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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1998
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the transition period from to
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Commission File Number 33-44413
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ICON Cash Flow Partners, L.P., Series E
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3635208
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 Mamaroneck Avenue, Harrison, New York 10528-1632
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 698-0600
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange
on which registered
- ------------------------------------- --------------------------------------
- ------------------------------------- --------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business 3-5
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 5
6. Selected Consolidated Financial and Operating Data 6
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
8. Consolidated Financial Statements and Supplementary Data 12-32
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 33
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 33-34
11. Executive Compensation 35
12. Security Ownership of Certain Beneficial Owners
and Management 35
13. Certain Relationships and Related Transactions 36
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 36
SIGNATURES 37
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
PART I
Item 1. Business
General Development of Business
ICON Cash Flow Partners, L.P., Series E (the "Partnership") was formed in
November 1991 as a Delaware limited partnership. The Partnership commenced
business operations on its initial closing date, July 6, 1992, with the
admission of 13,574.17 limited partnership units. Between July 7, 1992 and
December 31, 1992, 236,021.97 additional units were admitted and from January 1,
1993 to July 31, 1993 (the final closing date), 360,815.37 additional units were
admitted bringing the final admission to 610,411.51 units totaling $61,041,151
in capital contributions. From 1994 through 1997, the Partnership redeemed 1,966
limited partnership units. The Partnership redeemed 590 limited partnership
units in 1998, leaving 607,855.51 limited partnership units outstanding at
December 31, 1998. The sole general partner is ICON Capital Corp. (the "General
Partner").
The Partnership's reinvestment period ended July 31, 1998. The disposition
period began on August 1, 1998 and is expected to continue through July 2003.
During the disposition period the Partnership has and will continue to
distribute substantially all distributable cash from operations and equipment
sales to the partners and begin the orderly termination of its operations and
affairs. The Partnership has not and will not invest in any additional finance
or lease transactions during the disposition period. During the disposition
period the Partnership expects to recover, at a minimum, the carrying value of
its assets.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal
investment objective of the Partnership is to obtain the maximum economic return
from its investments for the benefit of its limited partners. To achieve this
objective, the Partnership has: (1) acquired a diversified portfolio of leases
and financing transactions; (2) made monthly cash distributions to its limited
partners from cash from operations, commencing with each limited partner's
admission to the Partnership, (3) re-invested substantially all undistributed
cash from operations and cash from sales in additional equipment and financing
transactions during the reinvestment period; and (4) begun to sell the
Partnership's investments and distribute the cash from sales of such investments
to its limited partners.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
The equipment leasing industry is highly competitive. In initiating its
leasing transactions the Partnership competed with leasing companies,
manufacturers that lease their products directly, equipment brokers and dealers
and financial institutions, including commercial banks and insurance companies.
Many competitors are larger than the Partnership and have greater financial
resources.
The Partnership has no direct employees. The General Partner has full and
exclusive discretion in management and control of the Partnership.
Lease and Financing Transactions
For the years ended December 31, 1998 and 1997, the Partnership purchased
and leased or financed $53,254,390 and $23,112,295 of equipment, respectively,
with a weighted average initial transaction term of 44 and 55 months,
respectively, and invested $87,185 and $16,287,305 in joint ventures in 1998 and
1997, respectively. Included in the summary of equipment cost by category below
is 100% of the equipment cost acquired by two joint ventures in which the
Partnership has a 99% and 75% interest. The Partnership accounts for these
investments by consolidating 100% of the assets and liabilities of the joint
ventures and reflecting, as a liability, the related minority interests. The
equipment purchased by three other joint ventures in which the Partnership has a
less than 50% interest are not included in this table. At December 31, 1998, the
weighted average initial transaction term of the portfolio was 51 months. A
summary of the portfolio equipment cost by category held at December 31, 1998
and 1997 is as follows:
December 31, 1998 December 31, 1997
--------------------- ----------------------
Category Cost Percent Cost Percent
Aircraft ..................... $ 23,010,250 19.1% $ 18,756,214 23.2%
Manufacturing & production ... 18,915,472 15.7 20,968,594 26.0
Retail Systems ............... 18,029,410 15.0 11,084,351 13.7
Computer systems ............. 16,795,387 13.9 8,286,038 10.2
Telecommunications ........... 11,218,104 9.3 4,647,599 5.7
Furniture and fixtures ....... 11,068,318 9.2 4,501,588 5.5
Restaurant equipment ......... 7,370,358 6.1 6,319,444 7.8
Medical ...................... 3,215,121 2.7 961,641 1.1
Automotive ................... 2,311,216 1.9 521,190 .6
Construction ................. 1,594,293 1.3 461,084 .6
Material handling ............ 1,481,333 1.2 1,682,510 2.0
Sanitation ................... 1,054,294 .9 -- --
Miscellaneous ................ 4,521,350 3.7 2,882,197 3.6
------------ ----- ------------ -----
$120,584,906 100.0% $ 81,072,450 100.0%
============ ===== ============ =====
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
The Partnership has one lease which individually represents greater than
10% of the total portfolio equipment cost at December 31, 1998. The lease is
with Aerovias de Mexico, S.A. de C.V. ("Aero Mexico"); the underlying equipment
is an aircraft and the asset represented 17.2% of the total portfolio cost at
December 31, 1998.
Item 2. Properties
The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs.
Item 3. Legal Proceedings
The Partnership is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
The Partnership's limited partnership interests are not publicly traded nor
is there currently a market for the Partnership's limited partnership interests.
It is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of December 31,
-------------- ---------------------------------
1998 1997
---- ----
Limited partners 3,736 3,748
General Partner 1 1
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 6. Selected Consolidated Financial and Operating Data
Years Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total revenues ........... $ 10,087,667 $ 7,611,293 $ 9,849,216 $12,180,865 $11,574,281
============ =========== =========== =========== ===========
Net income ............... $ 1,047,706 $ 2,368,585 $ 2,243,883 $ 1,585,802 $ 1,527,095
============ =========== =========== =========== ===========
Net income allocable
to limited partners .... $ 1,037,229 $ 2,344,899 $ 2,221,444 $ 1,569,944 $ 1,511,824
============ =========== =========== =========== ===========
Net income allocable
to the General Partner . $ 10,477 $ 23,686 $ 22,439 $ 15,858 $ 15,271
============ =========== =========== =========== ===========
Weighted average
limited partnership
units outstanding ...... 608,273 609,211 609,503 609,650 610,080
============ =========== =========== =========== ===========
Net income per
weighted average limited
partnership unit ....... $ 1.71 $ 3.85 $ 3.64 $ 2.58 $ 2.48
============ =========== =========== =========== ===========
Distributions to
limited partners ....... $ 7,755,553 $ 7,768,316 $ 7,771,164 $ 7,773,082 $ 8,390,043
============ =========== =========== =========== ===========
Distributions to the
General Partner ........ $ 78,338 $ 78,468 $ 78,496 $ 78,512 $ 78,582
============ =========== =========== =========== ===========
Years Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total assets $86,918,230 $66,917,017 $77,934,170 $95,508,881 $116,090,367
=========== =========== =========== =========== ============
Partners' equity $16,876,070 $23,689,694 $29,192,964 $34,807,701 $ 41,075,863
=========== =========== =========== =========== ============
The above selected consolidated financial data should be read in
conjunction with the consolidated financial statements and related notes
appearing elsewhere in this report.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership's portfolio consisted of a net investment in finance
leases, financings, operating leases and equity investments in joint ventures
representing 50%, 28%, 20% and 2% of total investments at December 31, 1998,
respectively, and 46%, 20%, 31% and 3% of total investments at December 31,
1997, respectively.
