Back to GetFilings.com
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, 2004
--------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________________________to ___________________
Commission File Number 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 Rule 12b-2 of the Exchange Act) [ ] 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
(unaudited)
March 31, December 31,
2004 2003
---- ----
Assets
------
Cash $ 87,986 $ 301,256
----------------- ----------------
Investment in finance leases and financings
Minimum rents receivable 530,315 904,811
Estimated unguaranteed residual values 1,188,402 1,188,402
Initial direct costs, net 1,299 1,299
Unearned income (51,188) (55,036)
Allowance for doubtful accounts (239,516) (239,516)
----------------- ----------------
1,429,312 1,799,960
----------------- ----------------
Investment in operating leases
Equipment at cost 2,565,000 6,352,370
Accumulated depreciation (416,657) (1,614,224)
----------------- ----------------
2,148,343 4,738,146
----------------- ----------------
Equipment held for sale or lease, net 16,620,508 15,569,831
----------------- ----------------
Net investment in leveraged leases 9,958,455 19,631,879
----------------- ----------------
Investment in estimated unguaranteed residual values 4,686,758 4,686,758
----------------- -----------------
Investments in unconsolidated joint ventures 3,813,303 4,000,169
----------------- ----------------
Due from affiliates, net 369,071 369,071
----------------- -----------------
Other assets, net 801,977 966,486
----------------- -----------------
Total assets $ 39,915,713 $ 52,063,556
================= ================
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
March 31, December 31,
2004 2003
---- ----
Liabilities and Partners' Equity
---------------------------------
Notes payable - non-recourse $ 16,651,548 $ 22,129,648
Notes payable - recourse 13,518,468 14,027,055
Due to General Partner and affiliates, net 130,214 51,522
Security deposits, deferred credits and other payables 428,958 429,127
Minority interest in joint ventures 21,483 22,871
------------- -------------
30,750,671 36,660,223
------------- -------------
Partners' equity (deficiency)
General Partner (757,256) (694,873)
Limited Partners (987,548 units outstanding,
$100 per unit original issue price) 9,922,298 16,098,206
------------- --------------
Total partners' equity 9,165,042 15,403,333
------------- --------------
Total liabilities and partners' equity $ 39,915,713 $ 52,063,556
============= ==============
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)
2004 2003
---- ----
Revenues
Finance income $ 3,848 $ 23,022
Rental income 105,624 367,686
Income from leveraged leases, net 700,619 599,918
Net gain on sales of equipment and investments - 38,548
Income from investments in
unconsolidated joint ventures 346,482 303,990
Interest income and other 409 2,331
--------------- -----------------
Total revenues 1,156,982 1,335,495
--------------- -----------------
Expenses
Provision for impairment loss 4,700,000 350,000
Depreciation expense 1,518,259 1,379,374
Interest 404,064 693,830
General and administrative 242,197 364,419
Management fees - General Partner 377,792 442,619
Administrative expense reimbursements-
General Partner 122,256 178,516
Amortization of initial direct costs 31,384 128,680
Minority interest expense (679) 1,183
---------------- -----------------
Total expenses 7,395,273 3,538,621
---------------- -----------------
Net loss $ (6,238,291) $ (2,203,126)
================ =================
Net loss allocable to:
Limited Partners $ (6,175,908) $ (2,181,095)
General Partner (62,383) (22,031)
---------------- -----------------
$ (6,238,291) $ (2,203,126)
================ =================
Weighted average number of limited
partnership units outstanding 987,458 987,548
================ =================
Net loss per weighted average
limited partnership unit $ (6.25) $ (2.21)
================ =================
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, 2004
(unaudited)
Limited General
Partners Partner Total
-------- ------- -----
Balance at
January 1, 2004 $ 16,098,206 $ (694,873) $ 15,403,333
Net loss (6,175,908) (62,383) (6,238,291)
---------------- -------------- --------------
Balance at
March 31, 2004 $ 9,922,298 $ (757,256) $ 9,165,042
================ ============== ==============
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)
2004 2003
---- ----
Cash flows from operating activities:
Net loss $ (6,238,291) $ (2,203,126)
---------------- ---------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Rental income paid directly to lenders by lessees - (367,686)
