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EXCEL - IDEA: XBRL DOCUMENT - ICON INCOME FUND NINE LLCFinancial_Report.xls
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-1.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-2.htm
EX-31.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-3.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-2.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-1.htm
EX-32.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-3.htm

 

 

 



 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[x]         Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended

September 30, 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.

 þ  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).            

þ 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 o    

Accelerated filer 

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company þ 

        

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

o Yes    þ   No 

 

Number of outstanding shares of limited liability company interests of the registrant on November 8, 2012 is 97,955.

 

 


 

 

 

ICON Income Fund Nine, LLC

Table of Contents

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.  Consolidated Financial Statements

 

 

 

 

Consolidated Balance Sheets

1

 

 

 

Consolidated Statements of Operations and Comprehensive Loss

2

 

 

 

Consolidated Statements of Changes in Members’ Equity

3

 

 

 

Consolidated Statements of Cash Flows

4

 

 

 

Notes to Consolidated Financial Statements

5

 

 

 

Item 2. Manager’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

18

 

 

 

Item 4. Controls and Procedures

18

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1. Legal Proceedings

 

20

 

 

 

Item 1A. Risk Factors

 

20

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

20

 

 

 

Item 3. Defaults Upon Senior Securities

20

 

 

 

Item 4. Mine Safety Disclosures

20

 

 

 

Item 5. Other Information

 

20

 

 

 

Item 6. Exhibits

 

21

 

 

 

Signatures

 

23

 

 

 


 

 

 

 PART I – FINANCIAL INFORMATION

 

Item 1.  Consolidated Financial Statements

 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Consolidated Balance Sheets

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

 

 

2012 

 

2011 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Assets

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

3,739,048 

 

$

1,715,911 

 

Current portion of net investment in finance leases

 

7,522,093 

 

 

6,619,888 

 

Other current assets

 

418,847 

 

 

400,981 

 

 

 

 

 

Total current assets

 

11,679,988 

 

 

8,736,780 

Non-current assets:

 

 

 

 

 

 

Net investment in finance leases, less current portion

 

 - 

 

 

5,759,946 

 

Leased equipment at cost (less accumulated depreciation of

 

 

 

 

 

 

 

$16,951,702 and $15,807,492, respectively)

 

31,501,478 

 

 

34,491,282 

 

Other non-current assets

 

18,405 

 

 

66,667 

 

 

 

 

 

Total non-current assets

 

31,519,883 

 

 

40,317,895 

 

 

 

 

 

Total assets

$

43,199,871 

 

$

49,054,675 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Members' Equity

Current liabilities:

 

 

 

 

 

 

Current portion of non-recourse long-term debt

$

30,839,827 

 

$

28,279,720 

 

Derivative financial instruments

 

224,739 

 

 

548,169 

 

Maintenance reserves

 

1,274,721 

 

 

 

Security deposit

 

790,000 

 

 

790,000 

 

Accrued expenses and other current liabilities

 

308,060 

 

 

434,223 

 

 

 

 

 

Total current liabilities

 

33,437,347 

 

 

30,052,112 

Non-current liabilities:

 

 

 

 

 

 

Non-recourse long-term debt, less current portion

 

 - 

 

 

5,400,000 

 

 

 

 

 

Total liabilities

 

33,437,347 

 

 

35,452,112 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members' equity:

 

 

 

 

 

 

Additional members

 

10,741,610 

 

 

14,855,432 

 

Manager

 

(761,102)

 

 

(719,549)

 

Accumulated other comprehensive loss

 

(217,984)

 

 

(533,320)

 

 

 

 

 

Total members' equity

 

9,762,524 

 

 

13,602,563 

 

 

 

 

 

Total liabilities and members' equity

$

43,199,871 

 

$

49,054,675 

See accompanying notes to consolidated financial statements.

