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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
March 31, 2012
 
 
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_
000-50217
 

ICON Income Fund Nine, LLC
(Exact name of registrant as specified in its charter)

Delaware
13-4183234
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

3 Park Avenue, 36th Floor, New York, New York
10016
(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 [  ]     Smaller reporting company [ X  ]

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 May 4, 2012 is 97,955.

 
 
 

 
 
 
ICON Income Fund Nine, LLC
Table of Contents
   
Page
     
 
     
1
     
1
         
2
     
3
     
4
     
6
     
13
     
17
     
17
     
 
     
 
18
     
 
18
     
18
     
18
     
18
     
 
18
     
 
19
     
 
20

 
 
 

 
 


ICON Income Fund Nine, LLC
 
(A Delaware Limited Liability Company)
 
 
             
             
Assets
 
   
March 31,
       
   
2012
   
December 31,
 
   
(unaudited)
   
2011
 
 Current assets:
           
 Cash and cash equivalents
  $ 1,522,131     $ 1,715,911  
 Current portion of net investment in finance leases
    6,907,910       6,619,888  
 Equipment held for sale
    86,012       -  
 Other current assets
    577,679       400,981  
                 
 Total current assets
    9,093,732       8,736,780  
                 
 Non-current assets:
               
 Net investment in finance leases, less current portion
    3,921,128       5,759,946  
 Leased equipment at cost (less accumulated depreciation of
               
     $14,733,848 and $15,807,492, respectively)
    33,719,332       34,491,282  
 Other non-current assets, net
    395,774       66,667  
                 
 Total non-current assets
    38,036,234       40,317,895  
                 
 Total Assets
  $ 47,129,966     $ 49,054,675  
 
               
Liabilities and Members' Equity
 
                 
 Current liabilities:
               
 Current portion of non-recourse long-term debt
  $ 29,128,816     $ 28,279,720  
 Interest rate swap contracts
    437,931       548,169  
 Accrued expenses and other current liabilities
    1,672,908       1,224,223  
                 
 Total current liabilities
    31,239,655       30,052,112  
                 
 Non-current liabilities:
               
 Non-recourse long-term debt, less current portion
    3,600,000       5,400,000  
                 
 Total Liabilities
    34,839,655       35,452,112  
                 
 Commitments and contingencies (Note 8)
               
 
               
 Members' Equity:
               
Additional Members
    13,448,753       14,855,432  
Manager
    (733,758 )     (719,549 )
Accumulated other comprehensive loss
    (424,684 )     (533,320 )
                 
 Total Members' Equity
    12,290,311       13,602,563  
                 
 Total Liabilities and Members' Equity
  $ 47,129,966     $ 49,054,675  
                 
 
 
See accompanying notes to consolidated financial statements.
1

 
 

ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
(unaudited)
 
           
   
Three Months Ended March 31,
   
2012
   
2011
 
 Revenue:
           
 Rental income
  $ 893,637     $ 2,674,362  
 Finance income
    529,705       772,612  
 Income from investments in joint ventures
    -       37,706  
 Net gain (loss) on sales of equipment
    43,212       (2,960 )
 Interest and other income
    140       13,797  
                 
 Total revenue
    1,466,694       3,495,517  
                 
 Expenses:
               
 General and administrative
    220,049       202,110  
 Repair and maintenance
    769,696       -  
 Interest
    594,331       843,066  
 Depreciation and amortization
    472,765       1,319,181  
 Impairment loss
    -       11,279,403  
 Other operating expenses
    123,281       -  
                 
 Total expenses
    2,180,122       13,643,760  
                 
 Net loss
  $ (713,428 )   $ (10,148,243 )
                 
 Net loss allocable to:
               
 Additional Members
  $ (706,294 )   $ (10,046,761 )
 Manager
    (7,134 )     (101,482 )
                 
    $ (713,428 )   $ (10,148,243 )
                 
 Comprehensive loss:
               
 Net loss
  $ (713,428 )   $ (10,148,243 )
 Change in valuation of  interest rate swap contracts
    108,636       246,452  
                 
