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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 September 30, 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
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, New York, New York 10011-1505
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(Address of principal executive offices) (Zip code)
(212) 418-4700
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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)
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2004 2003
---- -----
Assets
Cash and cash equivalents $ 372,222 $ 301,256
---------------- ---------------
Investments in finance leases:
Minimum rents receivable 1,142,645 904,811
Estimated unguaranteed residual values 70,902 1,188,402
Initial direct costs, net - 1,299
Unearned income (8,819) (55,036)
Allowance for doubtful accounts - (239,516)
----------------- --------------
Net investment in finance leases 1,204,728 1,799,960
----------------- ---------------
Investments in operating leases:
Equipment at cost 2,565,000 6,352,370
Accumulated depreciation (694,427) (1,614,224)
---------------- ---------------
Net investment in operating leases 1,870,573 4,738,146
---------------- ---------------
Equipment held for sale or lease, net 3,949,841 15,569,831
Net investment in leveraged lease - 19,631,879
Investment in estimated unguaranteed residual values 4,686,758 4,686,758
Investments in joint ventures 3,754,841 4,000,169
Due from affiliates 150,000 369,071
Other assets, net 545,905 966,486
---------------- ---------------
Total assets $ 16,534,868 $ 52,063,556
================ ===============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets - Continued
(Unaudited)
September 30, December 31,
2004 2003
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse $ - $ 22,129,648
Notes and accrued interest payable - recourse 9,049,001 14,027,055
Due to General Partner and affiliates, net 1,747,875 51,522
Security deposits, deferred credits and other payables 278,848 429,127
Minority interest 18,704 22,871
------------ ------------
Total liabilities 11,094,428 36,660,223
------------ ------------
Commitments and Contingencies
Partners' equity (deficiency):
General Partner (794,502) (694,873)
Limited Partners (987,548 units outstanding,
$100 per unit original issue price) 6,234,942 16,098,206
------------ ------------
Total partners' equity 5,440,440 15,403,333
------------ ------------
Total liabilities and partners' equity $ 16,534,868 $ 52,063,556
============ ============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
---- ---- ---- ----
Revenues:
Finance income $ 2,897 $ 5,308 $ 10,582 $ 43,516
Rental income 113,555 258,390 323,380 1,145,650
Net income from leveraged leases - 458,307 1,078,481 1,484,025
Income from investments in joint ventures 398,393 296,939 931,283 931,513
Interest income and other 5,157 20 37,927 2,610
------------- ------------- ------------- ------------
Total revenues 520,002 1,018,964 2,381,653 3,607,314
------------- ------------- ------------- ------------
Expenses:
Provision for impairment loss 1,580,839 4,100,000 6,280,839 4,800,000
Depreciation 508,960 1,518,259 2,536,179 4,277,007
Loss (gain) on disposal of assets 931,628 11,000 1,604,750 (119,779)
Interest 160,164 622,365 964,838 2,136,124
General and administrative 58,914 392,849 460,949 1,258,207
Management fees - General Partner - 103,716 387,287 583,008
Administrative expense reimbursements -
General Partner - 42,563 154,958 237,040
Reversal of provision for bad debts (21,979) - (134,391) -
Amortization of initial direct costs 28,282 21,701 91,050 120,029
Minority interest (570) 2,162 (1,913) 3,345
-------------- ------------- ------------- -------------
Total expenses 3,246,238 6,814,615 12,344,546 13,294,981
-------------- ------------- ------------- -------------
Net loss $ (2,726,236) $ (5,795,651) $ (9,962,893) $ (9,687,667)
============= ============ ============= =============
Net loss allocable to:
Limited Partners $ (2,698,974) $ (5,737,694) $ (9,863,264) $ (9,590,790)
General Partner (27,262) (57,957) (99,629) (96,877)
-------------- ------------- ------------- -------------
$ (2,726,236) $ (5,795,651) $ (9,962,893) $ (9,687,667)
============== ============== ============== =============
Weighted average number of limited
partnership units outstanding 987,548 987,548 987,548 987,548
============= ============= ============= ============
Net loss per weighted average
limited partnership unit $ (2.73) $ (5.81) $ (9.99) $ (9.71)
============== ============= ============= =============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statement of Changes in Partners' Equity
For the Nine Months Ended September 30, 2004
(Unaudited)
Limited General
Partners Partner Total
-------- ------- ----
Balance at
January 1, 2004 $ 16,098,206 $ (694,873) $15,403,333
Net loss (9,863,264) (99,629) (9,962,893)
----------------- ------------ -----------
Balance at
September 30, 2004 $ 6,234,942 $ (794,502) $ 5,440,440
================== ============ ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
2004 2003
---- ----
Cash flows from operating activities:
Net loss $ (9,962,893) $ (9,687,667)
--------------- --------------
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Rental income paid directly to lenders by lessees - (674,894)
Reversal of provision for doubtful accounts (134,391) -
Interest expense on non-recourse financing paid
directly to lenders by lessees 391,890 1,325,332
Loss (gain) on disposal of assets 1,604,750 (119,779)
Amortization of initial direct costs 91,050 120,029
Provision for impairment loss 6,280,839 4,800,000
Depreciation expense 2,536,179 4,277,007
Net income from leveraged leases (1,078,481) (1,484,025)
Income from investments in joint ventures (931,283) (931,513)
Minority interest (1,913) 3,345
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables 867,359 1,645,675
Other assets 420,585 316,805
Security deposits, deferred credits and other payables (20,633) 317,749
Due to/from General Partner and affiliates, net - (329,424)
--------------- --------------
Total adjustments 10,025,951 9,266,307
--------------- --------------
Net cash provided by (used in) operating activities 63,058 (421,360)
--------------- --------------
Cash flows from investing activities:
Proceeds from sales of equipment 1,548,754 887,662
Distributions received from joint ventures 956,057 325,557
--------------- --------------
Net cash provided by investing activities 2,504,811 1,213,219
--------------- --------------
Cash flows from financing activities:
Cash distributions to partners - (1,662,543)
Proceeds from notes payable - recourse - 690,000
Principal payments on notes payable - recourse (4,477,654) (453,901)
Loans and advances from affiliates 1,980,751 -
--------------- --------------
Net cash used in financing activities (2,496,903) (1,426,444)
--------------- --------------
Net increase (decrease) in cash and cash equivalents 70,966 (634,585)
Cash and cash equivalents at beginning of period 301,256 1,257,947
--------------- --------------
Cash and cash equivalents at end of period $ 372,222 $ 623,362
=============== ==============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows - Continued
(Unaudited)
Supplemental Disclosure of Cash Flow Information
For the nine months ended September 30, 2004 and 2003, non-cash activities
included the following:
2004 2003
---- ----
Principal and interest from finance lease
paid directly to lenders by lessees $ 5,674,044 $ 4,255,945
Rental income from operating leases paid
directly to lenders by lessees - 674,894
---------------- ---------------
Principal and interest on non-recourse
financing paid directly to lenders by lessees (5,674,044) (4,930,839)
================ ==============
$ - $ -
================ ==============
Notes payable - non-recourse relinquished with sale of equipment $ 16,847,494 $ -
================ =============
Transfer of investment in operating leases, net of accumulated
depreciation, to equipment held for sale or lease $ 5,530,831 $ 3,444,412
================ ==============
Interest accrued or paid directly to lenders by lessees
on non-recourse financings $ 391,890 $ 1,325,332
Other interest paid 572,948 810,792
---------------- --------------
Total interest expense $ 964,838 $ 2,136,124
================ =============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements of ICON Cash Flow
Partners L.P. Seven (the "Partnership") have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") for Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. These 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. The results for the interim
period are not necessarily indicative of the results for the full year.
