ownership interest in ICON Mayon, LLC (“ICON Mayon”), which
purchased an Aframax product tanker, the Mayon Spirit, from an affiliate
of the Teekay Corporation (“Teekay”) on July 24, 2007. The
Mayon Spirit is subject to a bareboat charter that expires on July 23,
2011.
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We
have a 35.7% ownership interest in ICON Eagle Carina Holdings, LLC (“ICON
Carina Holdings”), which owns ICON Eagle Carina Pte. Ltd. ("ICON Eagle
Carina"). On December 18, 2008, ICON Eagle Carina purchased the
Aframax product tanker M/V Eagle Carina (the “Eagle Carina”) from Aframax
Tanker II AS. The Eagle Carina is subject to an 84-month
bareboat charter with AET, Inc. Limited (“AET”) that expires on November
14, 2013.
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We
have a 35.7% ownership interest in ICON Eagle Corona Holdings, LLC (“ICON
Corona Holdings”), which owns ICON Eagle Corona Pte. Ltd. ("ICON Eagle
Corona"). On December 31, 2008, ICON Eagle Corona purchased the
Aframax product tanker M/V Eagle Corona (the “Eagle Corona”) from Aframax
Tanker II AS. The Eagle Corona is subject to an 84-month
bareboat charter with AET that expires on November 14,
2013.
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Telecommunications
Equipment
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We
have a 79.31% ownership interest in ICON Global Crossing, LLC (“ICON
Global Crossing”), which purchased telecommunications equipment that is
subject to a lease with Global Crossing Telecommunications, Inc. (“Global
Crossing”) that expires on March 31,
2010.
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We
have a 72.34% ownership interest in ICON Global Crossing II, LLC (“ICON
Global Crossing II”), which purchased telecommunications equipment that is
subject to a lease with Global Crossing and Global Crossing North American
Networks, Inc. (collectively, “Global Crossing Group”). The
lease expires on October 31, 2010.
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We
have a 45% ownership interest in ICON Global Crossing V, LLC (“ICON Global
Crossing V”), which purchased telecommunications equipment that is subject
to a lease with Global Crossing. The lease expires on December
31, 2010.
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Manufacturing
Equipment
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On
March 23, 2006, we were assigned and assumed the rights to a lease from
Remarketing Services, Inc. (“Remarketing Services”), a related party, for
approximately $594,000. Remarketing Services was assigned and
assumed the rights to a lease from Chancellor Fleet Corporation
(“Chancellor”), an unrelated third party. Chancellor was a
party to a lease with Saturn Corporation (“Saturn”), a subsidiary of
General Motors Corporation (“GM”), for materials handling
equipment. The lease term expires on September 30, 2011, but
has been rejected by GM in connection with its petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code, in which Saturn was
named as a debtor. On February 22, 2010, we received notice
that the monthly lease payments would cease effective March 1,
2010.
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We
own machining and metal working equipment subject to a lease with MW Texas
Die Casting, Inc. (“Texas Die”). Texas Die is a wholly-owned
subsidiary of MW Universal, Inc. (“MWU”). We also own equipment
subject to a lease with Cerion MPI, LLC, an affiliate of Texas Die
(“MPI”). Both the Texas Die and MPI leases expire on December
31, 2012.
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Information
Technology Equipment
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We
have a 75% ownership interest in the unguaranteed residual values of a
portfolio of leases currently in effect and performing with various
lessees in the United Kingdom. The portfolio is mainly
comprised of information technology equipment, including laptops, desktops
and printers. Several of these leases have been extended
through October 31, 2012.
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Bedside
Entertainment and Communication Terminals
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We
own hospital bedside entertainment and communication terminals that were
on lease to Premier Telecom Contracts Limited (“Premier
Telecom”). The equipment is installed in various hospitals
located throughout the United Kingdom. On January 30, 2009, we
acquired 51% of Pretel, the ultimate parent of Premier
Telecom.
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Notes
Receivable Secured by Credit Card Machines
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We
have a 12.25% ownership interest in ICON Northern Leasing, LLC ("ICON
Northern Leasing"), which, in November 2008, purchased four promissory
notes (the “Notes”) made by Northern Capital Associates XIV, L.P., as
borrower, in favor of Merrill Lynch Commercial Finance
Corp. The Notes are secured by an underlying pool of leases for
credit card machines.
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For a
discussion of the significant transactions that we engaged in during the years
ended December 31, 2009, 2008 and 2007, please refer to “Item 7. Manager’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Segment
Information
We are
engaged in one business segment, the business of purchasing equipment and
leasing it to third parties, providing equipment and other financing, acquiring
equipment subject to lease and, to a lesser degree, acquiring ownership rights
to items of leased equipment 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. When we made our investments, we competed, and as we seek to liquidate
our portfolio, we compete with a variety of competitors, including 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. Our competitors may have been and/or may be in a position
to offer equipment to prospective customers on financial terms that were or are
more favorable than those that we could offer or that we can offer in
liquidating our portfolio, which may have affected our ability to make
investments and may affect our ability to liquidate our portfolio, in each case,
in a manner that would enable us 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 Manager has full and exclusive control over
our management and operations.
Available
Information
Our
Annual Report on Form 10-K, our most recent Quarterly Reports on Form 10-Q and
any amendments to those reports and our Current Reports on Form 8-K and any
amendments to those reports are available free of charge on our Manager’s
internet website at http://www.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
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 17 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 Shares. 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 Shares is limited by the absence of a public trading
market and, therefore, you should be prepared to hold your Shares for the life
of the fund, which is anticipated to be at least ten years.
We do not
anticipate that a public market will develop for our Shares, our Shares 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 Shares. In
addition, our LLC Agreement imposes significant restrictions on your right to
transfer your Shares. 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
Shares 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 Shares
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 Shares. As a result, you must view your investment in our Shares
as a long-term, illiquid investment that may last for at least 10
years.
If
you choose to request that we redeem your Shares, you may receive significantly
less than you would receive if you were to hold your Shares for the life of the
fund.
After you
have been admitted as a member and have held your Shares for at least one year,
you may request that we redeem up to all of your Shares. We are under no
obligation to do so, however, and will have only limited cash available for this
purpose. If we redeem your Shares, the redemption price has been unilaterally
set and, depending upon when you request redemption, the redemption price may be
less than the unreturned amount of your investment. If your Shares are redeemed,
the redemption price may provide you a significantly lower value than the value
you would realize by retaining your Shares 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 Shares.
You
should not rely on the cash distributions from your Shares as a source of
income. While we intend to make monthly cash distributions, our Manager may
determine it is in our 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
Shares may be diluted.
Some
investors, including our Manager and its officers, directors and other
affiliates, may have purchased Shares at discounted prices and generally will
share in our revenues and distributions based on the number of Shares that they
purchased, rather than the discounted subscription price paid by them for their
Shares. As a result, investors who paid discounted prices for their investments
will receive higher returns on their investments in us as compared to investors
who paid the entire $1,000 per Share.
Our
assets may be plan assets for ERISA purposes, which could subject our Manager to
additional restrictions on its 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 Shares. 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 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
Shares held by such qualified plan or IRA. This could result in some restriction
on our Manager’s willingness to engage in transactions that might otherwise be
in the best interest of all holders of Shares due to the strict rules of ERISA
regarding fiduciary actions.
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 Shares.
The
statements of estimated value are based on the estimated value of each Share (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 Shares 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 members upon
liquidation;
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members
could realize this estimate of value if they were to attempt to sell their
Shares;
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this
estimate of value reflects the price or prices that our Shares 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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You
have limited voting rights and are required to rely on our Manager to make all
of our investment decisions and achieve our investment objectives.
Our
Manager will make all of our investment decisions, including determining the
investments and the dispositions we make. Our success will depend upon the
quality of the investment decisions our Manager makes, particularly relating to
our investments in equipment and the realization of such investments. You are
not permitted to take part in managing, establishing or changing our investment
objectives or policies.
The
decisions of our Manager may be subject to conflicts of interest.
The
decisions of our Manager may be subject to various conflicts of interest arising
out of its relationship to us and our affiliates. Our Manager could be
confronted with decisions in which it will, directly or indirectly, have an
economic incentive to place its respective interests or the interests of our
affiliates above ours. As of December 31, 2009, our Manager is managing seven
other equipment leasing and finance funds. See “Item 13. Certain
Relationships and Related Transactions, and Director
Independence.” These conflicts may include, but are not limited
to:
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our
Manager may receive more fees for making investments in which we incur
indebtedness to fund these investments than if indebtedness is not
incurred;
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our
LLC Agreement does not prohibit our Manager or any of our affiliates from
competing with us for investments and engaging in other types of
business;
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our
Manager may have opportunities to earn fees for referring a prospective
investment opportunity to others;
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the
lack of separate legal representation for us and our Manager and lack of
arm’s-length negotiations regarding compensation payable to our
Manager;
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our
Manager is our “tax matters partner” and is able to negotiate with the IRS
to settle tax disputes that would bind us and our members that might not
be in your best interest given your individual tax situation;
and
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our
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 Manager is not independent.
Any
conflicts in determining and allocating investments between us and our Manager,
or between us and another fund managed by our Manager, are resolved by our
Manager’s investment committee, which also serves as the investment committee
for other funds managed by our Manager. Since all of the members of our
Manager’s investment committee are officers of our Manager and are not
independent, matters determined by such investment committee, including
conflicts of interest between us and our Manager and our 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 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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our
LLC Agreement does not prohibit our Manager or any of our affiliates from
competing with us for investments and engaging in other types of
business;
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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 equipment,
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 Manager’s investment committee may make exceptions to these
general policies when, in our Manager’s judgment, other circumstances make
application of these policies inequitable or economically undesirable. In
addition, our LLC Agreement permits our Manager and our affiliates to engage in
equipment 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
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 Manager will supervise and control our business affairs. Our 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 devoted 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
Manager and its affiliates will receive expense reimbursements and substantial
fees from us.
The
expense reimbursements and fees of our Manager and its affiliates were
established by our Manager 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 LLC Agreement. In
general, expense reimbursements and fees are paid without regard to the amount
of our cash distributions to our additional members, 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.
Furthermore,
we borrowed a significant portion of the purchase price of certain of our
investments. As a consequence, we paid greater fees to our 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. The
reimbursement of expenses and payment of fees could adversely affect our ability
to make distributions to our additional members.
Our
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 Manager manages has grown substantially since our
Manager was formed in 1985 and our 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 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 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 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 Manager’s information systems and technology.
There can be no assurance that these information systems and technology will be
able to accommodate our Manager’s 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
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
Manager 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 Manager 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, as
amended, including the filing of quarterly and annual reports. Prior public
funds sponsored by our 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 members 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 Manager and its affiliates is
limited by our LLC Agreement.
Our LLC
Agreement provides that neither our Manager 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 Manager or an affiliate if the Manager 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 LLC
Agreement, your right to institute a cause of action against our Manager may be
more limited than it would be without these provisions.
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 Shares 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 Shares. These include:
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fluctuations
in demand for equipment 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 equipment at the time our
investments mature;
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the
technological and economic obsolescence of
equipment;
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potential
defaults by lessees, borrowers or other
counterparties;
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supervision
and regulation by governmental authorities;
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
equipment by, among other things, acquiring equipment subject to lease,
purchasing equipment and leasing equipment to third-party end users, financing
equipment for third-party end users, acquiring ownership rights to items of
leased equipment at lease expiration, and acquiring interests or options to
purchase interests in the residual value of equipment. 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 borrowed and may in the future 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 borrowed and may in the future
borrow a substantial portion of the purchase price of certain of our
investments. While we believe the use of leverage will result in our ability to
make 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 the majority of our
borrowings are 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 Manager), ICON
Income Fund Eight B L.P. (“Fund Eight B”), ICON Income Fund Nine, LLC (“Fund
Nine”), ICON Leasing Fund Eleven, LLC (“Fund Eleven”), ICON Leasing Fund Twelve,
LLC (“Fund Twelve”) and ICON Equipment and Corporate Infrastructure Fund
Fourteen, L.P. (“Fund Fourteen”), are party to the revolving line of credit
agreement with CB&T, as amended. The terms of that agreement
could restrict us from paying distributions to our members if such payments
would cause us not to be in compliance with our financial covenants in that
agreement. For additional information on the terms of our credit
agreement, see “Item 7. Manager’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 equipment that we
invest in is expected to be the potential value of the equipment once the lease
term expires (with respect to leased equipment). Generally, equipment
is expected to decline in value over its useful life. In making these types of
investments, we assume a residual value for the equipment 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 equipment and provide a rate of return despite
the expected decline in the value of the equipment over the term of the
investment. However, the actual residual value of the equipment 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 equipment;
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our
ability to maximize the value of the equipment at maturity of our
investment;
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market
conditions prevailing at maturity;
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the
cost of new equipment at the time we are remarketing used
equipment;
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the
extent to which technological or regulatory developments reduce the market
for such used equipment;
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the
strength of the economy; and
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the condition of the equipment at
maturity.
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We cannot
assure you that our assumptions with respect to value will be accurate or that
the equipment will not lose value more rapidly than we anticipate.
If
equipment is not properly maintained, its residual value may be less than
expected.
If a
lessee or other counterparty fails to maintain equipment in accordance with the
terms of our agreements, we may have to make unanticipated expenditures to
repair the equipment in order to protect our investment. In addition, some of
the equipment we invest in is used equipment. While we plan to inspect most used
equipment prior to making an investment, there is no assurance that an
inspection of used equipment prior to purchasing it will reveal any or all
defects and problems with the equipment that may occur after it is acquired by
us.
We
typically obtain representations from the sellers and lessees of used equipment
that:
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the
equipment has 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
equipment is in good operating condition and repair and that, with respect
to leases, the lessee has no defenses to the payment of rent for the
equipment as a result of the condition of such
equipment.
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We would
have rights against the seller of equipment 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 will make us whole with
respect to our entire investment in the equipment or our expected returns on the
equipment, including legal costs, costs of repair and lost revenue from the
delay in being able to sell or re-lease the equipment 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 enter
into transactions with parties that have senior debt rated below investment
grade or no credit rating. 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 equipment. 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 equipment 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 equipment may
be high and may negatively affect the value of our investment in the equipment.
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 equipment 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 equipment and
then have to remarket such equipment. 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 equipment that could become worthless if the
option grantor files for bankruptcy.
We may
acquire options to purchase equipment, 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 equipment in foreign countries may be riskier than domestic investments and
may result in losses.
We made
and may in the future make investments in equipment 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 equipment if a foreign party defaults and enforcement of
our rights outside the United States could be more expensive. Moreover, foreign
jurisdictions may confiscate our equipment. Use of equipment 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 equipment
and require them to maintain insurance covering the risks of confiscation of the
equipment, 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 invest in equipment that may travel to or between locations outside
of the United States. Regulations in foreign countries may adversely affect our
interest in equipment 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 equipment, 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 Manager considers 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 equipment 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 equipment, 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 members. Even with transactions requiring payments
in U.S. dollars, the equipment 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 equipment could use their knowledge of the lease terms for gain at our
expense.
We may
acquire equipment 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 equipment at lease end for lower rental amounts. This may
adversely affect our opportunity to maximize the residual value of the equipment
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 Manager
manages, as well as with unrelated third parties. Investing in joint ventures
involves additional risks not present when acquiring leased equipment 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 equipment 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 equipment 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.
Equipment
may be damaged or lost. Fire, weather, accidents, theft or other events can
cause damage or loss of equipment. 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 equipment 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 equipment, we
could suffer a total loss of any investment in the affected equipment. In
investing in some types of equipment, we may have been 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 equipment 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 equipment is to be
used outside of the United States. Failing to register the equipment, or losing
such registration, could result in substantial penalties, forced liquidation of
the equipment and/or the inability to operate and lease the equipment.
Governmental agencies may also require changes or improvements to equipment 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 equipment to be removed from service for a period of
time. The terms of the transaction documents may provide for payment reductions
if the equipment must remain out of service for an extended period of time or is
removed from service. We may then have reduced income from our investment for
this equipment. If we do not have the funds to make a required change, we might
be required to sell the affected equipment. 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 equipment
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 equipment. 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. If an equipment lease
is held to be a loan with a usurious rate of interest, the amount of the lease
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 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 Manager 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
financing at rates that are less than ours, potentially forcing us to lower our
rates or lose potential lessees, borrowers or other
counterparties. In addition, our competitors may have been and/or may
be in a position to offer equipment to prospective customers on financial terms
that are more favorable than those that we can offer or that we will be able to
offer when liquidating our portfolio, which may affect our ability to make
investments and may affect our ability to liquidate our portfolio, in each case,
in a manner that would enable us to achieve our investment
objectives.
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 LLC Agreement
places significant restrictions on your ability to transfer our
Shares.
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 equipment 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 equipment, 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.
We expect
that, for federal income tax purposes, we will not be treated as the owner and
lessor of the equipment that we invest in through our lending activities. Based
on our expected level of activity with respect to these types of financings, we
expect that the IRS will treat us as being 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 members 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.
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 Shares may exceed the cash
distributions you receive from this investment. While we expect that your net
taxable income from owning our Shares 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 equipment 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. 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 equipment subject to lease that the Code requires us to depreciate over
a longer period than the standard depreciation period. Similarly, some of the
equipment 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 equipment that the Code
deems to be tax-exempt use property and the leases do not satisfy certain
requirements, losses attributable to such equipment are suspended and may be
deducted only against income we receive from such equipment or when we dispose
of such equipment. Depending on the equipment that we acquire and its
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 Shares. 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 equipment is
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 we expect the income
to be attributable to a lending trade or business. However, we expect any gains
or losses we recognize from those lending activities to be associated with a
trade or business and generally allowable as either passive activity income or
loss, as applicable.
The
IRS may allocate more taxable income to you than our LLC 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 LLC 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.
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 Shares,
since you will be allocated a proportionate share of our tax preference items.
Our Manager’s operation of our business affairs may lead to other adjustments
that could also increase your alternative minimum tax. In addition, the IRS
could take the position that all or a portion of our lending activities are not
a trade or business, but rather an investment activity. If all or a portion of
our lending activities are not considered to be a trade or business, then a
portion of our management fees 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 Shares, depending upon the laws of the jurisdictions in which the equipment
that we own is 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 Shares, 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 Shares 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 equipment over the term of our existence
and/or borrowers repay the loans we make to them, it is very likely that a
portion of each distribution to you 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
Shares 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 Shares, 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 received and continue to 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 Manager’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
Shares are not publicly traded and there is no established public trading market
for our Shares. It is unlikely that any such market will
develop.
Number
of Members
|
|
Title of Class
|
as of March 19, 2010
|
Manager
(as a member)
|
1
|
Additional
members
|
4,412
|
We, at
our Manager’s discretion, pay monthly distributions to each of our members
beginning the first month after each member is admitted through the end of our
operating period, which we currently anticipate will be in April
2010. We paid distributions to additional members of $12,747,182,
$12,752,775, and $12,778,769 for the years ended December 31, 2009, 2008 and
2007, respectively. Additionally, we paid distributions to our Manager of
$128,760, $128,817, and $129,078 for the years ended December 31, 2009, 2008 and
2007, respectively. The terms of our loan agreement with CB&T, as
amended, could restrict us from paying cash distributions to our members if such
payment would cause us to not be in compliance with our financial
covenants. See “Item 7. Manager’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 have participated in the offering and sale of Shares
pursuant to the offering or to participate in any future offering of our Shares,
we are required pursuant to FINRA Rule 2310(b)(5) to disclose in each annual
report distributed to our members a per Share estimated value of our Shares, the
method by which we developed the estimated value, and the date used to develop
the estimated value. In addition, our Manager prepares statements of our
estimated Share values to assist fiduciaries of retirement plans subject to the
annual reporting requirements of ERISA in the preparation of their reports
relating to an investment in our Shares. For these purposes, the
estimated value of our Shares is deemed to be $532.60 per Share 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.
The
estimated value of our Shares is based on the estimated amount that a holder of
a Share would receive if all of our assets were sold in an orderly liquidation
as of the close of our fiscal year and all proceeds from such sales, without
reduction for transaction costs and expenses, together with any cash held by us,
were distributed to the members upon liquidation. To estimate the
amount that our members would receive upon such liquidation, we calculated 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
Manager’s estimated values of certain other assets, as applicable,
and (iii) our cash on hand. From this amount, we then subtracted our
total debt outstanding and then divided that sum by the total number of Shares
outstanding.
The
foregoing valuation is an estimate only. The appraisals that we
obtained and the methodology utilized by our management in estimating our per
Share value were subject to various limitations and were based on a number of
assumptions and estimates that may or may not be accurate or complete. No
liquidity discounts or discounts relating to the fact that we are currently
externally managed were applied to our estimated per Share valuation, and no
attempt was made to value us as an enterprise.
As noted
above, the foregoing valuation was performed solely for the ERISA and FINRA
purposes described above and was based solely on our Manager’s perception of
market conditions and the types and amounts of our assets as of the reference
date for such valuation and should not be viewed as an accurate reflection of
the value of our Shares or our assets. 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 Shares
at this time and none is expected to develop, there can be no assurance that
members could receive $532.60 per Share if such a market did exist and they sold
their Shares or that they will be able to receive such amount for their Shares
in the future. Furthermore, there can be no assurance:
·
|
as
to the amount members 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 members may receive may be
less than $1,000 per Share primarily due to the fact that the funds
initially available for investment were reduced from the gross offering
proceeds in order to pay selling commissions, underwriting fees,
organizational and offering expenses, and acquisition or formation
fees;
|
·
|
that
the foregoing valuation, or the method used to establish value, will
satisfy the technical requirements imposed on plan fiduciaries under
ERISA; or
|
·
|
that
the foregoing valuation, or the method used to establish value, will not
be subject to challenge by the IRS if used for any tax (income, estate,
gift or otherwise) valuation purposes as an indicator of the current value
of the Shares.
|
The
redemption price we offer in our redemption plan utilizes a different
methodology than that which we use to determine the current value of our Shares
for the ERISA and FINRA purposes described above and, therefore, the $532.60 per
Share does not reflect the amount that a member would currently receive under
our redemption plan. In addition, there can be no assurance that you
will be able to redeem your Shares under our redemption plan.
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.