Results of Operations
Years Ended December 31, 1998 and 1997
For the years ended December 31, 1998 and 1997, the Partnership purchased
and leased or financed equipment with an initial cost of $53,254,390 and
$23,112,295, respectively, to 177 and 447 lessees or equipment users,
respectively.
Revenues for the year ended December 31, 1998 were $10,087,667,
representing an increase of $2,476,374 or 33% from 1997. The increase in
revenues resulted primarily from an increase in finance income of $2,796,741 or
83%, an increase in rental income of $436,325 or 22%, and an increase in income
from equity investments in joint ventures of $231,991 or 217%. These increases
were partially offset by a decrease in net gain on sales or remarketing of
equipment of $557,256 or 46% and a decrease in interest income and other of
$431,427 or 46%. Finance income increased due to an increase in the average size
of the finance lease portfolio from 1997 to 1998. The Partnership's operating
lease with Alaska Air terminated in April 1997 and the asset was subsequently
released to Aero Mexico in June 1997. Rental income increased due to contractual
rents under the new Aero Mexico lease being greater than contractual rents under
the Alaska Air lease. The Partnership contributed equipment lease and finance
receivables, residuals and cash totaling $16,287,305 to ICON Receivables 1997-A
L.L.C. ("1997-A"), a joint venture, in September 1997. Income from the equity
investments in joint ventures for 1997 includes three months of income related
to the 1997-A investment compared to twelve months for 1998. The net gain on
sales or remarketing of equipment decreased due to a decrease in the number of
leases maturing in which the underlying equipment was sold or remarketed, for
which the proceeds received were in excess of the average carrying value of the
equipment. The decrease in interest income and other was due primarily to the
decrease in interest income related to a loan from the Partnership to an
affiliate, ICON Asset Acquisition L.L.C. The loan was repaid in August 1997.
Expenses for the year ended December 31, 1998 were $9,039,961, representing
an increase of $3,797,253 or 72% from 1997. The increase in expenses resulted
primarily from an increase in interest expense of $2,024,584 or 82%, an increase
in the provision for bad debts of $1,275,088, an increase in management fees of
$288,032 or 31%, an increase in administrative expense reimbursements of
$171,074 or 35%, an increase in general and administrative expense of $187,820
or 51%, an increase in depreciation expense of $69,884 or 15% and an increase in
minority interest in joint ventures of $7,088 or 12%. These increases were
partially offset by a decrease in amortization of initial direct costs of
$226,318 or 49%.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Interest expense increased due to an increase in the average debt
outstanding from 1997 to 1998. As a result of the ongoing analysis of
delinquency trends, loss experience and an assessment of overall credit risk,
the Partnership recorded a $1,275,089 provision for bad debt. Management fees,
administrative expense reimbursements and general and administrative expenses
increased due to an increase in the average size of the portfolio from 1997 to
1998. Depreciation expense increased due to the Partnership's 1998 restructuring
and releasing of its operating lease. Minority interest expense increased as a
result of an increase in the net income of its consolidated joint venture, ICON
Receivables 1997-B ("1997-B"). Although 1997-B increased its bad debt provision
significantly in 1998, the entity's net income increased due to the increase in
finance income related to the increase in the average size of the finance lease
portfolio from 1997 to 1998. Amortization of initial direct costs decreased due
to a decrease in the average size of the portfolio subject to initial direct
costs from 1997 to 1998.
Net income for the years ended December 31, 1998 and 1997 was $1,047,706
and $2,368,585, respectively. The net income per weighted average limited
partnership unit was $1.71 and $3.85 for 1998 and 1997, respectively.
Years Ended December 31, 1997 and 1996
For the years ended December 31, 1997 and 1996, the Partnership purchased
and leased or financed equipment with an initial cost of $23,112,295 and
$20,226,129, respectively, to 447 and 157 lessees or equipment users,
respectively.
Revenues for the year ended December 31, 1997 were $7,611,293, representing
a decrease of $2,237,923 or 23% from 1996. The decrease in revenues resulted
primarily from a decrease in finance income of $1,227,017 or 27%, a decrease in
net gain on sales or remarketing of equipment of $732,621 or 38%, a decrease in
rental income of $697,397 or 26% and a decrease in income from leveraged leases
of $200,517 or 100% from 1996. These decreases were partially offset by an
increase in interest income and other of $518,440 or 125% and an increase in
income from equity investment in joint ventures of $101,189. The overall
decrease in finance income resulted from a decrease in the average size of the
finance lease portfolio from 1996 to 1997. The decrease in net gain on sales or
remarketing of equipment was due to a decrease in the number of leases maturing
in which the underlying equipment was sold or remarketed for which the proceeds
received were in excess of the remaining carrying value. The Partnership's
operating lease with Alaska Air terminated in April 1997. The asset was
subsequently leased to Aero Mexico in June 1997. Although contractual rents
under the new Aero Mexico lease are greater than contractual rents under the
Alaska Air lease, rental income decreased due to 1997 rental income representing
nine months of contractual rents versus a full year of contractual rents in
1996. The decrease in income from leveraged leases was due to the 1996 sale of
the underlying equipment relating to the Partnership's investment in leveraged
leases. Interest income increased due to the Partnership's 1997 short-term loans
to ICON Asset Acquisition and to ICON Cash Flow Partners, L.P., Series D (See
Note 8 Related Party Transactions for a discussion of these notes). Income from
equity investment in joint ventures increased as a direct result of the
Partnership's September 1997 contribution to ICON Receivables 1997-A L.L.C. This
contribution consisted of equipment lease and finance receivables, residuals and
cash totaling $16,287,305.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Expenses for the year ended December 31, 1997 were $5,242,708, representing
a decrease of $2,362,625 or 31% from 1996. The decrease in expenses resulted
primarily from a decrease in provision for bad debts of $400,000 or 100%, a
decrease in amortization of initial direct costs of $426,340 or 48%, a decrease
in depreciation expense of $586,092 or 55%, a decrease in general and
administrative expense of $237,588 or 39%, a decrease in management fees of
$200,608 or 18%, a decrease in interest expense of $486,489 or 16% and a
decrease in administrative expense reimbursements of $76,854 or 14%. These
decreases were partially offset by an increase in minority interest in joint
ventures of $51,346 from 1996. Based on the ongoing analysis of delinquency
trends, loss experience and an assessment of overall credit risk, the
Partnership determined that no provision for bad debts was required for the year
ended December 31, 1997. Amortization of initial direct costs, general and
administrative expense, administrative expense reimbursement and management fees
decreased due to a decrease in the average size of the portfolio from 1996 to
1997. Depreciation expense decreased due to the Partnership's reduced investment
in operating leases. Interest expense decreased due to a decrease in the average
debt outstanding from 1996 to 1997. The increase in minority interest in joint
venture resulted from the Partnership's September 1997 investment in a joint
venture.
Net income for the years ended December 31, 1997 and 1996 was $2,368,585
and $2,243,883, respectively. The net income per weighted average limited
partnership unit was $3.85 and $3.64 for 1997 and 1996, respectively.
Liquidity and Capital Resources
The Partnership's reinvestment period ended July 31, 1998. The disposition
period began on August 1, 1998 and is expected to continue through July 2003.
During the disposition period the Partnership has and will continue to
distribute substantially all distributable cash from operations and equipment
sales to the partners and begin the orderly termination of its operations and
affairs. The Partnership has not and will not invest in any additional finance
or lease transactions during the disposition period. During the disposition
period the Partnership expects to recover, at a minimum, the carrying value of
its assets.
As a result of the Partnership's entering into the disposition period,
future monthly distributions are expected to fluctuate depending on the amount
of asset sale and re-lease proceeds received during that period.
