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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1997
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
-------------------- ----------------------------
Commission File Number 33-94458
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ICON Cash Flow Partners L.P. Seven
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3835387
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 Mamaroneck Avenue, Harrison, New York 10528-1632
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (914) 698-0600
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which registered
- ---------------------------------- ------------------------------------------
- ---------------------------------- ------------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
TABLE OF CONTENTS
Item Page
PART I
1. Business 3-4
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 5
6. Selected Financial and Operating Data 5
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 6-8
8. Financial Statements and Supplementary Data 9-29
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 30
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 30-31
11. Executive Compensation 32
12. Security Ownership of Certain Beneficial Owners
and Management 32
13. Certain Relationships and Related Transactions 32
PART IV
14. Exhibits, Financial Statement Schedules,
Reports and Amendments 33
SIGNATURES 34
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
PART I
Item 1. Business
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
is $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. Between January 19, 1996 and December 31, 1996, 249,172.52
additional units were admitted representing $24,917,252 of capital
contributions. In 1997, 285,927.35 additional units were admitted representing
$28,592,735 of capital contributions. In 1997, 1,625.63 units were redeemed,
leaving 559,842.19 partnership units outstanding at December 31, 1997.
In the third quarter of 1997 the Partnership received approval from the
Securities and Exchange Commission to extend the Partnership's offering period
by twelve months. The Partnership's offering period will end no later than
November 9, 1998.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal
objective of the Partnership is to obtain the maximum economic return from its
investments for the benefit of its limited partners. To achieve this objective,
the Partnership intends to: (1) acquire a diversified portfolio of short-term,
high-yield investments; (2) make monthly cash distributions to its limited
partners from cash from operations, commencing with each limited partner's
admission to the Partnership, continuing through the Reinvestment Period, which
period will end no later than the eighth anniversary of the final closing date;
(3) re-invest substantially all undistributed cash from operations and cash from
sales in additional equipment and financing transactions during the Reinvestment
Period; and (4) sell the Partnership's investments and distribute the cash from
sales of such investments to its limited partners within six to thirty-six
months after the end of the Reinvestment Period. In addition to acquiring
equipment and entering into leases, the Partnership will (1) acquire equipment
already subject to leases originated by affiliates and non-affiliated lessors
and (2) enter into financing transactions, which are (i) secured by the
equipment financed and lease revenues therefrom (if any) and additional
collateral as deemed necessary by the credit review committee of the General
Partner, and (ii) evidenced by the irrevocable obligation of the lessees.
The equipment leasing industry is highly competitive. In initiating its
leasing transactions, the Partnership will compete with leasing companies,
manufacturers that lease their products directly, equipment brokers and dealers
and financial institutions, including commercial banks and insurance companies.
Many competitors are larger than the Partnership and have access to more
favorable financing.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
The Partnership has no direct employees. The General Partner has full and
exclusive discretion in management and control of the Partnership.
Lease and Financing Transactions
For the years ended December 31, 1997 and 1996, the Partnership purchased
and leased or financed $119,155,086 and $91,413,127 of equipment, respectively,
with a weighted average initial transaction term of 38 and 70 months,
respectively. Included in the summary of equipment cost by category below is
100% of the equipment cost acquired by a joint venture in which the Partnership
has a 99% interest. The Partnership accounts for this investment by
consolidating 100% of the assets and liabilities of the joint venture and
reflecting as a liability the related minority interest. A summary of the
portfolio equipment cost by category held at December 31, 1997 and 1996 is as
follows:
December 31, 1997 December 31, 1996
------------------------- -------------------------
Category Cost Percent Cost Percent
Aircraft ..................... $ 66,610,001 32.9% $ 52,403,337 57.3%
Manufacturing & production ... 26,471,848 13.1 13,574,591 14.8
Computer systems ............. 26,441,603 13.0 9,167,523 10.0
Vessels ...................... 26,383,364 13.0 -- --
Telecommunications ........... 21,189,848 10.5 5,266,424 5.8
Retail systems ............... 20,949,713 10.4 171,350 .2
Material handling ............ 4,554,815 2.3 4,632,009 5.1
Furniture and fixtures ....... 3,161,848 1.6 794,949 .9
Office equipment ............. 2,764,522 1.3 2,794,979 3.1
Miscellaneous ................ 3,766,472 1.9 548,622 .6
Restaurant ................... -- -- 984,983 1.1
Automotive ................... -- -- 487,432 .5
Medical ...................... -- -- 365,398 .4
Video production ............. -- -- 221,530 .2
------------ ----- ------------ -----
$202,294,034 100.0% $ 91,413,127 100.0%
============ ===== ============ =====
The Partnership has three leases which individually represent greater than
10% of the total portfolio equipment cost at December 31, 1997. The leases are
with Federal Express (aircraft), ANS Communications, Inc. (manufacturing &
production), and W.H. Smith Limited (retail) and they represented 20.3%, 12.6%
and 10.3%, respectively, of the total portfolio equipment cost at December 31,
1997. The Partnership had three leases which individually represented greater
than 10% of the total portfolio equipment cost at December 31, 1996. The leases
were with Federal Express (aircraft), Rowan Companies (manufacturing and
production) and Continental Airlines, Inc. (aircraft) and they represented
44.8%, 13.5% and 12.5% respectively, of the total portfolio cost at December 31,
1996.
As of December 31, 1997 the Partnership's three largest lessees measured by
cash investment and cash commitment were Federal Express Corporation
($6,000,000), SEACOR Smit, Inc. ($4,270,000) and Wal-Mart Stores, Inc.
($2,803,175).
Item 2. Properties
The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs. The General Partner has exclusive
control over all aspects of the business of the Partnership, including providing
any necessary office space. As such, the General Partner will be compensated for
services related to the management and administration of the Partnership's
business.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 3. Legal Proceedings
The Partnership is not a party to any pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
The Partnership's limited partnership interest is not publicly traded nor
is there currently a market for the Partnership's limited partnership units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of December 31,
-------------- ---------------------------------
1997 1996
---- ----
Limited Partners 2,777 1,473
General Partner 1 1
Item 6. Selected Consolidated Financial and Operating Data
Years Ended December 31,
-----------------------
1997 1996
---- ----
Total revenue ................................................ $9,749,244 $1,564,069
========== ==========
Net income ................................................... $2,649,580 $ 405,451
========== ==========
Net income allocable to limited partners ..................... $2,623,084 $ 401,396
========== ==========
Net income allocable to the General Partner .................. $ 26,496 $ 4,055
========== ==========
Weighted average limited partnership units outstanding ....... $ 413,677 156,222
========== ==========
Net income per weighted average limited partnership unit ..... $ 6.34 $ 2.57
========== ==========
Distributions to limited partners ............................ $4,147,829 $1,361,099
========== ==========
Distributions to the General Partner ......................... $ 41,125 $ 13,749
========== ==========
December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
Total assets $147,879,442 $ 48,486,070 $ 1,350,143
============ ============ ============
Partners' equity $ 45,901,123 $ 22,865,854 $ 2,000
============ ============ ============
No operating data is presented for 1995 and prior since the Partnership
commenced operations on January 19, 1996, the initial closing date.