 Total comprehensive loss
  $ (604,792 )   $ (9,901,791 )
                 
 Weighted average number of additional shares
               
 of limited liability company interests outstanding
    97,955       97,955  
                 
 Net loss per weighted average additional share
               
  of limited liability company interests outstanding
  $ (7.21 )   $ (102.57 )
 
 
 
See accompanying notes to consolidated financial statements.
2

 
 
 
ICON Income Fund Nine, LLC
 
(A Delaware Limited Liability Company)
 
 
   
 
   
 
         
 
   
 
 
   
Additional Member
Shares
   
Additional
Members
   
Manager
   
Accumulated Other
Comprehensive
Loss
   
Total
Members'
Equity
 
Balance, December 31, 2011
    97,955     $ 14,855,432     $ (719,549 )   $ (533,320 )   $ 13,602,563  
                                         
 Net loss
    -       (706,294 )     (7,134 )     -       (713,428 )
 Change in valuation of interest rate swap contracts
    -       -       -       108,636       108,636  
 Cash distributions
    -       (700,385 )     (7,075 )     -       (707,460 )
                                         
 Balance, March 31, 2012 (unaudited)
    97,955     $ 13,448,753     $ (733,758 )   $ (424,684 )   $ 12,290,311  
   
 
See accompanying notes to consolidated financial statements.
3

 
 
 
ICON Income Fund Nine, LLC
 
(A Delaware Limited Liability Company)
 
 
(unaudited)
 
 
 
 
 
   
Three Months Ended March 31,
 
   
2012
   
2011
 
 Cash flows from operating activities:
           
 Net loss
  $ (713,428 )   $ (10,148,243 )
 Adjustments to reconcile net loss to net cash
               
 provided by operating activities:
               
 Rental income paid directly to lenders by lessees
    -       (1,993,000 )
 Finance income
    (529,705 )     (772,612 )
 Income from investments in joint ventures
    -       (37,706 )
 Net (gain) loss on sale of equipment
    (43,212 )     2,960  
 Depreciation and amortization
    472,765       1,319,181  
 Interest expense on non-recourse financing paid directly to lenders by lessees
    189,013       661,918  
 Interest expense from amortization of debt financing costs
    6,214       31,009  
 Impairment loss
    -       11,279,403  
 Paid-in-kind interest
    399,096       -  
 Changes in operating assets and liabilities:
               
 Collection of finance leases
    538,854       446,190  
 Other assets, net
    (374,749 )     -  
 Deferred revenue
    -       (611,808 )
 Accrued expenses and other current liabilities
    501,757       1,023,844  
                 
 Net cash provided by operating activities
    446,605       1,201,136  
                 
 Cash flows from investing activities:
               
 Proceeds from sales of equipment
    67,075       7,770  
                 
 Net cash provided by investing activities
    67,075       7,770  
                 
 Cash flows from financing activities:
               
 Cash distributions to members
    (707,460 )     (404,030 )
                 
 Net cash used in financing activities
    (707,460 )     (404,030 )
                 
 Net (decrease) increase in cash and cash equivalents
    (193,780 )     804,876  
                 
 Cash and cash equivalents, beginning of the period
    1,715,911       929,220  
                 
 Cash and cash equivalents, end of the period
  $ 1,522,131     $ 1,734,096  
                 
   
 
 
See accompanying notes to consolidated financial statements.
4

 

     
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
       
   
Three Months Ended March 31,
 
   
2012
   
2011
 
 Supplemental disclosure of non-cash investing and financing activities:
           
 Principal and interest on non-recourse long-term debt paid directly to lenders by lessees
  $ 1,541,646     $ 3,627,310  
   Reclassification of leased equipment at cost to equipment held for sale   $ 86,012      $  -  
      Proceeds from sale of leased equipment not yet collected            $ 192,959      $ -  
   
 
See accompanying notes to consolidated financial statements.
5

ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
 
 
 
      The accompanying consolidated financial statements of ICON Income Fund Nine, 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 of the LLC, ICON Capital Corp., a Delaware corporation (the “Manager”), all adjustments, which are of a normal and recurring nature, 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, 2011. The results for the interim period are not necessarily indicative of the results for the full year.

