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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2003
-------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 33-94458
---------------------------------------------------------
ICON Cash Flow Partners L.P. Seven
(Exact name of registrant as specified in its charter)
Delaware 13-3835387
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
100 Fifth Avenue New York, New York 10011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(212)418-4700 Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [X] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Balance Sheets
March 31, December 31,
2003 2002
---- ----
(unaudited)
Assets
------
Cash $ 301,787 $ 1,257,947
------------ ------------
Investment in finance leases
Minimum rents receivable 1,699,546 2,252,134
Estimated unguaranteed residual values 1,686,136 1,717,816
Initial direct costs 35,396 36,455
Unearned income (114,084) (137,106)
Allowance for doubtful accounts (251,857) (289,301)
------------ ------------
3,055,137 3,579,998
------------ ------------
Investment in operating leases
Equipment at cost 9,647,253 14,195,791
Accumulated depreciation (1,125,000) (1,703,583)
------------ ------------
8,522,253 12,492,208
------------ ------------
Equipment held for sale or lease, net 21,734,484 19,343,546
------------ ------------
Net investment in leveraged leases 23,935,259 27,877,708
------------ ------------
Investment in estimated unguaranteed residual values 20,811,758 20,811,758
------------ ------------
Investments in unconsolidated joint ventures 3,402,939 3,360,145
------------ ------------
Due from General Partner and affiliates 161,461 161,458
------------ ------------
Other assets 1,021,309 1,249,535
------------ ------------
Total assets $ 82,946,387 $ 90,134,303
============ ============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Balance Sheets (Continued)
March 31, December 31,
2003 2002
---- ----
(unaudited)
Liabilities and Partners' Equity
Notes payable - non-recourse $ 23,030,832 $ 27,186,863
Notes payable - recourse 27,431,353 27,707,802
Due to General Partner and affiliates 747,395 155,542
Security deposits, deferred credits and other payables 766,251 664,692
Minority interest in consolidated joint ventures 54,476 53,292
------------ ------------
52,030,307 55,768,191
------------ ------------
Partners' equity (deficiency)
General Partner (539,744) (505,244)
Limited partners (987,548 units outstanding,
$100 per unit original issue price) 31,455,824 34,871,356
------------ ------------
Total partners' equity 30,916,080 34,366,112
------------ ------------
Total liabilities and partners' equity $ 82,946,387 $ 90,134,303
============ ============
See accompanying notes to condensed consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31,
(unaudited)
2003 2002
---- ----
Revenues
Finance income $ 23,022 $ 457,069
Rental income 367,686 285,096
Income from leveraged leases 249,918 590,170
Gain on sales of equipment 38,548 8,138
Income from investments in
unconsolidated joint ventures 303,990 368,117
Interest income and other 2,331 38,894
----------- -----------
Total revenues 985,495 1,747,484
----------- -----------
Expenses
Depreciation expense 1,379,374 1,004,971
Interest 693,830 743,113
General and administrative 364,419 277,220
Management fees - General Partner 442,619 504,403
Administrative expense reimbursements-
General Partner 178,516 211,344
Amortization of initial direct costs 128,680 131,710
Minority interest expense 1,183 1,217
------------ ------------
Total expenses 3,188,621 2,873,978
------------ ------------
Net loss $(2,203,126) $(1,126,494)
============ ============
Net loss allocable to:
Limited partners $(2,181,095) $(1,115,229)
General Partner (22,031) (11,265)
------------ ------------
$(2,203,126) $(1,126,494)
============ ============
Weighted average number of limited
partnership units outstanding 987,548 988,505
============ ============
Net loss per weighted average
limited partnership unit $ (2.21) $ (1.13)
============ ============
See accompanying notes to condensed consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Statement of Changes in Partners' Equity
For the Three Months Ended March 31, 2003
(unaudited)
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- ------- -----
(Per weighted average unit)
Balance at
January 1, 2003 $ 34,871,356 $ (505,244) $ 34,366,112
Cash distributions to partners $ 1.25 $ -- (1,234,437) (12,469) (1,246,906)
Net loss (2,181,095) (22,031) (2,203,126)
------------ ------------ ------------
Balance at
March 31, 2003 $ 31,455,824 $ (539,744) $ 30,916,080
============ ============ ============
See accompanying notes to condensed consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(unaudited)
2003 2002
---- ----
Cash flows from operating activities:
