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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, 1998
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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:
Units of Limited Partnership Interests
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
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 Consolidated 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 and Reports on Form 8-K 33
SIGNATURES 34
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
PART I
Item 1. Business
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units
were admitted representing $24,917,252 of capital contributions. In 1997,
285,927.35 units were admitted representing $28,592,735 of capital
contributions, and from January 1, 1998 through September 16, 1998 (the final
closing date) 438,528.99 units were admitted representing $43,852,899 of capital
contributions. The Partnership redeemed 1,902 and 1,625 limited partnership
units in 1998 and 1997 respectively, leaving 996,469.18 limited partnership
units outstanding at December 31, 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 leases and
financing transactions; (2) make monthly cash distributions to its limited
partners from cash from operations, commencing with each limited partner's
admission to the Partnership, continuing through the reinvestment period, which
period will end no later than September 16, 2004; (3) re-invest substantially
all undistributed cash from operations and cash from sales in additional
equipment and financing transactions during the reinvestment period; and (4)
sell the Partnership's investments and distribute the cash from sales of such
investments to its limited partners within six to thirty-six months after the
end of the reinvestment period.
The equipment leasing industry is highly competitive. In initiating its
leasing transactions, the Partnership competes with leasing companies,
manufacturers that lease their products directly, equipment brokers and dealers
and financial institutions, including commercial banks and insurance companies.
Many competitors are larger than the Partnership and have greater financial
resources.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
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, 1998 and 1997, the Partnership purchased
and leased or financed $91,615,445 and $119,155,086 of equipment, respectively,
with a weighted average initial transaction term of 48 and 38 months,
respectively. Included in the summary of equipment cost by category below is
100% of the equipment cost acquired by a joint venture in which the Partnership
has a 99% interest. The Partnership accounts for this investment by
consolidating 100% of the assets and liabilities of the joint venture and
reflecting as a liability the related minority interest. The equipment purchased
by three other joint ventures in which the Partnership has a less than 50%
interest are not included in this table. At December 31, 1998, the weighted
average initial transaction term of the portfolio was 56 months. A summary of
the portfolio equipment cost by category held at December 31, 1998 and 1997 is
as follows:
December 31, 1998 December 31, 1997
---------------------- -----------------------
Category Cost Percent Cost Percent
Aircraft ................. $ 90,952,788 32.4 $ 71,796,878 34.6%
Computer systems ......... 53,211,502 19.0 26,441,603 12.8
Vessels .................. 49,855,000 17.8 26,383,364 12.7
Retail systems ........... 21,120,829 7.5 20,949,713 10.1
Manufacturing & production 18,835,981 6.7 14,146,848 6.8
Furniture and fixtures ... 15,022,229 5.3 3,161,848 1.5
Energy ................... 12,325,000 4.4 12,325,000 6.0
Automotive ............... 6,257,771 2.2 -- --
Telecommunications ....... 4,634,089 1.6 21,189,848 10.2
Medical .................. 3,872,541 1.4 -- --
Office equipment ......... 2,764,522 1.0 2,764,522 1.3
Miscellaneous ............ 1,959,915 .7 3,766,472 1.8
Material handling ........ -- -- 4,554,815 2.2
------------ ----- ------------ -----
$280,812,167 100.0% $207,480,911 100.0%
============ ===== ============ =====
The Partnership has one transaction which individually represents greater
than 10% of the total portfolio equipment cost at December 31, 1998. The
equipment is an aircraft subject to lease with Federal Express, which
represented 14.6% of the total portfolio equipment cost at December 31, 1998.
Item 2. Properties
The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
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 1998.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
The Partnership's limited partnership interests are not publicly traded nor
is there currently a market for the Partnership's limited partnership units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of December 31,
-------------- ---------------------------------
1998 1997
---- ----
Limited Partners 4,649 2,777
General Partner 1 1
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
Item 6. Selected Consolidated Financial and Operating Data
Years Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
Total revenue ...................... $17,207,618 $ 9,749,244 $1,564,069
=========== =========== ==========
Net income ......................... $ 2,689,176 $ 2,649,580 $ 405,451
=========== =========== ==========
Net income allocable
to limited partners ............. $ 2,662,284 $ 2,623,084 $ 401,396
=========== =========== ==========
Net income allocable
to the General Partner .......... $ 26,892 $ 26,496 $ 4,055
=========== =========== ==========
Weighted average limited
partnership units outstanding ... 808,650 413,677 156,222
=========== =========== ==========
Net income per weighted
average limited partnership unit $ 3.29 $ 6.34 $ 2.57
=========== =========== ==========
Distributions to limited partners .. $ 8,692,479 $ 4,147,829 $1,361,099
=========== =========== ==========
Distributions to the General Partner $ 87,803 $ 41,125 $ 13,749
=========== =========== ==========
December 31,
------------------------------------------
1998 1997 1996
---- ---- ----
Total assets ... $216,387,240 $153,066,319 $ 48,486,070
============ ============ ============
Partners' equity $ 77,741,448 $ 45,901,123 $ 22,865,854
============ ============ ============
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report. No data is presented for 1995 or 1994 since the Partnership commenced
operations on January 19, 1996, the initial closing date.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership commenced business
operations on its initial closing date, January 19, 1996 with the admission of
26,367.95 limited partnership units at $100 per unit representing $2,636,795 of
capital contributions. Between January 19, 1996 and December 31, 1996,
249,172.52 units were admitted representing $24,917,252 of capital
contributions. In 1997, 285,927.35 units were admitted representing $28,592,735
of capital contributions and from January 1, 1998 through September 16, 1998
(the final closing date) 438,899 units were admitted representing $43,852,899 of
capital contributions. The Partnership redeemed 1,902 and 1,625 limited
partnership units in 1998 and 1997, respectively, leaving 996,469.18 limited
partnership units outstanding at December 31, 1998
The Partnership's portfolio consisted of net investments in finance leases,
investments in estimated unguaranteed residual values, leveraged leases, equity
investments in joint ventures and financings representing 77%, 15%, 6%, 1% and
1% of total investments at December 31, 1998, respectively, and 72%, 18%, 8%, 1%
and 1% of total investments at December 31, 1997, respectively.
