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EX-32.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex32-3.htm
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex31-1.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex32-2.htm
EX-31.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex31-3.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex32-1.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON Equipment & Corporate Infrastructure Fund Fourteen, L.P.ex31-2.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 

000-53919

 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(Exact name of registrant as specified in its charter)

 

Delaware

26-3215092

(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   

o  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   

o  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 o  

 

 

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

Smaller reporting company

                                                                                 

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 limited partnership interests of the registrant on November 12, 2012 is 258,827.

   

 

  

 

 

 


 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

Table of Contents

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1. Consolidated Financial Statements

 

 

 

 

                   Consolidated Balance Sheets

1

 

 

 

                     Consolidated Statements of Operations

2

 

 

 

                     Consolidated Statements of Changes in Equity

3

 

 

 

                     Consolidated Statements of Cash Flows

4

 

 

 

                   Notes to Consolidated Financial Statements

6

 

 

 

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

15

 

 

 

 Item 3. Quantitative and Qualitative Disclosures About Market Risk

24

 

 

 

         Item 4. Controls and Procedures

24

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1. Legal Proceedings

 

25

 

 

 

Item 1A. Risk Factors

 

25

 

 

 

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

25

 

 

 

Item 3. Defaults Upon Senior Securities

25

 

 

 

Item 4. Mine Safety Disclosures

25

 

 

 

Item 5. Other Information

 

25

 

 

 

Item 6. Exhibits

 

26

 

 

 

Signatures

 

27

 

 


 

 

 

 PART I – FINANCIAL INFORMATION

 

Item 1.  Consolidated Financial Statements

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

 

(A Delaware Limited Partnership)

 

Consolidated Balance Sheets

 

 

 

 

 

 

September 30,

 

December 31,

 

 

2012 

 

2011 

 

 

(unaudited)

 

 

 

Assets

 

 

Cash and cash equivalents

$

11,797,711 

 

$

48,783,509 

 

 

Restricted cash

 

6,442,556 

 

 

2,500,000 

 

 

Net investment in finance leases

 

139,676,662 

 

 

145,974,532 

 

 

Leased equipment at cost (less accumulated depreciation

 

 

 

 

 

 

 

 

of $27,034,039 and $18,302,163, respectively)

 

166,922,606 

 

 

181,110,196 

 

 

Net investment in notes receivable

 

102,235,780 

 

 

70,406,783 

 

 

Note receivable from joint venture

 

2,426,535 

 

 

2,800,000 

 

 

Investments in joint ventures

 

786,355 

 

 

1,029,336 

 

 

Other assets

 

6,823,184 

 

 

6,044,435 

 

Total assets

$

437,111,389 

 

$

458,648,791 

 

 

 

Liabilities and Equity

 

 

 

Liabilities:

 

 

 

 

 

 

 

Non-recourse long-term debt

$

205,020,283 

 

$

221,045,626 

 

 

Derivative financial instruments

 

12,283,230 

 

 

10,663,428 

 

 

Deferred revenue

 

3,238,033 

 

 

3,245,739 

 

 

Due to General Partner and affiliates, net

 

 130,384 

 

 

398,466 

 

 

Accrued expenses and other liabilities

 

10,285,865 

 

 

9,418,900 

 

 

 

 

Total liabilities

 

230,957,795 

 

 

244,772,159 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 Partners’ equity:

 

 

 

 

 

 

 

 

 Limited partners

 

194,875,780 

 

 

202,492,816 

 

 

 

 General Partner

 

 (354,838) 

 

 

 (277,944) 

 

 

 

 

Total partners’ equity

 

194,520,942 

 

 

202,214,872 

 

 

 

 

 Noncontrolling interests

 

11,632,652 

 

 

11,661,760 

 

 

 

 

Total equity

 

206,153,594 

 

 

213,876,632 

 

Total liabilities and equity

$

437,111,389 

 

$

458,648,791 

 

 

See accompanying notes to consolidated financial statements.

1

 


 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

 

(A Delaware Limited Partnership)

 

Consolidated Statements of Operations

 

(unaudited)

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2012 

 

2011 

 

2012 

 

2011 

 

Revenue:

 

 

 

 

 

 

 

 

 

Finance income

$

 6,683,054 

 

$

 5,938,620 

 

$

 20,121,447 

 

$

 13,582,351 

 

 

Rental income

 

 7,916,683 

 

 

 7,847,405 

 

 

 23,740,083 

 

 

 17,542,059 

 

 

Income (loss) from investments in joint ventures

 

 79,023 

 

 

 1,073,263 

 

 

 (148,709) 

 

 

 1,374,091 

 

 

Other income (loss)

 

 43,060 

 

 

 (75,785) 

 

 

 108,791 

 

 

 184,171 

 

 

 

Total revenue

 

 14,721,820 

 

 

 14,783,503 

 

 

 43,821,612 

 

 

 32,682,672 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

594,416 

 

 

562,172 

 

 

2,053,922 

 

 

1,378,900 

 

 

Administrative expense reimbursements

 

598,621 

 

 

1,083,290 

 

 

2,924,407 

 

 

4,438,637 

 

 

General and administrative

 

426,994 

 

 

506,504 

 

 

1,554,206 

 

 

1,444,163 

 

 

Credit loss

 

 - 

 

 

 - 

 

 

2,636,066 

 

 

 - 

 

 

Depreciation

 

4,374,352 

 

 

4,336,287 

 

 

13,123,060 

 

 

9,811,251 

 

 

Interest

 

2,834,897 

 

 

3,058,409 

 

 

8,610,627 

 

 

6,162,274 

 

 

Loss on derivative financial instruments

 

1,487,091 

 

 

6,937,325 

 

 

4,409,838 

 

 

11,748,444 

 

 

 

Total expenses

 

 10,316,371 

 

 

 16,483,987 

 

 

 35,312,126 

 

 

 34,983,669 

 

Net income (loss)

 

 4,405,449 

 

 

 (1,700,484) 

 

 

 8,509,486 

 

 

 (2,300,997) 

 

 

 

 

 

 

 

 

 

 

 

 

Less: net income (loss) attributable to noncontrolling interests

 

 191,863 

 

 

 (1,067,527) 

 

 

 512,222 

 

 

 (1,885,432) 

 

Net income (loss) attributable to Fund Fourteen

$

 4,213,586 

 

$

 (632,957) 

 

$

 7,997,264 

 

$

 (415,565) 

 

 

 

Net income (loss) attributable to Fund Fourteen allocable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited partners

$

 4,171,450 

 

$

 (626,627) 

 

$

 7,917,291 

 

$

 (411,409) 

 

 

General Partner

 

 42,136 

 

 

 (6,330) 

 

 

 79,973 

 

 

 (4,156) 

 

 

 

 

$

 4,213,586 

 

$

 (632,957) 

 

$

 7,997,264 

 

$

 (415,565) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of limited

 

 

 

 

 

 

 

 

 

 

 

 

 

partnership interests outstanding

 

 258,827 

 

 

 258,832 

 

 

 258,830 

 

 

 238,321 

 

 

 

Net income (loss) attributable to Fund Fourteen

 

 

 

 

 

 

 

 

 

 

 

 

 

per weighted average limited partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

interest outstanding

$

 16.12 

 

$

 (2.42) 

 

$

 30.59 

 

$

 (1.73) 

 

 

See accompanying notes to consolidated financial statements.

