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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, 1999
------------------------------------------------------
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
--------------------- ------------------------
Commission File Number 33-94458
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ICON Cash Flow Partners L.P. Seven
(Exact name of registrant as specified in its charter)
Delaware 13-3835387
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
111 Church Street, White Plains, New York 10601-1505
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 993-1700
-----------------------------
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. Seven
(A Delaware Limited Partnership)
December 31, 1999
TABLE OF CONTENTS
Item Page
PART I
1. Business 3-4
2. Properties 4
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 7-9
8. Financial Statements and Supplementary Data 10-31
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 32-33
11. Executive Compensation 34
12. Security Ownership of Certain Beneficial Owners
and Management 34
13. Certain Relationships and Related Transactions 34
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 35
SIGNATURES 36
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
PART I
Item 1. Business
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units
were admitted representing $24,917,252 of capital contributions. In 1997,
285,927.35 units were admitted representing $28,592,735 of capital
contributions, and from January 1, 1998 through September 16, 1998 (the final
closing date) 438,528.99 units were admitted representing $43,852,899 of capital
contributions. The Partnership redeemed 6,232, 1,902 and 1,625 limited
partnership units in 1999, 1998 and 1997, respectively, leaving 990,238 limited
partnership units outstanding at December 31, 1999.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal
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 intends to: (1) acquire a diversified portfolio of leases and
financing transactions; (2) make monthly cash distributions to its limited
partners from cash from operations, commencing with each limited partner's
admission to the Partnership, continuing through the reinvestment period, which
period will end no later than September 16, 2004; (3) re-invest substantially
all undistributed cash from operations and cash from sales in additional
equipment and financing transactions during the reinvestment period; and (4)
sell the Partnership's investments and distribute the cash from sales of such
investments to its limited partners within six to thirty-six months after the
end of the reinvestment period.
The equipment leasing industry is highly competitive. In initiating its
leasing transactions, the Partnership competes 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.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
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, 1999 and 1998, the Partnership purchased
and leased or financed $677,632 and $91,615,445 of equipment, respectively, with
a weighted average initial transaction term of 47 and 48 months, respectively.
Included in the summary of equipment cost by category below is 100% of the
equipment cost acquired by a joint venture in which the Partnership has a 99%
interest. The Partnership accounts for this investment by consolidating 100% of
the assets and liabilities of the joint venture and reflecting as a liability
the related minority interest. The equipment purchased by four other joint
ventures in which the Partnership has a less than 50% interest are not included
in this table. At December 31, 1999, the weighted average initial transaction
term of the portfolio was 56 months. A summary of the portfolio equipment cost
by category held at December 31, 1999 and 1998 is as follows:
December 31, 1999 December 31, 1998
------------------------- ------------------------
Category Cost Percent Cost Percent
Aircraft ..................... $ 90,952,788 32.9% $ 90,952,788 32.4
Computer systems ............. 49,853,136 18.0 53,211,502 19.0
Vessels ...................... 49,855,000 18.0 49,855,000 17.8
Retail systems ............... 21,121,250 7.6 21,120,829 7.5
Manufacturing & production ... 18,835,981 6.8 18,835,981 6.7
Furniture and fixtures ....... 14,893,660 5.4 15,022,229 5.3
Energy ....................... 12,325,000 4.4 12,325,000 4.4
Vehicles ..................... 6,668,013 2.4 6,257,771 2.2
Telecommunications ........... 3,780,872 1.4 4,634,089 1.6
Medical ...................... 3,882,457 1.4 3,872,541 1.4
Office equipment ............. 2,764,522 1.0 2,764,522 1.0
Miscellaneous ................ 1,794,732 0.7 1,959,915 0.7
------------ ----- ------------ -----
$276,727,411 100.0% $280,812,167 100.0%
============ ===== ============ =====
The Partnership has one transaction which individually represents 14.8% of
the total portfolio equipment cost at December 31, 1999. The equipment is an
aircraft subject to lease with Federal Express, which represented 14.6% of the
total portfolio equipment 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.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
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 1999.
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 units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of December 31,
-------------- ---------------------------------
1999 1998
---- ----
Limited Partners 4,650 4,649
General Partner 1 1
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
Item 6. Selected Consolidated Financial and Operating Data
Years Ended December 31,
------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
Total revenue $16,572,257 $17,207,618 $9,749,244 $1,564,069
=========== =========== ========== ==========
Net income $ 3,514,436 $ 2,689,176 $2,649,580 $ 405,451
=========== =========== ========== ==========
Net income allocable
to limited partners $ 3,479,291 $ 2,662,284 $2,623,084 $ 401,396
=========== =========== ========== ==========
Net income allocable
to the General Partner $ 35,145 $ 26,892 $ 26,496 $ 4,055
=========== =========== ========== ==========
Weighted average limited
partnership units outstanding 992,719 808,650 413,677 $ 156,222
=========== =========== ========== ==========
Net income per weighted
average limited partnership unit $ 3.50 $ 3.29 $ 6.34 $ 2.57
========== ========== ========== =========
Distributions to limited partners $10,677,316 $ 8,692,479 $4,147,829 $1,361,099
=========== =========== ========== ==========
Distributions to the General Partner $ 107,872 $ 87,803 $ 41,125 $ 13,749
=========== =========== ========== ==========
December 31,
---------------------------------------------------------
1999 1998 1997 1996
---- ---- ---- ----
Total assets ... $172,007,288 $216,387,240 $153,066,319 $ 48,486,070
============ ============ ============ ============
Partners' equity $ 70,045,138 $ 77,741,448 $ 45,901,123 $ 22,865,854
============ ============ ============ ============
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report. No data is presented for 1995 since the Partnership commenced operations
on January 19, 1996, the initial closing date.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership commenced business
operations on its initial closing date, January 19, 1996 with the admission of
26,367.95 limited partnership units at $100 per unit representing $2,636,795 of
capital contributions. Between January 19, 1996 and December 31, 1996,
249,172.52 units were admitted representing $24,917,252 of capital
contributions. In 1997, 285,927.35 units were admitted representing $28,592,735
of capital contributions and from January 1, 1998 through September 16, 1998
(the final closing date) 438,529 units were admitted representing $43,852,899 of
capital contributions. The Partnership redeemed 6,232, 1,902 and 1,625 limited
partnership units in 1999, 1998 and 1997, respectively, leaving 990,238 limited
partnership units outstanding at December 31, 1999
The Partnership's portfolio consisted of net investments in finance leases,
investments in estimated unguaranteed residual values, leveraged leases, equity
investments in joint ventures and financings representing 70%, 21%, 6%, 3% and
1% of total investments at December 31, 1999, respectively, and 77%, 15%, 6%, 1%
and 1% of total investments at December 31, 1998, respectively.
