Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
|
September 30, 2011
|
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
|
|
to
|
|
Commission_File_Number_
|
000-53189
|
ICON Leasing Fund Twelve, LLC
|
(Exact name of registrant as specified in its charter)
|
Delaware
|
20-5651009
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
100 Fifth Avenue, 4th Floor, New York, New York
|
10011
|
(Address of principal executive offices)
|
(Zip code)
|
(212) 418-4700
|
(Registrant's telephone number, including area code)
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark 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).
[X] Yes [ ] No
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 [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
Number of outstanding shares of limited liability company interests of the registrant on November 8, 2011 is 348,650.
Table of Contents
|
||
Page
|
||
1 | ||
1
|
||
2
|
||
3
|
||
4
|
||
6
|
||
19
|
||
30
|
||
30
|
||
31
|
||
31
|
||
31
|
||
31
|
||
31
|
||
31
|
||
32
|
||
33
|
(A Delaware Limited Liability Company)
|
||||||||
Consolidated Balance Sheets
|
||||||||
Assets
|
||||||||
September 30,
|
||||||||
2011
|
December 31,
|
|||||||
(unaudited)
|
2010
|
|||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 30,881,111 | $ | 29,219,287 | ||||
Current portion of notes receivable
|
10,719,119 | 16,178,391 | ||||||
Current portion of net investment in finance leases
|
17,523,674 | 23,535,746 | ||||||
Other current assets
|
2,297,678 | 3,303,029 | ||||||
Assets held for sale, net
|
1,404,465 | 2,496,163 | ||||||
Total current assets
|
62,826,047 | 74,732,616 | ||||||
Non-current assets:
|
||||||||
Notes receivable, less current portion
|
27,427,879 | 45,393,778 | ||||||
Net investment in finance leases, less current portion
|
154,441,220 | 155,010,865 | ||||||
Leased equipment at cost (less accumulated depreciation of
|
||||||||
$80,038,011 and $76,473,310, respectively)
|
235,632,423 | 301,715,924 | ||||||
Investment in joint ventures
|
7,970,823 | 3,864,617 | ||||||
Other non-current assets, net
|
13,694,611 | 13,531,780 | ||||||
Total non-current assets
|
439,166,956 | 519,516,964 | ||||||
Total Assets
|
$ | 501,993,003 | $ | 594,249,580 | ||||
Liabilities and Equity
|
||||||||
Current liabilities:
|
||||||||
Current portion of non-recourse long-term debt
|
$ | 50,249,514 | $ | 56,271,731 | ||||
Derivative instruments
|
6,743,653 | 7,481,194 | ||||||
Deferred revenue
|
6,069,382 | 7,063,111 | ||||||
Due to Manager and affiliates
|
239,809 | 319,479 | ||||||
Accrued expenses and other current liabilities
|
3,558,480 | 2,899,041 | ||||||
Total current liabilities
|
66,860,838 | 74,034,556 | ||||||
Non-current liabilities:
|
||||||||
Non-recourse long-term debt, less current portion
|
131,796,302 | 156,239,574 | ||||||
Other non-current liabilities
|
54,730,464 | 53,259,853 | ||||||
Total non-current liabilities
|
186,526,766 | 209,499,427 | ||||||
Total Liabilities
|
253,387,604 | 283,533,983 | ||||||
Commitments and contingencies (Note 13)
|
||||||||
Equity:
|
||||||||
Members' Equity:
|
||||||||
Additional Members
|
229,469,505 | 256,441,129 | ||||||
Manager
|
(795,272 | ) | (522,927 | ) | ||||
Accumulated other comprehensive loss
|
(7,176,021 | ) | (7,989,946 | ) | ||||
Total Members' Equity
|
221,498,212 | 247,928,256 | ||||||
|
||||||||
Noncontrolling Interests
|
27,107,187 | 62,787,341 | ||||||
|
||||||||
Total Equity
|
248,605,399 | 310,715,597 | ||||||
Total Liabilities and Equity
|
$ | 501,993,003 | $ | 594,249,580 | ||||
See accompanying notes to consolidated financial statements.
(A Delaware Limited Liability Company)
|
||||||||||||||||
Consolidated Statements of Operations
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue:
|
||||||||||||||||
Finance income
|
$ | 6,017,824 | $ | 6,528,507 | $ | 17,890,211 | $ | 20,488,557 | ||||||||
Rental income
|
12,569,947 | 15,034,309 | 41,947,406 | 45,970,941 | ||||||||||||
(Loss) income from investment in joint ventures
|
(1,024,494 | ) | 148,193 | (1,556,466 | ) | 445,396 | ||||||||||
(Loss) gain on settlement of interfund agreement
|
- | (1,106,240 | ) | - | 1,056,555 | |||||||||||
(Loss) gain on sale of leased assets
|
(71,332 | ) | 521,909 | (71,332 | ) | 521,909 | ||||||||||
Loss on assets held for sale
|
- | - | - | (297,864 | ) | |||||||||||
Total revenue
|
17,491,945 | 21,126,678 | 58,209,819 | 68,185,494 | ||||||||||||
Expenses:
|
||||||||||||||||
Management fees - Manager
|
1,462,053 | 1,074,426 | 3,740,482 | 3,239,542 | ||||||||||||
Administrative expense reimbursements - Manager
|
549,121 | 659,167 | 2,243,007 | 2,574,101 | ||||||||||||
General and administrative
|
946,298 | 666,861 | 1,952,784 | 2,064,173 | ||||||||||||
Interest
|
3,621,822 | 4,145,052 | 11,473,071 | 12,684,046 | ||||||||||||
Depreciation and amortization
|
7,447,490 | 8,910,794 | 24,739,028 | 27,061,087 | ||||||||||||
Impairment loss
|
- | - | 21,902,458 | 1,282,568 | ||||||||||||
Vessel operating expense
|
1,326,362 | - | 1,326,362 | - | ||||||||||||
Loss on financial instruments
|
138,672 | 201,270 | 186,376 | 424,347 | ||||||||||||
Total expenses
|
15,491,818 | 15,657,570 | 67,563,568 | 49,329,864 | ||||||||||||
Net income (loss)
|
2,000,127 | 5,469,108 | (9,353,749 | ) | 18,855,630 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests
|
529,360 | 2,100,318 | (7,598,233 | ) | 5,769,104 | |||||||||||
Net income (loss) attributable to Fund Twelve
|
$ | 1,470,767 | $ | 3,368,790 | $ | (1,755,516 | ) | $ | 13,086,526 | |||||||
Net income (loss) attributable to Fund Twelve allocable to:
|
||||||||||||||||
Additional Members
|
$ | 1,456,059 | $ | 3,335,103 | $ | (1,737,961 | ) | $ | 12,955,661 | |||||||
Manager
|
14,708 | 33,687 | (17,555 | ) | 130,865 | |||||||||||
$ | 1,470,767 | $ | 3,368,790 | $ | (1,755,516 | ) | $ | 13,086,526 | ||||||||
Weighted average number of additional shares of
|
||||||||||||||||
limited liability company interests outstanding
|
348,650 | 348,650 | 348,650 | 348,689 | ||||||||||||
Net income (loss) attributable to Fund Twelve per weighted
|
||||||||||||||||
average additional share of limited liability company
|
||||||||||||||||
interests outstanding
|
$ | 4.18 | $ | 9.57 | $ | (4.98 | ) | $ | 37.16 | |||||||
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
Company Interests
|
Additional
Members
|
Accumulated
Other
Comprehensive
Loss
|
||||||||||||||||||||||||||
Total
Members' Equity
|
Noncontrolling
Interests
|
Total
Equity
|
||||||||||||||||||||||||||
Manager
|
||||||||||||||||||||||||||||
Balance, December 31, 2010
|
348,650 | $ | 256,441,129 | $ | (522,927 | ) | $ | (7,989,946 | ) | $ | 247,928,256 | $ | 62,787,341 | $ | 310,715,597 | |||||||||||||
Comprehensive (loss) income:
|
||||||||||||||||||||||||||||
Net loss
|
- | (1,269,235 | ) | (12,821 | ) | - | (1,282,056 | ) | (4,141,757 | ) | (5,423,813 | ) | ||||||||||||||||
Change in valuation of
|
||||||||||||||||||||||||||||