Years Ended December 31,
|
||||||||||||||||||||
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Total
revenue (a)
|
$ | 26,945,465 | $ | 33,493,886 | $ | 33,482,349 | $ | 30,209,531 | $ | 25,003,105 | ||||||||||
Net
income (loss) attributable to Fund Ten
|
$ | 6,218,546 | $ | 12,593,752 | $ | 4,887,060 | $ | (1,971,947 | ) | $ | (4,944,700 | ) | ||||||||
Net
income (loss) attributable to Fund Ten
|
||||||||||||||||||||
allocable
to additional members
|
$ | 6,156,361 | $ | 12,467,815 | $ | 4,838,189 | $ | (1,952,228 | ) | $ | (4,895,253 | ) | ||||||||
Net
income (loss) attributable to Fund Ten
|
||||||||||||||||||||
allocable
to the Manager
|
$ | 62,185 | $ | 125,937 | $ | 48,871 | $ | (19,719 | ) | $ | (49,447 | ) | ||||||||
Weighted
average number of additional shares
|
||||||||||||||||||||
of
limited liability company interests outstanding
|
148,222 | 148,275 | 148,575 | 148,880 | 143,378 | |||||||||||||||
Net
income (loss) attributable to Fund Ten per weighted
average
|
||||||||||||||||||||
additional
share of limited liability company interests
|
$ | 41.53 | $ | 84.09 | $ | 32.56 | $ | (13.11 | ) | $ | (34.14 | ) | ||||||||
Distributions
to additional members
|
$ | 12,747,182 | $ | 12,752,775 | $ | 12,778,769 | $ | 12,805,418 | $ | 11,998,617 | ||||||||||
Distributions
per weighted average additional
|
||||||||||||||||||||
share
of limited liability company interests
|
$ | 86.00 | $ | 86.01 | $ | 86.01 | $ | 86.01 | $ | 83.69 | ||||||||||
Distributions
to the Manager
|
$ | 128,760 | $ | 128,817 | $ | 129,078 | $ | 129,348 | $ | 121,233 | ||||||||||
December 31,
|
||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
Total
assets (b)
|
$ | 77,033,616 | $ | 88,999,197 | $ | 122,908,748 | $ | 145,455,658 | $ | 169,186,094 | ||||||||||
Recourse
and non-recourse long-term debt (c)
|
$ | 100,000 | $ | 7,076,252 | $ | 35,295,089 | $ | 45,769,691 | $ | 60,474,288 | ||||||||||
Members'
equity
|
$ | 72,900,830 | $ | 78,307,152 | $ | 84,105,073 | $ | 93,771,043 | $ | 105,449,404 |
(a)
|
2009
includes the results of operations of Pretel and Global Crossing, which
have been consolidated effective January 30, 2009 and September 30, 2009,
respectively. 2008 includes a gain on sale of ICON
Containership III, LLC (“ICON Containership III”) of approximately
$6,741,000 and bad debt expense of approximately
$2,500,000. Year-over-year revenue between 2005 and 2007
increased as a result of additional revenue generated from additional
leased equipment acquired, new finance income related to the Premier
Telecom lease that was reclassified from an operating lease to a finance
lease during 2006, as well as additional income from investments in joint
ventures.
|
(b)
|
Consistent
year-over-year decline in total assets is the result of depreciation of
our leased equipment and equipment and sales of assets in the
ordinary course of business, as well as an impairment loss of
approximately $1,698,000 and $675,000 recorded in 2009 and 2006,
respectively.
|
(c)
|
Consistent
year-over-year decline in non-recourse long-term debt is the result of our
normal paydown of debt in the ordinary course of
business. Consistent with our lifecycle as we approach our
liquidation phase, all debt was paid in full in 2009, reducing our
outstanding principal balance to
$0.
|
Our Manager’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 program in which the capital our members
invested was pooled together to make investments, pay fees and establish a small
reserve. We primarily engage in the business of purchasing equipment
and leasing or servicing it to third parties, equipment financing, acquiring
equipment subject to lease and, to a lesser degree, acquiring ownership rights
to items of leased equipment at lease expiration. Some of our
equipment leases will be acquired for cash and are expected to provide current
cash flow, which we refer to as “income” leases. For our other
equipment leases, we finance the majority of the purchase price through
borrowings from third parties. We refer to these leases as “growth”
leases. These growth leases generate little or no current cash flow
because substantially all of the rental payments received from the lessee are
used to service the indebtedness associated with acquiring or financing the
lease. For these leases, we anticipate that the future value of the
leased equipment will exceed the cash portion of the purchase
price.
Our
Manager manages and controls our business affairs, including, but not limited
to, our equipment leases and other financing transactions, under the terms of
our LLC Agreement.
We are
currently in our operating period. During our operating period,
additional investments will continue to be made with the cash generated from our
initial investments and our additional investments to the extent that the cash
is not needed for expenses, reserves and distributions to
members. The investment in additional equipment leases and other
financing transactions in this manner is called “reinvestment.” We
anticipate investing in equipment leases, other financing transactions and
residual ownership rights in items of leased equipment from time to time until
April 2010, unless that date is extended, at our Manager’s sole discretion, for
up to an additional three years.
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 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.
Lease
and Other Significant Transactions
We
engaged in the following significant transactions during the years ended
December 31, 2009, 2008 and 2007:
Aircraft
On March
31, 2004, we and ICON Income Fund Eight A L.P., an entity also managed by our
Manager (“Fund Eight A”), formed ICON Aircraft 46837 LLC (“Aircraft 46837”), in
which we and Fund Eight A had ownership interests of 10% and 90%,
respectively. Aircraft 46837 was formed for the purpose of acquiring
a 1979 McDonnell Douglas DC10-30F aircraft on lease to Federal Express
Corporation (“FedEx”). On March 30, 2007, Aircraft 46837 sold the
aircraft on lease to FedEx for $4,260,000 and recognized a loss on the sale of
approximately $920,000, of which our share was approximately
$92,000.
Digital
Audio/Visual Entertainment Systems
On
December 22, 2005, we and Fund Eleven formed ICON AeroTV, LLC (“ICON AeroTV”)
for the purpose of owning equipment leased to AeroTV, Ltd. (“AeroTV”), a
provider of on board digital/audio visual systems for airlines, rail and coach
operators in the United Kingdom. We and Fund Eleven each contributed
approximately $2,776,000 for a 50% ownership interest in ICON
AeroTV. During 2006, ICON AeroTV purchased approximately $1,357,000
of equipment on lease to AeroTV. The leases were scheduled to expire
between December 31, 2007 and June 30, 2008.
In
February 2007, due to the termination of the services agreement with its main
customer, AeroTV notified our Manager of its inability to pay certain rent owed
to ICON AeroTV and subsequently filed for insolvency protection in the United
Kingdom. ICON AeroTV terminated the master lease agreement with
AeroTV at that time. Certain facts then came to light that gave our
Manager serious concerns regarding the propriety of AeroTV's actions during and
after the execution of the lease with AeroTV. On April 18, 2007, ICON
AeroTV filed a lawsuit in the United Kingdom’s High Court of Justice, Queen’s
Bench Division against AeroTV and one of its directors for fraud. On
April 17, 2008, the default judgment against the AeroTV director, which had
previously been set aside, was reinstated. ICON AeroTV is attempting
to collect on the default judgment against the AeroTV director in Australia, his
country of domicile. At this time, it is not possible to determine
ICON AeroTV’s ability to collect the judgment.
On
February 20, 2007, ICON AeroTV wrote off its leased assets with a remaining cost
basis of approximately $438,000, which was offset by the recognition of the
relinquished security deposit and deferred income of approximately $286,000,
resulting in a net loss of approximately $152,000, of which our share was
approximately $76,000. A final rental payment of approximately
$215,000 was collected in March 2007. In May 2007, the unexpended
amount previously contributed to ICON AeroTV, inclusive of accreted interest, of
approximately $5,560,000 was returned to us and Fund Eleven, of which our share
was approximately $2,780,000.
Telecommunications
Equipment
During
December 2004 and March 2005, we acquired Mitel Networks 3340 Global Branch
Office Solution phone systems subject to a lease with CompUSA, Inc.
(“CompUSA”). On December 31, 2007, our Manager sold all of the phone
systems on lease to CompUSA with a net book value of approximately $1,887,000
for proceeds of approximately $1,076,000. We recognized a loss on the
sale of equipment of approximately $811,000.
On
December 20, 2007, we and Fund Eleven formed ICON Global Crossing V, with
ownership interests of 45% and 55%, respectively, to purchase telecommunications
equipment for approximately $12,982,000. The equipment is subject to
a 36-month lease with Global Crossing that commenced on January 1,
2008.
Prior to
September 30, 2009, we had a 30.62% ownership interest in ICON Global Crossing,
which purchased telecommunications equipment that is subject to a lease with
Global Crossing that expires on March 31, 2010. On September 30,
2009, ICON Global Crossing sold certain telecommunications equipment on lease to
Global Crossing back to it for a purchase price of $5,493,000 and removed the
equipment from the Global Crossing lease. The transaction was
effected in order to redeem Fund Eleven’s 61.39% ownership interest in ICON
Global Crossing. The sale proceeds have been paid to Fund Eleven and its
ownership interest in ICON Global Crossing was assigned 48.69% to us and 12.70%
to Fund Eight A, which adjusted our and Fund Eight A’s ownership
interests in ICON Global Crossing to 79.31% and 20.69%, respectively.
Following the transaction, we consolidate the financial condition and results of
operations of ICON Global Crossing.
On March
17, 2010, we, through our wholly-owned subsidiary, ICON Global Crossing, and
Global Crossing agreed to extend the lease which was set to expire on March 31,
2010. The lease is now scheduled to expire on March 31, 2011. In
connection with the extension, ICON Global Crossing and Global Crossing agreed
to fix the purchase option at $1 for each schedule of equipment.
Industrial
Gas Meters
On
November 9, 2005, we and Fund Eleven formed ICON EAM, LLC (“ICON EAM”) for the
purpose of leasing gas meters and accompanying data gathering equipment to EAM
Assets, Ltd. (“EAM”), a meter asset manager whose business is maintaining
industrial gas meters in the United Kingdom. We and Fund Eleven each
contributed approximately $5,620,000 for a 50% ownership interest in ICON
EAM. EAM was unable to meet its conditions precedent to our
obligations to perform under the master lease agreement. Our Manager
determined it was not in our best interest to enter into a work-out situation
with EAM at that time. All amounts funded to ICON EAM, in
anticipation of purchasing the aforementioned equipment, had been deposited into
an interest-bearing escrow account (the “Account”) controlled by ICON EAM's
legal counsel. In May 2007, the balance of the Account, inclusive of
accreted interest, of approximately $13,695,000 was returned to us and Fund
Eleven, of which our share was approximately $6,848,000.
On March
9, 2006, pursuant to the master lease agreement, the shareholders of Energy
Asset Management plc, the parent company of EAM, approved the issuance of and
issued warrants to ICON EAM to acquire 7,403,051 shares of Energy Asset
Management plc’s stock. The warrants are exercisable for five years
after issuance and have a strike price of 1.50p. At December 31,
2009, our Manager determined that the fair value of these warrants was
$0.
Bedside
Entertainment and Communication Terminals
On June
30, 2005, we, through our wholly-owned subsidiary, ICON Premier, LLC (“ICON
Premier”), executed a sales and purchase agreement, a master lease agreement and
related documents (collectively, the “Lease”) with Premier Telecom in connection
with our purchase of approximately 5,000 bedside entertainment and communication
terminals. On March 8, 2006, an amendment to the Lease was entered
into to increase the maximum aggregate equipment purchase to approximately
$15,825,000 (£8,078,000), inclusive of initial direct costs. The equipment
is installed in several National Health Service (“NHS”) hospitals in the United
Kingdom. Premier Telecom is one of four companies in the United Kingdom to
receive the rights to install and operate the equipment in the hospitals, and it
has the exclusive right to install and operate the equipment in thirteen
hospitals. The base term of the Lease, which commenced on January 1,
2006, was for a period of 84 months. At December 31, 2005, we had
purchased approximately $9,845,000 (£5,721,000) of bedside entertainment and
communication terminals, inclusive of initial direct costs.
Between
January and April 2006, ICON Premier purchased approximately $4,100,000
(£2,370,000) of additional bedside entertainment and communication terminals on
lease to Premier Telecom. The equipment was installed in various NHS
hospitals located throughout the United Kingdom.
On June
9, 2008, an amendment to the Lease was entered into to grant Premier Telecom a
three-month rental payment holiday for the period of May 2008 through July
2008. On October 1, 2008, a second amendment to the Lease (“Amendment
No. 2”) was entered into to defer the rental payment due on September
2008. Amendment No. 2 restructured the remaining rental payments
schedule to reflect the aforementioned deferrals.
In
October 2008, Pretel, the ultimate parent company of Premier Telecom, determined
that a planned merger with a competitor was no longer viable. At
December 31, 2008, ICON Premier recorded an allowance for doubtful accounts of
approximately $2,500,000 to more closely approximate the net realizable value of
its investment in finance lease to the fair market value of the underlying
leased assets.
On
January 30, 2009, we, through ICON Premier, acquired 51% of the outstanding
stock of Pretel for a purchase price of £1 (the “Pretel Acquisition”) and in
consideration for restructuring our pre-existing lease transaction with
Pretel. The estimated fair value of the net assets acquired exceeded
the total purchase price by approximately $441,000. Accordingly, we
recognized that excess as a gain attributable to a bargain
purchase. The acquisition was accounted for as a business combination
and the results of operations of Pretel have been included in our consolidated
financial statements from the date of acquisition. Had the
acquisition occurred as of January 1, 2009, the impact on our consolidated
results would have been immaterial. The purpose of this acquisition
was to protect our interest in a direct finance lease with
Pretel. Accordingly, we became the majority shareholder of Pretel
until such time that such amounts due to us under the Lease are paid in
full. At such time, the control of the business will revert back to
the original shareholders.
During
our annual impairment testing, we determined that the carrying value of ICON
Premier’s long lived assets were in excess of the estimated fair value of those
assets. At December 31, 2009, ICON Premier recorded an impairment
loss of approximately $1,513,000 to properly reflect those assets at fair
value.
United
Kingdom Information Technology Equipment Portfolio
Summit
Asset Management Limited
On
February 28, 2005, we entered into a participation agreement with Summit Asset
Management Ltd. (“SAM”) and acquired a 75% interest in the unguaranteed residual
values of a portfolio of equipment on lease to various United Kingdom
lessees. Several of these leases have been extended through October
31, 2012. We do not have an interest in the equipment until the
expiration of the initial lease term. The portfolio is mainly
comprised of information technology equipment, including laptops, desktops and
printers. The purchase price, inclusive of initial direct costs, was
approximately $2,843,000.
During
the years ended December 31, 2009, 2008 and 2007, we realized proceeds of
approximately $164,000, $149,000 and $867,000 on sales of our interests in
unguaranteed residual values as well as sold certain of our investments in
unguaranteed residual values that were previously transferred to leased
equipment at cost for approximately $4,000, $114,000 and $355,000, which
resulted in a net (loss) gain on sale of approximately ($35,000), $58,000 and
$408,000, respectively. At December 31, 2009 and 2008, the remaining
balance of our investment in unguaranteed residual values was approximately
$290,000 and $754,000, respectively.
Key
Finance Group, Limited
During
July 2006, we entered into a purchase and sale agreement (the “Purchase
Agreement”) with Key Finance Group, Ltd. (“Key Finance”) to acquire an interest
in the unguaranteed residual values of various technology equipment currently on
lease to various lessees located in the United Kingdom for approximately
$782,000 (£422,000). These leases have various expiration dates
through March 2015.
Under the
terms of the Purchase Agreement, we and Key Finance will receive residual
proceeds up to the “bottom residual value,” as defined in the remarketing
agreement. We will then receive residual proceeds up to certain
thresholds established in the Purchase Agreement. Pursuant to the
terms of the Purchase Agreement, once the portfolio’s return to us has exceeded
the expected residual, any additional residual proceeds will be split equally
between us and Key Finance. For the years ended December 31, 2009,
2008 and 2007, there was no residual sharing.
During
the year ended December 31, 2007, we remarketed certain of our investments in
unguaranteed residual values, with a cost basis of approximately
$150,000. We realized proceeds of approximately $175,000 on sales of
our interests in unguaranteed residual values, which resulted in a gain on sale
of approximately $25,000.
During
the year ended December 31, 2008, we remarketed certain of our investments in
unguaranteed residual values with a cost basis of approximately
$143,000. We realized proceeds of approximately $106,000 on sales of
its interests in unguaranteed residual values, which resulted in a loss on sale
of approximately $37,000.
During
the year ended December 31, 2009, we remarketed certain of our investments in
unguaranteed residual values with a cost basis of approximately
$211,000. We realized proceeds of approximately $184,000 on sales of
its interests in unguaranteed residual values, which resulted in a loss on sale
of approximately $27,000.
Digital
Mini-Labs
During
December 2004, we acquired 101 Noritsu QSS 3011 digital mini-labs subject to
leases with Rite Aid. The leases expired at various times from
November 2007 to September 2008. As of December 31, 2007, the lease
that expired in November 2007 was extended on a month-to-month
basis. Subsequent to December 31, 2007, Rite Aid notified our Manager
of its intent to return all the digital mini-labs that were subject to leases
with Rite Aid.
During
2008, Rite Aid returned all of the digital mini-labs it previously had on
lease. Of this equipment, our Manager sold 81 digital mini-labs with
a net book value of $729,000 for approximately $687,000 and we recognized a loss
on the sale of equipment of approximately $42,000. As of December 31,
2008, we reclassified the net book value of the remaining equipment returned by
Rite Aid of $98,350 from an operating lease to equipment held for
sale. As of March 31, 2009, our Manager sold all but one of the
digital mini-labs with a net book value of $804,000 for approximately $764,000
and we recognized a net loss on the sale of equipment of approximately
$40,000. At December 31, 2009, the net book value of the remaining
equipment of $23,350 was recorded as equipment held for sale.
Marine
Vessels
On June
24, 2004, we, through two wholly-owned subsidiaries, ICON Containership I, LLC
(“ICON Containership I”) and ICON Containership II, LLC (“ICON Containership
II”), acquired two container vessels, the ZIM Canada and the ZIM Korea, from
ZIM. We simultaneously entered into bareboat charters with ZIM for
the ZIM Canada and the ZIM Korea. The charters were originally
scheduled to expire in June 2009 with a charterer option for two 12-month
extension periods. The aggregate purchase price for the ZIM Canada
and the ZIM Korea was approximately $70,700,000, including approximately
$52,300,000 of non-recourse debt. The non-recourse debt is
cross-collateralized, has a term of 60 months and accrues interest at the London
Interbank Offered Rate (“LIBOR”) plus 1.50% per year. In connection
with the closing of this transaction, we entered into interest rate swap
contracts with Fortis Bank NV/SA (“Fortis”) in which the variable interest rate
was swapped for a fixed interest rate of 5.37% per year. The lender
had a security interest in the ZIM Canada and the ZIM Korea and an assignment of
the charter hire.
On July
1, 2008, the bareboat charters for the ZIM Canada and the ZIM Korea were
extended to June 30, 2014 (the “ZIM Charter Extensions”). On July 1,
2009, ICON Containership I and ICON Containership II repaid the outstanding
balance of the non-recourse long-term debt obligations and settled the interest
rate swap contracts with Fortis. On October 30, 2009, ICON
Containership I and ICON Containership II amended the bareboat charters for the
ZIM Canada and the ZIM Korea to restructure the charterer’s payment obligations
(the “Restructured ZIM Charters”). In addition, the charters for the ZIM
Canada and the ZIM Korea were extended from June 30, 2014 to March 31, 2017 and
to March 31, 2016, respectively.
As a
result of the restructuring, the amended charters for the ZIM Canada and the ZIM
Korea have been classified as finance leases. As a result of the
charters being classified as finance leases, the net book value of approximately
$30,891,000 was transferred from leased equipment at cost to net investments in
finance leases as of October 1, 2009.
On
January 13, 2005, we, through our wholly-owned subsidiary, ICON Containership
III, acquired a container vessel, the M/V ZIM Italia (the “ZIM Italia”), from
ZIM Integrated Shipping Services Ltd. (“ZIM Integrated”) and simultaneously
entered into a bareboat charter with ZIM Integrated for the ZIM
Italia. The charter was for a period of 60 months with a charterer
option for two 12-month extension periods. The purchase price for the
ZIM Italia was approximately $35,350,000, including approximately $26,150,000 of
non-recourse debt. On March 31, 2008, we sold our rights, title and
interest in ICON Containership III to an unrelated third party for net proceeds
of approximately $16,930,000, which was comprised of (i) a cash payment of
approximately $27,500,000, (ii) cash value of restricted cash held by the lender
of approximately $336,000, offset by (iii) the transfer of approximately
$10,906,000 of non-recourse debt secured by an interest in the ZIM
Italia. Our obligations under the loan agreement were satisfied with
the transfer of the non-recourse debt. We realized a gain on the sale
of approximately $6,741,000.
On June
26, 2007, we and Fund Twelve formed ICON Mayon, with ownership interests of 49%
and 51%, respectively. On July 24, 2007, ICON Mayon purchased a
98,507 deadweight ton (“DWT”) Aframax product tanker, the Mayon Spirit, from an
affiliate of Teekay. The purchase price for the Mayon Spirit was
approximately $40,250,000, with approximately $15,312,000 funded in the form of
a capital contribution to ICON Mayon and approximately $24,938,000 of
non-recourse debt borrowed from Fortis Capital Corp. Simultaneously
with the closing of the purchase of the Mayon Spirit, the Mayon Spirit was
bareboat chartered back to Teekay for a term of 48 months. The
charter commenced on July 24, 2007. The total capital contributions
made to ICON Mayon were approximately $16,020,000, of which our share was
approximately $7,548,000.
On
December 3, 2008, ICON Eagle Carina, a Singapore corporation wholly-owned by
ICON Carina Holdings, a Marshall Islands limited liability company owned 35.7%
by us and 64.3% by Fund Twelve, executed a Memorandum of Agreement to purchase a
95,639 DWT Aframax product tanker, the Eagle Carina, from Aframax Tanker II
AS. On December 18, 2008, the Eagle Carina was purchased for
$39,010,000, of which $27,000,000 was financed with non-recourse debt borrowed
from Fortis and DVB Bank SE (“DVB”). The Eagle Carina is subject to
an 84-month bareboat charter with AET that expires on November 14,
2013. ICON Carina Holdings paid an acquisition fee to our Manager of
approximately $1,170,000 relating to this transaction, of which our share was
approximately $418,000.
On
December 3, 2008, ICON Eagle Corona, a Singapore corporation wholly-owned by
ICON Corona Holdings, a Marshall Islands limited liability company owned 35.7%
by us and 64.3% by Fund Twelve, executed a Memorandum of Agreement to purchase a
95,634 DWT Aframax product tanker, the Eagle Corona, from Aframax Tanker II
AS. On December 31, 2008, the Eagle Corona was purchased for
$41,270,000, of which $28,000,000 was financed with non-recourse debt borrowed
from Fortis and DVB. The Eagle Corona is subject to an 84-month
bareboat charter with AET that expires on November 14, 2013. ICON
Corona Holdings paid an acquisition fee to our Manager of approximately
$1,238,000 relating to this transaction, of which our share was approximately
$442,000.
Refrigeration
Equipment
During
July 2004, we purchased Hussmann refrigeration equipment that was on lease to PW
Supermarkets, Inc. (“PW Supermarkets”) for approximately
$1,310,000. The lease term was for 24 months with respect to a
portion of the equipment, and 36 months with respect to the rest of the
equipment. PW Supermarkets had an option to extend the lease for an
additional 12 months.
During
July 2007, PW Supermarkets extended an expiring lease for an additional 12
months, at which time the remaining assets were reclassified from an operating
lease to a finance lease, since the title to the equipment transferred to PW
Supermarkets at the expiration of the lease. On July 31, 2008,
concurrent with the expiration of the lease extension, title to all remaining
refrigeration equipment was transferred to PW Supermarkets.