The Partnership's primary sources of funds in 1998, 1997 and 1996 were net
cash provided by operations of $12,745,950, $20,898,350 and $13,194,384,
respectively, proceeds from sales of equipment of $2,493,691, $15,313,194 and
$10,358,637, respectively, proceeds from a warehouse line of credit of
$20,703,918 and $16,365,451 in 1998 and 1997, respectively, proceeds from
securitization debt of $41,175,000 in 1998 and proceeds from a revolving credit
facility of $4,400,000 and $13,780,000 in 1997 and 1996, respectively. These
funds were used to purchase equipment, fund cash distributions and make payments
on borrowings.
The Partnership's notes payable at December 31, 1998 and 1997 totaled
$65,467,538 and $41,272,934, respectively, and consisted of $27,268,176 and
$21,575,994 in non-recourse notes, respectively, which are being paid directly
to the lenders by the lessees, $1,224,266 and $3,596,070 in non-recourse
residual value notes, respectively, which will be paid to the extent proceeds
are available
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
in excess of the Partnership's estimated unguaranteed residuals, $36,975,096 in
securitization debt at December 31, 1998 and $16,100,870 outstanding under the
1997-B Warehouse Facility at December 31, 1997.
In March 1997 three affiliates of the Partnership, ICON Cash Flow
Partners, L.P., Series D ("Series D"), ICON Cash Flow Partners, L.P. Six ("L.P.
Six") and ICON Cash Flow Partners L.P. Seven ("L.P. Seven"), contributed and
assigned equipment lease and finance receivables and residuals to ICON
Receivables 1997-A LLC ("1997-A"), a special purpose entity created for the
purpose of originating leases, managing existing contributed assets and
securitizing its portfolio. In September 1997 the Partnership, L.P. Six and L.P.
Seven contributed and assigned additional equipment lease and finance
receivables and residuals to 1997-A. The Partnership, Series D, L.P. Six and
L.P. Seven received a 31.19%, 17.81%, 31.03% and 19.97% interest, respectively,
in 1997-A based on the present value of their related contributions. In
September 1997, 1997-A securitized substantially all of its equipment leases and
finance receivables and residuals. 1997-A became the beneficial owner of a
trust. The Partnership's original investment was recorded at cost and is
adjusted by its share of earnings, losses and distributions thereafter.
In August 1997 the Partnership, L.P. Six and L.P. Seven formed ICON
Receivables 1997-B L.L.C. ("1997-B"), a special purpose entity formed for the
purpose of originating leases and securitizing its portfolio. The Partnership,
L.P. Six and L.P. Seven contributed $2,250,000 (75.00% interest), $250,000
(8.33% interest) and $500,000 (16.67% interest), respectively to 1997-B. In
order to fund the acquisition of leases, 1997-B obtained a warehouse borrowing
facility from Prudential Securities Credit Corporation. In October 1998, 1997-B
completed an equipment securitization. The net proceeds from the securitization
of these assets were used to pay-off the remaining 1997-B warehouse facility
balance and any remaining proceeds were distributed to the 1997-B members in
accordance with their membership interests. The Partnership's original
investment was recorded at cost and is adjusted by its share of earnings, losses
and distributions thereafter.
Cash distributions to the limited partners for the years ended December 31,
1998, 1997 and 1996, which were paid monthly, totaled $7,755,553, $7,768,316 and
$7,771,164, respectively of which $1,037,229, $2,344,899 and $2,221,444 was
investment income and $6,718,324, $5,423,417 and $5,549,720 was a return of
capital, respectively. The monthly annualized cash distribution rate to limited
partners for the years ended December 31, 1998, 1997 and 1996 was 12.75%, of
which 1.71%, 3.85% and 3.64% was investment income and 11.04%, 8.90% and 9.11%
was a return of capital, respectively, calculated as a percentage of each
partners' initial capital contribution. The limited partner distribution per
weighted average unit outstanding for the years ended December 31, 1998, 1997
and 1996 was $12.75, of which $1.71, $3.85 and $3.64 was investment income and
$11.04, $8.90 and $9.11 was a return of capital, respectively.
As of December 31, 1998, except as noted above, there were no known trends
or demands, commitments, events or uncertainties which are likely to have a
material effect on liquidity. As cash is realized from operations and sales of
equipment, the Partnership will distribute substantially all available cash,
after retaining sufficient cash to meet its reserve requirements and recurring
obligations.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Year 2000 Issue
The Year 2000 issue arose because many existing computer programs have been
written using two digits rather than four to define the applicable year. As a
result, programs could interpret dates ending in "00" as the year 1900 rather
than the year 2000. In certain cases, such errors could result in system
failures or miscalculations that disrupt the operation of the affected
businesses.
The Partnership uses computer information systems provided by the General
Partner and has no computer information systems of its own. The software related
to the General Partner's primary computer information systems are provided by
third party vendors. The General Partner has formally communicated with these
vendors and has received assurance that their programs are Year 2000 compliant.
In addition, the General Partner has gathered information about the Year 2000
readiness of significant vendors and third-party servicers and continues to
monitor developments in this area. All of the General Partner's peripheral
computer technologies, such as its network operating system and third party
software applications, including payroll and electronic banking have been
evaluated and have been found to be Year 2000 compliant. The ultimate impact of
the Year 2000 issue on the Partnership will depend to a great extent on the
manner in which the issue is addressed by the Partnership's lessees. Each of the
Partnership's lessees will have a material self interest in resolving any Year
2000 issue, however, non-compliance on the part of a lessee could result in lost
or delayed revenues to the Partnership. The effect of this risk to the
Partnership is not determinable.
The General Partner is responsible for costs relating to the assessment and
development of its Year 2000 compliance remediation plan, as well as the testing
of the hardware and software owned or licensed for its personal computers. The
General Partner's costs incurred to date and expected future costs are not
material.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Report 14
Consolidated Balance Sheets as of
December 31, 1998 and 1997 15-16
Consolidated Statements of Operations
for the Years Ended
December 31, 1998, 1997 and 1996 17
Consolidated Statements of Changes in Partners'
Equity for the Years Ended
December 31, 1998, 1997 and 1996 18
Consolidated Statements of Cash Flows
for the Years Ended
December 31, 1998, 1997 and 1996 19-21
Notes to Consolidated Financial Statements 22-32
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1998
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners
ICON Cash Flow Partners, L.P., Series E:
We have audited the accompanying consolidated balance sheets of ICON Cash Flow
Partners, L.P., Series E (a Delaware limited partnership) as of December 31,
1998 and 1997, and the related consolidated statements of operations, changes in
partners' equity and cash flows for each of the years in the three-year period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1, the Partnership's reinvestment period ended July 31,
1998. The disposition period began on August 1, 1998 and is expected to continue
through July 2003. During the disposition period the Partnership has and will
continue to distribute substantially all distributable cash from operations and
equipment sales to the partners and begin the orderly termination of its
operations and affairs.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ICON Cash Flow
Partners, L.P., Series E as of December 31, 1998 and 1997, and the results of
its operations and its cash flows for each of the years in the three-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
-----------------------------------
KPMG LLP
March 12, 1999
New York, New York
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
1998 1997
---- ----
Assets
Cash ....................................... $ 2,336,094 $ 9,460,337
------------ ------------
Investment in finance leases
Minimum rents receivable ................ 39,904,532 21,979,203
Estimated unguaranteed residual values .. 11,545,261 7,380,296
Initial direct costs .................... 11,986 225,158
Unearned income ......................... (8,575,852) (3,811,419)
Allowance for doubtful accounts ......... (985,300) (553,114)
------------ ------------
41,900,627 25,220,124
Investment in financings
Receivables due in installments ......... 28,310,139 13,732,305
Initial direct costs .................... 106 1,117
Unearned income ......................... (4,815,891) (2,563,681)
Allowance for doubtful accounts ......... (425,601) (102,532)
------------ ------------
23,068,753 11,067,209
Investment in operating leases
Equipment at cost ....................... 20,707,984 20,707,984
Accumulated depreciation ................ (3,409,972) (2,864,469)
------------ ------------
17,298,012 17,843,515
Investments in unconsolidated joint ventures 1,264,148 1,556,123
------------ ------------
Accounts receivable from affiliates, net ... 160,151 7,104