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership commenced business
operations on its initial closing date, January 19, 1996 with the admission of
26,367.95 limited partnership units at $100 per unit representing $2,636,795 of
capital contributions. Between January 19, 1996 and December 31, 1996,
249,172.52 additional units were admitted representing $24,917,252 of capital
contributions. In 1997, 285,927.35 additional units were admitted representing
$28,592,735 of capital contributions. In 1997, 1,625.63 units were redeemed,
leaving 559,842.19 partnership units outstanding at December 31, 1997.
The Partnership's portfolio consisted of net investments in finance leases,
investment in estimated unguaranteed residual value, leveraged leases, equity
investment in joint ventures and financings representing 72%, 18%, 8%, 1% and 1%
of total investments at December 31, 1997, respectively, and 42%, 0%, 21%, 26%
and 11% of total investments at December 31, 1996, respectively.
Results of Operations for the Years Ended December 31, 1997 and 1996
For the years ended December 31, 1997 and 1996, the Partnership purchased
and leased or financed equipment with an initial cost of $119,155,086 and
$91,413,127, respectively, to 13 and 198 lessees or equipment users.
Revenues for the year ended December 31, 1997 were $9,749,244 representing
an increase of $8,185,175 from 1996. The increase in revenues was attributable
to an increase in finance income of $5,215,851, an increase in net gain on sales
or remarketing of equipment of $1,748,790 or 100%, an increase in income from
leverage leases of $924,541 and an increase in income from equity investment in
joint ventures of $436,216. These increases were partially offset by a decrease
in interest income and other of $140,223 or 54%. Finance income increased due to
the increase in the average size of the portfolio from 1996 to 1997. The net
gain on sales or remarketing of equipment increased due to the December 1997
termination of the Partnership's residual interests in two offshore supply
vessels resulting in a gain on termination of $1,709,610. Income from leverage
leases increased due to the increase in the average size of the leverage lease
portfolio from 1996 to 1997. Income from equity investment in joint ventures
increased as a direct result of the Partnership's 1997 contribution to ICON
Receivables 1997-A L.L.C. ("1997-A") and ICON Receivables 1997-B L.L.C.
("1997-B"). These contributions consisted of equipment lease and finance
receivables, residuals and cash totaling $6,650,460. Interest income and other
decreased due to a decrease in the average cash balance from 1996 to 1997.
Expenses for the year ended December 31, 1997 were $7,099,664, representing
an increase of $5,941,046 from 1996. The increase in expenses was attributable
to an increase in interest expense of $3,254,317, an increase in management fees
of $1,257,261, an increase in amortization of initial direct cost of $701,338,
an increase in administrative expense reimbursement of $534,510, an increase in
general and administrative expenses of $114,240, an increase in provision for
bad debts of $75,000 and an increase in minority interest in joint ventures of
$4,380. Interest expense increased due to the increase in the average debt
outstanding from 1996 to 1997. Management fees, amortization of initial direct
cost, administrative expense reimbursement and general and administrative
expenses increased due to the average size of the portfolio from 1996 to 1997. A
provision for bad debts was made in 1997 as a result of an analysis of
delinquency, an assessment of overall risk and a review of historical loss
experience. The increase in minority interest in joint ventures resulted from
the Partnership's 1997 investment in joint ventures.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Since the Partnership commenced operations on January 19, 1996, a
comparison of results of operations to prior periods is not presented.
Net income for the year ended December 31, 1997 and 1996 was $2,649,580 and
$405,451, respectively. The net income per weighted average limited partnership
unit was $6.34 and $2.57, respectively, weighted from the date each unit was
admitted to the Partnership.
Liquidity and Capital Resources
The Partnership's primary sources of funds in 1997 and 1996 were capital
contributions, net of offering expenses, of $24,730,458 and $23,834,251,
respectively, proceeds from sale of equipment of $7,315,408 in 1997 and cash
provided by operations of $2,855,330 and $973,899, respectively. These funds
were used to fund cash distributions and to purchase equipment. The Partnership
intends to continue to purchase equipment and to fund cash distributions
utilizing funds from capital contributions and cash provided by operations.
The Partnership's notes payable at December 31, 1997 and 1996 totaled
$100,650,890 and $23,314,945, respectively. These amounts consisted of
$90,575,890 and $11,089,945 in non-recourse notes, respectively, which are being
paid directly to the lenders by the lessees, and recourse notes payable of
$10,075,000 and $12,225,000, respectively, which are secured by the
Partnership's investment in unguaranteed residual values.
Cash distributions to the limited partners for the years ended December
31, 1997 and 1996, which were paid monthly totaled $4,147,829 and $1,361,099,
respectively of which $2,623,084 and $401,396 was investment income and
$1,524,745 and $958,703 was a return of capital, respectively. The monthly
annualized cash distribution rate to limited partners for the years ended
December 31, 1997 and 1996 was 10.75%, of which 6.34% and 2.57% was investment
income and 4.41% and 8.18% was a return of capital respectively, calculated as a
percentage of each partners' initial capital contribution. The limited partner
distribution per weighted average unit outstanding for the years ended December
31, 1997 and 1996 was $10.75, of which $6.34 and $2.57 was investment income and
$4.41 and $8.18 was a return of capital, respectively.
In March 1997 the Partnership, ICON Cash Flow Partners, L.P., Series D
("Series D") and ICON Cash Flow Partners L.P. Six ("L.P. Six") contributed and
assigned equipment lease and finance receivables and residuals with a net book
value of $5,391,216, $4,805,676 and $5,304,010 and cash of $275,000, $125,000
and $300,000, respectively to ICON Receivables 1997-A LLC ("1997-A"), a special
purpose entity created for the purpose of originating new leases, managing
existing contributed assets and, eventually, securitizing its portfolio. In
order to fund the acquisition of new leases, 1997-A obtained a warehouse
borrowing facility from Prudential Securities Credit Corporation (the "1997-A
Facility"). Borrowings under the 1997-A Facility were based on the present value
of the new leases. Outstanding amounts under the 1997-A Facility bore interest
equal to Libor plus 1.5%.