2

 


 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

 

(A Delaware Limited Partnership)

 

Consolidated Statements of Changes in Equity

 

 

 

 

Partners' Equity

 

 

 

Limited

 

 

 

 

 

Total

 

 

 

Partnership

 

Limited

 

General

 

Partners'

 

Noncontrolling

 

Total

 

 

Interests

 

Partners

 

Partner

 

Equity

 

Interests

 

Equity

 

Balance, December 31, 2011

 258,832 

 

$

 202,492,816 

 

$

 (277,944) 

 

$

 202,214,872 

 

$

 11,661,760 

 

$

 213,876,632 

 

 

 

 

Net income

 - 

 

 

 5,216,010 

 

 

 52,687 

 

 

 5,268,697 

 

 

 423,597 

 

 

 5,692,294 

 

 

Cash distributions

 - 

 

 

 (5,176,637) 

 

 

 (52,289) 

 

 

 (5,228,926) 

 

 

 (390,703) 

 

 

 (5,619,629) 

 

 

 

Balance, March 31, 2012 (unaudited)

 258,832 

 

 

 202,532,189 

 

 

 (277,546) 

 

 

 202,254,643 

 

 

 11,694,654 

 

 

 213,949,297 

 

 

 

 

Net loss

 - 

 

 

 (1,470,169) 

 

 

 (14,850) 

 

 

 (1,485,019) 

 

 

 (103,238) 

 

 

 (1,588,257) 

 

 

Repurchase of limited partnership interests

 (5) 

 

 

 (4,486) 

 

 

 - 

 

 

 (4,486) 

 

 

 - 

 

 

 (4,486) 

 

 

Investment by noncontrolling interest

 - 

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 137,500 

 

 

 137,500 

 

 

Cash distributions

 - 

 

 

 (5,176,637) 

 

 

 (52,289) 

 

 

 (5,228,926) 

 

 

 (96,454) 

 

 

 (5,325,380) 

 

 

 

Balance, June 30, 2012 (unaudited)

 258,827 

 

 

 195,880,897 

 

 

 (344,685) 

 

 

 195,536,212 

 

 

 11,632,462 

 

 

 207,168,674 

 

 

 

 

Net income

 - 

 

 

 4,171,450 

 

 

 42,136 

 

 

 4,213,586 

 

 

 191,863 

 

 

 4,405,449 

 

 

Cash distributions

 - 

 

 

 (5,176,567) 

 

 

 (52,289) 

 

 

 (5,228,856) 

 

 

 (191,673) 

 

 

 (5,420,529) 

 

 

 

Balance, September 30, 2012 (unaudited)

 258,827 

 

$

 194,875,780 

 

$

 (354,838) 

 

$

 194,520,942 

 

$

 11,632,652 

 

$

 206,153,594 

 

 

See accompanying notes to consolidated financial statements.

3

 


 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

 

(A Delaware Limited Partnership)

 

Consolidated Statements of Cash Flows

 

(unaudited)

 

 

 

 

Nine Months Ended September 30,

 

 

2012 

 

2011 

 

Cash flows from operating activities:

 

 

 

 

 

Net income (loss)

$

 8,509,486 

 

$

 (2,300,997) 

 

 

Adjustments to reconcile net income (loss) to net cash

 

 

 

 

 

 

 

 

provided by operating activities:

 

 

 

 

 

 

 

 

 

Finance income, net of costs and fees

 

 (602,414) 

 

 

 623,634 

 

 

 

 

Loss (income) from investments in joint ventures

 

 148,709 

 

 

 (1,374,091) 

 

 

 

 

Depreciation

 

 13,123,060 

 

 

 9,811,251 

 

 

 

 

Credit loss

 

 2,636,066 

 

 

 - 

 

 

 

 

Interest expense from amortization of debt financing costs

 

 743,362 

 

 

 463,409 

 

 

 

 

Interest expense, other

 

 287,623 

 

 

 137,733 

 

 

 

 

Other income

 

 (51,605) 

 

 

 (31,016) 

 

 

 

 

Loss on derivative financial instruments

 

 1,619,802 

 

 

 10,836,351 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Restricted cash

 

 (3,942,556) 

 

 

 (1,875,000) 

 

 

 

Other assets, net

 

 (1,511,948) 

 

 

 (3,610,784) 

 

 

 

Accrued expenses and other liabilities

 

 579,342 

 

 

 88,251 

 

 

 

Deferred revenue

 

 (7,706) 

 

 

 2,196,566 

 

 

 

Due to General Partner and affiliates

 

 (268,082) 

 

 

 115,830 

 

 

 

Distributions from joint ventures

 

 - 

 

 

 1,374,091 

 

Net cash provided by operating activities

 

 21,263,139 

 

 

 16,455,228 

 

 

 

Cash flows from investing activities:

 

 

Proceeds from sale of equipment

 

 1,064,530 

 

 

 - 

 

 

Purchase of equipment

 

 - 

 

 

 (79,564,939) 

 

 

Principal repayment on finance leases

 

 6,136,397 

 

 

 4,809,221 

 

 

Investments in joint ventures

 

 (117,500) 

 

 

 - 

 

 

Distributions received from joint ventures in excess of profits

 

 211,772 

 

 

 3,817,746 

 

 

Investment in notes receivable

 

 (50,575,955) 

 

 

 (9,512,325) 

 

 

Principal repayment on notes receivable

 

 17,289,686 

 

 

 4,778,195 

 

Net cash used in investing activities

 

 (25,991,070) 

 

 

 (75,672,102) 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from non-recourse long-term debt

 

 - 

 

 

 22,000,000 

 

 

Repayment of non-recourse long-term debt

 

 (16,025,343) 

 

 

 (10,453,859) 

 

 

Debt financing costs

 

 - 

 

 

 (4,420,000) 

 

 

Sale of limited partnership interests

 

 - 

 

 

 65,673,533 

 

 

Sales and offering expenses paid

 

 - 

 

 

 (6,166,877) 

 

 

Deferred charges

 

 - 

 

 

 (273,438) 

 

 

Investment by noncontrolling interest

 

 137,500 

 

 

 14,027,711 

 

 

Distributions to noncontrolling interests

 

 (678,830) 

 

 

 (5,855,813) 

 

 

Cash distributions to partners

 

 (15,686,708) 

 

 

 (13,950,084) 

 

 

Repurchase of limited partnership interests

 

 (4,486) 

 

 

 (53,498) 

 

Net cash (used in) provided by financing activities

 

 (32,257,867) 

 

 

 60,527,675 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 (36,985,798) 

 

 

 1,310,801 

 

Cash and cash equivalents, beginning of period

 

 48,783,509 

 

 

 64,317,006 

 

Cash and cash equivalents, end of period

$

 11,797,711 

 

$

 65,627,807 

 

See accompanying notes to consolidated financial statements.

4 

 


 

 

 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

 

(A Delaware Limited Partnership)

 

Consolidated Statements of Cash Flows

 

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

2012 

 

2011 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

$

9,534,193 

 

$

6,463,324 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

Organizational and offering expenses charged to equity

$

 - 

 

$

1,124,718 

 

 

Equipment purchased with non-recourse long-term debt paid directly by lender

$

 - 

 

$

172,000,000 

 

 

Exchange of noncontrolling interest in investments in joint ventures for notes receivable

$

 - 

 

$

10,450,296 

 

 

Equipment purchased with subordinated financing provided by seller

$

 - 

 

$

9,000,000 

 

See accompanying notes to consolidated financial statements.

5 

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

(1)       Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements of ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (the “Partnership”) 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 general partner of the Partnership, ICON GP 14, LLC, a Delaware limited liability company (the “General Partner”), which is a wholly-owned subsidiary of ICON Capital Corp., a Delaware corporation (the “Investment 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 Partnership’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 presentation.

 

Credit Quality of Notes Receivable and Direct Finance Leases and Credit Loss Reserve

 

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

 

As the Partnership’s notes receivable and direct finance leases (each, a “Note” and, collectively, the “Notes”) are limited in number, the Partnership is able to estimate the credit loss reserve based on a detailed analysis of each Note as opposed to using portfolio based metrics and credit loss reserve. 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 Investment Manager analyzes whether a credit loss reserve should be established or whether the Note should be restructured. Material events would be specifically disclosed in the discussion of each Note held.