The accompanying consolidated financial statements include the accounts of
the Partnership and its ownership interest in ICON Cash Flow Partners L.L.C. III
at September 30, 2004 and for the nine months ended September 30, 2004 and 2003.
All material intercompany balances and transactions have been eliminated in
consolidation.
2. Organization
The Partnership is an equipment leasing business formed on May 23, 1995.
The Partnership is primarily engaged in the business of acquiring equipment
subject to leases.
The Partnership's reinvestment period ended on November 9, 2002 and the
disposition period began on November 10, 2002. During the disposition period,
the Partnership has and will continue to utilize available cash to pay its
liabilities; distribute substantially all remaining cash, if any, from
operations and equipment sales to the partners; and continue the orderly
termination of its operations and affairs. The Partnership will not invest in
any additional finance or lease transactions during the disposition period.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut Corporation. The General Partner manages and controls
the business affairs of the Partnership's equipment, leases and financing
transactions under the partnership agreement.
Certain reclassifications have been made to the accompanying consolidated
financial statements for the three and nine months ended September 30, 2003 to
conform to the current period presentation.
3. Joint Ventures
The Partnership and its affiliates formed eight joint ventures, discussed
below, for the purpose of acquiring and managing various assets. The Partnership
and these affiliates have substantially identical investment objectives and
participate on the same terms and conditions. The Partnership and the other
joint venturers have a right of first refusal to purchase the equipment, on a
pro-rata basis, if any of the other joint venturers desire to sell their
interests in the equipment or joint venture.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
3. Joint Ventures (continued)
The joint venture described below is majority owned and is consolidated
with the Partnership.
ICON Cash Flow Partners L.L.C. III
The Partnership and an affiliate, ICON Cash Flow Partners, L.P., Series E
("Series E") formed, ICON Cash Flow Partners L.L.C. III, ("LLC III") for the
purpose of acquiring and managing a 1976 McDonnell Douglas DC-10-30 (the
"Aircraft"). The Aircraft is leased to World Airways, Inc. The lease was on a
"power-by-the-hour" basis until December 2004. Effective September 1, 2004, the
lease has been modified to a fixed rental of $50,000 per month plus maintenance
reserves and the term has been extended through June 2005. Aviation Investors,
Inc. ("Aviation"), an unrelated third party, who was a party to LLC III's
acquisition of the Aircraft. Aviation has a 50% interest in the Aircraft
currently on lease to World Airways and accordingly LLC III and Aviation are
each entitled to $25,000 of the monthly rental payments. As stipulated in the
agreement between Aviation and LLC III, LLC III is entitled to retain 100% the
monthly maintenance reserve of $5,000 which will be applied against future
maintenance costs of the Aircraft. The Partnership and Series E contributed 99%
and 1% of the cash required for such acquisition, respectively. LLC III acquired
the Aircraft, assuming non-recourse debt and utilizing contributions received
from the Partnership and Series E. LLC III has since fully repaid the
non-recourse debt secured by the Aircraft.
The seven joint ventures described below are 50% or less owned by the
Partnership 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 of the joint ventures.
ICON Receivables 1997-A L.L.C.
The Partnership and three affiliates, ICON Cash Flow Partners, L.P., Series
D ("Series D"), Series E and ICON Cash Flow Partners L.P. Six ("L.P. Six"),
contributed and assigned equipment leases, finance receivables and residuals to
ICON Receivables 1997-A LLC ("1997-A") for the purpose of securitizing their
cash flow collections. At September 30, 2004, the Partnership, Series D, Series
E and L.P. Six own interests of 19.97%, 17.81%, 31.19%, and 31.03%,
respectively, in 1997-A.
At September 30, 2004, 1997-A's operations have been liquidated as the note
holders have been fully repaid for their investment in 1997-A and the remaining
receivables relating to the securitizations totaling $345,152, due from an
affiliate of the General Partner relating to lease receivables, were written-off
as uncollectible. The remaining cash is being reserved to pay for potential
property tax; sales tax and other liabilities, if any.
Information as to the unaudited results of operations of 1997-A for the
nine months ended September 30, 2004 and 2003 are summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net loss $ (158,852) $ (50,673)
================== ==============
Partnership's share of net loss $ (31,715) $ (10,117)
================== ==============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
3. Joint Ventures (continued)
ICON Receivables 1997-B L.L.C.
The Partnership and two affiliates, Series E and L.P. Six, formed ICON
Receivables 1997-B L.L.C. ("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 to 1997-B and own a 16.67%, 75.00% and 8.33%
interest, respectively, in 1997-B. Due to the cumulative losses recognized by
1997-B the Partnership's share of the cumulative losses exceeds the carrying
value of its investment in 1997-B. As a result, the Partnership has ceased
application of the equity method of accounting and has not recognized its share
of 1997-B's losses in excess of its carrying value. Resumption of the equity
method of accounting will begin only after the Partnership's share of 1997-B's
subsequent profits equals the Partnership's share of losses not recognized
because of suspension of the equity method of accounting.
Information as to the unaudited results of operations of 1997-B for the
nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income (loss) $ (161,788) $ (199,459)
============== ================
Partnership's share of net income (loss) $ 21,913 $ (33,250)
============== ================
Distributions $ 206,128 $ -
============== ================
Partnership's share of distributions $ 34,362 $ -
============== ================
ICON/Boardman Facility LLC
The Partnership and two affiliates, 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 coal handling facility on lease with Portland General
Electric ("PGE"), a utility company. Prior to September 24, 2004, the
Partnership, L.P. Six and Fund Eight A owned interests of .5025%, .5025% and
98.995%, respectively, in ICON BF. Effective September 24, 2004 the Partnership
assigned its entire .5025% interest in ICON BF to Fund Eight A for $65,325. This
amount was determined to be the fair value of the Partnership's interest in ICON
BF based upon the expected proceeds from the sale of the coal handling facility.
When the coal handling facility is ultimately sold, and the actual gain on the
sale determined, the Partnership may be required to repay a portion of the cash
received or receive additional cash so the actual gain realized by the
Partnership is representative of its previous ownership interest of .5025%
As part of the Comerica Bank Loan and Security Agreement, there is a
Contribution Agreement between the Partnership, Fund Eight A, ICON Income Fund
Eight B L.P. ("Fund Eight B") and ICON Income Fund Nine, LLC ("Fund Nine") (each
a "Borrower" and collectively, "the Borrowers") which allows a Borrower to repay
another Borrowers obligation to Comerica Bank as long as the repaid amounts are
promptly reimbursed to the paying Borrower. The Partnership assigned its entire
..5025% ownership interest in ICON BF to partially satisfy its obligation to Fund
Eight A under the Contribution Agreement.