Results of Operations for the Years Ended December 31, 1999 and 1998
For the years ended December 31, 1999 and 1998, the Partnership purchased
and leased or financed equipment with an initial cost of $677,632 and
$91,615,445, respectively, to 1 and 42 lessees or equipment users.
Revenues for the year ended December 31, 1999 were $16,572,257,
representing a decrease of $635,361 from 1998. The decrease in revenues resulted
primarily from a decrease in gain on sales of equipment of $578,684, a decrease
in interest income and other of $323,806 and a decrease in income from
investments in joint ventures of $162,014. These decreases were partially offset
by increases in finance income of $417,241 and in income from leveraged leases
of $11,902. Gain on sales of equipment decreased due to a decrease in the number
of leases maturing in which the underlying equipment was sold. The decrease in
interest income and other resulted primarily from a decrease in the average cash
balance from 1998 to 1999. Income from investments in joint ventures decreased
as a result of one of the underlying joint ventures' increase in its provision
for bad debts. The increase in finance income resulted from the Partnership's
owning and recognizing in 1999 finance income generated from an interest in a
lease portfolio acquired in the first half of 1999. Income from leveraged leases
increased as a result of the increase in the net investment in leveraged leases.
Expenses for the year ended December 31, 1999 were $13,057,821,
representing a decrease of $1,460,621 from 1998. The decrease in expenses
resulted primarily from a decrease in interest expense of $1,717,304, a decrease
in the provision for bad debts of $500,000 and a decrease in amortization of
initial directs costs of $278,752. These decreases were partially offset by an
increase in management fees of $729,817, an increase in administrative expense
reimbursements of $153,512 and an increase in general and administrative
expenses of $151,722. Interest expense decreased due to a decrease in the
average debt outstanding from 1998 to 1999. As a result of an analysis of
delinquency, assessment of overall risk and a review of historical loss
expenses, the Partnership determined that provision for bad debt of $200,000 was
required for the year ended December 31, 1999, compared to $700,000 for 1998.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
The decrease in amortization of initial direct costs resulted from a decrease in
the average size of the finance lease portfolio from 1998 to 1999.
Administrative expense reimbursements, management fee expense and general and
administrative expenses increased due to an increase in the amount of cash rent
collected in 1999 versus 1998.
Net income for the years ended December 31, 1999 and 1998 was $3,514,436
and $2,689,176, respectively. The net income per weighted average limited
partnership unit was $3.50 and $3.29 for 1999 and 1998, respectively, weighted
from the date each unit was admitted to the Partnership.
Results of Operations for the 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 $91,615,445 and
$119,155,086, respectively, to 42 and 13 lessees or equipment users.
Revenues for the year ended December 31, 1998 were $17,207,618,
representing an increase of $7,458,374 or 77 % from 1997. The increase in
revenues resulted primarily from an increase in finance income of $8,332,118 or
135%, an increase in interest income and other of $239,207 or 204% and an
increase in income from leveraged leases of $130,270 or 10%. These increases
were partially offset by a decrease in net gain on sales from remarketing of
equipment of $1,054,679 or 60% and a decrease in income from equity investments
in joint ventures of $188,542 or 43%. The increase in finance income resulted
from an increase in the average size of the finance lease portfolio from 1997 to
1998. Interest income and other increased due to an increase in the average cash
balance from 1997 to 1998. Income from leveraged leases increased due to the
increase in the net investment in leveraged leases from 1997 to 1998. The net
gain on sales or remarketing of equipment decreased due to the prior year's
termination of the Partnership's residual interests in two offshore supply
vessels. The 1997 gain relating to the vessels totaled $1,709,610. The decrease
in income from equity investments in joint ventures decreased as a result of one
of the underlying joint ventures' increase in its provision for bad debts. In
December 1998, the Partnership entered into a new joint venture, however, there
were no revenues generated from such joint venture in 1998.
Expenses for the year ended December 31, 1998 were $14,518,442,
representing an increase of $7,418,778 or 104% from 1997. The increase in
expenses resulted primarily from an increase in interest expense of $4,397,798
or 120%, an increase in amortization of initial direct costs of $997,783 or
107%, an increase in management fees of $815,067 or 54%, an increase in the
provision for bad debts of $550,000 or 367%, an increase in administrative
expense reimbursements of $353,035 or 54%, an increase in general and
administrative fees of $304,959 or 164% and an increase in minority interest in
joint venture of $136 or 3%. Interest expense increased due to an increase in
the average debt outstanding
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
from 1997 to 1998. Amortization of initial direct costs, 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. As a result of an analysis of delinquency, assessment of overall risk and
a review of historical loss experience, the Partnership determined that a
provision for bad debt of $700,000 was required for the year ended December 31,
1998, compared to $150,000 for 1997.