derivative instruments
|
- | - | - | 1,145,811 | 1,145,811 | 90,447 | 1,236,258 | |||||||||||||||||||||
Currency translation adjustment
|
- | - | - | 303,404 | 303,404 | - | 303,404 | |||||||||||||||||||||
Total comprehensive (loss) income
|
167,159 | (4,051,310 | ) | (3,884,151 | ) | |||||||||||||||||||||||
Cash distributions
|
- | (8,411,222 | ) | (84,961 | ) | - | (8,496,183 | ) | (1,563,675 | ) | (10,059,858 | ) | ||||||||||||||||
Deconsolidation of
|
||||||||||||||||||||||||||||
noncontrolling interests in
|
||||||||||||||||||||||||||||
joint ventures
|
- | - | - | - | - | (17,068,983 | ) | (17,068,983 | ) | |||||||||||||||||||
Balance, March 31, 2011 (unaudited)
|
348,650 | 246,760,672 | (620,709 | ) | (6,540,731 | ) | 239,599,232 | 40,103,373 | 279,702,605 | |||||||||||||||||||
Comprehensive loss:
|
||||||||||||||||||||||||||||
Net loss
|
- | (1,924,785 | ) | (19,442 | ) | - | (1,944,227 | ) | (3,985,836 | ) | (5,930,063 | ) | ||||||||||||||||
Change in valuation of
|
||||||||||||||||||||||||||||
derivative instruments
|
- | - | - | (546,710 | ) | (546,710 | ) | 14,334 | (532,376 | ) | ||||||||||||||||||
Currency translation adjustment
|
- | - | - | 96,347 | 96,347 | - | 96,347 | |||||||||||||||||||||
Total comprehensive loss
|
(2,394,590 | ) | (3,971,502 | ) | (6,366,092 | ) | ||||||||||||||||||||||
Cash distributions
|
- | (8,411,220 | ) | (84,867 | ) | - | (8,496,087 | ) | (1,206,258 | ) | (9,702,345 | ) | ||||||||||||||||
Balance, June 30, 2011 (unaudited)
|
348,650 | 236,424,667 | (725,018 | ) | (6,991,094 | ) | 228,708,555 | 34,925,613 | 263,634,168 | |||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||
Net income
|
- | 1,456,059 | 14,708 | - | 1,470,767 | 529,360 | 2,000,127 | |||||||||||||||||||||
Change in valuation of
|
||||||||||||||||||||||||||||
derivative instruments
|
- | - | - | 57,070 | 57,070 | 35,116 | 92,186 | |||||||||||||||||||||
Currency translation adjustment
|
- | - | - | (241,997 | ) | (241,997 | ) | - | (241,997 | ) | ||||||||||||||||||
Total comprehensive income
|
1,285,840 | 564,476 | 1,850,316 | |||||||||||||||||||||||||
Cash distributions
|
- | (8,411,221 | ) | (84,962 | ) | - | (8,496,183 | ) | (8,382,902 | ) | (16,879,085 | ) | ||||||||||||||||
Balance, September 30, 2011 (unaudited)
|
348,650 | $ | 229,469,505 | $ | (795,272 | ) | $ | (7,176,021 | ) | $ | 221,498,212 | $ | 27,107,187 | $ | 248,605,399 | |||||||||||||
See accompanying notes to consolidated financial statements.
(A Delaware Limited Liability Company)
|
||||||||
Consolidated Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net (loss) income
|
$ | (9,353,749 | ) | $ | 18,855,630 | |||
Adjustments to reconcile net (loss) income to net cash provided by
|
||||||||
operating activities:
|
||||||||
Finance income
|
(12,786,603 | ) | (11,268,132 | ) | ||||
Rental income paid directly to lenders by lessees
|
(25,848,069 | ) | (26,830,477 | ) | ||||
Loss (income) from investment in joint ventures
|
1,556,466 | (445,396 | ) | |||||
Depreciation and amortization
|
24,739,028 | 27,061,087 | ||||||
Interest expense on non-recourse financing paid directly
|
||||||||
to lenders by lessees
|
3,497,207 | 4,854,316 | ||||||
Interest expense from amortization of debt financing costs
|
864,804 | 898,029 | ||||||
Accretion of seller's credit and other
|
1,805,227 | 1,672,819 | ||||||
Impairment loss
|
21,902,458 | 1,282,568 | ||||||
Gain on settlement of interfund agreement
|
- | (1,056,555 | ) | |||||
Loss (gain) on sale of leased assets
|
71,332 | (521,909 | ) | |||||
Loss on assets held for sale, net
|
- | 297,864 | ||||||
Loss on financial instruments
|
186,376 | 424,347 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Collection of finance leases
|
29,423,138 | 22,440,363 | ||||||
Prepaid acquisition fees
|
(1,282,875 | ) | 658,150 | |||||
Other assets, net
|
(518,559 | ) | (6,298,377 | ) | ||||
Accrued expenses and other current liabilities
|
43,120 | 597,886 | ||||||
Deferred revenue
|
565,102 | 791,642 | ||||||
Due to/from Manager and affiliates, net
|
(42,684 | ) | 327,663 | |||||
Distributions from joint venture
|
440,512 | 445,396 | ||||||
Net cash provided by operating activities
|
35,262,231 | 34,186,914 | ||||||
Cash flows from investing activities:
|
||||||||
Purchase of equipment
|
(2,012,552 | ) | (6,748,123 | ) | ||||
Proceeds from sale of equipment
|
12,349,402 | 2,962,240 | ||||||
Investment in joint venture
|
(12,191,868 | ) | - | |||||
Distributions received from joint ventures in excess of profits
|
6,088,684 | 591,783 | ||||||
Restricted cash
|
(538,863 | ) | (635,243 | ) | ||||
Investment in notes receivable
|
- | (22,550,000 | ) | |||||
Repayment of notes receivable
|
7,391,255 | 14,870,621 | ||||||
Net cash provided by (used in) investing activities
|
11,086,058 | (11,508,722 | ) | |||||
Cash flows from financing activities:
|
||||||||
Proceeds from non-recourse long-term debt
|
10,628,119 | 12,448,656 | ||||||
Repayments of non-recourse long-term debt
|
(18,674,379 | ) | (9,514,596 | ) | ||||
Shares of limited liability company interests repurchased
|
- | (47,129 | ) | |||||
Investment in joint ventures by noncontrolling interests
|
- | 2,833,114 | ||||||
Distributions to noncontrolling interests
|
(11,152,835 | ) | (10,829,983 | ) | ||||
Cash distributions to members
|
(25,488,453 | ) | (25,491,814 | ) | ||||
Net cash used in financing activities
|
(44,687,548 | ) | (30,601,752 | ) | ||||
Effects of exchange rates on cash and cash equivalents
|
1,083 | (12,872 | ) | |||||
Net increase (decrease) in cash and cash equivalents
|
1,661,824 | (7,936,432 | ) | |||||
Cash and cash equivalents, beginning of period
|
29,219,287 | 27,075,059 | ||||||
Cash and cash equivalents, end of period
|
$ | 30,881,111 | $ | 19,138,627 | ||||
|
See accompanying notes to consolidated financial statements.
ICON Leasing Fund Twelve, LLC
|
||||||||
(A Delaware Limited Liability Company)
|
||||||||
Consolidated Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for interest
|
$ | 4,146,597 | $ | 5,028,579 | ||||
Supplemental disclosure of non-cash investing and financing activities:
|
||||||||
Principal and interest on non-recourse long-term debt
|
||||||||
paid directly to lenders by lessees
|
$ | 25,848,069 | $ | 26,830,477 | ||||
Exchange of equity interests in three consolidated joint ventures for the
|
||||||||
proportionate share of certain notes receivable
|
$ | 17,068,983 | $ | - | ||||
Reclassification of net assets from leased equipment at cost to net
|
||||||||
investment in finance lease
|
$ | 9,815,569 | $ | - | ||||
Equipment purchased with non-recourse long-term debt paid directly by lender
|
$ | - | $ | 28,450,000 | ||||
Equipment purchased with subordinated financing provided by seller
|
$ | - | $ | 11,000,000 | ||||
Investment in joint venture by noncontrolling interest
|
$ | - | $ | 1,051,201 | ||||
See accompanying notes to consolidated financial statements.