Results of Operations for the Years Ended December 31, 1998 and 1997
For the years ended December 31, 1998 and 1997, the Partnership purchased
and leased or financed equipment with an initial cost of $91,615,445 and
$119,155,086, respectively, to 42 and 13 lessees or equipment users.
Revenues for the year ended December 31, 1998 were $17,207,618,
representing an increase of $7,458,374 or 77 % from 1997. The increase in
revenues resulted primarily from an increase in finance income of $8,332,118 or
135%, an increase in interest income and other of $239,207 or 204% and an
increase in income from leveraged leases of $130,270 or 10%. These increases
were partially offset by a decrease in net gain on sales from remarketing of
equipment of $1,054,679 or 60% and a decrease in income from equity investments
in joint ventures of $188,542 or 43%. The increase in finance income resulted
from an increase in the average size of the finance lease portfolio from 1997 to
1998. Interest income and other increased due to an increase in the average cash
balance from 1997 to 1998. Income from leveraged leases increased due to the
increase in the net investment in leveraged leases from 1997 to 1998. The net
gain on sales or remarketing of equipment decreased due to the prior year's
termination of the Partnership's residual interests in two offshore supply
vessels. The 1997 gain relating to the vessels totaled $1,709,610. The decrease
in income from equity investments in joint ventures decreased as a result of one
of the underlying joint ventures' increase in its provision for bad debts. In
December 1998, the Partnership entered into a new joint venture, however, there
were no revenues generated from such joint venture in 1998.
Expenses for the year ended December 31, 1998 were $14,518,442,
representing an increase of $7,418,778 or 104% from 1997. The increase in
expenses resulted primarily from an increase in interest expense of $4,397,798
or 120%, an increase in amortization of initial direct costs of $997,783 or
107%, an increase in management fees of $815,067 or 54%, an increase in the
provision for bad debts of $550,000 or 367%, an increase in administrative
expense reimbursements of $353,035 or 54%, an increase in general and
administrative fees of $304,959 or 164% and an increase in minority interest in
joint venture of $136 or 3%. Interest expense increased due to an increase in
the average debt outstanding from 1997 to 1998. Amortization of initial direct
costs, management fees, administrative expense
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
reimbursements and general and administrative expenses increased due to an
increase in the average size of the portfolio from 1997 to 1998. As a result of
an analysis of delinquency, assessment of overall risk and a review of
historical loss experience, the Partnership determined that a provision for bad
debt of $700,000 was required for the year ended December 31, 1998, compared to
$150,000 for 1997.
Net income for the years ended December 31, 1998 and 1997 was $2,689,176
and $2,649,580, respectively. The net income per weighted average limited
partnership unit was $3.29 and $6.34 for 1998 and 1997, respectively, weighted
from the date each unit was admitted to the Partnership.
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
$91,413,135, 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 venture 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 increase in the average size of the portfolio from
1996 to 1997. As a result of an analysis of delinquency, an assessment of
overall risk and a review of historical loss experience, the Partnership
determined that a provision for bad debt of $150,000 was required for the year
ended December 31, 1997. The increase in minority interest in joint venture
resulted from the Partnership's 1997 investment in joint ventures.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
Net income for the years 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 1998, 1997 and 1996 were cash
provided by operations of $535,582, $1,596,086 and $873,899, respectively,
capital contributions, net of offering expenses, of $37,935,017, $24,730,458 and
$23,834,251, respectively, and proceeds from sale of equipment of $4,903,647,
$7,315,408 and $0, respectively. These funds were used to purchase equipment and
pay cash distributions. The Partnership intends to purchase additional equipment
and fund cash distributions, utilizing cash from operations, proceeds from sales
of equipment and additional borrowings.
The Partnership's notes payable at December 31, 1998 and 1997 total
$137,072,754 and $105,837,767, respectively. These amounts consist of
$110,848,356 and $77,606,726 in non-recourse notes, respectively, and recourse
notes payable of $26,224,398 and $28,231,041, respectively, which relate to the
Partnership's investment in estimated unguaranteed residual values (see Note 4).