------------ ------------
Other assets ............................... 890,445 1,762,605
------------ ------------
Total assets ............................... $ 86,918,230 $ 66,917,017
============ ============
(continued on next page)
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Balance Sheets (continued)
(unaudited)
1998 1997
---- ----
Liabilities and Partners' Equity
Notes payable - securitized debt .......................... $ 36,975,096 $ --
Notes payable - non-recourse .............................. 28,492,442 25,172,064
Note payable - warehouse line of credit ................... -- 16,100,870
Security deposits, deferred credits and other payables .... 4,014,873 1,100,260
Minority interests in consolidated joint ventures ......... 559,749 854,129
------------ ------------
70,042,160 43,227,323
Commitments and Contingencies
Partners' equity (deficiency)
General Partner ........................................ (351,105) (283,244)
Limited partners (607,856 and 608,446 units outstanding,
$100 per unit original issue price in 1998 and 1997,
respectively) ........................................ 17,227,175 23,972,938
------------ ------------
Total partners' equity .................................... 16,876,070 23,689,694
------------ ------------
Total liabilities and partners' equity .................... $ 86,918,230 $ 66,917,017
============ ============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Revenues
Finance income ...................... $ 6,147,030 $ 3,350,289 $ 4,577,306
Rental income ....................... 2,447,700 2,011,375 2,708,772
Net gain on sales or remarketing
of equipment ...................... 652,164 1,209,420 1,942,041
Interest income and other ........... 501,608 933,130 414,690
Income from investments in
unconsolidated joint ventures ..... 339,165 107,079 5,890
Income from leveraged leases, net ... -- -- 200,517
----------- ----------- -----------
Total revenues ...................... 10,087,667 7,611,293 9,849,216
----------- ----------- -----------
Expenses
Interest ............................ 4,495,629 2,471,045 2,957,534
Provision for bad debts ............. 1,275,089 -- 400,000
Management fees - General Partner ... 1,207,760 919,728 1,120,336
Administrative expense reimbursements
- General Partner ................. 657,327 486,253 563,107
Depreciation ........................ 545,503 475,619 1,061,711
General and administrative .......... 558,525 370,705 608,293
Amortization of initial direct costs 235,302 461,620 887,960
Minority interest expense in
consolidated joint ventures ....... 64,826 57,738 6,392
----------- ----------- -----------
Total expenses ...................... 9,039,961 5,242,708 7,605,333
----------- ----------- -----------
Net income ............................. $ 1,047,706 $ 2,368,585 $ 2,243,883
=========== =========== ===========
Net income allocable to:
Limited partners .................... $ 1,037,229 $ 2,344,899 $ 2,221,444
General Partner ..................... 10,477 23,686 22,439
----------- ----------- -----------
$ 1,047,706 $ 2,368,585 $ 2,243,883
=========== =========== ===========
Weighted average number of limited
partnership units outstanding ....... 608,273 609,211 609,503
=========== =========== ===========
Net income per weighted average
limited partnership unit ............ $ 1.71 $ 3.85 $ 3.64
=========== =========== ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity
For the Years Ended December 31, 1998, 1997 and 1996
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
--------- ---------- -------- ------- -----
(Per weighted average unit)
Balance at
December 31, 1995 $34,980,106 $(172,405) $34,807,701
Cash distribution
to partners $ 9.11 $3.64 (7,771,164) (78,496) (7,849,660)
Limited partnership
units redeemed
(193 units) (8,960) - (8,960)
Net income 2,221,444 22,439 2,243,883
----------- --------- -----------
Balance at
December 31, 1996 29,421,426 (228,462) 29,192,964
Cash distribution
to partners $ 8.90 $3.85 (7,768,316) (78,468) (7,846,784)
Limited partnership
units redeemed
(1,000 units) (25,071) - (25,071)
Net income 2,344,899 23,686 2,368,585
----------- --------- -----------
Balance at
December 31, 1997 23,972,938 (283,244) 23,689,694
Cash distribution
to partners $11.04 $1.71 (7,755,553) (78,338) (7,833,891)
Limited partnership
units redeemed
(590 units) (27,439) - (27,439)
Net income 1,037,229 10,477 1,047,706
----------- --------- -----------
Balance at
December 31, 1998 $17,227,175 $(351,105) $16,876,070
=========== ========= ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income ...................................................... $ 1,047,706 $ 2,368,585 $ 2,243,883
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation ................................................. 545,503 475,619 1,061,711
Rental income-assigned operating lease receivables ........... (2,447,700) (2,011,375) (2,708,772)
Finance income portion of receivables paid directly
to lenders by lessees ...................................... (2,120,403) (1,062,414) (1,841,636)
Amortization of initial direct costs ......................... 235,302 461,620 887,960
Net gain on sales or remarketing of equipment ................ (652,164) (1,209,420) (1,942,041)
Interest expense on non-recourse financing
paid directly by lessees ................................... 2,484,621 1,443,747 2,119,196
Interest expense accrued on recourse debt .................... -- -- 369,823
Income from leveraged leases, net ............................ -- -- (200,517)
Income from investments in
unconsolidated joint ventures .............................. (339,165) (107,079) (5,890)
Minority interest expense in consolidated joint ventures ..... 64,826 57,738 6,392
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables ........ 8,535,799 8,224,989 8,825,469
Allowance for doubtful accounts ........................... 596,638 (452,294) 487,729
Accounts receivable from General Partner
and affiliates, net ..................................... (153,048) -- --
Distributions received from
unconsolidated joint ventures ........................... 722,760 14,829,488 --
Investments in unconsolidated joint ventures .............. (87,185) (740,000) (15,955)
Other assets .............................................. 1,027,060 (1,700,223) 4,456,903
Security deposits, deferred credits and
other payables .......................................... 2,914,613 (248,106) (1,282,927)
Accounts payable to General Partner
and affiliates, net ................................... -- (113,746) 106,642
Minority interests in consolidated joint ventures ......... (359,206) 750,667 (2,392)
Other, net ................................................ 729,993 (69,446) 628,806
------------ ------------ ------------
Total adjustments ....................................... 11,698,244 18,529,765 10,950,501
------------ ------------ ------------
Net cash provided by operating activities .................. 12,745,950 20,898,350 13,194,384
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales of equipment ................................ 2,476,110 15,313,194 10,358,637
Equipment and receivables purchased ............................. (35,359,198) (23,183,848) (21,495,108)
Initial direct costs ............................................ -- -- (80,408)
------------ ------------ ------------
Net cash used in investing activities ..................... (32,883,088) (7,870,654) (11,216,879)
------------ ------------ ------------
(continued on next page)
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Proceeds from warehouse line of credit .................. 20,703,918 16,365,451 --
Principal payments on warehouse line of credit .......... (36,804,788) (264,581) --
Proceeds of securitized debt ............................ 41,175,000 -- --
Principal payments on securitized debt .................. (4,199,905) -- --
Proceeds from revolving credit facility ................. -- 4,400,000 13,780,000
Principal payments on revolving credit facility ......... -- (17,400,000) (8,195,741)
Loans to affiliates ..................................... -- (11,280,328) --
Principal payments received on affiliate notes .......... -- 11,280,328 --
Redemption of limited partnership units ................. (27,439) (25,071) (8,960)
Cash distributions to partners .......................... (7,833,891) (7,846,784) (7,849,660)
Principal payments on secured financing ................. -- -- (4,326,164)
------------ ------------ ------------
Net cash provided by (used in) financing activities 13,012,895 (4,770,985) (6,600,525)
------------ ------------ ------------
Net (decrease) increase in cash ......................... (7,124,243) 8,256,711 (4,623,020)
Cash at beginning of year ................................... 9,460,337 1,203,626 5,826,646
------------ ------------ ------------
Cash at end of year ......................................... $ 2,336,094 $ 9,460,337 $ 1,203,626
============ ============ ============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Statements of Cash Flows (Continued)
Supplemental Disclosures of Cash Flow Information
Interest expense of $4,495,629, $2,471,045 and $2,957,534 for the years
ended December 31, 1998, 1997 and 1996 consisted of: interest expense on
non-recourse financing accrued or paid directly to lenders by lessees of
$2,484,621, $1,443,747 and $2,119,196, respectively, interest on revolving
credit facility of $0, $866,922 and $369,577 respectively, interest on the
1997-B warehouse facility of $985,698, $160,376 and $0, respectively, other
interest of $132, $0 and $37,212, respectively, interest on securitized debt of
$1,025,178 in 1998 and interest on secured financing of $243,397 in 1996.
