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
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March 31, 2012
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
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to
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Commission_File_Number_
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000-51916
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ICON Leasing Fund Eleven, LLC
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(Exact name of registrant as specified in its charter)
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Delaware
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20-1979428
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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3 Park Avenue, 36th Floor, New York, New York
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10016
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(Address of principal executive offices)
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(Zip code)
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(212) 418-4700
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(Registrant's telephone number, including area code)
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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 362,656.
ICON Leasing Fund Eleven, LLC
Table of Contents
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Item 1. Consolidated Financial Statements
ICON Leasing Fund Eleven, LLC
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(A Delaware Limited Liability Company)
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||||||||
Assets
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March 31,
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||||||||
2012
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December 31,
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|||||||
(unaudited)
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2011
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|||||||
Current assets:
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||||||||
Cash and cash equivalents
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$ | 5,453,420 | $ | 6,824,356 | ||||
Current portion of net investment in notes receivable
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6,742,986 | 6,083,528 | ||||||
Current portion of net investment in finance leases
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4,642,034 | 4,469,552 | ||||||
Asset held for sale, net
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117,145 | 117,145 | ||||||
Other current assets
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1,430,538 | 257,785 | ||||||
Total current assets
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18,386,123 | 17,752,366 | ||||||
Non-current assets:
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Net investment in notes receivable, less current portion
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9,685,027 | 11,009,979 | ||||||
Net investment in mortgage note receivable
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12,858,804 | 12,878,079 | ||||||
Net investment in finance leases, less current portion
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8,289,940 | 8,985,464 | ||||||
Vessel
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6,885,829 | - | ||||||
Leased equipment at cost (less accumulated depreciation of
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||||||||
$5,978,501 and $19,249,518, respectively)
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6,993,330 | 16,300,588 | ||||||
Investment in joint ventures
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1,019,399 | 1,038,678 | ||||||
Deferred income taxes, net
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993,247 | 894,439 | ||||||
Other non-current assets
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3,613,784 | 3,372,774 | ||||||
Total non-current assets
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50,339,360 | 54,480,001 | ||||||
Total Assets
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$ | 68,725,483 | $ | 72,232,367 | ||||
Liabilities and Equity
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Current liabilities:
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Current portion of long-term debt
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$ | 9,486,977 | $ | 3,544,240 | ||||
Derivative financial instrument
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52,602 | 176,956 | ||||||
Due to Manager and affiliates
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227,187 | 79,794 | ||||||
Accrued expenses and other liabilities
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2,625,749 | 1,394,684 | ||||||
Total current liabilities
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12,392,515 | 5,195,674 | ||||||
Non-current liabilities:
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Long-term debt, less current portion
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- | 7,311,110 | ||||||
Total Liabilities
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12,392,515 | 12,506,784 | ||||||
Commitments and contingencies (Note 13)
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Equity:
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Members' Equity:
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Additional members
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56,426,160 | 59,901,721 | ||||||
Manager
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(2,658,003 | ) | (2,622,895 | ) | ||||
Accumulated other comprehensive loss
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(350,729 | ) | (656,141 | ) | ||||
Total Members' Equity
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53,417,428 | 56,622,685 | ||||||
Noncontrolling Interests
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2,915,540 | 3,102,898 | ||||||
Total Equity
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56,332,968 | 59,725,583 | ||||||
Total Liabilities and Equity
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$ | 68,725,483 | $ | 72,232,367 |
See accompanying notes to consolidated financial statements.
1
(A Delaware Limited Liability Company)
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(unaudited)
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Three Months Ended March 31,
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||||||||
2012
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2011
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Revenue:
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Finance income
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$ | 1,717,115 | $ | 1,765,832 | ||||
Rental income
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2,004,965 | 4,979,284 | ||||||
Income from investment in joint ventures
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155,867 | 1,832 | ||||||
Net gain on sales of leased equipment
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- | 11,411,941 | ||||||
Total revenue
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3,877,947 | 18,158,889 | ||||||
Expenses:
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Administrative expense reimbursements - Manager
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183,094 | 258,009 | ||||||
General and administrative
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521,388 | 768,696 | ||||||
Vessel operating expense
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212,022 | - | ||||||
Depreciation
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1,723,713 | 2,249,442 | ||||||
Impairment loss
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697,715 | - | ||||||
Interest
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225,336 | 694,176 | ||||||
Gain on derivative financial instruments
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(47,405 | ) | (154,401 | ) | ||||
Total expenses
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3,515,863 | 3,815,922 | ||||||
Income before income taxes
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362,084 | 14,342,967 | ||||||
(Provision) benefit for income taxes
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(62,348 | ) | 1,886 | |||||
Net income
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299,736 | 14,344,853 | ||||||
Less: Net income attributable to noncontrolling interests
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147,214 | 509,971 | ||||||
Net income attributable to Fund Eleven
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$ | 152,522 | $ | 13,834,882 | ||||
Net income attributable to Fund Eleven allocable to:
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Additional Members
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$ | 150,997 | $ | 13,696,533 | ||||
Manager
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1,525 | 138,349 | ||||||
$ | 152,522 | $ | 13,834,882 | |||||
Comprehensive income:
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Net income
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$ | 299,736 | $ | 14,344,853 | ||||
Change in valuation of derivative financial instruments
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120,246 | 317,715 | ||||||
Currency translation adjustment
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185,166 | 309,859 | ||||||
Total comprehensive income
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605,148 | 14,972,427 | ||||||
Less: Comprehensive income attributable to noncontrolling interests
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147,214 | 509,971 | ||||||
Comprehensive income attributable to Fund Eleven
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$ | 457,934 | $ | 14,462,456 | ||||
Weighted average number of additional shares of
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limited liability company interests outstanding
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362,656 | 362,656 | ||||||
Net income attributable to Fund Eleven per weighted
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average additional share of limited liability company
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interests outstanding
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$ | 0.42 | $ | 37.77 |
See accompanying notes to consolidated financial statements.