The Partnership and an affiliate, ICON Income fund Eight A L.P. ("Eight
A") entered into a joint line of credit agreement (the "Facility") with a lender
in December 1998. The maximum amount available under the Facility is $5,000,000.
The Facility is secured by eligible receivables and residuals and bears interest
at Prime plus a half percent. At December 31, 1998 the Partnership and Eight A
had $0 and $5,000,000, respectively, outstanding under the Facility.
In March 1997 the Partnership, ICON Cash Flow Partners, L.P., Series D
("Series D"), and ICON Cash Flow Partners L.P. Six ("L.P. Six"), contributed and
assigned equipment lease and finance receivables and residuals to ICON
Receivables 1997-A LLC ("1997-A"), a special purpose entity created for the
purpose of originating leases, managing existing contributed assets and
securitizing its portfolio. In September 1997 the Partnership, ICON Cash Flow
Partners, L.P., Series E ("Series E") and L.P. Six contributed and assigned
additional equipment lease and finance receivables and residuals to 1997-A. The
Partnership, Series D, Series E and L.P. Six received a 19.97%, 17.81%, 31.19%
and 31.03% interest, respectively, in 1997-A based on the present value of their
related contributions. In September 1997, 1997-A securitized substantially all
of its equipment leases and finance receivables and residuals. 1997-A became the
beneficial owner of a trust. The Partnership's original investment was recorded
at cost and is adjusted by its share of earnings, losses and distributions
thereafter.
In August 1997 the Partnership, Series E and L.P. Six formed ICON
Receivables 1997-B LLC ("1997-B"), a special purpose entity formed for the
purpose of originating leases and securitizing its portfolio. The Partnership,
Series E and L.P. Six contributed $500,000 (16.67% interest), $2,250,000 (75.00%
interest) and $250,000 (8.33% interest), respectively to 1997-B. In order to
fund the acquisition of leases, 1997-B obtained a warehouse borrowing facility
from Prudential Securities Credit Corporation (the "1997-B Warehouse Facility").
In October 1998, 1997-B completed an equipment securitization. The net proceeds
from the securitization of these assets were used to pay-off the remaining
1997-B Warehouse Facility balance and any remaining proceeds were distributed to
the 1997-B members in accordance with their membership interests. The
Partnership's original investment was recorded at cost and is adjusted by its
share of earnings, losses and distributions thereafter.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
December 31, 1998
In December 1998 the Partnership and three affiliates, ICON Cash Flow
Partners, L.P., Series C ("Series C"), L.P. Six and ICON Income Fund Eight A
L.P. ("Eight A") formed ICON Boardman Funding LLC, for the purpose of acquiring
a lease with Portland General Electric. The purchase price totaled $27,421,810,
and was funded with cash and non-recourse debt assumed in the purchase price.
The Partnership, Series C, L.P. Six and Eight A received a .5%, .5%, .5% and
98.5% interest, respectively, in the joint venture. The Partnership's original
investment was recorded at cost and is adjusted by its share of earnings, losses
and distributions, thereafter.
Cash distributions to the limited partners for the years ended December
31, 1998 and 1997, which were paid monthly totaled $8,692,479 and $4,147,829,
respectively of which $2,662,284 and $2,623,084 was investment income and
$6,030,195 and $1,524,745 was a return of capital, respectively. The monthly
annualized cash distribution rate to limited partners for the years ended
December 31, 1998 and 1997 was 10.75%, of which 3.29% and 6.34% was investment
income and 7.46% and 4.41% 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, 1998 and 1997 was $10.75, of which $3.29 and $6.34 was investment income and
$7.46 and $4.41 was a return of capital, respectively.
As of December 31, 1998, except as noted above, there were no known trends
or demands, commitments, events or uncertainties which are likely to have any
material effect on liquidity. As cash is realized from operations, sales of
equipment and borrowings, the Partnership will invest in equipment leases and
financings where it deems it to be prudent while retaining sufficient cash to
meet its reserve requirements and recurring obligations.
Year 2000 Issue
The Year 2000 issue arose because many existing computer programs have been
written using two digits rather than four to define the applicable year. As a
result, programs could interpret dates ending in "00" as the year 1900 rather
than the year 2000. In certain cases, such errors could result in system
failures or miscalculations that disrupt the operation of the affected
businesses.
The Partnership uses computer information systems provided by the General
Partner and has no computer information systems of its own. The software related
to the General Partner's primary computer information systems are provided by
third party vendors. The General Partner has formally communicated with these
vendors and has received assurance that their programs are Year 2000 compliant.