Provision for impairment loss 4,700,000 -
Interest expense on non-recourse financings paid
directly by lessees and interest accreted 241,585 425,087
Amortization of initial direct costs 31,384 128,680
Depreciation expense 1,518,259 1,379,374
Income from leveraged leases, net (700,619) (249,918)
Income from investments in unconsolidated joint ventures (346,482) (303,990)
Net gains on sales of equipment and investments - (38,548)
Minority interest expense (679) 1,183
Changes in operating assets and liabilities:
Collection of principal-non financed receivables 328,274 145,848
Other assets 164,509 228,226
Due to/from General Partner and affiliates 78,692 591,853
Security deposits, deferred credits and other payables (169) 101,559
------------- ------------
Total adjustments 6,014,754 2,041,668
------------- ------------
Net cash used in operating activities (223,537) (161,458)
------------- -----------
Cash flows from investing activities:
Advances and proceeds from sales of equipment 20,867 202,480
Distributions received from unconsolidated joint ventures 543,628 249,724
------------- -----------
Net cash provided by investing activities 564,495 452,204
------------- -----------
Cash flows from financing activities:
Cash distributions to partners - (1,246,906)
Principal payments on notes payable - recourse debt (554,228) -
------------- -----------
Net cash used in financing activities (554,228) (1,246,906)
-------------- ------------
Net decrease in cash and cash equivalents (213,270) (956,160)
Cash and cash equivalents at beginning of period 301,256 1,257,947
------------- -----------
Cash and cash equivalents at end of period $ 87,986 $ 301,787
============= ===========
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Condensed Consolidated Statements of Cash Flows (Continued)
(unaudited)
Supplemental Disclosures of Cash Flow Information
For the three months ended March 31, 2004 and 2003, non-cash activities
included the following:
2004 2003
---- ----
Principal and interest on finance
receivables paid directly to lenders by lessees $ 5,674,044 $ 4,213,432
Rental income assigned - operating lease receivables - 367,686
Principal and interest on non-recourse
financing paid directly to lenders by lessees (5,674,044) (4,581,118)
------------- ------------
$ - $ -
============= ============
Transfer of investment in operating leases,
net of accumulated depreciation,
to equipment held for sale or lease $ 2,327,558 $ 3,444,412
============= ============
Interest paid directly to lenders by lessees
on non-recourse financings $ 241,585 $ 425,087
Other interest paid 162,479 268,743
------------- -------------
Total interest expense $ 404,064 $ 693,830
============= =============
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, 2004
(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
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 2003 Annual Report on Form 10-K. Certain 2003 amount have been
reclassified to conform to the 2004 presentation.
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, 2004 and 2003
were as follows:
2004 2003
---- ----
Management fees $ 377,792 $ 442,619 Charged to Operations
Administrative expense
reimbursements 122,256 178,516 Charged to Operations
------------ ------------
Total $ 500,048 $ 621,135
============ ============
As a result of the General Partner's review of its results of operations
for its fiscal year ended March 31, 2004 , administrative expenses incurred by
the General Partner on behalf of the Partnership of $60,000 were identified as
having been incurred by the General Partner in the quarter ended December 31,
2003. Accordingly, this amount was subsequently charged to the Partnership in
the quarter ended March 31, 2004.
For the quarter ended March 31, 2004, the Partnership had a total
receivable of $369,071 due from affiliates, primarily resulting from its share
of distributions and rental payments received by affiliates on behalf of the
Partnership. The Partnership also had a total payable of $130,214 due to the
General Partner and affiliates for administrative expense reimbursements and
rental payments received on behalf of the affiliates.
The Partnership and its affiliates, entities in which ICON Capital Corp. is
also the General Partner, formed eight joint ventures for the purpose of
acquiring and managing various assets. (See Note 5 for additional information
relating to the joint ventures)
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 a DC-10-30 aircraft subject to a
leveraged lease with Federal Express through July 2004.