ICON BF is currently in negotiations with PGE for the purchase of the coal
handling facility from ICON BF. The sale is expected to be completed during
November 2004 with PGE acquiring ownership of the coal handling facility.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
3. Joint Ventures (continued)
Information as to the unaudited results of operations of ICON BF for the
nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income $ 1,155,025 $ 1,074,363
=============== ==================
Partnership's share of net income $ 5,804 $ 5,398
=============== ==================
Distributions $ 7,245,027 $ -
=============== ==================
Partnership's share of distributions $ 36,406 $ -
=============== ==================
ICON/AIC Trust
- --------------
The Partnership and two affiliates, L.P. Six and Fund Eight A formed,
ICON/AIC Trust ("AIC Trust") for the purpose of owning and managing a portfolio
of leases in England. The Partnership, L.P. Six and Fund Eight A owned interests
of 30.76%, 25.51% and 43.73% interest, respectively, in AIC Trust.
On December 28, 2001, AIC Trust sold its remaining leases, subject to the
related debt, in exchange for a note receivable of (Pound)2,575,000 ($3,744,822
converted at the exchange rate at December 31, 2001) which was payable in six
installments through June 2004. In July 2004, the final installment on the note
was collected and distributed. On September 30, 2004, AIC Trust was dissolved
Information as to the unaudited results of operations of AIC Trust for the
nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ -----------------
Net income $ 7,700 $ 32,151
============== ================
Partnership's share of net income $ 2,369 $ 9,890
============== ================
Distributions $ 1,378,141 $ 1,396,948
============== ================
Partnership's share of distribution $ 423,916 $ 429,701
============== ================
ICON Cheyenne LLC
- -----------------
The Partnership and three affiliates, L.P. Six, Fund Eight A and Fund Eight
B formed, ICON Cheyenne LLC ("ICON Cheyenne"), entities managed by the General
Partner, for the purpose of acquiring and managing a portfolio of leases. Prior
to September 30, 2004 the Partnership, L.P. Six, Fund Eight A and Fund Eight B
had ownership interests of 10.31%, 1.0%, 1.0% and 87.69%, respectively, in ICON
Cheyenne. In connection with the terms of the Contribution Agreement as
discussed in Note 4, effective September 30, 2004, the Partnership assigned a
9.04% interest in ICON Cheyenne (while retaining a 1.27% interest) to Fund Eight
B for $204,384. This amount was determined to represent the Partnership's
proportionate fair value, which equals the book value of the Partnership's
interest in ICON Cheyenne at September 30, 2004. The fair value was determined
using discounted cash flow projections for ICON Cheyenne's portfolio.
Accordingly, no gain or loss was recognized from this transaction.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
3. Joint Ventures (continued)
The outstanding balance of the non-recourse debt secured by these assets,
at September 30, 2004, was $570,172. The leases expire on various dates through
September 2006.
Information as to the unaudited results of operations of ICON Cheyenne for
the nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net loss $ (582,147) $ (12,994)
================ ==============
Partnership's share of net loss $ (60,019) $ (1,340)
================ ===============
Distributions $ 4,475,001 $ 741,759
================ ==============
Partnership's share of distribution $ 461,373 $ 76,475
================ ==============
ICON Aircraft 24846, LLC
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 Boeing 767-300ER aircraft on lease to Scandinavian Airline
Systems. The Partnership, Fund Eight A and Fund Eight B had ownership interests
of 2.0%, 2.0% and 96.0%, respectively in ICON Aircraft 24846.
The aircraft was sold on July 29, 2004 and ICON Aircraft 24846 realized a
loss on the sale of approximately $601,800. The General Partner had determined
that it was in the best interest of ICON Aircraft 24846 and its members to sell
the Boeing 767-300ER aircraft to BTM Capital Corp., the lender, for an amount
equal to the outstanding debt balance. The decision to sell the aircraft was
based, in part, on the following factors: (i) the aircraft's current fair market
value was estimated to be between $24,000,000 and $27,000,000 and the balance of
the outstanding debt was $34,500,000; (ii) any new lease for the aircraft would
have required the Partnership to contribute an additional $850,000 in equity (at
minimum) in order to reconfigure the aircraft and/or upgrade the engines; and
(iii) if the Partnership were to continue to remarket the aircraft, the lender
would have required interest only payments of approximately $100,000 per month
until the aircraft was re-leased.
Information as to the unaudited results of operations of ICON Aircraft
24846 for the nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ -----------------
Net loss $ (2,515,576) $ (2,499,071)
================= ================
Partnership's share of net loss $ (50,312) $ (49,981)
================= ================
Contributions $ 577,021 $ -
================= ================
Partnership's share of contributions $ 11,540 $ -
================= ================
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
3. Joint Ventures (continued)
North Sea (Connecticut) Limited Partnership
The Partnership entered into a joint venture agreement with North Sea
(Connecticut) Limited Partnership ("North Sea"), in which the Partnership is a
50% Class C limited partner. North Sea 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 a portion of
the loan 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 parties to this
joint venture are not affiliates of the Partnership or its General Partner.
The Partnership has guaranteed an amount equal to the difference 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 September
30, 2004 under this guarantee was approximately $58,000.
Information as to the unaudited results of operations of North Sea for the
nine months ended September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income $ 2,086,488 $ 2,021,826
================= ==================
Partnership's share of net income $ 1,043,243 $ 1,010,913
================= ==================
4. Related Party Transactions
At September 30, 2004, the Partnership had a receivable of $150,000 due
from L.P. Six which relates to distributions received from AIC Trust.
The Partnership also had a net payable of $1,747,875 due to the General
Partner and affiliates at September 30, 2004. The Partnership owed the General
Partner $179,609 for management fees and administrative expense reimbursements.
During 2004, the Partnership paid $864,862 to Series D relating to a
leveraged lease transaction entered into during 1997. At September 30, 2004, the
remaining balance due to Series D is $388,763 which the Partnership anticipates
paying in the fourth quarter of 2004 either from rental income or from the
proceeds of equipment sales. Additionally, the Partnership is owed from Series D
$45,591, at September 30, 2004, for rental payments received on its behalf.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
4. Related Party Transactions (continued)
As part of the Comerica Bank Loan and Security Agreement, there is a
Contribution Agreement between the Partnership, Fund Eight A, Fund Eight B, Fund
Nine and Fund Ten (each a "Borrower" and collectively, "the Borrowers"). Under
the Contribution Agreement each Borrower is jointly and severalty liable for all
amounts outstanding to Comerica Bank. The Contribution Agreement allows a
Borrower to repay another Borrowers obligation to Comerica Bank as long as the
repaid amounts are promptly reimbursed to the paying Borrower. At September 30,
2004, Fund Eight A, Fund Eight B and Fund Nine paid advances to Comerica Bank of
$175,000, $1,020,000 and $390,000, respectively, on behalf of the obligations of
the Partnership. The Partnership had amounts due from Fund Eight A of $155,522
which primarily resulted from the Partnership's share of distributions and
rental payments received by Fund Eight A on the Partnership's behalf and
$204,384 due from Fund Eight B relating to the Partnership's assignment of 9.04%
of its interest in ICON Cheyenne. These amounts have been netted against the
amounts due to affiliates in the accompanying consolidated balance sheets. The
Partnership is accruing interest at 8.0% per annum on all unpaid advances. The
Partnership anticipates repaying these advances either from rental income,
proceeds from equipment sales and the sale of the Partnership's joint venture
interests or a combination of the three.