2
ICON Leasing Fund Eleven, LLC
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(A Delaware Limited Liability Company)
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Members' Equity
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Additional Shares of
Limited Liability |
Additional
Members |
Manager
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Accumulated Other
Comprehensive Income (Loss) |
Total
Members' Equity |
Noncontrolling
Interests |
Total
Equity |
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Balance, December 31, 2011
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362,656 | $ | 59,901,721 | $ | (2,622,895 | ) | $ | (656,141 | ) | $ | 56,622,685 | $ | 3,102,898 | $ | 59,725,583 | |||||||||||||
Net income
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- | 150,997 | 1,525 | - | 152,522 | 147,214 | 299,736 | |||||||||||||||||||||
Change in valuation of derivative financial instrument
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- | - | - | 120,246 | 120,246 | - | 120,246 | |||||||||||||||||||||
Currency translation adjustment
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- | - | - | 185,166 | 185,166 | - | 185,166 | |||||||||||||||||||||
Cash distributions
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- | (3,626,558 | ) | (36,633 | ) | - | (3,663,191 | ) | (334,572 | ) | (3,997,763 | ) | ||||||||||||||||
Balance, March 31, 2012 (unaudited)
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362,656 | $ | 56,426,160 | $ | (2,658,003 | ) | $ | (350,729 | ) | $ | 53,417,428 | $ | 2,915,540 | $ | 56,332,968 | |||||||||||||
See accompanying notes to consolidated financial statements.
3
(A Delaware Limited Liability Company)
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(unaudited)
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Three Months Ended March 31,
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2012
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2011
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Cash flows from operating activities:
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Net income
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$ | 299,736 | $ | 14,344,853 | ||||
Adjustments to reconcile net income to net cash
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provided by operating activities:
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Finance income
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(245,027 | ) | (375,864 | ) | ||||
Rental income paid directly to lenders by lessees
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(1,530,000 | ) | (2,958,000 | ) | ||||
Income from investment in joint ventures
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(155,867 | ) | (1,832 | ) | ||||
Net gain on sales of leased equipment
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- | (11,411,941 | ) | |||||
Depreciation
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1,723,713 | 2,249,442 | ||||||
Impairment loss
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697,715 | - | ||||||
Interest expense paid directly to lenders by lessees
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161,627 | 550,058 | ||||||
Interest expense from amortization of debt financing costs
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53,391 | 29,481 | ||||||
Gain on derivative financial instruments
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(47,405 | ) | (154,401 | ) | ||||
Deferred tax provision (benefit)
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(98,808 | ) | (1,886 | ) | ||||
Changes in operating assets and liabilities:
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Collection of finance leases
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962,145 | 1,244,185 | ||||||
Other assets
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(1,430,628 | ) | (667,322 | ) | ||||
Accrued expenses and other liabilities
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1,231,062 | (1,006,318 | ) | |||||
Due to Manager and affiliates
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147,393 | (87,132 | ) | |||||
Distributions from joint ventures
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158,235 | 10,117 | ||||||
Net cash provided by operating activities
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1,927,282 | 1,763,440 | ||||||
Cash flows from investing activities:
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Proceeds from sales of leased equipment
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- | 24,911,474 | ||||||
Principal repayments on notes receivable
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674,229 | 751,451 | ||||||
Distributions received from joint ventures in excess of profits
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11,532 | 393,817 | ||||||
Other assets
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- | (9,239 | ) | |||||
Net cash provided by investing activities
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685,761 | 26,047,503 | ||||||
Cash flows from financing activities:
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Repayments of long-term debt
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- | (16,635,200 | ) | |||||
Repayments of revolving line of credit, recourse
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- | (1,450,000 | ) | |||||
Cash distributions to members
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(3,663,191 | ) | (3,663,190 | ) | ||||
Distributions to noncontrolling interests
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(334,572 | ) | (1,266,075 | ) | ||||
Net cash used in financing activities
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(3,997,763 | ) | (23,014,465 | ) | ||||
Effects of exchange rates on cash and cash equivalents
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13,784 | 6,896 | ||||||
Net (decrease) increase in cash and cash equivalents
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(1,370,936 | ) | 4,803,374 | |||||
Cash and cash equivalents, beginning of period
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6,824,356 | 4,621,512 | ||||||
Cash and cash equivalents, end of period
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$ | 5,453,420 | $ | 9,424,886 |
See accompanying notes to consolidated financial statements.