1

 

 


 

 

 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

September 30,

 

September 30,

 

 

 

 

 

 

2012 

 

2011 

 

2012 

 

2011 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

$

575,518 

 

$

2,380,408 

 

$

2,637,174 

 

$

8,163,028 

 

Finance income

 

391,822 

 

 

656,326 

 

 

1,383,759 

 

 

2,144,647 

 

Loss from investments in joint ventures

 

 - 

 

 

(405,898)

 

 

 

 

(337,990)

 

Net gain on sales of equipment

 

11,419 

 

 

 

 

60,615 

 

 

 

Interest and other income

 

322 

 

 

156 

 

 

1,405 

 

 

33,596 

 

 

 

Total revenue

 

979,081 

 

 

2,630,992 

 

 

4,082,953 

 

 

10,003,281 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative

 

163,063 

 

 

258,163 

 

 

619,655 

 

 

609,928 

 

Repairs and maintenance

 

(17,879)

 

 

 - 

 

 

800,697 

 

 

 - 

 

Vessel operating expenses

 

 - 

 

 

1,125,193 

 

 

 - 

 

 

1,212,735 

 

Interest

 

557,108 

 

 

801,951 

 

 

1,721,115 

 

 

2,396,125 

 

Depreciation and amortization

 

902,889 

 

 

898,832 

 

 

2,696,696 

 

 

3,412,303 

 

Impairment loss

 

 - 

 

 

 - 

 

 

 - 

 

 

22,314,396 

 

Other operating expenses

 

 - 

 

 

 - 

 

 

 126,887 

 

 

 - 

 

 

 

Total expenses

 

1,605,181 

 

 

3,084,139 

 

 

5,965,050 

 

 

29,945,487 

 

 

 

Net loss

$

(626,100)

 

$

(453,147)

 

$

(1,882,097)

 

$

(19,942,206)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss allocable to:

 

 

 

 

 

 

 

 

 

 

 

 

Additional members

$

(619,839)

 

$

(448,616)

 

$

(1,863,276)

 

$

(19,742,785)

 

Manager

 

(6,261)

 

 

(4,531)

 

 

(18,821)

 

 

(199,421)

 

 

$

(626,100)

 

$

(453,147)

 

$

(1,882,097)

 

$

(19,942,206)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(626,100)

 

$

(453,147)

 

$

(1,882,097)

 

$

(19,942,206)

 

Change in fair value of derivative financial instruments

 

93,042 

 

 

165,374 

 

 

315,336 

 

 

559,363 

 

 

 

Total comprehensive loss

$

(533,058)

 

$

(287,773)

 

$

(1,566,761)

 

$

(19,382,843)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of additional shares of

 

 

 

 

 

 

 

 

 

 

 

 

limited liability company interests outstanding

 

97,955 

 

 

97,955 

 

 

97,955 

 

 

97,955 

Net loss per weighted average additional share of

 

 

 

 

 

 

 

 

 

 

 

 

limited liability company interests outstanding

$

(6.33)

 

$

(4.58)

 

$

(19.02)

 

$

(201.55)

See accompanying notes to consolidated financial statements.

2

 

 


 

 

 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Changes in Members' Equity

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Limited Liability

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

Company

 

Additional

 

 

 

 

Comprehensive

 

Members'

 

 

 

 

 

Interests

 

Members

 

Manager

 

Loss

 

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 fair value of derivative financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

instruments

 

 

 

 

 

 

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 

Net loss

 

 

(537,143)

 

 

(5,426)

 

 

 

 

(542,569)

Change in fair value of derivative financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

instruments

 

 

 

 

 

 

113,658 

 

 

113,658 

Cash distributions

 

 

(849,766)

 

 

(8,583)

 

 

 

 

(858,349)

Balance, June 30, 2012 (unaudited)

97,955 

 

 

12,061,844 

 

 

(747,767)

 

 

(311,026)

 

 

11,003,051 

Net loss

 

 

(619,839)

 

 

(6,261)

 

 

 

 

(626,100)

Change in fair value of derivative financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

instruments

 

 

 

 

 

 

93,042 

 

 

93,042 

Cash distributions

 

 

(700,395)

 

 

(7,074)

 

 

 

 

(707,469)

Balance, September 30, 2012 (unaudited)

97,955 

 

$

10,741,610 

 

$

(761,102)

 

$

(217,984)

 

$

9,762,524 

See accompanying notes to consolidated financial statements.