Net income for the years ended December 31, 1998 and 1997 was $2,689,176
and $2,649,580, respectively. The net income per weighted average limited
partnership unit was $3.29 and $6.34 for 1998 and 1997, respectively, weighted
from the date each unit was admitted to the Partnership.
Liquidity and Capital Resources
The Partnership's primary sources of funds in 1999, 1998 and 1997 was cash
provided by operations of $844,971, $535,582 and $1,596,086, respectively,
capital contributions, net of offering expenses, of $0, $37,935,017 and
$24,730,458, respectively, and proceeds from sale of equipment of $4,750,000,
$4,903,647 and $7,315,408, respectively. These funds were used to purchase
equipment and pay cash distributions. The Partnership intends to purchase
additional equipment and fund cash distributions, utilizing cash from
operations, proceeds from sales of equipment and additional borrowings.
The Partnership's notes payable at December 31, 1999 and 1998 total
$100,544,315 and $137,072,754, respectively. These amounts consist of
$71,944,352 and $110,848,356 in non-recourse notes, respectively, and recourse
notes payable of $28,599,963 and $26,224,398.
The Partnership entered into a line of credit agreement (the "Facility")
with a lender in 1998. The maximum amount available under the Facility is
$5,000,000. The Facility is secured by eligible receivables and residuals and
bears interest at Prime plus a half percent. At December 31, 1999 the
Partnership had $4,424,529 outstanding under the Facility.
Cash distributions to the limited partners for the years ended December 31,
1999 and 1998, which were paid monthly totaled $10,677,316 and $8,692,479,
respectively of which $3,479,291 and $2,662,284 was investment income and
$7,198,025 and $6,030,195 was a return of capital, respectively. The monthly
annualized cash distribution rate to limited partners for the years ended
December 31, 1999 and 1998 was 10.75%, of which 3.50% and 3.29% was investment
income and 7.25% and 7.46% 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, 1999 and 1998 was $10.75, of which $3.50 and $3.29 was investment income and
$7.25 and $7.46 was a return of capital, respectively.
As of December 31, 1999, except as noted above, there were no known trends
or demands, commitments, events or uncertainties which are likely to have any
material effect on liquidity. As cash is realized from operations, sales of
equipment and borrowings, the Partnership will invest in equipment leases and
financings where it deems it to be prudent while retaining sufficient cash to
meet its reserve requirements and recurring obligations.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page Number
Independent Auditors' Report 12
Consolidated Balance Sheets as of December 31, 1999 and 1998 13-14
Consolidated Statements of Operations for the Years Ended December 31, 1999,
1998 and 1997 15
Consolidated Statements of Changes in Partners' Equity for the Years Ended
December 31, 1999, 1998 and 1997 16
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 17-19
Notes to Consolidated Financial Statements 20-31
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1999
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners
ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying consolidated balance sheets of ICON Cash Flow
Partners L.P. Seven (a Delaware limited partnership) as of December 31, 1999 and
1998, and the related statements of operations, changes in partners' equity, and
cash flows for each of the years in the three year period ended December 31,
1999. 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.
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. Seven as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
March 28, 2000
New York, New York
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
1999 1998
---- ----
Assets
Cash ............................................... $ 4,688,025 $ 3,899,054
------------- -------------
Investment in finance leases
Minimum rents receivable ........................ 54,878,965 122,539,958
Estimated unguaranteed residual values .......... 67,880,746 77,403,065
Initial direct costs ............................ 1,604,755 3,943,900
Unearned income ................................. (17,093,326) (39,516,143)
Allowance for doubtful accounts ................. (1,067,610) (868,450)
------------- -------------
106,203,530 163,502,330
Investment in estimated unguaranteed residual values 31,718,541 31,718,541
------------- -------------
Net investment in leveraged leases ................. 22,555,086 12,568,089
------------- -------------
Investments in joint ventures ...................... 3,292,324 1,490,820
------------- -------------
Investment in financings
Receivables due in installments ................. 2,062,546 2,357,992
Initial direct costs ............................ 3,528 5,169
Unearned income ................................. (457,150) (620,501)
Allowance for doubtful accounts ................. (9,611) (8,772)
------------- -------------
1,599,313 1,733,888
Other assets ....................................... 1,950,469 1,474,518
------------- -------------
Total assets ....................................... $ 172,007,288 $ 216,387,240
============= =============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets (Continued)
December 31,
1999 1998
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse ......................... $ 71,944,352 $ 110,848,356
Note payable - recourse .............................. 28,599,963 26,224,398
Accounts payable-equipment ........................... -- 501,318
Accounts payable - General Partner and affiliates .... 101,333 95,670
Security deposits, deferred credits and other payables 1,278,045 951,199
Minority interest in joint venture ................... 38,457 24,851
------------- -------------
101,962,150 138,645,792
Commitments and Contingencies
Partners' equity (deficiency)
General Partner ................................... (156,961) (84,234)
Limited partners (990,238 and 996,470 units
outstanding, $100 per unit original issue price) 70,202,099 77,825,682
------------- -------------
Total partners' equity .......................... 70,045,138 77,741,448
------------- -------------
Total liabilities and partners' equity ............... $ 172,007,288 $ 216,387,240
============= =============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Revenues
Finance income .......................... $14,905,134 $14,487,893 $ 6,155,775
Income from leveraged leases ............ 1,433,503 1,421,601 1,291,331
Gain on sales of equipment .............. 115,427 694,111 1,748,790
Income from investments in joint ventures 85,660 247,674 436,216
Interest income and other ............... 32,533 356,339 117,132
----------- ----------- -----------
Total revenues .......................... 16,572,257 17,207,618 9,749,244
----------- ----------- -----------
Expenses
Interest ................................ 6,333,011 8,050,315 3,652,517