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(1)
|
Basis of Presentation
|
The accompanying consolidated financial statements of ICON Leasing Fund Twelve, LLC, (the “LLC”), have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Q. In the opinion of the manager, ICON Capital Corp., a Delaware corporation (the “Manager”), all adjustments considered necessary for a fair presentation have been included. These consolidated financial statements should be read together with the consolidated financial
statements and notes included in the LLC’s Annual Report on Form 10-K for the year ended December 31, 2010. The results for the interim period are not necessarily indicative of the results for the full year.
Reclassifications
Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current presentation. Interest and other income has been reclassified to finance income within the consolidated statements of operations.
Recent Accounting Pronouncements
In 2010, the LLC adopted the accounting pronouncement related to the disclosures about the credit quality of financing receivables and the allowance for credit losses. The pronouncement requires entities to provide disclosures designed to facilitate financial statements users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowances for credit losses. Disclosures must be disaggregated by portfolio segment, the level
at which an entity develops and documents a systematic method for determining its allowance for credit losses and class of financing receivable. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. Disclosures that relate to activity during a reporting period are required for the LLC’s consolidated financial statements effective January 1, 2011. The adoption of these additional disclosures did not have a material effect on the LLC’s consolidated financial statements.
In June 2011, the FASB issued ASU No 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which revises the manner in which companies present comprehensive income in their financial statements. The new guidance removes the current option to report other comprehensive income and its components in the statement of changes in equity and instead requires presentation in one continuous statement of comprehensive income or two separate but consecutive statements. The adoption of ASU 2011-05 becomes effective for the LLC's interim and annual periods beginning January 1, 2012. The LLC does not believe the adoption of this
guidance will have a material impact on its consolidated financial statements, as it only requires a change in the format of presentation.
(2)
|
Notes Receivable
|
Effective January 1, 2011, the LLC exchanged its 52.09% ownership interest in a joint venture for its proportionate share of notes receivable from ION Geophysical Corp. (“ION”), which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $8,348,000, and the notes bear interest at 15% per year and mature on August 1, 2014. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(2)
|
Notes Receivable - continued
|
Effective January 1, 2011, the LLC exchanged its 52.75% ownership interest in a joint venture for its proportionate share of notes receivable from Northern Capital Associates XIV, L.P. (“Northern Leasing”), which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $5,327,000, and the notes bear interest at 9.47% to 9.90% per year and mature between December 15, 2011 and February 15, 2013. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then
terminated.
Effective January 1, 2011, the LLC exchanged its 49.13% ownership interest in a joint venture for an assignment of its proportionate share of future cash flows of a loan receivable from Quattro Plant Limited (“Quattro”), which was previously owned by the joint venture. As a result of this assignment, the LLC recorded a loan receivable of approximately £2,478,000, which bears interest at 20% per year and matures on October 1, 2012. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then
terminated.
Credit Quality of Notes Receivable and Allowance for Credit Losses
The Manager weighs all credit decisions based on a combination of external credit ratings as well as internal credit evaluations of all potential borrowers. A potential borrower’s credit application is analyzed using those credit ratings as well as the potential borrower’s financial statements and other financial data deemed relevant.
The LLC’s notes receivable are limited in number and are spread across a wide range of industries. Accordingly, the LLC does not aggregate notes receivable into portfolio segments or classes. Due to the limited number of notes receivable, the LLC is able to estimate the allowance for credit losses based on a detailed analysis of each note receivable as opposed to using portfolio based metrics and allowance for credit losses. Notes are analyzed quarterly and categorized as either performing or nonperforming based on payment history. If a note becomes non-performing due to a borrower’s
missed scheduled payments or failed financial covenants, the Manager analyzes whether a reserve should be established or the note should be restructured. As of September 30, 2011 and December 31, 2010, the Manager determined that no allowance for credit losses was required.
Interest income recognized on notes receivable is included in finance income within the consolidated statements of operations.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(3)
|
Net Investment in Finance Leases
|
Net investment in finance leases consisted of the following:
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Minimum rents receivable
|
$ | 206,058,429 | $ | 225,642,237 | ||||
Estimated residual values
|
27,683,816 | 21,928,543 | ||||||
Initial direct costs, net
|
4,927,197 | 5,657,967 | ||||||
Unearned income
|
(66,704,548 | ) | (74,682,136 | ) | ||||
Net investment in finance leases
|
171,964,894 | 178,546,611 | ||||||
Less: Current portion of net
|
||||||||
investment in finance leases
|
17,523,674 | 23,535,746 | ||||||
Net investment in finance leases,
|
||||||||
less current portion
|
$ | 154,441,220 | $ | 155,010,865 |
On March 31, 2011, the LLC purchased information technology equipment for approximately $1,954,000 and simultaneously leased the equipment to Broadview Networks Holdings, Inc. and Broadview Networks Inc. (collectively, “Broadview”). The base term of the lease schedule is for a period of thirty-six months commencing on April 1, 2011.
On May 16, 2011, the LLC entered into an agreement to sell certain automotive manufacturing equipment subject to lease for €3,000,000. The purchase price will be paid in three installments and will bear interest at a rate of 5.5% per year. The LLC will retain title to the equipment until the final payment is received on or before June 1, 2013.
On July 15, 2011, a joint venture controlled by the LLC and owned 49.54% by the LLC, 40.53% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., an entity also managed by the Manager (“Fund Fourteen”), and 9.93% by an unaffiliated third-party amended the master lease agreement with Atlas Pipeline Mid-Continent, LLC (“Atlas”). The amendment requires Atlas to purchase the assets subject to lease upon termination. The joint venture received an amendment fee of $500,000 and the lease was reclassified from an operating lease to a direct finance lease.
On September 14, 2011, the joint venture entered into a loan agreement with Wells Fargo Equipment Finance, Inc. (“Wells Fargo”) in the amount of $10,628,000. Wells Fargo received a first priority security interest in the leased equipment, among other collateral. The loan bears interest at the rate of 4.08% per year and matures on September 1, 2013.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(4)
|
Leased Equipment at Cost
|
Leased equipment at cost consisted of the following:
September 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
Marine - Crude oil tanker
|
$ | 168,120,037 | $ | 209,027,554 | ||||
Offshore oil field services equipment
|
54,383,809 | 54,383,809 | ||||||
Marine - Container vessels
|
52,691,711 | 52,691,711 | ||||||
Automotive manufacturing equipment
|
14,035,942 | 14,124,744 | ||||||
Coal drag line
|
12,834,631 | 12,834,631 | ||||||
Motor coaches
|
5,473,082 | 5,473,082 | ||||||
Forging equipment
|
4,637,475 | 4,637,475 | ||||||
Underground coal conveyor system
|
3,493,747 | 7,287,821 | ||||||
Gas compressors
|
- | 11,611,520 | ||||||
Telecommunications equipment
|
- | 6,116,887 | ||||||
315,670,434 | 378,189,234 | |||||||
Less: Accumulated depreciation
|
80,038,011 | 76,473,310 | ||||||
$ | 235,632,423 | $ | 301,715,924 |
On March 4, 2011, the LLC sold equipment on lease to American Energy Corp. and Ohio American Energy, Incorporated (collectively, “American Energy”) for approximately $1,798,000. No gain or loss was recorded as a result of this transaction.
As a result of negotiations to remarket and ultimately dispose of certain vessels, the Manager reviewed ICON Mayon, LLC’s (“ICON Mayon”) investment in the vessel subject to charter and determined that the net book value of the vessel subject to charter exceeded its fair value. As a result, the LLC recognized non-cash impairment charges of approximately $21,858,000 during the six months ended June 30, 2011. On September 23, 2011, ICON Mayon sold the vessel for net proceeds of approximately $8,200,000 and satisfied the remaining third-party debt. The LLC recorded a loss on sale of
approximately $71,000.
On April 4, 2011, at the expiration of the lease and in accordance with its terms, the LLC sold certain telecommunications equipment to Global Crossing Telecommunications, Inc. (“Global Crossing”) for approximately $1,188,000. No gain or loss was recorded as a result of this transaction.
Depreciation expense was $6,925,985 and $7,690,252 for the three months ended September 30, 2011 and 2010, respectively. Depreciation expense was $23,190,183 and $24,616,205 for the nine months ended September 30, 2011 and 2010, respectively.