 

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 US 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 US 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 Partnership on January 1, 2012 and did not have a material impact on the Partnership’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 Partnership on January 1, 2012 and did not have a material impact on the Partnership’s consolidated financial statements, as it only required a change in the format of presentation.

 

(2)       Net Investment in Notes Receivable

                    Net investment in notes receivable consisted of the following:

 

6

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

 

September 30,

 

December 31,

 

2012 

 

2011 

 

Principal outstanding

$

 99,930,363 

 

$

 66,014,815 

 

Initial direct costs

 

 7,432,889 

 

 

 6,607,532 

 

Deferred fees

 

 (2,187,472) 

 

 

 (1,595,564) 

 

Credit loss reserve

 

 (2,940,000) 

 

 

 (620,000) 

 

Net investment in notes receivable

$

 102,235,780 

 

$

 70,406,783 

 

On February 3, 2012, the Partnership made a term loan in the amount of $15,406,250 to subsidiaries of Revstone Transportation, LLC (collectively, “Revstone”).  The loan bears interest at 15% per year and is for a period of 60 months. The loan is secured by all of Revstone’s assets, including a mortgage on real property.  In addition, the Partnership agreed to make a secured capital expenditure loan (the “CapEx Loan”).  On April 2, 2012 and July 30, 2012, Revstone borrowed approximately $1,062,000 and $1,364,000, respectively, in connection with the CapEx Loan.  The CapEx Loan bears interest at 17% per year and matures on March 1, 2017. The CapEx Loan is secured by a first priority security interest in automotive manufacturing equipment purchased with the proceeds from the CapEx Loan and a second priority security interest in the term loan collateral.

 

On February 29, 2012, the Partnership made a term loan in the amount of $6,000,000 to VAS Aero Services, LLC. The loan bears interest at variable rates ranging between 12% and 14.5% per year and is for a period of 31 months. The loan is secured by a second priority interest in all of VAS’s assets.

 

On March 9, 2012, the Partnership made a term loan in the amount of $7,500,000 to Kanza Construction, Inc. The loan bears interest at 13% per year and is for a period of 60 months.  The loan is secured by all of Kanza’s assets. During the three months ended June 30, 2012, as a result of the borrower’s unexpected financial hardship and failure to meet certain payment obligations, the loan was placed on nonaccrual status and the Partnership recorded a credit loss reserve of $2,940,000 based on the estimated value of the recoverable collateral. During the three months ended September 30, 2012, Kanza repaid approximately $427,000 of principal, reducing the outstanding balance of the loan at September 30, 2012 to approximately $4,133,000. Subsequent to September 30, 2012, Kanza repaid an additional $3,247,000 of principal on the loan. Finance income recognized on the impaired loan was approximately $0 and $145,000 for the three and nine months ended September 30, 2012, respectively. As a nonaccrual status loan, any future change in the fair value of the recoverable collateral will be recorded as an adjustment to credit loss.  However, the net carrying amount of the loan shall at no time exceed the recorded investment in the loan at the time it was deemed impaired.

 

On May 2, 2012, Northern Capital Associates XVIII, L.P. and certain of its affiliates satisfied their obligations in connection with a senior term loan by making a prepayment of approximately $5,700,000.  As a result, the Partnership recognized a loss on the prepayment of approximately $137,000, which is included in finance income on the consolidated statements of operations.  During the period ended September 30, 2012, the Partnership reduced the credit loss reserve from $620,000 to $280,000, which was recorded as a reduction of credit loss on the Partnership’s consolidated statements of operations.  In connection with the prepayment, the credit loss reserve was removed.

 

On May 22, 2012, Northern Crane Services, Inc. satisfied its obligation in connection with a term loan by making a prepayment of approximately $4,283,000.  As a result, the Partnership recognized a loss on the prepayment of approximately $77,000, which is included in finance income on the consolidated statements of operations.

 

On June 22, 2012, the Partnership made a term loan in the amount of $1,855,000 to NTS Communications, Inc. and certain of its affiliates (collectively, “NTS”). The loan bears interest at 12.75% per year and is for a period of 60 months. The loan is secured by, among other things, equipment used in NTS’s high speed broadband services operation, which provides internet access, digital cable television programming and local and long distance telephone service to residential and business customers.  In addition, on September 27, 2012, the Partnership made an additional term loan to NTS (the “Second Term Loan”) in the amount of $1,564,500.  The Second Term Loan bears interest at 12.75% per year and is for a period of 57 months.  The loan is secured by the assets acquired with the proceeds from the Second Term Loan.

 

7

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

On July 24, 2012, the Partnership made a secured term loan in the amount of $2,000,000 to affiliates of Frontier Oilfield Services, Inc. (collectively, “Frontier”).  The loan bears interest at 14% per year and is for a period of 66 months.  The loan is secured by, among other things, a first lien on Frontier’s saltwater disposal wells and related equipment and a second lien on Frontier's other assets, including real estate, machinery and accounts receivable.

 

On September 10, 2012, the Partnership made a secured term loan in the amount of $12,410,000 to Superior Tube Company, Inc. and Tubes Holdco Limited (collectively, “Superior”). The loan bears interest at 12% per year and is for a period of 60 months. The loan is secured by, among other things, a first lien on Superior’s assets, including tube manufacturing and related equipment and a mortgage on real property, and a second lien on Superior’s accounts receivable and inventory.  

 

 (3)        Net Investment in Finance Leases

 

Net investment in finance leases consisted of the following:

 

 

 

September 30,

 

December 31,

 

 

2012 

 

2011 

 

Minimum rents receivable

$

148,164,597 

 

$

165,864,991 

 

Estimated residual values

 

45,859,529 

 

 

45,859,529 

 

Initial direct costs

 

2,710,940 

 

 

3,240,012 

 

Unearned income

 

(57,058,404)

 

 

(68,990,000)

 

 

 

Net investment in finance leases

$

139,676,662 

 

$

145,974,532 

 

(4)       Leased Equipment at Cost

Leased equipment at cost consisted of the following:

                 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

2012 

 

2011 

 

Packaging equipment

$

 6,535,061 

 

$

 6,535,061 

 

Telecommunications equipment

 

 2,189,214 

 

 

 7,644,928 

 

Motor coaches

 

 10,627,370 

 

 

 10,627,370 

 

Marine - crude oil tankers

 

 174,605,000 

 

 

 174,605,000 

 

 

 

Leased equipment at cost

 

 193,956,645 

 

 

 199,412,359 

 

Less: accumulated depreciation

 

 27,034,039 

 

 

 18,302,163 

 

 

 

Leased equipment at cost, less accumulated depreciation

$

 166,922,606 

 

$

 181,110,196 

 

On January 3, 2012, Dillon’s Bus Service, Inc. (“DBS”), Lakefront Lines, Inc. (“Lakefront”) and their parent company, Coach Am Group Holdings Corp., commenced a voluntary Chapter 11 proceeding in U.S. Bankruptcy Court, subsequent to which DBS and Lakefront made all of their lease payments.  On July 20, 2012, Lakefront and DBS assigned their respective interests in the leases of 24 of 26 motor coaches to CAM Leasing, LLC.  On October 19, 2012, the remaining two motor coaches were sold for approximately $551,000.

 

On September 30, 2012, Global Crossing Telecommunications, Inc. exercised its option to purchase certain telecommunications equipment at lease expiration for approximately $1,065,000. No gain or loss was recorded as a result of such transaction.

 

Depreciation expense was $4,374,352 and $4,336,287 for the three months ended September 30, 2012 and 2011,

8

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

respectively. Depreciation expense was $13,123,060 and $9,811,251 for the nine months ended September 30, 2012 and 2011, respectively.  