      The consolidated financial statements include the accounts of the LLC and its majority-owned subsidiaries and other controlled entities. All intercompany accounts and transactions have been eliminated in consolidation.

Recent Accounting Pronouncements

      In May 2011, the FASB issued ASU No 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs (“ASU 2011-04”), which amends its guidance related to fair value measurements in order to align the definition of fair value measurements and the related disclosure requirements between US GAAP and International Financial Reporting Standards. The new guidance also changes certain existing fair value measurement principles and disclosure requirements. The adoption of ASU 2011-04 became effective for the LLC on January 1, 2012. The adoption of these additional disclosures did not have a material impact 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 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 became effective for the LLC on January 1, 2012. The adoption of this guidance did not have a material impact on the LLC’s consolidated financial statements, as it only requires a change in the format of presentation.


(2)
Net Investment in Finance Leases

 
Net investment in finance leases consisted of the following:

 
 
6

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
 

(2)
Net Investment in Finance Leases - continued
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
 
       
 Minimum rents receivable
  $ 12,482,999     $ 14,563,500  
 Unearned income
    (1,653,961 )     (2,183,666 )
                 
Net investment in finance leases
    10,829,038       12,379,834  
                 
Less:  Current portion of net investment in finance leases
    6,907,910       6,619,888  
                 
                 
Net investment in finance leases, less current portion
  $ 3,921,128     $ 5,759,946  
 
Credit Quality of Direct Finance Leases and Allowance for Credit Losses

The Manager weighs all credit decisions on a combination of external credit ratings as well as internal credit evaluations of all potential borrowers. A potential borrower’s credit is analyzed using those credit ratings as well as the potential borrower’s financial statements and other financial data deemed relevant.

As the LLC’s direct finance leases are limited in number, the LLC is able to estimate the allowance for credit losses based on a detailed analysis of each lease as opposed to using portfolio based metrics and allowance for credit losses. Leases are analyzed quarterly and categorized as either performing or non-performing based on payment history. If a lease becomes non-performing due to a borrower’s missed scheduled payments or failed financial covenants, the Manager analyzes if a reserve should be established or if the lease should be restructured. Material events would be specifically disclosed in the discussion of each lease held.
 
(3)
Leased Equipment at Cost

 
  Leased equipment at cost consisted of the following:

   
March 31,
   
December 31,
 
   
2012
   
2011
 
 Aircraft
  $ 48,453,180     $ 48,453,180  
 Manufacturing, telecommunications and computer equipment
    -       1,845,594  
      48,453,180       50,298,774  
                 
 Less: Accumulated depreciation
    14,733,848       15,807,492  
                 
    $ 33,719,332     $ 34,491,282  

      Depreciation expense was $469,116 and $1,314,314 for the three months ended March 31, 2012 and 2011, respectively.

 Aircraft

      The LLC owns an Airbus A340-313X aircraft (“Aircraft 128”). The previous lease of Aircraft 128 expired on November 30, 2011. In connection with preparing the aircraft for re-lease, for the three months ended March 31, 2012, the LLC incurred approximately $770,000 in repairs and maintenance expense, which consisted primarily of cabin preparation and mechanical and airworthiness services. On February 16, 2012, Aircraft 128 was delivered to the new lessee, Aerolineas Argentinas (“AA”), at which time a new six-year lease commenced. The LLC has an outstanding, non-recourse debt balance related to the aircraft.  At the expiration of the aircraft’s previous lease, a balloon payment of $22,750,000 was due, but was not made,  as the aircraft was still being readied for delivery to AA. As the loan was expected to be refinanced, the lender agreed, and continues to agree, not to exercise any of its remedial rights under the loan agreement. The debt continues to accrue interest, which will be added to the outstanding principal balance of the debt until such time as the debt is refinanced.