Net loss $(2,203,126) $(1,126,494)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities:
Finance income portion of receivables paid directly
to lenders by lessees -- (278,563)
Rental income paid directly to lender by lessees (367,686) (285,096)
Interest expense on non-recourse financing paid
directly by lessees and interest accreted 425,087 390,786
Amortization of initial direct costs 128,680 131,710
Depreciation expense 1,379,374 1,004,971
Income from leveraged leases (249,918) (590,170)
Income from investments in unconsolidated joint ventures (303,990) (368,117)
Gains on sales of equipment (38,548) (8,138)
Minority interest expense 1,183 1,217
Changes in operating assets and liabilities 1,067,486 (1,709)
----------- -----------
Total adjustments 2,041,668 (3,109)
----------- -----------
Net cash used in operating activities (161,458) (1,129,603)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of equipment 202,480 62,146
Distributions received from unconsolidated joint ventures 249,724 306,366
----------- -----------
Net cash provided by investing activities 452,204 368,512
----------- -----------
Cash flows from financing activities:
Cash distributions to partners (1,246,906) (2,676,075)
Proceeds from notes payable - recourse debt -- 1,200,000
Principal payments on notes payable - recourse debt -- (46,147)
Redemption of limited partnership units -- (13,275)
----------- -----------
Net cash used in financing activities (1,246,906) (1,535,497)
----------- -----------
Net decrease in cash and cash equivalents (956,160) (2,296,588)
Cash and cash equivalents at beginning of period 1,257,947 2,333,871
----------- -----------
Cash and cash equivalents at end of period $ 301,787 $ 37,283
=========== ===========
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Statements of Cash Flows (Continued)
(unaudited)
Supplemental Disclosure of Cash Flow Information
For the three months ended March 31, 2003 and 2002, non-cash activities
included the following:
2003 2002
---- ----
Principal and interest on direct finance
receivables paid directly to lenders by lessees $ 4,213,432 $ 853,410
Rental income assigned operating lease receivables 367,686 285,096
Principal and interest on non-recourse
financing paid directly to lenders by lessees (4,581,118) (1,138,506)
----------- -----------
$ -- $ --
=========== ===========
Interest expense of $693,830 and $743,113 for the three months ended March
31, 2003 and 2002 consisted of interest expense on non-recourse financing paid
or accrued directly to lenders by lessees of $425,087 and $390,786,
respectively, and interest on notes payable-recourse of $268,743 and $352,327,
respectively.
See accompanying notes to condensed consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements
March 31, 2003
(unaudited)
1. Basis of Presentation
The condensed consolidated financial statements of ICON Cash Flow Partners
L.P. Seven (the "Partnership") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") and, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary for a fair statement of results for each period
shown. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such SEC rules and regulations. Management
believes that the disclosures made are adequate to make the information
represented not misleading. The results for the interim period are not
necessarily indicative of the results for the full year. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes included in the Partnership's 2002
Annual Report on Form 10-K.
2. Disposition Period
The Partnership's reinvestment period ended November, 2002 and the
Partnership immediately commenced its disposition period. 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.
3. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General
Partner or its affiliates for the three months ended March 31, 2003 and 2002
were as follows:
2003 2002
---- ----
Management fees $442,619 $504,403 Charged to Operations
Administrative expense
reimbursements 178,516 211,344 Charged to Operations
-------- --------
Total $621,135 $715,747
======== ========
The Partnership has formed eight joint ventures with affiliates for the
purpose of acquiring and managing various assets. (See Note 5 for additional
information relating to the joint ventures). The Partnership and its affiliates
have identical investment objectives and participate on the same terms and
conditions.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
4. Net Investment in Leveraged Leases
The Partnership has ownership interests in two DC-10-30 aircraft subject to
leveraged leases with Continental Airlines, Inc. (through April 2003) and
Federal Express (through July 2004).
Effective May 1, 2003 the Continental aircraft was returned and immediately
re-leased to World Airlines, Inc., for an eight month term with an option for
World Airlines to extend another four months.