For the years ended December 31, 1998, 1997 and 1996, non-cash activities
included the following:
1998 1997 1996
---- ---- ----
Decrease in investments in finance leases and
financings due to contribution to
unconsolidated joint venture ................. $ -- $ 15,547,305 $ --
Increase in investments in
unconsolidated joint venture ................. -- (15,547,305) --
Principal and interest on finance receivables
paid directly to lender by lessees ........... 12,172,619 7,212,307 10,204,662
Rental Income
- assigned operating lease receivables ....... 2,447,700 2,011,375 677,193
Principal and interest on non-recourse financing
paid directly by lessees ..................... (14,620,319) (9,223,682) (10,881,855)
Decrease in investment in finance leases due
to terminations .............................. 2,439,116 1,216,922 3,370,870
Decrease in notes payable-non-recourse due to
terminations ................................. (2,439,116) (1,216,922) (3,370,870)
Non-recourse notes payable assumed in
purchase price - finance and operating leases 17,895,192 -- --
Fair value of equipment and receivables
purchased for debt and payables .............. (17,895,192) -- --
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
December 31, 1998
1. Organization
ICON Cash Flow Partners, L.P., Series E (the "Partnership") was formed on
November 7, 1991 as a Delaware limited partnership with an initial
capitalization of $2,000. It was formed to acquire various types of equipment,
to lease such equipment to third parties and, to a lesser degree, to enter into
secured financing transactions. The Partnership's offering period commenced on
June 5, 1992 and by its final closing on July 31, 1993, 610,411.51 units had
been admitted into the Partnership with aggregate gross proceeds of $61,041,151.
From 1994 through 1997, the Partnership redeemed 1,966 limited partnership
units. The Partnership redeemed 590 limited partnership units in 1998 leaving
607,855.51 limited partnership units outstanding at December 31, 1998.
The Partnership's reinvestment period ended July 31, 1998. The disposition
period began on August 1, 1998 and is expected to continue through July 2003.
During the disposition period the Partnership has and will continue to
distribute substantially all distributable cash from operations and equipment
sales to the partners and begin the orderly termination of its operations and
affairs. The Partnership has not and will not invest in any additional finance
or lease transactions during the disposition period. During the disposition
period, the Partnership expects to recover, at a minimum, the carrying value of
its assets.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner manages and controls
the business affairs of the Partnership's equipment leases and financing
transactions under a management agreement with the Partnership.
ICON Securities Corp., an affiliate of the General Partner, received an
underwriting commission on the gross proceeds from sales of all units. The total
underwriting compensation paid by the Partnership, including underwriting
commissions, sales commissions, incentive fees, public offering expense
reimbursements and due diligence activities was limited to 13 1/2% of the gross
proceeds received from the sale of the units. Such offering costs aggregated
$8,240,555 (including $3,362,551 paid to the General Partner or its affiliates)
and were charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds are allocated
99% to the limited partners and 1% to the General Partner until each limited
partner has received cash distributions and disposition proceeds sufficient to
reduce its adjusted capital contribution account to zero and receive, in
addition, other distributions and allocations which would provide a 10% per
annum cumulative return, compounded daily, on its outstanding adjusted capital
contribution account. After such time, the distributions will be allocated 90%
to the limited partners and 10% to the General Partner.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
2. Significant Accounting Policies
Basis of Accounting and Presentation - The Partnership's records are
maintained on the accrual basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and expenses
during the reporting period. Actual results could differ from those estimates.
In addition, management is required to disclose contingent assets and
liabilities.
Certain reclassifications have been made to prior years' statements to
conform to the 1998 presentation.
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiaries, ICON E Corp., ICON Cash
Flow Partners L.L.C. I ("ICON Cash Flow LLC I") and ICON Receivables 1997-B
L.L.C. ("1997-B"). All inter-company accounts and transactions have been
eliminated. The Partnership accounts for its interests in less than 50% owned
joint ventures under the equity method of accounting. In such cases, the
Partnership's original investments are recorded at cost and adjusted for its
share of earnings, losses and distributions thereafter.
Leases - The Partnership accounts for owned equipment leased to third
parties as finance leases or operating leases, as appropriate. For finance
leases, the Partnership records, at the inception of the lease, the total
minimum lease payments receivable, the estimated unguaranteed residual values,
the initial direct costs related to the leases and the related unearned income.
Unearned income represents the difference between the sum of the minimum lease
payments receivable plus the estimated unguaranteed residual minus the cost of
the leased equipment. Unearned income is recognized as finance income over the
terms of the related leases using the interest method. For operating leases,
equipment is recorded at cost and is depreciated on the straight-line method
over the lease terms to their estimated fair market values at lease
terminations. Related lease rentals are recognized on the straight-line method
over the lease terms. Billed and uncollected operating lease receivables, net of
allowance for doubtful accounts, are included in other assets. Initial direct
costs of finance leases are capitalized and are amortized over the terms of the
related leases using the interest method. Initial direct costs of operating
leases are capitalized and amortized on the straight-line method over the lease
terms. The Partnership's leases have terms ranging from two to eight years. Each
lease is expected to provide aggregate contractual rents that, along with
residual proceeds, return the Partnership's cost of its investments along with
investment income.
Investment in Financings - Investment in financings represent the gross
receivables due from the financing of equipment plus the initial direct costs
related thereto less the related unearned income. The unearned income is
recognized as finance income, and the initial direct costs are amortized, over
the terms of the receivables using the interest method. Financing transactions
are supported by a written promissory note evidencing the obligation of the user
to repay the principal, together with interest, which will be sufficient to
return the Partnership's full cost associated with such financing transaction,
together with some investment income. Furthermore, the repayment obligation is
collateralized by a security interest in the tangible or intangible personal
property.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Disclosures About Fair Value of Financial Instruments - Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value
of Financial Instruments" requires disclosures about the fair value of financial
instruments. Separate disclosure of fair value information as of December 31,
1998 and 1997 with respect to the Company's assets and liabilities is not
provided because (i) SFAS No. 107 does not require disclosures about the fair
value of lease arrangements, (ii) the carrying value of financial assets, other
than lease related investments, and payables approximates market value and (iii)
fair value information concerning certain recourse and non-recourse debt
obligations is not practicable to estimate without incurring excessive costs to
obtain all the information that would be necessary to derive a market interest
rate.
Redemption of Limited Partnership Units - The General Partner consented to
the partnership redeeming 590 limited partnership units during 1998. The
redemption amount was calculated following the specific redemption formula in
accordance with the Partnership agreement. Redeemed units have no voting rights
and do not share in distributions. The Partnership agreement limits the number
of units which can be redeemed in any one year and redeemed units may not be
reissued. Redeemed limited partnership units are accounted for as a deduction
from partners' equity.