Fees and other expenses paid or accrued by the Partnership to the General
Partner or its affiliates for the nine months ended September 30, 2004 and 2003,
respectively, were as follows:
2004 2003
---- ----
Management fees $ 387,287 $ 583,008 Charged to Operations
Administrative expense
reimbursements 154,958 237,040 Charged to Operations
------------ ------------
Total $ 542,245 $ 820,048
============ ===========
Effective July 1, 2004 the General Partner voluntary decided to waive its
right to management fees and administrative expense
reimbursements.
5. Sale of Aircraft
The Partnership had an ownership interest in a DC-10-30 aircraft (the
"Aircraft") subject to a leveraged lease with Federal Express Corporation which
expired on July 2, 2004. The Aircraft was subject to non-recourse debt which had
a balloon payment of approximately $9,600,000 due at lease end. As required by
the loan agreement, the Partnership entered into a residual value insurance
agreement (the "Residual Insurance Agreement") with an unrelated third party.
Under the Residual Insurance Agreement, the insurer was required to pay the
insured amount to the lender at the expiration of the lease if the balloon
payment was not made by the Partnership. The Partnership was unable to make the
required balloon payment when due nor was it able to successfully refinance the
debt. As a result the insurer, pursuant to the terms of the insurance agreement,
notified the Partnership of its intention to pay the insured amount of
$10,200,000 at lease end, resulting in title of the Aircraft transferring to the
insurer and the Partnership losing its entire ownership interest in the
Aircraft. As a result, the Partnership received proceeds of $520,293, net of the
$9,679,707 paid to the non-recourse lender at lease end.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
6. Equipment Held for Sale or Lease
The Partnership is the sole owner of three (3) marine vessels originally on
charter to affiliates of Seacor Smit, Inc. These vessels are not subject to
outstanding debt with a lender. On September 20, 2004 and again on October 10,
2004, the Partnership entered into two separate Memorandum of Agreements (the
"Agreements") with Gulf Ocean Marine Services, Inc., an unaffiliated third
party, for the sale of the Gulf Pearl and Gulf Wind supply tug vessels,
respectively. The sales occurred simultaneously with the execution of the
Agreements. The sale price for each vessel was $500,000 and the Partnership
recognized a loss on each sale of $1,580,840. The $1,580,840 loss on the vessel
sold on September 20, 2004, is included in loss on lease terminations in the
accompanying consolidated statements of operations for the nine months ended
September 30, 2004 and $1,580,840 loss on the vessel sold on October 10, 2004
has been recorded as impairment charge in the accompanying consolidated
statements of operations for the nine months ended September 30, 2004.
7. Investment in Estimated Unguaranteed Residual Values
The Partnership entered into an agreement in which it has an investment in
the unguaranteed residual values of three Boeing 737-300 aircraft valued at
$4,686,758. Additionally, the Partnership has a recourse promissory note of
$5,571,009 related to this investment at September 30, 2004. If any, or all, of
the aircraft are sold prior to the maturity date of the recourse promissory
note, November 27, 2006, then the Partnership may have all or a portion of the
outstanding balance of the recourse promissory note forgiven, depending upon the
total sales proceeds. If the aircraft are sold after the maturity date of the
recourse promissory note, then the Partnership would be entitled to receive
one-third of the net proceeds in excess of the net book value of aircraft, as
defined by the agreement. In addition, the Partnership is required to repay a
portion of the recourse promissory note with 50% of the sales proceeds from any
of its assets which are not subject to senior secured debt.
8. Line of Credit Agreement
The Partnership, along with certain of its affiliates; Fund Eight A, Fund
Eight B, and ICON Income Fund Nine, LLC, (collectively, the "Initial Funds"),
are parties to a Loan and Security Agreement dated May 30, 2002, as amended (the
"Loan Agreement") with Comerica Bank. Under the terms of the Loan Agreement, the
Initial Funds may borrow money from Comerica Bank with all borrowings to be
jointly and severally collateralized by (i) cash and (ii) the present values of
certain rents receivable and equipment owned by the Initial Funds. Such Loan
Agreement, effective August 5, 2004, was amended to add ICON Income Fund Ten,
LLC as a borrower to the Loan Agreement. The expiration of the Loan Agreement is
December 31, 2004.
The Partnership entered into two transactions; (i) the assignment of its
entire interest in ICON BF, and (ii) the assignment of 9.04% of its interest in
ICON Cheyenne to partially repay an affiliate amounts that had been paid on the
Partnership's behalf, to Comerica Bank under the Contribution Agreement.
At September 30, 2004, the Partnership had $3,297,992 outstanding under the
Loan Agreement. The aggregate borrowing by all Funds under the Loan Agreement
was $9,417,992 at September 30, 2004. The Partnership anticipates repaying this
debt either from cash from rental income, proceeds from the sale of equipment,
proceeds from the sale of its joint venture interests or a combination of all
three.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
September 30, 2004
(Unaudited)
9. Contingencies
In August 2004, Fleet Capital Corporation ("Fleet") filed an action in New
York State Supreme Court, New York County, seeking to recover monies it alleges
that the Partnership owes it under certain Performance Guaranties against the
Partnership entered into in connection with certain non-recourse loans made by
Fleet to certain entities which were wholly-owned subsidiaries of the
Partnership. These loans were made in connection with the Partnership's
acquisition of five (5) marine vessels formerly on charter to affiliates of
SEACOR Marine and SEACOR Offshore, Inc. While the Partnership believes Fleet's
action is without merit and is vigorously defending such action, it has filed a
Counterclaim against Fleet seeking to recover damages as a result of Fleet's
breach of its duty of good faith and fair dealing. The Partnership has not
accrued any potential loss from this action as the action is in the early stage
of discovery and it is not currently possible to determine a range or possible
range of potential loss, if any, that may result from the outcome of this
action.