The net investment in the leveraged lease as of March 31, 2004 and December
31, 2003 consisted of the following:
March 31, December 31,
2004 2003
---- ----
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) $ 136,317 $ 5,810,360
Estimated unguaranteed residual values 10,200,000 14,900,000
Initial direct costs 19,996 29,411
Unearned income (397,858) (1,107,892)
---------------- ----------------
$ 9,958,455 $ 19,631,879
================ ================
The DC-10-30 aircraft is subject to a non-recourse debt agreement, which
had a balance of $9,509,095 at March 31, 2004 and has a balloon payment due of
approximately $9,600,000 at lease end, July 2004. As required by the
non-recourse debt agreement the Partnership entered into a residual value
insurance agreement with an unrelated third party. Under the insurance
agreement, the insurer has the obligation to pay the insured amount to the
lender at lease expiry. The Partnership believes the insured amount of
$10,200,000, as stipulated in the insurance agreement is below the current fair
market value of the aircraft. Therefore, the Partnership is currently evaluating
its options, which includes the option to payoff the non-recourse debt at lease
end. If the Partnership elects to payoff the non-recourse debt, it would, in
effect, cancel the insurance agreement. The Partnership would then be able to
remarket or sell the aircraft in line with its investment objectives. However,
during the second quarter 2004, the insurer, pursuant to the insurance
agreement, notified the Partnership of its intention to pay the insured amount
of $10,200,000 at lease end which would thereby result in title of the aircraft
being transferred to the insurer. As a result, the Partnership recorded an
impairment charge of $4,700,000 in the quarter ended March 31, 2004 in order to
reduce the estimated unguaranteed residual value of the aircraft to $10,200,000
in the event the Lender and the Partnership decide not to exercise their rights
under the insurance agreement.
5. 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 Joint 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 acquiring and managing an
aircraft which was on lease to Continential Airlines, Inc. The aircraft is a
1976 McDonnell Douglas DC-10-30 with an original cost of $11,429,751. The
original lease, which was accounted for as a leveraged lease, expired on April
30th 2003. Effective May 1, 2003, the aircraft was re-leased to World Airlines,
Inc. on a "power-by-the-hour" basis. The Partnership and Series E contributed
99% and 1% of the cash required for such acquisition, respectively to ICON Cash
Flow LLC III. ICON Cash Flow LLC III acquired the aircraft, assuming
non-recourse debt and utilizing contributions received from the Partnership and
L.P. Seven.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
Investments in Unconsolidated Joint Ventures
The seven joint ventures described below are 50% or less owned and are
accounted for under the equity method, whereby the Partnership's original
investment was recorded at cost and is adjusted by its share of earnings, losses
and distributions.
ICON Receivables 1997-A LLC
In March 1997 the Partnership and affiliates, ICON Cash Flow Partners L.P.
Six ("L.P. Six"), ICON Cash Flow Partners, L.P., Series E ("Series E") 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") for the purpose of securitizing their cash flow collections. As of
March 31, 2004, the Partnership, Series E, L.P. Six and Series D own 19.97%,
31.03%, 31.19%, and 17.81% interests, respectively, in 1997-A.
Information as to the unaudited results of its operations for the three
months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net loss $ 28,530 $ 26,631
=============== ===============
Partnership's share of net loss $ 5,696 $ 5,317
=============== ===============
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") for the purpose of securitizing
their cash flow collections. 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.
Information as to the unaudited results of its operations and distributions
for the three months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net income (loss) $ 207,614 $ (197,535)
============= ==============
Partnership's share of net income (loss) $ 34,609 $ (32,929)
============= ==============
Distributions $ 206,128 $ -
============= ==============
Partnership's share of distributions $ 34,362 $ -
============= ==============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
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 remaining venturers' shares in ICON
BF at March 31, 2004 were .5025%, .5025%, and 98.995% for the Partnership, L.P.
Six, and Fund Eight A, respectively. The non-recourse debt associated with this
equipment was refinanced on May 6, 2004 at an interest rate of 3.65% maturing
January 23, 2010. The outstanding debt as of March 31, 2004 was $3,573,324.
Information as to the unaudited results of its operations for the three
months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net income $ 377,323 $ 354,314
============== ===============
Partnership's share of net income $ 1,896 $ 1,780
============== ================
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.
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. At March 31, 2004, the remaining amount
receivable is (Pound)375,000 ($666,209 based upon the exchange rate at March 31,
2004).
Information as to the unaudited results of its operations and distributions
for the three months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net income $ 4,652 $ 11,051
=============== ==============
Partnership's share of net income $ 1,431 $ 3,400
=============== ==============
Distributions $ 683,603 $ 722,005
=============== ==============
Partnership's share of distributions $ 210,276 $ 222,089
=============== =============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
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. The purchase price consisted of cash of $11,401,151 and the
assumption of non-recourse debt of $18,304,565. The non-recourse debt is
structured so as to be amortized with rentals due under the 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 outstanding non-recourse debt
balance at March 31, 2004 was $1,081,435.