 
7

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)

 
(3)
Leased Equipment at Cost - continued

 Marine Vessel

   As a result of negotiations to remarket certain vessels in 2011, the Manager reviewed the LLC’s investment in ICON Samar LLC and determined that the net book value of the vessel under charter, the Samar Spirit, exceeded the fair value.  As a result, the LLC recognized an impairment charge of approximately $11,279,000 during the quarter ended March 31, 2011.  On August 19, 2011, the LLC sold the Samar Spirit for approximately $8,200,000 and on August 24, 2011, the LLC satisfied the remaining third-party debt of approximately $2,500,000.  No gain or loss was recorded as a result of this transaction.
 
Ground Transportation Equipment

During the three months ended March 31, 2012, the LLC sold thirty-three Great Dane Trailers for approximately $260,000 and recorded a gain on sale of approximately $43,000. At March 31, 2012, all remaining Great Dane Trailers were classified as equipment held for sale.

 (4)
Investment in Joint Venture

      The LLC, through a joint venture with ICON Income Fund Eight B L.P. (“Fund Eight B”), has a 50% ownership interest in an Airbus A340-313X aircraft (“Aircraft 126”). The previous lease of  Aircraft 126 expired on June 30, 2011. On January 3, 2012, Aircraft 126 was delivered to the new lessee, AA, at which time a new six-year lease commenced. The joint venture has an outstanding, non-recourse debt balance related to the aircraft.  At the expiration of the aircraft’s previous lease, a balloon payment of $32,677,000 was due, but was not made, as the aircraft was still being readied for delivery to AA. As the loan was expected to be refinanced, the lender agreed, and continues to agree, not to exercise any of its remedial rights under the loan agreement. The debt continues to accrue interest, which will be added to the outstanding principal balance of the debt until such time as the debt is refinanced.

      At December 31, 2011 and March 31, 2012, the LLC’s carrying value in the joint venture was $0. For the three months ended March 31, 2012, the LLC did not record its share of the joint venture’s losses since the LLC has no obligation to fund future losses. Information as to the results of operations of ICON Aircraft 126 LLC is summarized below:
 
             
    March 31,   
   
2012
   
2011
 
             
 Revenue
  $ 1,152,301     $ 1,592,143  
 Net (loss) income
  $ (642,571 )   $ 85,056  
 LLC's share of net (loss) income
  $ (321,286 )   $ 42,528  
                 
(5)
      Non-Recourse Long-Term Debt

      The LLC acquired three car and truck carrying vessels (“Wilhelmsen Vessels”) on bareboat charter to Wilhelmsen Lines Shipowning AS (“Wilhelmsen”) for cash and non-recourse long-term debt. The non-recourse long-term debt requires quarterly payments ranging from $450,000 to $800,000. The lender has a security interest in the Wilhelmsen Vessels and an assignment of the rental payments under the charters. The LLC paid approximately $630,000 in costs associated with the non-recourse long-term debt refinancing, which were capitalized as debt financing costs and are being amortized as interest expense over the term of the non-recourse long-term debt. For the period ended March 31, 2012, approximately $7,800 was recorded to interest expense related to the amortization of the non-recourse long-term debt financing costs.
 
 
 
8

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)

 
(5)
      Non-Recourse Long-Term Debt - continued
 
      The LLC entered into three interest rate swap contracts with Fortis Bank NV/SA, New York Branch in order to fix the variable interest rates at 7.02% per year on the non-recourse long-term debt and minimize the risk of interest rate fluctuation.
 
(6)
 
     Derivative Financial Instruments

   The LLC may enter into derivative transactions for purposes of hedging specific financial exposures, including changes in interest rates of its non-recourse long-term debt. The LLC enters into these instruments only for hedging underlying exposures. The LLC does not hold or issue derivative financial instruments for purposes other than hedging. Certain derivatives may not meet the criteria to be designated as accounting hedges, even though the LLC believes that these are effective economic hedges.