In addition, the General Partner has gathered information about the Year 2000
readiness of significant vendors and third-party servicers and continues to
monitor developments in this area. All of the General Partner's peripheral
computer technologies, such as its network operating system and third party
software applications, including payroll and electronic banking have been
evaluated and have been found to be Year 2000 compliant. The ultimate impact of
the Year 2000 issue on the Partnership will depend to a great extent on the
manner in which the issue is addressed by the Partnership's lessees. Each of the
Partnership's lessees will have a material self interest in resolving any Year
2000 issue, however, non-compliance on the part of a lessee could result in lost
or delayed revenues to the Partnership. The effect of this risk to the
Partnership is not determinable.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
December 31, 1998
The General Partner is responsible for costs relating to the assessment and
development of its Year 2000 compliance remediation plan, as well as the testing
of the hardware and software owned or licensed for its personal computers. The
General Partner's costs incurred to date and expected future costs are not
material.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Report 11
Consolidated Balance Sheets as of
December 31, 1998 and 1997 12-13
Consolidated Statements of Operations for the
Years Ended December 31, 1998, 1997 and 1996 14
Consolidated Statements of Changes in Partners'
Equity for the Years Ended
December 31, 1998, 1997 and 1996 15-16
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998, 1997 and 1996 17-19
Notes to Consolidated Financial Statements 20-29
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1998
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners
ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying consolidated balance sheets of ICON Cash Flow
Partners L.P. Seven (a Delaware limited partnership) as of December 31, 1998 and
1997, and the related statements of operations, changes in partners' equity, and
cash flows for each of the years in the three year period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ICON Cash Flow
Partners L.P. Seven as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the years in the three year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
-------------------------------------
KPMG LLP
March 12, 1999
New York, New York
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
1998 1997
---- ----
Assets
Cash ............................................... $ 3,899,054 $ 4,516,385
------------- -------------
Investment in finance leases
Minimum rents receivable ........................ 122,539,958 89,824,617
Estimated unguaranteed residual values .......... 77,403,065 33,168,213
Initial direct costs ............................ 3,943,900 2,851,751
Unearned income ................................. (39,516,143) (23,581,783)
Allowance for doubtful accounts ................. (868,450) (155,000)
------------- -------------
163,502,330 102,107,798
Investment in estimated unguaranteed residual values 31,718,541 31,718,541
------------- -------------
Net investment in leveraged leases ................. 12,568,089 11,146,488
------------- -------------
Investments in unconsolidated joint ventures ....... 1,490,820 1,828,453
------------- -------------
Investment in financings
Receivables due in installments ................. 2,357,992 906,283
Initial direct costs ............................ 5,169 16,480
Unearned income ................................. (620,501) (197,918)
Allowance for doubtful accounts ................. (8,772) (22,222)
------------- -------------
1,733,888 702,623
------------- -------------
Other assets ....................................... 1,474,518 1,046,031
------------- -------------
Total assets ....................................... $ 216,387,240 $ 153,066,319
============= =============
(continued on next page)
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Balance Sheets (Continued)
December 31,
1998 1997
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse ......................... $ 110,848,356 $ 77,606,726
Note payable - recourse .............................. 26,224,398 28,231,041
Accounts payable-equipment ........................... 501,318 1,011,196
Accounts payable - General Partner and affiliates, net 95,670 28,150
Security deposits, deferred credits and other payables 951,199 267,748
Minority interest in consolidated joint venture ...... 24,851 20,335
------------- -------------
138,645,792 107,165,196
Commitments and Contingencies
Partners' equity (deficiency)
General Partner ................................... (84,234) (23,323)
Limited partners (996,469.18 and 559,842.19 units
outstanding, $100 per unit original
issue price in 1998 and 1997, respectively) ..... 77,825,682 45,924,446
------------- -------------
Total partners' equity .......................... 77,741,448 45,901,123
------------- -------------
Total liabilities and partners' equity ............... $ 216,387,240 $ 153,066,319
============= =============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Revenues
Finance income ........................................ $14,487,893 $ 6,155,775 $ 939,924
Income from leveraged leases, net ..................... 1,421,601 1,291,331 366,790
Net gain on sales or remarketing of equipment ......... 694,111 1,748,790 --
Interest income and other ............................. 356,339 117,132 257,355
Income from investments in
unconsolidated joint ventures ....................... 247,674 436,216 --
----------- ----------- -----------
Total revenues ........................................ 17,207,618 9,749,244 1,564,069
----------- ----------- -----------
Expenses
Interest .............................................. 8,050,315 3,652,517 398,200
Management fees - General Partner ..................... 2,337,112 1,522,045 264,784
Amortization of initial direct costs .................. 1,929,906 932,123 230,785
Administrative expense
reimbursements - General Partner .................... 1,005,354 652,319 117,809