 

(5)       Investments in Joint Ventures

On June 26, 2009, the Partnership and ICON Leasing Fund Twelve, LLC, an affiliate of the Investment Manager (“Fund Twelve”), entered into a joint venture for the purpose of investing in eight new Ariel natural gas compressors. On September 29, 2011, the Partnership received a distribution that included the return of the Partnership’s capital. In connection with the distribution, the Partnership reduced its investments in the joint venture to zero and recorded approximately $949,000 of additional income from investments in joint ventures.

The results of operations of the joint venture are summarized below:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2012 

 

 

2011 

 

 

2012 

 

 

2011 

 

Revenue

$

412,294 

 

$

392,955 

 

$

1,282,489 

 

$

1,620,865 

 

Net income

$

301,572 

 

$

307,733 

 

$

911,349 

 

$

1,049,914 

 

Partnership’s share of net income

$

 - 

 

$

1,073,263 

 

$

 - 

 

$

1,347,091 

 

(6)       Non-Recourse Long-Term Debt

 

As of September 30, 2012 and December 31, 2011, the Partnership had non-recourse long-term debt obligations of $205,020,283 and $221,045,626, respectively, with maturity dates ranging from March 29, 2014 to March 29, 2021, and interest rates ranging from 4.555% to 12% per year, some of which were fixed after giving effect to the respective interest rate swap agreements.

 

The Partnership, through certain subsidiaries of its joint venture with Fund Twelve, borrowed $128,000,000 (the “Senior Debt”) in connection with the acquisition of the vessels on bareboat charter to AET Inc. Limited.  The joint venture also borrowed $22,000,000 of subordinated non-recourse long-term debt from an unaffiliated third-party (the “Sub Debt”).  On April 20, 2012, these subsidiaries were notified of an event of default on the Senior Debt.

 

Due to a change in the fair value of these vessels, a provision in the Senior Debt loan agreement restricts the Partnership’s ability to utilize cash generated by the charter of these vessels as of January 12, 2012 for purposes other than paying the Senior Debt.  Approximately $3,393,000 was classified as restricted cash as of September 30, 2012.  Charter payments in excess of the Senior Debt loan service are held in reserve by the Senior Debt lender until such time as the restriction is cured. Once cured, the reserves will be released to the Partnership. While this restriction is in place, the Partnership is prevented from applying the charter proceeds to the Sub Debt. As a result of the Partnership’s failure to make required Sub Debt loan payments from June through September 2012, the Sub Debt lender has certain rights, including step-in rights, which allow it to collect cash generated from the charters until such time as the Sub Debt lender has received all unpaid amounts.  The Sub Debt lender has reserved, but not exercised, its rights under the loan agreement.  

 

On September 24, 2012, the Partnership received a waiver of certain financial covenants in connection with the non-recourse long-term debt relating to the vessels on bareboat charter to Fantastic Shipping, Ltd. and Amazing Shipping, Ltd.

 

(7)       Revolving Line of Credit, Recourse

 

On May 10, 2011, the Partnership entered into an agreement with California Bank & Trust (“CB&T”) for a revolving line of credit of up to $15,000,000 (the “Facility”), which is secured by all of the Partnership’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 Partnership has a beneficial

9

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

interest. At September 30, 2012, the Partnership had $14,379,238 available under the Facility pursuant to the borrowing base.

 

The Facility expires on March 31, 2013 and the Partnership 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 Partnership is obligated to pay a commitment fee based on an annual rate of 0.50% on unused commitments under the Facility. At September 30, 2012, there were no obligations outstanding under the Facility.

 

At September 30, 2012, the Partnership was in compliance with all covenants related to the Facility.

 

(8)       Transactions with Related Parties

 

Fees and other expenses paid or accrued by the Partnership to the General Partner or its affiliates were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 Entity

 

 Capacity

 

 Description

 

2012 

 

2011 

 

2012 

 

2011 

 

 ICON Capital Corp.

 

 Investment Manager

 

 Organizational and offering

 

 

 

 

 

 

 

 

 

 

 

    expense reimbursements (1)

 

$

 - 

 

$

 - 

 

$

 - 

 

$

 273,438 

 

 ICON Securities Corp.

 

 Dealer-Manager

 

 Underwriting fees (2)

 

 

 - 

 

 

 - 

 

 

 - 

 

 

 1,877,234 

 

 ICON Capital Corp.

 

 Investment Manager

 

 Acquisition fees (3)

 

 

 979,806 

 

 

 1,069,063 

 

 

 2,543,402 

 

 

 8,610,359 

 

 ICON Capital Corp.

 

 Investment Manager

 

 Management fees (4)

 

 

 594,416 

 

 

 562,172 

 

 

 2,053,922 

 

 

 1,378,900 

 

 ICON Capital Corp.

 

 Investment Manager

 

 Administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    reimbursements (4)

 

 

 598,621 

 

 

 1,083,290 

 

 

 2,924,407 

 

 

 4,438,637 

 

 

 

$

 2,172,843 

 

$

 2,714,525 

 

$

 7,521,731 

 

$

 16,578,568 

 

 

 

(1) Amount capitalized and amortized to partners' equity.

 

(2) Amount charged directly to partners' equity.

 

(3) Amount capitalized and amortized to operations over the estimated service period.

 

(4) Amount charged directly to operations.

 

At September 30, 2012 and December 31, 2011, the Partnership had a net payable of $130,384 and $398,466, respectively, due to the General Partner and its affiliates that primarily consisted of administrative expense reimbursements.

 

At September 30, 2012 and December 31, 2011, the Partnership had a note receivable from a joint venture of $2,426,535 and $2,800,000, respectively, and accrued interest of approximately $71,000 and $17,000, respectively. The accrued interest is included in other assets on the consolidated balance sheets.  For the three and nine months ended September 30, 2012, interest income relating to the note receivable from the joint venture of approximately $104,000 and $345,000, respectively, was recognized and included in finance income on the consolidated statements of operations.  

 

(9)       Derivative Financial Instruments

 

The Partnership may enter into derivative transactions for purposes of hedging specific financial exposures, including movements in foreign currency exchange rates and changes in interest rates on its non-recourse long-term debt. The Partnership enters into these instruments only for hedging underlying exposures. The Partnership 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 Partnership believes that these are effective economic hedges.

10

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

 

The Partnership 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 Partnership must document and assess at inception and on an ongoing basis, the Partnership recognizes the changes in fair value of such instruments in accumulated other comprehensive income (loss), 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 Partnership’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its variable non-recourse debt. The Partnership’s strategy to accomplish these objectives is to match the projected future cash flows with the underlying debt service. Each interest rate swap involves the receipt of floating-rate interest payments from a counterparty in exchange for the Partnership making fixed-rate interest payments over the life of the agreement without exchange of the underlying notional amount.

Non-designated Derivatives

        As of September 30, 2012, the Partnership had five interest rate swaps that are not designated and qualifying as cash flow hedges with an aggregate notional amount of $148,975,000. These interest rate swaps are not speculative and are used to meet the Partnership’s objectives in using interest rate derivatives to add stability to interest expense and to manage its exposure to interest rate movements.

        The table below presents the fair value of the Partnership’s derivative financial instruments as well as their classification within the Partnership’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 not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

Interest rate swaps

Derivative financial instruments

 

$

12,283,230 

 

$

 10,663,428 

 

The Partnership’s derivative financial instruments not designated as hedging instruments generated a loss on derivative financial instruments on the consolidated statements of operations for the three and nine ended September 30, 2012 of $1,487,091 and $4,409,838, respectively.  The Partnership’s derivative financial instruments not designated as hedging instruments generated a loss on derivative financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2011 of $6,937,325 and $11,748,444, respectively.