   The LLC accounts for derivative financial instruments in accordance with the accounting pronouncements that established accounting and reporting standards for derivative financial instruments. These accounting pronouncements require the LLC to recognize all derivatives as either assets or liabilities on the consolidated balance sheets and measure those instruments at fair value. The LLC recognizes the fair value of all derivatives as either assets or liabilities on the consolidated balance sheets and changes in the fair value of such instruments are recognized immediately in earnings unless certain accounting criteria established by the accounting pronouncements are met. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in the fair value or expected cash flows of the underlying exposure at both the inception of the hedging relationship and on an ongoing basis and include an evaluation of the counterparty risk and the impact, if any, on the effectiveness of the derivative. If these criteria are met, which the LLC must document and assess at inception and on an ongoing basis, the LLC recognizes the changes in fair value of such instruments in accumulated other comprehensive income (loss) (“AOCI”), a component of equity on the consolidated balance sheets. For the periods presented, these changes in fair value are the sole component of AOCI. 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 business cash flows with the underlying debt service. Interest rate swaps designated as cash flow hedges involve the receipt of floating-rate interest payments from a counterparty in exchange for the LLC making fixed interest rate payments over the life of the agreements without exchange of the underlying notional amount.

      At March 31, 2012, the LLC had three floating-to-fixed interest rate swaps relating to the non-recourse debt associated with the three Wilhelmsen Vessels on bareboat charter to Wilhelmsen that were designated as cash flow hedges with an aggregate notional amount of $9,450,000.  These interest rate swaps mature on September 23, 2013.
 
 
 
9

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)


(6)
 
    Derivative Financial Instruments - continued

      For these derivatives, the LLC reports 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 and comprehensive loss as the impact of the hedged transaction. At March 31, 2012, the total unrealized loss recorded to AOCI related to the change in fair value of these interest rate swaps was approximately $425,000.

      During the twelve months ending March 31, 2013, the LLC estimates that approximately $371,176 will be reclassified from AOCI to interest expense.

      The table below presents the fair value of the LLC’s derivative financial instruments and classification within the LLC’s consolidated balance sheet as of March 31, 2012:
 
Derivatives designated as hedging instruments:
Liability Derivative
 
 
 Balance Sheet Location
 
Fair Value
 
 Interest rate swaps
 Interest rate swap contracts
  $ 437,931  
 
The table below presents the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statement of operations and comprehensive loss for the year ended March 31, 2012:
 
Three Months Ended March 31, 2012
                 
Derivatives
 
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
                       
 Interest rate swaps
  $ (24,902 )
 Interest expense
  $ (133,538 )
 Gain (loss) on financial instruments
  $ -  
                             
     
      The table below presents the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statement of operations and comprehensive loss for the three months ended March 31, 2011:

Three Months Ended March 31, 2011
                 
Derivatives
 
Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
 
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
                       
 Interest rate swaps
  $ (18,347 )
 Interest expense
  $ (264,799 )
 Gain (loss) on financial instruments
  $ -  
         
 
 
 
10

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
 
               
(6) 
Derivative Financial Instruments - continued

 Derivative Risks

      The LLC manages exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that the LLC has with any individual bank and through the use of minimum credit quality standards for all counterparties. The LLC does not require collateral or other security in relation to derivative financial instruments. Since it is the LLC’s policy to enter into derivative contracts with banks of internationally acknowledged standing, the LLC considers the counterparty risk to be remote.

      As of March 31, 2012, the fair value of the derivatives in a liability position was $437,931. In the event that the LLC would be required to settle its obligations under the agreements as of March 31, 2012, the termination value would be $448,118.
 
(7) 
  Fair Value Measurements

      Assets and liabilities carried at fair value are 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 March 31, 2012:

                         
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities:
                       
                         
Derivative liabilities
  $ -     $ 437,931     $ -     $ 437,931  
   
      The LLC’s derivative contracts are valued using models based on readily observable market parameters for all substantial terms of the LLC’s derivative contracts and are classified within Level 2.  As permitted by the accounting pronouncements, the LLC uses market prices and pricing models for fair value measurements of its derivative instruments.  The fair value of the derivative liabilities was recorded in interest rate swap contracts within the consolidated balance sheets.