3

 

 


 

 

 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

2012 

 

2011 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

$

(1,882,097)

 

$

(19,942,206)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

Rental income paid directly to lenders by lessees

 

 - 

 

 

(6,510,000)

 

 

Finance income

 

(1,383,759)

 

 

(2,144,647)

 

 

Loss from investments in joint ventures

 

 - 

 

 

337,990 

 

 

Net gain on sales of equipment

 

(60,615)

 

 

 - 

 

 

Depreciation and amortization

 

2,696,696 

 

 

3,412,303 

 

 

Interest expense on non-recourse financing paid directly to lenders by lessees

 

501,558 

 

 

2,036,155 

 

 

Interest expense from amortization of debt financing costs

 

20,563 

 

 

200,103 

 

 

Impairment loss

 

 - 

 

 

22,314,396 

 

 

Paid-in-kind interest

 

1,210,108 

 

 

 - 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Collection of finance leases

 

1,681,848 

 

 

1,398,591 

 

 

 

Other assets

 

(5,833)

 

 

(9,990)

 

 

 

Deferred revenue

 

 - 

 

 

(833,647)

 

 

 

Accrued expenses and other current liabilities

 

(75,724)

 

 

168,289 

 

 

 

 

 

Net cash provided by operating activities

 

2,702,745 

 

 

427,337 

Cash flows from investing activities:

 

 

 

 

 

 

Proceeds from sales of equipment

 

318,949 

 

 

8,461,003 

 

Distributions received from joint ventures in excess of profits

 

 - 

 

 

754,592 

 

 

 

 

 

Net cash provided by investing activities

 

318,949 

 

 

9,215,595 

Cash flows from financing activities:

 

 

 

 

 

 

Cash distributions to members

 

(2,273,278)

 

 

(1,364,632)

 

Repayment of non-recourse long-term debt

 

 - 

 

 

(2,500,000)

 

Maintenance reserves receipts

 

1,274,721 

 

 

 - 

 

 

 

 

 

Net cash used in financing activities

 

(998,557)

 

 

(3,864,632)

 

 

 

 

 

Net increase in cash and cash equivalents

 

2,023,137 

 

 

5,778,300 

Cash and cash equivalents, beginning of period

 

 1,715,911 

 

 

929,220 

Cash and cash equivalents, end of period

$

3,739,048 

 

$

6,707,520 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Principal and interest on non-recourse long-term debt paid directly to lenders by lessees

$

 4,559,652 

 

$

11,352,909 

See accompanying notes to consolidated financial statements.

4

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

(1)     Basis of Presentation and Consolidation  

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 (“U.S. 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 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 Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, 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 U.S. GAAP and International Financial Reporting Standards. The new pronouncement 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 and 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, which revises the manner in which companies present comprehensive income in their financial statements. The new pronouncement 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 and 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)     Net Investment in Finance Leases

Net investment in finance leases consisted of the following:

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

 

 

2012 

 

2011 

 

Minimum rents receivable

$

8,322,000 

 

$

14,563,500 

 

Unearned income

 

(799,907)

 

 

(2,183,666)

 

Net investment in finance leases

 

7,522,093 

 

 

12,379,834 

 

Less: current portion of net investment in finance leases

 

7,522,093 

 

 

6,619,888 

 

 

 

 

 

Net investment in finance leases, less current portion

$

 

$

5,759,946 

5

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

 

Credit Quality of Direct Finance Leases and Credit Loss Reserve

The Manager weighs all credit decisions based on a combination of external credit ratings as well as internal credit evaluations of all lessees. A lessee’s credit is analyzed using those credit ratings as well as the lessee’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 credit loss reserve based on a detailed analysis of each lease as opposed to using portfolio based metrics and credit loss reserve. 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 lessee’s missed scheduled payments or failed financial covenants, the Manager analyzes whether a credit loss reserve should be established or whether 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:

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

 

 

2012 

 

2011 

 

Aircraft

$

48,453,180 

 

$

48,453,180 

 

Manufacturing, telecommunications and computer equipment

 

 

 

1,845,594 

 

 

 

 

 

Leased equipment at cost

 

48,453,180 

 

 

50,298,774 

 

Less: accumulated depreciation

 

16,951,702 

 

 

15,807,492 

 

 

 

 

 

Leased equipment at cost, less accumulated depreciation

$

31,501,478 

 