Provision for bad debts ............................... 700,000 150,000 75,000
General and administrative ............................ 491,239 186,280 72,040
Minority interest expense in consolidated joint venture 4,516 4,380 --
----------- ----------- -----------
Total expenses ........................................ 14,518,442 7,099,664 1,158,618
----------- ----------- -----------
Net income ............................................... $ 2,689,176 $ 2,649,580 $ 405,451
=========== =========== ===========
Net income allocable to:
Limited partners ...................................... $ 2,662,284 $ 2,623,084 $ 401,396
General Partner ....................................... 26,892 26,496 4,055
----------- ----------- -----------
$ 2,689,176 $ 2,649,580 $ 405,451
=========== =========== ===========
Weighted average number of limited
partnership units outstanding ......................... 808,650 413,677 156,222
=========== =========== ===========
Net income per weighted average
limited partnership unit .............................. $ 3.29 $ 6.34 $ 2.57
=========== =========== ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity
For the Years Ended December 31, 1998, 1997 and 1996
Limited Partner Distributions
-----------------------------
Return of Investment Limited General
Capital Income Partners Partner Total
--------- ---------- -------- ------- -----
(Per weighted average unit)
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)
Consolidated Statements of Changes in Partners' Equity (continued)
For the Years Ended December 31, 1998, 1997 and 1996
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
Proceeds from issuance
of limited partnership
units (438,528.99 units) 43,852,899 - 43,852,899
Sales and offering expenses (5,917,882) - (5,917,882)
Limited partnership units
redeemed (1,902 units) (3,586) - (3,586)
Cash distributions to partners $ 7.46 $ 3.29 (8,692,479) (87,803) (8,780,282)
Net income 2,662,284 26,892 2,689,176
----------- -------- -----------
Balance at
December 31, 1998 $77,825,682 $(84,234) $77,741,448
=========== ======== ===========
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
Net income ............................................... $ 2,689,176 $ 2,649,580 $ 405,451
------------ ------------ ------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Net gain on sales or remarketing of equipment .......... (694,111) (1,748,790) --
Finance income portion of receivables
paid directly to lenders by lessees .................. (12,717,263) (5,912,799) (608,965)
Amortization of initial direct costs ................... 1,929,906 932,123 230,785
Interest expense on non-recourse
financings paid directly by lessees .................. 7,701,737 3,463,617 395,645
Income from leveraged leases, net ...................... (1,421,601) (1,291,331) (366,790)
Income from investments in
unconsolidated joint ventures ........................ (247,674) (436,216) --
Minority interest expense in consolidated joint venture 4,516 4,380 --
Changes in operating assets and liabilities:
Allowance for doubtful accounts ...................... 700,000 102,222 75,000
Other assets ......................................... 104,423 (703,491) (148,941)
Distributions received from
unconsolidated joint ventures ...................... 1,076,141 5,258,223 --
Investments in unconsolidated joint ventures ......... (490,834) (1,259,244) (100,000)
Account payable to General Partner and affiliates, net 67,520 (410,147) 438,297
Collection of principal
- non-financed receivables ......................... 1,095,505 516,966 498,027
Minority interest in joint venture ................... -- -- 15,955
Security deposits, deferred credits and other payables 683,451 207,446 60,303
Other, net ........................................... 54,690 223,547 (20,868)
------------ ------------ ------------
Total adjustments .................................. (2,153,594) (1,053,494) 468,448
------------ ------------ ------------
Net cash provided by operating activities ............ 535,582 1,596,086 873,899
------------ ------------ ------------
Cash flows from investing activities:
Equipment and receivables purchased ...................... (29,291,730) (20,121,149) (19,898,183)
Proceeds from sale of equipment .......................... 4,903,647 7,315,408 --
Initial direct costs ..................................... (3,268,593) (3,363,765) (2,737,818)
------------ ------------ ------------
Net cash used in investing activities ................ (27,656,676) (16,169,506) (22,636,001)
------------ ------------ ------------
(continued on next page)
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31,
1998 1997 1996
---- ---- ----
Cash flows from financing activities:
Issuance of limited partnership units,
net of offering expenses ...................... 37,935,017 24,730,458 23,834,251
Cash distributions to partners .................. (8,780,282) (4,188,954) (1,374,848)
Redeemed units .................................. (3,586) -- --
Principal payments on notes payable - recourse .. (2,250,000) (2,150,000) --
Principal payments on note payable - non-recourse (397,386) -- --
Proceeds from affiliate loan .................... -- 4,250,000 --
Principal payments on loans from affiliate ...... -- (4,250,000) --
Refund of initial limited partners'
capital contribution .......................... -- -- (1,000)
------------ ------------ ------------
Net cash provided by financing activities ... 26,503,763 18,391,504 22,458,403
------------ ------------ ------------
Net increase (decrease) in cash .................... (617,331) 3,818,084 696,301
Cash at beginning of year .......................... 4,516,385 698,301 2,000
------------ ------------ ------------
Cash at end of year ................................ $ 3,899,054 $ 4,516,385 $ 698,301
============ ============ ============
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
Interest expense of $8,050,315, $3,652,517 and $398,200 for the years
ended December 31, 1998, 1997 and 1996 consisted of: interest expense on
non-recourse financings paid or accrued to lenders by lessees of $7,701,737,
$3,463,617 and $395,645, respectively, and other interest of $348,578, $188,900
and $2,555, respectively.