Management fees - General Partner ....... 3,066,929 2,337,112 1,522,045
Amortization of initial direct costs .... 1,651,154 1,929,906 932,123
Administrative expense
reimbursements - General Partner ...... 1,158,866 1,005,354 652,319
Provision for bad debts ................. 200,000 700,000 150,000
General and administrative expense ...... 642,961 491,239 186,280
Minority interest expense ............... 4,900 4,516 4,380
----------- ----------- -----------
Total expenses .......................... 13,057,821 14,518,442 7,099,664
----------- ----------- -----------
Net income ................................. $ 3,514,436 $ 2,689,176 $ 2,649,580
=========== =========== ===========
Net income allocable to:
Limited partners ........................ $ 3,479,291 $ 2,662,284 $ 2,623,084
General Partner ......................... 35,145 26,892 26,496
----------- ----------- -----------
$ 3,514,436 $ 2,689,176 $ 2,649,580
=========== =========== ===========
Weighted average number of limited
partnership units outstanding ........... 992,719 808,650 413,677
=========== =========== ===========
Net income per weighted average
limited partnership unit ................ $ 3.50 $ 3.29 $ 6.34
=========== =========== ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity
For the Years Ended December 31, 1999, 1998 and 1997
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
(Per weighted average unit)
Balance at
December 31, 1996 $22,874,548 $ (8,694) $22,865,854
Proceeds from issuance
of limited partnership
units (285,927.35 units) 28,592,735 - 28,592,735
Sales and
offering expenses (3,862,277) - (3,862,277)
Limited partnership units
redeemed (1,625 units) (155,815) - (155,815)
Cash distributions to partners $4.41 $6.34 (4,147,829) (41,125) (4,188,954)
Net income 2,623,084 26,496 2,649,580
----------- --------- -----------
Balance at
December 31, 1997 $45,924,446 $ (23,323) $45,901,123
Proceeds from issuance
of limited partnership
units (438,528.99 units) 43,852,899 - 43,852,899
Sales and offering expenses (5,917,882) - (5,917,882)
Limited partnership units
redeemed (1,902 units) (3,586) - (3,586)
Cash distributions to partners $7.46 $3.29 (8,692,479) (87,803) (8,780,282)
Net income 2,662,284 26,892 2,689,176
----------- --------- -----------
Balance at
December 31, 1998 $77,825,682 $ (84,234) $77,741,448
Limited partnership units
redeemed (6,232 units) (425,558) - (425,558)
Cash distributions to partners $7.25 $3.50 10,677,316) (107,872) 10,785,188)
Net income 3,479,291 35,145 3,514,436
----------- --------- -----------
Balance at
December 31, 1999 $70,202,099 $(156,961) $70,045,138
=========== ========= ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income ............................................... $ 3,514,436 $ 2,689,176 $ 2,649,580
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sales of equipment ............................. (115,427) (694,111) (1,748,790)
Finance income portion of receivables
paid directly to lenders by lessees .................. (11,857,847) (12,717,263) (5,912,799)
Amortization of initial direct costs ................... 1,651,154 1,929,906 932,123
Interest accrued on notes payable recourse ............. 201,036 -- --
Provision for bad debts ................................ 200,000 700,000 150,000
Interest expense on non-recourse
financings paid directly by lessees .................. 5,716,602 7,701,737 3,463,617
Income from leveraged leases ........................... (1,433,503) (1,421,601) (1,291,331)
Income from investments in joint ventures .............. (85,660) (247,674) (436,216)
Minority interest expense .............................. 4,900 4,516 4,380
Changes in operating assets and liabilities:
Allowance for doubtful accounts ...................... -- -- (47,778)
Other assets ......................................... (475,952) 104,423 (703,491)
Distributions received from joint ventures ........... 570,896 1,076,141 5,258,223
Investments in joint ventures ........................ (108,364) (490,834) (1,259,244)
Account payable to General Partner and affiliates .... 5,663 67,520 (410,147)
Collection of principal
- non-financed receivables ......................... 2,746,932 1,095,505 516,966
Minority interest in joint venture ................... 13,606 -- --
Security deposits, deferred credits and other payables 326,846 683,451 207,446
Other ................................................ (30,347) 754,690 223,547
------------ ------------ ------------
Total adjustments .................................. (2,669,465) (2,153,594) (1,053,494)
------------ ------------ ------------
Net cash provided by operating activities ............ 844,971 535,582 1,596,086
------------ ------------ ------------
Cash flows from investing activities:
Equipment purchased ...................................... (677,632) (29,291,730) (20,121,149)
Proceeds from sale of interests in unconsolidated
joint venture .......................................... 4,750,000 4,903,647 7,315,408
Initial direct costs ..................................... -- (3,268,593) (3,363,765)
Investment in leveraged leases ........................... (8,553,492) -- --
------------ ------------ ------------
Net cash used by investing activities ................ (4,481,124) (27,656,676) (16,169,506)
------------ ------------ ------------
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31,
1999 1998 1997
---- ---- ----
Cash flows from financing activities:
Issuance of limited partnership units,
net of offering expenses ......................... -- 37,935,017 24,730,458
Cash distributions to partners ..................... (10,785,188) (8,780,282) (4,188,954)
Redeemed units ..................................... (425,558) (3,586) --
Principal payments on notes payable - recourse ..... (2,825,471) (2,250,000) (2,150,000)
Principal payments on notes payable - non-recourse . (548,659) (397,386) --
Proceeds from affiliate loan ....................... -- -- 4,250,000
Proceeds from non-recourse debt .................... 14,010,000 -- --
Proceeds from recourse debt - line of credit ....... 5,000,000 -- --
Principal payments on loans from affiliate ......... -- -- (4,250,000)
------------ ------------ ------------
Net cash (used)/provided by financing activities 4,425,124 26,503,763 18,391,504
------------ ------------ ------------
Net increase (decrease) in cash ....................... 788,971 (617,331) 3,818,084
Cash at beginning of year ............................. 3,899,054 4,516,385 698,301
------------ ------------ ------------
Cash at end of year ................................... $ 4,688,025 $ 3,899,054 $ 4,516,385
============ ============ ============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
Interest expense of $6,333,011, $8,050,315 and $3,652,517 for the years
ended December 31, 1999, 1998 and 1997 consisted of: interest expense on
non-recourse financings paid or accrued to lenders by lessees of $5,716,602,
$7,701,737 and $3,463,617, respectively, and other interest of $616,409,
$348,578 and $188,900, respectively.