$

34,491,282 

 

Depreciation expense was $900,068 and $2,686,969 for the three and nine months ended September 30, 2012, respectively.  Depreciation expense was $894,507 and $3,398,501 for the three and nine months ended September 30, 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 and nine months ended September 30, 2012, the LLC incurred approximately $(18,000) and $801,000, respectively, 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 long-term debt balance related to Aircraft 128.  At the expiration of Aircraft 128’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 is expected to be refinanced, the lender has agreed not to exercise any of its remedial rights under the loan agreement.  The debt continues to accrue interest, which is added to the outstanding principal balance of the debt until such time as the debt is refinanced.  At September 30, 2012, the outstanding non-recourse long-term debt balance related to Aircraft 128 was approximately $24,090,000.

 

In addition to lease payments, the lessee is required to fund maintenance reserves to ensure necessary funds are available for the repairs and maintenance of Aircraft 128.  Funds will be reimbursed to the lessee as expenses are

6

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

incurred by the lessee. At the expiration of the lease, the LLC will retain and recognize as revenue any remaining maintenance reserves.

 

   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, during the six months ended June 30, 2011, the LLC recognized non-cash impairment charges of approximately $21,914,000.  On June 24, 2011, the vessel was returned and classified as equipment held for sale.  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 nine months ended September 30, 2012, the LLC sold all remaining Great Dane Trailers for approximately $364,000 and recorded a net gain on sales of equipment of approximately $61,000.

 

(4)     Investment in Joint Venture

The LLC, through a joint venture with ICON Income Fund Eight B L.P. (“Fund Eight B”), an affiliate of the Manager, 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 Aircraft 126.  At the expiration of Aircraft 126’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 is expected to be refinanced, the lender has agreed not to exercise any of its remedial rights under the loan agreement.  The debt continues to accrue interest, which is added to the outstanding principal balance of the debt until such time as the debt is refinanced.

 

At September 30, 2012 and December 31, 2011, the LLC’s carrying value in the joint venture was $0.  For the three and nine months ended September 30, 2012, there was no loss from investments in joint ventures as the LLC’s investment has been reduced to zero and the LLC is no longer required to record its share of the joint venture’s losses.  Information as to the results of operations of ICON Aircraft 126 LLC is summarized below:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2012 

 

2011 

 

2012 

 

2011 

 

Revenue

$

473,998 

 

$

506,000 

 

$

2,396,548 

 

$

3,690,286 

 

Net loss

$

(578,387)

 

$

(811,798)

 

$

(1,576,306)

 

$

(666,347)

 

LLC’s share of net loss

$

(289,193)

 

$

(405,899)

 

$

(788,153)

 

$

(333,174)

 

(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

7

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

long-term debt requires quarterly payments ranging from $450,000 to $600,000.  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 was capitalized as debt financing costs and is being amortized as interest expense over the term of the non-recourse long-term debt. For the three and nine months ended September 30, 2012, approximately $6,000 and $21,000, respectively, was recorded to interest expense related to the amortization of the non-recourse long-term debt financing costs.  At September 30, 2012, the outstanding non-recourse long-term debt balance related to the Wilhelmsen Vessels was $6,750,000.

 

The LLC entered into three interest rate swap contracts with BNP Paribas in order to fix the variable interest rates on the non-recourse long-term debt related to the Wilhelmsen Vessels at 7.02% per year 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 on its non-recourse long-term debt.  The LLC enters into these instruments only for hedging underlying exposures.  The LLC does not hold or issue derivative financial instruments for purposes other than hedging.  Certain derivatives may not meet the established criteria to be designated as qualifying accounting hedges, even though the LLC believes that these are effective economic hedges.

 

The LLC recognizes all derivatives as either assets or liabilities on the consolidated balance sheets and measures 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 members’ 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 long-term debt.  The LLC’s strategy to accomplish these objectives 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-rate interest payments over the life of the agreements without exchange of the underlying notional amount.

 

 

 

8

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

Designated Derivatives

As of September 30, 2012, the LLC had three floating-to-fixed interest rate swaps relating to the non-recourse long-term debt associated with the three Wilhelmsen Vessels that were designated and qualifying as cash flow hedges with an aggregate notional amount of $6,750,000.  These interest rate swaps mature on September 23, 2013.