For the years ended December 31, 1998, 1997 and 1996, non-cash activities
included the following:
1998 1997 1996
---- ---- ----
Fair value of equipment and receivables
purchased for debt and payables $ (63,334,912) $ (106,011,532) $ (59,189,952)
Non-recourse and recourse notes payable
assumed in purchase price 62,833,594 105,000,336 57,399,235
Accounts payable - equipment 501,318 1,011,196 1,790,717
Principal and interest on
finance receivables paid directly
to lenders by lessees 35,688,131 17,766,016 3,625,762
Principal and interest on non-recourse
financings paid directly to lenders
by lessees (35,688,131) (17,766,016) (3,625,762)
Decrease in investment in finance leases due
to terminations 1,208,183 6,025,115 -
Decrease in notes payable non-recourse
due to terminations (1,208,183) (6,025,115) -
Decrease in investments in finance leases and
financings due to contribution to
unconsolidated joint ventures - 5,391,216 -
Increase in investments in
unconsolidated joint ventures - (5,391,216) -
------------- -------------- --------------
$ - $ - $ -
============= ============== ==============
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1998
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May
23, 1995 as a Delaware limited partnership. The Partnership's maximum offering
was $100,000,000. The Partnership commenced business operations on its initial
closing date, January 19, 1996 with the admission of 26,367.95 limited
partnership units at $100 per unit representing $2,636,795 of capital
contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units
were admitted representing $24,917,252 of capital contributions, in 1997,
285,927.35 units were admitted representing $28,592,735 of capital contributions
and from January 1, 1998 through September 16, 1998 (the final closing date)
438,528.99 units were admitted representing $43,852,899 of capital
contributions. The Partnership redeemed 1,902 and 1,625.63 partnership units in
1998 and 1997, respectively, leaving 996,469.18 limited partnership units
outstanding at December 31, 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, received an
underwriting commission on the gross proceeds from sales of all units. The total
underwriting compensation paid by the Partnership, including underwriting
commissions, sales commissions, incentive fees, public offering expense
reimbursements and due diligence activities is limited to 13 1/2% of the gross
proceeds received from the sale of the units. Such offering expenses aggregated
$13,499,957, including $5,499,981 paid to the General Partner or its affiliates,
and such costs charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be
allocated 99% to the limited partners and 1% to the General Partner until each
limited partner has received cash distributions and disposition proceeds
sufficient to reduce its adjusted capital contribution account to zero and
receive, in addition, other distributions and allocations which would provide a
10% per annum cumulative return, compounded daily, on its outstanding adjusted
capital contribution account. After such time, the distributions will be
allocated 90% to the limited partners and 10% to the General Partner.
2. Significant Accounting Policies
Basis of Accounting and Presentation - The Partnership's records are
maintained on the accrual basis. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made to prior years' statements to
conform to the 1998 presentation.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiary, ICON Cash Flow Partners
L.L.C. III. All inter-company accounts and transactions have been eliminated.
The Partnership accounts for its interests in less than 50% owned joint ventures
under the equity method of accounting. In such cases, the Partnership's original
investments are recorded at cost and adjusted for its share of earnings, losses
and distributions thereafter.
Leases - The Partnership accounts for owned equipment leased to third
parties as finance leases or leveraged leases, as appropriate. For finance
leases, the Partnership records, at the inception of the lease, the total
minimum lease payments receivable, the estimated unguaranteed residual values,
the initial direct costs related to the leases and the related unearned income.
Unearned income represents the difference between the sum of the minimum lease
payments receivable plus the estimated unguaranteed residual minus the cost of
the leased equipment. Unearned income is recognized as finance income over the
terms of the related leases using the interest method. The Partnership's net
investment in leveraged leases consists of minimum lease payments receivable,
the estimated unguaranteed residual values and the initial direct costs related
to the leases, net of the unearned income and principal and interest on the
related non-recourse debt. Unearned income is recognized as income from
leveraged leases over the life of the lease at a constant rate of return on the
positive net investment. Initial direct costs of finance leases and leverage
leases are capitalized and are amortized over the terms of the related leases
using the interest method. The Partnership's leases have terms ranging from two
to five years. Each lease is expected to provide aggregate contractual rents
that, along with residual proceeds, return the Partnership's cost of its
investments along with investment income.
Investment in Estimated Unguaranteed Residual Values - In December 1996,
the Partnership purchased an option to acquire an interest in a drilling rig.
The Partnership exercised its option at the time of purchase and became the 50%
owner of the future estimated unguaranteed residual. In July 1997, the
Partnership purchased options to acquire the interests in three Boeing 737-300
aircraft. The Partnership exercised its options at the time of purchase and
became the owner of the future estimated unguaranteed residuals. The assets are
carried at cost (which is at least equal to or less than market value) until
sale or release of the equipment, at which time a gain or loss will be
recognized on each transaction. No income will be recognized until the
underlying equipment is sold or released. (See Note 4 for discussion of
investment in estimated unguaranteed residual value).
Investment in Financings - Investment in financings represent the gross
receivables due from the financing of equipment plus the initial direct costs
related thereto less the related unearned income. The unearned income is
recognized as finance income, and the initial direct costs are amortized, over
the terms of the receivables using the interest method. Financing transactions
are supported by a written promissory note evidencing the obligation of the user
to repay the principal, together with interest, which will be sufficient to
return the Partnership's full cost associated with such financing transaction,
together with some investment income. Furthermore, the repayment obligation is
collateralized by a security interest in the tangible or intangible personal
property.