On September 19, 1997 the Partnership, ICON Cash Flow Partners, L.P., Series E
("Series E") and L.P. Six contributed and assigned equipment lease and finance
receivables and residuals with a net book value of $0, $15,547,305 and
$5,225,794 and cash of $484,244, $740,000 and $300,000, respectively to 1997-A.
The Partnership, Series D, Series E and L.P. Six (collectively the "1997-A
Members") received a 19.97%, 17.81% 31.19% and 31.03% interest, respectively, in
1997-A based on the present value of their related contributions.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
On September 19, 1997, 1997-A securitized substantially all of its
equipment leases and finance receivables and residuals. The net proceeds from
the securitization totaled $47,140,183, of which $16,658,877 was used to pay
down the 1997-A Facility, and the remaining proceeds, after establishing
reserves for expenses, were distributed to the 1997-A Members based on their
respective interests. 1997-A became the beneficial owner of a trust. The trustee
for the trust is Texas Commerce Bank ("TCB"). In conjunction with this
securitization, the portfolio as well as the General Partner's servicing
capabilities were rated "AA" by Duff & Phelps and Fitch, both nationally
recognized rating agencies. The General Partner, as servicer, is responsible for
managing, servicing, reporting on and administering the portfolio. 1997-A remits
all monies received from the portfolio to TCB. TCB is responsible for disbursing
to the noteholders their respective principal and interest and to 1997-A the
excess of cash collected over debt service from the portfolio. The 1997-A
Members received their pro rata share of any excess cash on a monthly basis from
1997-A. The Partnership's share of the net proceeds from the securitization
totaled $4,889,804. The Partnership used these proceeds to payoff the $4,250,000
note payable to 1997-A. The Partnership accounts for its investment in 1997-A
under the equity method of accounting. The 1997-A Members may receive, in
accordance with their membership interests, additional proceeds if 1997-A
generates excess cash (cash after payment of debt and expenses).
In August 1997 the Partnership, Series E and L.P. Six (collectively, the
"1997-B Members") formed ICON Receivables 1997-B LLC ("1997-B"), for the purpose
of originating lease transactions and ultimately securitizing its portfolio. The
1997-B Members contributed $500,000 (16.67% interest), $250,000 (8.33% interest)
and $2,250,000 (75.00% interest), respectively to 1997-B. In order to fund the
acquisition of additional leases, 1997-B obtained a warehouse borrowing facility
from Prudential Securities Credit Corporation (the "1997-B Warehouse Facility").
Borrowings under the 1997-B Warehouse Facility are based on the present value of
the new leases, provided that in the aggregate, the amount outstanding cannot
exceed $40,000,000. Outstanding amounts under the 1997-B Warehouse Facility bear
interest equal to Libor plus 1.5%. Collections of receivables from leases are
used to pay down the 1997-B Warehouse Facility, however, in the event of a
default, all of 1997-B's assets are available to cure such default. The net
proceeds from the expected securitization of these assets will be used to
pay-off the remaining 1997-B Warehouse Facility balance and the remaining
proceeds will be distributed to the 1997-B Members in accordance with their
membership interests. The Partnership accounts for its investment in 1997-B
under the equity method of accounting. The 1997-B Members may receive, in
accordance with their membership interests, additional proceeds if 1997-B
generates excess cash (cash after payment of debt and expenses).
As of December 31, 1997 there were no known trends or demands, commitments,
events or uncertainties which are likely to have any material effect on
liquidity. As cash is realized from operations, sales of equipment and
borrowings, the Partnership will invest in equipment leases and financings where
it deems it to be prudent while retaining sufficient cash to meet its reserve
requirements and recurring obligations as they become due.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page Number
Independent Auditors' Report 11
Balance Sheets as of December 31, 1997 and 1996 12-13
Statements of Operations for the Years Ended December 31, 1997 and 1996
and for the Period May 23, 1995 (date of inception) to December 31, 1995 14
Statements of Changes in Partners' Equity for the Years Ended December 31, 1997 and 1996
and for the Period May 23, 1995 (date of inception) to December 31, 1995 15-16
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 and
for the Period May 23, 1995 (date of inception) to December 31, 1995 17-19
Notes to Financial Statements 20-29
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Financial Statements
December 31, 1997
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners
ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying balance sheets of ICON Cash Flow Partners L.P.
Seven (a Delaware limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, changes in partners' equity, and cash flows
for the years ended December 31, 1997 and 1996 and for the period May 23, 1995
(date of inception) to December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICON Cash Flow Partners L.P.
Seven as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years ended December 31, 1997 and 1996 and for the period
May 23, 1995 (date of inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
-----------------------------------
KPMG Peat Marwick
March 27, 1998
New York, New York
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Balance Sheets
December 31,
1997 1996
---- ----
Assets
Cash ............................................... $ 4,516,385 $ 698,301
------------- -------------
Investment in finance leases
Minimum rents receivable ........................ 89,824,617 15,894,245
Estimated unguaranteed residual values .......... 33,168,213 6,667,481
Initial direct costs ............................ 2,851,751 869,559
Unearned income ................................. (23,581,783) (3,515,258)
Allowance for doubtful accounts ................. (155,000) (65,000)
------------- -------------
102,107,798 19,851,027
Investment in estimated unguaranteed residual values 26,531,664 12,325,000
------------- -------------
Net investment in leveraged leases ................. 11,146,488 9,980,633
------------- -------------
Equity investment in joint ventures ................ 2,022,052 --
------------- -------------
Investment in financings
Receivables due in installments ................. 906,283 6,619,755
Initial direct costs ............................ 16,480 143,565
Unearned income ................................. (197,918) (1,271,152)
Allowance for doubtful accounts ................. (22,222) (10,000)
------------- -------------
702,623 5,482,168
Other assets ....................................... 852,432 148,941
------------- -------------
Total assets ....................................... $ 147,879,442 $ 48,486,070
============= =============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Balance Sheets (Continued)
December 31,
1997 1996
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse ....................... $ 90,575,890 $ 11,089,945
Note payable - recourse ............................ 10,075,000 12,225,000
Accounts payable-equipment ......................... 1,011,196 1,790,717
Accounts payable - General Partner and affiliate ... 28,150 438,297
Accounts payable - other ........................... 238,586 54,114
Security deposits and deferred credits ............. 29,162 6,188
Minority interest in joint venture ................. 20,335 15,955
------------- -------------
101,978,319 25,620,216
Commitments and Contingencies
Partners' equity (deficiency)
General Partner ................................. (23,323) (8,694)
Limited partners (559,842.19 and 275,540.47 units
outstanding, $100 per unit original