The net investment in the leveraged leases as of March 31, 2003 and
December 31, 2002 consisted of the following:
March 31, December 31,
2003 2002
----------- -------------
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) $ 5,810,360 $ 10,002,727
Estimated unguaranteed residual values 20,515,000 20,865,000
Initial direct costs 134,212 181,010
Unearned income (2,524,313) (3,171,029)
------------ ------------
$ 23,935,259 $ 27,877,708
============ ============
Unearned income is recognized from leveraged leases over the lives of the
leases at a constant rate of return based on the positive net investment in the
lease in the years such investment is positive. There are no deferred tax
liabilities arising from the Partnership's leveraged lease investments since all
taxes are recognized at the individual partner level rather than at the
Partnership level.
For the period ended March 31, 2003, the Company reduced the estimated
unguaranteed residual value of one of the aircraft and recorded an impairment
provision of $350,000 as a result of management's analysis which indicated a
lower value at lease termination than initially estimated. The impairment
provision has been reflected net in income from leveraged leases.
5. Consolidated Venture and Investments in Unconsolidated Joint Ventures
The Partnership and its affiliates formed eight ventures discussed below
for the purpose of acquiring and managing various assets. The Partnership and
its affiliates have identical investment objectives and participate on the same
terms and conditions. The Partnership has a right of first refusal to purchase
the equipment, on a pro-rata basis, if any of the affiliates desire to sell
their interests in the equipment.
Consolidated Venture
The venture described below is majority owned and is consolidated with the
Partnership.
ICON Cash Flow Partners L.L.C. III
----------------------------------
In December 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 L.L.C. III"), for the purpose of
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
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 expired April 30, 2003. Effective
May 1, 2003, the aircraft was leased to a new lessee, World Airlines, Inc. (see
Note 4). 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 and 100% of the revenue and expenses
of ICON Cash Flow L.L.C. III. Series E's investment in ICON Cash Flow L.L.C. III
has been reflected as minority interest in joint venture on the consolidated
balance sheets and minority interest expense on the consolidated statements of
operations.
Investments in Unconsolidated Joint Ventures
The seven joint ventures described below are 50% or less owned and are
accounted for under the equity method.
ICON Receivables 1997-A LLC
---------------------------
In March 1997 the Partnership and affiliates, ICON Cash Flow Partners L.P.
Six ("L.P. Six") and ICON Cash Flow Partners L.P. Series D ("Series D")
contributed and assigned equipment lease and finance receivables and residuals
to ICON Receivables 1997-A LLC ("1997-A"). 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. As of March 31, 2003, the
Partnership, Series E, L.P. Six and Series D own 19.97%, 31.19%, 31.03% and
17.81% interests, respectively, in 1997-A. The Partnership accounts for its
investment in 1997-A under the equity method of accounting.
Information as to the unaudited financial position of 1997-A as of March
31, 2003 and December 31, 2003 and the results of its operations for the three
months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $ 768,393 $ 694,761
========= =========
Liabilities $ 490,652 $ 390,389
========= =========
Equity $ 277,741 $(304,372)
========= =========
Partnership's share of equity $ 55,467 $ (60,784)
========= =========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net loss $ (26,631) $ (23,095)
======== ========
Partnership's share of net loss $ (5,317) $ (4,611)
======== ========
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
ICON Receivables 1997-B LLC
---------------------------
In August 1997, the Partnership and affiliates, Series E and L.P. Six,
formed ICON Receivables 1997-B LLC ("1997-B"). The Partnership, Series E and
L.P. Six each contributed cash, equipment leases and residuals and received a
16.67%, 75.00% and 8.33% interest, respectively, in 1997-B. The Partnership
accounts for its investment in 1997-B under the equity method of accounting.