Item 2. Manager'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 included in
our annual report on Form 10-K dated December 31, 2003. Certain statements
within this document may constitute forward-looking statements within the
meaning 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. We believe 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. Any
such forward-looking statements are subject to risks and uncertainties and our
future results of operations could differ materially from historical results or
current expectations. Some of these risks are discussed in this report, and
include, without limitation, fluctuations in oil and gas prices; level of fleet
additions by competitors and industry overcapacity; changing customer demands
for aircraft; acts of terrorism; unsettled political conditions, war, civil
unrest and governmental actions, and environmental and labor laws. Our actual
results could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which may be beyond our control,
including, without limitation:
o changes in our industry, interest rates or the general economy;
o the degree and nature of our competition;
o availability of qualified personnel;
o cash flows from operating activities may be less than our current level of
expenses and debt obligations;
o the financial condition of lessees; and
o lessee defaults.
a. Overview
We are an equipment leasing business formed on May 23, 1995 and began
active operations on November 9, 1995. We primarily engage in the business of
acquiring equipment subject to leases and, to a lesser degree, acquiring
ownership rights to items of leased equipment at lease expiration.
We are currently selling our assets in the ordinary course of business, a
time frame called the "disposition period". Our goal is to complete the
disposition period in the next few years.
Our current portfolio, which we hold either directly or through joint
venture investments with affiliates and others, primarily consists of:
o A 50% interest in a mobile offshore drilling rig subject to lease with
Rowan Companies, Inc. Our contribution of the purchase price was
$12,325,000 of equity and $2,400,828 in assumed non-recourse debt. The
lease will expire on March 15, 2008.
o A 50% interest in a sodium chlorate production facility subject to lease
with EKA Chemicals, Inc. with a lease expiration date of July 2006, at
which time title in the equipment will pass to the lessee. The purchase
price consisted of an equity contribution of $2,805,920 and $1,052,998 in
non-recourse debt.
o A 49% interest in a McDonnell Douglas DC-10-30F aircraft subject to lease
with World Airways, Inc. The lease was on a "power-by-the-hour" basis until
March 2005. Effective September 1, 2004, the lease has been modified to a
fixed rental of $50,000 per month plus maintenance reserves and the term
has been extended through June 2005. Aviation Investors, Inc. has a 50%
interest in the Aircraft currently on lease to World Airways and
accordingly LLC III and Aviation Investors, Inc. are each entitled to
$25,000 of the monthly rental payments. As stipulated in the agreement
between Aviation Investors, Inc and LLC III, LLC III is entitled to retain
100% the monthly maintenance reserve of $5,000. Aviation Investors, Inc. is
an unrelated third party that was a party to LLC III's acquisition of the
Aircraft. The purchase price consisted of an equity contribution of
$2,119,992 and $9,309,759 in non-recourse debt. We have since fully repaid
the non-recourse debt secured by the Aircraft.
o An investment in the unguaranteed residual value of three (3) 737-300
aircraft on lease to Continental Airlines, Inc. expiring in November, 2006.
o Warehouse distribution equipment subject to lease with AZ3, Inc. with an
expiration date of October 2004. The equipment was originally purchased by
us for $523,640. We are in the process of transferring the title of the
equipment for $1, pursuant to the terms of the lease.
Substantially all of our recurring operating revenues are generated from
the operations of the single-investor leases in our portfolio. On a monthly
basis, we deduct the expenses related to the recurring operations of the
portfolio from such revenues and assess the amount of the remaining cash flows
that will be required to fund known or anticipated re-leasing costs and
equipment management costs.
Sale of Boeing 767-300ER Aircraft
The Boeing 767-300ER aircraft was sold on July 29, 2004. ICON Aircraft
24846 LLC realized a loss on the sale of approximately $601,800 and recorded an
impairment charge on this asset in the second quarter. The General Partner
determined that it was in the best interests of the joint venture, which had
been holding the Boeing 767-300ER aircraft to sell the aircraft to BTM Capital
Corp., the lender, for an amount equal to the outstanding debt balance. The
decision to sell the aircraft was based, in part, on the following factors:
1) The aircraft's current fair market value was estimated to be between
$24,000,000 and $27,000,000, and the balance of the outstanding debt was
$34,500,000.
2) Any new lease for the aircraft would have required us to contribute
approximately an additional $850,000 in equity (at minimum) in order to
reconfigure the aircraft and/or upgrade the engines.
3) If we were to continue to remarket the aircraft, the lender would have
required interest only payments of approximately $100,000 per month until
the aircraft is re-leased.
Industry Factors
Our results continue to be impacted by a number of factors influencing the
equipment leasing industry some of which are discussed below.
Further Deterioration of the Air Travel Industry.
The aircraft leasing industry is currently on the downside of a business
cycle, and this has resulted in depressed sales prices for assets such as our
aircraft interests. It does not appear that the industry will recover
significantly in the very near future, although we are optimistic that, within
two to three years, there will be a recovery. However, a further weakening of
the industry could cause the proceeds realized from the future sale of our
aircraft and its rotables to be even less than suggested by recent appraisals.
Supply Vessel Industry
The Supply Vessel Industry is highly cyclical and dependent on numerous
factors, including the current level of exploration and development of offshore
oil areas. Despite current high prices of oil, oil companies are reluctant to
make the capital investment necessary in shelf drilling, as the high energy
prices are perceived as being temporary by oil companies. As such, while it is
hoped that the industry will recover, a continuing depressed market will affect
the resale value of the Partnership's remaining vessel.
Inability to Remarket Assets.
The market for some of our assets, such as the interest in the offshore oil
rig, is not very liquid. If current equipment lessees choose not to renew their
leases or purchase other equipment upon expiration of the lease, we will need to
remarket the equipment. There is no assurance that we will be able to locate a
willing buyer or lessee for our assets, or if one is located, that the buyer or
lessee will pay a price for the asset at least equal to the appraised value.
b. Results of Operations for the Three Months Ended September 30, 2004 and
2003
Revenues for the quarterly periods ended September 30, 2004 (the "2004
Quarter") and 2003 (the "2003 Quarter") are summarized as follows:
- ----------------------------------- --------------------------------------------
For Quarter Ended, September 30, 2004
- --------------------------------------------------------------------------------
- ----------------------------------- ------------ ------------------ ----------
2004 Quarter 2003 Quarter Change
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Total Revenue $ 520,002 $ 1,018,964 $(498,962)
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Finance income $ 2,897 $ 5,308 $ (2,411)
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Rental income $ 113,555 $ 258,390 $ (144,835)
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Net income from leveraged lease
$ - $ 458,307 $ (458,307)
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Income from investments in joint
ventures $ 398,393 $ 296,939 $ 101,454
- ----------------------------------- ------------ ------------------ ----------
- ----------------------------------- ------------ ------------------ ----------
Interest income and other $ 5,157 $ 20 $ 5,137
- ----------------------------------- ------------ ------------------ ----------
Our total revenues for the three months ended September 30, 2004 (the "2004
Quarter") decreased $498,962 or 49.0%, over the three months ended September 30,
2003 (the "2003 Quarter"). The decrease in rental income is as a result of
leases expiring and the underlying equipment reclassified as equipment held for
sale or lease; such as the vessels formerly on charter to Seacor Marine and
Seacor Offshore.
The decrease in income from the leveraged lease was due to the fact that
the leveraged lease came to term in the second quarter of 2004 and therefore we
have no income from leveraged lease in the 2004 Period compared to three months
of income in the 2003 Period.