For the years ended December 31, 1999, 1998 and 1997, non-cash activities
included the following:
1999 1998 1997
---- ---- ----
Fair value of equipment and receivables
purchased for debt and payables ..................... $ -- $ (63,334,912) $(106,011,532)
Non-recourse and recourse notes payable
assumed in purchase price ........................... -- 62,833,594 105,000,336
Accounts payable - equipment ........................... -- 501,318 1,011,196
Principal and interest on
finance receivables paid directly
to lenders by lessees ............................... 26,948,407 35,688,131 17,766,016
Principal and interest on non-recourse
financings paid directly to lenders
by lessees .......................................... (26,948,407) (35,688,131) (17,766,016)
Decrease in investment in finance leases due
to terminations ..................................... 552,002 1,208,183 6,025,115
Decrease in notes payable non-recourse
due to terminations ................................. (552,002) (1,208,183) (6,025,115)
Decrease in investments in finance leases and
financings due to contribution to
unconsolidated joint ventures ....................... (25,605,165) -- 5,391,216
Decrease in notes payable non-recourse related to leases
contributed to joint venture ........................ (19,299,854) -- --
Increase in investments in
unconsolidated joint ventures ....................... (6,305,311) -- (5,391,216)
------------- ------------- -------------
$ -- $ -- $ --
============= ============= =============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1999
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units
were admitted representing $24,917,252 of capital contributions, in 1997,
285,927.35 units were admitted representing $28,592,735 of capital contributions
and from January 1, 1998 through September 16, 1998 (the final closing date)
438,528.99 units were admitted representing $43,852,899 of capital
contributions. The Partnership redeemed 6,232, 1,902 and 1,625 partnership units
in 1999, 1998 and 1997, respectively, leaving 990,238 limited partnership units
outstanding at December 31, 1999.
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 is limited to 13 1/2% of the gross
proceeds received from the sale of the units. Such offering expenses aggregated
$13,499,957, including $5,499,981 paid to the General Partner or its affiliates,
and such costs charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be
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.
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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiary, ICON Cash Flow Partners
L.L.C. III. 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 leveraged 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. The Partnership's net
investment in leveraged leases consists of minimum lease payments receivable,
the estimated unguaranteed residual values and the initial direct costs related
to the leases, net of the unearned income and principal and interest on the
related non-recourse debt. Unearned income is recognized as income from
leveraged leases over the life of the lease at a constant rate of return on the
positive net investment. Initial direct costs of finance leases and leverage
leases are capitalized and are amortized over the terms of the related leases
using the interest method. The Partnership's leases have terms ranging from two
to five 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 Estimated Unguaranteed Residual Values - In December 1996,
the Partnership purchased an option to acquire an interest in a drilling rig.
The Partnership exercised its option at the time of purchase and became the 50%
owner of the future estimated unguaranteed residual. In July 1997, the
Partnership purchased options to acquire the interests in three Boeing 737-300
aircraft. The Partnership exercised its options at the time of purchase and
became the owner of the future estimated unguaranteed residuals. The assets are
carried at cost (which is at least equal to or less than market value) until
sale or release of the equipment, at which time a gain or loss will be
recognized on each transaction. No income will be recognized until the
underlying equipment is sold or released. (See Note 4 for discussion of
investment in estimated unguaranteed residual value).
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.
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, except for lease related instruments. Separate disclosure of fair
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
value information as of December 31, 1999 and 1998 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 and (ii) the carrying
value of financial assets, other than lease related investments, and certain
payables approximates market value and (iii) fair value information concerning
certain 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 rate.
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 an analysis of delinquency, an assessment of
overall risk and a review of historical loss experience. 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 -- The Partnership's policy with
respect to impairment of estimated residual values is to review, on a periodic
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.
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.
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 as amended, is effective for all quarters of fiscal years beginning
after June 15, 2000. 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.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
3. Investments in Joint Ventures
The Partnership and affiliates formed five joint ventures for the purpose
of acquiring and managing various assets.
The joint venture described below is majority owned and is consolidated
with the Partnership.
ICON Cash Flow Partners L.L.C. III
On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow
Partners, L.P., Series E ("Series E") 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 aircraft is a 1976
McDonnell Douglas DC-10-30 and cost $11,429,751. The lease is a leveraged lease
and the lease term expires in March 2003 (see Note 6). Profits, losses, excess
cash and disposition proceeds are allocated 99% to the Partnership and 1% to
Series E. The Partnership's financial statements include 100% of the assets and
liabilities of ICON Cash Flow LLC III. Series E's investment in ICON Cash Flow
LLC III has been reflected as "Minority interest in joint venture."