Allowance for Doubtful Accounts - The Partnership records a provision for
bad debts to provide for estimated credit losses in the portfolio. The allowance
for doubtful accounts is based on the ongoing analysis of delinquency trends,
loss experience and an assessment of overall credit risk. The Partnership's
write-off policy is based on an analysis of the aging of the Partnership's
portfolio, a review of the non-performing receivables and leases, and prior
collection experience. An account is fully reserved for or written off when the
analysis indicates that the probability of collection of the account is remote.
Impairment of Estimated Residual Values - In March 1995, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
which is effective beginning in 1996.
The Partnership's policy with respect to impairment of estimated residual
values is to review, on a quarterly basis, the carrying value of its residuals
on an individual asset basis to determine whether events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable and, therefore, an impairment loss should be recognized. The events
or changes in circumstances which generally indicate that the residual value of
an asset has been impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The Partnership measures its impairment loss as the amount by which the
carrying amount of the residual value exceeds the estimated proceeds to be
received by the Partnership from release or resale of the equipment. Generally,
quoted market prices are used as the basis for measuring whether an impairment
loss should be recognized. As a result, the Partnership's policy with respect to
measurement and recognition of an impairment loss associated with estimated
residual values is consistent with the requirements of SFAS No. 121 and,
therefore, the Partnership's adoption of this Statement in the first quarter of
1996 had no material effect on the financial statements.
Income Taxes - No provision for income taxes has been made as the liability
for such taxes is that of each of the partners rather than the Partnership.
New Accounting Pronouncements - In June 1998 the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivative instruments as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 1999. The adoption of SFAS No. 133 is not expected to have a material effect
on the Partnership's net income, partners' equity or total assets.
3. Investments in Joint Ventures
The Partnership and affiliates formed five joint ventures for the purpose
of acquiring and managing various assets.
The two joint ventures described below are majority owned and are
consolidated with the Partnership.
ICON Cash Flow Partners L.L.C. I
In September 1994 the Partnership and an affiliate, ICON Cash Flow Partners
L.P. Six ("L.P. Six"), formed a joint venture, ICON Cash Flow LLC I, for the
purpose of acquiring and managing an aircraft which was on lease to Alaska
Airlines, Inc. The Partnership and L.P. Six contributed 99% and 1% of the cash
required for such acquisition, respectively, to ICON Cash Flow LLC I. ICON Cash
Flow LLC I acquired the aircraft, assuming non-recourse debt and utilizing
contributions received from the Partnership and L.P. Six. The lease is an
operating lease. Profits, losses, excess cash and disposition proceeds are
allocated 99% to the Partnership and 1% to L.P. Six. The Partnership's
consolidated financial statements include 100% of the assets and liabilities of
ICON Cash Flow LLC I. L.P. Six's investment in ICON Cash Flow LLC I has been
reflected as "Minority interest in joint venture." The original lease term
expired in April 1997 and Alaska Airline, Inc. returned the aircraft. In June
1997 ICON Cash Flow LLC I released the aircraft to Aero Mexico. The new lease is
an operating lease which expires in October 2002.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
ICON Receivables 1997-B L.L.C.
In August 1997 the Partnership, L.P. Six and ICON Cash Flow Partners L.P.
Seven ("L.P. Seven") formed 1997-B, a special purpose entity formed for the
purpose of originating leases and securitizing its portfolio. The Partnership,
L.P. Six and L.P. Seven contributed $2,250,000 (75.00% interest), $250,000
(8.33% interest) and $500,000 (16.67% interest), respectively to 1997-B. In
order to fund the acquisition of leases, 1997-B obtained a warehouse borrowing
facility from Prudential Securities Credit Corporation. In October 1998, 1997-B
completed an equipment securitization. The net proceeds from the securitization
of these assets were used to pay-off the remaining 1997-B warehouse facility
balance and any remaining proceeds were distributed to the 1997-B members in
accordance with their membership interests. The Partnership's consolidated
financial statements include 100% of the assets and liabilities of 1997-B. L.P.
Six and L.P. Seven's interests in 1997-B have been reflected as "minority
interests in consolidated joint ventures."
The three joint ventures described below are less than 50% owned and are
accounted for following the equity method.
ICON Cash Flow Partners L.L.C. II
In March 1995 the Partnership and an affiliate, L.P. Six, formed ICON Cash
Flow Partners L.L.C. II, ("ICON Cash Flow LLC II"), for the purpose of acquiring
and managing an aircraft which was on lease to Alaska Airlines, Inc. The
Partnership and L.P. Six contributed 1% and 99% of the cash required for such
acquisition, respectively, to ICON Cash Flow LLC II. ICON Cash Flow LLC II
acquired the aircraft, assuming non-recourse debt and utilizing contributions
received from the Partnership and L.P. Six. The lease is an operating lease.
Profits, losses, excess cash and disposition proceeds are allocated 1% to the
Partnership and 99% to L.P. Six. The Partnership's investment in the joint
venture is accounted for under the equity method. The original lease term
expired in April 1997 and Alaska Airlines, Inc. returned the aircraft. In June
1997 ICON Cash Flow LLC II released the aircraft to Aero Mexico. The new lease
is an operating lease which expires in September 2002.
Information as to the financial position and results of operations of ICON
Cash Flow LLC II as of and for the year ended December 31, 1998 is summarized
below:
December 31, 1998 December 31, 1997
----------------- -----------------
Assets $16,133,442 $16,870,235
=========== ===========
Liabilities $11,161,002 $12,155,143
=========== ===========
Equity $ 4,972,440 $ 4,715,092
=========== ===========
Partnership's share of equity $ 49,724 $ 47,151
=========== ===========
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Net income $675,034 $798,989
======== ========
Partnership's share of net income $ 6,750 $ 7,990
======== ========
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
ICON Cash Flow Partners L.L.C. III
In December 1996 the Partnership and an affiliate, L.P. Seven, formed ICON
Cash Flow Partners L.L.C. III ("ICON Cash Flow LLC III"), for the purpose of
acquiring and managing an aircraft currently on lease to Continental Airlines,
Inc. The Partnership and L.P. Seven contributed 1% and 99% of the cash required
for such acquisition, respectively, to ICON Cash Flow LLC III. ICON Cash Flow
LLC III acquired the aircraft, assuming non-recourse debt and utilizing
contributions received from the Partnership and L.P. Seven. Profits, losses,
excess cash and disposition proceeds are allocated 1% to the Partnership and 99%
to L.P. Seven. The Partnership's investment in the joint venture is accounted
for under the equity method.
Information as to the financial position and results of operations of ICON
Cash Flow LLC III at December 31, 1998 is summarized below:
December 31, 1998 December 31, 1997
Assets $ 10,166,470 $ 11,008,117
============== ===============
Liabilities $ 6,810,691 $ 8,113,421
============== ===============
Equity $ 3,355,779 $ 2,894,696
============== ===============
Partnership's share of equity $ 33,558 $ 28,947
============== ===============
Year Ended Year Ended
December 31, 1998 December 31, 1997
Net income $ 461,083 $ 438,039
============== ===============
Partnership's share of net income $ 4,611 $ 4,380
============== ===============
ICON Receivables 1997-A L.L.C.