Information as to the unaudited financial position of 1997-B as of March
31, 2003 and December 31, 2002 and the results of its operations for the three
months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $2,196,466 $3,241,761
========== ==========
Liabilities $1,977,828 $2,825,588
========== ==========
Equity $ 218,638 $ 416,173
========== ==========
Partnership's share of equity $ 36,448 $ 69,377
========== ==========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net loss $ (197,535) $ (33,883)
========== ==========
Partnership's share of net loss $ (32,929) $ (5,647)
========== ==========
ICON/Boardman Facility LLC
--------------------------
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. ("Fund Eight A"), formed ICON Boardman /Facility LLC ("ICON BF"), for the
purpose of acquiring a lease for a coal handling facility with Portland General
Electric, a utility company. The purchase price totaled $27,421,810 and was
funded with cash and non-recourse debt. The Partnership, Series C, L.P. Six, and
Fund Eight A received a .5%, .5%, .5% and 98.5% interest, respectively, in ICON
BF. The Partnership accounts for its investment in ICON BF under the equity
method of accounting.
In 2001 the other joint venturers in ICON BF acquired Series C's interest
in accordance with their proportionate shares of ICON BF, at an aggregate cost
of $56,370, which represented Series C's carrying value of the investment. The
Partnership's share of the purchase price was $283. The remaining venturers'
shares in ICON BF at March 31, 2003 were .5025%, .5025%, and 98.995% for the
Partnership, L.P. Six, and Fund Eight A, respectively.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
Information as to the unaudited financial position of ICON BF as of March
31, 2003 and December 31, 2002 and the results of its operations for the three
months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $19,945,319 $23,193,438
=========== ===========
Liabilities $ 6,981,199 $10,583,632
=========== ===========
Equity $12,964,120 $12,609,806
============ ===========
Partnership's share of equity $ 65,144 $ 63,364
=========== ===========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income $ 354,314 $ 310,871
=========== ===========
Partnership's share of net income $ 1,780 $ 1,554
=========== ==========
ICON/AIC Trust
--------------
In 1999, ICON/AIC Trust ("AIC Trust") was formed to own and manage a
portfolio of leases in England. The Partnership, L.P. Six and Fund Eight A own
30.76%, 25.51% and 43.73% interests in AIC Trust, respectively. The Partnership
accounts for its investment in AIC Trust under the equity method of accounting.
On December 28, 2001, AIC Trust sold its remaining leases, subject to the
related debt, at a loss, for a note receivable of (pound)2,575,000 ($3,744,822
based upon the exchange rate at December 31, 2001) which is payable in six
installments through June 2004. The first two installments on the note of
(pound)475,000 each were collected in 2002 and the third installment on the note
of (pound)450,000 was collected in the first quarter 2003. As of March 31, 2003,
the remaining amount due is (pound)1,175,000 ($1,824,474 based upon the exchange
rate at March 31, 2003).
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
Information as to the unaudited financial position of AIC Trust as of March
31, 2003 and December 31, 2002 and the results of its operations for the three
months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $1,824,274 $2,572,522
========== ==========
Liabilities $ -- $ --
========== ==========
Equity $1,824,274 $2,572,522
========== ==========
Partnership's share of equity $ 561,147 $ 791,308
========== ==========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income $ 11,051 $ 37,457
========== ==========
Partnership's share of net income $ 3,400 $ 11,521
========== ==========
Distributions $ 722,005 $ 995,989
========== ==========
Partnership's share of distributions $ 222,089 $ 306,366
========= ==========
ICON Cheyenne LLC
----------------
In December 2000, the Partnership and three affiliates, L.P. Six, Fund
Eight A and Fund Eight B formed ICON Cheyenne LLC ("ICON Cheyenne") for the
purpose of acquiring a portfolio of leases for an aggregate purchase price of
$29,705,716, which was paid for with cash of $11,401,151 and the assumption of
non-recourse debt with an unaffiliated third party lender of $18,304,565. The
debt is structured to be amortized by the application to the debt of rentals due
under the various leases. The leases expire on various dates through September
2006. The Partnership, L.P. Six, Fund Eight A and Fund Eight B have ownership
interests of 10.31%, 1.0%, 1.0% and 87.69%, respectively, in ICON Cheyenne. 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 Condensed Consolidated Financial Statements - Continued