The four joint ventures described below are less than 50% owned and are
accounted for following the equity
method.
ICON Receivables 1997-A L.L.C.
In March 1997 the Partnership, ICON Cash Flow Partners, L.P., Series D
("Series D"), and ICON Cash Flow Partners L.P. Six ("L.P. Six"), 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, Series E and L.P.
Six contributed and assigned additional equipment lease and finance receivables
and residuals to 1997-A. The Partnership, Series D, Series E and L.P. Six
received a 19.97%, 17.81%, 31.19% and 31.03% interest, respectively, in 1997-A
based on the present value of their related contributions. The Partnership's
contributions amounted to $5,391,216 in assigned leases and $275,000 of cash in
1997, $105,719 of cash in 1998 and $43,597 of cash and $73,545 of assigned
leases in 1999. 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. Seven
(A Delaware Limited Partnership)
Notes to 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, 1999 and 1998 is summarized
below:
December 31, 1999 December 31, 1998
Assets $ 17,967,741 $ 31,845,710
=============== =============
Liabilities $ 14,701,353 $ 27,065,004
=============== =============
Equity $ 3,266,388 $ 4,780,706
=============== =============
Partnership's share of equity $ 803,353 $ 1,097,916
=============== =============
Net income $ 108,923 $ 1,050,957
=============== =============
Partnership's share of net income $ 21,761 $ 209,824
=============== =============
Distributions $ 2,171,133 $ 2,367,147
=============== =============
Partnership's share of distributions $ 433,467 $ 512,544
=============== =============
ICON Receivables 1997-B L.L.C.
In August 1997 the Partnership, Series E and L.P. Six 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,
Series E and L.P. Six contributed cash and received a 16.67%, 75.00% and 8.33%
interest, respectively, in 1997-B. The Partnership's cash contributions amounted
to $500,000 in 1997, $328,155 in 1998 and $60,656 in 1999. In order to fund the
acquisition of leases, 1997-B obtained a warehouse borrowing facility from
Prudential Securities Credit Corporation (the "1997-B Warehouse Facility"). 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.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of
1997-B as of and for the year ended December 31, 1999 and 1998 is summarized
below:
December 31, 1999 December 31, 1998
----------------- -----------------
Assets $ 29,921,557 $ 39,665,292
================ ===============
Liabilities $ 27,991,447 $ 37,649,430
================ ===============
Equity $ 1,930,110 $ 2,015,862
================ ===============
Partnership's share of equity $ 330,777 $ 335,944
================ ===============
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
Net income $ 293,193 $ 227,057
================ ===============
Partnership's share of net income $ 48,875 $ 37,850
================ ===============
Distributions $ 688,051 $ 3,380,904
================ ===============
Partnership's share of distributions $ 114,698 $ 563,597
================ ===============
ICON Boardman Funding L.L.C.
In December 1998 the Partnership and three affiliates, ICON Cash Flow
Partners, L.P., Series C ("Series C"), L.P. Six and ICON Income Fund Eight A
L.P. ("Eight A") formed ICON Boardman Funding L.L.C. ("ICON BF"), for the
purpose of acquiring a lease with Portland General Electric. The purchase price
totaled $27,421,810, and was funded with cash and non-recourse debt assumed in
the purchase price. The Partnership, Series C, L.P. Six, and Eight A received a
.5%, .5%, .5% and 98.5% interest, respectively, in ICON BF. The Partnership's
original investment was recorded at cost of $56,960 and will be adjusted by its
share of earnings, losses and distributions, thereafter. The Partnership
invested $4,111 in 1999. Simultaneously with the acquisition of the Portland
General Electric lease by ICON BF, the rent in excess of the senior debt
payments was acquired by L.P.
Six for $3,801,108.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position of ICON BF as of is summarized
below:
December 31, 1999 December 31, 1998
----------------- -----------------
Assets $ 27,740,665 $ 23,620,702
=============== ================
Liabilities $ 18,880,079 $ 12,228,713
=============== ================
Equity $ 8,860,586 $ 11,391,989
=============== ================
Partnership's share of equity $ 44,298 $ 56,960
=============== ================
Net income $ 1,191,629 $ --
=============== ================
Partnership's share of net income $ 5,958 $ --
=============== ================
Distributions $ 4,546,230 $ --
=============== ================
Partnership's share of distribution $ 22,731 $ --
=============== ================
AIC Trust
The Partnership acquired a portfolio of equipment leases and in 1999
contributed such leases, subject to related debt, with a book value of
$6,854,830 to a wholly owned trust ("AIC Trust"). Subsequently, the Partnership
sold interests in this trust at various dates in 1999 to Eight A, an affiliate
of the Partnership, for $3,000,000 and to L.P. Six, an affiliate of the
Partnership, for $1,750,000 at book value, which approximated fair market value
at the dates of sale. The Partnership recognized no gain or loss on the sales of
these interests to either Eight A or to L.P. Six.
As a result of the sales of these interests, as of December 31, 1999 L.P.
Six and Eight A owned interests aggregating 25.51% and 43.73% in the trust with
the Partnership owning a 30.76% interest at that date. The trust is operated as
a joint venture. Profits, losses, excess cash and disposition proceeds are
allocated based upon the Partnerships' percentage ownership interests in the
venture during the respective periods the Partnerships held such interests. The
Partnership accounts for its investment under the equity method of accounting.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of the
venture as of and for the period of inception through December 31, 1999 is
summarized below:
December 31, 1999
Assets $ 22,058,522
==============
Liabilities $ 15,221,822
==============
Equity $ 6,836,700
==============
Partnership's share of equity $ 2,113,897
==============
Dates of Investments by Other Funds
Through December 31, 1999
Partnership's share of income $ 9,067
==============
4. Investment in Estimated Unguaranteed Residual Values
In December 1996, the Partnership purchased a 50% share of an option to
acquire the 100% interest in a drilling rig, currently on lease to Rowan
Companies, Inc. The residual investment cost $12,325,000 and the lease to Rowan
Companies, Inc. expires in September 2000 at which time the Partnership will be
entitled to a 50% economic interest in the rig subject to lease.