Information
Technology Equipment
On March
31, 2004, we and Fund Nine formed a joint venture, ICON GeicJV, for the purpose
of purchasing information technology equipment subject to a 36-month lease with
GEICO. We and Fund Nine had ownership interests of 74% and 26%,
respectively, in the joint venture. On April 30, 2004, ICON GeicJV
acquired the information technology equipment subject to lease for a total cost
of approximately $5,853,000, of which our portion was approximately
$4,331,000.
During
2007, GEICO returned equipment with an original cost basis of approximately
$5,798,000 and extended the leases on a month-to-month basis on other equipment
with a cost basis of approximately $55,000. Of the equipment that was
returned, ICON GeicJV sold equipment with a net book value of approximately
$781,000. ICON GeicJV realized proceeds of approximately $775,000 and
recognized a loss of approximately $6,000 on the sale of that
equipment. The remaining returned equipment had a net book value of
approximately $58,000.
During
2008, ICON GeicJV sold all of the remaining equipment previously on lease to
GEICO. ICON GeicJV realized proceeds of approximately $96,000 and
recognized a gain on the sale of equipment of approximately
$31,000.
Materials
Handling and Manufacturing Equipment
On March
23, 2006, we were assigned and assumed the rights to a lease from Remarketing
Services, a related party, for approximately $594,000. Remarketing
Services was assigned and assumed the rights to a lease from Chancellor, an
unrelated third party. Chancellor was a party to a lease with Saturn,
a subsidiary of GM, for materials handling equipment. The lease term
expires on September 30, 2011.
On June
1, 2009, GM filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code, in which Saturn was named as a debtor. On
February 22, 2010, we received notice that the leases were being rejected by GM
and the monthly lease payments would cease effective March 1,
2010. As a result of the lease rejection, our Manager re-assessed the
equipment’s value and determined that the assets were impaired, based upon the
expected recoverable amount for those assets. We recorded an
impairment of $185,000 to adjust the carrying value of those assets to reflect
the estimated recoverable amount.
On July
28, 2006, we were assigned and assumed the rights to a lease from Varilease
Finance Group, Inc. (“Varilease”) for approximately
$2,817,000. Varilease was party to a lease with Anchor Tool & Die
Co. (“Anchor”) for automotive steering column production and assembly equipment
(the “Automotive Equipment”) that was installed and operated at Anchor’s
production facility. On September 30, 2009, we sold all of the
Automotive Equipment on lease to Anchor for a purchase price of $1,750,000,
which resulted in a gain of $1,189,000. In connection with the sale
of the Automotive Equipment, we incurred remarketing expenses of approximately
$569,000.
On
September 28, 2007, we completed the acquisition of and simultaneously leased
back substantially all of the machining and metal working equipment of Texas
Die, a wholly-owned subsidiary of MWU, for a purchase price of
$2,000,000. The lease term commenced on January 1, 2008 and continues
for a period of 60 months. On December 10, 2007, we completed the
acquisition of and simultaneously leased back substantially all of the machining
and metal working equipment of MW Monroe Plastics, Inc., another wholly-owned
subsidiary of MWU (“Monroe”), for a purchase price of $2,000,000. The
lease term commenced on January 1, 2008 and continues for a period of 60
months.
Simultaneously
with the closing of the transactions with Texas Die and Monroe, Fund Eleven and
Fund Twelve (together with us, the “Participating Funds”) completed similar
acquisitions with seven other subsidiaries of MWU pursuant to which the
respective funds purchased substantially all of the machining and metal working
equipment of each subsidiary. Each subsidiary’s obligations under its
respective lease (including those of Texas Die and Monroe) are
cross-collateralized and cross-defaulted, and all subsidiaries’ obligations are
guaranteed by MWU. The Participating Funds have also entered into a
credit support agreement, pursuant to which losses incurred by a Participating
Fund with respect to any MWU subsidiary are shared among the Participating Funds
in proportion to their respective capital investments. On September
5, 2008, the Participating Funds and IEMC Corp., a subsidiary of our Manager,
entered into an amended Forbearance Agreement with MWU, Texas Die, Monroe and
seven other subsidiaries of MWU (collectively, the “MWU entities”) to cure
certain non-payment related defaults by the MWU entities under their lease
covenants with us. The terms of the agreement included, among other
things, additional collateral being pledged and the grant of a warrant for the
purchase of 12% of the fully diluted common stock of MWU at an aggregate
exercise price of $1,000, exercisable until March 31, 2015. As of
December 31, 2009, our proportionate share of the warrant was
7.4%. At December 31, 2009, our Manager determined that the fair
value of this warrant was $0.
On July
28, 2009, we agreed to terminate the lease with Monroe. Simultaneously
with the termination, we transferred title of the equipment under the lease to
MPI in consideration for MPI transferring title to equipment of at least equal
or greater fair market value to us. Beginning on August 1, 2009, we
entered into a lease with MPI with respect to such equipment for a term of 41
months. The obligations of MPI under the lease are guaranteed by its
parent company, Cerion, LLC, and are not cross-collateralized or cross-defaulted
with the MWU lease obligations.
Note
Receivable on Financing Facility
On August
13, 2007, we, along with a consortium of other lenders, entered into an
equipment financing facility with Solyndra, Inc. (“Solyndra”), a privately-held
manufacturer of solar panels, for the building of a new production
facility. The financing facility was set to mature on June 30, 2013
and was secured by the equipment as well as all other assets of
Solyndra. The equipment was comprised of two fully-automated
manufacturing lines that combine glass tubes and thin film semiconductors to
produce solar panels. In connection with the transaction, we received
a warrant for the purchase of up to 40,290 shares of Solyndra common stock at an
exercise price of $4.96 per share. The warrant is set to expire on
April 6, 2014. The financing facility was for a maximum amount of
$93,500,000, of which we committed to invest up to $5,000,000. As of June 30,
2008, we had loaned approximately $4,367,000. On July 27, 2008,
Solyndra fully repaid the outstanding note receivable and the entire financing
facility was terminated. We received approximately $4,437,000 from
the repayment, which consisted of principal and accrued interest. The
repayment does not affect the warrant held by us and we retain our rights
thereunder. At December 31, 2009, our Manager determined that the
fair value of this warrant was $79,371.
Notes
Receivable Secured by Credit Card Machines
On
November 25, 2008, ICON Northern Leasing, a joint venture among us, Fund Eleven
and Fund Twelve, purchased the Notes and received an assignment of the
underlying Master Loan and Security Agreement (the "MLSA") dated July 28,
2006. We, Fund Eleven and Fund Twelve have ownership interests of
12.25%, 35%, and 52.75%, respectively, in ICON Northern Leasing. The
aggregate purchase price for the Notes was approximately $31,573,000, net of a
discount of approximately $5,165,000. The Notes are secured by an
underlying pool of leases for credit card machines. The Notes accrue
interest at rates ranging from 7.97% to 8.40% per year and require monthly
payments ranging from approximately $183,000 to $422,000. The Notes
mature between October 15, 2010 and August 14, 2011 and require balloon payments
at the end of each note ranging from approximately $594,000 to
$1,255,000. Our share of the purchase price of the Notes was
approximately $3,868,000 and we paid an acquisition fee to our Manager of
approximately $36,000 relating to this transaction.
Recently
Adopted Accounting Pronouncements
In 2009,
we adopted the accounting pronouncement relating to accounting for fair value
measurements, which establishes a framework for measuring fair value and
enhances fair value measurement disclosure for non-financial assets and
liabilities. See Note 2 to our consolidated financial statements.
In 2009,
we adopted the accounting pronouncement that amended the current accounting and
disclosure requirements for derivative instruments. The requirements were
amended to enhance how: (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for; and (c)
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. See Note 2 to our consolidated
financial statements.
In 2009,
we adopted the accounting pronouncement that provides additional guidance for
estimating fair value in accordance with the accounting standard for fair value
measurements when the volume and level of activity for the asset or liability
have significantly decreased. This pronouncement also provides guidance for
identifying transactions that are not orderly. This pronouncement was effective
prospectively for all interim and annual reporting periods ending after June 15,
2009. See Note 2 to our consolidated financial statements.
In 2009,
we adopted the accounting pronouncement that amends the requirements for
disclosures about fair value of financial instruments, regarding the fair value
of financial instruments for annual, as well as interim, reporting periods. This
pronouncement was effective prospectively for all interim and annual reporting
periods ending after June 15, 2009. See Note 2 to our consolidated
financial statements.
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 (“U.S.
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 U.S. GAAP and
it did not result in a change in accounting practices for us upon
adoption. We have 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 U.S. GAAP requires our 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 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;
|
·
|
Acquisition
fees;
|
·
|
Foreign
currency translation;
|
·
|
Warrants;
and
|
·
|
Derivative
financial instruments.
|
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, the initial direct costs are capitalized and amortized over
the lease term. For an operating lease, the 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. Accounts receivable are stated
at their estimated net realizable value. Deferred revenue is the difference
between the timing of the receivables billed and the income recognized on a
straight-line basis.
Our
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.
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 value 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 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 at the outstanding principal balance net of any
unamortized deferred fees, premiums or discounts on purchased
loans. Costs on originated loans are reported as other current and
other non-current assets. Unearned income, discounts and premiums are
amortized to income using the effective interest rate method. Any
interest receivable related to the unpaid principal is recorded 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 that accounts for 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
Pursuant
to our LLC Agreement, we pay acquisition fees to our Manager equal to 3% of the
purchase price for our investments. These fees are capitalized and
included in the cost of the investment.
Foreign
Currency Translation
Assets
and liabilities having non-U.S. dollar functional currencies are translated at
month-end exchange rates. Contributed capital accounts are translated
at the historical rate of exchange when the capital was contributed or
distributed. Revenues, expenses and cash flow items are translated at
the weighted average exchange rate for the period. Resulting
translation adjustments are recorded as a separate component of accumulated
other comprehensive income or loss.
Warrants
Warrants
held by us are not registered for public sale and are revalued on a quarterly
basis. The revaluation of warrants is calculated using the
Black-Scholes option pricing model. The assumptions utilized in the
Black-Scholes model include share price, strike price, expiration date,
risk-free rate and the volatility percentage. The change in the fair
value of warrants is recognized in the consolidated statements of
operations.
Derivative
Financial Instruments
We may
enter into derivative transactions for purposes of hedging specific financial
exposures, including movements in foreign currency exchange rates and changes in
interest rates. We enter into these instruments only for hedging underlying
exposures. We do not hold or issue derivative financial instruments
for purposes other than hedging, except for warrants, which are not
hedges. Certain derivatives may not meet the established criteria to
be designated as qualifying accounting hedges, even though we believe that these
are effective economic hedges.
We
account for our interests in derivative financial instruments
through our joint ventures in accordance with the accounting
pronouncements, which establish accounting and reporting standards for
derivative financial instruments. These accounting pronouncements
require us to recognize all derivatives as either assets or liabilities on
the consolidated balance sheets and measure those instruments at fair value.
We recognize the fair value of all derivatives as either assets or
liabilities on the consolidated balance sheets and changes in the fair value of
such instruments are recognized immediately in earnings unless certain
accounting criteria established by the accounting pronouncements are met. These
criteria demonstrate that the derivative is expected to be highly effective at
offsetting changes in the fair value or expected cash flows of the underlying
exposure at both the inception of the hedging relationship and on an ongoing
basis and include an evaluation of the counterparty risk and the impact, if any,
on the effectiveness of the derivative. If these criteria are met, which we must
document and assess at inception and on an ongoing basis, we recognize the
changes in fair value of such instruments in accumulated other comprehensive
income (loss), a component of equity. Changes in the fair value of the
ineffective portion of all derivatives are recognized immediately in
earnings.
Other
Recent Events
Since the
onset of the recession in December 2007, the rate of payment defaults by
lessees, borrowers and other financial counterparties has generally risen
significantly. Our Manager continuously reviews and evaluates our
transactions to take such action as it deems necessary to mitigate any adverse
developments on our liquidity, cash flows or profitability, which may include
agreeing to restructure a transaction with one or more of our lessees, borrowers
or other financial counterparties. In the event of a restructuring of
a transaction, our Manager generally expects that the lessee, borrower and/or
other financial counterparty will ultimately be able to satisfy its obligations
to us. As a result thereof, our Manager has discussed and continues
to discuss restructuring options with some of our lessees, borrowers and other
financial counterparties. In many instances, the transaction is not
restructured and continues as initially structured. Nevertheless,
none of the other equipment leasing and financing funds managed by our Manager
has experienced any material defaults in payment that would materially impact
such fund’s liquidity, cash flows or profitability. There can be no
assurance that any future restructurings will not have an adverse effect on our
financial position, results of operations or cash flows. Except as otherwise
disclosed in this Annual Report on Form 10-K, our Manager has not agreed to
restructure any of our transactions and we have not taken any impairment charges
and there is no information that would cause our Manager to take an impairment
charge on any of our transactions at this time.
Results
of Operations for the Years Ended December 31, 2009 (“2009”) and 2008
(“2008”)
We are
currently in our operating period, which is anticipated to last until April
2010, unless that date is extended, at our Manager’s sole discretion, for up to
an additional three years. During our operating period, we will
continue to make investments with the cash generated from our initial
investments and our additional investments to the extent that the cash is not
needed for expenses, reserves and distributions to members. As our
investments mature, we may reinvest the proceeds in additional investments in
equipment or other financing transactions. We anticipate incurring
gains or losses on our investments during our operating period. Once
we enter our liquidation period, we will begin to sell our assets in the
ordinary course of business. As we begin to sell our assets, both
rental income and finance income will decrease over time as will expenses
related to our assets such as depreciation and amortization
expense. As leased equipment is sold, we may experience both gains
and losses on these sales.
Revenue
for 2009 and 2008 is summarized as follows:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Rental
income
|
$ | 13,809,718 | $ | 20,063,725 | $ | (6,254,007 | ) | |||||
Finance
income
|
1,304,824 | 2,368,359 | (1,063,535 | ) | ||||||||
Servicing
income
|
5,716,849 | - | 5,716,849 | |||||||||
Income
from investments in joint ventures
|
3,830,195 | 3,811,086 | 19,109 | |||||||||
Net
gain on sales of equipment and unguaranteed residual
values
|
1,550,884 | 6,750,237 | (5,199,353 | ) | ||||||||
Interest
and other income
|
732,995 | 500,479 | 232,516 | |||||||||
`
|
||||||||||||
Total
revenue
|
$ | 26,945,465 | $ | 33,493,886 | $ | (6,548,421 | ) |
Total
revenue for 2009 decreased $6,548,421, or 19.6%, as compared to
2008. The decrease was primarily attributable to decreases in rental
income and net gain on sales of equipment and unguaranteed residual values,
which were partially offset by an increase in servicing income related to our
acquisition of Pretel. The decrease in rental income was primarily
due to (i) the sale of ICON Containership III, (ii) the ZIM Charter Extensions
and the Restructured ZIM Charters and (iii) the sale of equipment previously on
lease to Rite Aid during 2008, which accounted for a cumulative decrease in
rental income of approximately $7,100,000. During 2009, our net gain
on sales of equipment and unguaranteed residual values was largely due to a net
gain of $1,189,000 on the sale of the Automotive Equipment previously on lease
to Anchor. In comparison, during 2008, we reported a net gain on the
sale of equipment of approximately $6,741,000 resulting from the sale of ICON
Containership III. The decreases in rental income and net gain on
sales of equipment and unguaranteed residual values are partially offset by an
increase in servicing income related to our acquisition of Pretel, whose results
of operations are consolidated as of January 30, 2009. Additionally,
interest and other income increased approximately $233,000 primarily due to a
gain on bargain purchase of approximately $441,000 related to our acquisition of
Pretel.
Expenses
for 2009 and 2008 are summarized as follows:
Years Ended December 31,
|
2009
|
2008
|
Change
|
||||||||||
Management
fees - Manager
|
$ | 1,246,713 | $ | 1,620,239 | $ | (373,526 | ) | |||||
Administrative
expense reimbursements - Manager
|
1,090,870 | 1,448,324 | (357,454 | ) | ||||||||
General
and administrative
|
7,088,632 | 1,158,313 | 5,930,319 | |||||||||
Interest
|
216,410 | 1,141,128 | (924,718 | ) | ||||||||
Depreciation
and amortization
|
9,018,997 | 12,628,280 | (3,609,283 | ) | ||||||||
Impairment
loss
|
1,697,539 | - | 1,697,539 | |||||||||
Bad
debt expense
|
- | 2,577,526 | (2,577,526 | ) | ||||||||
Total
expenses
|
$ | 20,359,161 | $ | 20,573,810 | $ | (214,649 | ) |
Total
expenses for 2009 decreased $214,649, or 1.0%, as compared to
2008. The decrease was primarily due to decreases in depreciation and
amortization expense and bad debt expense, which were partially offset by an
increase in general and administrative expenses. The decrease in
depreciation and amortization expense was primarily due to (i) the ZIM Charter
Extensions and the Restructured ZIM Charters, which resulted in a decrease in
depreciation expense of approximately $4,000,000 as a result of the ZIM Charter
Extensions and depreciation was no longer recorded once the leases were
classified as finance leases as a result of the Restructured ZIM Charters, and
(ii) the sale of equipment previously on lease to Rite Aid, which accounted for
approximately $1,409,000 of the decrease. The decrease in bad debt
expense relates to an allowance for doubtful accounts recorded by ICON Premier
in 2008 for which there was no corresponding charge in 2009. The
decrease in total expenses was partially offset by (i) the increase in general
and administrative expenses related to the operating expenses incurred by Pretel
during 2009, (ii) impairment loss in the amount of approximately $1,698,000
primarily related to ICON Premier’s assets, and (iii) remarketing expenses of
approximately $569,000 during 2009 in connection with the sale of the Automotive
Equipment previously on lease to Anchor.
Noncontrolling
Interests
Net
income attributable to noncontrolling interests for 2009 was consistent with
that reported for 2008.
Net
Income Attributable to Fund Ten
As a
result of the foregoing changes from 2008 to 2009, net income attributable
to us for 2009 was $6,218,546 as compared to net income attributable
to us for 2008 of $12,593,752. Net income attributable
to us per weighted average additional Share for 2009 and 2008 was $41.53
and $84.09, respectively.
Results
of Operations for the Years Ended December 31, 2008 (“2008”) and 2007
(“2007”)
Revenue
for 2008 and 2007 is summarized as follows:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Rental
income
|
$ | 20,063,725 | $ | 28,679,620 | $ | (8,615,895 | ) | |||||
Finance
income
|
2,368,359 | 2,788,311 | (419,952 | ) | ||||||||
Income
from investments in joint ventures
|
3,811,086 | 1,235,015 | 2,576,071 | |||||||||
Net
gain (loss) on sales of equipment and unguaranteed residual
values
|
6,750,237 | (384,310 | ) | 7,134,547 | ||||||||
Interest
and other income
|
500,479 | 1,163,713 | (663,234 | ) | ||||||||
Total
revenue
|
$ | 33,493,886 | $ | 33,482,349 | $ | 11,537 |
Total
revenue for 2008 increased $11,537, or 0.03%, as compared to
2007. The increase in total revenue was primarily attributable to
increases in the net gain on sales of equipment and income from investments in
joint ventures, which was mostly offset by decreases in rental and finance
income and a reduction in the net gain on foreign currency
transactions. The increase in the net gain on sales of equipment and
unguaranteed residual values was largely due to the net gain on sale of
equipment of approximately $6,741,000 resulting from the sale of ICON
Containership III on March 31, 2008. Our net loss on sales of
equipment and unguaranteed residual values reported in 2007 resulted from a net
loss of approximately $811,000 on the sale of the equipment previously on lease
to CompUSA, which was partially offset by gains on sales of unguaranteed
residual values in the SAM and Key Finance portfolios of approximately
$433,000. Income from investments in joint ventures increased largely
due to (i) a full year impact from our investments in ICON Mayon, made in July
2007, and ICON Global Crossing V, made in December 2007, which contributed
approximately $1,297,000 to this increase and (ii) the recognition of
approximately $1,232,000 in foreign currency translation relating to our
investments in ICON AeroTV and ICON EAM. The decrease in rental
income was primarily due to (i) the sale of ICON Containership III, which
accounted for approximately $4,427,000 of the decrease, (ii) lower monthly
rental payments resulting from the ZIM Charter Extensions for the ZIM Canada and
the ZIM Korea, which represented approximately $1,486,000, (iii) the sale of the
equipment previously on lease to CompUSA in December 2007, which accounted for
approximately $1,055,000, (iv) the sale of equipment previously on lease to Rite
Aid during 2008, which accounted for approximately $1,023,000 and (v) the sale
of the equipment previously on lease to GEICO, which contributed approximately
$522,000 of the decrease in rental income. The net gain on foreign
currency transactions reported in 2007 related to (i) the impact of the change
in foreign currency rates on the conversion of approximately $14,550,000 of
distributions made from ICON Premier, ICON AeroTV and ICON EAM and (ii) a change
in foreign currency rates of approximately 1% on a cash balance that was
transferred from our pound sterling account in the United Kingdom to our U.S.
dollar bank account in the United States. We reported a net loss on
foreign currency transactions in 2008 due to the change in foreign currency
rates related to our existing pound sterling accounts. The decrease
in finance income was largely due to the effect of changes in foreign currency
rates related to our lease with Premier Telecom, which resulted in a decrease of
approximately $394,000.
Expenses
for 2008 and 2007 are summarized as follows:
Years Ended December 31,
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
Management
fees - Manager
|
$ | 1,620,239 | $ | 2,054,110 | $ | (433,871 | ) | |||||
Administrative
expense reimbursements - Manager
|
1,448,324 | 876,287 | 572,037 | |||||||||
General
and administrative
|
1,158,313 | 833,078 | 325,235 | |||||||||
Interest
|
1,141,128 | 2,204,773 | (1,063,645 | ) | ||||||||
Depreciation
and amortization
|
12,628,280 | 22,318,404 | (9,690,124 | ) | ||||||||
Bad
debt expense
|
2,577,526 | - | 2,577,526 | |||||||||
Total
expenses
|
$ | 20,573,810 | $ | 28,286,652 | $ | (7,712,842 | ) |
Total
expenses for 2008 decreased $7,712,842, or 27.3%, as compared to
2007. The decrease in total expenses was primarily due to decreases
in depreciation and amortization expense and interest expense. The
decrease in depreciation and amortization expense was largely attributable to
(i) the sale of ICON Containership III on March 31, 2008, which accounted for
approximately $3,390,000, (ii) the ZIM Charter Extensions for the ZIM
Canada and the ZIM Korea, (iii) our prepaid service fees, which were fully
amortized by December 31, 2007 and represented approximately $1,019,000 of the
decrease, (iv) the sale of equipment previously on lease to CompUSA on December
31, 2007, which accounted for approximately $774,000 and (v) the sale and return
of assets previously on lease to Rite Aid during 2008, which accounted for
approximately $542,000 of the decrease in depreciation and amortization
expense. The ZIM Charter Extensions resulted in a decrease in
depreciation expense of approximately $3,405,000 as monthly depreciation expense
per vessel decreased from approximately $380,000 to approximately
$96,000. The decrease in interest expense was due to the sale of ICON
Containership III, which transferred to the buyer the non-recourse debt
outstanding of approximately $10,906,000, and the continued repayment of our
non-recourse debt outstanding related to the ZIM Canada and the ZIM
Korea. The decrease in management fees paid to our Manager was
largely attributable to the decline in the number of our active
investments. The overall decrease in total expenses was partially
offset by an allowance for doubtful accounts of $2,500,000 recorded in relation
to our lease with Premier Telecom and an increase in administrative expense
reimbursements paid to our Manager, which reflected the additional time spent by
our Manager to administer our affairs as investments matured or were extended
during 2008.