 
 
11

 
ICON Income Fund Nine, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
 
      
(7)
Fair Value Measurements - continued
 
 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 for the period ended March 31, 2011:
 
         
   
December 31, 2011
                         
   
Level 1
   
Level 2
   
Level 3
   
Total Impairment Loss
 
Leased equipment at cost
  $ -     $ -     $ -     $ 19,359,061     $ 11,279,403  
           
      Certain non-financial assets are valued based on unobservable market parameters and are classified within Level 3. As permitted by the accounting pronouncements, the LLC uses 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, and the recorded value of recourse debt approximate fair value due to their short-term maturities and variable interest rates.  The estimated fair value of the LLC’s non-recourse long-term debt was based on the discounted value of future cash flows expected to be paid on the loan based on recent transactions of this type.
 
   
March 31, 2012
 
   
Carrying Amount
   
Fair Value
(Level 3)
 
 Fixed rate non-recourse long-term debt
  $ 23,278,816     $ 23,278,816  
   
         
(8)  Commitments and Contingencies
 
The LLC 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 may be shared with these third parties based on specific formulas. At December 31, 2011 and March 31, 2012, no amounts were accrued related to these agreements.

      As a condition of the lease with AA for Aircraft 128, the LLC agreed to perform an upgrade of the aircraft during 2012.  During the upgrade period, the aircraft will be out of service for approximately one month.  The upgrade is estimated to cost approximately $2,700,000 which will be in addition to any normal repair and maintenance expense incurred.  Aircraft 126, which is owned by a joint venture between the LLC and Fund Eight B, agreed to perform the same upgrade to Aircraft 126 at a comparable cost.

      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.
 
 
 
12

 
 

 
      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, 2011.  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 Income Fund Nine, 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

      We operate as an equipment leasing program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily acquired equipment subject to lease, purchased equipment and leased it to third-party end users or financed equipment for third parties, provided equipment and other financing and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration. Some of our equipment leases were acquired for cash and provide current cash flow, which we refer to as “income” leases. For the other equipment leases, we financed the majority of the purchase price through borrowings from third parties. We refer to these leases as “growth” leases. These growth leases generate little or no current cash flow because substantially all of the rental payments received from the lessee are used to service the indebtedness associated with acquiring or financing the lease. For these leases, we anticipated that the future value of the leased equipment would exceed our cash portion of the purchase price.

      Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, under the terms of our amended and restated operating agreement (our “LLC Agreement”). We completed our operating period on April 30, 2008 and entered our liquidation period effective May 1, 2008. During our liquidation period, we are selling and will continue to sell our assets in the ordinary course of business. As we sell our assets, both rental income and finance income will decrease over time, as will expenses related to our assets, such as depreciation and amortization expense. Additionally, interest expense should decrease as we reach the expiration of leases that were financed and the debt is repaid to the lenders. As leased equipment is sold, we will incur gains or losses on these sales. We will continue to liquidate our assets during this period and we expect to see a reduction in revenue and expenses accordingly.
 
 
 
13

 

 
Recent Significant Transactions

We engaged in the following significant transaction since December 31, 2011:
 
 Aircraft

      The previous lease of Aircraft 128 expired on November 30, 2011. On February 16, 2012, Aircraft 128 was delivered to AA, at which time a new six-year lease commenced.
 
Recent Accounting Pronouncements
See Note 1 to the consolidated financial statements.
 
Results of Operations for the Three Months Ended March 31, 2012 (the “2012 Quarter”) and 2011 (the “2011 Quarter”)
 
Revenue for the 2012 Quarter and the 2011 Quarter is summarized as follows:
 
   
Three Months Ended March 31,
       
   
2012
   
2011
   
Change
 
Rental income
  $ 893,637     $ 2,674,362     $ (1,780,725 )
Finance income
    529,705       772,612       (242,907 )
Income from investments in joint ventures
    -       37,706       (37,706 )
Net gain (loss) on sales of equipment
    43,212       (2,960 )     46,172  
Interest and other income
    140       13,797       (13,657 )
                         
Total revenue
  $ 1,466,694     $ 3,495,517     $ (2,028,823 )
    
       Total revenue for the 2012 Quarter decreased $2,028,823, or 58.0%, as compared to the 2011 Quarter.  The decrease in rental income was primarily due to the expiration of the Samar Spirit bareboat charter on June 24, 2011 and the expiration of the lease of Aircraft 128 on November 30, 2011. The decrease in finance income was primarily due to the normal lifecycle of our bareboat charters with Wilhelmsen, which experience scheduled, declining revenue over the course of the bareboat charters.
 