4
ICON Leasing Fund Eleven, LLC
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(A Delaware Limited Liability Company)
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Consolidated Statements of Cash Flows
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(unaudited)
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Three Months Ended March 31,
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||||||||
2012
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2011
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Supplemental disclosure of cash flow information:
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Cash paid during the period for interest
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$ | - | $ | 159,468 | ||||
Supplemental disclosure of non-cash investing and financing activities:
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Principal and interest paid on long term debt directly to lenders by lessees
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$ | 1,530,000 | $ | 2,958,000 | ||||
Exchange of noncontrolling interest in a joint venture for notes receivable
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$ | - | $ | 3,588,928 |
See accompanying notes to consolidated financial statements.
5
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
The accompanying consolidated financial statements of ICON Leasing Fund Eleven, 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, 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.
Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current presentations.
Credit Quality of Notes Receivable, Mortgage Note Receivable and Direct Finance Leases 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 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 notes receivable, mortgage note receivable and direct finance leases (each, a “Note” and, collectively, the “Notes”) are limited in number, the LLC is able to estimate the allowance for credit losses based on a detailed analysis of each Note as opposed to using portfolio based metrics and allowance for credit losses. Notes are analyzed quarterly and categorized as either performing or non-performing 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 if a reserve should be established or if the Note should be restructured. Material events would be
specifically disclosed in the discussion of each Note held.
As of March 31, 2012 and December 31, 2011, the Manager determined that no allowance for credit losses was required.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. 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 effect on
the LLC’s consolidated financial statements.
6
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(1)
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Basis of Presentation - continued
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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 required a change in the format of
presentation.
(2)
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Net Investment in Notes Receivable
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Net investment in notes receivable consisted of the following:
March 31,
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December 31,
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|||||||
2012
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2011
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Principal outstanding
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$ | 16,440,000 | $ | 17,114,229 | ||||
Initial direct costs
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2,418 | 4,180 | ||||||
Deferred fees
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(14,405 | ) | (24,902 | ) | ||||
Net investment in notes receivable
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16,428,013 | 17,093,507 | ||||||
Less: Current portion of net investment in notes receivable
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6,742,986 | 6,083,528 | ||||||
Net investment in notes receivable, less current portion
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$ | 9,685,027 | $ | 11,009,979 |
On May 2, 2012, Northern Capital Associates XIV, L.P. satisfied its obligations in connection with certain notes receivable by making a payment of approximately $1,015,000.
(3)
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Net Investment in Mortgage Note Receivable
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Net investment in mortgage note receivable consisted of the following:
March 31,
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December 31,
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|||||||
2012
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2011
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|||||||
Principal outstanding
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$ | 12,722,006 | $ | 12,722,006 | ||||
Initial direct costs
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136,798 | 156,073 | ||||||
Net investment in mortgage note receivable
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$ | 12,858,804 | $ | 12,878,079 |
7
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(4)
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Net Investment in Finance Leases
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Net investment in finance leases consisted of the following:
March 31,
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December 31,
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|||||||
2012
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2011
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Minimum rents receivable
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$ | 11,519,902 | $ | 12,354,929 | ||||
Estimated residual values
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3,105,847 | 3,067,787 | ||||||
Initial direct costs
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79,691 | 100,635 | ||||||
Unearned income
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(1,773,466 | ) | (2,068,335 | ) | ||||
Net investment in finance leases
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12,931,974 | 13,455,016 | ||||||
Less: Current portion of net investment in finance leases
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4,642,034 | 4,469,552 | ||||||
Net investment in finance leases, less current portion
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$ | 8,289,940 | $ | 8,985,464 |
(5)
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Leased Equipment at Cost
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Leased equipment at cost consisted of the following:
March 31,
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December 31,
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|||||||
2012
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2011
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Manufacturing equipment
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$ | 12,971,831 | $ | 12,971,831 | ||||
Marine - Aframax product tankers
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- | 22,578,275 | ||||||
12,971,831 | 35,550,106 | |||||||
Less: Accumulated depreciation
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5,978,501 | 19,249,518 | ||||||
$ | 6,993,330 | $ | 16,300,588 | |||||
Depreciation expense was $1,723,713 and $2,249,442 for the three months ended March 31, 2012 and 2011, respectively.
On May 3, 2012, the LLC sold the Aframax product tanker (the “Senang Spirit”) for approximately $7,173,000, and as a result, recorded an impairment loss of $697,715 for the three months ended March 31, 2012. The remaining carrying value of the Senang Spirit was reclassified to the line item, Vessel, in the accompanying consolidated balance sheet at March 31, 2012.