Noncontrolling
Interests
Net
income attributable to noncontrolling interests for 2008 was consistent with
that reported for 2007.
Net
Income Attributable to Fund Ten
As a
result of the foregoing changes from 2007 to 2008, net income attributable
to us for 2008 and 2007 was $12,593,752 and $4,887,060,
respectively. Net income attributable to us per weighted average
additional Share for 2008 and 2007 was $84.09 and $32.56,
respectively.
Financial
Condition
This
section discusses the major balance sheet variances from 2009 compared to
2008.
Total
Assets
Total
assets decreased $11,965,581 to $77,033,616 at December 31, 2009 from
$88,999,197 at December 31, 2008. The decrease was primarily due to
(i) the payment of distributions to members and noncontrolling interests of
approximately $14,101,000, (ii) the depreciation of our leased equipment and
equipment in the amount of approximately $9,019,000, (iii) the impairment loss
in the amount of approximately $1,698,000 primarily related to ICON Premier’s
assets, and (iv) the payment of remarketing expenses of approximately $569,000
in connection with the sale of the Automotive Equipment previously on lease to
Anchor. The decrease in total assets was partially offset by
the increase in cash collected from rental and finance payments with respect to
our leases in the amount of approximately $10,477,000.
Current
Assets
Current
assets decreased $1,081,283 to $4,036,025 at December 31, 2009 from $5,117,308
at December 31, 2008. The decrease was primarily due to (i) the
payment of distributions to members and noncontrolling interests of
approximately $14,101,000, (ii) the payment of management fees - Manager and
administrative expense reimbursements – Manager in the amount of approximately
$2,498,000, and (iii) the decline in the restricted cash balance of
approximately $227,000 that was held in the cash collateral account at Fortis
and released as part of the full repayment of our debt obligation related to the
ZIM Canada and the ZIM Korea. These decreases were partially offset
by an increase in (i) cash collected from rental and finance payments with
respect to our leases in the amount of approximately $10,477,000, (ii) cash
received from distributions from investments in joint ventures in the amount of
approximately $6,534,000, and (iii) service contracts receivable and other
assets as a result of our consolidating the financial position of
Pretel.
Total
Liabilities
Total
liabilities decreased $6,416,398 to $2,101,663 at December 31, 2009 from
$8,518,061 at December 31, 2008. The decrease was primarily due to
the scheduled repayments of our non-recourse debt outstanding related to the ZIM
Canada and the ZIM Korea in the amount of approximately
$7,076,000. These decreases were partially offset by the current
liabilities of Pretel, which we now consolidate following the Pretel
Acquisition. In addition, we had net borrowings of $100,000 under our
revolving line of credit during 2009.
Equity
Equity
decreased $5,549,183 to $74,931,953 at December 31, 2009 from $80,481,136 at
December 31, 2008. The decrease was largely due to distributions paid
to our members and noncontrolling interests in the amount of approximately
$14,101,000, which was partially offset by an unrealized gain on the valuation
of interest rate swap contracts and foreign currency translations in the amounts
of approximately $306,000 and $959,000, respectively, recorded in accumulated
other comprehensive (loss) income and net income reported in 2009 of
approximately $6,586,000.
Liquidity
and Capital Resources
Cash
Flow Summary
At
December 31, 2009 and 2008, we had cash and cash equivalents of $2,428,058 and
$3,784,794, respectively. During our operating period, our main
source of cash has been and will continue to be from the collection of rentals
on non-leveraged operating leases and proceeds from sales of equipment. During
our operating period, our main use of cash has been investing in equipment and
leasing it to third parties as well as distributions to our members. As we enter
into our liquidating period in April 2010, we expect our main sources of
liquidity to remain the same and our main use of liquidity to be distributions
to our members.
Cash and
cash equivalents include cash in banks and highly liquid investments with
original maturity dates of three months or less. Our cash and cash
equivalents are held principally at one financial institution and at times may
exceed insured limits. We have placed these funds in a high quality
institution in order to minimize risk relating to exceeding insured
limits.
Cash
generated by our operating activities continues to be our most significant
source of liquidity during our operating period. We believe that cash generated
from the expected results of our operations will be sufficient to finance our
liquidity requirements for the year ended December 31, 2010, including
distributions to our members, the repayment of principal and interest on our
non-recourse debt obligations, general and administrative expenses, management
fees and administrative expense reimbursements. We anticipate that our liquidity
requirements for the years ending December 31, 2010 through December 31, 2013
will be financed by the expected results of operations, as well as cash received
from our investments at maturity. In addition, our revolving line of
credit has $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.
We
anticipate being able to meet our liquidity requirements into the foreseeable
future. However, 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.”
Cash
Flows
The
following table sets forth summary cash flow data:
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Net
cash provided by (used in):
|
||||||||||||
Operating
activities
|
$ | 7,764,288 | $ | 8,047,967 | $ | 15,399,825 | ||||||
Investing
activities
|
7,980,737 | 11,936,397 | (7,006,983 | ) | ||||||||
Financing
activities
|
(16,833,911 | ) | (20,591,409 | ) | (9,579,931 | ) | ||||||
Effects
of exchange rates on cash and cash equivalents
|
(267,850 | ) | (56,987 | ) | 426 | |||||||
Net
decrease in cash and cash equivalents
|
$ | (1,356,736 | ) | $ | (664,032 | ) | $ | (1,186,663 | ) |
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
provided by operating activities decreased $283,679 to $7,764,288 in 2009 from
$8,047,967 in 2008. The decrease primarily related to a decrease in
rental payments collected due to the Restructured ZIM Charters as well as the
sale of the equipment previously on lease to Rite Aid. The decrease
was partially offset by a decrease in interest expense due to the full repayment
of the non-recourse debt obligation related to ICON Containership I and ICON
Containership II, as well as cash generated from our acquisition of
Pretel.
Investing
Activities
Cash
provided by investing activities decreased $3,955,660 to $7,980,737 in 2009 from
$11,936,397 in 2008. The decrease was primarily due to (i) a decrease
in the investments in joint ventures as no new investments in joint ventures
were made during 2009, and (ii) a decline in the amount of proceeds we received
from sales of leased equipment primarily because our sale of Anchor in 2009
resulted in significantly less proceeds than our sale of ICON Containership III
in 2008.
Financing
Activities
Cash used
in financing activities decreased $3,757,498 to $16,833,911 in 2009 from
$20,591,409 in 2008. The decrease was primarily related to a
reduction in the net repayments of our borrowings under our revolving line of
credit during 2009 as compared to 2008, partially offset by our repayment of all
of the non-recourse debt outstanding related to the ZIM Canada and the ZIM
Korea.
Financings
and Borrowings
Non-Recourse
Long-Term Debt
We had no
non-recourse long-term debt obligations at December 31, 2009. All of
our non-recourse obligations were repaid on July 1, 2009.
Revolving
Line of Credit, Recourse
We and
certain entities managed by our Manager, Fund Eight B, Fund Nine, Fund Eleven,
Fund Twelve and Fund Fourteen (collectively, the “Borrowers”), are parties to a
Commercial Loan Agreement, as amended (the “Loan Agreement”), with
CB&T. 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 Borrowers not subject to a
first priority lien, as defined in the Loan Agreement. Each of the 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 Borrowers have a
beneficial interest.
The
Facility expires on June 30, 2011 and the 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 2.5% per
year, provided that neither interest rate is permitted to be less than 4.0% per
year. The interest rate at December 31, 2009 was 4.0%. In
addition, the Borrowers are obligated to pay a quarterly commitment fee of 0.50%
on unused commitments under the Facility.
Aggregate
borrowings by all Borrowers under the Facility amounted to $2,360,000 at
December 31, 2009. The balances of $100,000 and $2,260,000 were
borrowed by us and Fund Eleven, respectively. As of March 24, 2010,
we and Fund Eleven had outstanding borrowings under the Facility of $700,000 and
$0, respectively.
Pursuant
to the Loan Agreement, the Borrowers are required to comply with certain
covenants. At December 31, 2009, the Borrowers were in compliance
with all covenants. For additional information, see Note 10 to our
consolidated financial statements.
Distributions
We, at
our Manager’s discretion, pay monthly distributions to our members and
noncontrolling interests starting with the first month after each member’s
admission and the commencement of our joint venture operations, respectively,
and we expect to continue to pay such distributions until the end of our
operating period. We paid distributions to our additional members of
$12,747,182, $12,752,775 and $12,778,769, respectively, for the years ended
December 31, 2009, 2008 and 2007. Additionally, we paid distributions
to our Manager of $128,760, $128,817, and $129,078, respectively, for the years
ended December 31, 2009, 2008 and 2007. Lastly, we paid distributions
to our noncontrolling interests of $1,225,399, $1,122,540, and $1,377,632,
respectively, for the years ended December 31, 2009, 2008 and 2007.
Commitments
and Contingencies and Off-Balance Sheet Transactions
Commitments
and Contingencies
At
December 31, 2009, we had no non-recourse debt obligations as our outstanding
non-recourse long-term indebtedness was repaid on July 1, 2009. We
are a party to the Facility, as discussed in “Financings and Borrowings”
above. We had $100,000 in outstanding borrowings under our revolving
line of credit at December 31, 2009. Subsequent to December 31, 2009,
we repaid $100,000 and borrowed an additional $700,000, which increased our
outstanding loan balance to $700,000.
The
Participating Funds have entered into a credit support agreement, pursuant to
which losses incurred by a Participating Fund with respect to any MWU subsidiary
are shared among the Participating Funds in proportion to their respective
capital investments. The term of the credit support agreement matches the term
of the schedules to the master lease agreement. No amounts were accrued at
December 31, 2009 and our Manager cannot reasonably estimate at this time the
maximum potential amounts, if any, that may become payable under the credit
support agreement.
In
connection with the acquisitions of the Eagle Carina and the Eagle Corona, we,
through ICON Carina Holdings and ICON Corona Holdings, maintain two restricted
cash accounts with Fortis. These restricted cash accounts consist of the free
cash balances that result from the difference between the bareboat charter
payments from AET and the repayments on the non-recourse long-term debt to
Fortis and DVB. The free cash for ICON Carina Holdings and ICON
Corona Holdings remain in their restricted cash accounts until $500,000 is
funded into each account. Thereafter, all free cash in excess of $500,000 can be
distributed from the respective accounts.
In
connection with our acquisition of Pretel as of January 30, 2009, there is a
contingent liability in the amount of approximately $1,058,000 (£664,000)
related to a 24 month repayment plan arranged to repay renegotiated professional
and consulting fees incurred in the amount of approximately $1,593,000
(£1,000,000). In the repayment agreement, Pretel would be liable for
initial fees of approximately $1,593,000 (£1,000,000) if it defaults
on any payments. These initial fees were negotiated down to
approximately $494,000 (£310,000) as part of the repayment
plan. Pretel continues to be in compliance with the repayment
agreement.
Off-Balance
Sheet Transactions
None.
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 terminations (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 one outstanding note payable associated with our recourse
revolving line of credit, which is subject to a variable interest
rate. We had $100,000 in outstanding borrowings at December 31,
2009. Subsequent to December 31, 2009, we repaid $100,000 and
borrowed an additional $700,000, which increased our outstanding loan balance to
$700,000. Our 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.
We lease
equipment for use by domestic and foreign lessees outside of the United States.
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. 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.
To hedge
our variable interest rate risk, to which we may be exposed through our joint
ventures, we have and may in the future enter into interest rate swap contracts
that will effectively convert the underlying floating interest rates to a fixed
interest rate. In general, these swap agreements will reduce our
interest rate risk associated with variable interest rate
borrowings. However, we will be exposed to and will manage credit
risk associated with our counterparties to our swap agreements by dealing only
with institutions our Manager considers financially sound.
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.
Page
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|
|
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|
|
50
|
|
51
|
|
52
|
|
54
|
85
|
The
Members
ICON
Income Fund Ten, LLC
We have
audited the accompanying consolidated balance sheets of ICON Income Fund Ten,
LLC (the “Company”) as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in equity, and cash flows for
each of the three years in the period ended December 31, 2009. Our audits also
included the financial statement schedule listed in the index at Item 15(a)(2).
These financial statements and schedule are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 Income Fund Ten,
LLC at December 31, 2009 and 2008, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2009, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth
therein.
As
discussed in Note 2 to the accompanying consolidated financial statements, on
January 1, 2009 the Company adopted and, for presentation and disclosure
purposes, retrospectively applied the new accounting pronouncement for
noncontrolling interests. In addition, the Company adopted the revised
accounting pronouncement related to accounting for business
combinations.
/s/ Ernst & Young,
LLP
March 30,
2010
New York,
New York
(A
Delaware Limited Liability Company)
|
||||||||
Consolidated
Balance Sheets
|
||||||||
Assets
|
||||||||
December 31,
|
||||||||
2009
|
2008
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 2,428,058 | $ | 3,784,794 | ||||
Current
portion of net investment in finance leases
|
- | 725,220 | ||||||
Service
contracts receivable
|
569,447 | - | ||||||
Restricted
cash
|
- | 226,882 | ||||||
Equipment
held for sale
|
23,350 | 98,350 | ||||||
Other
current assets
|
1,015,170 | 282,062 | ||||||
Total
current assets
|
4,036,025 | 5,117,308 | ||||||
Non-current
assets:
|
||||||||
Net
investment in finance leases, less current portion
|
31,808,689 | 6,916,347 | ||||||
Leased
equipment at cost (less accumulated depreciation of
|
||||||||
$11,201,367
and $47,649,844, respectively)
|
11,134,806 | 45,553,277 | ||||||
Equipment
(less accumulated depreciation of $2,455,687)
|
4,442,732 | - | ||||||
Investments
in joint ventures
|
25,243,236 | 30,591,890 | ||||||
Investments
in unguaranteed residual values
|
290,331 | 754,090 | ||||||
Other
non-current assets, net
|
77,797 | 66,285 | ||||||
Total
non-current assets
|
72,997,591 | 83,881,889 | ||||||
Total
Assets
|
$ | 77,033,616 | $ | 88,999,197 | ||||
Liabilities
and Equity
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of non-recourse long-term debt
|
$ | - | $ | 7,076,252 | ||||
Revolving
line of credit, recourse
|
100,000 | - | ||||||
Interest
rate swap contracts
|
- | 88,214 | ||||||
Deferred
revenue
|
241,851 | 48,699 | ||||||
Due
to Manager and affiliates
|
131,351 | 1,048,301 | ||||||
Accrued
expenses and other current liabilities
|
1,628,461 | 256,595 | ||||||
Total
Liabilities
|
2,101,663 | 8,518,061 | ||||||
Commitments
and contingencies (Note 19)
|
||||||||
Equity:
|
||||||||
Members'
Equity:
|
||||||||
Additional
Members
|
75,332,248 | 81,937,867 | ||||||
Manager
|
(551,499 | ) | (484,924 | ) | ||||
Accumulated
other comprehensive loss
|
(1,879,919 | ) | (3,145,791 | ) | ||||
Total
Members' Equity
|
72,900,830 | 78,307,152 | ||||||
Noncontrolling
Interests
|
2,031,123 | 2,173,984 | ||||||
Total
Equity
|
74,931,953 | 80,481,136 | ||||||
Total
Liabilities and Equity
|
$ | 77,033,616 | $ | 88,999,197 |
See accompanying notes to consolidated financial
statements.
(A
Delaware Limited Liability Company)
|
||||||||||||
Consolidated
Statements of Operations
|
||||||||||||
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Revenue:
|
||||||||||||
Rental
income
|
$ | 13,809,718 | $ | 20,063,725 | $ | 28,679,620 | ||||||
Finance
income
|
1,304,824 | 2,368,359 | 2,788,311 | |||||||||
Servicing
income
|
5,716,849 | - | - | |||||||||
Income
from investments in joint ventures
|
3,830,195 | 3,811,086 | 1,235,015 | |||||||||
Net
gain (loss) on sales of equipment and unguaranteed residual
values
|
1,550,884 | 6,750,237 | (384,310 | ) | ||||||||
Interest
and other income
|
732,995 | 500,479 | 1,163,713 | |||||||||
Total
revenue
|
26,945,465 | 33,493,886 | 33,482,349 | |||||||||
Expenses:
|
||||||||||||
Management
fees - Manager
|
1,246,713 | 1,620,239 | 2,054,110 | |||||||||
Administrative
expense reimbursements - Manager
|
1,090,870 | 1,448,324 | 876,287 | |||||||||
General
and administrative
|
7,088,632 | 1,158,313 | 833,078 | |||||||||
Interest
|
216,410 | 1,141,128 | 2,204,773 | |||||||||
Depreciation
and amortization
|
9,018,997 | 12,628,280 | 22,318,404 | |||||||||
Impairment
loss
|
1,697,539 | - | - | |||||||||
Bad
debt expense
|
- | 2,577,526 | - | |||||||||
Total
expenses
|
20,359,161 | 20,573,810 | 28,286,652 | |||||||||
Net
income
|
6,586,304 | 12,920,076 | 5,195,697 | |||||||||
Less:
Net income attributable to noncontrolling interests
|
(367,758 | ) | (326,324 | ) | (308,637 | ) | ||||||
Net
income attributable to Fund Ten
|
$ | 6,218,546 | $ | 12,593,752 | $ | 4,887,060 | ||||||
Net
income attributable to Fund Ten allocable to:
|
||||||||||||
Additional
Members
|
$ | 6,156,361 | $ | 12,467,815 | $ | 4,838,189 | ||||||
Manager
|
62,185 | 125,937 | 48,871 | |||||||||
$ | 6,218,546 | $ | 12,593,752 | $ | 4,887,060 | |||||||
Weighted
average number of additional
|
||||||||||||
shares
of limited liability company interests outstanding
|
148,222 | 148,275 | 148,575 | |||||||||
Net
income attributable to Fund Ten per weighted
|
||||||||||||
average
additional share of limited liability company interests
|
$ | 41.53 | $ | 84.09 | $ | 32.56 |
See accompanying notes to consolidated financial
statements.
(A
Delaware Limited Liability Company)
|
|||||||||||||||||||||||||||||
Consolidated
Statements of Changes in Equity
|
|||||||||||||||||||||||||||||
Members'
Equity
|
|||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||
Additional
Shares
|
|
|
|||||||||||||||||||||||||||
of
Limited Liability
|
|
Accumulated Other |
Total
|
|
|
||||||||||||||||||||||||
Company Interests
|
Additional Members |
Manager
|
Comprehensive (Loss)
Income |
Members' Equity |
Noncontrolling Interests |
Total Equity |
|||||||||||||||||||||||
Balance, December 31,
2006
|
148,730 | $ | 90,581,159 | $ | (401,837 | ) | $ | 3,591,721 | $ | 93,771,043 | $ | 4,039,195 | $ | 97,810,238 | |||||||||||||||
Comprehensive income:
|
|||||||||||||||||||||||||||||
Net
income
|
- | 4,838,189 | 48,871 | - | 4,887,060 | 308,637 | 5,195,697 | ||||||||||||||||||||||
Unrealized
loss on warrants
|
- | - | - | (538,072 | ) | (538,072 | ) | - | (538,072 | ) | |||||||||||||||||||
Change
in valuation of interest
|
|||||||||||||||||||||||||||||
rate
swap contracts
|
- | - | - | (1,066,151 | ) | (1,066,151 | ) | - | (1,066,151 | ) | |||||||||||||||||||
Currency
translation adjustments
|
- | - | - | 253,491 | 253,491 | - | 253,491 | ||||||||||||||||||||||
Total
comprehensive income
|
- | - | - | (1,350,732 | ) | 3,536,328 | 308,637 | 3,844,965 | |||||||||||||||||||||
Shares
of limited liability company
|
|||||||||||||||||||||||||||||
interests redeemed | (351 | ) | (294,451 | ) | - | - | (294,451 | ) | - | (294,451 | ) | ||||||||||||||||||
Cash
distributions
|
- | (12,778,769 | ) | (129,078 | ) | - | (12,907,847 | ) | (1,377,632 | ) | (14,285,479 | ) | |||||||||||||||||
Balance,
December 31, 2007
|
148,379 | 82,346,128 | (482,044 | ) | 2,240,989 | 84,105,073 | 2,970,200 | 87,075,273 | |||||||||||||||||||||
Comprehensive income:
|
|||||||||||||||||||||||||||||
Net
income
|
- | 12,467,815 | 125,937 | - | 12,593,752 | 326,324 | 12,920,076 | ||||||||||||||||||||||
Change
in valuation of interest
|
|||||||||||||||||||||||||||||
rate
swap contracts
|
- | - | - | (384,284 | ) | (384,284 | ) | - | (384,284 | ) | |||||||||||||||||||
Currency
translation adjustments
|
- | - | - | (5,002,496 | ) | (5,002,496 | ) | - | (5,002,496 | ) | |||||||||||||||||||
Total
comprehensive income
|
- | - | - | (5,386,780 | ) | 7,206,972 | 326,324 | 7,533,296 | |||||||||||||||||||||
Shares
of limited liability company
|
|||||||||||||||||||||||||||||
interests
redeemed
|
(148 | ) | (123,301 | ) | - | - | (123,301 | ) | - | (123,301 | ) | ||||||||||||||||||
Cash
distributions
|
- | (12,752,775 | ) | (128,817 | ) | - | (12,881,592 | ) | (1,122,540 | ) | (14,004,132 | ) | |||||||||||||||||
Balance,
December 31, 2008
|
148,231 | 81,937,867 | (484,924 | ) | (3,145,791 | ) | 78,307,152 | 2,173,984 | 80,481,136 | ||||||||||||||||||||
Comprehensive
income:
|
|||||||||||||||||||||||||||||
Net
income
|
- | 6,156,361 | 62,185 | - | 6,218,546 | 367,758 | 6,586,304 | ||||||||||||||||||||||
Change
in valuation of interest
|
|||||||||||||||||||||||||||||
rate
swap contracts
|
- | - | - | 306,488 | 306,488 | - | 306,488 | ||||||||||||||||||||||
Currency
translation adjustments
|
- | - | - | 959,384 | 959,384 | - | 959,384 | ||||||||||||||||||||||
Total
comprehensive income
|
- | - | - | 1,265,872 | 7,484,418 | 367,758 | 7,852,176 | ||||||||||||||||||||||
Shares
of limited liability company
|
|||||||||||||||||||||||||||||
interests redeemed | (20 | ) | (14,798 | ) | - | - | (14,798 | ) | - | (14,798 | ) | ||||||||||||||||||
Acquisition
of noncontrolling interest
|
- | - | - | - | - | 714,780 | 714,780 | ||||||||||||||||||||||
Cash
distributions
|
- | (12,747,182 | ) | (128,760 | ) | - | (12,875,942 | ) | (1,225,399 | ) | (14,101,341 | ) | |||||||||||||||||
|
|||||||||||||||||||||||||||||
Balance,
December 31, 2009
|
148,211 | $ | 75,332,248 | $ | (551,499 | ) | $ | (1,879,919 | ) | $ | 72,900,830 | $ | 2,031,123 | $ | 74,931,953 |
See accompanying
notes to consolidated financial statements.