In July 1997, the Partnership purchased options to acquire the 100%
interests in three Boeing 737-300 aircraft, currently on lease with Continental
Airlines. The Partnership exercised its options at the time of purchase and
became the 100% owner of the future estimated unguaranteed residuals. The
residual investments cost $19,393,541 and the leases for each aircraft expire in
August, October and November 2003 at which time the Partnership will be entitled
to the residuals.
5. Gain on Disposal of Residual Interest
In December 1997 the Partnership disposed of its residual interest in two
offshore supply vessels. The disposal of the residual interest occurred in
connection with the sale of the vessels to a third party. The vessels had
previously been chartered by a subsidiary of Occidental Petroleum, Inc. The
Partnership recognized a $1,709,610 gain upon disposal of its interest in
December 1997.
6. Net Investment in Leveraged Leases
In August 1996, the Partnership acquired, subject to a leveraged lease, an
interest in an aircraft on lease with Federal Express. The aircraft is a
McDonnell Douglas DC-10-30F built in 1986, and the lease expires in July 2004.
The purchase price was $40,973,585.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
In December 1996, the Partnership and an affiliate (see Note 3) acquired,
subject to a leveraged lease, an aircraft on lease with Continental Airlines,
Inc. The aircraft is a McDonnell Douglas DC-10-30 built in 1976, and the lease
expires in March 2003. The purchase price was $11,429,751.
The net investment in the leveraged leases as of December 31, 1999
consisted of the following:
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) ............ $ 9,848,494
Estimated unguaranteed residual values .................... 20,818,001
Initial direct costs ...................................... 747,718
Unearned income ........................................... (8,859,127)
------------
$ 22,555,086
Unearned income is recognized from leveraged leases over the life of the
lease at a constant rate of return based on the positive net investment in the
lease in years such investment is positive.
Non-cancelable minimum rents receivable relating to the leveraged leases at
December 31, 1999 are $40,125,794 while principal and interest on non-recourse
debt assumed in the purchase of the leveraged leases is $30,277,300 at December
31, 1999.
Rents Due Debt Payments
2000 $ 8,022,359 $ 5,954,471
2001 8,022,359 5,954,471
2002 8,022,359 5,954,471
2003 6,248,358 4,390,470
2004 9,810,359 8,023,417
---------------- ----------------
$ 40,125,794 $ 30,277,300
================ ================
7. Receivables Due in Installments
Non-cancelable minimum annual amounts due on finance leases and financings
are as follows:
Finance
Year Leases Financings Total
2000 $24,040,577 $ 492,895 $24,533,472
2001 15,688,726 481,815 16,170,541
2002 7,515,749 470,589 7,986,338
2003 4,137,779 544,791 4,682,570
2004 3,496,134 72,456 3,568,590
Thereafter
$54,878,965 $2,062,546 $56,941,511
=========== ========== ===========
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
8. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in finance
leases and financings consisted of the following:
Finance
Leases Financings Total
Balance at December 31, 1996 $ 65,000 $ 10,000 $ 75,000
Provision for bad debts .... 90,000 60,000 150,000
Accounts written-off ....... -- (47,778) (47,778)
----------- ----------- -----------
Balance at December 31, 1997 155,000 22,222 177,222
Provision for bad debts .... 713,450 (13,450) 700,000
----------- ----------- -----------
Balance at December 31, 1998 868,450 8,772 877,222
Provision for bad debts .... 199,161 839 200,000
----------- ----------- -----------
Balance at December 31, 1999 $ 1,067,611 $ 9,611 $ 1,077,222
=========== =========== ===========
9. Notes Payable
Notes payable consists of non-recourse notes payable of $71,944,352 (of
which $62,364,352 is being paid directly to the lenders by the lessees and
$9,580,000 which will be paid only from lease residual proceeds realized) and
recourse notes payable of $28,599,963 of which $24,175,434 relate to the
Partnership's investment estimated in unguaranteed residual value (see Note 4)
and $4,424,529 relates to the line of credit agreement discussed below. The
notes bear interest at rates ranging from 6.5% to 9.4% and mature as follows:
Notes Payable Note Payable
Year Non-Recourse Recourse Total
2000 $20,592,755 $13,909,848 $ 34,502,603
2001 23,970,990 2,938,736 26,909,726
2002 11,236,484 2,980,305 14,216,789
2003 326,217 8,771,074 9,097,291
2004 15,817,906 - 15,817,906
----------- ----------- ------------
$71,944,352 $28,599,963 $100,544,315
=========== =========== ============
The Partnership entered into a line of credit agreement (the "Facility")
with a lender in 1998. The maximum amount available under the Facility is
$5,000,000. The Facility is secured by eligible receivables and residuals and
bears interest at Prime plus a half percent. During 1999, the Partnership
borrowed $5,000,000 under the Facility and at December 31, 1999, the Partnership
had $4,424,529 outstanding under the Facility
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
The Partnership borrowed $14,010,000 in 1999 to prepay $8,553,492 of
leveraged lease debt related to the Federal Express lease (see Note 6) with the
remaining proceeds being utilized for general partnership purposes.
This debt matures in 2004 and is included in notes payable non-recourse.