(6)
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Long-Term Debt
|
As of March 31, 2012 and December 31, 2011, the LLC had an outstanding long-term debt obligation secured by the Senang Spirit of $9,486,977 and $10,855,350, respectively. On May 3, 2012, in connection with the sale of the Senang Spirit, the LLC paid off the then outstanding debt balance at an agreed upon discount of approximately $7,347,000.
8
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(7)
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Revolving Line of Credit
|
On May 10, 2011, the LLC entered into an agreement with California Bank & Trust (“CB&T”) for a revolving line of credit of up to $5,000,000 (the “Facility”), which is secured by all of the LLC’s assets not subject to a first priority lien. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, on the present value of the future receivables under certain loans and lease agreements in which the LLC have a beneficial interest. As of March 31, 2012, the LLC had $5,000,000 available under the Facility.
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 all interest rates on advances under the Facility are subject to an interest rate floor of 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 March 31, 2012, there were no obligations outstanding under the Facility.
At March 31, 2012, the LLC was in compliance with all covenants related to the Facility.
Subsequent to March 31, 2012, the LLC borrowed $5,000,000 from the Facility and on May 3, 2012, the LLC repaid the outstanding balance on the Facility.
(8)
|
Foreign Income Taxes
|
Certain of the LLC’s direct and indirect wholly-owned subsidiaries are unlimited liability companies and are taxed as corporations under the laws of Canada. Other indirect wholly-owned subsidiaries are taxed as corporations in Barbados. For the three months ended March 31, 2012, the provision for income taxes was comprised of $161,156 in current taxes and a benefit of $98,808 in deferred taxes. The LLC’s Canadian subsidiaries, under the laws of Canada, are subject to income tax examination for the 2007 through 2010 periods. The LLC has not identified any material uncertain tax positions as of March 31, 2012.
As of March 31, 2012, the LLC has a net deferred tax asset of approximately $993,000 relating to (i) net operating losses that are currently expected to expire starting in 2027 through 2028 and (ii) a net unrealized capital loss on foreign currency for a note receivable. The deferred tax asset relating to the net operating losses has a full valuation allowance. The remaining components of the deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and for income tax purposes.
9
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(9)
|
Transactions with Related Parties
|
Expenses paid or accrued by the LLC to the Manager or its affiliates were as follows:
Three Months Ended March 31,
|
||||||||||||
Entity
|
Capacity
|
Description
|
2012
|
2011
|
||||||||
ICON Capital Corp.
|
Manager
|
Administrative expense reimbursements (1)
|
$ | 183,094 | $ | 258,009 | ||||||
(1) Charged directly to operations. |
The Manager suspended the collection of a portion of its management fees in the amount of $201,923 and $312,976 during the three months ended March 31, 2012 and 2011, respectively.
At March 31, 2012 and December 31, 2011, the LLC had a payable of $227,187 and $79,794 due to the Manager and its affiliates primarily relating to administrative expense reimbursements.
(10)
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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 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 established criteria to qualify as 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. Changes in the fair value of such instruments are recognized immediately in earnings unless certain criteria 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 long-term 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 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.
Designated Derivative
As of March 31, 2012, the LLC had one floating-to-fixed interest rate swap that is designated and qualifying as a cash flow hedge with an aggregate notional amount of
$9,486,977.
10
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
For this derivative, the LLC records the gain or loss from the effective portion of changes in the fair value of the derivative designated and qualifying as a cash flow hedge 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 income as the impact of the hedged transaction. During the three months ended March 31, 2012, the LLC recorded $47,405 of hedge ineffectiveness in earnings.
During the twelve months ending March 31, 2013, the LLC estimates that approximately $24,085 will be reclassified from AOCI to interest expense.
The table below presents the fair value of the LLC’s derivative financial instrument as well as its classification within the LLC’s consolidated balance sheets as of March 31, 2012 and December 31, 2011:
Liability Derivatives
|
||||||||
March 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
Balance Sheet Location
|
Fair Value
|
Fair Value
|
||||||
Derivative designated as hedging instrument:
|
||||||||
Interest rate swap
|
Derivative financial instrument | $ | 52,602 | $ | 176,956 |
The table below presents the effect of the LLC’s derivative financial instrument designated as a cash flow hedging instrument on the consolidated statement of operations and comprehensive income for the three months ended March 31, 2012:
Three Months Ended March 31, 2012
Derivative
|
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 swap
|
$ | (3,521 | ) |
Interest expense
|
$ | (123,767 | ) |
Gain on derivative financial instrument
|
$ | 47,405 |
11
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
The table below presents the effect of the LLC’s derivative financial instruments designated as a cash flow hedging instruments on the consolidated statement of operations and comprehensive income for the three months ended March 31, 2011:
Three Months Ended March 31, 2011
Derivatives
|
Amount of Gain (Loss) Recognized in
AOCI on Derivatives (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 Derivatives (Ineffective Portion
and Amounts Excluded from Effectiveness Testing)
|
Gain (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amounts Excluded from Effectiveness Testing)
|
|||||||||
Interest rate swaps
|
$ | (29,086 | ) |
Interest expense
|
$ | (346,801 | ) |
Gain on derivative financial instruments
|
$ | 157,141 | ||||
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 March 31, 2012 and December 31, 2011, the fair value of the derivative instrument in a liability position was $52,602 and $176,956, respectively. In the event that the LLC would be required to settle its obligations under the agreement as of March 31, 2012, the termination value would be $52,602.