issue price in 1997 and 1996, respectively) ... 45,924,446 22,874,548
------------- -------------
Total partners' equity ........................ 45,901,123 22,865,854
------------- -------------
Total liabilities and partners' equity ............. $ 147,879,442 $ 48,486,070
============= =============
See accompanying notes to financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Statements of Operations
For the Years Ended December 31, 1997 and 1996 and
for the Period May 23, 1995 (date of inception) to
December 31, 1995
1997 1996 1995
---- ---- ----
Revenues
Finance income ................................ $6,155,775 $ 939,924 $ --
Net gain on sales or remarketing of equipment . 1,748,790 -- --
Income from leveraged leases, net ............. 1,291,331 366,790 --
Income from equity investment in joint ventures 436,216 -- --
Interest income and other ..................... 117,132 257,355 --
---------- ---------- --------
Total revenues ................................ 9,749,244 1,564,069 --
---------- ---------- --------
Expenses
Interest ...................................... 3,652,517 398,200 --
Management fees - General Partner ............. 1,522,045 264,784 --
Amortization of initial direct costs .......... 932,123 230,785 --
Administrative expense
reimbursements - General Partner ............ 652,319 117,809 --
General and administrative .................... 186,280 72,040 --
Provision for bad debts ....................... 150,000 75,000 --
Minority interest in joint ventures ........... 4,380 -- --
---------- ---------- --------
Total expenses ................................ 7,099,664 1,158,618 --
---------- ---------- --------
Net income ....................................... $2,649,580 $ 405,451 $ --
========== ========== ========
Net income allocable to:
Limited partners .............................. $2,623,084 $ 401,396 $ --
General Partner ............................... 26,496 4,055 --
---------- ---------- --------
$2,649,580 $ 405,451 $ --
========== ========== ========
Weighted average number of limited
partnership units outstanding ................. 413,677 156,222 --
========== ========== ========
Net income per weighted average
limited partnership unit ...................... $ 6.34 $ 2.57 $ --
========== ========== ========
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Changes in Partners' Equity
For the Years Ended December 31, 1997 and 1996
and for the Period May 23, 1995 (date of inception)
to December 31, 1995
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
(Per weighted average unit)
Initial partners'
capital contribution
- May 23, 1995 $ 1,000 $ 1,000 $ 2,000
--------------- ------------ --------------
Balance at
December 31, 1995 1,000 1,000 2,000
Refund of initial
limited partners'
capital contribution (1,000) - (1,000)
Proceeds from issuance
of limited partnership
units (275,540.47 units) 27,554,047 - 27,554,047
Sales and
offering expenses (3,719,796) - (3,719,796)
Cash distributions
to partners $ 8.18 $ 2.57 (1,361,099) (13,749) (1,374,848)
Net income 401,396 4,055 405,451
--------------- ------------ --------------
Balance at
December 31, 1996 22,874,548 (8,694) 22,865,854
Proceeds from issuance
of limited partnership
units (285,927.35 units) 28,592,735 - 28,592,735
Sales and
offering expenses (3,862,277) - (3,862,277)
Limited partnership units
redeemed (1,625.63 units) (155,815) - (155,815)
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Changes in Partners' Equity (continued)
For the Years Ended December 31, 1997 and 1996
and for the Period May 23, 1995 (date of inception)
to December 31, 1995
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
(Per weighted average unit)
Cash distributions
to partners $ 4.41 $ 6.34 (4,147,829) (41,125) (4,188,954)
Net income 2,623,084 26,496 2,649,580
--------------- ------------ --------------
Balance at
December 31, 1997 $ 45,924,446 $ (23,323) $ 45,901,123
=============== ============ ==============
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and for
the Period May 23, 1995 (date of inception) to
December 31, 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income ............................................... $ 2,649,580 $ 405,451 $ --
------------ ------------ ---------
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of equipment .............................. (1,748,790) -- --
Allowance for doubtful accounts ........................ 102,222 75,000 --
Finance income portion of
receivables paid directly
to lenders by lessees ................................ (5,912,799) (608,965) --
Amortization of initial direct costs ................... 932,123 230,785 --
Interest expense on non-recourse
financings paid directly by lessees .................. 3,463,617 395,645 --
Collection of principal
- non-financed receivables ........................... 516,966 498,027 --
Income from leveraged leases, net ...................... (1,291,331) (366,790) --
Income from equity investment in joint ventures ........ (436,216) -- --
Distribution from equity investment in joint ventures .. 5,258,223 -- --
Change in operating assets and liabilities:
Other assets ......................................... (703,491) (148,941) --
Account payable to General Partner and affiliates, net (410,147) 438,297 --
Accounts payable - other ............................. 184,472 54,114 --
Minority interest in joint ventures .................. 4,380 15,955 --
Security deposits and deferred credits ............... 22,974 6,189 --
Other, net ........................................... 223,547 (20,868) --
------------ ------------ ---------
Total adjustments .................................. 205,750 568,448 --
------------ ------------ ---------
Net cash provided by operating activities ............ 2,855,330 973,899 --
------------ ------------ ---------
Cash flows from investing activities:
Equipment and receivables purchased ...................... (20,121,149) (19,898,183) --
Proceeds from sale of equipment .......................... 7,315,408 -- --
Initial direct costs ..................................... (3,363,765) (2,737,818) --
Equity investment in joint ventures ...................... (1,259,244) (100,000) --
------------ ------------ ---------
Net cash used in investing activities ................ (17,428,750) (22,736,001) --
------------ ------------ ---------
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Cash Flows (continued)
For the Years Ended December 31, 1997, 1996 and for
the Period May 23, 1995 (date of inception) to
December 31, 1995
1997 1996 1995
---- ---- ----
Cash flows from financing activities:
Issuance of limited partnership units,
net of offering expenses .............................. 24,730,458 23,834,251 --
Proceeds from affiliate loan ............................ 4,250,000 -- --
Principal payment on loans from affiliate ............... (4,250,000) -- --
Principal payment on notes payable recourse ............. (2,150,000) -- --
Cash distributions to partners .......................... (4,188,954) (1,374,848) --
Initial limited and General Partner capital contributions -- -- 2,000
Refund of initial limited partners'
capital contribution .................................. -- (1,000) --
------------ ------------ ------------
Net cash provided by financing activities ........... 18,391,504 22,458,403 2,000
------------ ------------ ------------
Net increase in cash ....................................... 3,818,084 696,301 2,000
Cash at beginning of year .................................. 698,301 2,000 --
------------ ------------ ------------
Cash at end of year ........................................ $ 4,516,385 $ 698,301 $ 2,000
============ ============ ============
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
Interest expense of $3,652,517 and $398,200 for the years ended December
31, 1997 and 1996 consisted of: interest expense on non-recourse financings paid
or accrued to lenders by lessees of $3,463,617 and $395,645, respectively, and
other interest of $188,900 and $2,555, respectively.