 

Derivative Risks

 

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

11

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

Partnership 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 $12,283,230 and $10,663,428, respectively.   In the event that the Partnership would be required to settle its obligations under the agreements as of September 30, 2012 and December 31, 2011, the termination value would be $13,242,505 and $11,575,725, respectively.

 

(10)      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 Investment Manager’s assessment, on the Partnership’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 Partnership’s material financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2012:

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial instruments

$

-

 

$

12,283,230 

 

$

-

 

$

12,283,230 

 

The following table summarizes the valuation of the Partnership’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 instruments

$

-

 

$

10,663,428 

 

$

-

 

$

10,663,428 

 

The Partnership’s derivative financial instruments are valued using models based on readily observable market parameters for all substantial terms of the Partnership’s derivative financial instruments and are classified within Level 2. As permitted by the accounting pronouncements, the Partnership uses market prices and pricing models for fair value measurements of its derivative financial instruments. The fair value of the interest rate swaps was recorded in derivative financial instruments within the consolidated balance sheets.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Partnership 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 Partnership’s non-financial assets, such as leased equipment at cost, are measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.  The valuation of the Partnership’s financial assets, such as notes receivable or direct financing leases, is included below only when fair value has been measured and recorded based on the fair value of the underlying collateral.  The following table summarizes the valuation of the Partnership’s material financial assets measured at fair value on a nonrecurring

12

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

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 as of September 30, 2012:

 

 

 

 

Credit loss for the

 

 

Carrying Value at

 

 

Fair Value at Impairment Date

 

Nine Months Ended

 

 

September 30, 2012

 

Level 1

 

Level 2

 

Level 3

 

September 30, 2012

 

 

 

 

 

 

 

 

 

 

 

 

Net investment in note receivable

$

4,132,719 

 

$

 - 

 

$

 - 

 

$

4,560,000 

 

$

2,940,000 

                               

 

The Partnership’s collateral dependent note receivable was valued using inputs that are generally unobservable and cannot be corroborated by market data and are classified within Level 3. The Partnership utilized a market approach based on published market prices for fair value measurements of the collateral underlying the note receivable adjusted by the Investment Manager to reflect the age and location of such collateral.

 Fair value information with respect to the Partnership’s leased assets and liabilities is not separately provided since (i) the current accounting pronouncements do not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets, other than lease-related investments, and the recorded value of recourse debt approximate fair value due to their short-term maturities and variable interest rates. The estimated fair value of the Partnership’s fixed rate notes receivable, fixed rate non-recourse long-term debt and other liabilities was based on the discounted value of future cash flows related to the loans based on recent transactions of this type.  Principal outstanding on fixed rate notes receivable was discounted at rates ranging between 12% and 20% per year. Principal outstanding on fixed rate non-recourse long-term debt and other liabilities was discounted at rates ranging between 3.71% and 14% per year.

 

 

 

September 30, 2012

 

 

 

 

Fair Value

 

 

Carrying Value

 

(Level 3)

 

Principal outstanding on fixed rate notes receivable

$

99,416,898 

 

$

99,636,425 

 

 

 

Principal outstanding on fixed rate non-recourse long term debt

$

56,045,283 

 

$

56,869,270 

 

 

 

Other liabilities

$

7,385,059 

 

$

7,858,465 

 

(11)      Commitments and Contingencies

 

At the time the Partnership acquires or divests of its interest in a diverse pool of business essential equipment and corporate infrastructure (collectively, “Capital Assets”), the Partnership may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities.  The General Partner believes that any liability of the Partnership 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 Partnership taken as a whole.

 

 On September 27, 2010, the Partnership’s wholly-owned subsidiary, ICON SE, LLC (“ICON SE”), participated in a $46,000,000 facility by agreeing to make a secured term loan to SE Shipping Pte Ltd. (“SE”) for the purchase of a new-build heavy lift vessel and accompanying equipment.  Although all of the material conditions to closing were satisfied, SE breached its obligations under the loan by refusing to draw down on the facility. Subsequently, ICON SE commenced an action against SE in the United Kingdom for SE’s failure to pay ICON SE the commitment fee due in accordance with the loan agreement.

 

In connection with certain investments, the Partnership is required to maintain restricted cash accounts with certain banks. At September 30, 2012, the Partnership had $6,442,556 in restricted cash.

 

13

 


 

ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.

(A Delaware Limited Partnership)

Notes to Consolidated Financial Statements

September 30, 2012

(unaudited)

  

(12)       Subsequent Event

 

On October 16, 2012, Quattro Plant Limited extended the term of its loan facility for a period of five months until February 28, 2013.

14

 


 

 

Item 2.  General Partner'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 Equipment and Corporate Infrastructure Fund Fourteen, L.P. 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 operate as an equipment leasing and finance fund in which the capital our partners invest is pooled together to make investments in Capital Assets, pay fees and establish a small reserve.  During our offering period, from May 18, 2009 to May 18, 2011, we raised $257,646,987. Our operating period commenced on May 19, 2011. We invested a substantial portion of the proceeds from the sale of our limited partnership interests (“Interests”) in Capital Assets.  After these proceeds are invested, it is anticipated that additional investments will be made with the cash generated from our initial investments to the extent that cash is not used for our expenses, reserves and distributions to limited partners.  The investment in additional Capital Assets in this manner is called “reinvestment.”  We anticipate investing and reinvesting in Capital Assets from time to time during our five-year operating period, which may be extended, at our General Partner’s discretion, for up to an additional three years.  After the operating period, we will then sell our assets in the ordinary course of business during our liquidation period.

 

Our General Partner manages and controls our business affairs, including, but not limited to, our investments in Capital Assets, under the terms of our limited partnership agreement.  Our Investment Manager, an affiliate of our General Partner, will originate and service our investments.  Our Investment Manager also sponsored and currently manages or is the investment manager or managing trustee for six other public equipment leasing and finance funds.  

 

Recent Significant Transactions

 

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

 

Motor Coaches

 

On January 3, 2012, DBS, Lakefront and their parent company, Coach Am Group Holdings Corp., commenced a voluntary Chapter 11 proceeding in U.S. Bankruptcy Court, subsequent to which DBS and Lakefront made all of their lease payments.  On July 20, 2012, Lakefront and DBS assigned their respective interests in the leases of 24 of 26 motor coaches to CAM Leasing, LLC. On October 19, 2012, the remaining two motor coaches were sold for approximately $551,000.

 

Notes Receivable

 

On February 3, 2012, we made a term loan in the amount of $15,406,250 to Revstone. The loan bears interest at 15% per year and is for a period of 60 months. The loan is secured by all of Revstone’s assets, including a mortgage on real property.  In

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addition, we agreed to make the CapEx Loan.  On April 2, 2012 and July 30, 2012, Revstone borrowed approximately $1,062,000 and $1,364,000, respectively, in connection with the CapEx Loan.  The CapEx Loan bears interest at 17% per year and matures on March 1, 2017. The CapEx Loan is secured by a first priority security interest in automotive manufacturing equipment purchased with the proceeds from the CapEx Loan and a second priority security interest in the term loan collateral.

 

On February 29, 2012, we made a term loan in the amount of $6,000,000 to VAS. The loan bears interest at variable rates ranging between 12% and 14.5% per year and is for a period of 31 months. The loan is secured by a second priority interest in all of VAS’s assets.

 

        On March 9, 2012, we made a term loan in the amount of $7,500,000 to Kanza. The loan bears interest at 13% per year and is for a period of 60 months.  The loan is secured by all of Kanza’s assets. During the three months ended June 30, 2012, as a result of the borrower’s unexpected financial hardship and failure to meet certain payment obligations, the loan was placed on nonaccrual status and we recorded a credit loss reserve of $2,940,000 based on the estimated value of the recoverable collateral. During the three months ended September 30, 2012, Kanza repaid approximately $427,000 of principal, reducing the outstanding balance of the loan at September 30, 2012 to approximately $4,133,000. Subsequent to September 30, 2012, Kanza repaid an additional $3,247,000 of principal on the loan. Finance income recognized on the impaired loan was approximately $0 and $145,000 for the three and nine months ended September 30, 2012, respectively. As a nonaccrual status loan, any future change in the fair value of the recoverable collateral will be recorded as an adjustment to credit loss.  However, the net carrying amount of the loan shall at no time exceed the recorded investment in the loan at the time it was deemed impaired.