Information as to the unaudited results of its operations and distributions
for the three months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net (loss) income $ (301,068) $ 256,681
================ =============
Partnership's share of net (loss) income $ (31,040) $ 26,463
================ =============
Distributions $ 2,900,000 $ 268,045
================ =============
Partnership's share of distributions $ 298,990 $ 27,635
================ =============
ICON Aircraft 24846 LLC
In 2000, the Partnership and two affiliates, Fund Eight A and ICON Income
Fund Eight B L.P. ("Fund Eight B"), formed ICON Aircraft 24846 LLC ("ICON
Aircraft 24846") for the purpose of acquiring an investment in a Boeing
767-300ER aircraft originally leased to Scandinavian Airline Systems ("SAS") for
a purchase price of $44,515,416. The purchase price was funded with cash of
$2,241,371 and the assumption of non-recourse debt in the amount of $42,274,045.
The lenders have a security interest in the aircraft and an assignment of the
rental payments under the lease. The lease with SAS expired in March 2003, at
which time the balance of the non-recourse debt outstanding was approximately
$34,500,000. The Partnership has been making contributions toward interest only
payments on the outstanding non-recourse debt, during the remarketing of the
aircraft by the General Partner. 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.
Information as to the unaudited results of its operations and contributions
for the three months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
Net (loss) income $ (958,936) $ 187,359
=============== ==============
Partnership's share of net (loss) income $ (19,179) $ 3,747
=============== ==============
Contribution $ 290,557 $ -
=============== ==============
Partnership's share of contributions $ 5,811 $ -
=============== ==============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
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 simultaneously leased the
drilling rig to the operator. The lease was then financed on a non recourse
basis with 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 or General Partner.
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, 2004 under this guarantee
was approximately $72,000.
Information as to the unaudited results of its operations for the three
months ended March 31, 2004 and 2003 is summarized below:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
Net income $ 728,923 $ 613,693
============== ===============
Partnership's share of net income $ 364,461 $ 306,846
============== ===============
6. Investment in Operating Leases and Equipment Held for Sale or Lease
The Partnership is the sole owner of two special purpose entities ("SPEs")
that own five marine vessels originally on charter to affiliates of Seacor Smit.
The financial position and results of operations of each of the SPEs are
consolidated with the Partnership. These vessels are subject to outstanding
non-recourse debt with a lender. Under the original loan agreements with the
SPEs, all charter revenue was paid to the lender to amortize the outstanding
debt. At the end of the original charter term of each vessel, it was expected
that the individual vessels would either be re-chartered or sold with proceeds
paid to the lender until the debt was fully repaid. Several of the vessels had
been re-chartered during depressed periods of bareboat charter rates. As such,
the lender has not received the full payment and the non-recourse notes have
been declared in default. The total outstanding debt balance as of March 31,
2004 is approximately $7.25 million.
On September 4, 2003, the lender took control of the vessels and commenced
remarketing efforts. The General Partner also continues to look for potential
sale or re-charter opportunities on behalf of the SPEs. The SPEs remain the
titled owner of the vessels and as such are entitled to sale proceeds above the
outstanding debt balance regardless of whether it is the General Partner's or
the lender's remarketing activities that produces a sale. Both the General
Partner and the lender are seeking a sale in line with recent appraised values.
A sale was scheduled for May 12, 2004, which the results of the sale were not
available at the time of this filing.
Based upon its recent remarketing efforts and appraisals received by the
Partnership, the General Partner determined that the net book value of the
vessels approximate their current market value.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Condensed Consolidated Financial Statements - Continued
The Partnership is also the sole owner of an additional SPE that owns three
marine vessels originally on charter to affiliates of Seacor Smit. These vessels
are not subject to outstanding non-recourse debt with a lender. As of March 31,
2004 these vessels are held for sale or lease. As of April 1, 2004, one of the
vessels has been contracted for bareboat charter for a term expected to be at
lease sixty months.
7. Line of Credit Agreement
The Partnership's obligations to each other under the Contribution
Agreement are collateralized by a subordinate lien on the assets of each
participating Partnership. The line of credit was extended for twelve additional
months expiring December 31, 2004. As of March 31, 2004, the Partnership had
$6,615,439 outstanding under the line. Aggregate borrowing by all Funds under
the line of credit agreement aggregated $14,039,986 on March 31, 2004.