 

For these derivatives, the LLC records the gain or loss from the effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges in AOCI and such gain or loss is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings and within the same line item on the consolidated statements of operations and comprehensive loss as the impact of the hedged transaction.

 

The table below presents the fair value of the LLC’s derivative financial instruments as well as their classification within the LLC’s consolidated balance sheets as of September 30, 2012 and December 31, 2011:

 

 

Liability Derivatives

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

 

 

 

 

2012 

 

2011 

 

 

 

 

 

 

 

 Balance Sheet Location

 

Fair Value

 

Fair Value

 

 Derivatives designated as

 

 

 

 

 

 

 

 

 

hedging instruments:

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

Derivative financial instruments

 

$

224,739 

 

$

548,169 

9

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

 

The table below presents the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2012 and 2011:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss)

 

Gain (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized in

 

Recognized in

 

 

 

 

 

 

 

 

 

 

 

 

 

Income on

 

Income on

 

 

 

 

 

Amount of

 

Location of

 

 

 

 

Derivatives

 

Derivatives

 

 

 

 

 

Gain (Loss)

 

Gain (Loss)

 

Gain (Loss)

 

(Ineffective

 

(Ineffective

 

 

 

 

 

Recognized in

 

Reclassified

 

Reclassified

 

Portion and

 

Portion and

 

 

 

Derivatives

 

AOCI on

 

from AOCI into

 

from AOCI into

 

Amounts

 

Amounts

 

 

 

Designated as

 

Derivatives

 

Income

 

Income

 

Excluded from

 

Excluded from

 

 

 

Hedging

 

(Effective

 

(Effective

 

(Effective

 

Effectiveness

 

Effectiveness

 

Period

 

Instruments

 

Portion)

 

Portion)

 

Portion)

 

Testing)

 

Testing)

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

on derivative

 

 

 

 

September 30,

 

Interest rate

 

 

 

 

Interest

 

 

 

 

financial

 

 

 

 

2012 

 

swaps

 

$

(10,339)

 

expense

 

$

(103,381)

 

instruments

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

on derivative

 

 

 

 

September 30,

 

Interest rate

 

 

 

 

Interest

 

 

 

 

financial

 

 

 

 

2012 

 

swaps

 

$

(40,426)

 

expense

 

$

(355,762)

 

instruments

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

on derivative

 

 

 

 

September 30,

 

Interest rate

 

 

 

 

Interest

 

 

 

 

financial

 

 

 

 

2011 

 

swaps

 

$

(31,654)

 

expense

 

$

(197,028)

 

instruments

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Gain) Loss

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

 

on derivative

 

 

 

 

September 30,

 

Interest rate

 

 

 

 

Interest

 

 

 

 

financial

 

 

 

 

2011 

 

swaps

 

$

(133,762)

 

expense

 

$

(693,125)

 

instruments

 

$

 

At September 30, 2012, the total unrealized loss recorded to AOCI  related to the change in fair value of these interest rate swaps was approximately $218,000.  During the three and nine months ended September 30, 2012, the LLC recorded no hedge ineffectiveness in earnings.

     

During the 12 months ending September 30, 2013, the LLC estimates that approximately $222,000 will be reclassified from AOCI to interest expense.

 

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

10

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

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 only with banks of internationally acknowledged standing, the LLC considers the counterparty risk to be remote.

 

As of September 30, 2012 and December 31, 2011, the fair value of the derivatives in a liability position was $224,739 and $548,169, respectively.  In the event the LLC would be required to settle its obligations under the agreements as of September 30, 2012 and December 31, 2011, the termination value would be $228,604 and $562,571, respectively.

 

(7)     Fair Value Measurements

Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

 

·         Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

·         Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

·         Level 3: Pricing inputs that are generally unobservable and cannot be corroborated by market data.