(11)
|
Accumulated Other Comprehensive Loss
|
AOCI includes accumulated losses on a derivative financial instrument and accumulated losses on a currency translation adjustment of $24,085 and $326,644, respectively, at March 31, 2012 and accumulated losses on a derivative financial instrument and accumulated losses on a currency translation adjustment of $144,331 and $511,810, respectively, at December 31, 2011.
(12)
|
Fair Value Measurements
|
The LLC accounts for the fair value of financial instruments in accordance with the accounting pronouncements, which require assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:
·
|
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
|
·
|
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
|
·
|
Level 3: Pricing inputs that are generally unobservable and cannot be corroborated by market data.
|
12
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(12)
|
Fair Value Measurements - continued
|
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 financial instrument
|
$ | - | $ | 52,602 | $ | - | $ | 52,602 |
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, 2011:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Liabilities:
|
||||||||||||||||
Derivative financial instrument
|
$ | - | $ | 176,956 | $ | - | $ | 176,956 |
The LLC’s derivative financial instrument, includes an interest rate swap that is valued using models based on readily observable market parameters 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 financial instrument. The fair value of the derivative financial instrument was recorded in derivative financial instrument 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.
13
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(12)
|
Fair Value Measurements - continued
|
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 March 31, 2012:
March 31,
2012
|
Level 1
|
Level 2
|
Level 3
|
Impairment Loss for the Three Months Ended March 31, 2012
|
||||||||||||||||
Vessel
|
$ | 6,885,829 | $ | - | $ | 6,885,829 | $ | - | $ | 697,715 |
The LLC’s non-financial assets are valued using models based on readily observable or unobservable market parameters and are classified within Level 2. As permitted by the accounting pronouncements, the LLC uses projected cash flows 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 carrying value of the LLC’s long-term debt approximates its fair value due to its floating interest rates. The estimated fair value of the LLC’s net investment in mortgage note receivable and fixed rate notes receivable was based on the discounted value of
future cash flows related to the loans based on recent transactions of this type. Principal outstanding on mortgage note receivable was discounted at the rate of 20.63% per year. Principal outstanding on fixed rate notes receivable was discounted at rates ranging between 13.47% and 15% per year.
March 31, 2012
|
||||||||
Carrying Value
|
Fair Value
(Level 3)
|
|||||||
Principal outstanding on mortgage note receivable
|
$ | 16,281,670 | $ | 16,493,439 | ||||
Principal outstanding on fixed rate notes receivable
|
$ | 16,428,013 | $ | 16,657,618 |
(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.
14
ICON Leasing Fund Eleven, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(13)
|
Commitments and Contingencies - continued
|
From November 2010 through March 2011, the LLC, through its wholly-owned subsidiaries, sold four container vessels previously on bareboat charter to ZIM Integrated Shipping Services, Ltd. (“ZIM”) to unaffiliated third parties. During June 2011, the LLC received notices from ZIM claiming it was allegedly owed various amounts for unpaid seller’s credits in the aggregate amount of approximately $7,300,000. The Manager believes any obligation to repay the seller’s credits was extinguished when ZIM defaulted by failing to fulfill certain of its obligations under the bareboat charters. On August 8, 2011, the Manager agreed to a three party arbitration panel to hear such
claims. On April 19, 2012 ZIM filed arbitration claim submissions. The Manager believes that ZIM’s claims are frivolous and intends to vigorously contest these claims. At this time, the LLC is unable to predict the outcome of the arbitration or loss therefrom, if any.
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 the lease payments 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.
Subsequent to the filing of the backruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. Such equipment was subsequently sold as part of the Illinois State Court proceeding. On March 7, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against ICON EAR that granted dismissal of ICON EAR’s claims to the proceeds resulting from the sale of certain EAR equipment. ICON EAR is appealing this decision. At this time, the LLC is unable to predict the outcome of this action.
15
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 Leasing Fund Eleven, 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 and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily acquire equipment subject to lease, purchase equipment and lease it to third parties, provide equipment and other financing and, to a lesser degree, acquire ownership rights to items of leased equipment at lease expiration.
We are currently in our operating period. During our operating period, additional investments will continue to be made with the cash generated from our investments to the extent that the cash is not used for expenses, reserves and distributions to members. The investment in additional equipment leases and other financing transactions in this manner is called “reinvestment.” We anticipate investing in equipment leases, other financing transactions, and residual ownership rights in leased equipment from time to time until April 2015. The operating period has been extended for three years, with the
intention of having a very limited liquidation period thereafter, if any.
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 limited liability company agreement.