 

On May 2, 2012, Northern Capital Associates XVIII, L.P. and certain of its affiliates satisfied their obligations in connection with a senior term loan by making a prepayment of approximately $5,700,000.  As a result, we recognized a loss on the prepayment of approximately $137,000, which is included in finance income on the consolidated statements of operations.

 

On May 22, 2012, Northern Crane Services, Inc. satisfied its obligation in connection with a term loan by making a prepayment of approximately $4,283,000.  As a result, we recognized a loss on the prepayment of approximately $77,000, which is included in finance income on the consolidated statements of operations.

 

On June 22, 2012, we made a term loan in the amount of $1,855,000 to NTS. The loan bears interest at a rate of 12.75% per year and is for a period of 60 months. The loan is secured by, among other things, equipment used in NTS’s high speed broadband services operation, which provides internet access, digital cable television programming and local and long distance telephone service to residential and business customers.  In addition, on September 27, 2012, we made a Second Term Loan in the amount of $1,564,500.  The Second Term Loan bears interest at 12.75% per year and is for a period of 57 months. The loan is secured by the assets acquired with the proceeds from the Second Term Loan.

 

On July 24, 2012, we made a term loan in the amount of $2,000,000 to Frontier.  The loan bears interest at 14% per year and is for a period of 66 months.  The loan is secured by, among other things, a first lien on Frontier’s saltwater disposal wells and related equipment and a second lien on Frontier's other assets, including real estate, machinery and accounts receivable.

 

On September 10, 2012, we made a secured term loan in the amount of $12,410,000 to Superior. The loan bears interest at 12% per year and is for a period of 60 months. The loan is secured by, among other things, a first lien on Superior’s assets, including tube manufacturing equipment and related equipment and a mortgage on real property, and a second lien on Superior’s accounts receivable and inventory.

 

Telecommunications Equipment

 

On September 30, 2012, Global Crossing exercised its option to purchase certain telecommunications equipment at lease expiration for approximately $1,065,000. No gain or loss was recorded as a result of such transaction.

 

Acquisition Fees

 

In connection with the new investments made since December 31, 2011 through September 30, 2012, we paid total acquisition fees to our Investment Manager of approximately $2,543,000.

 

 

 

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Subsequent Event

 

On October 16, 2012, Quattro Plant Limited extended the term of its loan facility for a period of five months until February 28, 2013.

 

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”)

 

Financing Transactions

 

The following tables set forth the types of assets securing the financing transactions in our portfolio as of September 30, 2012 and December 31, 2011:

 

 

September 30, 2012

 

December 31, 2011

 

Asset Type

 

Net Carrying Value

 

Percentage of Total Net Carrying Value

 

Net Carrying Value

 

Percentage of Total Net Carrying Value

 

Marine - Crude oil tankers

 

$

 82,527,944 

 

 

35%

 

$

 83,281,204 

 

 

38%

 

Marine - Dry bulk vessels

 

 

 62,742,492 

 

 

27%

 

 

 64,855,374 

 

 

30%

 

Petrochemical facility

 

 

 24,971,793 

 

 

10%

 

 

 23,630,939 

 

 

12%

 

Automotive manufacturing equipment

 

 

 17,243,425 

 

 

7%

 

 

 - 

 

 

-

 

Telecommunications equipment

 

 

 13,163,877 

 

 

5%

 

 

 13,298,467 

 

 

6%

 

Manufacturing

 

 

 12,748,841 

 

 

5%

 

 

 - 

 

 

-

 

Land drilling rigs

 

 

 7,962,336 

 

 

3%

 

 

 8,943,275 

 

 

4%

 

Aircraft parts

 

 

 6,027,929 

 

 

2%

 

 

 - 

 

 

-

 

Rail support construction equipment

 

 

 4,843,915 

 

 

2%

 

 

 2,291,360 

 

 

1%

 

Analog seismic system equipment

 

 

 4,048,357 

 

 

2%

 

 

 5,352,925 

 

 

2%

 

Metal cladding & production equipment

 

 

 3,369,541 

 

 

1%

 

 

 4,187,531 

 

 

2%

 

Oil field services equipment

 

 

 2,261,992 

 

 

1%

 

 

 - 

 

 

-

 

Point of sale equipment

 

 

 - 

 

 

-

 

 

 5,839,575 

 

 

3%

 

Cranes & transportation equipment

 

 

 - 

 

 

-

 

 

 4,700,665 

 

 

2%

 

 

 

$

241,912,442 

 

 

100%

 

$

216,381,315 

 

 

100%

 

The net carrying value of our financing transactions includes the balances of our net investment in notes receivable and our net investment in finance leases, 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

 

Geden Holdings Ltd.

 

Marine - Dry bulk vessels

 

26%

 

31%

 

Geden Holdings Ltd.

 

Marine - Crude oil tankers

 

24%

 

28%

 

Jurong Aromatics Corporation PTE. Ltd

 

Petrochemical facility

 

10%

 

-

 

Revstone Transportation, LLC

 

Automotive manufacturing equipment

 

10%

 

-

 

 

 

 

 

70%

 

59%

 

Interest income from our net investment in notes receivable and finance income from our net investment in finance leases are included in finance income in the consolidated statements of operations.

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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, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

Operating Lease Transactions

The following tables set forth the types of equipment subject to operating leases in our investment portfolio as of September 30, 2012 and December 31, 2011:

 

 

 

September 30, 2012

 

December 31, 2011

 

Asset Type

 

Net Carrying Value

 

Percentage of Total Net Carrying Value

 

Net Carrying Value

 

Percentage of Total Net Carrying Value

 

Marine - Crude oil tankers

 

$

153,934,749 

 

 

91%

 

$

164,212,775 

 

 

90%

 

Motor coaches

 

 

7,840,246 

 

 

5%

 

 

8,689,354 

 

 

5%

 

Packaging equipment

 

 

4,624,248 

 

 

3%

 

 

5,090,497 

 

 

3%

 

Telecommunications equipment

 

 

523,363 

 

 

1%

 

 

3,117,570 

 

 

2%

 

 

 

$

166,922,606 

 

 

100%

 

$

181,110,196 

 

 

100%

 

The net carrying value of our operating lease transactions includes the balance of our leased equipment at cost, which is included in our consolidated balance sheets.

 

During the 2012 Quarter and the 2011 Quarter, one customer generated a significant portion (defined as 10% or more) of our total rental income as follows:

 

 

 

Percentage of Total Rental Income

 

Customer

 

Asset Type

 

2012 Quarter

 

2011 Quarter

 

AET  Inc. Limited

 

Marine - Crude oil tanker

 

 

81%

 

 

81%

 

 

 

81%

 

 

81%

 

Rental income from our operating leases is included in rental income in the consolidated statements of operations.

 

The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods.  Further, these percentages are only representative of the percentage of the carrying value of such assets or rental income as of a stated period, 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:

 

 

 

 

Three Months Ended September 30,

 

 

 

 

 

2012 

 

2011 

 

Change

 

Finance income

$

6,683,054 

 

$

5,938,620 

 

$

 744,434 

 

Rental income

 

7,916,683 

 

 

7,847,405 

 

 

 69,278 

 

Income from investments in joint ventures

 

79,023 

 

 

1,073,263 

 

 

 (994,240) 

 

Other income (loss)

 

 43,060 

 

 

 (75,785) 

 

 

 118,845 

 

 

Total revenue

$

14,721,820 

 

$

14,783,503 

 

$

 (61,683) 

 

Total revenue for the 2012 Quarter decreased $61,683, or 0.4%, as compared to the 2011 Quarter.  The decrease was primarily due to a reduction of income from investments in joint ventures as a result of a return of capital in the 2011 Quarter. This was partially offset by an increase in finance income generated by 10 notes receivable that we entered into subsequent to the 2011 Quarter.  