In March 1997 three affiliates of the Partnership, ICON Cash Flow Partners,
L.P., Series D ("Series D"), L.P. Six and L.P. Seven, contributed and assigned
equipment lease and finance receivables and residuals to ICON Receivables 1997-A
L.L.C.("1997-A"), a special purpose entity created for the purpose of
originating leases, managing existing contributed assets and securitizing its
portfolio. In September 1997 the Partnership, L.P. Six and L.P. Seven
contributed and assigned additional equipment lease and finance receivables and
residuals to 1997-A. The Partnership, Series D, L.P. Six and L.P. Seven received
a 31.19%, 17.81%, 31.03% and 19.97% interest, respectively, in 1997-A based on
the present value of their related contributions. The Partnership's
contributions amounted to $15,547,305 in assigned leases and $740,000 of cash in
1997 and $87,185 of cash in 1998. In September 1997, 1997-A securitized
substantially all of its equipment leases and finance receivables and residuals.
1997-A became the beneficial owner of a trust. The Partnership's original
investment was recorded at cost and is adjusted by its share of earnings, losses
and distributions thereafter.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Information as to the financial position and results of operations of
1997-A as of and for the year ended December 31, 1998 is summarized below:
December 31, 1998 December 31, 1997
----------------- -----------------
Assets $ 31,845,710 $ 50,911,005
=============== ===============
Liabilities $ 27,065,004 $ 45,143,569
=============== ===============
Equity $ 4,780,706 $ 5,767,436
=============== ===============
Partnership's share of equity $ 1,180,866 $ 1,488,637
=============== ===============
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Net income $ 1,050,957 $ 1,298,430
=============== ===============
Partnership's share of net income $ 327,804 $ 94,709
=============== ===============
Distributions $ 2,367,147 $ 33,965,442
=============== ===============
Partnership's share of distributions $ 722,760 $ 14,829,488
=============== ===============
4. Receivables Due in Installments
Non-cancelable minimum annual amounts receivable on finance leases and
financings are as follows:
Finance
Year Leases Financings Total
---- ------- ---------- -----
1999 $14,698,963 $ 9,217,528 $23,916,491
2000 11,201,021 7,843,471 19,044,492
2001 7,819,062 5,692,657 13,511,719
2002 5,192,497 3,820,330 9,012,827
Thereafter 992,989 1,736,153 2,729,142
----------- ----------- -----------
$39,904,532 $28,310,139 $68,214,671
=========== =========== ===========
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
5. Investment in Operating Lease
The investment in operating lease at December 31, 1998, 1997 and 1996
consisted of the following:
1998 1997 1996
---- ---- ----
Equipment cost, beginning of year ........ $ 20,707,984 $ 20,771,628 $ 20,771,628
Lease termination ........................ -- --
End of lease settlement proceeds ......... -- (63,644) --
------------ ------------ ------------
Equipment cost, end of year .............. 20,707,984 20,707,984 20,771,628
------------ ------------ ------------
Accumulated depreciation,
beginning of year ...................... (2,864,469) (2,388,850) (1,327,139)
Depreciation ............................. (545,503) (475,619) (1,061,711)
Lease termination ........................ -- -- --
------------ ------------ ------------
Accumulated depreciation, end of year .... (3,409,972) (2,864,469) (2,388,850)
------------ ------------ ------------
Initial direct costs, net of accumulated
amortization, end of year .............. -- -- 81,600
------------ ------------ ------------
Investment in operating lease, end of year $ 17,298,012 $ 17,843,515 $ 18,464,378
============ ============ ============
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
6. Allowance for Doubtful Accounts
The Allowance for Doubtful Accounts related to the investments in finance
leases, financings and operating lease consisted of the following:
Finance Operating
Leases Financings Lease Total
------- ---------- --------- -----
Balance at December 31, 1995 ....... $ 783,475 $ 354,969 $ 158,617 $ 1,297,061
Charged to operations ......... 380,000 20,000 -- 400,000
Accounts written off .......... (400,494) (117,739) -- (518,233)
Recovery on accounts previously
written off ................. 81,728 6,001 -- 87,729
----------- ----------- ----------- -----------
Balance at December 31, 1996 ....... 844,709 263,231 158,617 1,266,557
Charged to operations ......... -- -- -- --
Accounts written off .......... (402,260) (200,744) -- (603,004)
Recovery on account previously
written off ................. 110,665 40,045 -- 150,710
----------- ----------- ----------- -----------
Balance at December 31, 1997 ....... 553,114 102,532 158,617 814,263
Charged to operations ......... 689,585 744,121 (158,617) 1,275,089
Accounts written-off .......... (322,004) (443,453) -- (765,457)
Recovery on account previously
written-off ................. 64,605 22,401 -- 87,006
----------- ----------- ----------- -----------
Balance at December 31, 1998 ....... $ 985,300 $ 425,601 $ -- $ 1,410,901
=========== =========== =========== ===========
7. Notes Payable
As discussed in Note 3, in order to fund the acquisition of additional
leases, 1997-B obtained a warehouse borrowing facility from Prudential
Securities Credit Corporation (described herein as notes payable-warehouse line
of credit). In October 1998, 1997-B completed an equipment securitization
resulting in net proceeds of $41,175,000. These proceeds were used to pay-off
$36,804,788 outstanding under the 1997-B warehouse line of credit. The remaining
proceeds were distributed to the 1997-B members in accordance with their
membership interests. The new securitized debt bears interest at a fixed rate of
6.19% and is payable from receivables related to the portfolio that secures it.
At December 31, 1998, there was $36,975,096 outstanding under the notes
payable-securitized debt.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Notes payable, bearing interest at rates ranging from 5.2% to 16.5%, mature
as follows:
Notes Payable Notes Payable
Year Securitized Debt Non-Recourse
---- ---------------- ------------
1999 $11,515,649 $ 8,151,701
2000 10,346,842 5,854,717
2001 7,907,206 3,570,640
2002 5,560,741 7,409,161
2003 1,644,658 3,506,223
----------- -----------
$36,975,096 $28,492,442
=========== ===========
Included in notes payable - non-recourse above is $1,224,266 in notes
payable due to various third parties in conjunction with the purchase and
assignment of lease transactions as they relate to residual sharing agreements.
The notes are payable only to the extent certain residuals are realized
8. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General
Partner or its affiliates for the years ended December 31, 1998, 1997 and 1996
are as follows:
Charged to
Capitalized Operations
----------- ----------
Acquisition fees .................... $ 80,408 $ --
Management fees ..................... -- 1,120,336
Administrative expense reimbursements -- 563,107
---------- ----------
Year ended December 31, 1996 ........ $ 80,408 $1,683,443
========== ==========
Acquisition fees .................... $ -- $ --
Management fees ..................... -- 919,728
Administration expense reimbursements -- 486,253
---------- ----------
Year ended December 31, 1997 ........ $ -- $1,405,981
========== ==========
Acquisition fees .................... $ -- $ --
Management fees ..................... -- 1,207,760
Administrative expense reimbursements -- 657,327
---------- ----------
Year ended December 31, 1998 ........ $ -- $1,865,087
========== ==========
The Partnership has investments in five joint ventures with other
partnerships sponsored by the General Partner. See Note 3 for additional
information relating to the joint ventures.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
9. Security Deposits, Deferred Credits and Other Payables
Security deposits, deferred credits and other payables at December 31, 1998
and 1997 include $1,330,615 and $478,177, respectively, of proceeds received on
residuals, which will be applied upon final remaketing of the related equipment.
10. Subsidiary
In December 1994, the Partnership formed a wholly owned subsidiary, ICON E
Corp., a Massachusetts corporation formed for the purpose of managing equipment
under lease located in the state of Massachusetts. Massachusetts partnerships
are taxed on personal property at a higher rate than corporations, and
therefore, to mitigate such excess property tax, certain leases are being
managed by ICON E Corp., a corporation. The Partnership's consolidated financial
statements include 100% of the accounts of ICON E Corp. As of December 31, 1998,
there was no federal tax liability for ICON E Corp.