Information as to the unaudited financial position of ICON Cheyenne as of
March 31, 2003 and December 31, 2002 and the results of its operations for the
three months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $14,091,628 $14,765,333
=========== ===========
Liabilities $ 4,479,140 $ 5,141,481
=========== ===========
Equity $ 9,612,488 $ 9,623,852
=========== ===========
Partnership's share of equity $ 991,047 $ 992,219
=========== ===========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income $ 256,681 $ 762,893
=========== ===========
Partnership's share of net income $ 26,463 $ 78,654
=========== ===========
Distributions $ 268,045 $ --
=========== ===========
Partnership's share of distributions $ 27,635 $ --
=========== ============
ICON Aircraft 24846 LLC
-----------------------
In 2000, the Partnership and two affiliates, Fund Eight A and Fund Eight B,
formed ICON Aircraft 24846 LLC ("ICON Aircraft 24846") for the purpose of
acquiring an investment in a 767-300ER aircraft leased to Scandinavian Airlines
Systems for a purchase price of $44,515,416, which was funded with cash of
$2,241,371 and non-recourse debt of $42,274,045. The rents and the aircraft have
been assigned to the unaffiliated non-recourse lender. The lease expired in
March 2003, at which time the balance of the non-recourse debt outstanding was
approximately $34,500,000. The Partnership is currently remarketing the
aircraft, during which time, the Partnership will be making interest only
payments on the outstanding non-recourse debt. The Partnership, Fund Eight A and
Fund Eight B have ownership interests of 2.0%, 2.0% and 96.0%, respectively, in
ICON Aircraft 24846. 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 Condensed Consolidated Financial Statements - Continued
Information as to the unaudited financial position of ICON Aircraft as of
March 31, 2003 and December 31, 2002 and the results of its operations for the
three months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $38,435,324 $39,175,547
=========== ===========
Liabilities $34,491,632 $35,419,214
=========== ===========
Equity $ 3,943,692 $ 3,756,333
=========== ===========
Partnership's share of equity $ 78,873 $ 75,126
=========== ===========
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
------------- --------------
Net income $ 187,359 $ 187,358
=========== ===========
Partnership's share of net income $ 3,747 $ 3,747
=========== ===========
North Sea (Connecticut) Limited Partnership
In 2000, a joint venture, North Sea (Connecticut) Limited Partnership
("North Sea"), in which the Partnership is a 50% Class C limited partner,
exercised its option to acquire a drilling rig and leased the rig to the
operator. The lease was then discounted on a non recourse basis at a bank and
the proceeds were used to pay for the exercise of the option, with the excess
loan proceeds of $20,002,567 distributed to the joint venturers ($10,001,284
represented the Partnership's 50% share). The other joint venturers are not
affiliates of the Partnership.
The Partnership has guaranteed an amount between the stipulated loss value
provided for in the financing and the loan balance. The maximum amount for which
the Partnership is contingently liable at March 31, 2003 under this guarantee
was approximately $103,000.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
Information as to the unaudited financial position of North Sea as of March
31, 2003 and December 31, 2002 and the results of its operations for the three
months ended March 31, 2003 and 2002 is summarized below:
March 31, 2003 December 31, 2002
-------------- -----------------
Assets $ 9,029,310 $ 10,504,336
============ ============
Liabilities $ 20,857,683 $ 22,983,403
============ ============
Partners' deficit $(11,828,373) $(12,479,067)
============ ============
Partnership's share of equity $ 1,614,813 $ 1,307,967
============ ============
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
Net income $ 613,693 $ 542,978
============ ============
Partnership's share of net income $ 306,846 $ 271,489
============ ============
6.. Investment in Operating Leases and Equipment Held for Sale or Lease
During the quarter ended March 31, 2003, operating lease equipment with a
net book value of $3,444,412 was returned to the Partnership and was
reclassified as equipment held for sale or lease. The Partnership is continuing
to record depreciation on such equipment while it is attempting to re-lease or
sell the equipment. Included in the $21,734,484 of equipment held for sale or
lease are six vessels with an aggregate carrying value of $18,858,483. The
Partnership is currently negotiating the re-lease or sale of such vessels. The
net carrying value of the vessels approximate their estimated fair values based
on appraisals completed in March 2003.