(A
Delaware Limited Liability Company)
|
||||||||||||
Consolidated
Statements of Cash Flows
|
||||||||||||
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 6,586,304 | $ | 12,920,076 | $ | 5,195,697 | ||||||
Adjustments
to reconcile net income to net cash
|
||||||||||||
provided
by operating activities:
|
||||||||||||
Rental
income paid directly to lenders by lessees
|
(4,386,104 | ) | (11,722,647 | ) | (17,662,094 | ) | ||||||
Finance
income
|
(1,304,824 | ) | (2,368,359 | ) | (2,788,311 | ) | ||||||
Income
from investments in joint ventures
|
(3,830,195 | ) | (3,811,086 | ) | (1,235,015 | ) | ||||||
Net
(gain) loss on sales of equipment and unguaranteed residual
values
|
(1,550,884 | ) | (6,750,237 | ) | 384,310 | |||||||
Depreciation
and amortization
|
9,018,997 | 12,628,280 | 22,318,404 | |||||||||
Bad
debt expense
|
- | 2,577,526 | - | |||||||||
Gain
on bargain purchase
|
(440,681 | ) | - | - | ||||||||
Impairment
loss
|
1,697,539 | - | - | |||||||||
Interest
expense on non-recourse financing paid directly
|
||||||||||||
to
lenders by lessees
|
196,304 | 1,094,226 | 2,197,621 | |||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Collection
of finance leases
|
1,083,263 | 2,035,245 | 3,966,041 | |||||||||
Restricted
cash
|
226,882 | 37,868 | - | |||||||||
Service
contracts receivable
|
241,447 | - | - | |||||||||
Other
assets, net
|
(912,470 | ) | (63,635 | ) | 2,247,008 | |||||||
Deferred
revenue
|
37,480 | (1,913 | ) | (288,405 | ) | |||||||
Due
to Manager and affiliates, net
|
(212,390 | ) | 173,634 | 110,997 | ||||||||
Accrued
expenses and other current liabilities
|
(428,407 | ) | (313,396 | ) | 125,613 | |||||||
Distributions
from joint ventures
|
1,742,027 | 1,612,385 | 827,959 | |||||||||
Net
cash provided by operating activities
|
7,764,288 | 8,047,967 | 15,399,825 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Proceeds
from sales of equipment and unguaranteed residual values
|
3,209,938 | 18,081,200 | 3,218,093 | |||||||||
Distributions
received from joint ventures
|
4,226,051 | 3,021,595 | 11,488,247 | |||||||||
Investment
in financing facility
|
- | (164,822 | ) | (4,202,233 | ) | |||||||
Repayment
of financing facility
|
- | 4,367,055 | - | |||||||||
Purchase
of equipment
|
(32,033 | ) | - | (4,004,904 | ) | |||||||
Cash
received in connection with business acquisition
|
576,781 | - | - | |||||||||
Investments
in joint ventures
|
- | (13,368,631 | ) | (13,506,186 | ) | |||||||
Net
cash provided by (used in) investing activities
|
7,980,737 | 11,936,397 | (7,006,983 | ) | ||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from revolving line of credit, recourse
|
2,285,000 | - | 5,000,000 | |||||||||
Repayment
of revolving line of credit, recourse
|
(2,185,000 | ) | (5,000,000 | ) | - | |||||||
Repayments
of non-recourse long-term debt
|
(2,817,772 | ) | (1,463,976 | ) | - | |||||||
Cash
distributions to members
|
(12,875,942 | ) | (12,881,592 | ) | (12,907,847 | ) | ||||||
Shares
of limited liability company interests redeemed
|
(14,798 | ) | (123,301 | ) | (294,451 | ) | ||||||
Cash
distributions to noncontrolling interests
|
(1,225,399 | ) | (1,122,540 | ) | (1,377,633 | ) | ||||||
Net
cash used in financing activities
|
(16,833,911 | ) | (20,591,409 | ) | (9,579,931 | ) | ||||||
Effects
of exchange rates on cash and cash equivalents
|
(267,850 | ) | (56,987 | ) | 426 | |||||||
Net
decrease in cash and cash equivalents
|
(1,356,736 | ) | (664,032 | ) | (1,186,663 | ) | ||||||
Cash
and cash equivalents, beginning of the year
|
3,784,794 | 4,448,826 | 5,635,489 | |||||||||
Cash
and cash equivalents, end of the year
|
$ | 2,428,058 | $ | 3,784,794 | $ | 4,448,826 |
See accompanying
notes to consolidated financial statements.
ICON
Income Fund Ten, LLC
|
||||||||||||
(A
Delaware Limited Liability Company)
|
||||||||||||
Consolidated
Statements of Cash Flows
|
||||||||||||
Years Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||||||
Principal
and interest paid on non-recourse long-term debt
|
||||||||||||
directly
to lenders by lessees
|
$ | 4,386,104 | $ | 11,722,647 | $ | 17,662,094 | ||||||
Transfer
of leased equipment at cost to equipment held
for sale
|
$ | - | $ | 395,350 | $ | 708,505 | ||||||
Transfer
from net investment in finance leases to equipment
|
$ | 6,829,746 | $ | - | $ | - | ||||||
Transfer
from investments in unguaranteed residual values to
|
||||||||||||
leased
equipment at cost
|
$ | 52,722 | $ | 1,935 | $ | 536,160 | ||||||
Transfer
from leased equipment at cost to net investment in
|
||||||||||||
finance
leases
|
$ | 30,891,185 | $ | - | $ | 95,542 | ||||||
Transfer
of non-recourse long-term debt in connection with
|
||||||||||||
sale
of subsidiary
|
$ | - | $ | 10,906,321 | $ | - |
See accompanying notes to consolidated financial
statements.
53
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(1)
|
Organization
|
ICON
Income Fund Ten, LLC (the “LLC”) was formed on January 2, 2003 as a Delaware
limited liability company. The LLC is engaged in one business
segment, the business of purchasing equipment and leasing it to third parties,
providing equipment and other financing, acquiring equipment subject to lease
and, to a lesser degree, acquiring ownership rights to items of leased equipment
at lease expiration. The LLC will continue until December 31, 2023,
unless terminated sooner.
The LLC’s
principal investment objective is to obtain the maximum economic return from its
investments for the benefit of its members. To achieve this
objective, the LLC: (i) acquires a diversified portfolio by making investments
in leases and other financing transactions; (ii) makes monthly cash
distributions, at the LLC’s manager’s discretion, to its members commencing with
each member’s admission to the LLC, continuing until the end of the operating
period; (iii) reinvests substantially all undistributed cash from operations and
cash from sales of equipment and other financing transactions during the
operating period; and (iv) will dispose of its investments and distribute the
excess cash from such dispositions to its members beginning with the
commencement of the liquidation period. The LLC is currently in its
operating period, which commenced in April 2005.
The
manager of the LLC 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 equipment leases and other financing
transactions that the LLC enters into pursuant to the terms of the LLC’s amended
and restated operating agreement (the “LLC Agreement”). Additionally,
the Manager has a 1% interest in the profits, losses, cash distributions and
liquidation proceeds of the LLC.
The
initial capitalization of the LLC was $1,000 contributed by the
Manager. The LLC offered shares of limited liability company
interests (“Shares”) with the intention of raising up to $150,000,000 of capital
from additional members. The LLC commenced business operations on its
initial closing date, August 22, 2003, with the admission of investors holding
5,066 Shares, representing $5,065,736 of capital
contributions. Between August 23, 2003 and April 5, 2005, the final
closing date, the LLC admitted investors holding 144,928 Shares representing
$144,928,766 of capital contributions, bringing the total Shares to 149,994
representing $149,994,502 of capital contributions. In addition,
pursuant to the terms of the LLC’s offering, the LLC established a reserve in
the amount of 1.0% of the gross offering proceeds, or
$1,449,945. During the year ended December 31, 2009, the LLC redeemed
20 Shares, leaving 148,211 Shares outstanding as of such date.
The LLC
invested most of the net proceeds from its offering in equipment subject to
leases, other financing transactions and residual ownership rights in items of
leased equipment. After the net offering proceeds were invested,
additional investments will be made with the cash generated from the LLC’s
initial investments to the extent that cash is not needed for expenses, reserves
and distributions to members. The investment in additional equipment
leases and other financing transactions in this manner is called
“reinvestment.” The LLC currently anticipates investing in equipment
leases, other financing transactions and residual ownership rights in items of
leased equipment from time to time until April 2010, unless that date is
extended, at the Manager’s sole discretion, for up to an additional three
years. After the operating period, the LLC will sell its assets in
the ordinary course of business during the liquidation period.
54
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(1)
|
Organization
- continued
|
Members’
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 additional members and 1% to the
Manager until each additional member has (a) received cash distributions and
liquidation proceeds sufficient to reduce its adjusted capital account to zero
and (b) received, in addition, other distributions and allocations that would
provide an 8% per year cumulative return, compounded daily, on its outstanding
adjusted capital account. After such time, distributions will be allocated 90%
to the additional members and 10% to the Manager.
(2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation and Consolidation
The
accompanying consolidated financial statements of the LLC have been prepared in
accordance with U.S. generally accepted accounting principles (“U.S.
GAAP”). In the opinion of the Manager, all adjustments considered
necessary for a fair presentation have been included.
The
consolidated financial statements include the accounts of the LLC and its
majority-owned subsidiaries and other controlled entities. All
intercompany accounts and transactions have been eliminated in
consolidation. In joint ventures where the LLC 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 LLC
accounts for its noncontrolling interests in joint ventures where the LLC has
influence over financial and operational matters, generally 50% or less
ownership interest, under the equity method of accounting. In such
cases, the LLC's original investments are recorded at cost and adjusted for its
share of earnings, losses and distributions. The LLC accounts for
investments in joint ventures where the LLC has virtually no influence over
financial and operational matters using the cost method of
accounting. In such cases, the LLC's original investments are
recorded at cost and any distributions received are recorded as
revenue. All of the LLC's investments in joint ventures are subject
to its impairment review policy.
Effective
January 1, 2009, the LLC adopted and, for presentation and disclosure purposes,
retrospectively applied the accounting pronouncement relating to noncontrolling
interests in consolidated financial statements. As a result,
noncontrolling interests are reported as a separate component of consolidated
equity and net income attributable to the noncontrolling interest is included in
consolidated net income (loss). The attribution of income between
controlling and noncontrolling interests is disclosed on the accompanying
consolidated statements of operations. Accordingly, the prior year consolidated
financial statements have been revised to conform to the current year
presentation.
Cash and
Cash Equivalents and Restricted Cash
Cash and
cash equivalents include cash in banks and highly liquid investments with
original maturity dates of three months or less.
55
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Restricted
cash consisted of time deposits held by the lender for the difference in the
monthly rental payments and the related debt service of the LLC’s non-recourse
debt.
The LLC's
cash and cash equivalents are 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.
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
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 LLC 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 15 for a
discussion of concentrations of risk.
Market
risk reflects the change in the value of debt instruments, derivatives and
credit facilities due to changes in interest rate spreads or other market
factors. The LLC believes that the carrying value of its investments
and interests in derivative obligations through its joint ventures is
reasonable, taking into consideration these risks, along with estimated
collateral values, payment history and other relevant information.
Revenue
Recognition
The LLC
leases equipment to third parties and each such lease 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 term of the related lease. For an operating
lease, the initial direct costs are included as a component of the cost of the
equipment and depreciated over the lease term.
For
finance leases, the LLC records, 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. Accounts receivable are stated
at their estimated net realizable value. Deferred revenue is the
difference between the timing of the receivables billed and the income
recognized on a straight-line basis.
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
individual 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
members.
56
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Some of the LLC’s wholly-owned foreign
subsidiaries are taxed as corporations in their local tax
jurisdictions. For these entities, the LLC uses the liability method
of accounting for income taxes as required by the accounting pronouncement for
income taxes. Under this method, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax basis of
assets and liabilities. Deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are
established when it is determined that it is more likely than not that the
deferred tax assets will not be realized.
In
accordance with the accounting standard on accounting for uncertainty in income
taxes, the LLC records a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax
return. The LLC recognizes interest and penalties, if any, related to
unrecognized tax benefit in income tax expense.
Debt
Financing Costs
Expenses
associated with the incurrence of debt are capitalized and amortized over the
term of the debt instrument using the effective interest rate
method. These costs are included in other current and other
non-current assets.
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
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 LLC’s 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.
Asset
Impairments
The
significant assets in the LLC’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 LLC 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.
57
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
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 LLC 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 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.
Equipment
Held for Sale
Equipment
held for sale or lease is recorded at the lower of cost or estimated fair value,
less anticipated costs to sell, and consists of equipment previously leased to
end users which has been returned to the LLC following lease
expiration.
Equipment
held for sale is not depreciated and related deferred costs are not
amortized. Subsequent changes to the asset’s fair value, either
increases or decreases, are recorded as adjustments to the carrying value of the
equipment; however, any such adjustment would not exceed the original carrying
value of the equipment held for sale.
Prepaid
Service Fees
The LLC
paid the Manager a formation fee calculated at 6.5% of the gross proceeds from
the sale of Shares. In exchange for these fees, the Manager provided
services related to the selection of and making investments in equipment using
the offering proceeds. Since these costs related to making
investments in equipment, they were capitalized on the LLC’s consolidated
balance sheets and amortized to operations over an estimated period of 30
months, during which time the Manager performed the aforementioned
services. These fees were fully amortized as of December 31,
2007.
Unguaranteed
Residual Values
The LLC
carries its investments in unguaranteed residual values at cost. The
net book value is equal to or less than fair value at each reporting period and
is subject to the LLC's impairment review policy.
Allowance
for Doubtful Accounts
When
evaluating the adequacy of the allowance for doubtful accounts, the LLC
estimates the uncollectibility of receivables by analyzing lessee, borrower and
other counterparty concentrations, 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.
58
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Notes
Receivable
Notes
receivable are reported at the outstanding principal balance net of any
unamortized deferred fees, premiums or discounts on purchased
loans. Costs on originated loans are reported as other current and
other non-current assets. Unearned income, discounts and premiums are
amortized to income using the effective interest rate method. Any
interest receivable related to the unpaid principal is recorded separately from
the outstanding balance.
Initial
Direct Costs
The LLC
capitalizes initial direct costs associated with the origination and funding of
leased assets and other financing transactions in accordance with the accounting
pronouncement that accounts for 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
Pursuant
to the LLC Agreement, the LLC pays acquisition fees to the Manager equal to 3%
of the purchase price of the LLC’s investments. These fees are
capitalized and included in the cost of the investment. The LLC
satisfied these criteria and, as of November 2008, the LLC started paying
acquisition fees to its Manager.
Per Share
Data
Net
income attributable to the LLC per weighted average additional Share is based
upon the weighted average number of additional Shares outstanding during the
year.
Share
Redemption
The LLC
may, at its discretion, redeem Shares from a limited number of its additional
members, as provided for in the LLC Agreement. The redemption price
for any Shares approved for redemption is based upon a formula, as provided in
the LLC Agreement. Additional members are required to hold their
Shares for at least one year before redemptions will be permitted.
Comprehensive
Income (Loss)
Comprehensive
income (loss) is reported in the accompanying consolidated statements of changes
in equity and consists of net income (loss) and other gains and losses affecting
members’ equity that are excluded from net income (loss).
Warrants
Warrants
held by the LLC are not registered for public sale and are revalued on a
quarterly basis. The revaluation of warrants is calculated using the
Black-Scholes option pricing model. The assumptions utilized in the
Black-Scholes model include share price, strike price, expiration date,
risk-free rate and the volatility percentage. The change in the fair
value of warrants is recognized in the consolidated statements of
operations. The impact on the statement of operations was not
material for any year presented.
59
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Derivative
Financial Instruments
The LLC
may enter into derivative transactions for purposes of hedging specific
financial exposures, including movements in foreign currency exchange rates and
changes in interest rates. The LLC enters into these instruments only
for hedging underlying exposures. The LLC does not hold or issue
derivative financial instruments for purposes other than hedging, except for
warrants, which are not hedges. Certain derivatives may not meet the
established criteria to be designated as qualifying accounting hedges, even
though the LLC believes that these are effective economic hedges.
The LLC
accounts for its interests in derivative financial instruments through its joint
ventures in accordance with the accounting pronouncements, which establish
accounting and reporting standards for derivative financial
instruments. These accounting pronouncements require the LLC to
recognize all derivatives as either assets or liabilities on the consolidated
balance sheets and measure those instruments at fair value. The LLC recognizes
the fair value of all derivatives as either assets or liabilities on the
consolidated balance sheets and changes in the fair value of such instruments
are recognized immediately in earnings unless certain accounting criteria
established by the accounting pronouncements are met. These criteria demonstrate
that the derivative is expected to be highly effective at offsetting changes in
the fair value or expected cash flows of the underlying exposure at both the
inception of the hedging relationship and on an ongoing basis and include an
evaluation of the counterparty risk and the impact, if any, on the effectiveness
of the derivative. If these criteria are met, which the LLC must document and
assess at inception and on an ongoing basis, the LLC recognizes the changes in
fair value of such instruments in accumulated other comprehensive income (loss)
(“AOCI”), a component of equity. Changes in the fair value of the
ineffective portion of all derivatives are recognized immediately in
earnings.
Foreign
Currency Translation
Assets
and liabilities having non-U.S. dollar functional currencies are translated at
month-end exchange rates. Contributed capital accounts are translated
at the historical rate of exchange when the capital was contributed or
distributed. Revenues, expenses and cash flow items are translated at
the weighted average exchange rate for the period. Resulting
translation adjustments are recorded as a separate component of
AOCI.
Use of
Estimates
The
preparation of financial statements in conformity with U.S. 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 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.
60
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Reclassifications
Certain
reclassifications have been made to the accompanying consolidated financial
statements in prior years to conform to the current presentation.
Recently
Adopted Accounting Pronouncements
In 2009,
the LLC adopted the accounting pronouncement relating to accounting for fair
value measurements, which establishes a framework for measuring fair value and
enhances fair value measurement disclosure for non-financial assets and
liabilities. The adoption of this accounting pronouncement for non-financial
assets and liabilities did not have a significant impact on the LLC’s
consolidated financial statements.
In 2009, the LLC adopted the accounting
pronouncement relating to accounting for business combinations, which requires
an entity to recognize the assets acquired, liabilities assumed, contractual
contingencies, and contingent consideration at their fair value on the
acquisition date. It further requires that acquisition-related costs
be recognized separately from the acquisition and expensed as incurred; that
restructuring costs generally be expensed in periods subsequent to the
acquisition date; and that changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after the measurement
period be recognized as a component of the provision for taxes. The
adoption of this accounting pronouncement changed the LLC’s accounting treatment
for business combinations on a prospective basis beginning January 1,
2009.
In 2009,
the LLC adopted the accounting pronouncement that amended the current accounting
and disclosure requirements for derivative instruments. The requirements were
amended to enhance how: (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for; and (c)
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. The LLC was required to provide
such disclosures beginning with the quarter ended March 31, 2009.
In 2009, the LLC adopted the accounting
pronouncement that provides additional guidance for estimating fair value in
accordance with the accounting standard for fair value measurements when the
volume and level of activity for the asset or liability have significantly
decreased. This pronouncement also provides guidance for identifying
transactions that are not orderly. This pronouncement was effective
prospectively for all interim and annual reporting periods ending after June 15,
2009. The adoption of this accounting pronouncement did not have a significant
impact on the LLC’s consolidated financial statements.
In 2009, the LLC adopted the accounting
pronouncement that amends the requirements for disclosures about fair value of
financial instruments, regarding the fair value of financial instruments for
annual, as well as interim, reporting periods. This pronouncement was effective
prospectively for all interim and annual reporting periods ending after June 15,
2009. The adoption of this accounting pronouncement did not have a
significant impact on the LLC’s consolidated financial statements.
In 2009, the LLC 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 LLC’s consolidated financial statements.
61
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(2)
|
Summary
of Significant Accounting Policies -
continued
|
In 2009,
the LLC 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. 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 altar existing U.S. GAAP and it did not result in a change in
accounting practices for the LLC upon adoption. The LLC has conformed
its consolidated financial statements and related notes to the new Codification
for the year ended December 31, 2009.
(3)
|
Net
Investment in Finance Leases
|
Net
investment in finance leases consisted of the following at December 31, 2009 and
2008:
2009
|
2008
|
|||||||
Minimum
rents receivable, net
|
$ | 55,821,635 | $ | 10,650,349 | ||||
Estimated
residual values
|
7,300,000 | 1,596,832 | ||||||
Initial
direct costs, net
|
- | 72,269 | ||||||
Unearned
income
|
(31,312,946 | ) | (4,677,883 | ) | ||||
Net
investment in finance leases
|
$ | 31,808,689 | $ | 7,641,567 |
Bedside
Entertainment and Communication Terminals
On June
30, 2005, the LLC, through its wholly-owned subsidiary, ICON Premier, LLC (“ICON
Premier”), executed a sales and purchase agreement, a master lease agreement and
related documents (collectively, the “Lease”) with Premier Telecom Contracts
Limited (“Premier Telecom”), a licensee providing bedside entertainment services
to hospitals in the United Kingdom, in connection with the purchase of
approximately 5,000 bedside entertainment and communication terminals installed
in several National Health Service hospitals in the United
Kingdom. Premier Telecom is one of four companies in the United
Kingdom to receive the rights to install and operate the equipment in the
hospitals, and it has the exclusive right to install and operate the equipment
in thirteen hospitals. On March 8, 2006, an amendment to the Lease
was entered into to increase the maximum aggregate equipment purchase to
approximately $15,825,000 (£8,078,000), inclusive of initial direct costs.
The base term of the Lease, which commenced on January 1, 2006, was for a period
of 84 months. At December 31, 2005, the LLC had purchased
approximately $9,845,000 (£5,721,000) of bedside entertainment and communication
terminals, inclusive of initial direct costs.
Between
January and April 2006, ICON Premier purchased approximately $4,100,000
(£2,370,000) of additional bedside entertainment and communication terminals on
lease to Premier Telecom. The equipment was installed in various NHS
hospitals located throughout the United Kingdom. The lease term
commenced on January 1, 2006 and continues for a period of 84
months.
On June
9, 2008, an amendment to the Lease was entered into to grant Premier Telecom a
three-month rental payment holiday for the period of May 2008 through July
2008. On October 1, 2008, a second amendment to the Lease (“Amendment
No. 2”) was entered into to defer the rental payment due on September
2008. Amendment No. 2 restructured the remaining rental payments
schedule to reflect the aforementioned deferrals.