 

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

 

 

Three Months Ended September 30,

 

 

2012 

 

2011 

 

Change

 

Management fees

$

594,416 

 

$

562,172 

 

$

32,244 

 

Administrative expense reimbursements

 

598,621 

 

 

1,083,290 

 

 

(484,669)

 

General and administrative

 

426,994 

 

 

506,504 

 

 

(79,510)

 

Depreciation

 

4,374,352 

 

 

4,336,287 

 

 

38,065 

 

Interest

 

2,834,897 

 

 

3,058,409 

 

 

(223,512)

 

Loss on derivative financial instruments

 

1,487,091 

 

 

6,937,325 

 

 

 (5,450,234) 

 

 

 Total expenses

$

10,316,371 

 

$

16,483,987 

 

$

(6,167,616)

                     

 

Total expenses for the 2012 Quarter decreased $6,167,616, or 37.4%, as compared to the 2011 Quarter. The decrease was primarily due to a decrease in the loss on derivative financial instruments related to our five non-designated interest rate swaps and a decrease in administrative expense reimbursements due to lower costs incurred on our behalf by our Investment Manager.

 

Noncontrolling Interests

 

Net income (loss) attributable to noncontrolling interests increased $1,259,390 from a net loss of $1,067,527 in the 2011 Quarter to net income of $191,863 in the 2012 Quarter.  The increase was primarily due to the change in fair value of the non-designated interest rate swap contracts in connection with a related party’s investment in four leveraged operating leases.

 

Net Income (Loss) Attributable to Fund Fourteen

 

As a result of the foregoing factors, net income (loss) attributable to us for the 2012 Quarter and the 2011 Quarter was $4,213,586 and $(632,957), respectively. The net income (loss) attributable to us per weighted average Interest outstanding for the 2012 Quarter and the 2011 Quarter was $16.12 and $(2.42), respectively.

 

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

Financing Transactions

During the 2012 Period and the 2011 Period, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:

 

 

Percentage of Total Finance Income

 

Customer

 

Asset Type

 

2012 Period

 

2011 Period

 

Geden Holdings Ltd.

 

Marine - Dry bulk vessels

 

26%

 

41%

 

Geden Holdings Ltd.

 

Marine - Crude oil tankers

 

24%

 

13%

 

Ocean Navigation 5 Co. Ltd. and Ocean Navigation 6 Co. Ltd.

 

Marine - Crude oil tankers

 

7%

 

11%

 

 

57%

 

65%

 

Interest income from our net investment in notes receivable and finance income from our net investment in finance leases are included in finance income in the consolidated statements of operations.  

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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 finance income as of a stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

 

Operating Lease Transactions

 

During the 2012 Period and the 2011 Period, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:

 

 

 

 

Percentage of Total Rental Income

 

Customer

 

Asset Type

 

2012 Period

 

2011 Period

 

AET  Inc. Limited

 

Marine - Crude oil tankers

 

 

81%

 

 

74%

 

Global Crossing Telecommunications Inc.

 

Telecommunications equipment

 

 

8%

 

 

11%

 

Dillon's Bus Service, Inc. and Lakefront Lines, Inc.

 

Motor coaches

 

 

6%

 

 

8%

 

 

 

 

 

 

95%

 

 

93%

 

Rental income from our operating leases is included in rental income in the consolidated statements of operations.

The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods.  Further, these percentages are only representative of the percentage of rental income as of a stated period, 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 Period and the 2011 Period is summarized as follows:

 

 

 

 

Nine Months Ended September 30,

 

 

 

2012 

 

2011 

 

Change

 

Finance income

$

 20,121,447 

 

$

 13,582,351 

 

$

 6,539,096 

 

Rental income

 

 23,740,083 

 

 

 17,542,059 

 

 

 6,198,024 

 

(Loss) income from investments in joint ventures

 

 (148,709) 

 

 

 1,374,091 

 

 

 (1,522,800) 

 

Other income

 

 108,791 

 

 

 184,171 

 

 

 (75,380) 

 

 

Total revenue

$

43,821,612 

 

$

32,682,672 

 

$

11,138,940 

 

Total revenue for the 2012 Period increased $11,138,940, or 34.1%, as compared to the 2011 Period. The increase in finance income was primarily due to the 10 notes receivable that we entered into subsequent to the 2011 Period. The increase in rental income was due to four operating leases that we entered into during the 2011 Period.

 

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

 

 

Nine Months Ended September 30,

 

 

2012 

 

2011 

 

Change

 

Management fees

$

 2,053,922 

 

$

 1,378,900 

 

$

 675,022 

 

Administrative expense reimbursements

 

 2,924,407 

 

 

 4,438,637 

 

 

 (1,514,230) 

 

General and administrative

 

 1,554,206 

 

 

 1,444,163 

 

 

 110,043 

 

Credit loss

 

 2,636,066 

 

 

 - 

 

 

 2,636,066 

 

Depreciation

 

 13,123,060 

 

 

 9,811,251 

 

 

 3,311,809 

 

Interest

 

 8,610,627 

 

 

 6,162,274 

 

 

 2,448,353 

 

Loss on derivative financial instruments

 

 4,409,838 

 

 

 11,748,444 

 

 

 (7,338,606) 

 

Total expenses

$

 35,312,126 

 

$

 34,983,669 

 

$

 328,457 

                     

 

Total expenses for the 2012 Period increased $328,457, or 0.9%, as compared to the 2011 Period. The increase in depreciation expense was attributable to the equipment acquired pursuant to four operating leases entered into during the 2011

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Period. The increase in credit loss resulted from establishing a credit loss reserve during the 2012 Period related to certain notes receivable.  Interest expense increased as a result of the debt incurred during the 2011 Period.  These increases were partially offset by a decrease in loss on derivative financial instruments related to our five non-designated interest rate swaps. Additionally, the decrease in administrative expense reimbursements was due to lower costs incurred on our behalf by our Investment Manager. 

 

Noncontrolling Interests

 

Net income (loss) attributable to noncontrolling interests increased $2,397,654 from a net loss of $1,885,432 in the 2011 Period to net income of $512,222 in the 2012 Period.  The increase was primarily due to the change in fair value of the non-designated interest rate swap contracts in connection with a related party’s investment in four leveraged operating leases.

 

Net Income (Loss) Attributable to Fund Fourteen

 

As a result of the foregoing factors, net income (loss) attributable to us for the 2012 Period and the 2011 Period was $7,997,264 and $(415,565), respectively. The net income (loss) attributable to us per weighted average Interest outstanding for the 2012 Period and the 2011 Period was $30.59 and $(1.73), 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 $21,537,402, from $458,648,791 at December 31, 2011 to $437,111,389 at September 30, 2012.  The decrease in total assets was primarily the result of depreciation of our leased equipment at cost and cash distributions paid to our partners, partially offset by the results of our operations during the 2012 Period.

 

Total Liabilities

 

Total liabilities decreased $13,814,364, from $244,772,159 at December 31, 2011 to $230,957,795 at September 30, 2012. The decrease was primarily the result of scheduled repayments of our non-recourse long-term debt, partially offset by the increased liability position of our derivative financial instruments.

 

Equity

 

Equity decreased $7,723,038, from $213,876,632 at December 31, 2011 to $206,153,594 at September 30, 2012. The decrease was primarily the result of distributions paid to our partners, partially offset by our net income.  