(5)
|
Assets Held for Sale
|
During 2011, the LLC, in conjunction with ICON Leasing Fund Eleven, LLC, an entity also managed by the Manager (“Fund Eleven”), sold certain parcels of real property for approximately $1,403,000, of which the LLC’s portion was approximately $996,000. The LLC recorded a loss of approximately $44,000 as a result of these transactions.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(6)
|
Investment in Joint Ventures
|
ICON Pliant, LLC
On June 30, 2008, the LLC and Fund Eleven entered into a joint venture for the purpose of acquiring manufacturing equipment.
The results of operations of the joint venture are summarized below:
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenue
|
$ | 743,231 | $ | 743,231 | $ | 2,229,694 | $ | 2,230,283 | ||||||||
Net income
|
$ | 326,836 | $ | 403,668 | $ | 978,915 | $ | 1,064,120 | ||||||||
LLC's share of net income
|
$ | 147,076 | $ | 181,651 | $ | 440,512 | $ | 478,854 |
ICON AET Holdings, LLC
On March 29, 2011, the LLC and Fund Fourteen entered into a joint venture, ICON AET Holdings, LLC (“ICON AET”) owned 25% by the LLC and 75% by Fund Fourteen, for the purpose of acquiring two Aframax tankers and two Very Large Crude Carriers (the “VLCCs”) (collectively, the “AET Vessels”). The Aframax tankers were each acquired for $13,000,000 and simultaneously bareboat chartered to AET Inc. Limited (“AET”) for a period of three years. The VLCCs were each acquired for $72,000,000 and simultaneously bareboat chartered to AET for a period of ten years.
The results of operations of the joint venture are summarized below:
Three Months Ended September 30, 2011
|
Nine Months Ended September 30, 2011
|
|||||||
Revenue
|
$ | 6,349,152 | $ | 13,050,625 | ||||
Net loss
|
$ | 4,524,032 | $ | 7,987,906 | ||||
LLC's share of net loss
|
$ | 1,131,008 | $ | 1,996,977 |
(7)
|
Non-Recourse Long-Term Debt
|
As of September 30, 2011 and December 31, 2010, the LLC had non-recourse long-term debt obligations of $182,045,816 and $212,511,305, respectively, with maturity dates ranging from November 1, 2011 to January 31, 2015, and interest rates ranging from 3.85% to 7.96% per year, fixed after giving effect to the respective interest rate swap agreements.
(8)
|
Revolving Line of Credit, Recourse
|
On May 10, 2011, the LLC entered into a Commercial Loan Agreement (the “Loan Agreement”) with California Bank & Trust (“CB&T”). The Loan Agreement provides for a revolving line of credit of $10,000,000 pursuant to a senior secured revolving loan facility (the “Facility”), which is secured by all of the LLC’s assets not subject to a first priority lien, as defined in the Loan Agreement. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, based on the present value of the future receivables under certain loans and lease
agreements in which the LLC has a beneficial interest. At September 30, 2011, the LLC had $10,000,000 available under the Facility.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(8)
|
Revolving Line of Credit, Recourse - continued
|
The Facility expires on March 31, 2013 and the LLC 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 90-day 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. In addition, the LLC is obligated to pay a commitment fee based on an annual rate of 0.50% on unused commitments under the Facility. At September 30, 2011, there were no obligations outstanding under the Loan Agreement.
Pursuant to the Loan Agreement, the LLC is required to comply with certain covenants. At September 30, 2011, the LLC was in compliance with all covenants under the Loan Agreement.
(9)
|
Transactions with Related Parties
|
Fees and other expenses paid or accrued by the LLC to the Manager or its affiliates were as follows:
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
|||||||||||||||||||
Entity
|
Capacity
|
Description
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||
ICON Capital Corp.
|
Manager
|
Acquisition fees (1)
|
$ | - | $ | 1,111,000 | $ | 2,585,188 | $ | 3,249,400 | ||||||||||
ICON Capital Corp.
|
Manager
|
Administrative expense
|
||||||||||||||||||
reimbursements (2)
|
549,121 | 659,167 | 2,243,007 | 2,574,101 | ||||||||||||||||
ICON Capital Corp.
|
Manager
|
Management fees (2)
|
1,462,053 | 1,074,426 | 3,740,482 | 3,239,542 | ||||||||||||||
Total
|
$ | 2,011,174 | $ | 2,844,593 | $ | 8,568,677 | $ | 9,063,043 | ||||||||||||
(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 September 30, 2011, the LLC had a net payable of $239,809 due to the Manager and its affiliates primarily related to administrative expense reimbursements.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(10)
|
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 on 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 recognizes 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 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
The LLC’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its variable non-recourse debt. The LLC’s 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 payments from a counterparty in exchange for the LLC making fixed rate payments over the life of the agreements without exchange of the underlying notional amount.
Designated Derivatives
As of September 30, 2011, the LLC had eleven floating-to-fixed interest rate swaps that are designated and qualifying as cash flow hedges with an aggregate notional amount of $150,874,444. These interest rate swaps have maturity dates ranging from November 14, 2013 to September 30, 2014.
For these derivatives, the LLC records 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 within the same line item on the statements of operations as the impact of the hedged transaction. During the three and nine months ended September 30, 2011, the LLC recorded $10,906 and $34,156 of hedge ineffectiveness in earnings, respectively. At September 30, 2011, the accumulated unrealized loss recorded to AOCI related to
the change in fair value of these interest rate swaps was $5,827,866.
During the twelve months ending September 30, 2012, the LLC estimates that approximately $3,053,462 will be reclassified from AOCI to interest expense.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(10)
|
Derivative Financial Instruments - continued
|
Non-designated Derivatives
As of September 30, 2011, the LLC had two interest rate swaps that are not designated and qualifying as cash flow hedges with an aggregate notional amount of $13,639,516. These interest rate swaps are not speculative and are used to meet the LLC’s objectives in using interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements. The LLC’s strategy to accomplish this objective is to match the projected future cash flows with the underlying debt service. Each interest rate swap involves the receipt of floating rate payments from a counterparty in exchange for the LLC
making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.
Additionally, the LLC holds warrants that are held for purposes other than hedging. All changes in the fair value of the interest rate swaps not designated as hedges and 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 sheets as of September 30, 2011 and December 31, 2010:
Asset Derivatives
|
Liability Derivatives
|
|||||||||||||||||
September 30,
|
December 31,
|
September 30,
|
December 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
Balance Sheet Location
|
Fair Value
|
Fair Value
|
Balance Sheet Location
|
Fair Value
|
Fair Value
|
|||||||||||||
Derivatives designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest rate swaps
|
$ | - | $ | - |
Derivative instruments
|
$ | 6,138,431 | $ | 6,949,480 | |||||||||
Derivatives not designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest rate swaps
|
$ | - | $ | - |
Derivative instruments
|
$ | 605,222 | $ | 531,714 | |||||||||
Warrants
|
Other non-current assets, net
|
$ | 269,655 | $ | 340,324 | $ | - | $ | - |
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and nine months ended September 30, 2011:
Three Months Ended September 30, 2011
|
||||||||||||||
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
(Effective Portion)
|
Location of Gain (Loss)
Reclassified
from AOCI into Income
(Effective Portion)
|
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
from Effectiveness Testing)
|
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amounts Excluded
from Effectiveness Testing)
|
||||||||||
Derivatives
|
||||||||||||||
Interest rate swaps
|
$ | (967,758 | ) |
Interest expense
|
$ | (1,024,828 | ) |
Loss on financial instruments
|
$ | (10,906 | ) | |||
Nine Months Ended September 30, 2011
|
||||||||||||||
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
(Effective Portion)
|
Location of Gain (Loss)
Reclassified
from AOCI into Income
(Effective Portion)
|
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
from Effectiveness Testing)
|
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amounts Excluded
from Effectiveness Testing)
|
||||||||||
Derivatives
|
||||||||||||||
Interest rate swaps
|
$ | (2,586,390 | ) |
Interest expense
|
$ | (3,242,561 | ) |
Loss on financial instruments
|
$ | (34,156 | ) |
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and nine months ended September 30, 2010:
Three Months Ended September 30, 2010
|
||||||||||||||
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
from Effectiveness Testing)
|
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amounts Excluded
from Effectiveness Testing)
|
|||||||||||||
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
(Effective Portion)
|
Location of Gain (Loss)
Reclassified
from AOCI into Income
(Effective Portion)
|
|||||||||||||
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
||||||||||||||
Derivatives
|
||||||||||||||
Interest rate swaps
|
$ | (2,485,011 | ) |
Interest expense
|
$ | (1,209,297 | ) |
Loss on financial instruments
|
$ | (12,736 | ) | |||
Nine Months Ended September 30, 2010
|
||||||||||||||
Derivatives
|
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
(Effective Portion)
|
Location of Gain (Loss)
Reclassified
from AOCI into Income
(Effective Portion)
|
Gain (Loss) Reclassified
from AOCI into Income
(Effective Portion)
|
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
from Effectiveness Testing)
|
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
Amounts Excluded
from Effectiveness Testing)
|
|||||||||
Interest rate swaps
|
$ | (7,942,552 | ) |
Interest expense
|
$ | (3,785,458 | ) |
Loss on financial instruments
|
$ | (39,534 | ) | |||
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
The LLC’s derivative financial instruments not designated as hedging instruments generated a loss on financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2011 of $127,766 and $152,220, respectively. The LLC’s derivative financial instruments not designated as hedging instruments generated a loss on financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2010 of $188,534 and $384,813, respectively. The net loss recorded for the three months ended September 30, 2011 was comprised of losses
of $63,503 relating to interest rate swap contracts and $64,263 relating to warrants. The net loss recorded for the nine months ended September 30, 2011 was comprised of losses of $81,551 relating to interest rate swap contracts and $70,669 relating to warrants. The net loss recorded for the three months ended September 30, 2010 was comprised of losses of $186,245 relating to interest rate swap contracts and $2,289 relating to warrants. The net loss recorded for the nine months ended September 30, 2010 was comprised of a loss of $648,058 relating to interest rate swap contracts and a gain of $263,245 relating to warrants.