8. Notes Payable
Included in notes payable - recourse is $1,195,772 owed to ICON Cash Flow
Partners L.P., Series D an affiliate of the Partnership. In 1997, the affiliate
financed a portion of the free cash flow relating to a leveraged lease owned by
the Partner. The lease expires in July of 2004 at which time all unpaid amounts
will be due to the affiliate. During the quarter ended March 31, 2004, L.P.
Seven prepaid $554,228 of the financing.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2004
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 and notes dated
December 31, 2003 included in the Partnership's annual report on Form 10-K.
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, 2004 and 2003
Revenues for the three months ended March 31, 2004 ("2004 Quarter") were
$1,156,982 as compared to $1,335,495 in the quarter ended March 31, 2003 ("2003
Quarter") representing a decrease of $178,513. The decrease in revenues resulted
primarily from a decrease in rental income of $262,062, decreases in gain on
sales of equipment of $38,548, and finance income of $19,174. The decrease in
finance income resulted primarily from a decrease in the average size of the
Partnership's lease portfolio. The decrease in gain on sales of equipment was
due to the fact that no equipment was sold in the 2004 Quarter. These decreases
were offset by an increase in income from investments in unconsolidated joint
ventures of $42,492, and income from leveraged leases of $100,701.
Expenses for the 2004 Quarter were $7,395,273 as compared to $3,538,621 in
the 2003 Quarter, representing an increase of $3,856,652. The increase in
expenses was primarily due to a provision for impairment loss of $4,700,000 for
reasons described under Note 4 of the condensed consolidated financial
statements and an increase in depreciation expense of $138,885 due primarily to
equipment being reclassified from finance leases to operating leases subsequent
to the 2003 Quarter. The increase in expense was partially offset by decrease in
interest expense of $289,766 due to a decrease in the average debt outstanding
from the 2004 Quarter to the 2003 Quarter. A decrease in general and
administrative expenses of $122,222 was due to reductions in professional fees
and insurance expense in the 2004 Quarter versus the 2003 Quarter. A decrease in
management fees - General Partner of $64,827, and a decrease in administrative
expense reimbursements - General Partner of $56,260 resulted from the overall
decrease in the average size of the Partnership's lease portfolio. The decrease
in amortization of initial direct costs of $97,296 resulted from the decrease in
the average size of the Partnership's finance lease portfolio.
Net loss for the 2004 Quarter and the 2003 Quarter was $6,328,291 and
$2,203,126, respectively. The net loss per weighted average limited partnership
unit outstanding was $6.25 and $2.21 for the 2004 Quarter and the 2003 Quarter,
respectively.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2004
Liquidity and Capital Resources
During the three months ended March 31, 2004, the Partnership's overall
cash position decreased by $213,270. The principal reasons for this reduction
were cash used in operating activities of $223,537 and principal paid on notes
payable - recourse of $554,228. The Partnership received $543,628 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 eight vessels which were off lease as of
March 31, 2004. One of the vessels has since been released for sixty months.
From time to time the Partnership will invest in industries, equipment, or
geopolitical regions that may be subject to outside influences that may affect
the Partnership's investments. While these factors are considered when the
investments are made, unforeseen events such as those that occurred on September
11, 2001 can have far-reaching and unpredictable adverse consequences. The
following is a discussion of some assets that may fall into this category.
Aircraft: The Partnership is the lessor of several aircraft leased
throughout the country. The value of these aircraft is subject to the
fluctuations of the airline industry, which are greatly influenced by a number
of factors including, but not limited to, the global economy, fuel prices,
political instability, terrorist activity, and epidemics such as SARS. The Fund
is also the lessor of aircraft rotables, the value of which are tied directly to
the state of the aircraft market.
Marine Equipment: The Partnership is the lessor of off-shore supply vessels
and has an interest in an oil rig in the Gulf of Mexico. The value of these
assets are greatly, and sometimes counter-intuitively, affected by international
politics, the global economy, oil prices, political instability, terrorist
activity, and regional drilling activity. Some events may have a positive effect
on the oil rig and a negative effect on the off-shore supply vessels and
conversely the same may be true of an event that has a positive effect on the
supply vessels, having a negative effect on the oil rig.