For the years ended December 31, 1997 and 1996, non-cash activities
included the following:
1997 1996
---- ----
Fair value of equipment and receivables
purchased for debt and payables ................ $(100,824,655) $ (59,189,952)
Non-recourse and recourse notes payable
assumed in purchase price ...................... 99,813,459 57,399,235
Accounts payable - equipment ...................... 1,011,196 1,790,717
Decrease in investment in finance leases due
to terminations ................................ 6,025,115 --
Decrease in notes payable non-recourse
due to terminations ............................ (6,025,115) --
Decrease in investments in finance leases and
financings due to contribution to joint ventures 5,391,216 --
Increase in equity investment in joint ventures ... (5,391,216) --
Principal and interest on direct
finance receivables paid directly
to lenders by lessees .......................... 17,766,016 3,625,762
Principal and interest on non-recourse
financings paid directly to lenders
by lessees ..................................... (17,766,016) (3,625,762)
------------- -------------
$ -- $ --
============= =============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1997
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership") was formed on May
23, 1995 as a Delaware limited partnership with an initial capitalization of
$2,000. It was formed to acquire various types of equipment, to lease such
equipment to third parties and, to a lesser degree, to enter into secured
financing transactions. The Partnership's maximum offering is $100,000,000. The
Partnership commenced business operations on its initial closing date, January
19, 1996, with the admission of 26,367.95 limited partnership units at $100 per
unit representing $2,636,795 of capital contributions. As of December 31, 1997,
535,099.87 additional units had been admitted into the Partnership with
aggregate gross proceeds of $53,509,987 bringing the total admission to
561,467.82 units totaling $56,146,782 in capital contributions. During 1997,
1,625.63 units were redeemed, leaving 559,842.19 partnership units outstanding
at December 31, 1997.
In the third quarter of 1997 the Partnership received approval from the
Securities and Exchange Commission to extend the Partnership's offering period
by twelve months. The Partnership's offering period will end no later than
November 9, 1998.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner will manage and
control the business affairs of the Partnership's equipment, leases and
financing transactions under a management agreement with the Partnership.
ICON Securities Corp., an affiliate of the General Partner, will receive an
underwriting commission on the gross proceeds from sales of all units. The total
underwriting compensation to be paid by the Partnership, including underwriting
commissions, sales commissions, incentive fees, public offering expense
reimbursements and due diligence activities will be limited to 13 1/2% of the
gross proceeds received from the sale of the units. Such offering expenses
aggregated $7,579,816 (including $3,088,993 paid to the General Partner or its
affiliates (See Note 10) and were charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be
allocated 99% to the limited partners and 1% to the General Partner until each
limited partner has received cash distributions and disposition proceeds
sufficient to reduce its adjusted capital contribution account to zero and
receive, in addition, other distributions and allocations which would provide a
10% per annum cumulative return, compounded daily, on its outstanding adjusted
capital contribution account. After such time, the distributions will be
allocated 90% to the limited partners and 10% to the General Partner.
2. Significant Accounting Policies
Basis of Accounting and Presentation - The Partnership's records are
maintained on the accrual basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Leases - The Partnership accounts for owned equipment leased to third
parties as finance leases or leveraged leases. For finance leases, the
Partnership records, at the inception of the lease, the total minimum lease
payments receivable, the estimated unguaranteed residual values, the initial
direct costs related to the leases and the related unearned income. Unearned
income represents the difference between the sum of the minimum lease payments
receivable plus the estimated unguaranteed residual minus the cost of the leased
equipment. Unearned income is recognized as finance income over the terms of the
related leases using the interest method. The Partnership's net investment in
leveraged leases consists of minimum lease payments receivable, the estimated
unguaranteed residual values and the initial direct costs related to the leases,
net of the unearned income and principal and interest on the related
non-recourse debt. Unearned income is recognized as income from leveraged leases
over the life of the lease at a constant rate of return on the positive net
investment. Initial direct costs of finance leases and leverage leases are
capitalized and are amortized over the terms of the related leases using the
interest method. The Partnership's leases have terms ranging from two to five
years. Each lease is expected to provide aggregate contractual rents that, along
with residual proceeds, return the Partnership's cost of its investments along
with investment income.
Investment in Financings - Investment in financings represent the gross
receivables due from the financing of equipment plus the initial direct costs
related thereto less the related unearned income. The unearned income is
recognized as finance income, and the initial direct costs are amortized, over
the terms of the receivables using the interest method. Financing transactions
are supported by a written promissory note evidencing the obligation of the user
to repay the principal, together with interest, which will be sufficient to
return the Partnership's full cost associated with such financing transaction,
together with some investment income. Furthermore, the repayment obligation is
collateralized by a security interest in the tangible or intangible personal
property.
Investment in Estimated Unguaranteed Residual Value - The Partnership
purchased a 50% interest of an option to acquire equipment during 1996. The
Partnership purchased a 100% interest of an option to acquire equipment during
1997. The assets will be carried at cost until sale or release of the equipment,
at which time a gain or loss will be recognized on the transactions. No income
will be recognized until the underlying equipment is sold or released. (See Note
3 for discussion of investment in estimated unguaranteed residual value).
Disclosures About Fair Value of Financial Instruments - Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value
of Financial Instruments" requires disclosures about the fair value of financial
instruments, except for lease related instruments. At December 31, 1997, the
carrying value of the Partnership's financial assets other than lease related
investments and liabilities approximates fair value.
Allowance for Doubtful Accounts - The Partnership records a provision for
bad debts to provide for estimated credit losses in the portfolio. The allowance
for doubtful accounts is based on an analysis of delinquency, an assessment of
overall risk and a review of historical loss experience. The Partnership's
write-off policy is based on an analysis of the aging of the Partnership's
portfolio, a review of the non-performing receivables and leases, and prior
collection experience. An account is fully reserved for or written off when the
analysis indicates that the probability of collection of the account is remote.
Impairment of Estimated Residual Values - In March 1995, the FASB issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which was effective beginning in 1996.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
The Partnership's policy with respect to impairment of estimated residual
values is to review, on a quarterly basis, the carrying value of its residuals
on an individual asset basis to determine whether events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable and, therefore, an impairment loss should be recognized. The events
or changes in circumstances which generally indicate that the residual value of
an asset has been impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
The Partnership measures its impairment loss as the amount by which the
carrying amount of the residual value exceeds the estimated proceeds to be
received by the Partnership from release or resale of the equipment. Generally,
quoted market prices are used as the basis for measuring whether an impairment
loss should be recognized.
As a result, the Partnership's policy with respect to measurement and
recognition of an impairment loss associated with estimated residual values is
consistent with the requirements of SFAS No. 121 and, therefore, the
Partnership's adoption of this Statement in the first quarter of 1996 had no
material effect on the financial statements.