7. Line of Credit Agreement
During the quarter ended June 30, 2002, the Partnership entered into a
$17,500,000 joint and several line of credit agreement dated as of May 30, 2002
shared with Fund Eight A and Fund Eight B (the "Initial Funds"), with Comerica
Bank as lender. Under the terms of the agreement, the Partnership may borrow at
a rate equal to the Comerica Bank base rate plus 1% (together, 5.25% at March
31, 2003) and all borrowings are to be jointly and severally collateralized by
the present values of rents receivable and equipment owned by all of the Initial
Funds sharing in the joint line of credit. On December 12, 2002, the agreement
was amended to admit ICON Income Fund Nine, LLC, collectively along with the
Initial Funds (the "Funds"), as a borrower sharing the $17,500,000 joint line of
credit agreement. The Funds have entered into a Contribution Agreement, dated as
of May 30, 2002, as amended December 12, 2002, pursuant to which the Funds have
agreed to restrictions on the amount and the terms of their respective
borrowings under the line of credit in order to minimize the risk that a Fund
would not be able to repay its allocable portion of the outstanding revolving
loan obligation at any time, including restrictions on any Fund borrowing in
excess of the lesser of (A) an amount each Fund could reasonably expect to repay
in one year out of its projected free cash flow, or (B) the greater of (i) the
Borrowing Base (as defined in the line of credit agreement) as applied to such
Fund, and (ii) 50% of the net worth of such
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
Fund. The Contribution Agreement provides that, in the event a Fund pays an
amount under the agreement in excess of its allocable share of the obligation
under the agreement whether by reason of an Event of Default or otherwise, the
other Funds will immediately make a contribution payment to such Fund in such
amount that the aggregate amount paid by each Fund reflects its allocable share
of the aggregate obligations under the agreement. The Funds' obligations to each
other under the Contribution Agreement are collateralized by a subordinate lien
on the assets of each participating Fund. The expiration date of this line of
credit is May 31, 2003. The Partnership violated a financial covenant at
December 31, 2002 creating an Event of Default. The bank granted a waiver to the
Partnership with respect to this Event of Default. As of March 31, 2003, the
Partnership had $5,925,439 outstanding under the line. Aggregate borrowing by
all Funds under the line of credit agreement aggregated $7,484,986 on March 31,
2003.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2003
Item 2: General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited financial statements dated December 31,
2002. Certain statements within this document may constitute forward-looking
statements made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. These statements are identified by words such as
"anticipate," "believe," "estimate," "expects," "intend," "predict" or "project"
and similar expressions. This information may involve risks and uncertainties
that could cause actual results to differ materially from the forward-looking
statements. Although the Partnership believes that the expectations reflected in
such forward-looking statements are based on reasonable assumptions, such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those projected.
Results of Operations for the Three Months Ended March 31, 2003 and 2002
Revenues for the three months ended March 31, 2003 ("2003 Quarter") were
$985,495 as compared to $1,747,484 in the quarter ended March 31, 2002 ("2002
Quarter") representing a decrease of $761,990. The decrease in revenues resulted
primarily from a decrease in finance income of $434,047, and income from
leveraged leases of $340,252 and income from investments in unconsolidated joint
ventures of $64,127. The decrease in income was partially offset by increases in
rental income of $82,590, gain on sales of equipment of $30,410. The decrease in
finance income resulted primarily from (1) a decrease in the average size of the
Partnership's lease portfolio, (2) certain leases were renewed and are
generating lower levels of finance income during the respective renewal terms
and (3) certain finance leases came to term in 2002 and were reclassified as
operating leases during their renewal terms. The decrease in income from
leveraged leases was due to a reduction in the estimated unguaranteed residual
value of $350,000, as result of management's analysis which indicated a lower
rate value at lease termination than initially estimated. The increase in rental
income in the 2003 Quarter resulted from the rentals associated with equipment
which was reclassified to operating leases subsequent to the 2002 Quarter.