On May 30 2002, the Partnership entered into a $17,500,000 joint and
several line of credit agreement 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, 5.00% at March 31, 2004) 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 Fund Nine,
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.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2004
The Funds' obligations to each other under the Contribution Agreement are
collateralized by a subordinate lien on the assets of each participating Fund.
The line of credit was extended for twelve additional months expiring December
31, 2004. As of March 31, 2004, the Partnership had $6,615,439 outstanding under
the line. Aggregate borrowing by all Funds under the line of credit agreement
aggregated $14,039,986 on March 31, 2004.
The DC-10-30 aircraft is subject to a non-recourse debt agreement, which
had a balance of $9,509,095 at March 31, 2004 and has a balloon payment due of
approximately $9,600,000 at lease end, July 2004. As required by the
non-recourse debt agreement the Partnership entered into a residual value
insurance agreement with an unrelated third party. Under the insurance
agreement, the insurer has the obligation to pay the insured amount to the
lender at lease expiry. The Partnership believes the insured amount of
$10,200,000, as stipulated in the insurance agreement is below the current fair
market value of the aircraft. Therefore, the Partnership is currently evaluating
its options, which includes the option to payoff the non-recourse debt at lease
end. If the Partnership elects to payoff the non-recourse debt, it would, in
effect, cancel the insurance agreement. The Partnership would then be able to
remarket or sell the aircraft in line with its investment objectives. However,
during the second quarter 2004, the insurer, pursuant to the insurance
agreement, notified the Partnership of its intention to pay the insured amount
of $10,200,000 at lease end which would thereby result in title of the aircraft
being transferred to the insurer. As a result, the Partnership recorded an
impairment charge of $4,700,000 in the quarter ended March 31, 2004 in order to
reduce the estimated unguaranteed residual value of the aircraft to $10,200,000
in the event the Lender and the Partnership decide not to exercise their rights
under the insurance agreement.
The Partnership's reinvestment period ended November, 2002 and the
Partnership immediately commenced its disposition period. During the disposition
period the Partnership had 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 will not
invest in any additional finance or lease transactions during the disposition
period. During the disposition period the Partnership expects to recover, at a
minimum, the carrying value of its assets.
As of March 31, 2004, except as noted above, and to the best of our
knowledge, there were no known trends or demands, commitments, events or
uncertainties which are likely to have a material effect on liquidity. As cash
is realized from operations and sales of equipment, the Partnership will
distribute substantially all available cash, after retaining sufficient cash to
meet its reserve requirements and recurring obligations. 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 investors.
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, 2004 aggregated $6,615,439.
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.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
March 31, 2004
Item 4. Controls and Procedures
The Partnership carried out an evaluation, under the supervision and with
the participation of management of ICON Capital Corp., the Manager of the
Partnership, including the Principal Executive Officer and the Principal
Financial Officer, of the effectiveness of the design and operation of the
Partnership's disclosure controls and procedures as of the end of the period
covered by this report pursuant to the Securities Exchange Act of 1934. Based
upon the evaluation, the Principal Executive Officer and the Principal Financial
Officer concluded that the Partnership's disclosure controls and procedures were
effective.
There were no significant changes in the Partnership's internal control
over financial reporting during the Partnership's first quarter that have
materially affected, or are likely to materially affect, the Partnership's
internal control over financial reporting.
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
None
(c) Exhibits
32.1 Certification of Chairman and Chief Executive Officer.
32.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer.
33.1 Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C.
(Section)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
33.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer pursuant to 18 U.S.C. (Section)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 17, 2004 /s/ Thomas W. Martin
- ------------------------ ----------------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer
of the General Partner of the Registrant)
Exhibit 32.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
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-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; 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;
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the board of directors of the Corporate
Manager (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the Partnership ability to record, process, summarize and
report financial information 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 over financial reporting.
Dated: May 17, 2004
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
sole General Partner of ICON Cash Flow Partners L.P. Seven
Exhibit 32.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
Certifications - 10-Q
---------------------
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-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; 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;
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the board of directors of the Corporate
Manager (or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the Partnership ability to record, process, summarize and
report financial information 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 over financial reporting.
Dated: May 17, 2004
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer
of the General Partner of the Registrant)
ICON Capital Corp.
sole General Partner of ICON Cash Flow Partners L.P. Seven
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
March 31, 2004
EXHIBIT 33.1
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, 2004 (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 17, 2004
/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, 2004
EXHIBIT 33.2
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, 2004 (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 17, 2004
/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