The increase in income from investments in joint ventures was due primarily
to increased gains incurred by the ICON Receivables 1997-B L.L.C. ("1997-B")
joint venture and North Sea Limited Partnership and offset by losses incurred by
the ICON Cheyenne joint venture.
Expenses for the quarterly periods ended September 30, 2004 and 2003 are
summarized as follows:
- -------------------------------------------- -----------------------------------
For Quarter Ended, September 30, 2004
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2004 Quarter 2003 Quarter Change
- ---------------------------------------- ------------- -------------- ----------
- ---------------------------------------- ------------- -------------- ----------
Total Expenses $ 3,246,238 $ 6,814,615 $(3,568,377)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Provision for impairment loss $ 1,580,839 $ 4,100,000 $(2,519,161)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Depreciation $ 508,960 $ 1,518,259 $(1,009,299)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Loss on disposal of assets $ 931,628 $ 11,000 $ 920,628
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Interest $ 160,164 $ 622,365 $ (462,201)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
General and administrative $ 58,914 $ 392,849 $ (333,935)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Management fees - General Partner $ - $ 103,716 $ (103,716)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Administrative expense reimbursements -
General Partner $ - $ 42,563 $ (42,563)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Reversal of provision for bad debts $ (21,979) $ - $ (21,979)
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Amortization of initial direct costs $ 28,282 $ 21,701 $ 6,581
- ---------------------------------------- ------------ ------------- ------------
- ---------------------------------------- ------------ ------------- ------------
Minority interest $ (570) $ 2,162 $ (2,732)
- ---------------------------------------- ------------ ------------- ------------
Our total expenses for the 2004 Quarter decreased by $3,568,377 or 52.4%,
over the 2003 Quarter. The decrease in provision for impairment loss was due to
our recording impairment on five vessels during the 2003 Quarter compared to one
vessel during the 2004 Quarter
The decrease in depreciation expense was due primarily to the termination
of the five marine vessel leases originally on charter to affiliates of Seacor
Smit and Seacor Marine. The 2003 Quarter had three months of depreciation
relating to these leases while the 2004 Quarter had no depreciation relating to
these leases.
The increase in loss on disposal of assets was due to the disposal of the
two leases during the 2004 Quarter for which there were minimal disposals during
the 2003 Quarter.
The decrease in interest expense was due to a decrease in the average debt
outstanding from the 2004 Quarter to the 2003 Quarter. This decrease is
primarily as a result of several factors; the extinguishment of debt associated
with the lease termination and debt extinguishment related to the sale of the
Federal Express Corporation equipment during the quarter.
The decrease in general and administrative expenses was due to reductions
in storage and maintenance and insurance expense in the 2004 Quarter versus the
2003 Quarter as a result of reduced payments under the Seacor Smit and Seacor
Marine leases.
Effective July 1, 2004 the General Partner agreed to no longer charge the
Partnership management fees and administrative expense reimbursements. These
fees were charged in prior quarters.
Net Loss
As a result of the factors discussed above, the net loss for the 2004
Quarter and the 2003 Quarter was $2,726,236 and $5,795,651, respectively. The
net loss per weighted average limited partnership unit outstanding was $2.73 and
$5.81 for the 2004 Quarter and the 2003 Quarter, respectively
c. Results of Operations for the Nine Months Ended September 30, 2004 and 2003
Revenues for the nine month periods ended September 30, 2004 (the "2004
Period") and 2003 (the "2003 Period") are summarized as follows:
- ---------------------------------------------------------------------------
For Period Ended, September 30, 2004
- ----------------------------------- ------------ --------------------------
- ----------------------------------- ------------ --------------------------
2004 Period 2003 Period Change
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Total Revenue $ 2,381,653 $ 3,607,314 $(1,225,661)
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Finance income $ 10,582 $ 43,516 $ (32,934)
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Rental income $ 323,380 $ 1,145,650 $ (822,270)
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Net income from leveraged lease $ 1,078,481 $ 1,484,025 $ (405,544)
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Income from investments in joint
ventures $ 931,283 $ 931,513 $ (230)
- ---------------------------------- ------------- ------------ -------------
- ---------------------------------- ------------- ------------ -------------
Interest income and other $ 37,927 $ 2,610 $ 35,317
- ---------------------------------- ------------- ------------ -------------
Our total revenue for the nine months ended September 30, 2004 (the "2004
Period") decreased by $1,225,661,or 34.0%, as compared to the nine months ended
September 30, 2003 (the "2003 Period"). The decrease in finance income resulted
primarily from a decrease in the average size of our lease portfolio.
Specifically, the following leases have expired since the 2003 Period:
Continental Airlines Inc., Sabreliner Corp., Boca Teeca Cleaners and Circle
Construction.
The decrease in rental income is as a result of leases expiring and the
underlying equipment reclassified as equipment held for sale or lease; such as
the vessels formerly on charter to Seacor Marine and Seacor Offshore.
The decrease in income from the leveraged lease was due to the fact that
the leveraged lease came to term in the second quarter of 2004 and therefore we
have six months of income from leveraged lease in the 2004 Period compared to
nine months of income inn the 2003 Period.
Expenses for the nine month periods ended September 30, 2004 (the "2004
Period") and 2003 (the "2003 Period") are summarized as follows:
- --------------------------------------------------------------------------------
For Period Ended, September 30, 2004
- --------------------------------------------------------------------------------
- ---------------------------------------- ----------- -------------- ------------
2004 Period 2003 Period Change
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Total Expenses $12,344,546 $ 13,294,981 $ (950,435)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- -----------
Provision for impairment loss $ 6,280,839 $ 4,800,000 $ 1,480,839
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Depreciation $ 2,536,179 $ 4,277,007 $(1,740,828)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Loss (gain) on disposal of assets $ 1,604,750 $ (119,779) $1,724,529
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Interest $ 964,838 $ 2,136,124 $(1,171,286)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
General and administrative $ 460,949 $ 1,258,207 $ (797,258)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Management fees - General Partner $ 387,287 $ 583,008 $ (195,721)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Administrative expense reimbursements -
General Partner $ 154,958 $ 237,040 $ (82,082)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Reversal of provision for bad debts $ (134,391) $ - $ (134,391)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Amortization of initial direct costs $ 91,050 $ 120,029 $ (28,979)
- ---------------------------------------- ----------- ------------- ------------
- ---------------------------------------- ----------- ------------- ------------
Minority interest $ (1,913) $ 3,345 $ (5,258)
- ---------------------------------------- ----------- ------------ ------------
Our total expenses for the 2004 Period decreased by $950,435, or 7.1%, over
the 2003 Period. The increase in provision for impairment loss was due to our
recording impairment on an aircraft on lease to Federal Express Corporation and
one vessel during the 2004 Period compared to an impairment on five vessels
during the 2003 Period.
The decrease in depreciation expense was due primarily to the termination
of the five marine vessel leases originally on charter to affiliates of Seacor
Smit and Seacor Marine.
The increase in loss (gain) on disposal of assets was due to the disposal
of the five marine vessels leases originally on charter to affiliates of Seacor
Smit and Seacor Marine and the sale of the Federal Express Corporation equipment
during the 2004 Period.