Expenses for the 2003 Quarter were $3,188,621 as compared to $2,873,978 in
the 2002 Quarter, representing an increase of $314,643. The increase in expenses
was primarily attributable to an increase in depreciation expense of $374,403,
due primarily to equipment being reclassified from finance leases to operating
leases subsequent to the 2002 Quarter, and an increase in general and
administrative expenses of $87,199. The principal reason for the increase in
general and administrative expenses was the storage and insurance costs
associated with off-lease vessels during the 2003 Quarter. The increase in
expenses were partially offset by a decrease in interest expense of $49,283, a
decrease in management fees - General Partner of $61,784, a decrease in
administrative expense reimbursements - General Partner of $32,828, and a
decrease in amortization of initial direct costs of $3,030. Interest expense
decreased due to a decrease in the average debt outstanding from 2002 to 2003.
The decreases in management fees - General Partner and administrative expense
reimbursement - General Partner resulted from the overall decrease in the
average size of the Partnership's lease portfolio. The decrease in amortization
of initial direct costs resulted from the decrease in the average size of the
lease portfolio.
Net loss for the 2003 Quarter and the 2002 Quarter was $2,203,126 and
$1,126,494, respectively. The net loss per weighted average limited partnership
unit outstanding was $2.21 and $1.13, for the 2003 Quarter and the 2002 Quarter,
respectively.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2003
Liquidity and Capital Resources
During the three months ended March 31, 2003, the Partnership used cash in
operating activities of $161,458 and paid distributions to partners of
$1,246,906. The Partnership received $249,724 in distributions from its
unconsolidated joint ventures. Because the Partnership's uses of cash exceeded
its sources of cash during the quarter, its liquidity was reduced. The
Partnership currently owns six vessels which are off lease.
During the quarter ended June 30, 2002, the Partnership entered into a
$17,500,000 joint and several line of credit agreement dated as of May 30, 2002
shared with Fund Eight A and Fund Eight B (the "Initial Funds"), with Comerica
Bank as lender. Under the terms of the agreement, the Partnership may borrow at
a rate equal to the Comerica Bank base rate plus 1% (together, 5.25% at March
31, 2003) and all borrowings are to be jointly and severally collateralized by
the present values of rents receivable and equipment owned by all of the Initial
Funds sharing in the joint line of credit. On December 12, 2002, the agreement
was amended to admit ICON Income Fund Nine, LLC, collectively along with the
Initial Funds (the "Funds"), as a borrower sharing the $17,500,000 joint line of
credit agreement. The Funds have entered into a Contribution Agreement, dated as
of May 30, 2002, as amended December 12, 2002, pursuant to which the Funds have
agreed to restrictions on the amount and the terms of their respective
borrowings under the line of credit in order to minimize the risk that a Fund
would not be able to repay its allocable portion of the outstanding revolving
loan obligation at any time, including restrictions on any Fund borrowing in
excess of the lesser of (A) an amount each Fund could reasonably expect to repay
in one year out of its projected free cash flow, or (B) the greater of (i) the
Borrowing Base (as defined in the line of credit agreement) as applied to such
Fund, and (ii) 50% of the net worth of such Fund. The Contribution Agreement
provides that, in the event a Fund pays an amount under the agreement in excess
of its allocable share of the obligation under the agreement whether by reason
of an Event of Default or otherwise, the other Funds will immediately make a
contribution payment to such Fund in such amount that the aggregate amount paid
by each Fund reflects its allocable share of the aggregate obligations under the
agreement. The Funds' obligations to each other under the Contribution Agreement
are collateralized by a subordinate lien on the assets of each participating
Fund. The expiration date of this line of credit is May 31, 2003. The
Partnership violated a financial covenant at December 31, 2002 creating an Event
of Default. The bank granted a waiver to the Partnership with respect to this
Event of Default. As of March 31, 2003, the Partnership had $5,925,439
outstanding under the line. Aggregate borrowing by all Funds under the line of
credit agreement aggregated $7,484,986 on March 31, 2003.
As of March 31, 2003, 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 to be prudent while retaining sufficient cash to meet
its reserve requirements and recurring obligations. We do not consider the
impact of inflation to be material in the analysis of our overall operations.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The Partnership is exposed to certain market risks, including changes in
interest rates and the demand for equipment (and the related residual) owned by
the Partnership and its investees. Except as described
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2003
below, the Partnership believes its exposure to other market risks are
insignificant to both its financial position and results of operations.