62
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(3)
|
Net
Investment in Finance Leases –
continued
|
In
October 2008, Pretel Group Limited (“Pretel”), the ultimate parent company of
Premier Telecom, determined that a planned merger with a competitor was no
longer viable. At December 31, 2008, ICON Premier recorded an
allowance for doubtful accounts of approximately $2,500,000 to more closely
approximate the net realizable value of its investment in finance lease to the
fair market value of the underlying leased assets.
In
January 2009, ICON Premier reached an agreement with the equity holders of
Pretel, in which ICON Premier acquired a 51% ownership interest in Pretel in
consideration for restructuring the lease financing between ICON Premier and
Premier Telecom. As a result of this business combination, the LLC
consolidates Pretel in its financial statements. The LLC reclassified
its investment from a finance lease to equipment on a consolidated
basis. See Note 6 for further discussion.
Marine
Vessels
On June
24, 2004, the LLC, through two wholly-owned subsidiaries, ICON Containership I,
LLC (“ICON Containership I”) and ICON Containership II, LLC (“ICON Containership
II”), acquired two container vessels, the M/V ZIM Canada (the “ZIM Canada”) and
the M/V ZIM Korea (the “ZIM Korea”), from ZIM Israel Navigation Co. Ltd.
(“ZIM”). The LLC simultaneously entered into bareboat charters with
ZIM for the ZIM Canada and the ZIM Korea. The charters were
originally scheduled to expire in June 2009 with a charterer option for two
12-month extension periods. The aggregate purchase price for the ZIM
Canada and the ZIM Korea was approximately $70,700,000, including approximately
$52,300,000 of non-recourse debt. On July 1, 2008, the bareboat
charters for the ZIM Canada and the ZIM Korea were extended to June 30, 2014
(the “ZIM Charter Extensions”).
On
October 30, 2009, ICON Containership I and ICON Containership II amended the
bareboat charters for the ZIM Canada and the ZIM Korea to restructure the
charterer’s payment obligations (the “Restructured ZIM Charters”). In
addition, the charters for the ZIM Canada and the ZIM Korea were extended from
June 30, 2014 to March 31, 2017 and to March 31, 2016,
respectively.
As a
result of the restructuring, the amended charters for the ZIM Canada and the ZIM
Korea have been classified as finance leases. As a result of the
charters being classified as finance leases, the net book value of approximately
$30,891,000 was transferred from leased equipment at cost to net investments in
finance leases as of October 1, 2009.
Non-cancelable
minimum annual amounts due on investments in finance leases over the next five
years were as follows at December 31, 2009:
Years Ending December 31,
|
||||
2010
|
$ | 1,536,650 | ||
2011
|
2,240,634 | |||
2012
|
6,771,948 | |||
2013
|
16,184,616 | |||
2014
|
18,535,936 | |||
Thereafter
|
10,551,851 | |||
$ | 55,821,635 |
63
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(4)
|
Leased
Equipment at Cost
|
Leased
equipment at cost consisted of the following at December 31, 2009 and
2008:
2009
|
2008
|
|||||||
Marine
vessels
|
$ | - | $ | 70,987,238 | ||||
Telecommunications
equipment
|
17,319,286 | 13,884,669 | ||||||
Materials
handling and manufacturing equipment
|
4,992,696 | 8,278,522 | ||||||
Information
technology equipment
|
24,191 | 52,692 | ||||||
22,336,173 | 93,203,121 | |||||||
Less:
Accumulated depreciation
|
(11,201,367 | ) | (47,649,844 | ) | ||||
$ | 11,134,806 | $ | 45,553,277 |
Depreciation
expense was $6,420,963, $12,574,832, and $21,234,184 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Marine
Vessels
On
January 13, 2005, the LLC, through its wholly-owned subsidiary, ICON
Containership III, LLC (“ICON Containership III”), acquired a container vessel,
the M/V ZIM Italia (the “ZIM Italia”), from ZIM Integrated Shipping Services
Ltd. (“ZIM Integrated”) and simultaneously entered into a bareboat charter with
ZIM Integrated for the ZIM Italia. The charter was for a period of 60
months with a charterer option for two 12-month extension
periods. The purchase price for the ZIM Italia was approximately
$35,350,000, including approximately $26,150,000 of non-recourse
debt. On March 31, 2008, the LLC sold its rights, title and interest
in ICON Containership III to an unrelated third party (the “Purchaser”) for net
proceeds of approximately $16,930,000, which was comprised of (i) a cash payment
of approximately $27,500,000, (ii) cash value of restricted cash held by the
lender of approximately $336,000, offset by (iii) the transfer of approximately
$10,906,000 of non-recourse debt secured by an interest in the ZIM
Italia. The LLC’s obligations under the loan agreement were satisfied
with the transfer of the non-recourse debt. The LLC realized a gain
on the sale of approximately $6,741,000.
Manufacturing
Equipment
On March
23, 2006, the LLC was assigned and assumed the rights to a lease from
Remarketing Services, Inc. (“Remarketing Services”), a related party, for
approximately $594,000. Remarketing Services was assigned and assumed
the rights to a lease from Chancellor Fleet Corporation (“Chancellor”), an
unrelated third party. Chancellor was a party to a lease with Saturn
Corporation (“Saturn”), a subsidiary of General Motors Corporation (“GM”), for
materials handling equipment. The lease term expires on September 30,
2011.
On June
1, 2009, GM filed a petition for reorganization under Chapter 11 of the U.S.
Bankruptcy Code, in which Saturn was named as a debtor. On February
22, 2010, the LLC received notice that the leases were being rejected by GM and
the monthly lease payments would cease effective March 1, 2010. As a
result of the lease rejection, the Manager re-assessed the equipment’s value and
determined that the assets were impaired, based upon the expected recoverable
amount for those assets. The LLC recorded an impairment of $185,000
to adjust the carrying value of those assets to reflect the estimated
recoverable amount.
64
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(4)
|
Leased
Equipment at Cost - continued
|
On
July 28, 2006, the LLC was assigned and assumed the rights to a lease from
Varilease Finance Group, Inc. (“Varilease”) for approximately
$2,817,000. Varilease was party to a lease with Anchor Tool & Die
Co. (“Anchor”) for automotive steering column production and assembly equipment
(the “Automotive Equipment”). The Automotive Equipment was installed
and operated at Anchor’s production facility. On September 30, 2009,
the lease term expired and the LLC sold all of the Automotive Equipment to
Anchor for a purchase price of $1,750,000, which resulted in the LLC recording a
gain of $1,189,000 for the year ended December 31, 2009.
On
September 28, 2007, the LLC completed the acquisition of and simultaneously
leased back substantially all of the machining and metal working equipment of MW
Texas Die Casting, Inc. (“Texas Die”), a wholly-owned subsidiary of MW
Universal, Inc. (“MWU”), for a purchase price of $2,000,000. The
lease term commenced on January 1, 2008 and continues for a period of 60
months. On December 10, 2007, the LLC completed the acquisition of
and simultaneously leased back substantially all of the machining and metal
working equipment of MW Monroe Plastics, Inc. (“Monroe”), another wholly-owned
subsidiary of MWU, for a purchase price of $2,000,000. The lease term
commenced on January 1, 2008 and continues for a period of 60
months.
Simultaneously
with the closing of the transactions with Texas Die and Monroe, ICON Leasing
Fund Eleven, LLC (“Fund Eleven”) and ICON Leasing Fund Twelve, LLC (“Fund
Twelve”), entities also managed by the Manager, (together with the LLC, the
“Participating Funds”), completed similar acquisitions with seven other
subsidiaries of MWU pursuant to which the respective funds purchased
substantially all of the machining and metal working equipment of each
subsidiary. Each subsidiary’s obligations under its respective lease
(including those of Texas Die and Monroe) are cross-collateralized and
cross-defaulted, and all subsidiaries’ obligations are guaranteed by
MWU. The Participating Funds have also entered into a credit support
agreement pursuant to which losses incurred by a Participating Fund with respect
to any MWU subsidiary are shared among the Participating Funds in proportion to
their respective capital investments. On September 5, 2008, the
Participating Funds and IEMC Corp., a subsidiary of the Manager, entered into an
amended forbearance agreement with MWU, Texas Die, Monroe and seven other
subsidiaries of MWU (collectively, the “MWU entities”) to cure certain
non-payment related defaults by the MWU entities under their lease covenants
with the LLC. The terms of the agreement included, among other
things, the pledge of additional collateral and the grant of a warrant for the
purchase of 12% of the fully diluted capital stock of MWU at an exercise price
of $1,000, exercisable until March 31, 2015. As of December 31, 2009,
the LLC’s proportionate share of the warrant was 7.4%. At December
31, 2009, the Manager determined that the fair value of this warrant was
$0.
On July
28, 2009, the LLC agreed to terminate the lease with Monroe. Simultaneously with
the termination, the LLC transferred title to the equipment under the lease to
Cerion MPI, LLC (“MPI”), an affiliate of Monroe, in consideration for MPI
transferring title to equipment to the LLC to be leased back to
MPI. Beginning on August 1, 2009, the LLC leased to MPI such
equipment for a term of 41 months. The obligations of MPI under the lease are
guaranteed by its parent company, Cerion, LLC and are not cross-collateralized
or cross-defaulted with the MWU lease obligations.
Telecommunications
Equipment
During
December 2004 and March 2005, the LLC acquired Mitel Networks 3340 Global Branch
Office Solution phone systems subject to a lease with CompUSA, Inc.
(“CompUSA”). On December 31, 2007, the Manager sold all of the phone
systems on lease to CompUSA with a net book value of approximately $1,887,000
for proceeds of approximately $1,076,000. The LLC recognized a loss
on the sale of equipment of approximately $811,000.
65
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(4)
|
Leased
Equipment at Cost -
continued
|
On
November 17, 2005, the LLC, along with Fund Eleven and ICON Income Fund Eight A
L.P. (“Fund Eight A”), entities also managed by the Manager, formed ICON Global
Crossing, LLC (“ICON Global Crossing”), with original ownership
interests of 44%, 44% and 12%, respectively, to purchase telecommunications
equipment. On March 31, 2006, Fund Eleven made an additional capital
contribution of approximately $7,733,000 to ICON Global Crossing, which changed
the ownership interests for the LLC, Fund Eleven and Fund Eight A to 30.62%,
61.39% and 7.99%, respectively. The total capital contributions made
to ICON Global Crossing were approximately $25,131,000, of which the LLC’s share
was approximately $7,695,000. During February and April 2006, ICON Global
Crossing purchased telecommunications equipment subject to a lease with Global
Crossing Telecommunications, Inc. (“Global Crossing”). The purchase
price, inclusive of initial direct costs, was approximately
$25,278,000. The equipment is subject to a 48-month lease that
commenced on April 1, 2006.
On
September 30, 2009, ICON Global Crossing sold certain telecommunications
equipment on lease to Global Crossing back to Global Crossing for a purchase
price of $5,493,000. The transaction was effected in order to redeem
Fund Eleven’s 61.39% ownership interest in ICON Global Crossing.
After the redemption, the LLC’s and Fund Eight A’s ownership interests in
ICON Global Crossing are 79.31% and 20.69%, respectively. Following the
transaction, the LLC consolidates the financial condition and results of
operations of ICON Global Crossing as of September 30, 2009.
On March
17, 2010, the LLC, through its wholly-owned subsidiary, ICON Global Crossing,
and Global Crossing agreed to extend the lease which was set to expire on March
31, 2010. The lease is now scheduled to expire on March 31, 2011. In
connection with the extension, ICON Global Crossing and Global Crossing agreed
to fix the purchase option at $1 for each schedule of equipment.
On
September 27, 2006, the LLC, along with ICON Income Fund Nine, LLC (“Fund
Nine”), an entity also managed by the Manager, formed ICON Global Crossing II,
LLC (“ICON Global Crossing II”), with original ownership interests of
approximately 83% and 17%, respectively, to purchase telecommunications
equipment for approximately $12,044,000. The equipment is subject to
a 48-month lease with Global Crossing and Global Crossing North American
Networks, Inc. (collectively, “Global Crossing Group”) that commenced on
November 1, 2006.
On
October 31, 2006, Fund Eleven made a capital contribution of approximately
$1,841,000 to ICON Global Crossing II. The contribution changed the
LLC’s ownership interest in ICON Global Crossing II and the ownership interests
of Fund Nine and Fund Eleven at October 31, 2006 to 72.34%, 14.40% and 13.26%,
respectively. The additional contribution was used to purchase
telecommunications equipment subject to a 48-month lease with Global Crossing
Group that commenced on November 1, 2006.
Digital
Mini-Labs
During
December 2004, the LLC acquired 101 Noritsu QSS 3011 digital mini-labs subject
to leases with Rite Aid Corporation (“Rite Aid”). The leases expired
at various times from November 2007 to September 2008. As of
December 31, 2007, the lease that expired in November 2007 was extended on a
month-to-month basis.
During
2008, Rite Aid returned all of the digital mini-labs it previously had on
lease. Of this equipment, the Manager sold 81 digital mini-labs with
a net book value of $729,000 for approximately $687,000 and the LLC recognized a
loss on the sale of equipment of approximately $42,000. As of
December 31, 2008, the LLC reclassified the net book value of the remaining
equipment returned by Rite Aid of $98,350 from an operating lease to equipment
held for sale. As of December 31, 2009, the LLC has a net book value
of the remaining equipment returned by Rite Aid of $23,350 recorded as equipment
held for sale.
66
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(4)
|
Leased
Equipment at Cost - continued
|
Information
Technology Equipment
On March
31, 2004, the LLC and Fund Nine formed ICON GeicJV, with ownership interests of
74% and 26%, respectively, to purchase information technology equipment subject
to a 36-month lease with Government Employees Insurance Company
(“GEICO”). On April 30, 2004, ICON GeicJV acquired the information
technology equipment subject to lease for a total cost of approximately
$5,853,000, of which the LLC’s portion was approximately
$4,331,000.
During
2007, GEICO returned equipment with a cost basis of approximately $5,798,000 and
extended on a month-to-month basis other equipment with a cost basis of
approximately $55,000. Of the returned equipment, ICON GeicJV sold
equipment with a net book value of approximately $781,000. ICON
GeicJV realized proceeds of approximately $775,000 and recognized a loss on the
sale of equipment of approximately $6,000. At December 31, 2007, ICON
GeicJV reclassified the remaining returned equipment, with a net book value of
approximately $58,000, from an operating lease to equipment held for
sale.
During
2008, ICON GeicJV sold all of the remaining equipment previously on lease to
GEICO. ICON GeicJV realized proceeds of approximately $96,000 and
recognized a gain on the sale of equipment of approximately
$31,000.
Aggregate
annual minimum future rentals receivable from the LLC’s non-cancelable leases
consisted of the following at December 31, 2009:
Years
Ending December 31,
|
||||
2010
|
$ | 4,350,136 | ||
2011
|
$ | 1,038,580 | ||
2012
|
$ | 955,146 |
(5)
|
Note
Receivable
|
On August
13, 2007, the LLC, along with a consortium of other lenders, entered into an
equipment financing facility with Solyndra, Inc. (“Solyndra”), a privately-held
manufacturer of solar panels, for the building of a new production
facility. The financing facility was set to mature on June 30, 2013
and was secured by the equipment as well as all other assets of
Solyndra. The equipment was comprised of two fully-automated
manufacturing lines that combine glass tubes and thin film semiconductors to
produce solar panels. In connection with the transaction, the LLC
received a warrant for the purchase of up to 40,290 shares of Solyndra common
stock at an exercise price of $4.96 per share. The warrant is set to
expire on April 6, 2014. The financing facility was for a maximum
amount of $93,500,000, of which the LLC committed to invest up to $5,000,000. As
of June 30, 2008, the LLC had loaned approximately $4,367,000. On
July 27, 2008, Solyndra fully repaid the outstanding note receivable and the
entire financing facility was terminated. The LLC received
approximately $4,437,000 from the repayment, which consisted of principal and
accrued interest. The repayment does not affect the warrant held by
the LLC and the LLC retains its rights thereunder. At December 31,
2009, the Manager determined that the fair value of this warrant was
$79,371.
67
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(6)
|
Business
Acquisition
|
On
January 30, 2009, ICON Premier acquired 51% of the outstanding stock of Pretel
for a purchase price of £1 and in consideration for restructuring its
pre-existing lease transaction with Pretel. The estimated fair value
of the net assets acquired exceeded the total purchase price by approximately
$441,000. Accordingly, the LLC recognized that excess as a gain
attributable to a bargain purchase. The acquisition was
accounted for as a business combination, and the results of operations of Pretel
have been included in the consolidated financial statements of the LLC from the
date of acquisition. Had the acquisition occurred as of January 1,
2009, the impact on the LLC’s consolidated results would have been
immaterial. The purpose of this acquisition was to protect the LLC’s
interest in a direct finance lease in connection with a first priority security
interest in the Lease. Accordingly, the LLC became the majority
shareholder of Pretel until such time that such amounts due to the LLC under the
Lease are paid in full. At such time, the control of the business
will revert back to the original shareholders.
The
purchase price was allocated based upon the fair value of the assets and
liabilities acquired. The allocation of the purchase price to the
fair value of the assets acquired and liabilities assumed at the date of
acquisition was as follows:
Amount
|
||||
Current
assets:
|
||||
Cash
|
$ | 557,040 | ||
Other
receivables, net
|
715,551 | |||
Other
current assets
|
122,309 | |||
Non-current
assets:
|
||||
Equipment
|
1,086,271 | |||
Total
assets acquired
|
2,481,171 | |||
Current
liabilities:
|
||||
Accrued
expenses and other current liabilities
|
2,040,489 | |||
Gain
on bargain purchase
|
440,681 | |||
Total
liabilities assumed
|
2,481,170 | |||
Total
purchase price
|
$ | 1 |
Following
ICON Premier’s acquisition of 51% of Pretel (See Note 3), the bedside
entertainment and communication terminals originally on lease to Pretel along
with the long-lived assets and other equipment of Pretel are classified as
Equipment on the consolidated balance sheet. During the LLC’s annual
impairment testing, it was determined that the carrying value of ICON Premier’s
long lived assets were in excess of the estimated fair value of those
assets. At December 31, 2009, ICON Premier recorded an impairment
loss of approximately $1,513,000 to properly reflect those assets at fair
value.
68
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(7)
|
Investments
in Joint Ventures
|
The LLC
and certain of its affiliates, entities also managed and controlled by the
Manager, formed the joint ventures discussed below for the purpose of acquiring
and managing various assets. The LLC and these affiliates have
substantially identical investment objectives and participate on the same terms
and conditions. The LLC and the other joint venture members have a
right of first refusal to purchase the equipment, on a pro-rata basis, if any of
the other joint venture members desires to sell its interests in the equipment
or joint venture.
The seven
minority-owned joint ventures described below are accounted for under the equity
method.
ICON
EAM, LLC
On
November 9, 2005, the LLC and Fund Eleven formed ICON EAM, LLC (“ICON EAM”) for
the purpose of leasing gas meters and accompanying data gathering equipment to
EAM Assets, Ltd. (“EAM”), a meter asset manager whose business is maintaining
industrial gas meters in the United Kingdom. The LLC and Fund Eleven
each contributed approximately $5,620,000 for 50% ownership interests in ICON
EAM. EAM was unable to meet its conditions precedent to the LLC’s
obligations to perform under the master lease agreement. The Manager
determined it was not in the LLC’s best interest to enter into a work-out
situation with EAM at that time. All amounts funded to ICON EAM, in
anticipation of purchasing the aforementioned equipment, had been deposited into
an interest-bearing escrow account (the “Account”) controlled by ICON EAM's
legal counsel. In May 2007, the balance of the Account, inclusive of
accreted interest, of approximately $13,695,000 was returned to the LLC and Fund
Eleven, of which the LLC’s share was approximately $6,848,000.
On March
9, 2006, pursuant to the master lease agreement, the shareholders of Energy
Asset Management plc, the parent company of EAM, approved the issuance of and
issued warrants to ICON EAM to acquire 7,403,051 shares of Energy Asset
Management plc’s stock. The warrants are exercisable for five years
after issuance and have a strike price of 1.50p. At December 31,
2009, the Manager determined that the fair value of these warrants was
$0.
ICON AeroTV, LLC
On
December 22, 2005, the LLC and Fund Eleven formed ICON AeroTV, LLC (“ICON
AeroTV”) for the purpose of owning equipment leased to AeroTV, Ltd. (“AeroTV”),
a provider of on board digital/audio visual systems for airlines, rail and coach
operators in the United Kingdom. The LLC and Fund Eleven each
contributed approximately $2,776,000 for 50% ownership interests in ICON
AeroTV. During 2006, ICON AeroTV purchased approximately $1,357,000
of equipment on lease to AeroTV. The leases were scheduled to expire
between December 31, 2007 and June 30, 2008.
In
February 2007, due to the termination of the services agreement with its main
customer, AeroTV notified the Manager of its inability to pay certain rent owed
to ICON AeroTV and subsequently filed for insolvency protection in the United
Kingdom. ICON AeroTV terminated the master lease agreement with
AeroTV at that time. Certain facts then came to light that gave the
Manager serious concerns regarding the propriety of AeroTV's actions during and
after the execution of the lease with AeroTV. On April 18, 2007, ICON
AeroTV filed a lawsuit in the United Kingdom’s High Court of Justice, Queen’s
Bench Division against AeroTV and one of its directors for fraud. On
April 17, 2008, the default judgment against the AeroTV director, which had
previously been set aside, was reinstated. ICON AeroTV is attempting
to collect on the default judgment against the AeroTV director in Australia, his
country of domicile. At this time, it is not
possible to determine ICON AeroTV’s ability to collect the
judgment.
69
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(7)
|
Investments
in Joint Ventures – continued
|
On
February 20, 2007, ICON AeroTV wrote off its leased assets with a remaining cost
basis of approximately $438,000, which was offset by the recognition of the
relinquished security deposit and deferred income of approximately $286,000,
resulting in a net loss of approximately $152,000, of which the LLC’s share was
approximately $76,000. A final rental payment of approximately
$215,000 was collected in March 2007. In May 2007, the unexpended
amount previously contributed to ICON AeroTV, inclusive of accreted interest, of
approximately $5,560,000 was returned to the LLC and Fund Eleven, of which the
LLC’s share was approximately $2,780,000.
ICON
Mayon, LLC
On June
26, 2007, the LLC and Fund Twelve formed ICON Mayon, LLC (“ICON Mayon”), with
ownership interests of 49% and 51%, respectively. On July 24, 2007,
ICON Mayon purchased a 98,507 deadweight ton (“DWT”) Aframax product tanker, the
Mayon Spirit, from an affiliate of Teekay Corporation (“Teekay”). The
purchase price for the Mayon Spirit was approximately $40,250,000, with
approximately $15,312,000 funded in the form of a capital contribution to ICON
Mayon and approximately $24,938,000 of non-recourse debt borrowed from Fortis
Capital Corp. Simultaneously with the closing of the purchase of the
Mayon Spirit, the Mayon Spirit was bareboat chartered back to Teekay for a term
of 48 months. The charter commenced on July 24, 2007. The total
capital contributions made to ICON Mayon were approximately $16,020,000, of
which the LLC’s share was approximately $7,548,000.