Income Taxes - No provision for income taxes has been made as the liability
for such taxes is that of each of the partners rather than the Partnership.
New Accounting Pronouncements - In June 1996 the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 establishes, among other things,
criteria for determining whether a transfer of financial assets is a sale or a
secured borrowing effective for all transfers occurring after December 31, 1997.
The adoption of SFAS No. 125 is not expected to have a material impact on the
Partnership's net income, partners' equity or total assets.
3. Gain on Disposal of Residual Interest
In December 1997 the Partnership disposed of its residual interest in two
offshore supply vessels owned by Energy Land Corp. The disposal of the residual
interest occurred in connection with the sale of the vessels to Hvide Marine,
Inc. The vessels had previously been chartered by Occidental Equipment and
Services, Inc. The Partnership's interest was acquired on April 9, 1997 for
$3,430,000 cash. The Partnership paid $278,500 in initial direct costs related
to the transaction. The residual interest was disposed of for total cash
proceeds of $5,864,138. The Partnership earned $446,028 on the transaction from
April 1997 through December 1997. The Partnership recognized a $1,709,610 gain
upon disposal of its interest.
4. Residual Investment
On December 31, 1996, the Partnership purchased a 50% share of an option to
acquire a 100% interest in a drilling rig. The purchase price of the 50%
investment was $12,325,000.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
On July 31, 1997, the Partnership purchased an option to acquire a 100%
interest on three Boeing 737-300 aircraft, currently on lease with Continental
Airlines. The purchase price was $14,206,664 and consisted of $1,237,500 in cash
and $12,969,164 in non-recourse notes.
5. Net Investment in Leveraged Leases
On August 20, 1996, the Partnership acquired, subject to a leveraged lease,
the residual interest in an aircraft on lease with Federal Express. The aircraft
is a 1986 McDonnell Douglas DC-10-30F, and has a remaining term of seven years.
The purchase price was $40,973,585, consisting of $6,000,000 in cash and the
assumption of non-recourse senior debt of $26,217,294 and non-recourse junior
debt of $8,756,291.
On December 31, 1996, the Partnership acquired, subject to a leveraged
lease, an aircraft on lease with Continental Airlines, Inc. The aircraft is a
1976 McDonnell Douglas DC-10-30 and has a remaining term of five years. The
purchase price was $11,320,923 consisting of $2,104,262 in cash and the
assumption of non-recourse senior debt of $9,216,661.
The net investment in the leveraged leases as of December 31, 1997 consisted of
the following:
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) $ 1,071,000
Estimated unguaranteed residual values 24,818,001
Initial direct costs 1,231,377
Unearned income (15,973,890)
------------
$ 11,146,488
Unearned income is recognized from leveraged leases over the life of the
lease at a constant rate of return on the positive net investment.
Non-cancelable minimum rents receivable relating to the leveraged leases
at December 31, 1997 are $51,610,515 and are due as follows:
1998 $ 7,742,360
1999 7,742,360
2000 8,022,359
2001 8,022,359
2002 8,022,360
Thereafter 12,058,717
-----------
$51,610,515
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Principal and interest on non-recourse debt assumed in the purchase of the
leveraged leases is $50,539,515 at December 31, 1997 and matures as follows:
1998 $ 7,742,360
1999 7,742,360
2000 7,742,359
2001 7,742,359
2002 7,742,359
Thereafter 11,827,718
-----------
$50,539,515
Prior to the acquisition of the Federal Express transaction, the free cash
flow, the rent in excess of the senior debt payments, was financed by an
affiliated partnership, ICON Cash Flow Partners, L.P., Series D, (i.e., the
junior debt). On January 29, 1997, the Partnership refinanced a portion of the
junior debt with a third party.
6. Receivables Due in Installments
Non-cancelable minimum annual amounts due on finance leases and financings
are as follows:
Finance
Year Leases Financings Total
1998 $ 23,412,651 $ 293,446 $ 23,706,097
1999 20,291,755 190,239 20,481,994
2000 16,181,430 183,345 16,364,775
2001 9,857,704 149,805 10,007,509
2002 8,022,360 89,448 8,111,808
Thereafter 12,058,717 - 12,058,717
-------------- ------------- --------------
$ 89,824,617 $ 906,283 $ 90,730,900
============== ============= ==============
7. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in finance
leases and financings consisted of the following:
Finance
Leases Financings Total
Balance at December 31, 1995 $ - $ - $ -
Charged to operations 65,000 10,000 75,000
-------- -------- ---------
Balance at December 31, 1996 65,000 10,000 75,000
Charged to operations 90,000 60,000 150,000
Accounts written-off - (47,778) (47,778)
-------- -------- ---------
Balance at December 31, 1997 $155,000 $ 22,222 $ 177,222
======== ======== =========
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
8. Notes Payable
Notes payable consists of notes payable non-recourse, which are being paid
directly to the lenders by the lessees, and notes payable recourse, which
relates to the Partnership's acquisition of a residual investment (See Note 4).
The notes bear interest at rates ranging from 6.5% to 9.4%. These notes mature
as follows:
Notes Payable Note Payable
Year Non-Recourse Recourse Total
1998 $ 25,575,394 $ 2,250,000 $ 27,825,394
1999 21,998,436 2,250,000 24,248,436
2000 16,574,146 5,575,000 22,149,146
2001 7,447,607 - 7,447,607
2002 4,872,512 - 4,872,512
Thereafter 14,107,795 - 14,107,795
---------------- -------------- --------------
$ 90,575,890 $ 10,075,000 $ 100,650,890
================ ============== ==============
9. Investment in Joint Ventures
The Partnership Agreement allows the Partnership to invest in joint
ventures with other limited partnerships sponsored by the General Partner
provided that the investment objectives of the joint ventures are consistent
with that of the Partnership.
ICON Cash Flow L.L.C. III
On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow
Partners, L.P., Series E formed ICON Cash Flow Partners L.L.C. III ("ICON LLC
III"), for the purpose of acquiring and managing an aircraft currently on lease
to Continental Airlines, Inc. The aircraft is a 1976 McDonnell Douglas DC-10-30
and cost $10,905,228. The lease is a leveraged lease and the lease term expires
in March 2003. Profits, losses, excess cash and disposition proceeds are
allocated 99% to the Partnership and 1% to Series E. The Partnership's financial
statements include 100% of the assets and liabilities of ICON LLC III. Series
E's investment in ICON LLC III has been reflected as "Minority interest in joint
venture."
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
ICON Receivables 1997-A L.L.C.