The Partnership manages its interest rate risk by obtaining fixed rate debt
for most of its obligations. The Partnership borrows funds under a floating rate
lines of credit and is therefore exposed to interest rate risk until the
floating rate lines of credit are repaid. The Partnership's borrowing under the
floating rate lines of credit as of March 31, 2003 aggregated $5,925,439.
The Partnership manages its exposure to equipment and residual risk by
monitoring the market and maximizing remarketing proceeds through either
releasing or sales of equipment.
Item 4. Controls and Procedures
Beaufort J.B. Clarke and Thomas W. Martin, the Principal Executive and
Principal Financial Officers, respectively, of ICON Capital Corp. ("ICC"), the
General Partner of the Partnership, have evaluated the disclosure controls and
procedures of the Partnership within 90 days prior to the filing of this
quarterly report. As used herein, the term "disclosure controls and procedures"
has the meaning given to the term by Rule 13a-14 under the Securities Exchange
Act of 1934, as amended ("Exchange Act"), and includes the controls and other
procedures of the Partnership that are designed to ensure that information
required to be disclosed by the Partnership in the reports that it files with
the SEC under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. As part of their
evaluation, Messrs. Clarke and Martin conferred with the finance and accounting
staff of ICC and the finance and accounting staff of ICON Holdings Corp., the
parent of ICC. Based upon their evaluation, Messrs. Clarke and Martin have
concluded that the Partnership's disclosure controls and procedures provide
reasonable assurance that the information required to be disclosed by the
Partnership in this report is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms applicable to the
preparation of this report.
There have been no significant changes in the Partnership's internal
controls or in other factors that could significantly affect the Partnership's
internal controls subsequent to the evaluation described above conducted by
ICC's principal executive and financial officers.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company, from time-to-time, in the ordinary course of business,
commences legal actions when necessary to protect or enforce the rights of the
Partnership. We are not a defendant party to any litigation and are not aware of
any pending or threatened litigation against the Partnership
Item 6 - Exhibits and Reports on Form 8K
(b) Reports on Form 8-K
Form 8-K filed on February 5, 2003
Item 4. Changes in Registrant's Certifying Accountant
(c) Exhibits
99.1 Certification of Chairman and Chief Executive Officer pursuant to 18
U.S.C.ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer pursuant to 18 U.S.C.ss.1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICON Cash Flow Partners L. P. Seven
File No. 33-94458 (Registrant)
By its General Partner,
ICON Capital Corp.
May 12, 2003 /s/ Thomas W. Martin
- ------------------------------ --------------------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer
of the General Partner of the Registrant)
Certifications - 10-Q
I, Beaufort J.B. Clarke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICON Cash Flow
Partners L.P. Seven;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 12, 2003
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
General Partner of ICON Cash Flow Partners L.P. Seven
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
I, Thomas W. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICON Cash Flow
Partners L.P. Seven;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: May 12, 2003
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer
of the General Partner of the Registrant)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
March 31, 2003
EXHIBIT 99.1
I, Beaufort J.B. Clarke, Chairman and Chief Executive Officer of ICON
Capital Corp, the sole General Partner of ICON Cash Flow Partners L.P. Seven,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Quarterly Report on Form 10-Q for the period ended March 31, 2003
(the "Periodic Report") which this statement accompanies fully
complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) and
(2) information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations
of ICON Cash Flow Partners L.P. Seven.
Dated: May 12, 2003
/s/ Beaufort J.B. Clarke
---------------------------------------------
Beaufort J.B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
General Partner of ICON Cash Flow Partners L.P. Seven
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
March 31, 2003
EXHIBIT 99.2
I, Thomas W. Martin, Executive Vice President (Principal Financial and
Accounting Officer) of ICON Capital Corp, the sole General Partner of ICON Cash
Flow Partners L.P. Seven, certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Quarterly Report on Form 10-Q for the period ended March, 2003
(the "Periodic Report") which this statement accompanies fully
complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m) and
(2) information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations
of ICON Cash Flow Partners L.P. Seven.
Dated: May 12, 2003
/s/ Thomas W. Martin
---------------------------------------------
Thomas W. Martin
Executive Vice President (Principal
Financial and Accounting Officer)
ICON Capital Corp.
General Partner of ICON Cash Flow Partners L.P. Seven