16
Recent Significant Transactions
We engaged in the following significant transactions since December 31, 2011:
Dispositions and Impairment
·
|
As a result of the sale of the Senang Spirit on May 2, 2012, we determined that its net book value exceeded its fair value. As a result, we recorded an impairment loss of approximately $698,000 during the three months ended March 31, 2012. In connection with the sale, we paid off the then outstanding debt balance at an agreed upon discount of approximately $7,347,000.
|
·
|
On May 2, 2012, Northern Capital Associates XIV, L.P. satisfied its obligations in connection with certain notes receivable by making a payment of approximately $1,015,000.
|
Recent Accounting Pronouncements
There are no recent accounting pronouncements that had a significant impact on our consolidated financial statements as of March 31, 2012. See note 1 to the consolidated financial statements for a discussion of recent accounting pronouncements.
17
Results of Operations for the Three Months Ended March 31, 2012 (the “2012 Quarter”) and 2011 (the “2011 Quarter”)
Financing Transactions
The following tables set forth the types of assets securing the financing transactions in our portfolio at March 31, 2012 and December 31, 2011:
March 31, 2012
|
December 31, 2011
|
|||||||||||||||
Asset Type
|
Net Carrying
Value |
Percentage of Total
Net Carrying Value |
Net Carrying
Value |
Percentage of Total
Net Carrying Value |
||||||||||||
Lumber processing equipment
|
$ | 21,416,690 | 51% | $ | 22,000,334 | 51% | ||||||||||
Marine - Container Vessels
|
15,422,800 | 37% | 15,824,443 | 36% | ||||||||||||
Auto parts manufacturing equipment
|
4,374,088 | 10% | 4,332,761 | 10% | ||||||||||||
Point of sale equipment
|
1,005,213 | 2% | 1,269,064 | 3% | ||||||||||||
$ | 42,218,791 | 100% | $ | 43,426,602 | 100% | |||||||||||
The total net carrying value of our financing transactions includes the balances of our net investment in notes receivable, finance leases and the mortgage note receivable, which are included in our consolidated balance sheets.
During the 2012 Quarter and the 2011 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
|
2012 Quarter
|
2011 Quarter
|
|||||||
Teal Jones Group
|
Lumber processing equipment
|
55% | 52% | |||||||
ZIM Integrated Shipping Services Ltd.
|
Marine - Container Vessels
|
35% | 29% | |||||||
Heuliez S.A.
|
Auto parts manufacturing equipment
|
9% | 11% | |||||||
99% | 92% | |||||||||
Finance income from our net investment in notes receivable, net investment in finance leases and net investment in mortgage note receivable are included in finance income in our consolidated statements of operations and comprehensive income.
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.
18
Operating Lease Transactions
The following tables set forth the types of equipment subject to operating leases in our portfolio at March 31, 2012 and December 31, 2011:
March 31, 2012
|
December 31, 2011
|
||||||||||||||||
Asset Type
|
Net Carrying
Value |
Percentage of Total
Net Carrying Value |
Net Carrying
Value |
Percentage of Total
Net Carrying Value |
|||||||||||||
Plastic processing and printing equipment
|
$ | 6,993,330 | 100% | $ | 7,391,602 | 45% | |||||||||||
Marine - Product Tanker
|
- | (1) | - | 8,908,986 | 55% | ||||||||||||
$ | 6,993,330 | 100% | $ | 16,300,588 | 100% | ||||||||||||
(1) At March 31, 2012, the Marine - Product Tanker has been reclassified to the line item, Vessel, in our consolidated balance sheet.
|
|||||||||||||||||
The net carrying value of our operating lease transactions includes the balance of our leased equipment at cost and a vessel, which is included in our consolidated balance sheets.
During the 2012 Quarter and the 2011 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
|
2012 Quarter
|
2011 Quarter
|
|||||||
Teekay Corporation
|
Marine - Product Tankers
|
63% | 62% | |||||||
Pliant Corporation
|
Plastic processing and printing equipment
|
37% | 15% | |||||||
ZIM Integrated Shipping Services Ltd.
|
Marine - Container Vessels
|
- | 12% | |||||||
Global Crossing Telecommunications, Inc.
|
Telecommunications equipment
|
- | 10% | |||||||
100% | 99% | |||||||||
Rental income from our operating leases is included in rental income in the consolidated statements of operations and comprehensive income.
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 2012 Quarter and the 2011 Quarter is summarized as follows:
2012
|
2011
|
Change
|
||||||||||
Finance income
|
$ | 1,717,115 | $ | 1,765,832 | $ | (48,717 | ) | |||||
Rental income
|
2,004,965 | 4,979,284 | (2,974,319 | ) | ||||||||
Income from investments in joint ventures
|
155,867 | 1,832 | 154,035 | |||||||||
Net gain on sales of leased equipment
|
- | 11,411,941 | (11,411,941 | ) | ||||||||
Total revenue
|
$ | 3,877,947 | $ | 18,158,889 | $ | (14,280,942 | ) |
Total revenue for the 2012 Quarter decreased $14,280,942, or 78.6%, as compared to the 2011 Quarter. The decrease in total revenue was primarily due to the impact of the sale of ICON European Container II, LLC during the 2011 Quarter and a decrease in rental income as a result of the sale of the Aframax product tanker, Sebarok Spirit (the “Sebarok Spirit”) during 2011.