 

Liquidity and Capital Resources

 

Summary

 

At September 30, 2012 and December 31, 2011, we had cash and cash equivalents of $11,797,711 and $48,783,509, respectively.  Pursuant to the terms of our offering, we have established a reserve in the amount of 0.50% of the gross offering proceeds from the sale of our Interests.  As of September 30, 2012, the cash reserve was $1,288,235.  During our offering period, our main source of cash was from financing activities and our main use of cash was in investing activities. During our operating period, our main source of cash is typically from operating activities and our main use of cash is in investing and financing activities. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we make new investments, pay distributions to our partners and to the extent that expenses exceed cash flows from operations and the proceeds from the sale of our investments.

 

We believe that cash generated from the expected results of our operations will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our partners, general and administrative expenses, new investment opportunities, management fees and administrative expense reimbursements.  At September 30, 2012, we had $14,379,238 available under the Facility pursuant to the borrowing base, available to fund our short-term liquidity needs.  For additional information, see Note 7 to our consolidated financial statements.

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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 are using the net proceeds of our offering to invest in Capital Assets located in North America, Europe and other developed markets, including those in Asia, South America and elsewhere.  We seek to acquire a portfolio of Capital Assets that is comprised of transactions that (a) provide current cash flow in the form of rental payments (in the case of leases) and payments of principal and/or interest (in the case of secured loans), (b) generate deferred cash flow from realizing the value of the Capital Assets or interests therein at the maturity of the investment or exercise of an option to purchase Capital Assets, or (c) provide a combination of both.

 

For the period from June 19, 2009, the “Commencement of Operations,” through May 18, 2011, we sold 258,897 Interests, representing $257,646,987 of capital contributions, and admitted 7,010 limited partners.  For the period from the Commencement of Operations through May 18, 2011, we paid sales commissions to third parties of $17,201,964 and underwriting commissions to ICON Securities Corp. of $7,445,754.  In addition, organizational and offering expenses of $2,926,110 were paid or incurred by us, our General Partner or its affiliates during this period.  

 

Operating Activities

 

Cash provided by operating activities increased $4,807,911 from $16,455,228 in the 2011 Period to $21,263,139 in the 2012 Period.  The increase was primarily due to increased finance and rental receipts on a larger base of investments, partially offset by an increase in interest paid on our non-recourse long-term debt during the 2012 Period.

 

Investing Activities

 

Cash used in investing activities decreased $49,681,032 from $75,672,102 in the 2011 Period to $25,991,070 in the 2012 Period. The decrease primarily resulted from the use of less cash to make investments and our receipt of increased principal repayments on our notes receivable and finance leases during the 2012 Period as compared to the 2011 Period.

 

Financing Activities

 

Cash provided by financing activities decreased $92,785,542 from a source of cash of $60,527,675 in the 2011 Period to a use of cash of $32,257,867 in the 2012 Period. The decrease was primarily due to reductions of financing cash inflows resulting from (i) the completion of our offering period on May 18, 2011, (ii) proceeds from non-recourse long-term debt during the 2011 Period and (iii) the investment by a noncontrolling interest during the 2011 Period.

 

Non-Recourse Long-Term Debt

 

We had non-recourse long-term debt obligations at September 30, 2012 of $205,020,283. Most of our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the underlying equipment. If the lessee were to default on the underlying lease, resulting in our default on the non-recourse long-term debt, the equipment would be returned to the lender in extinguishment of that debt.

 

Distributions

 

We, at our General Partner’s discretion, pay monthly distributions to each of our limited partners beginning with the first month after each such limited partner’s admission and expect to continue to pay such distributions until the termination of our operating period.  We paid distributions of $156,867, $15,529,841 and $678,830 to our General Partner, limited partners and noncontrolling interests, respectively, during the 2012 Period.  

 

Commitments and Contingencies and Off-Balance Sheet Transactions

 

Commitments and Contingencies

 

At the time we acquire or divest of an interest in Capital Assets, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities.  Our General Partner 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

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condition or results of operations taken as a whole.

 

On September 27, 2010, we through our wholly-owned subsidiary, ICON SE, participated in a $46,000,000 facility by agreeing to make a secured term loan to SE for the purchase of a new-build heavy lift vessel and accompanying equipment. Although all of the material conditions to closing were satisfied, SE breached its obligations under the loan by refusing to draw down on the facility. Subsequently, ICON SE commenced an action against SE in the United Kingdom for SE’s failure to pay ICON SE the commitment fee due in accordance with the loan agreement.

 

We, through certain subsidiaries of our joint venture with Fund Twelve, borrowed Senior Debt and Sub Debt in connection with the acquisition of the vessels bareboat chartered to AET Inc. Limited.  On April 20, 2012, these subsidiaries were notified of an event of default on their Senior Debt.  Due to a change in the fair value of these vessels, a provision in the Senior Debt loan agreement restricts our ability to utilize cash generated by the charter of these vessels as of January 12, 2012 for purposes other than paying the Senior Debt.  Approximately $3,393,000 was classified as restricted cash as of September 30, 2012.  Charter payments in excess of the Senior Debt loan service are held in reserve by the Senior Debt lender until such time as the restriction is cured. Once cured, the reserves will be released to us. While this restriction is in place, we are prevented from applying the charter proceeds to the Sub Debt. As a result of our failure to make required Sub Debt loan payments from  June through September 2012, the Sub Debt lender has certain rights, including step-in rights, which allow it to collect cash generated from the charters until such time as the Sub Debt lender has received all unpaid amounts.  The Sub Debt lender has reserved, but not exercised, its rights under the loan agreement.

 

On September 24, 2012, we received a waiver of certain financial covenants in connection with the non-recourse long-term debt relating to the vessels on bareboat charter to Fantastic Shipping, Ltd. and Amazing Shipping, Ltd.

 

In connection with certain investments, we are required to maintain restricted cash accounts with certain banks. At September 30, 2012, we had $6,442,556 in restricted cash. 

 

Off-Balance Sheet Transactions

 

None.  

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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 General Partner, our General Partner carried out an evaluation, under the supervision and with the participation of the management of our General Partner, including its Co-Chief Executive Officers and the Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our General Partner’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 General Partner’s disclosure controls and procedures were effective.

 

In designing and evaluating our General Partner’s disclosure controls and procedures, our General Partner 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 General Partner’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 General Partner’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 repurchase any 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 Limited Partnership of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on October 3, 2008 (File No. 333-153849)).

 

 

 

4.1

 

Limited Partnership Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus filed with the SEC on May 18, 2009 (File No. 333- 153849)).

 

 

 

10.1

 

Investment Management Agreement, by and between ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. and ICON Capital Corp., dated as of May 18, 2009 (Incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.2

 

Commercial Loan Agreement, by and between California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC, dated as of August 31, 2005 (Incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.3

 

Loan Modification Agreement, by and between California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC, dated as of December 26, 2006 (Incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.4

 

Loan Modification Agreement, by and between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC, dated as of June 20, 2007 (Incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.5

 

Third Loan Modification Agreement, by and between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC, dated as of May 1, 2008 (Incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.6

 

Fourth Loan Modification Agreement, by and between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON Leasing Fund Twelve, LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., dated as of August 12, 2009 (Incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).

 

 

 

10.7

 

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 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed May 16, 2011).

 

 

 

10.8

 

Commercial Loan Agreement, by and between California Bank & Trust and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., dated as of May 10, 2011. (Incorporated by reference to Exhibit 10.8 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed on May 16, 2011).

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.

 

 

 

31.3

 

 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer.

 

 

 

32.1

 

Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.3

 

Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS*

 

XBRL Instance Document.

 

 

 

101.SCH*

 

XBRL Taxonomy Extension Schema Document.