 

Financial Assets and Liabilities Measured on a Recurring Basis

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.  The Manager’s assessment, on the LLC’s behalf, of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

 

The following table summarizes the valuation of the LLC’s material financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011:

 

 

 

 

 

September 30, 2012

 

December 31, 2011

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

instruments

$

 

$

224,739 

 

$

 

$

224,739 

 

$

 

$

548,169 

 

$

 

$

548,169 

 

The LLC’s derivative contracts are valued using models based on readily observable market inputs 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 financial instruments.  The fair value of the derivative financial instruments was recorded in derivative financial instruments within the consolidated balance sheets.

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The LLC is required, on a nonrecurring basis, to adjust the carrying value or provide valuation allowances for certain assets and liabilities using fair value measurements.  The LLC’s non-financial assets, such as leased equipment at cost, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.

 

11

 

 


 

ICON Income Fund Nine, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

 

 

The following table summarizes the valuation of the LLC’s material non-financial assets and liabilities measured at fair value on a nonrecurring basis, of which the fair value information presented is not current but rather as of the date the impairment was recorded, and the carrying value of the asset at December 31, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impairment Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for the

 

 

 

 

 

 

 

Carrying Value at

 

Fair Value at Impairment Date

 

Nine Months Ended

 

 

 

 

 

 

 

December 31, 2011

 

Level 1

 

Level 2

 

Level 3

 

September 30, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment held for sale

$

 

$

 

$

8,195,419 

 

$

 

$

21,914,320 

 

Other non-current assets

$

 

$

 

$

754,592 

 

$

 

$

400,076 

 

Certain non-financial assets are valued based on readily observable market inputs and are classified within Level 2.  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 the current accounting pronouncements do not require fair value disclosures of lease arrangements.  The estimated fair value of the LLC’s non-recourse long-term debt was based on the discounted value of future cash flows related to the loan based on recent transactions of this type.

 

 

 

 

 

 

 

 

 

September 30, 2012

 

 

 

 

 

 

 

 

Carrying

 

Fair Value

 

 

 

 

 

 

 

 

Value

 

(Level 3)

 

Principal outstanding on fixed rate non-recourse long-term debt

 

$

24,089,827 

 

$

24,089,827 

                         

 

(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 September 30, 2012 and December 31, 2011, 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, which has not yet commenced, Aircraft 128 will be out of service for approximately one month.  The upgrade is estimated to cost approximately $2,700,000.  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 of the LLC that may arise as a result of any such indemnification obligations will not have a material adverse effect on the consolidated financial condition or results of operations of the LLC taken as a whole.

12

 

 


 

 

 

Item 2.  Manager's Discussion and Analysis of Financial Condition and Results of Operations

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.  They 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 operated 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 our 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 the cash portion of the purchase price.

 

Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, under the terms of our 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 Transaction  

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

We do not believe any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our consolidated financial statements.

 

Results of Operations for the Three Months Ended September 30, 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

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

2012 

 

 

2011 

 

Change

 

Rental income

$

575,518 

 

$

2,380,408 

 

$

(1,804,890)

 

Finance income

 

391,822 

 

 

656,326 

 

 

(264,504)

 

Loss from investments in joint ventures

 

 

 

(405,898)

 

 

405,898 

 

Net gain on sales of equipment

 

11,419 

 

 

 

 

11,419 

 

Interest and other income

 

322 

 

 

156 

 

 

166 

 

 

 

 

 

 Total revenue

$

979,081 

 

$

2,630,992 

 

$

(1,651,911)

 

Total revenue for the 2012 Quarter decreased $1,651,911, or 62.8%, as compared to the 2011 Quarter.  The decrease in revenue was primarily due to the decrease in rental income due to the commencement of a new lease of Aircraft 128 on February 16, 2012 at a lower rental rate than the previous lease, which expired on November 30, 2011, and the termination of the lease of the Great Dane trailers.  The decrease in finance income was a result of the normal lifecycle of our bareboat charters with Wilhelmsen, which experience scheduled, declining revenue over the course of the bareboat charters.  There was no loss from investments in joint ventures in the 2012 Quarter as our investment has been reduced to zero and we are no longer required to record our share of the joint venture’s losses.