19
Expenses for the 2012 Quarter and the 2011 Quarter are summarized as follows:
2012
|
2011
|
Change
|
||||||||||
Administrative expense reimbursements - Manager
|
$ | 183,094 | $ | 258,009 | $ | (74,915 | ) | |||||
General and administrative
|
521,388 | 768,696 | (247,308 | ) | ||||||||
Vessel operating expense
|
212,022 | - | 212,022 | |||||||||
Depreciation
|
1,723,713 | 2,249,442 | (525,729 | ) | ||||||||
Impairment loss
|
697,715 | - | 697,715 | |||||||||
Interest
|
225,336 | 694,176 | (468,840 | ) | ||||||||
Gain on derivative financial instrument
|
(47,405 | ) | (154,401 | ) | 106,996 | |||||||
Total expenses
|
$ | 3,515,863 | $ | 3,815,922 | $ | (300,059 | ) | |||||
Total expenses for the 2012 Quarter decreased $300,059, or 7.9%, as compared to the 2011 Quarter. The decrease in total expenses was primarily due to decreases in (i) depreciation expense, (ii) interest expense, and (iii) general and administrative expense, all of which are a result of the sale of the Sebarok Spirit during 2011. The decrease in total expenses was partially offset by an increase in the impairment loss and vessel operating expense recorded as a result of our operating the Senang Spirit during the 2012 Quarter.
(Provision) Benefit for Income Taxes
Certain of our direct and indirect wholly-owned subsidiaries are unlimited liability companies and are taxed as corporations under the laws of Canada. Other indirect wholly-owned subsidiaries are taxed as corporations in Barbados. For the 2012 Quarter, the provision for income taxes was comprised of a provision of $161,156 in current taxes and a benefit of $98,808 in deferred taxes.
Noncontrolling Interests
Net income attributable to noncontrolling interests for the 2012 Quarter decreased $362,757 as compared to the 2011 Quarter due to the sale of our investment in ICON Global Crossing V, LLC during 2011.
Net Income Attributable to Fund Eleven
As a result of the foregoing factors, net income attributable to us for the 2012 Quarter and the 2011 Quarter was $152,522 and $13,834,882, respectively. Net income attributable to us per weighted average additional share of limited liability company interests (“Share”) outstanding for the 2012 Quarter and the 2011 Quarter was $0.42 and $37.77, respectively.
20
Financial Condition
This section discusses the major balance sheet variances at March 31, 2012 compared to December 31, 2011.
Total Assets
Total assets decreased $3,506,884, from $72,232,367 at December 31, 2011 to $68,725,483 at March 31, 2012. The decrease was primarily due to the cash distributions to our members, the continuing depreciation of our leased equipment at cost and the impairment of the Senang Spirit. The decrease is offset by an increase in other current assets related to our purchase of fuel bunkers for the Senang Spirit.
Current Assets
Current assets increased $633,757, from $17,752,366 at December 31, 2011 to $18,386,123 at March 31, 2012. The increase was primarily due to the increase in the current portion of our net investment in notes receivable, the increase in other current assets and other sources of cash from operations. The increase in current assets is offset by a decrease in cash resulting from distributions to our members.
Total Liabilities
Total liabilities decreased $114,269, from $12,506,784 at December 31, 2011 to $12,392,515 at March 31, 2012. The decrease was primarily due to scheduled repayments of our long-term debt during the 2012 Quarter. This decrease is offset by an increase in other liabilities for the accrual of fuel bunkers related to the Senang Spirit.
Current Liabilities
Current liabilities increased $7,196,841, from $5,195,674 at December 31, 2011 to $12,392,515 at March 31, 2012. The increase was primarily due to the reclassification of the debt related to the Senang Spirit to current liabilities and an increase in the accrual for fuel bunkers related to the Senang Spirit.
Equity
Equity decreased $3,392,615, from $59,725,583 at December 31, 2011 to $56,332,968 at March 31, 2012. The decrease was primarily due to cash distributions to our members and noncontrolling interests. The decrease was offset by the net income recorded in the 2012 Quarter.
Liquidity and Capital Resources
Summary
At March 31, 2012 and December 31, 2011, we had cash and cash equivalents of $5,453,420 and $6,824,356. During our operating period, our main source of cash has been from financing activities and our main use of cash has been in (i) investments in leasing and other financing transactions, (ii) distributions to our members and noncontrolling interests and (iii) repayment of our long-term debt. 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, pay distributions to our members and to the extent that expenses exceed cash flows from operations and the proceeds from
the sale of our investments.
We anticipate that our liquidity requirements for the remaining life of the fund will be financed by the expected results of our operations, as well as cash received from our investments at maturity.