Foreign Exchange Risk
The LLC is exposed to fluctuations in Euros and pounds sterling. The LLC, at times, uses foreign currency derivatives, including currency forward agreements, to manage its exposure to fluctuations in the USD-Euro and USD-pounds sterling exchange rates. Currency forward agreements involve fixing the foreign exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements typically have been cash settled in U.S. dollars for their fair value at or close to their settlement date. The LLC had no foreign currency derivatives outstanding at September 30,
2011.
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.
As of September 30, 2011, the fair value of the derivatives in a liability position was $6,743,653. In the event that the LLC would be required to settle its obligations under the agreements as of September 30, 2011, the termination value would be $7,024,747.
(11)
|
Accumulated Other Comprehensive Loss
|
AOCI includes accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $5,827,866 and $1,348,155, respectively, at September 30, 2011 and accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $6,484,037 and $1,505,909, respectively, at December 31, 2010. Total comprehensive income (loss) for the three and nine months ended September 30, 2011 was $1,850,316 and ($8,399,927), respectively. Total comprehensive income for the three and nine months ended September 30, 2010
was $5,154,111 and $14,108,385, respectively.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(12)
|
Fair Value Measurements
|
Assets and liabilities are 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 Measured on a Recurring Basis
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.
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 September 30, 2011:
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | - | $ | 269,655 | $ | 269,655 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative Instruments
|
$ | - | $ | 6,743,653 | $ | - | $ | 6,743,653 |
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, 2010:
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | - | $ | 340,324 | $ | 340,324 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative Instruments
|
$ | - | $ | 7,481,194 | $ | - | $ | 7,481,194 |
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(12)
|
Fair Value Measurements - continued
|
The LLC’s derivative contracts, including interest rate swaps and warrants, are valued using models based on readily observable or unobservable market parameters for all substantial terms of the LLC’s derivative contracts and are classified within Level 2 or Level 3. 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 and the fair value of the derivative liabilities was recorded in derivative instruments 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 September 30, 2011:
September 30, 2011
|
Level 1
|
Level 2
|
Level 3
|
Total Impairment Loss
|
||||||||||||||||
Assets held for sale, net
|
$ | 1,404,465 | $ | - | $ | - | $ | 1,404,465 | $ | 44,072 |
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 September 30, 2010:
September 30, 2010
|
Level 1
|
Level 2
|
Level 3
|
Total Impairment Loss
|
||||||||||||||||
Assets held for sale, net
|
$ | 6,862,554 | $ | - | $ | - | $ | 6,862,554 | $ | 1,282,568 |
The LLC’s non-financial assets are valued using inputs that are generally unobservable and cannot be corroborated by market data and are classified within Level 3. As permitted by the accounting pronouncements, the LLC uses projected cash flows, market prices and prices determined based on arm’s length negotiated transactions with a third party for fair value measurements of its non-financial assets.
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, approximates fair value due to their short-term maturities and variable interest rates. The carrying value of the LLC’s non-recourse debt approximates its fair value due to its floating interest rates. The estimated fair value of the LLC’s other non-current liabilities and notes receivable was based on the discounted
value of future cash flows expected to be received from the loans based on terms consistent with the range of the LLC’s internal pricing strategies for transactions of this type.
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
(12)
|
Fair Value Measurements - continued
|
September 30, 2011
|
||||||||
Carrying Amount
|
Fair Value
|
|||||||
Fixed rate notes receivable
|
$ | 38,146,998 | $ | 38,933,959 | ||||
Other non-current liabilities
|
$ | 54,730,464 | $ | 57,204,974 |
(13)
|
Commitments and Contingencies
|
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 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.
The LLC has entered into a residual sharing and remarketing agreement with a third party. 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 certain investments, the LLC is required to maintain restricted cash accounts with certain banks. The aforementioned cash amounts are presented within other non-current assets in the LLC’s consolidated balance sheets at September 30, 2011 and December 31, 2010.
On October 21, 2011, the Chapter 11 bankruptcy trustee for Equipment Acquisition Resources, Inc. (“EAR”) filed an adversary complaint against ICON EAR, LLC and ICON EAR II, LLC (collectively, “ICON EAR”) seeking the recovery of certain funds that the trustee alleges were fraudulently transferred from EAR to ICON EAR. The complaint also seeks the recovery of payments made by EAR to ICON EAR during the 90-day period preceding EAR’s bankruptcy filing, alleging that those payments constituted a preference under the U.S. Bankruptcy Code. Additionally, the complaint seeks the imposition of a
constructive trust over certain real property and the proceeds from the sale ICON EAR received as security in connection with its investment. The Manager believes these claims are frivolous and intends to vigorously defend this action. At this time, the LLC is unable to predict the outcome of this action or loss therefrom, if any.
The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form
10-Q.
As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON Leasing Fund Twelve, LLC and its consolidated subsidiaries.
Forward-Looking Statements
Certain statements within this Quarterly Report on Form 10-Q 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.
Overview
Our offering period ended on April 30, 2009 and our operating period commenced on May 1, 2009. During our offering period, we raised $347,686,947 in total equity. We operate as an equipment leasing and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. With the proceeds from the sale of shares of our limited liability company interests (“Shares”), we invested and continue to invest in equipment subject to leases, other equipment financing, and residual ownership
rights in items of leased equipment and established a cash reserve. After the net offering proceeds were invested, additional investments will be made with the cash generated from our initial investments to the extent that cash is not used for expenses, reserves and distributions to members. The investment in additional equipment in this manner is called “reinvestment.” We anticipate investing in equipment from time to time for five years. This time frame is called the “operating period” and may be extended, at the sole discretion of our Manager, for up to an additional three years. After the operating period, we will then sell our assets in the ordinary course of business during a time frame called the “liquidation period.”
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 limited liability company agreement.