14

 

 


 

 

 

 

Expenses for the 2012 Quarter and the 2011 Quarter are summarized as follows:

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

2012 

 

2011 

 

Change

 

General and administrative

$

163,063 

 

$

258,163 

 

$

(95,100)

 

Repairs and maintenance

 

(17,879)

 

 

 

 

(17,879)

 

Vessel operating expenses

 

 

 

1,125,193 

 

 

(1,125,193)

 

Interest

 

557,108 

 

 

801,951 

 

 

(244,843)

 

Depreciation and amortization

 

902,889 

 

 

898,832 

 

 

4,057 

 

 

 

 

 

Total expenses

$

1,605,181 

 

$

3,084,139 

 

$

(1,478,958)

 

Total expenses for the 2012 Quarter decreased $1,478,958, or 48.0%, as compared to the 2011 Quarter.  The decrease in total expenses was primarily due to a decrease in vessel operating expenses, which resulted from the sale of the Samar Spirit during 2011.  Interest expense decreased due to the reduction in the average outstanding debt balance associated with the Wilhelmsen Vessels.  General and administrative expenses decreased due to lower legal fees incurred in the 2012 Quarter as compared to the 2011 Quarter related to the Samar Spirit and AA transactions.

 

Net Loss

As a result of the foregoing factors, net loss for the 2012 Quarter and the 2011 Quarter was $626,100 and $453,147, respectively. Net loss per weighted average additional share of limited liability company interests outstanding for the 2012 Quarter and the 2011 Quarter was $6.33 and $4.58, respectively.

 

Results of Operations for the Nine Months Ended September 30, 2012 (the “2012 Period”) and 2011 (the “2011 Period”)

 

Revenue for the 2012 Period and the 2011 Period is summarized as follows:

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

2012 

 

2011 

 

Change

 

Rental income

$

2,637,174 

 

$

8,163,028 

 

$

(5,525,854)

 

Finance income

 

1,383,759 

 

 

2,144,647 

 

 

(760,888)

 

Loss from investments in joint ventures

 

 

 

(337,990)

 

 

337,990 

 

Net gain on sales of equipment

 

60,615 

 

 

 

 

60,615 

 

Interest and other income

 

1,405 

 

 

33,596 

 

 

(32,191)

 

 

 

 

 

Total revenue

$

4,082,953 

 

$

10,003,281 

 

$

(5,920,328)

 

Total revenue for the 2012 Period decreased $5,920,328, or 59.2%, as compared to the 2011 Period.  The decrease in revenue was primarily from the decrease in rental income due to the expiration of the bareboat charter on the Samar Spirit on June 24, 2011 and the commencement of a new lease of Aircraft 128 on February 16, 2012 at a lower rental rate than the previous lease, which expired on November 30, 2011.  The decrease in finance income was a result of the normal lifecycle of our bareboat charters with Wilhelmsen, which experience scheduled, declining revenue over the course of the bareboat charters.  There was no loss from investments in joint ventures in the 2012 Period as our investment has been reduced to zero and we are no longer required to record our share of the joint venture’s losses.

 

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Expenses for the 2012 Period and the 2011 Period are summarized as follows:

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

2012 

 

2011 

 

Change

 

General and administrative

$

619,655 

 

$

609,928 

 

$

9,727 

 

Repairs and maintenance

 

800,697 

 

 

 

 

800,697 

 

Vessel operating expenses

 

 

 

1,212,735 

 

 

(1,212,735)

 

Interest

 

1,721,115 

 

 

2,396,125 

 

 

(675,010)

 

Depreciation and amortization

 

2,696,696 

 

 

3,412,303 

 

 

(715,607)

 

Impairment loss

 

 

 

22,314,396 

 

 

(22,314,396)

 

Other operating expenses

 

126,887 

 

 

 

 

126,887 

 

 

 

 

 

Total expenses

$

5,965,050 

 

$

29,945,487 

 

$

(23,980,437)

 

Total expenses for the 2012 Period decreased $23,980,437, or 80.1%, as compared to the 2011 Period. The decrease in total expenses was primarily due to no 2012 Period expenses having the same magnitude as the impairment charges of approximately $22,314,000 taken in the 2011 Period, of which approximately $21,914,000 was related to the Samar Spirit.  The decrease in vessel operating expenses was due to the sale of the Samar Spirit in 2011.  Depreciation and amortization expense decreased as a result of the sale of the Samar Spirit during 2011. Interest expense decreased due to the reduction in the average outstanding debt balance associated with the Wilhelmsen Vessels.  The decrease in total expenses was partially offset by an increase in repairs and maintenance expense incurred during the 2012 Period to prepare Aircraft 128 for delivery to AA.