21
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.
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 under our revolving line of credit. Our revolving line of credit is discussed in further detail in “Financings and Borrowings” below.
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 March 31, 2012, the cash reserve was $1,825,993.
Cash Flows
Operating Activities
Cash provided by operating activities increased $163,842, from $1,763,440 in the 2011 Quarter to $1,927,282 in the 2012 Quarter. Net cash provided by operating activities during the 2012 Quarter increased primarily as a result of receiving more distributions from investment in joint ventures during the 2012 Quarter than we received in the 2011 Quarter.
Investing Activities
Cash provided by investing activities decreased $25,361,742, from $26,047,503 in the 2011 Quarter to $685,761 in the 2012 Quarter. This decrease was primarily due to the impact of proceeds we received from sales of leased equipment in the 2011 Quarter. There were no proceeds received from the sales of leased equipment in the 2012 Quarter.
Financing Activities
Cash used in financing activities decreased $19,016,702, from $23,014,465 in the 2011 Quarter to $3,997,763 in the 2012 Quarter. This decrease was primarily due to a decrease in principal repayments of our long-term debt and a decrease in our repayments of our revolving line of credit.
Financings and Borrowings
Long-Term Debt
We had a long-term debt obligation at March 31, 2012 of $9,486,977, which was classified as a current liability. This debt obligation consists of a note payable related to the Senang Spirit. On May 3, 2012, we paid off the then outstanding debt balance for approximately $7,347,000.
Distributions
We, at our Manager’s discretion, paid monthly distributions to our members and noncontrolling interests starting with the first month after each member’s admission and the commencement of our joint venture operations. We paid distributions to our Manager, additional members and noncontrolling interests of $36,633, $3,626,558 and $334,572, respectively, for the 2012 Quarter. We do not expect to make any distributions during our extended operating period until toward the end of such period.
22
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At the time we acquire or divest of 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 our consolidated financial condition taken as a whole.
From November 2010 through March 2011, we, through our wholly-owned subsidiaries, sold four container vessels previously on bareboat charter to ZIM to unaffiliated third parties. During June 2011, we received notices from ZIM claiming it was allegedly owed various amounts for unpaid seller’s credits in the aggregate amount of approximately $7,300,000. Our Manager believes any obligation to repay the seller’s credits was extinguished when ZIM defaulted by failing to fulfill certain of its obligations under the bareboat charters. On August 8, 2011, our Manager agreed to a three party arbitration panel to hear such claims. On April 19, 2012 ZIM filed arbitration claim
submissions. Our Manager believes that ZIM’s claims are frivolous and intends to vigorously contest these claims. At this time, we are unable to predict the outcome of the arbitration or loss therefrom, if any.
On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against ICON EAR seeking the recovery of the lease payments 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, our Manager is unable to predict the outcome of this action or loss therefrom, if any.
Subsequent to the filing of the backruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. Such equipment was subsequently sold as part of the Illinois State Court proceeding. On March 7, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against ICON EAR that granted dismissal of ICON EAR’s claims to the proceeds resulting from the sale of certain EAR equipment. ICON EAR is appealing this decision. At this time, we are unable to predict the outcome of this action.
Off-Balance Sheet Transactions
None.
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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.
In connection with the preparation of this Quarterly Report on Form 10-Q for the period 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.
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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 repurchase any Shares during the three months ended March 31, 2012.
Not applicable.
Not applicable.
Not applicable.
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3.1
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Certificate of Formation of Registrant (Incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the SEC on February 15, 2005 (File No. 333-121790)).
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4.1
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Amended and Restated Limited Liability Company Agreement of Registrant (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 filed with the SEC on June 29, 2006 (File No. 333-133730)).
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4.2
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Amendment No. 1 to the Amended and Restated Limited Liability Company Agreement of Registrant (Incorporated by reference to Exhibit 4.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006, filed August 23, 2006).
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10.1
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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).
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10.2
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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).
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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 16, 2009).
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10.4
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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 June 6, 2008).
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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 14, 2009).
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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).
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10.7 |
Commercial Loan Agreement, by and between California Bank & Trust and ICON Leasing Fund Eleven, 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).
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.
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31.3
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Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting and Financial Officer.
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32.1
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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.
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32.2
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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.
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32.3
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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.
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101.INS*
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XBRL Instance Document.
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101.SCH*
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XBRL Taxonomy Extension Schema Document.
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101.CAL*
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Taxonomy Extension Calculation Linkbase Document.
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101.LAB*
|
XBRL Taxonomy Extension Labels Linkbase Document.
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document.
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*
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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.
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26
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 Eleven, LLC
(Registrant)
By: ICON Capital Corp.
(Manager of the Registrant)
May 15, 2012
By: /s/ Michael A. Reisner
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Michael A. Reisner
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Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
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By: /s/ Mark Gatto
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Mark Gatto
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Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
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By: /s/ Keith S. Franz
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Keith S. Franz
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Managing Director
(Principal Accounting and Financial Officer)
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27
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