10. 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, 1999, 1998 and 1997
were as follows:
Charged to Charged to
Equity Capitalized Operations
Underwriting commissions ............ $ 571,855 $ -- $ --
Organization and offering expenses .. 1,000,744 -- --
Acquisition fees .................... -- 3,363,765 --
Management fees ..................... -- -- 1,522,045
Administrative expense reimbursements -- -- 652,319
---------- ---------- ----------
Year ended December 31, 1997 ........ $1,572,599 $3,363,765 $2,174,364
========== ========== ==========
Underwriting commissions ............ $ 877,058 $ -- $ --
Organization and offering expenses .. 1,534,851 -- --
Acquisition fees .................... -- 3,268,593 --
Management fees ..................... -- -- 2,337,112
Administrative expense reimbursements -- -- 1,005,354
---------- ---------- ----------
Year ended December 31, 1998 ........ $2,411,909 $3,268,593 $3,342,466
========== ========== ==========
Management fees ..................... -- -- 3,066,929
Administrative expense reimbursements -- -- 1,158,866
---------- ---------- ----------
Year ended December 31, 1999 ........ $ -- $ -- $4,225,795
========== ========== ==========
The Partnership and affiliates formed four joint ventures for the purpose
of acquiring and managing various assets. (See Note 3 for additional information
relating to the joint ventures.)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
12. Tax Information (Unaudited)
The following table reconciles net income for financial reporting purposes
to (loss) income for federal income tax purposes for the year ended December 31,
1999:
1999 1998 1997
---- ---- ----
Net income per financial statements ......$ 3,514,436 $ 2,689,176 $ 2,649,580
Differences due to:
Direct finance leases .................. 18,112,472 20,348,042 9,376,627
Depreciation ........................... (34,162,751) (30,292,366) (11,358,603)
Provision for losses ................... 200,000 700,000 102,222
Loss on sale of equipment .............. (905,600) 309,189 759,191
Other .................................. 5,487,465 739,462 806,922
------------ ------------ ------------
Partnership (loss) income for
federal income tax purposes .............$ (7,753,978) $ (5,506,497) $ 2,335,939
============ ============ ============
As of December 31, 1999, the partners' capital accounts included in the
financial statements totaled $70,045,138 compared to the partners' capital
accounts for federal income tax purposes of $63,508,642 (unaudited). The
difference arises primarily from commissions reported as a reduction in the
partners' capital accounts 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. Seven
(A Delaware Limited Partnership)
December 31, 1999
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 111 Church Street, White
Plains, New York 10601-1505, and its telephone number is (914) 993-1700. 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 Partnership'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 will perform 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
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
Item 10. Continued
Beaufort J. B. Clarke, age 54, has been Chairman, Chief Executive Officer
and Director of the General Partner since 1996. 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 39, is President and Director of the General Partner.
Mr. Weiss has been exclusively engaged in lease acquisitions since 1988 from his
affiliations with the General Partner since 1996, Griffin Equity Partners (as
Executive Vice President from 1993-1996); Gemini Financial Holdings (as Senior
Vice President-Portfolio Acquisitions from 1991-1993) and Pegasus Capital
Corporation (as Vice President-Portfolio Acquisitions from 1988-1991). He was
previously an investment banker and a commercial banker.
Thomas W. Martin, age 46, has been Executive Vice President of the General
Partner since 1996. Prior to his present position, Mr. Martin was the Executive
Vice President and Chief Financial Officer of Griffin Equity Partners, Inc.
(1993-1996), Gemini Financial Holdings (as Senior Vice President from 1992-1993)
and Chancellor Corporation (as Vice President-Syndications from 1985-1992). Mr.
Martin has 17 years of senior management experience in the leasing business.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
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, 1999, 1998 and 1997.
Entity Capacity Type of Compensation 1999 1998 1997
------ -------- -------------------- ---- ---- ----
ICON Capital Corp. General Partner Organization and
offering expenses $ - $1,534,851 $1,000,744
ICON Capital Corp. Manager Acquisition fees - 3,268,593 3,363,765
ICON Capital Corp. General Partner Management fees 3,066,929 2,337,112 1,522,045
ICON Securities Corp. Dealer-Manager Underwriting
commissions - 877,058 571,855
ICON Capital Corp. General Partner Administrative expense
reimbursements 1,158,866 1,005,354 652,319
---------- ---------- ----------
$4,225,795 $9,022,968 $7,110,728
========== ========== ==========
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership 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 24, 2000, 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 Amount Beneficially Percent
of Class 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.
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of the Partnership's related party
transactions. See Note 3 for a discussion of the Partnership's related party
investments in joint ventures.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
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. 3 to Form S-1 Registration Statement No. 33-94458
filed with the Securities and Exchange Commission on November 9, 1995)
(ii) Form of Selling Dealer Agreement (Incorporated by reference to Exhibit
1.2 to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458
filed with the Securities and Exchange Commission on November 9, 1995)
(iii)Amended and Restated Agreement of Limited Partnership (Incorporated
herein by reference to Exhibit A to Amendment No. 3 to Form S-1
Registration Statement No. 33-94458 filed with the Securities and
Exchange Commission on November 9, 1995)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter
ended December 31, 1999.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICON CASH FLOW PARTNERS L.P. Seven
File No. 33-94458 (Registrant)
By its General Partner, ICON Capital Corp.
Date: March 29, 2000 /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 29, 2000 /s/ Beaufort J.B. Clarke
------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: March 29, 2000 /s/ Paul B. Weiss
-----------------
Paul B. Weiss
President and Director
Date: March 29, 2000 /s/ Thomas W. Martin
--------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting 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.