In March 1997 the Partnership, Series D and L.P. Six contributed and
assigned equipment lease and finance receivables and residuals with a net book
value of $5,391,216, $4,805,676 and $5,304,010 and cash of $275,000, $125,000
and $300,000, respectively to ICON Receivables 1997-A LLC ("1997-A"), a special
purpose entity created for the purpose of originating new leases, managing
existing contributed assets and, eventually, securitizing its portfolio. In
order to fund the acquisition of new leases, 1997-A obtained a warehouse
borrowing facility from Prudential Securities Credit Corporation (the "1997-A
Facility"). Borrowings under the 1997-A Facility were based on the present value
of the new leases. Outstanding amounts under the 1997-A Facility bore interest
equal to Libor plus 1.5%.
On September 19, 1997 the Partnership, Series E and L.P. Six contributed
and assigned equipment lease and finance receivables and residuals with a net
book value of $0, $15,547,305 and $5,225,794 and cash of $484,244, $740,000 and
$300,000, respectively to 1997-A. The Partnership, Series D, Series E and L.P.
Six (collectively the "1997-A Members") received a 19.97%, 17.81% 31.19% and
31.03% interest, respectively, in 1997-A based on the present value of their
related contributions.
On September 19, 1997, 1997-A securitized substantially all of its
equipment leases and finance receivables and residuals. The net proceeds from
the securitization totaled $47,140,183, of which $16,658,877 was used to pay
down the 1997-A Facility, and the remaining proceeds, after establishing
reserves for expenses, were distributed to the 1997-A Members based on their
respective interests. The Partnership's share of the net proceeds from the
securitization totaled $4,889,804. 1997-A became the beneficial owner of a
trust. The trustee for the trust is Texas Commerce Bank ("TCB"). In conjunction
with this securitization, the portfolio as well as the General Partner's
servicing capabilities were rated "AA" by Duff & Phelps and Fitch, both
nationally recognized rating agencies. The General Partner, as servicer, is
responsible for managing, servicing, reporting on and administering the
portfolio. 1997-A remits all monies received from the portfolio to TCB. TCB is
responsible for disbursing to the noteholders their respective principal and
interest and to 1997-A the excess of cash collected over debt service from the
portfolio. The 1997-A Members received their pro rata share of any excess cash
on a monthly basis from 1997-A. The Partnership used these proceeds to payoff
the $4,250,000 note payable to 1997-A.The Partnership accounts for its
investment in 1997-A under the equity method of accounting. The 1997-A Members
may receive, in accordance with their membership interests, additional proceeds
if 1997-A generates excess cash (cash after payment of debt and expenses).
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of 1997-A as
of and for the year ended December 31, 1997 is summarized below:
December 31, 1997
Assets $ 50,911,005
===============
Liabilities $ 45,143,569
===============
Equity $ 5,767,436
===============
Year Ended
December 31, 1997
Net income $ 1,298,430
===============
ICON Receivables 1997-B L.L.C.
In August 1997 the Partnership, Series E and L.P. Six (collectively, the
"1997-B Members") formed ICON Receivables 1997-B L.L.C. ("1997-B"), for the
purpose of originating lease transactions and ultimately securitizing its
portfolio. The 1997-B Members contributed $500,000 (16.67% interest), $250,000
(8.33% interest) and $2,250,000 (75.00% interest), respectively to 1997-B. In
order to fund the acquisition of additional leases, 1997-B obtained a warehouse
borrowing facility from Prudential Securities Credit Corporation (the "1997-B
Warehouse Facility"). Borrowings under the 1997-B Warehouse Facility are based
on the present value of the new leases, provided that in the aggregate, the
amount outstanding cannot exceed $40,000,000. Outstanding amounts under the
1997-B Warehouse Facility bear interest equal to Libor plus 1.5%. Collections of
receivables from leases are used to pay down the 1997-B Warehouse Facility,
however, in the event of a default, all of 1997-B's assets are available to cure
such default. The net proceeds from the expected securitization of these assets
will be used to pay-off the remaining 1997-B Warehouse Facility balance and the
remaining proceeds will be distributed to the 1997-B Members in accordance with
their membership interests. The Partnership accounts for its investment in
1997-B under the equity method of accounting. The 1997-B Members may receive, in
accordance with their membership interests, additional proceeds if 1997-B
generates excess cash (cash after payment of debt and expenses).
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of 1997-B as
of and for the year ended December 31, 1997 is summarized below:
December 31, 1997
Assets $ 18,209,360
===============
Liabilities $ 15,008,185
===============
Equity $ 3,201,175
===============
Year Ended
December 31, 1997
Net income $ 201,175
===============
10. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General
Partner or its affiliates for the year ended December 31, 1997 and 1996 were as
follows:
1997 1996
---- ----
Underwriting commissions $ 1,123,270 $ 551,081 Charged to Equity
Organization and offering expenses 1,965,723 964,391 Charged to Equity
Acquisition fees 2,934,301 2,737,818 Capitalized
Management fees 1,522,045 264,784 Charged to operations
Administrative expense
reimbursements 652,319 117,809 Charged to operations
--------------- --------------
Total $ 8,197,658 $ 4,635,883
================ ==============
The Partnership and affiliates formed three joint ventures for the purpose
of acquiring and managing various assets. (See Note 9 for additional information
relating to the joint ventures.)
On March 11, 1997, the Partnership borrowed $4,250,000 from 1997-A, an
affiliate of the Partnership (See Note 8). The note was a short term note, bore
interest at Libor plus 1.5% and was paid from the Partnership's share of
securitization proceeds in September 1997.
11. Commitments and Contingencies
The Partnership, from time to time, has and will enter into remarketing and
residual sharing agreements with third parties. In connection therewith,
remarketing or residual proceeds received in excess of specified amounts will be
shared with these third parties based on specified formulas. As of December 31,
1997 the Partnership has not made any payments pursuant to such agreements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
12. Tax Information (Unaudited)
The following table reconciles net income for financial reporting purposes
to income for federal income tax purposes for the year ended December 31, 1997:
1997 1996
---- ----
Net income per financial statements $ 2,649,580 $ 405,451
Differences due to:
Direct finance leases 9,376,627 (258,725)
Depreciation (11,358,603) -
Provision for losses 102,222 -
Loss on sale of equipment 759,191 -
Other 806,922 -
---------------- -----------
Partnership income for
federal income tax purposes $ 2,335,939 $ 146,726
================ =============
As of December 31, 1997, the partners' capital accounts included in the
financial statements totaled $45,901,123 compared to the partners' capital
accounts for federal income tax purposes of $53,066,747 (unaudited). The
difference arises primarily from commissions reported as a reduction in the
partners' capital accounts for financial reporting purposes but not for federal
income tax purposes, and temporary differences related to direct finance leases,
depreciation and provision for losses.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant's General Partner
The General Partner, a Connecticut corporation, was formed in 1985. The
General Partner's principal offices are located at 600 Mamaroneck Avenue,
Harrison, New York 10528-1632, and its telephone number is (914) 698-0600. The
officers of the General Partner have extensive experience with transactions
involving the acquisition, leasing, financing and disposition of equipment,
including acquiring and disposing of equipment subject to operating leases and
full payout leases.