Information
as to the financial position and results of operations of ICON Mayon
is summarized below:
December
31,
|
December
31,
|
|||||||||||
2009
|
2008
|
|||||||||||
Current
assets
|
$ | 31,279 | $ | 48,373 | ||||||||
Non-current
assets
|
$ | 34,194,142 | $ | 36,982,842 | ||||||||
Current
liabilities
|
$ | 6,699,896 | $ | 6,964,606 | ||||||||
Non-current
liabilities
|
$ | 6,769,741 | $ | 12,341,338 | ||||||||
Members'
equity
|
$ | 20,755,784 | $ | 17,725,271 | ||||||||
LLC's
share of equity
|
$ | 10,032,872 | $ | 8,491,543 | ||||||||
December 31,
2009
|
December 31,
2008
|
Period From July 24, 2007
(Commencement of Operations) through December 31,
2007
|
||||||||||
Revenue
|
$ | 6,206,808 | $ | 6,206,808 | $ | 2,722,170 | ||||||
Expenses
|
3,732,988 | 4,202,309 | 1,893,496 | |||||||||
Net
income
|
$ | 2,473,820 | $ | 2,004,499 | $ | 828,674 | ||||||
LLC's
share of net income
|
$ | 1,268,549 | $ | 1,057,240 | $ | 438,929 |
ICON
Global Crossing V, LLC
On
December 20, 2007, the LLC and Fund Eleven formed ICON Global Crossing V, LLC
(“ICON Global Crossing V”), with ownership interests of 45% and 55%,
respectively, to purchase telecommunications equipment for approximately
$12,982,000. The equipment is subject to a 36-month lease with Global
Crossing that commenced on January 1, 2008. The total capital
contributions made to ICON Global Crossing V were approximately $12,982,000, of
which the LLC’s share was approximately $5,842,000.
70
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(7)
|
Investments
in Joint Ventures – continued
|
ICON
Northern Leasing, LLC
On
November 25, 2008, ICON Northern Leasing, LLC ("ICON Northern Leasing"), a joint
venture among the LLC, Fund Eleven and Fund Twelve, purchased four promissory
notes (the “Notes”) and received an assignment of the underlying Master Loan and
Security Agreement (the "MLSA") dated July 28, 2006. The LLC, Fund
Eleven and Fund Twelve have ownership interests of 12.25%, 35%, and 52.75%,
respectively, in ICON Northern Leasing. The aggregate purchase price
for the Notes was approximately $31,573,000, net of a discount of approximately
$5,165,000. The Notes are secured by an underlying pool of leases for
credit card machines. The Notes accrue interest at rates ranging from
7.97% to 8.40% per year and require monthly payments ranging from approximately
$183,000 to $422,000. The Notes mature between October 15, 2010 and
August 14, 2011 and require balloon payments at the end of each note ranging
from approximately $594,000 to $1,255,000. The LLC’s share of the
purchase price of the Notes was approximately $3,868,000 and the LLC paid an
acquisition fee to the Manager of approximately $36,000 relating to this
transaction.
Information
as to the financial position and results of operations of ICON Northern Leasing
is summarized below:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Current
assets
|
$ | 13,532,355 | $ | 12,218,130 | ||||
Non-current
assets
|
$ | 5,916,150 | $ | 19,426,142 | ||||
Current
liabilities
|
$ | 128 | $ | 33,945 | ||||
Non-current
liabilities
|
$ | - | $ | - | ||||
Members'
equity
|
$ | 19,448,377 | $ | 31,610,327 | ||||
LLC's
share of equity
|
$ | 2,360,446 | $ | 3,808,451 | ||||
December 31,
2009
|
Period From November 25,
2008
(Commencement of Operations) through December 31,
2008
|
|||||||
Revenue
|
$ | 5,446,823 | $ | 819,837 | ||||
Expenses
|
556,061 | 83,673 | ||||||
Net
income
|
$ | 4,890,762 | $ | 736,164 | ||||
LLC's
share of net income
|
$ | 640,966 | $ | 96,904 |
ICON
Eagle Carina Holdings, LLC
On
December 3, 2008, ICON Eagle Carina Pte. Ltd. (“ICON Eagle Carina”), a Singapore
corporation wholly-owned by ICON Eagle Carina Holdings, LLC (“ICON Carina
Holdings”), a Marshall Islands limited liability company owned 35.7% by the LLC
and 64.3% by Fund Twelve, executed a Memorandum of Agreement to purchase a
95,639 DWT Aframax product tanker, the M/V Eagle Carina (the “Eagle Carina”),
from Aframax Tanker II AS. On December 18, 2008, the Eagle Carina was
purchased for $39,010,000, of which $27,000,000 was financed with non-recourse
debt borrowed from Fortis Bank NV/SA (“Fortis”) and DVB Bank SE
(“DVB”). The Eagle Carina is subject to an 84-month bareboat charter
with AET, Inc. Limited (“AET”) that expires on November 14,
2013. ICON Carina Holdings paid an acquisition fee to the Manager of
approximately $1,170,000 in connection with this transaction, of which the LLC’s
share was approximately $418,000.
71
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(7)
|
Investments
in Joint Ventures – continued
|
Information
as to the financial position and results of operations of ICON Carina Holdings
is summarized below:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Current
assets
|
$ | 111,286 | $ | 115,174 | ||||
Non-current
assets
|
$ | 36,779,590 | $ | 40,450,242 | ||||
Current
liabilities
|
$ | 5,852,265 | $ | 4,824,473 | ||||
Non-current
liabilities
|
$ | 17,363,527 | $ | 22,229,603 | ||||
Members'
equity
|
$ | 13,675,084 | $ | 13,511,340 | ||||
LLC's
share of equity
|
$ | 4,882,005 | $ | 4,823,548 | ||||
December 31,
2009
|
Period From December 18, 2008
(Commencement of Operations) through December 31,
2008
|
|||||||
Revenue
|
$ | 5,946,209 | $ | 228,061 | ||||
Expenses
|
4,937,633 | 201,214 | ||||||
Net
income
|
$ | 1,008,576 | $ | 26,847 | ||||
LLC's
share of net income
|
$ | 360,062 | $ | 9,584 |
ICON
Eagle Corona Holdings, LLC
On December 3, 2008, ICON Eagle Corona
Pte. Ltd. (“ICON Eagle Corona”), a Singapore corporation wholly-owned by ICON
Eagle Corona Holdings, LLC (“ICON Corona Holdings”), a Marshall Islands limited
liability company owned 35.7% by the LLC and 64.3% by Fund Twelve, executed a
Memorandum of Agreement to purchase a 95,634 DWT Aframax product tanker, the M/V
Eagle Corona (the “Eagle Corona”), from Aframax Tanker II AS. On
December 31, 2008, the Eagle Corona was purchased for $41,270,000, of which
$28,000,000 was financed with non-recourse debt borrowed from Fortis and
DVB. The Eagle Corona is subject to an 84-month bareboat charter with
AET that expires on November 14, 2013. ICON Corona Holdings paid an
acquisition fee to the Manager of approximately $1,238,000 in connection with
this transaction, of which the LLC’s share was approximately
$442,000.
72
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(7)
|
Investments
in Joint Ventures - continued
|
Information
as to the financial position and results of operations of ICON Corona Holdings
is summarized below:
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Current
assets
|
$ | 116,693 | $ | 117,959 | ||||
Non-current
assets
|
$ | 39,231,467 | $ | 42,942,700 | ||||
Current
liabilities
|
$ | 6,311,716 | $ | 4,922,969 | ||||
Non-current
liabilities
|
$ | 18,156,062 | $ | 23,107,724 | ||||
Members'
equity
|
$ | 14,880,382 | $ | 15,029,966 | ||||
LLC's
share of equity
|
$ | 5,312,296 | $ | 5,365,698 | ||||
December 31,
2009
|
Period From December 31, 2008
(Commencement of Operations) through December 31,
2008
|
|||||||
Revenue
|
$ | 6,090,037 | $ | 16,685 | ||||
Expenses
|
4,982,970 | 13,154 | ||||||
Net
income
|
$ | 1,107,067 | $ | 3,531 | ||||
LLC's
share of net income
|
$ | 395,223 | $ | 1,261 |
(8)
|
Investments
in Unguaranteed Residual Values
|
Summit
Asset Management Limited
On
February 28, 2005, the LLC entered into a participation agreement with Summit
Asset Management Ltd. (“SAM”) and acquired a 75% interest in the unguaranteed
residual values of a portfolio of equipment on lease to various United Kingdom
lessees. Several of these leases have been extended through October
31, 2012. The LLC does not have an interest in the equipment until
the expiration of the initial lease term. The portfolio is mainly
comprised of information technology equipment, including laptops, desktops and
printers. The purchase price, inclusive of initial direct costs, was
approximately $2,843,000.
During
the years ended December 31, 2009, 2008 and 2007, the LLC realized proceeds of
approximately $164,000, $149,000 and $867,000 on sales of its interests in
unguaranteed residual values as well as sold certain of its investments in
unguaranteed residual values that were previously transferred to leased
equipment at cost for approximately $4,000, $114,000 and $355,000, which
resulted in a net (loss) gain on sale of approximately ($35,000), $58,000 and
$408,000, respectively. At December 31, 2009 and 2008, the remaining
balance of the LLC’s investment in unguaranteed residual values was
approximately $290,000 and $754,000, respectively.
Key
Finance Group, Limited
During
July 2006, the LLC entered into a purchase and sale agreement (the “Purchase
Agreement”) with Key Finance Group, Ltd. (“Key Finance”) to acquire an interest
in the unguaranteed residual values of various technology equipment currently on
lease to various lessees located in the United Kingdom for approximately
$782,000 (£422,000). These leases have various expiration dates
through March 2015.
73
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(8)
|
Investments
in Unguaranteed Residual Values –
continued
|
Under the
terms of the Purchase Agreement, Key Finance and the LLC will receive residual
proceeds up to the “bottom residual value,” as defined in the remarketing
agreement. The LLC will then receive residual proceeds up to certain
thresholds established in the Purchase Agreement. Pursuant to the
terms of the Purchase Agreement, once the portfolio’s return to the LLC has
exceeded the expected residual, any additional residual proceeds will be split
equally between Key Finance and the LLC. For the years ended December
31, 2009, 2008 and 2007, there was no residual sharing.
During
the years ended December 31, 2009, 2008 and 2007, the LLC remarketed certain of
its investments in unguaranteed residual values with a cost basis of
approximately $211,000, $143,000 and $150,000, respectively. The LLC
realized proceeds of approximately $184,000, $106,000 and $175,000 on sales of
its interests in unguaranteed residual values, which resulted in a (loss) gain
on sale of approximately ($27,000), ($37,000) and $25,000 for the years ended
December 31, 2009, 2008 and 2007, respectively.
(9)
|
Non-Recourse
Long-Term Debt
|
On June
24, 2004, each of ICON Containership I and ICON Containership II, wholly-owned
subsidiaries of the LLC, borrowed $26,150,000 from Fortis Capital Corp. in
connection with the acquisitions of the ZIM Canada and the ZIM Korea from
ZIM. The non-recourse long-term debt obligations accrued interest at
the London Interbank Offered Rate (“LIBOR”) plus 1.50% per year. The
non-recourse long-term debt obligations required 60 monthly payments ranging
from approximately $372,000 to $483,000. The lender had a security
interest in the ZIM Canada and the ZIM Korea and an assignment of the charter
hire with ZIM. The LLC paid and capitalized approximately $523,000 in
debt financing costs.
On July
1, 2009, the LLC, through ICON Containership I and ICON Containership II, repaid
the outstanding balance of the non-recourse long-term debt obligations and
satisfied all of the LLC’s non-recourse long-term debt obligations.
Simultaneously
with the execution of the non-recourse long-term debt agreements mentioned
above, the LLC entered into two interest rate swap contracts with Fortis in
order to hedge the variable interest rate on the non-recourse long-term debt and
minimize the LLC’s risk of interest rate fluctuation. The interest rate swap
contracts, which were deemed effective as of June 24, 2004, fixed the interest
rate at 5.37% per year.
On
January 13, 2005, ICON Containership III borrowed $26,150,000 in connection with
the acquisition of the ZIM Italia. The non-recourse long-term debt
was set to mature on January 13, 2010 and accrued interest at LIBOR plus 1.50%
per year. The non-recourse long-term debt required monthly payments
ranging from $372,000 to $483,000. The lender had a security interest
in the ZIM Italia and an assignment of the charter hire with ZIM
Integrated. The LLC paid and capitalized approximately $261,500 in
debt financing costs. As part of the sale of ICON Containership III,
discussed in Note 4, the LLC transferred the outstanding balance of the note
payable at March 31, 2008 to the Purchaser.
For the
years ended December 31, 2009, 2008 and 2007, the LLC recognized amortization
expense of $8,633, $185,254 and $154,704, respectively.
74
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(10)
|
Revolving
Line of Credit, Recourse
|
The LLC
and certain entities managed by the Manager, ICON Income Fund Eight B L.P (“Fund
Eight B”), Fund Nine, Fund Eleven, Fund Twelve and ICON Equipment and Corporate
Infrastructure Fund Fourteen, L.P. (“Fund Fourteen” and, together with the LLC,
Fund Eight B, Fund Nine, Fund Eleven and Fund Twelve, the “Borrowers”), are
parties to a Commercial Loan Agreement, as amended (the “Loan Agreement”), with
California Bank & Trust (“CB&T”). 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
Borrowers not subject to a first priority lien, as defined in the Loan
Agreement. Each of the Borrowers is jointly and severally liable for
all amounts borrowed under the Facility. At December 31, 2009, no
amounts were accrued related to the LLC’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 Borrowers have a beneficial interest.
The
Facility expires on June 30, 2011 and the 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 2.5% per year, provided that neither interest rate is permitted to be less
than 4.0% per year. The interest rate at December 31, 2009 was
4.0%. In addition, the Borrowers are obligated to pay a quarterly
commitment fee of 0.50% on unused commitments under the Facility.
The
Borrowers are also parties to a Contribution Agreement (the “Contribution
Agreement”) that provides that, in the event that a Borrower pays an amount in
excess of its share of total obligations under the Facility, the other Borrowers
will contribute to such Borrower so that the aggregate amount paid by each
Borrower reflects its allocable share of the aggregate obligations under the
Facility.
Aggregate
borrowings by all Borrowers under the Facility amounted to $2,360,000 at
December 31, 2009. The balances of $100,000 and $2,260,000 were
borrowed by the LLC and Fund Eleven, respectively. As of March 24,
2010, the LLC and Fund Eleven had outstanding borrowings under the Facility of
$700,000 and $0, respectively.
The
Borrowers were in compliance with all covenants under the Loan Agreement at
December 31, 2009. As of such date, no amounts were due to or payable
by the LLC under the Contribution Agreement.
(11)
|
Transactions
with Related Parties
|
In
accordance with the terms of the LLC Agreement, the LLC pays or paid the Manager
(i) management fees ranging from 1% to 7% based on a percentage of the rentals
and other contractual payments recognized either directly by the LLC or through
its joint ventures and (ii) acquisition fees, through the end of the operating
period, of 3% of the purchase price of the LLC’s investments. In
addition, the Manager is reimbursed for administrative expenses incurred in
connection with the LLC’s operations. The Manager also has a 1%
interest in the LLC’s profits, losses, cash distributions and liquidation
proceeds.
The
Manager performs certain services relating to the management of the LLC’s
equipment leasing and other financing activities. Such services
include, but are not limited to, the collection of lease payments from the
lessees of the equipment, re-leasing services in connection with equipment which
is off-lease, inspections of the equipment, liaising with and general
supervision of lessees to ensure that the equipment is being properly operated
and maintained, monitoring performance by the lessees of their obligations under
the leases and the payment of operating expenses.
75
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(11)
|
Transactions
with Related Parties – continued
|
Administrative
expense reimbursements are costs incurred by the Manager or its affiliates that
are necessary to the LLC’s operations. These costs include the Manager’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 LLC based upon the percentage of time such personnel dedicate to the
LLC. Excluded are salaries and related costs, office rent,
travel expenses and other administrative costs incurred by individuals with a
controlling interest in the Manager.
The LLC
paid distributions to the Manager of $128,760, $128,817 and $129,078 for the
years ended December 31, 2009, 2008 and 2007,
respectively. Additionally, the Manager’s interest in the net income
attributable to Fund Ten was $62,185, $125,937 and $48,871 for the years ended
December 31, 2009, 2008 and 2007, respectively.
Fees and
other expenses paid or accrued by the LLC to the Manager or its affiliates for
the years ended December 31, 2009, 2008 and 2007 were as follows:
Entity
|
Capacity
|
Description
|
2009
|
2008
|
2007
|
|||||||||||
ICON
Capital Corp.
|
Manager
|
Acquisition
fees (1)
|
$ | - | $ | 895,443 | $ | - | ||||||||
ICON
Capital Corp.
|
Manager
|
Management
fees (2)
|
$ | 1,246,713 | $ | 1,620,239 | $ | 2,054,110 | ||||||||
ICON
Capital Corp.
|
Manager
|
Administrative
expense
|
||||||||||||||
reimbursements
(2)
|
$ | 1,090,870 | $ | 1,448,324 | $ | 876,287 | ||||||||||
(1)
Amount capitalized and amortized to operations over the estimated service
period in accordance with the LLC's accounting
policies.
|
||||||||||||||||
(2)
Amount charged directly to operations.
|
At
December 31, 2009 and 2008, the LLC had a net payable of $131,351 and
$1,048,301, respectively, due to the Manager and its affiliates that primarily
consisted of administrative expense reimbursements.
(12)
|
Derivative
Financial Instruments
|
The LLC may enter into derivative
transactions for purposes of hedging specific financial exposures, including
movements in foreign currency exchange rates and changes in interest rates of
its non-recourse long-term debt. The LLC enters into these instruments only for
hedging underlying exposures. The LLC does not hold or issue
derivative financial instruments for purposes other than hedging, except for
warrants, which are not hedges. Certain derivatives may not meet the
established criteria to be designated as qualifying accounting hedges, even
though the LLC believes that these are effective economic hedges.
The LLC
accounts for derivative financial instruments in accordance with the accounting
pronouncements that established accounting and reporting standards for
derivative financial instruments. These accounting pronouncements require
the LLC to recognize all derivatives as either assets or liabilities on the
consolidated balance sheets and measure those instruments at fair value. The LLC
recognizes the fair value of all derivatives as either assets or liabilities on
the consolidated balance sheets and changes in the fair value of such
instruments are recognized immediately in earnings unless certain accounting
criteria established by the accounting pronouncements are met. These criteria
demonstrate that the derivative is expected to be highly effective at offsetting
changes in the fair value or expected cash flows of the underlying exposure at
both the inception of the hedging relationship and on an ongoing basis and
include an evaluation of the counterparty risk and the impact, if any, on the
effectiveness of the derivative. If these criteria are met, which the LLC must
document and assess at inception and on an ongoing basis, the LLC recognizes the
changes in fair value of such instruments in AOCI, a component of equity on the
consolidated balance sheets. Changes in the fair value of the ineffective
portion of all derivatives are recognized immediately in
earnings.
Interest
Rate Risk
As of
December 31, 2009, the LLC has interests through joint ventures in three
floating-to-fixed interest rate swaps relating to ICON Corona Holdings, ICON
Carina Holdings and ICON Mayon designated and qualifying as cash flow hedges
with an aggregate notional amount of $57,678,665. These interest rate swaps have
maturity dates ranging from July 25, 2011 to November 14, 2013.
76
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(12)
|
Derivative
Financial Instruments – continued
|
As of
December 31, 2008, the LLC had interests through joint ventures in two
floating-to-fixed interest rate swaps relating to ICON Carina Holdings and ICON
Mayon designated and qualifying as cash flow hedges with an aggregate notional
amount of $18,246,717. These interest rate swaps have maturity dates ranging
from July 25, 2011 to November 14, 2013.
Interest
rate derivatives are used to add stability to interest expense and to manage
exposure to interest rate movements on its variable non-recourse
debt. The hedging strategy to accomplish this objective is to match
the projected future cash flows with the underlying debt service. Interest rate
swaps designated as cash flow hedges involve the receipt of floating-rate
interest payments from a counterparty in exchange for the LLC or joint ventures
making fixed interest rate payments over the life of the agreements without
exchange of the underlying notional amount.
For these
derivatives, the LLC or joint ventures record their interest in the gain or loss
from the effective portion of changes in the fair value of derivatives
designated and qualifying as cash flow hedges in AOCI and such gain or loss is
subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings and is recorded as a component of income (loss)
from investments in joint ventures. During the year ended December 31, 2009, the
joint ventures recorded no hedge ineffectiveness in earnings. At
December 31, 2009, the total unrealized (loss) recorded to AOCI related to the
joint ventures’ interest in the change in fair value of interest rate swaps was
approximately $389,000. During the years ended December 31, 2009,
2008 and 2007, the LLC recorded immaterial amounts of hedge ineffectiveness in
earnings.
During
the twelve months ending December 31, 2010, the LLC estimates that approximately
$463,000 will be transferred from AOCI to income (loss) from investments in
joint ventures.
Non-designated
Derivatives
As of
December 31, 2009, warrants are the only derivatives that the LLC holds for
purposes other than hedging. All changes in the fair value of the warrants are
recorded directly in earnings.
The table
below presents the fair value of the LLC’s derivative financial instruments as
well as their classification within the LLC’s consolidated balance sheet as of
December 31, 2009:
Asset Derivatives
|
|||||
Balance
Sheet Location
|
Fair
Value
|
||||
Derivatives
not designated as hedging
instruments:
|
|||||
Warrants
|
Other
non-current assets
|
$ | 79,371 |
The LLC’s derivative financial
instruments not designated as hedging instruments generated a gain on the
statements of operations for the year ended December 31, 2009 of
$91,436. The net gain recorded for the year ended December 31, 2009
was comprised of an unrealized gain recorded in general and administrative
expense of $73,644 relating to interest rate swap contracts that matured during
the quarter ended September 30, 2009 and an unrealized gain recorded in general
and administrative expense of $17,792 relating to warrants.
The LLC’s
derivative financial instruments not designated as hedging instruments generated
an unrealized loss of $28,062 and $25,024 on the statements of operations for
the years ended December 31, 2008 and 2007, respectively. This loss
related to warrants and was recorded in general and administrative
expense.
77
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(12)
|
Derivative
Financial Instruments – continued
|
Derivative
Risks
The
LLC manages exposure to possible defaults on derivative financial instruments by
monitoring the concentration of risk that the LLC has with any individual bank
and through the use of minimum credit quality standards for all
counterparties. The LLC does not require collateral or other security
in relation to derivative financial instruments. Since it is the
LLC’s policy to enter into derivative contracts with banks of internationally
acknowledged standing only, the LLC considers the counterparty risk to be
remote.