Disclosures About Fair Value of Financial Instruments - Statement of
Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value
of Financial Instruments" requires disclosures about the fair value of financial
instruments, except for lease related instruments. Separate disclosure of fair
value information as of December 31, 1998 and 1997 with respect to the Company's
assets and liabilities is not provided because (i) SFAS No. 107 does not require
disclosures about the fair value of lease arrangements and (ii) the carrying
value of financial assets, other than lease related investments, and
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
certain payables approximates market value and (iii) fair value information
concerning certain non-recourse debt obligations is not practicable to estimate
without incurring excessive costs to obtain all the information that would be
necessary to derive a market rate.
Allowance for Doubtful Accounts - The Partnership records a provision for
bad debts to provide for estimated credit losses in the portfolio. The allowance
for doubtful accounts is based on an analysis of delinquency, an assessment of
overall risk and a review of historical loss experience. The Partnership's
write-off policy is based on an analysis of the aging of the Partnership's
portfolio, a review of the non-performing receivables and leases, and prior
collection experience. An account is fully reserved for or written off when the
analysis indicates that the probability of collection of the account is remote.
Impairment of Estimated Residual Values - In March 1995 the Financial
Accounting Standards Board ("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.
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 1998 the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that an entity recognize all derivative instruments as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 is effective for all quarters of fiscal years beginning after June
15, 1999. The adoption of SFAS No. 133 is not expected to have a material effect
on the Partnership's net income, partners' equity or total assets.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
3. Investments in Joint Ventures
The Partnership and affiliates formed four joint ventures for the purpose
of acquiring and managing various assets.
The joint venture described below is majority owned and is consolidated
with the Partnership.
ICON Cash Flow Partners L.L.C. III
On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow
Partners, L.P., Series E ("Series E") formed ICON Cash Flow Partners L.L.C. III
("ICON Cash Flow LLC III"), for the purpose of acquiring and managing an
aircraft currently on lease to Continental Airlines, Inc. The aircraft is a 1976
McDonnell Douglas DC-10-30 and cost $11,429,751. The lease is a leveraged lease
and the lease term expires in March 2003 (see Note 6). Profits, losses, excess
cash and disposition proceeds are allocated 99% to the Partnership and 1% to
Series E. The Partnership's financial statements include 100% of the assets and
liabilities of ICON Cash Flow LLC III. Series E's investment in ICON Cash Flow
LLC III has been reflected as "Minority interest in joint venture."
The three joint ventures described below are less than 50% owned and are
accounted for following the equity method.
ICON Receivables 1997-A L.L.C.
In March 1997 the Partnership, ICON Cash Flow Partners, L.P., Series D
("Series D"), and ICON Cash Flow Partners L.P. Six ("L.P. Six"), contributed and
assigned equipment lease and finance receivables and residuals to ICON
Receivables 1997-A L.L.C. ("1997-A"), a special purpose entity created for the
purpose of originating leases, managing existing contributed assets and
securitizing its portfolio. In September 1997 the Partnership, Series E and L.P.
Six contributed and assigned additional equipment lease and finance receivables
and residuals to 1997-A. The Partnership, Series D, Series E and L.P. Six
received a 19.97%, 17.81%, 31.19% and 31.03% interest, respectively, in 1997-A
based on the present value of their related contributions. The Partnership's
contributions amounted to $5,391,216 in assigned leases and $275,000 of cash in
1997 and $105,719 of cash in 1998. In September 1997, 1997-A securitized
substantially all of its equipment leases and finance receivables and residuals.
1997-A became the beneficial owner of a trust. The Partnership's original
investment was recorded at cost and is adjusted by its share of earnings, losses
and distributions thereafter.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of
1997-A as of and for the year ended December 31, 1998 and 1997 is summarized
below:
December 31, 1998 December 31, 1997
Assets $ 31,845,710 $ 50,911,005
=============== =============
Liabilities $ 27,065,004 $ 45,143,569
=============== =============
Equity $ 4,780,706 $ 5,767,436
=============== =============
Partnership's share of equity $ 1,097,916 $ 1,294,917
=============== =============
Year Ended Year Ended
December 31, 1998 December 31, 1997
Net income $ 1,050,957 $ 1,298,430
=============== =============
Partnership's share of net income $ 209,824 $ 402,680
=============== =============
Distributions $ 2,367,147 $ 33,965,442
=============== =============
Partnership's share of distributions $ 512,544 $ 5,258,223
=============== =============
ICON Receivables 1997-B L.L.C.