The manager of the Partnership's business is the General Partner. The
General Partner is engaged in a broad range of equipment leasing and financing
activities. Through its sales representatives and through various broker
relationships throughout the United States, the General Partner offers a broad
range of equipment leasing services, including tax-oriented leasing and
financing. In addition, the General Partner offers financial consulting and
placement services for which fees are earned as a result of successful
placements of various secured financings and mortgages.
The General Partner will perform certain functions relating to the
management of the equipment of the Partnership. Such services include the
collection of lease payments from the lessees of the equipment, releasing
services in connection with equipment which is off-lease, inspections of the
equipment, liaison with and general supervision of lessees to assure that the
equipment is being properly operated and maintained, supervision of maintenance
being performed by third parties, monitoring performance by the lessees of their
obligations under the leases and the payment of operating expenses.
The officers and directors of the General Partner are as follows:
Beaufort J.B. Clarke President, Chief Executive Officer and Director
Thomas W. Martin Executive Vice President and Director
Paul B. Weiss Executive Vice President
Gary N. Silverhardt Senior Vice President and Chief Financial Officer
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 10. Continued
Beaufort J. B. Clarke, age 51, is President, Chief Executive Officer and
Director of both the General Partner and the Dealer-Manager. Prior to his
present position, Mr. Clarke was founder and the President and Chief Executive
Officer of Griffin Equity Partners, Inc. Mr. Clarke formerly was an attorney
with Shearman and Sterling and has over 21 years of senior management experience
in the United States leasing industry.
Thomas W. Martin, age 43, is Executive Vice President of both the General
Partner and the Dealer-Manager. Prior to his present position, Mr. Martin was
the Executive Vice President and Chief Financial Officer of Griffin Equity
Partners, Inc. Mr. Martin has over 13 years of senior management experience in
the leasing business, particularly in the area of syndication.
Paul B. Weiss, age 37, is Executive Vice President of the General Partner.
Mr. Weiss has been exclusively engaged in lease portfolio acquisitions since
1988 from his affiliations with Griffin Equity Partners (as Executive Vice
President and co-founder in 1993); Gemini Financial Holdings (as Senior Vice
President-Portfolio Acquisitions and a member of the executive committee from
1991-1993) and Pegasus Capital Corporation (as Vice President-Portfolio
Acquisitions).
Gary N. Silverhardt, age 37, is Senior Vice President and Chief Financial
Officer of the General Partner. He joined the General Partner in 1989. Prior to
joining the General Partner, Mr. Silverhardt was previously employed by Coopers
& Lybrand from 1985 to 1989, most recently as an Audit Supervisor. Prior to
1985, Mr. Silverhardt was employed by Katz, Schneeberg & Co. from 1983 to 1985.
Mr. Silverhardt received a B.S. degree from the State University of New York at
New Paltz in 1983 and is a Certified Public Accountant.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
Item 11. Executive Compensation
The Partnership has no directors or officers. The General Partner and its
affiliates were paid or accrued the following compensation and reimbursement for
costs and expenses for the years ended December, 31, 1997 and 1996.
Entity Capacity Type of Compensation 1997 1996
------ -------- -------------------- ---- ----
ICON Capital Corp. General Partner Organization and offering
expenses $ 1,965,723 $ 964,391
ICON Capital Corp. Manager Acquisition fees 2,934,301 2,737,818
ICON Capital Corp. General Partner Management fees 1,522,045 264,784
ICON Securities Corp. Dealer-Manager Underwriting commissions 1,123,270 551,081
ICON Capital Corp. General Partner Administrative expense
reimbursements 652,319 117,809
------------- ---------------
$ 8,197,658 $ 4,635,883
============= ===============
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership and therefore does not have voting
shares of stock. No person of record owns, or is known by the Partnership
to own beneficially, more than 5% of any class of securities of the
Partnership.
(b) As of March 20, 1998, Directors and Officers of the General Partner do not
own any equity securities of the Partnership.
(c) The General Partner owns the equity securities of the Partnership set forth
in the following table:
Title Amount Beneficially Percent
of Class Owned of Class
-------- ---------------------------------------------- --------
General Partner Represents initially a 1% and potentially a 100%
Interest 10% interest in the Partnership's income, gain
and loss deductions.
Item 13. Certain Relationships and Related Transactions
None other than those disclosed in Item 11 herein.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Amended and Restated Agreement of Limited Partnership (Incorporated by
reference to Exhibit A to Amendment No. 2 to Form S-1 Registration
Statement No. 2-99858 filed with the Securities and Exchange
Commission on December 12, 1986).
(ii) Certificate of Limited Partnership of the Partnership (Incorporated
herein by reference to Exhibit 3.01 to Form S-1 Registration Statement
No. 2-99858 filed with the Securities and Exchange Commission on
August 23, 1985 and to Exhibit 3.01 to Amendment No. 1 to Form S-1
Registration Statement No. 2-99858 filed with the Securities and
Exchange Commission on August 27, 1986).
(iii)Form of Management Agreement between the Partnership and Crossgate
Leasing, Inc. (Incorporated herein by reference to Exhibit 10.01 to
Amendment No. 1 to Form S-1 Registration Statement No. 2-99858 filed
with the Securities and Exchange Commission on August 27, 1986).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter
ended December 31, 1997.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICON CASH FLOW PARTNERS L.P. Seven
File No. 33-94458 (Registrant)
By its General Partner, ICON Capital Corp.
Date: March 31,1998 /s/ Beaufort J.B. Clarke
Beaufort J.B. Clarke
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated.
ICON Capital Corp.
sole General Partner of the Registrant
Date: March 31, 1998 /s/ Beaufort J.B. Clarke
--=========================----------------------
Beaufort J.B. Clarke
President, Chief Executive Officer and Director
Date: March 31, 1998 /s/ Thomas W. Martin
-------------------------------------------------
Thomas W. Martin
Executive Vice President and Director
Date: March 31, 1998 /s/ Gary N. Silverhardt
-------------------------------------------------
Gary N. Silverhardt
Senior Vice President and Chief Financial Officer
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrant Which have not Registered Securities Pursuant to
Section 12 of the Act
No annual report or proxy material has been sent to security holders. An annual
report will be sent to the limited partners and a copy will be forwarded to the
Commission.