A decrease in general and administrative expenses was due to reductions in
storage and maintenance and insurance expense in the 2004 Period versus the 2003
Period as a result of reduced payments under the Seacor Smit and Seacor Marine
leases.
Effective July 1, 2004 the General Partner agreed to no longer charge the
Partnership management fees and administrative expense reimbursements. These
fees were charged in the 2003 Period.
The decrease in interest expense was due to a decrease in the average debt
outstanding from the 2004 Period to the 2003 Period. This decrease is primarily
as a result of several factors; the extinguishment of debt associated with the
lease termination and debt extinguishment related to the sale of the Federal
Express Corporation equipment.
Net Loss
As a result of the foregoing factors, net loss for the 2004 Period and the
2003 Period was $9,962,893 and $9,687,667 respectively. The net loss per
weighted average limited partnership unit outstanding was $9.99 and $9.71 for
the 2004 Quarter and the 2003 Quarter, respectively.
d. Liquidity and Capital Resources
Sources of Cash
We believe that with the cash we have currently available and from cash
being generated from our remaining leases and the proceeds from our equipment
sales we have sufficient cash to continue our limited operations while we
continue our disposition phase of our operations. We anticipate paying our debt
obligations and the Comerica Bank advances from our affiliates from either cash
generated from rental income or from the proceeds of equipment sales.
Operations
During the nine months ended September 30, 2004, our sources of cash have
primarily been from proceeds from the sales of equipment, distributions received
from our joint ventures and advances received from our General Partner and
affiliates. We have received approximately $4,620,000 from these sources during
the nine months ended September 30, 2004.
Reduction in Note Payable
We have an obligation of $388,763 to Series D relating to a leveraged lease
transaction entered into during 1997. We anticipate paying this in the fourth
quarter of 2004 either from rental income or from the proceeds of equipment
sales. Additionally, we are owed from Series D $45,591, at September 30, 2004,
for rental payments received on its behalf.
Sale of Boeing 767-300ER Aircraft
The aircraft was sold on July 29, 2004. ICON Aircraft 24846 LLC realized a
loss on the sale of approximately $601,800 and recorded an impairment charge on
this asset in the second quarter. The General Partner determined that it was in
the best interests of the joint venture, which had been holding the Boeing
767-300ER aircraft, to sell the aircraft to BTM Capital Corp., the lender, for
an amount equal to the outstanding debt balance. The decision to sell the
aircraft was based, in part, on the following factors:
1. The aircraft's current fair market value was estimated to be between
$24,000,000 and $27,000,000, and the balance of the outstanding debt was
$34,500,000.
2. Any new lease for the aircraft would have required us to contribute
approximately an additional $850,000 in equity (at minimum) in order to
reconfigure the aircraft and/or upgrade the engines.
3. If we were to continue to remarket the aircraft, the lender would have
required interest only payments of estimated $100,000 per month until the
aircraft was placed with a new lessee.
Supply Vessels
We are the sole owner of two entities that owned (5) five marine vessels
originally on charter to affiliates of Seacor Marine, Inc. (the "Vessels").
These Vessels were subject to outstanding non-recourse debt with a lender, Fleet
Capital Corp. ("Fleet").
On September 11, 2003, Fleet took control of the Vessels and commenced
remarketing efforts. On May 12, 2004, Fleet held a sale for the Vessels, which
resulted in an aggregate sale price of $3,580,000. All of the sale proceeds went
to Fleet to reduce the outstanding non-recourse debt. Since there were no
proceeds for our benefit, we realized a loss of $622,872 on the transaction.
Sale of Gulf Pearl and Gulf Wind
On September 20, 2004 we entered into a Memorandum of Agreement (the
"Agreement") with Gulf Ocean Marine Services, Inc., an unaffiliated third party,
for the sale of the Gulf Pearl supply tug vessel. The sale occurred
simultaneously with the execution of the Agreement. The sales price was $500,000
and we recognized a loss on the sale of approximately $1,589,000.
On October 8, 2004 we entered into a Memorandum of Agreement (the
"Agreement") with Gulf Ocean Marine Services, Inc., an unaffiliated third party,
for the sale of the Gulf Wind supply tug vessel. The sale occurred
simultaneously with the execution of the Agreement. The sales price was $500,000
and we recognized a loss on the sale of approximately $1,589,000. For the nine
months ended September we recognized an impairment loss equal to the loss on the
sale of the vessel.
World Airways, Inc.
The World Airways lease was on a "power-by-the-hour" basis until March
2005. Effective September 1, 2004, the lease has been modified to a fixed rental
of $50,000 per month plus maintenance reserves and the term has been extended
through June 2005. Aviation Investors, Inc. has a 50% interest in the Aircraft
and accordingly they are entitled to $25,000 of the monthly rental payments. As
stipulated in the agreement between us and Aviation Investors, Inc we are
entitled to retain 100% the monthly maintenance reserve of $5,000.
Boeing 737-300 Aircraft
We have entered into an agreement in which we have an investment in the
unguaranteed residual values of three Boeing 737-300 aircraft valued at
$4,686,758. Additionally, we have a recourse promissory note of $5,571,009
related to this investment at September 30, 2004. If any, or all, of the
aircraft are sold prior to the maturity date of the recourse promissory note,
November 27, 2006, then we may have all or a portion of the outstanding balance
of the recourse promissory note forgiven, depending upon the total sales
proceeds. If the aircraft are sold after the maturity date of the recourse
promissory note, then we would be entitled to receive one-third of the net
proceeds in excess of the net book value of aircraft, as defined by the
agreement. In addition, we are required to repay a portion of the recourse
promissory note with 50% of the sales proceeds from any of our assets which are
not subject to senior secured debt.
The so-called "Current Generation" Boeing narrowbody aircraft, including
the 737-300's, were amongst those whose values were initially hardest hit by the
tragic events of September 11, 2001. The current market remains volatile, and
the industry is currently on the downside of a business cycle. We are optimistic
that the industry will turn around within the next two to three years. The three
1985 vintage Boeing aircraft each have approximately 15 years of useful life
remaining, are Stage III compliant, and are widely used in the market. We
anticipate Continental Airlines, Inc. will either renew the current leases, as
they did in 2003, or agree to a favorable buyout when the current leases expire.
Therefore, based upon the discounted future rental income stream over the
remaining useful life of these aircraft, we have determined that there is no
impairment of these aircraft at September 30, 2004. As for the related recourse
obligation, we prepaid $500,000 in interest during 2003 and are not required to
commence interest only payments until December 31, 2005. We remain hopeful that
when these aircraft are sold the recourse obligations will be repaid from the
proceeds. We believe that it is possible for the sale to occur prior to the
maturity date of the re course debt, November 27, 2006.