Recent Significant Transactions
We engaged in the following significant transactions since December 31, 2010:
New Investments
·
|
On March 29, 2011, we and Fund Fourteen entered into a joint venture, ICON AET, owned 25% by us and 75% by Fund Fourteen, for the purpose of acquiring the AET Vessels. The Aframax tankers were each acquired for $13,000,000 and simultaneously bareboat chartered to AET for a period of three years. The VLCCs were each acquired for $72,000,000 and simultaneously bareboat chartered to AET for a period of ten years.
|
·
|
On March 31, 2011, we purchased information technology equipment for approximately $1,954,000 and simultaneously leased the equipment to Broadview. The base term of the lease schedule is for a period of thirty-six months commencing on April 1, 2011.
|
Dispositions and Impairment
·
|
On March 4, 2011, we sold equipment on lease to American Energy for approximately $1,798,000. No gain or loss was recorded as a result of this transaction.
|
·
|
During 2011, we, in conjunction with Fund Eleven, sold certain parcels of real property for approximately $1,403,000, of which our portion was approximately $996,000. We recorded a loss of approximately $44,000 as a result of these transactions.
|
·
|
On April 4, 2011, at the expiration of the lease and in accordance with its terms, we sold certain telecommunications equipment to Global Crossing for approximately $1,188,000. No gain or loss was recorded as a result of this transaction.
|
·
|
As a result of negotiations to remarket and ultimately dispose of certain vessels, our Manager reviewed ICON Mayon’s investment in the vessel subject to charter and determined that the net book value of the vessel subject to charter exceeded the fair value. As a result, we recognized non-cash impairment charges of approximately $21,858,000 during the six months ended June 30, 2011. On September 23, 2011, ICON Mayon sold the vessel for net proceeds of approximately $8,200,000 and satisfied the remaining third-party debt. We recorded a loss on sale of approximately $71,000.
|
Notes Receivable
·
|
Effective January 1, 2011, we exchanged our 52.09% ownership interest in a joint venture for our proportionate share of notes receivable from ION, which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $8,348,000, and the notes bear interest at 15% per year and mature on August 1, 2014. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
|
·
|
Effective January 1, 2011, we exchanged our 52.75% ownership interest in a joint venture for notes receivable from Northern Leasing, which were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $5,327,000, and the notes bear interest at 9.47% to 9.90% per year and mature between December 15, 2011 and February 15, 2013. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
|
·
|
Effective January 1, 2011, we exchanged our 49.13% ownership interest in a joint venture for an assignment of our proportionate share of the future cash flows of a loan receivable from Quattro, which was previously owned by the joint venture. As a result of this assignment, we recorded a loan receivable of approximately £2,478,000, which bears interest at 20% per year and matures on October 1, 2012. No gain or loss was recorded as a result of this transaction. Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
|
Net Investment in Finance Leases
·
|
On May 16, 2011, we entered into an agreement to sell certain automotive manufacturing equipment subject to lease for €3,000,000. The purchase price will be paid in three installments and will bear interest at a rate of 5.5% per year. We will retain title to the equipment until the final payment is received on or before June 1, 2013.
|
·
|
On July 15, 2011, a joint venture controlled by us and owned 49.54% by us, 40.53% by Fund Fourteen and 9.93% by an unaffiliated third-party amended the master lease agreement with Atlas. The amendment requires Atlas to purchase the assets subject to lease upon termination. The joint venture received an amendment fee of $500,000 and the lease was reclassified from an operating lease to a direct finance lease.
|
|
On September 14, 2011, the joint venture entered into a loan agreement with Wells Fargo in the amount of $10,628,000. Wells Fargo received a first priority security interest in the leased equipment, among other collateral. The loan bears interest at the rate of 4.08% per year and matures on September 1, 2013.
|
Acquisition Fees
In connection with the new investments made since December 31, 2010, we paid total acquisition fees to our Manager of approximately $2,585,000.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a significant impact on our consolidated financial statements as of September 30, 2011. See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
Results of Operations for the Three Months Ended September 30, 2011 (the “2011 Quarter”) and 2010 (the “2010 Quarter”)
Financing Transactions
We provide financing in diverse industries. The following tables set forth the types of assets securing the investments in our portfolio at September 30, 2011 and December 31, 2010:
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Percentage of Total Net Carrying Value
|
Percentage of Total Net Carrying Value
|
|||||||||||||||
Net
|
Net
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Asset Type
|
Value
|
Value
|
||||||||||||||
Offshore oil field services equipment
|
$ | 144,348,242 | 69% | $ | 152,425,683 | 64% | ||||||||||
Marine - Crude oil tanker
|
9,600,000 | 4% | 9,600,000 | 4% | ||||||||||||
Cranes & transportation equipment
|
8,653,125 | 4% | 9,750,000 | 4% | ||||||||||||
Gas compressors
|
8,248,838 | 4% | - | - | ||||||||||||
Telecommunications equipment
|
8,080,884 | 4% | 12,234,879 | 5% | ||||||||||||
Marine - Product tankers
|
8,008,817 | 4% | 9,016,177 | 4% | ||||||||||||
Analog seismic system equipment
|
6,990,731 | 3% | 16,027,940 | 7% | ||||||||||||
Point of sale equipment
|
6,823,387 | 3% | 15,174,761 | 6% | ||||||||||||
Automotive manufacturing equipment
|
3,278,114 | 2% | 4,869,872 | 2% | ||||||||||||
Rail support construction equipment
|
3,171,421 | 2% | 7,819,468 | 3% | ||||||||||||
Metal cladding & production equipment
|
2,908,333 | 1% | 3,200,000 | 1% | ||||||||||||
$ | 210,111,892 | 100% | $ | 240,118,780 | 100% |
The net carrying value of our financing transactions includes the balances of our notes receivable and our net investment in finance leases, which are included in our consolidated balance sheets.
During the 2011 Quarter and the 2010 Quarter, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
Percentage of Total Finance Income
|
||||||||
Customer
|
Asset Type
|
2011 Quarter
|
2010 Quarter
|
|||||
Leighton Holdings Limited
|
Offshore oil field services equipment
|
56%
|
42%
|
|||||
ION Geophysical Corporation
|
Analog seismic system equipment
|
6%
|
11%
|
|||||
Northern Capital Associates
|
Point of sale equipment
|
5%
|
12%
|
|||||
Appleton Papers, Inc.
|
Machine paper coating manufacturing line
|
-
|
11%
|
|||||
67%
|
76%
|
Interest income from our notes receivable and finance income from our net investment in finance leases are included in finance income in the consolidated statements of operations.
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or finance income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Operating Lease Transactions
We have also financed a diversified portfolio of equipment pursuant to operating leases. The equipment has been leased to customers in various industries. The following tables set forth the types of equipment subject to operating leases in our investment portfolio at September 30, 2011 and December 31, 2010:
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Percentage of Total Net Carrying Value
|
Percentage of Total Net Carrying Value
|
|||||||||||||||
Net
|
Net
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Asset Type
|
Value
|
Value
|
||||||||||||||
Marine - Crude oil tanker
|
$ | 125,829,420 | 53% | $ | 168,455,080 | 56% | ||||||||||
Offshore oil field services equipment
|
44,358,291 | 19% | 47,432,643 | 16% | ||||||||||||
Marine - Container vessels
|
40,847,358 | 17% | 43,432,625 | 14% | ||||||||||||
Coal drag line
|
10,348,643 | 4% | 10,895,682 | 3% | ||||||||||||
Automotive manufacturing equipment
|
6,553,486 | 3% | 8,098,800 | 3% | ||||||||||||
Motor coaches
|
3,666,434 | 2% | 4,208,428 | 1% | ||||||||||||
Forging equipment
|
2,094,172 | 1% | 2,594,677 | 1% | ||||||||||||
Underground coal conveyor system
|
1,934,619 | 1% | 4,725,606 | 2% | ||||||||||||
Gas compressors
|
- | - | 10,281,711 | 3% | ||||||||||||
Telecommunications equipment
|
- | - | 1,590,672 | 1% | ||||||||||||
$ | 235,632,423 | 100% | $ | 301,715,924 | 100% |
During the 2011 Quarter and the 2010 Quarter, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:
Percentage of Total Rental Income
|
||||||||
Customer
|
Asset Type
|
2011 Quarter
|
2010 Quarter
|
|||||
AET, Inc. Limited
|
Marine - Crude oil tanker
|
48%
|
40%
|
|||||
Swiber Holdings Limited
|
Offshore oil field services equipment
|
19%
|
16%
|
|||||
Vroon Group B.V.
|
Marine - Container vessels
|
13%
|
11%
|
|||||
Teekay Shipping
|
Marine - Crude oil tanker
|
4%
|
10%
|
|||||
84%
|
77%
|
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or rental income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Revenue for the 2011 Quarter and the 2010 Quarter is summarized as follows:
Three Months Ended September 30,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
Finance income
|
$ | 6,017,824 | $ | 6,528,507 | $ | (510,683 | ) | |||||
Rental income
|
12,569,947 | 15,034,309 | (2,464,362 | ) | ||||||||
(Loss) income from investment in joint ventures
|
(1,024,494 | ) | 148,193 | (1,172,687 | ) | |||||||
Loss on settlement of interfund agreement
|
- | (1,106,240 | ) | 1,106,240 | ||||||||
(Loss) gain on sale of leased assets
|
(71,332 | ) | 521,909 | (593,241 | ) | |||||||
Total revenue
|
$ | 17,491,945 | $ | 21,126,678 | $ | (3,634,733 | ) |
Total revenue for the 2011 Quarter decreased $3,634,733, or 17.2%, as compared to the 2010 Quarter. The decrease in rental income was primarily due to three dispositions and the reclassification of a lease from an operating to a direct financing lease during 2011. The decrease in income from investment in joint ventures was primarily due to the operating results of our investment in a new joint venture during 2011. The loss on settlement of interfund agreement was in connection with the termination of the credit support agreement recorded during the 2010 Quarter related to financing provided to the MW Universal, Inc.