Expenses for the 2012 Quarter and the 2011 Quarter are summarized as follows:

   
Three Months Ended March 31,
       
   
2012
   
2011
   
Change
 
General and administrative
  $ 220,049     $ 202,110     $ 17,939  
Repair and maintenance
    769,696       -       769,696  
Interest
    594,331       843,066       (248,735 )
Depreciation and amortization
    472,765       1,319,181       (846,416 )
Impairment loss
    -       11,279,403       (11,279,403 )
Other operating expenses
    123,281       -       123,281  
                         
Total expenses
  $ 2,180,122     $ 13,643,760     $ (11,463,638 )
 
      Total expenses for the 2012 Quarter decreased $11,463,638, or 84.0%, as compared to the 2011 Quarter. The decrease in total expenses was primarily due to no 2012 Quarter expenses having the same magnitude as the non-cash impairment charge of approximately $11,300,000 taken in the 2011 Quarter related to the Samar Spirit, and a decrease in depreciation expense resulting from the sale of Samar Spirit during 2011. The decrease was offset by an increase in repair and maintenance expense incurred during the 2012 Quarter to prepare Aircraft 128 for delivery to AA.
 
 
 
14

 

Net (Loss) Income

      As a result of the foregoing factors, net loss for the 2012 Quarter and the 2011 Quarter was $713,428 and $10,148,243, respectively. Net loss per weighted average additional share of limited liability company interests outstanding for the 2012 Quarter and the 2011 Quarter was $7.21 and $102.57, respectively.

Financial Condition
 
This section discusses the major balance sheet variances at March 31, 2012 compared to December 31, 2011.

Total Assets

      Total assets decreased $1,924,709 from $49,054,675 at December 31, 2011 to $47,129,966 at March 31, 2012. The decrease was primarily due to the continued depreciation of our leased equipment at cost and distributions paid to our members.

Total Liabilities

      Total liabilities decreased $612,457, from $35,452,112 at December 31, 2011 to $34,839,655 at March 31, 2012. The decrease was primarily due to repayments of our non-recourse debt and a decrease in the liability position of our interest rate swap contracts.

Members’ Equity

      Members’ equity decreased $1,312,252, from $13,602,563 at December 31, 2011 to $12,290,311 at March 31, 2012. The decrease was primarily due to the results of our operations and distributions paid to our members.
 
Liquidity and Capital Resources

      At March 31, 2012 and December 31, 2011, we had cash and cash equivalents of $1,522,131 and $1,715,911, respectively. During our liquidation period, our main sources of cash have been and continue to be proceeds from sales of equipment as well as from collections of rents on non-leveraged direct finance leases, and our main use of cash has been and will continue to be distributions to our members.

Operating Activities
 
      Sources of cash from operating activities decreased $754,531, from $1,201,136 in the 2011 Quarter to $446,605 in the 2012 Quarter. The decrease was primarily a result of the expiration of the bareboat charter on the Samar Spirit during 2011.
 
Investing Activities
 
      Sources of cash from investing activities increased $59,305, from $7,770 in the 2011 Quarter to $67,075 in the 2012 Quarter. The increase was due to proceeds from the sale of equipment during the 2012 Quarter.

Financing Activities

      Uses of cash in financing activities increased $303,430, from $404,030 in the 2011 Quarter to $707,460  in the 2012 Quarter due to increased cash distributions paid to our members.
 