(13)
|
Accumulated
Other Comprehensive Income (Loss)
|
AOCI
includes accumulated losses on derivative financial instruments of joint
ventures and currency translation adjustments of $389,426 and $1,490,493,
respectively, at December 31, 2009, and accumulated losses on derivative
financial instruments and currency translation adjustments of $695,914 and
$2,449,877, respectively, at December 31, 2008.
(14)
|
Fair
Value Measurements
|
The LLC
accounts for the fair value of financial instruments in accordance with the
accounting pronouncements, which require assets and liabilities carried at fair
value to be classified and disclosed in one of the following three
categories:
·
|
Level
1: Quoted market prices available in active markets for
identical assets or liabilities as of the reporting
date.
|
·
|
Level
2: Pricing inputs other than quoted prices in active markets
included in Level 1, which are either directly or indirectly observable as
of the reporting date.
|
·
|
Level
3: Pricing inputs that are generally unobservable and cannot be
corroborated by market data.
|
Financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The
Manager’s assessment, on the LLC’s behalf, of the significance of a particular
input to the fair value measurement requires judgment and may affect the
valuation of the assets and liabilities being measured and their placement
within the fair value hierarchy.
78
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(14)
|
Fair
Value Measurements – continued
|
The
following table summarizes the valuation of the LLC’s material financial assets
and liabilities measured at fair value on a recurring basis as of December 31,
2009:
Level 1(1)
|
Level 2(2)
|
Level 3(3)
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | 79,371 | $ | - | $ | 79,371 | ||||||||
Liabilities:
|
$ | - | $ | - | $ | - | $ | - | ||||||||
(1)
Quoted prices in active markets for identical assets or
liabilities.
|
||||||||||||||||
(2)
Observable inputs other than quoted prices in active markets for identical
assets and liabilities.
|
||||||||||||||||
(3)
No observable pricing inputs in the market.
|
The LLC’s
warrants are valued using models based on readily observable market parameters
for all substantial terms and are classified within Level 2. As
permitted by the accounting pronouncements, the LLC uses market prices and
pricing models for fair value measurements of its derivative
instruments. The fair value of the warrants was recorded in other
non-current assets within the consolidated balance sheets.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
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 LLC’s non-financial assets, such as leased
equipment at cost, are measured at fair value when there is an indicator of
impairment and recorded at fair value only when an impairment charge is
recognized. The following table summarizes the valuation of the LLC’s
material non-financial assets and liabilities measured at fair value on a
nonrecurring basis as of December 31, 2009:
December 31, 2009
|
Level 1(1)
|
Level 2(2)
|
Level 3(3)
|
Total Impairment Loss
|
||||||||||||||||
Leased
equipment at cost
|
$ | 100,000 | - | - | $ | 100,000 | $ | 185,000 | ||||||||||||
Equipment
|
$ | 4,342,115 | - | $ | 4,342,115 | - | $ | 1,512,539 | ||||||||||||
(1)
Quoted prices in active markets for identical assets or
liabilities.
|
||||||||||||||||||||
(2)
Observable inputs other than quoted prices in active markets for identical
assets and liabilities.
|
||||||||||||||||||||
(3)
No observable pricing inputs in the market.
|
Fair
value information with respect to the LLC’s leased assets and liabilities is not
separately provided since (i) the current accounting pronouncements do not
require fair value disclosures of lease arrangements and (ii) the carrying value
of financial assets, other than lease-related investments, and the recorded
value of recourse debt approximate fair value due to their short-term maturities
and variable interest rates.
79
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(15)
|
Concentrations
of Risk
|
At times,
the LLC's cash and cash equivalents may exceed insured limits. The
LLC has placed these funds in high quality institutions in order to minimize the
risk of loss relating to exceeding insured limits.
For the
year ended December 31, 2009, the LLC had two lessees that accounted for
approximately 69.3% of rental and finance income. For the year ended
December 31, 2008, the LLC had three lessees that accounted for approximately
79.7% of rental and finance income. For the year ended December 31,
2007, the LLC had three lessees that accounted for approximately 78.2% of rental
and finance income.
At
December 31, 2009, the LLC had two lessees that accounted for approximately
74.3% of total assets. At December 31, 2008, the LLC had five lessees
that accounted for approximately 70.0% of total assets and one lender that
accounted for approximately 83.1% of total liabilities.
(16)
|
Share
Redemptions
|
The LLC
redeemed 20, 148, and 351 Shares during the years ended December 31, 2009, 2008
and 2007, respectively. The redemption amounts are calculated
according to a specified redemption formula pursuant to the LLC
Agreement. Redeemed Shares have no voting rights and do not share in
distributions. The LLC Agreement limits the number of Shares that can
be redeemed in any one year and redeemed Shares may not be reissued. Redeemed
Shares are accounted for as a reduction of members' equity.
80
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(17)
|
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), equipment (net of accumulated depreciation), investments in joint
ventures and investments in unguaranteed residual values, were as
follows:
Year Ended December 31,
2009
|
||||||||||||||||
United
|
United
|
|||||||||||||||
States
|
Kingdom
|
Vessels (a)
|
Total
|
|||||||||||||
Revenue:
|
||||||||||||||||
Rental
income
|
$ | 6,752,118 | $ | 507,274 | $ | 6,550,326 | $ | 13,809,718 | ||||||||
Finance
income
|
$ | - | $ | - | $ | 1,304,824 | $ | 1,304,824 | ||||||||
Servicing
income
|
$ | - | $ | 5,716,849 | $ | - | $ | 5,716,849 | ||||||||
Income
(loss) from investments in joint ventures
|
$ | 1,742,028 | $ | (6,609 | ) | $ | 2,094,776 | $ | 3,830,195 |
At December 31, 2009
|
||||||||||||||||
United
|
United
|
|||||||||||||||
States
|
Kingdom
|
Vessels (a)
|
Total
|
|||||||||||||
Long-lived
assets:
|
||||||||||||||||
Net
investment in finance leases
|
$ | - | $ | - | $ | 31,808,689 | $ | 31,808,689 | ||||||||
Leased
equipment at cost, net
|
$ | 11,132,670 | $ | 2,136 | $ | - | $ | 11,134,806 | ||||||||
Equipment,
net
|
$ | - | $ | 4,442,732 | $ | - | $ | 4,442,732 | ||||||||
Investments
in joint ventures
|
$ | 4,945,121 | $ | - | $ | 20,298,115 | $ | 25,243,236 | ||||||||
Investments
in unguaranteed residual values
|
$ | - | $ | 290,331 | $ | - | $ | 290,331 | ||||||||
(a)
The LLC's vessels are chartered to three separate companies: two vessels
to ZIM, two vessels to AET and one vessel to Teekay. When the LLC
charters a vessel to a charterer, the charterer is free to trade the
vessel worldwide.
|
Year Ended December 31,
2008
|
||||||||||||||||
United
|
United
|
|||||||||||||||
States
|
Kingdom
|
Vessels (a)
|
Total
|
|||||||||||||
Revenue:
|
||||||||||||||||
Rental
income
|
$ | 8,271,958 | $ | 133,434 | $ | 11,658,333 | $ | 20,063,725 | ||||||||
Finance
income
|
$ | 64,403 | $ | 2,303,956 | $ | - | $ | 2,368,359 | ||||||||
Income
from investments in joint ventures
|
$ | 1,601,539 | $ | 1,139,040 | $ | 1,070,507 | $ | 3,811,086 |
At December 31, 2008
|
||||||||||||||||
United
|
United
|
|||||||||||||||
States
|
Kingdom
|
Vessels (a)
|
Total
|
|||||||||||||
Long-lived
assets:
|
||||||||||||||||
Net
investment in finance leases
|
$ | - | $ | 7,641,567 | $ | - | $ | 7,641,567 | ||||||||
Leased
equipment at cost, net
|
$ | 12,832,130 | $ | 11,267 | $ | 32,709,880 | $ | 45,553,277 | ||||||||
Investments
in joint ventures
|
$ | 11,911,101 | $ | - | $ | 18,680,789 | $ | 30,591,890 | ||||||||
Investments
in unguaranteed residual values
|
$ | - | $ | 754,090 | $ | - | $ | 754,090 | ||||||||
(a)
The LLC's vessels are chartered to three separate companies: two vessels
to ZIM, two vessels to AET and one vessel to Teekay. When the LLC
charters a vessel to a charterer, the charterer is free to trade the
vessel worldwide.
|
81
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(18)
|
Selected
Quarterly Financial Data
|
The
following table is a summary of selected financial data by quarter
(unaudited):
Quarters Ended in 2009
|
Year
Ended
|
|||||||||||||||||||
March 31,
|
June 30,
|
September 30,
|
December 31,
|
December 31, 2009
|
||||||||||||||||
Total
revenue
|
$ | 5,933,821 | $ | 6,549,434 | $ | 7,644,518 | $ | 6,817,692 | $ | 26,945,465 | ||||||||||
Net
income attributable to Fund Ten allocable
|
||||||||||||||||||||
to
additional members
|
$ | 1,576,887 | $ | 1,746,758 | $ | 2,035,458 | $ | 797,258 | $ | 6,156,361 | ||||||||||
Weighted
average number of additional shares of
|
||||||||||||||||||||
limited
liability company interests outstanding
|
148,231 | 148,231 | 148,214 | 148,211 | 148,222 | |||||||||||||||
Net
income attributable to Fund Ten per weighted average
|
||||||||||||||||||||
additional
share of limited liability company interests
|
$ | 10.64 | $ | 11.78 | $ | 13.73 | $ | 5.38 | $ | 41.53 | ||||||||||
Quarters Ended in 2008
|
Year
Ended
|
|||||||||||||||||||
March 31,
|
June 30,
|
September 30,
|
December 31,
|
December 31, 2008
|
||||||||||||||||
Total
revenue
|
$ | 14,872,741 | $ | 7,892,716 | $ | 5,733,460 | $ | 4,994,969 | $ | 33,493,886 | ||||||||||
Net
income (loss) attributable to Fund Ten allocable
|
||||||||||||||||||||
to
additional members
|
$ | 7,403,953 | $ | 2,684,827 | $ | 2,985,965 | $ | (606,930 | ) | $ | 12,467,815 | |||||||||
Weighted
average number of additional shares of
|
||||||||||||||||||||
limited
liability company interests outstanding
|
148,336 | 148,275 | 148,256 | 148,231 | 148,275 | |||||||||||||||
Net
income (loss) attributable to Fund Ten per weighted
average
|
||||||||||||||||||||
additional
share of limited liability company interests
|
$ | 49.91 | $ | 18.11 | $ | 20.14 | $ | (4.09 | ) | $ | 84.09 |
(19)
|
Commitments
and Contingencies and Off-Balance Sheet
Transactions
|
Pursuant
to the terms of the Purchase Agreement, Key Finance and the LLC will receive
residual proceeds up to the “bottom residual value,” as defined in the
remarketing agreement. The LLC will then receive residual proceeds up
to certain thresholds established in the Purchase Agreement. Once the
portfolio’s return to the LLC has exceeded a certain threshold, as established
in the Purchase Agreement, any additional residual proceeds will be split
equally between Key Finance and the LLC.
At the
time the LLC acquires or divests of its interest in an equipment lease or other
financing transaction, the LLC may, under very limited circumstances, agree to
indemnify the seller or buyer for specific contingent
liabilities. The Manager believes that any liability of the LLC 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 LLC taken
as a whole.
On
September 28, 2007 and December 10, 2007, the LLC completed its simultaneous
acquisitions and leasing back of substantially all of the machining and metal
working equipment of Texas Die and Monroe. Simultaneously with the
closing of the transactions with Texas Die and Monroe, Fund Eleven and Fund
Twelve (together with the LLC, the “Participating Funds”) completed similar
acquisitions with seven other subsidiaries of MWU pursuant to which
the respective funds purchased substantially all of the machining and metal
working equipment of each subsidiary. Each subsidiary’s obligations
under its respective leases (including those of Texas Die and Monroe) are
cross-collateralized and cross-defaulted, and all subsidiaries’ obligations are
guaranteed by MWU. The Participating Funds have also entered into a credit
support agreement, pursuant to which losses incurred by a Participating Fund
with respect to any MWU subsidiary are shared among the Participating Funds in
proportion to their respective capital investments. The term of the
credit support agreement matches the term of the schedules to the master lease
agreement. Following the termination of the Monroe lease, neither Monroe
nor MPI are a party to the cross-collateral, cross-default or credit
support agreements. No amounts were accrued at December 31, 2009 and the
Manager cannot reasonably estimate at this time the maximum potential amounts,
if any, that may become payable under the credit support agreement.
82
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(19)
|
Commitments
and Contingencies and Off-Balance Sheet Transactions -
continued
|
In
connection with the acquisitions of the Eagle Carina and the Eagle Corona, the
LLC, through ICON Carina Holdings and ICON Corona Holdings, maintains two
restricted cash accounts with Fortis. These restricted cash accounts
consist of the free cash balances that result from the difference between the
charter payments from AET and the repayments on the non-recourse long-term debt
to Fortis and DVB. The free cash for ICON Carina Holdings and ICON
Corona Holdings remain in the restricted cash accounts until $500,000 is funded
into each account. Thereafter, all free cash in excess of $500,000
can be distributed from the respective accounts.
On
November 25, 2008, the LLC, through ICON Northern Leasing, purchased the Notes
and received an assignment of the MLSA. The Notes are secured by an
underlying pool of leases for credit card machines and Northern Leasing Systems,
Inc., the originator and servicer of the Notes, provided a limited guaranty of
the MLSA for payment deficiencies up to approximately $6,355,000.
The LLC
has entered into certain residual sharing and remarketing agreements with
various third parties. In connection with these agreements, residual
proceeds received in excess of specific amounts will be shared with these third
parties based on specific formulas. The obligation related to these
agreements is recorded at fair value.
In
connection with the acquisition of Pretel as of January 30, 2009, there is a
contingent liability in the amount of approximately $1,057,619 (£664,000)
related to a 24 month repayment plan arranged to repay renegotiated professional
and consulting fees incurred in the amount of $1,592,800
(£1,000,000). In the repayment agreement, Pretel would be liable for
initial fees of $1,592,800 (£1,000,000) if it defaults on any
payments. These initial fees were negotiated down to $493,768
(£310,000) as part of the repayment plan. Pretel continues to be
in compliance with the repayment agreement.
(20)
|
Foreign
Income Taxes
|
Upon the
acquisition of Pretel, some of the LLC’s subsidiaries are subject to taxation
under the laws of the United Kingdom. As of December 31, 2009, the
LLC has a net deferred tax asset of approximately $8,300,000 (£5,200,000), which
is composed primarily of net operating losses as well as temporary differences
relating to equipment depreciation. As of the acquisition date and
December 31, 2009, the LLC’s net deferred tax asset had a full valuation
allowance.
At
December 31, 2009, the LLC had net operating loss carryforwards of approximately
$23,500,000 (£14,700,000), which do not expire under the tax laws of the United
Kingdom. The LLC has not identified any uncertain tax positions as of
December 31, 2009.
(21)
|
Income
Tax Reconciliation
(unaudited)
|
No
provision for income taxes has been recorded by the LLC since the liability for
such taxes is the responsibility of each of the individual members rather than
the LLC. The LLC’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 members.
At
December 31, 2009 and 2008, the members’ equity included in the consolidated
financial statements totaled $72,900,830 and $78,307,152,
respectively. The members’ capital for federal income tax purposes at
December 31, 2009 and 2008 totaled $93,254,201 and $115,464,314,
respectively. The difference arises primarily from sales and offering
expenses reported as a reduction in the additional members’ capital accounts for
financial reporting purposes, but not for federal income tax reporting purposes,
and the differences in gain (loss) on sale of equipment, depreciation and
amortization between financial reporting purposes and federal income tax
purposes.
83
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
December
31, 2009
(21)
|
Income
Tax Reconciliation (unaudited) -
continued
|
The
following table reconciles net income attributable to Fund Ten for
financial statement reporting purposes to the net income attributable to Fund
Ten for federal income tax purposes for the years ended December 31, 2009, 2008
and 2007:
2009
|
2008
|
2007
|
||||||||||
Net
income attributable to Fund Ten per consolidated financial
statements
|
$ | 6,218,546 | $ | 12,593,752 | $ | 4,887,060 | ||||||
Rental
income
|
(1,450,010 | ) | - | - | ||||||||
Depreciation
and amortization
|
(524,024 | ) | (1,042,426 | ) | 5,403,224 | |||||||
Gain
on consolidated joint venture
|
4,105,695 | - | - | |||||||||
Deferred
revenue
|
241,851 | (509,228 | ) | 284,685 | ||||||||
Gain
(loss) on sale of equipment
|
643,677 | (10,051,780 | ) | 1,111,788 | ||||||||
Other
items
|
(198,981 | ) | (193,470 | ) | (3,338,630 | ) | ||||||
Net
income attributable to Fund Ten for federal income tax
purposes
|
$ | 9,036,754 | $ | 796,848 | $ | 8,348,127 |
|
|||||||||||||||||||||||||
Additions
|
Additions
|
|
|||||||||||||||||||||||
Balance
At
|
Charged
To
Costs,
|
Charged
to
|
Other
Charges
|
Balance
at
|
|||||||||||||||||||||
Description
|
Beginning
of Year
|
Expenses
and Revenues
|
Deferred
Tax Asset |
Deductions
|
Additions (Deductions)
|
End of
Year |
|||||||||||||||||||
Valuation
allowance for deferred tax assets:
|
|||||||||||||||||||||||||
Year
ended December 31, 2009
|
|||||||||||||||||||||||||
Valuation
allowance for deferred tax assets
|
|||||||||||||||||||||||||
(deducted
from deferred tax asset)
|
- | - | $ | 758,602 | - | $ | 7,564,328 |
(a)
|
$ | 8,322,930 | |||||||||||||||
Allowance
for doubtful accounts:
|
|||||||||||||||||||||||||
Year
ended December 31, 2009
|
|
||||||||||||||||||||||||
Allowance
for doubtful accounts
|
$ | 2,500,000 | $ | 60,480 | - | $ | 2,500,000 | - | $ | 60,480 | |||||||||||||||
Year
ended December 31, 2008
|
|
||||||||||||||||||||||||
Allowance
for doubtful accounts
|
- | $ | 2,500,000 | - | - | - | $ | 2,500,000 | |||||||||||||||||
Year
ended December 31, 2007
|
|
||||||||||||||||||||||||
Allowance
for doubtful accounts
|
- | - | - | - | - | - | |||||||||||||||||||
(a) Represents
the valuation allowance as of January 30, 2009, the date of the
acquisition of Pretel, of approximately $6,759,000 and currency
translation adjustment of
|
|||||||||||||||||||||||||
approximately
$806,000.
|
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
Manager, our Manager carried out an evaluation, under the supervision and with
the participation of the management of our Manager, including its Co-Chief
Executive Officers and the Chief Financial Officer, of the effectiveness of the
design and operation of our Manager’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 Manager’s
disclosure controls and procedures were effective.
In
designing and evaluating our Manager’s disclosure controls and procedures, our
Manager 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
Manager’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
Manager’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
Manager 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
Manager 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 Manager 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
Manager’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
Manager, ICON Capital Corp., a Delaware corporation (“ICON”), was formed in
1985. Our 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 Manager provides services relating to the day-to-day management
of our equipment. These services include collecting payments due from
lessees, borrowers and other counterparties; remarketing equipment that is
off-lease; inspecting equipment; serving as a liaison with lessees, borrowers,
and other counterparties; supervising equipment 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
Manager, 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 Manager. Our
Manager's address is 100 Fifth Avenue, 4th
Floor, New York, New York 10011.
We have
no directors or officers. Our Manager and its affiliates were paid or
accrued the following compensation and reimbursement for costs and expenses for
the years ended December 31, 2009, 2008 and 2007:
Entity
|
Capacity
|
Description
|
2009
|
2008
|
2007
|
|||||||||||
ICON
Capital Corp.
|
Manager
|
Acquisition
fees (1)
|
$ | - | $ | 895,443 | $ | - | ||||||||
ICON
Capital Corp.
|
Manager
|
Management
fees (2)
|
$ | 1,246,713 | $ | 1,620,239 | $ | 2,054,110 | ||||||||
ICON
Capital Corp.
|
Manager
|
Administrative
expense
|
||||||||||||||
reimbursements
(2)
|
$ | 1,090,870 | $ | 1,448,324 | $ | 876,287 | ||||||||||
(1)
Amount capitalized and amortized to operations over the estimated service
period in accordance with our accounting policies.
|
||||||||||||||||
(2)
Amount charged directly to operations.
|
Our
Manager also has a 1% interest in our profits, losses, cash distributions and
liquidation proceeds. We paid distributions to our Manager of
$128,760, $128,817 and $129,078 for the years ended December 31, 2009, 2008 and
2007, respectively. Our Manager’s interest in the net income
attributable to us was $62,185, $125,937, and $48,871 for the years ended
December 31, 2009, 2008 and 2007, respectively.
|
(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 Manager own any of our
equity securities.
|
|
(c)
|
Neither
we nor our Manager are aware of any arrangements with respect to our
securities, the operation of which may at a subsequent date result in a
change of control of us.
|
See “Item
11. Executive Compensation” for a discussion of our related party
transactions. See Notes 7 and 11 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 Manager’s directors are
independent. Under this definition, the board of directors of our Manager has
determined that our Manager 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
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:
Principal
Audit Firm - Ernst & Young LLP
|
||||||||
2009
|
2008
|
|||||||
Audit
fees
|
$ | 479,929 | $ | 374,261 | ||||
Tax
fees
|
115,606 | 88,500 | ||||||
$ | 595,535 | $ | 462,761 |
(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
|
|
|
|
Financial
Statement Schedule II – Valuation and Qualifying Accounts is filed with
this Annual Report on Form 10-K. 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 Liability Company of Registrant (Incorporated by reference
to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed
with the SEC on February 28, 2003 (File No.
333-103503)).
|
|
4.1
Amended
and Restated Operating Agreement of Registrant (Incorporated by
reference to Exhibit 4.1 to Pre-Effective Amendment No. 3 to Registrant’s
Registration Statement on Form S-1 filed with the SEC on June 2, 2003
(File No. 333-103503)).
|
|
10.1 Commercial
Loan Agreement, dated as of August 31, 2005, by and between California
Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund
Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC
(Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report
on Form 8-K dated August 31, 2005).
|
|
10.2 Loan
Modification Agreement, dated as of December 26, 2006, 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 (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K dated December 26,
2006).
|
|
10.3
Loan
Modification Agreement, dated as of June 20, 2007, 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 (Incorporated by reference to Exhibit
10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2009, filed November 12,
2009).
|
|
10.4
Third
Loan Modification Agreement, dated as of May 1, 2008, by and between
California Bank & Trust, 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 (Incorporated by reference to Exhibit
10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2008, filed May 19,
2008).
|
|
10.5
Fourth
Loan Modification Agreement, dated as of August 12, 2009, 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. (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 14,
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.
|
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
Income Fund Ten, LLC
(Registrant)
By: ICON
Capital Corp.
(Manager
of the Registrant)
March 30,
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
Income Fund Ten, LLC
(Registrant)
By: ICON
Capital Corp.
(Manager
of the Registrant)
March 30,
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)
|
93
|