(“MWU”) subsidiaries.
Expenses for the 2011 Quarter and the 2010 Quarter are summarized as follows:
Three Months Ended September 30,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
|
||||||||||||
Management fees - Manager
|
$ | 1,462,053 | $ | 1,074,426 | $ | 387,627 | ||||||
Administrative expense reimbursements - Manager
|
549,121 | 659,167 | (110,046 | ) | ||||||||
General and administrative
|
946,298 | 666,861 | 279,437 | |||||||||
Interest
|
3,621,822 | 4,145,052 | (523,230 | ) | ||||||||
Depreciation and amortization
|
7,447,490 | 8,910,794 | (1,463,304 | ) | ||||||||
Vessel operating expense
|
1,326,362 | - | 1,326,362 | |||||||||
Loss on financial instruments
|
138,672 | 201,270 | (62,598 | ) | ||||||||
Total expenses
|
$ | 15,491,818 | $ | 15,657,570 | $ | (165,752 | ) |
Total expenses for the 2011 Quarter decreased $165,752, or 1.1%, as compared to the 2010 Quarter. The decrease in total expenses is primarily due to decreases in depreciation and amortization, which were partially offset by vessel operating expense recorded by ICON Mayon during the 2011 Quarter.
Noncontrolling Interests
Net income attributable to noncontrolling interests decreased $1,570,958, from $2,100,318 in the 2010 Quarter to $529,360 in the 2011 Quarter. The decrease was primarily due to the operating loss recorded by ICON Mayon and the termination of three consolidated joint ventures during 2011.
Net Income Attributable to Fund Twelve
As a result of the foregoing factors, net income attributable to us for the 2011 Quarter and the 2010 Quarter was $1,470,767 and $3,368,790, respectively. Net income attributable to us per weighted average additional Share outstanding for the 2011 Quarter and the 2010 Quarter was $4.18 and $9.57, respectively.
Results of Operations for the Nine Months Ended September 30, 2011 (the “2011 Period”) and 2010 (the “2010 Period”)
Financing Transactions
During the 2011 Period and the 2010 Period, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
Percentage of Total Finance Income
|
||||||||
Customer
|
Asset Type
|
2011 Period
|
2010 Period
|
|||||
Leighton Holdings Limited
|
Offshore oil field services equipment
|
58%
|
42%
|
|||||
Northern Capital Associates
|
Point of sale equipment
|
6%
|
15%
|
|||||
ION Geophysical Corporation
|
Analog seismic system equipment
|
6%
|
11%
|
|||||
Appleton Papers, Inc.
|
Machine paper coating manufacturing line
|
-
|
10%
|
|||||
70%
|
78%
|
Interest income from our notes receivable and finance income from our net investment in finance leases are included in finance income in the consolidated statements of operations.
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the finance income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Operating Lease Transactions
During the 2011 Period and the 2010 Period, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:
Percentage of Total Rental Income
|
||||||||
Customer
|
Asset Type
|
2011 Period
|
2010 Period
|
|||||
AET, Inc. Limited
|
Marine - Crude oil tanker
|
43%
|
39%
|
|||||
Swiber Holdings Limited
|
Offshore oil field services equipment
|
17%
|
15%
|
|||||
Vroon Group B.V.
|
Marine - Container vessels
|
12%
|
11%
|
|||||
Teekay Shipping
|
Marine - Crude oil tanker
|
9%
|
10%
|
|||||
81%
|
75%
|
|||||||
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the rental income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Revenue for the 2011 Period and the 2010 Period is summarized as follows:
Nine Months Ended September 30,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
Finance income
|
$ | 17,890,211 | $ | 20,488,557 | $ | (2,598,346 | ) | |||||
Rental income
|
41,947,406 | 45,970,941 | (4,023,535 | ) | ||||||||
(Loss) income from investment in joint ventures
|
(1,556,466 | ) | 445,396 | (2,001,862 | ) | |||||||
Gain on settlement of interfund agreement
|
- | 1,056,555 | (1,056,555 | ) | ||||||||
(Loss) gain on sale of leased assets
|
(71,332 | ) | 521,909 | (593,241 | ) | |||||||
Loss on assets held for sale
|
- | (297,864 | ) | 297,864 | ||||||||
Total revenue
|
$ | 58,209,819 | $ | 68,185,494 | $ | (9,975,675 | ) | |||||
Total revenue for the 2011 Period decreased $9,975,675, or 14.6%, as compared to the 2010 Period. The decrease in rental income was primarily due to three dispositions and the reclassification of a lease from an operating to a direct financing lease during 2011. The decrease in finance income was primarily due to (i) the termination of three consolidated joint ventures during the 2011 Period and (ii) the liquidation of our investment in a note receivable during 2010. The decrease in finance income was partially offset by (i) our
investment in three notes receivable during 2010, (ii) our investment in three finance lease transactions during 2010 and (iii) the reclassification of a lease from an operating lease to a direct financing lease during 2011. The decrease in income from investment in joint ventures was primarily due to the operating results of our investment in a new joint venture during the 2011 Period. The gain on settlement of interfund agreement was in connection with the termination of the credit support agreement relating to financing provided to the MWU subsidiaries.
Expenses for the 2011 Period and the 2010 Period are summarized as follows:
Nine Months Ended September 30,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
|
||||||||||||
Management fees - Manager
|
$ | 3,740,482 | $ | 3,239,542 | $ | 500,940 | ||||||
Administrative expense reimbursements - Manager
|
2,243,007 | 2,574,101 | (331,094 | ) | ||||||||
General and administrative
|
1,952,784 | 2,064,173 | (111,389 | ) | ||||||||
Interest
|
11,473,071 | 12,684,046 | (1,210,975 | ) | ||||||||
Depreciation and amortization
|
24,739,028 | 27,061,087 | (2,322,059 | ) | ||||||||
Impairment loss
|
21,902,458 | 1,282,568 | 20,619,890 | |||||||||
Vessel operating expense
|
1,326,362 | - | 1,326,362 | |||||||||
Loss on financial instruments
|
186,376 | 424,347 | (237,971 | ) | ||||||||
Total expenses
|
$ | 67,563,568 | $ | 49,329,864 | $ | 18,233,704 | ||||||
Total expenses for the 2011 Period increased $18,233,704, or 37.0%, as compared to the 2010 Period. The increase in total expenses was primarily due to the increase in the non-cash impairment charge and vessel operating expense recorded by ICON Mayon during the 2011 Period, partially offset by a decrease in (i) depreciation and amortization and (ii) interest expense due to a decrease in the non-recourse long-term debt outstanding during the 2011 Period.
Noncontrolling Interests
Net (loss) income attributable to noncontrolling interests decreased $13,367,337, from net income of $5,769,104 in the 2010 Period to a net loss of $7,598,233 in the 2011 Period. The decrease was primarily due to the increase in the non-cash impairment charge recorded by ICON Mayon and the termination of three consolidated joint ventures during the 2011 Period.
Net (Loss) Income Attributable to Fund Twelve
As a result of the foregoing factors, net (loss) income attributable to us for the 2011 Period and the 2010 Period was ($1,755,516) and $13,086,526, respectively. Net (loss) income attributable to us per weighted average additional Share outstanding for the 2011 Period and the 2010 Period was ($4.98) and $37.16, respectively.