 
 
15

 

 
Financings and Borrowings

Non-Recourse Long-Term Debt

      We had non-recourse debt obligations at March 31, 2012 and December 31, 2011 of $32,728,816 and $33,679,720, respectively.  Our non-recourse debt obligations consist of notes payable in which the lender has a security interest in the underlying equipment and an assignment of the rental payments under the lease, in which case the lender is being paid directly by the lessee.   If the lessee were to default on the underlying lease, the equipment would be returned to the lender in extinguishment of the non-recourse long-term debt.  Our existing leases have funded, and we anticipate will continue to fund, these obligations.
 
   At March 31, 2012, we had $9,093,732 of current assets and $31,239,655 of current liabilities, which resulted in a $22,145,923 working capital deficit. Of the $31,239,655 of current liabilities, $29,128,816 consisted of payments due on our non-recourse debt. The primary reason for this deficit is a balloon payment of approximately $22,750,000, which was due in November of 2011 related to the non-recourse financing of Aircraft 128. Our Manager is currently negotiating with the lender to refinance this debt. While there can be no assurances that the refinancing will be successful, the Manager believes that the completion of the refinancing is probable. Should the negotiations with the current lender be unsuccessful, the Manager’s options include selling the aircraft or returning the aircraft to the lender in full satisfaction of the debt. Our Manager believes that the cash we currently have available, the cash being generated from our remaining leases, and the proceeds we expect to receive from equipment and asset sales will be sufficient to continue our operations 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’ businesses that are beyond our control.
 
Distributions

      We, at our Manager’s discretion, paid monthly distributions to each of our additional members beginning the first month after each such member was admitted through the end of our operating period, which was on April 30, 2008. During the liquidation period, we plan to make distributions in accordance with the terms of our LLC Agreement. We expect that distributions made during the liquidation period will vary, depending on the timing of the sale of our assets and our receipt of rental and other income from our investments. We paid distributions to additional members and our Manager of $700,385 and $7,075, respectively, during the 2012 Quarter.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

      At March 31, 2012, we had non-recourse debt obligations in which the lender has a security interest in the equipment and assignment of the rental payments under the lease.  In such cases, the lender is being paid directly by the lessee. If the lessee defaults on the lease, the equipment would be returned to the lender in satisfaction of the non-recourse debt. At March 31, 2012, our outstanding non-recourse debt obligations were $32,728,816.

      As a condition of the lease with AA for Aircraft 128, we agreed to perform an upgrade of the aircraft during 2012.  During the upgrade, the aircraft will be out of service for approximately one month.  The upgrade is estimated to cost approximately $2,700,000.  Aircraft 126, which is owned by a joint venture between the LLC and Fund Eight B, agreed to perform the same upgrade to Aircraft 126 at a comparable cost.
 
      At the time we acquire or divest our interest in an equipment lease or other financing transaction, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. Our 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 taken as a whole.

Off-Balance Sheet Transactions

None.
 
 
 
16

 

 

      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, 2011.


Evaluation of disclosure controls and procedures

      In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended March 31, 2012, 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 March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
 
17

 

 


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, 2011.


We did not sell or redeem any shares of limited liability company interests during the three months ended March 31, 2012.


Not applicable.


Not applicable.


Not applicable.
 
 
 
18

 
 
 
 
3.1
Certificate of Formation of Registrant (Incorporated by reference to Exhibit 4.3 to Pre-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on October 12, 2001 (File No. 333-67638)).
   
4.1
Amended and Restated Operating Agreement of Registrant (Incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 20, 2001 (File No. 333-67638)).
   
4.2
 
Amendment to the Registrant’s Amended and Restated Operating Agreement (Incorporated by reference to Exhibit 4.1.1 to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on August 19, 2002 (File No. 333-67638)).
   
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 August 31, 2005).
   
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 10.1 to Registrant’s Current Report on Form 8-K dated December 26, 2006).
   
10.3
Loan Modification Agreement, dated as of June 20, 2007, 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 Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, filed November 6, 2009).
   
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 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 20, 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 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 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 13, 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.
 
 
 
19

 

 

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 Income Fund Nine, LLC
(Registrant)

By: ICON Capital Corp.
      (Manager of the Registrant)

May 11, 2012
 
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
Managing Director
(Principal Accounting and Financial Officer)
 
20