Financings and Recourse Borrowings
Certain affiliates of ours, specifically; ICON Income Fund Nine, LLC; ICON
Income Fund Eight A L.P.; ICON Income Fund Eight B L.P. and ICON Cash Flow
Partners L.P. Seven (collectively, the "Initial Funds"), are parties to a Loan
and Security Agreement dated as of May 30, 2002, as amended (the "Loan
Agreement"). Under the terms of the Loan Agreement, the Initial Funds may borrow
money from Comerica Bank with all borrowings to be jointly and severally
collateralized by (i) cash and (ii) the present values of certain rents
receivable and equipment owned by the Initial Funds. Such Loan Agreement,
effective August 5, 2004, was amended to add ICON Income Fund Ten LLC ("Fund
Ten") as a borrower to the Loan Agreement. The expiration of the Loan Agreement
is December 31, 2004.
In connection with the Loan Agreement, the Initial Funds previously entered
into a Contribution Agreement dated as of May 30, 2002, as amended (the
"Contribution Agreement"). Pursuant to the Contribution Agreement, the Initial
Funds agreed to restrictions on the amount and the terms of their respective
borrowings under the Loan Agreement in order to minimize the unlikely 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 promptly 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 Initial Funds' obligations to each other
under the Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. In order to facilitate Fund Ten's addition to
the Contribution Agreement, the Funds entered into a Second Amended and Restated
Contribution Agreement effective as of August 5, 2004. The Second Amended and
Restated Contribution Agreement contain substantially identical terms and
limitations as did the original Contribution Agreement.
At September 30, 2004, Fund Eight A, Fund Eight B and Fund Nine paid to
Comerica Bank on our behalf, $175,000, $1,020,000 and $390,000, respectively,
under the provisions of the Contribution Agreement. Additional, we had amounts
due from Fund Eight A and Fund Eight B of $155,522 and $204,384, respectively,
relating primarily to our assignment of our joint venture interests as partial
settlement against these advances. We are accruing interest at 8.0% per annum on
all unpaid advances. We anticipate repayment either from rental income, proceeds
from equipment sales or the sale of our joint venture interests.
Aggregate borrowings by all funds under the line of credit agreement
amounted to $9,417,992 at September 30, 2004. We currently have $3,297,992 of
borrowings under this line.
Distributions
We have not made distributions to limited partners since April 2003 and,
while we anticipate being able to make distributions in the future, cannot
predict when distributions may recommence.
Uncertainties
At September 30, 2004, except as noted above in the Overview section and
listed below in the Risk Factors section, 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.
Risk Factors
Set forth below and elsewhere in this report and in other documents we file
with the Securities and Exchange Commission are risks and uncertainties that
could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report and
other periodic statements we make, including but not limited to, the following:
o There is a depressed market for supply vessels of this type, age and
condition which have affected the value of our remaining supply vessel. We
believe this will continue to negatively impact our ability to remarket
this vessel.
o We may face difficulty remarketing the aircraft rotables. Due to the
current condition of the airline industry, there is a depressed market for
these rotables.
o The market for Boeing 737-300 aircraft is currently depressed due to an
overabundance of aircraft on the market resulting from the overall downturn
in the aviation industry following the tragic events of September 11, 2001.
While the market for these aircraft is cyclical, there can be no assurance
that market will recover by November, 2006. Failure of the market to
recover significantly may result in our inability to realize our investment
in the residuals of the three (3) aircraft currently on lease to
Continental Airlines, Inc.
d. Inflation and Interest Rates
The potential effects of inflation on us are difficult to predict. However,
since we are in our disposition phase, the effects are anticipated to be
minimal. If the general economy experiences significant rates of inflation,
however, it could affect us in a number of ways. We do not currently have or
expect to have rent escalation clauses tied to inflation in our leases. The
anticipated residual values to be realized upon the sale or re-lease of
equipment upon lease terminations (and thus the overall cash flow from our
leases may be expected to increase with inflation as the cost of similar new and
used equipment increases).
If interest rates increase significantly, the lease rates that we can
obtain on future leases may be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Item 3. Qualitative and Quantitative Disclosures About Market Risk Not
Applicable
We are exposed to certain market risks, including changes in interest rates
and the demand for equipment (and the related residual) owned by us.
We manage our interest rate risk by obtaining fixed rate debt for most of
our obligations. We borrow funds under floating rate lines of credit and are
therefore exposed to interest rate risk until the floating rate lines of credit
are repaid. We have borrowings under the floating rate lines of credit at
September 30, 2004 aggregated $3,297,992.
We attempt to manage our exposure to equipment and residual risk by
monitoring the market and maximizing our remarketing proceeds through either
releasing or sales of equipment.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., our General Partner,
including the Chief Executive Officer and the Principal Financial and Accounting
Officer, of the effectiveness of the design and operation of our 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
Chief Executive Officer and the Principal Financial and Accounting Officer
concluded that our disclosure controls and procedures were effective.
There were no significant changes in our internal control over financial
reporting during our third quarter that have materially affected, or are likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
From time-to-time, in the ordinary course of business, we are involved in
legal actions when necessary to protect or enforce our rights. We are not a
defendant party to any pending litigation and are not aware of any pending or
threatened litigation against us, except as stated below.
In August 2004, Fleet Capital Corporation ("Fleet") filed an action in New
York State Supreme Court, New York County, seeking to recover monies it alleges
that the Partnership owes it under certain Performance Guaranties entered into
in connection with certain non-recourse loans made by Fleet to certain entities
which were wholly-owned subsidiaries of the Partnership. These loans were made
in connection with the Partnership's acquisition of five (5) marine vessels
formerly on charter to affiliates of SEACOR Marine and SEACOR Offshore, Inc.
While the Partnership believes Fleet's action is without merit and is vigorously
defending such action, it has filed a Counterclaim against Fleet seeking to
recover damages as a result of Fleet's breach of its duty of good faith and fair
dealing. The Partnership has not accrued any potential loss from this action as
the action is in the early stage of discovery and it is not currently possible
to determine a range or possible range of potential loss, if any, that may
result from this action.
Item 6 - Exhibits and Reports on Form 8-K
(a) 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.
(b) Reports on Form 8-K - Dated September 24, 2004 describing the transaction
with Gulf Ocean Marine Services, Inc. for the sale of a supply tug vessel.
Dated October 14, 2004 describing the transaction with Gulf Ocean Marine
Services, Inc. for the sale of a supply tug vessel.
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
By its General Partner,
ICON Capital Corp.
November 17, 2004 /s/ Thomas W. Martin
-------------------------- --------------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer
of the General Partner of the Partnership)
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 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 consolidated 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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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) disclosed in this quarterly 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 General Partner
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant's 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: November 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
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 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 consolidated 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 officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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) disclosed in this quarterly 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 General Partner
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant's 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: November 17, 2004
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting officer
of the General Partner of the Partnership)
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 (18 U.S.C.
1350), that, to the best of my knowledge and belief:
(1) the Quarterly Report on Form 10-Q for the period ended September 30, 2004
(the "Periodic Report") which this statement accompanies fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m); and
(2) the 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: November 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
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 (18 U.S.C. 1350), that, to the best of my knowledge and belief:
(1) the Quarterly Report on Form 10-Q for the period ended September, 30 2004
(the "Periodic Report") which this statement accompanies fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m); and
(2) the 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: November 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