11. Commitments and Contingencies
The Partnership has entered into remarketing and residual sharing
agreements with third parties. In connection therewith, remarketing or residual
proceeds received in excess of specified amounts will be shared with these third
parties based on specified formulas. For the years ended December 31, 1998, 1997
and 1996, the Partnership paid $1,701, $67,895 and $194,174 to third parties as
their share of the proceeds.
12. Tax Information (Unaudited)
The following reconciles net income for financial reporting purposes to
income for federal income tax purposes for the years ended December 31:
1998 1997 1996
---- ---- ----
Net income per financial statements $ 1,047,706 $ 2,368,585 $ 2,243,883
Differences due to:
Direct finance leases .......... 5,618,432 7,067,155 179,872
Depreciation ................... (7,028,534) (8,068,232) (3,277,088)
Provision for losses ........... (33,272) (331,712) (30,505)
Loss on sale of equipment ...... 2,971,331 478,364 (2,116,223)
Other .......................... (887,487) (532,585) (279,948)
----------- ----------- -----------
Partnership income (loss) for
federal income tax purposes .... $ 1,688,176 $ 981,575 $(3,280,009)
=========== =========== ===========
As of December 31, 1998, the partners' capital accounts included in the
financial statements totaled $16,876,070 compared to the partners' capital
accounts for federal income tax purposes of $20,793,783 (unaudited). The
difference arises primarily from commissions reported as a reduction in the
partners' capital for financial reporting purposes but not for federal income
tax purposes, and temporary differences related to direct finance leases,
depreciation and provision for losses.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant's General Partner
The General Partner, a Connecticut corporation, was formed in 1985. The
General Partner's principal offices are located at 600 Mamaroneck Avenue,
Harrison, New York 10528-1632, and its telephone number is (914) 698-0600. The
officers of the General Partner have extensive experience with transactions
involving the acquisition, leasing, financing and disposition of equipment,
including acquiring and disposing of equipment subject to leases and full
financing transactions.
The manager of the Registrant's business is the General Partner. The
General Partner is engaged in a broad range of equipment leasing and financing
activities. Through its sales representatives and through various broker
relationships throughout the United States, the General Partner offers a broad
range of equipment leasing services.
The General Partner is performing or causing to be performed certain
functions relating to the management of the equipment of the Partnership. Such
services include the collection of lease payments from the lessees of the
equipment, re-leasing services in connection with equipment which is off-lease,
inspections of the equipment, liaison with and general supervision of lessees to
assure that the equipment is being properly operated and maintained, monitoring
performance by the lessees of their obligations under the leases and the payment
of operating expenses.
The officers and directors of the General Partner are as follows:
Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Paul B. Weiss President and Director
Thomas W. Martin Executive Vice President and Director
Kevin F. Redmond Chief Financial Officer
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Beaufort J. B. Clarke, age 53, is Chairman, Chief Executive Officer and
Director of both the General Partner and ICON Securities Corp. (the
"Dealer-Manager"). Prior to his present position, Mr. Clarke was founder and the
President and Chief Executive Officer of Griffin Equity Partners, Inc. Mr.
Clarke formerly was an attorney with Shearman and Sterling and has over 20 years
of senior management experience in the United States leasing industry.
Paul B. Weiss, age 38, is President and Director of the General Partner.
Mr. Weiss has been exclusively engaged in lease portfolio acquisitions since
1988 from his affiliations with Griffin Equity Partners (as Executive Vice
President and co-founder in 1993); Gemini Financial Holdings (as Senior Vice
President-Portfolio Acquisitions and a member of the executive committee from
1991-1993) and Pegasus Capital Corporation (as Vice President-Portfolio
Acquisitions). He was previously an investment banker and a commercial banker.
Thomas W. Martin, age 45, is Executive Vice President of the General
Partner and Director of the Dealer-Manager. Prior to his present position, Mr.
Martin was the Executive Vice President and Chief Financial Officer of Griffin
Equity Partners, Inc. Mr. Martin has 14 years of senior management experience in
the leasing business.
Kevin F. Redmond, age 36, is Chief Financial Officer of both the General
Partner and the Dealer-Manager. Prior to his present position, Mr. Redmond was
Vice President and Controller of the General Partner, Manager of Accounting at
NationsCredit Corp. and Audit Manager with the accounting firm of Deloitte &
Touche.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 11. Executive Compensation
The Partnership has no directors or officers. The General Partner and its
affiliates were paid or accrued the following compensation and reimbursement for
costs and expenses for the years ended December 31, 1998, 1997 and 1996.
Entity Capacity Type of Compensation 1998 1997 1996
------ -------- -------------------- ---- ---- ----
ICON Capital Corp. General Partner Management fees $1,207,760 $ 919,728 $1,120,336
ICON Capital Corp. General Partner Administrative expense
reimbursements 657,327 486,253 563,107
ICON Capital Corp. Manager Acquisition fees - - 80,408
---------- ---------- ----------
$1,865,087 $1,405,981 $1,763,851
========== ========== ==========
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The registrant is a limited partnership and therefore does not have voting
shares of stock. No person of record owns, or is known by the Partnership
to own beneficially, more than 5% of any class of securities of the
Partnership.
(b) As of March 15, 1999, Directors and Officers of the General Partner do not
own any equity securities of the Partnership.
(c) The General Partner owns the equity securities of the Partnership set forth
in the following table:
Title Percent
of Class Amount Beneficially Owned of Class
-------- ------------------------- --------
General Partner Represents initially a 1% and potentially a 100%
Interest 10% interest in the Partnership's income, gain
and loss deductions.
Profits, losses, cash distributions and disposition proceeds are allocated
99% to the limited partners and 1% to the General Partner until each investor
has received cash distributions and disposition proceeds sufficient to reduce
its adjusted capital contribution account to zero and receive, in addition,
other distributions and allocations which would provide a 10% per annum
cumulative return, compounded daily, on the outstanding adjusted capital
contribution account. After such time, the distributions will be allocated 90%
to the limited partners and 10% to the General Partner.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of the Partnership's reimbursable management
fees and administrative expenses.
See Note 3 for a discussion of the Partnership's related party investments
in joint ventures.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Form of Dealer-Manager Agreement (Incorporated by reference to
Exhibit 1.1 to Amendment No. 2 to Form S-1 Registration Statement
No. 33-44413 filed with the Securities and Exchange Commission on
June 4, 1992)
(ii) Form of Selling Dealer Agreement (Incorporated by reference to
Exhibit 1.2 to Amendment No. 2 to Form S-1 Registration Statement
No. 33-44413 filed with the Securities and Exchange Commission on
June 4, 1992)
(iii)Amended and Restated Agreement of Limited Partnership
(Incorporated herein by reference to Exhibit A to Amendment No. 2
to Form S-1 Registration Statement No. 33-44413 filed with the
Securities and Exchange Commission on June 4, 1992)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter ended
December 31, 1998.
ICON Cash Flow Partners, L.P., Series E
(A Delaware Limited Partnership)
December 31, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICON CASH FLOW PARTNERS, L.P., Series E
File No. 33-44413 (Registrant)
By its General Partner, ICON Capital Corp.
Date: March 31, 1999 /s/ Beaufort J.B. Clarke
------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacity and on the dates indicated.
ICON Capital Corp.
sole General Partner of the Registrant
Date: March 31, 1999 /s/ Beaufort J.B. Clarke
--- ------------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: March 31, 1999 /s/ Paul B. Weiss
----------------------------------------------
Paul B. Weiss
President and Director
Date: March 31, 1999 /s/ Kevin F. Redmond
----------------------------------------------
Kevin F. Redmond
Chief Financial Officer
(Principal Financial and Account Officer)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrant Which have not Registered Securities Pursuant to
Section 12 of the Act
No annual report or proxy material has been sent to security holders. An annual
report will be sent to the limited partners and a copy will be forwarded to the
Commission.