 

Net Loss

As a result of the foregoing factors, net loss for the 2012 Period and the 2011 Period was $1,882,097 and $19,942,206, respectively. Net loss per weighted average additional share of limited liability company interests outstanding for the 2012 Period and the 2011 Period was $19.02 and $201.55, respectively.

 

Financial Condition

This section discusses the major balance sheet variances at September 30, 2012 compared to December 31, 2011.

 

Total Assets

Total assets decreased $5,854,804, from $49,054,675 at December 31, 2011, to $43,199,871 at September 30, 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 $2,014,765, from $35,452,112 at December 31, 2011 to $33,437,347 at September 30, 2012.  The decrease was primarily due to repayments of our non-recourse long-term debt in the ordinary course of business and was partially offset by an increase in maintenance reserves.

 

Members’ Equity

Members’ equity decreased $3,840,039, from $13,602,563 at December 31, 2011, to $9,762,524 at September 30, 2012.  The decrease was primarily due to the distributions paid to our members and the results of our operations.

 

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Liquidity and Capital Resources

At September 30, 2012 and December 31, 2011, we had cash and cash equivalents of $3,739,048 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 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 increased $2,275,408, from $427,337 in the 2011 Period to $2,702,745 in the 2012 Period.  The increase was primarily a result of lower interest expense paid due to the reduction in the average outstanding debt balance associated with the Wilhelmsen Vessels, and vessel operating expenses incurred in the 2011 Period that were not incurred in the 2012 Period.

 

Investing Activities  

Sources of cash from investing activities decreased $8,896,646, from $9,215,595 in the 2011 Period to $318,949  in the 2012   Period. The decrease was due to the sale of the Samar Spirit in the 2011 Period.

 

Financing Activities

Uses of cash in financing activities decreased $2,866,075, from $3,864,632 in the 2011 Period to $998,557 in the 2012 Period, due to the collection of maintenance reserves and a repayment of $2,500,000 of our non-recourse long-term debt that was made during the 2011 Period.

 

Financings and Borrowings

Non-Recourse Long-Term Debt

We had non-recourse long-term debt obligations at September 30, 2012 and December 31, 2011 of $30,839,827 and $33,679,720, respectively.  Our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the underlying lease equipment and an assignment of the rental and finance income, 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 September 30, 2012, we had $11,679,988 of current assets and $33,437,347 of current liabilities, which resulted in a $21,757,359 working capital deficit.  Of the $33,437,347 of current liabilities, $30,839,827 consisted of payments due on our non-recourse long-term debt.  The primary reason for this deficit was 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, our Manager believes that the completion of the refinancing is probable.  Should the negotiations with the current lender be unsuccessful, our 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.

 

 

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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.  Distributions made during the liquidation period will vary, depending on the timing of the sale of our assets and our receipt of rental and finance income from our investments.  We paid distributions to additional members and our Manager of $2,250,546 and $22,732, respectively, during the 2012 Period.

 

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At September 30, 2012, we had non-recourse long-term debt obligations in which the lender has a security interest in the equipment and assignment of the rental and finance income.  In such case, 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 September 30, 2012, our outstanding non-recourse long-term debt obligations were $30,839,827.

 

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 period, which has not yet commenced, 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 us 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 of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole.

 

Off-Balance Sheet Transactions

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

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.

 

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended September 30, 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 Financial and Accounting 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 Financial and Accounting Officer concluded that our Manager’s disclosure controls and procedures were effective.

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In designing and evaluating our Manager’s disclosure controls and procedures, our Manager recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Our Manager’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.

 

Evaluation of internal control over financial reporting

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings

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.

 

Item 1A. Risk Factors

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.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

We did not sell or redeem any shares of limited liability company interests during the three months ended September 30, 2012.

 

Item 3.  Defaults Upon Senior Securities

Not applicable.

 

Item 4.  Mine Safety Disclosures

Not applicable.

 

Item 5.  Other Information

Not applicable.

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Item 6.  Exhibits

 

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).