Financial Condition
This section discusses the major balance sheet variances at September 30, 2011 compared to December 31, 2010.
Total Assets
Total assets decreased $92,256,577, from $594,249,580 at December 31, 2010 to $501,993,003 at September 30, 2011. The decrease was primarily due to (i) cash distributions to our members and noncontrolling interests, (ii) the depreciation of leased equipment at cost, (iii) the impairment of certain leased equipment and (iv) the termination of three consolidated joint ventures.
Current Assets
Current assets decreased $11,906,569, from $74,732,616 at December 31, 2010 to $62,826,047 at September 30, 2011. The decrease was primarily due to (i) cash distributions to our members and noncontrolling interests, (ii) the termination of three consolidated joint ventures and (iii) cash used for an investment in a noncontrolling interest during the 2011 Period.
Total Liabilities
Total liabilities decreased $30,146,379, from $283,533,983 at December 31, 2010 to $253,387,604 at September 30, 2011. The decrease was primarily due to scheduled repayments of our non-recourse long-term debt, partially offset by additional borrowings.
Current Liabilities
Current liabilities decreased $7,173,718, from $74,034,556 at December 31, 2010 to $66,860,838 at September 30, 2011. The decrease was primarily due to scheduled repayments of our non-recourse long-term debt during the 2011 Period.
Equity
Equity decreased $62,110,198, from $310,715,597 at December 31, 2010 to $248,605,399 at September 30, 2011. The decrease was primarily due to the net loss and distributions to our members and noncontrolling interests and the termination of three consolidated joint ventures during the 2011 Period.
Liquidity and Capital Resources
Summary
At September 30, 2011 and December 31, 2010, we had cash and cash equivalents of $30,881,111 and $29,219,287, respectively. During our offering period, our main source of cash was from financing activities and our main use of cash was in investing activities. During our operating period, our main source of cash is typically from operating activities and our main use of cash is in investing and financing activities. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we enter into new investments, meet our debt obligations,
pay distributions to our members and to the extent that expenses exceed cash flows from operations and the proceeds from sale of our investments.
We currently have adequate cash balances and generate a sufficient amount of cash flow from operations to meet our short-term working capital requirements. We expect to generate sufficient cash flows from operations to sustain our working capital requirements in the foreseeable future. In the event that our working capital is not adequate to fund our short-term liquidity needs, we could borrow $10,000,000 under our Facility. For additional information, see Note 8 to our consolidated financial statements.
We anticipate that our liquidity requirements for the remaining life of the fund will be financed by the expected results of our operating and financing activities, as well as cash received from our investments at maturity.
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.
Pursuant to the terms of our offering, we established a cash reserve in the amount of 0.5% of the gross offering proceeds. As of September 30, 2011, the cash reserve was $1,738,435.
Cash Flows
Operating Activities
Cash provided by operating activities increased $1,075,317, from $34,186,914 in the 2010 Period, to $35,262,231 in the 2011 Period. The net increase in cash provided by operating activities was primarily due to an increase in the collection of finance leases during the 2011 Period.
Investing Activities
Cash provided by investing activities increased $22,594,780, from a use of cash of $11,508,722 in the 2010 Period, to a source of cash of $11,086,058 during the 2011 Period. The net increase in cash provided by investing activities was due to (i) a decrease in our investment in notes receivable and (ii) the increase in proceeds received from sale of certain equipment. The net increase in cash provided by investing activities was partially offset by (i) our investment in a noncontrolling interest during the 2011 Period and (ii) the decrease in scheduled repayments of our notes receivable.
Financing Activities
Cash used in financing activities increased $14,085,796, from $30,601,752 in the 2010 period, to $44,687,548 in the 2011 Period. The increase in cash used in financing activities is primarily due to (i) the increase in repayments of non-recourse long-term debt, (ii) a decrease of investment in joint ventures by noncontrolling interests and (iii) the decrease in the proceeds received from non-recourse long-term debt during the 2011 Period.
Non-Recourse Long-Term Debt
We had non-recourse long-term debt obligations at September 30, 2011 of $182,045,816. Most of our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the equipment and an assignment of the rental payments under the lease, in which case the lender is being paid directly by the lessee. In other cases, we receive the rental payments and pay the lender. If the lessee were to default on the non-recourse long-term debt, the equipment would be returned to the lender in extinguishment of the non-recourse long-term debt.
Distributions
We, at our Manager’s discretion, pay monthly distributions to each of our additional members and noncontrolling interests starting with the first month after each such 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 of $254,790, $25,233,663 and $11,152,835 to our Manager, additional members and noncontrolling interests, respectively, during the 2011 Period.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At September 30, 2011, we had non-recourse debt obligations. The lender has a security interest in the majority of the equipment collateralizing each non-recourse long-term debt instrument and an assignment of the rental payments under the lease associated with the equipment. In such cases, the lender is being paid directly by the lessee. In other cases, we receive the rental payments and pay the lender. If the lessee defaults on the lease, the equipment would be returned to the lender in extinguishment of the non-recourse debt. At September 30, 2011, our outstanding non-recourse long-term indebtedness was
$182,045,816. We are a party to the Facility and we had no borrowings at September 30, 2011.
We have 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 certain investments, we are required to maintain restricted cash accounts with certain banks. The aforementioned cash amounts are presented within other non-current assets in our consolidated balance sheets at September 30, 2011 and December 31, 2010.
On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against ICON EAR seeking the recovery of certain funds that the trustee alleges were fraudulently transferred from EAR to ICON EAR. The complaint also seeks the recovery of payments made by EAR to ICON EAR during the 90-day period preceding EAR’s bankruptcy filing, alleging that those payments constituted a preference under the U.S. Bankruptcy Code. Additionally, the complaint seeks the imposition of a constructive trust over certain real property and the proceeds from the sale ICON EAR received as security in connection with
its investment. Our Manager believes these claims are frivolous and intends to vigorously defend this action. At this time, we are unable to predict the outcome of this action or loss therefrom, if any.
Off-Balance Sheet Transactions
None.
There are no material changes to the disclosures related to this item since the filing of our Annual Report on Form 10-K for the year ended December 31, 2010.
Evaluation of disclosure controls and procedures
In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended September 30, 2011, 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 Principal Accounting and 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 Principal Accounting and 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.
Evaluation of internal control over financial reporting
There have been no changes in our internal control over financial reporting during the three months ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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, cash flows 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.
There have been no material changes from the risk factors disclosed in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2010.
We did not sell or repurchase any Shares during the three months ended September 30, 2011.
Not applicable.
Not applicable.
3.1
|
Certificate of Formation of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 13, 2006 (File No. 333-138661)).
|
4.1
|
Limited Liability Company Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus filed with the SEC on May 8, 2007 (File No. 333-138661)).
|
10.1
|
Commercial Loan Agreement, dated as of August 31, 2005, by and among 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 June 20, 2007).
|
10.2
|
Loan Modification Agreement, dated as of December 26, 2006, 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 10.2 to Registrant’s Current Report on Form 8-K dated June 20, 2007).
|
10.3 |
Loan Modification Agreement, dated as of June 20, 2007, 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 10.3 to Registrant’s Current Report on Form 8-K dated June 20, 2007).
|
10.4
|
Third Loan Modification Agreement, dated as of May 1, 2008, 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 15, 2008).
|
10.5 |
Fourth Loan Modification Agreement, dated as of August 12, 2009, 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, ICON Leasing Fund Twelve, LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (Incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 14, 2009).
|
10.6 |
Termination of Commercial Loan Agreement, by and among California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON Leasing Fund Twelve, LLC, and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., dated as of May 10, 2011 (Incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed May 16, 2011).
|
10.7 |
Commercial Loan Agreement, by and between California Bank & Trust and ICON Leasing Fund Twelve, LLC, dated as of May 10, 2011 (Incorporated by reference to Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed May 16, 2011).
|
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 Principal Accounting and 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 Principal Accounting and Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS*
|
XBRL Instance Document.
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.LAB*
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
* |
XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ICON Leasing Fund Twelve, LLC
(Registrant)
By: ICON Capital Corp.
(Manager of the Registrant)
November 10, 2011
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)
|
By: /s/ Keith S. Franz
|
Keith S. Franz
|
Senior Vice President-Finance
(Principal Accounting and Financial Officer)
|
33
|