In August 1997 the Partnership, Series E and L.P. Six formed ICON
Receivables 1997-B L.L.C. ("1997-B"), a special purpose entity formed for the
purpose of originating leases and securitizing its portfolio. The Partnership,
Series E and L.P. Six contributed cash and received a 16.67%, 75.00% and 8.33%
interest, respectively, in 1997-B. The Partnership's cash contributions amounted
to $500,000 in 1997 and $328,155 in 1998. In order to fund the acquisition of
leases, 1997-B obtained a warehouse borrowing facility from Prudential
Securities Credit Corporation (the "1997-B Warehouse Facility"). In October
1998, 1997-B completed an equipment securitization. The net proceeds from the
securitization of these assets were used to pay-off the remaining 1997-B
Warehouse Facility balance and any remaining proceeds were distributed to the
1997-B members in accordance with their membership interests. The Partnership's
original investment was recorded at cost and is adjusted by its share of
earnings, losses and distributions thereafter.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of
1997-B as of and for the year ended December 31, 1998 and 1997 is summarized
below:
December 31, 1998 December 31, 1997
----------------- -----------------
Assets $ 39,665,292 $ 18,209,360
================ ===============
Liabilities $ 37,649,430 $ 15,008,185
================ ===============
Equity $ 2,015,862 $ 3,201,175
================ ===============
Partnership's share of equity $ 335,944 $ 533,536
================ ===============
Year Ended Year Ended
December 31, 1998 December 31, 1997
----------------- -----------------
Net income $ 227,057 $ 201,175
================ ===============
Partnership's share of net income $ 37,850 $ 33,536
================ ===============
Distributions $ 3,380,904 $ -
================ ===============
Partnership's share of distributions $ 563,597 $ -
================ ===============
ICON Boardman Funding L.L.C.
In December 1998 the Partnership and three affiliates, ICON Cash Flow
Partners, L.P., Series C ("Series C"), L.P. Six and ICON Income Fund Eight A
L.P. ("Eight A") formed ICON Boardman Funding L.L.C. ("ICON BF"), for the
purpose of acquiring a lease with Portland General Electric. The purchase price
totaled $27,421,810, and was funded with cash and non-recourse debt assumed in
the purchase price. The Partnership, Series C, L.P. Six, and Eight A received a
.5%, .5%, .5% and 98.5% interest, respectively, in ICON BF. The Partnership's
original investment was recorded at cost of $56,960 and will be adjusted by its
share of earnings, losses and distributions, thereafter. Simultaneously with the
acquisition of the Portland General Electric lease by ICON BF, the rent in
excess of the senior debt payments was acquired by L.P. Six for $3,801,108.
Information as to the financial position of ICON BF as of December 31, 1998
is summarized below:
December 31, 1998
-----------------
Assets $ 23,620,702
===============
Liabilities $ 12,228,713
===============
Equity $ 11,391,989
===============
Partnership's share of equity $ 56,960
===============
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
There was no income statement impact of this joint venture in 1998 as the
joint venture was formed at the end of the year.
4. Investment in Estimated Unguaranteed Residual Values
In December 1996, the Partnership purchased a 50% share of an option to
acquire the 100% interest in a drilling rig, currently on lease to Rowan
Companies, Inc. The Partnership exercised its option at the time of purchase and
became the 50% owner of the future estimated unguaranteed residual. The residual
investment cost $12,325,000 and the lease to Rowan Companies, Inc. expires in
September 2000 at which time the Partnership will be entitled to the residual.
In July 1997, the Partnership purchased options to acquire the 100%
interests in three Boeing 737-300 aircraft, currently on lease with Continental
Airlines. The Partnership exercised its options at the time of purchase and
became the 100% owner of the future estimated unguaranteed residuals. The
residual investments cost $19,393,541 and the leases for each aircraft expire in
August, October and November 2003 at which time the Partnership will be entitled
to the residuals.
5. Gain on Disposal of Residual Interest
In December 1997 the Partnership disposed of its residual interest in two
offshore supply vessels. The disposal of the residual interest occurred in
connection with the sale of the vessels to a third party. The vessels had
previously been chartered by a subsidiary of Occidental Petroleum, Inc. The
Partnership recognized a $1,709,610 gain upon disposal of its interest in
December 1997.
6. Net Investment in Leveraged Leases
In August 1996, the Partnership acquired, subject to a leveraged lease, the
residual interest in an aircraft on lease with Federal Express. The aircraft is
a McDonnell Douglas DC-10-30F built in 1986, and the lease expires in July 2004.
The purchase price was $40,973,585.
In December 1996, the Partnership and an affiliate (see Note 3) acquired,
subject to a leveraged lease, an aircraft on lease with Continental Airlines,
Inc. The aircraft is a McDonnell Douglas DC-10-30 built in 1976, and the lease
expires in March 2003. The purchase price was $11,429,751.
The net investment in the leveraged leases as of December 31, 1998 consisted of
the following:
Non-cancelable minimum rents receivable (net of
principal and interest on non-recourse debt) $ 910,000
Estimated unguaranteed residual values ........ 20,818,001
Initial direct costs .......................... 977,393
Unearned income ............................... (10,137,305)
------------
$ 12,568,089
Unearned income is recognized from leveraged leases over the life of the
lease at a constant rate of return based on the positive net investment in the
lease in years such investment is positive.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Non-cancelable minimum rents receivable relating to the leveraged leases
at December 31, 1998 are $47,868,154 while principal and interest on
non-recourse debt assumed in the purchase of the leveraged leases is $46,958,154
at December 31, 1998.
Rents Due Debt Payments
--------- -------------
1999 $ 7,742,360 $ 7,742,360
2000 8,022,359 7,742,359
2001 8,022,359 7,742,359
2002 8,022,359 7,742,359
2003 6,248,358 6,178,358
Thereafter 9,810,359 9,810,359
----------- -----------
$47,868,154 $46,958,154
=========== ===========
Simultaneously with the acquisition of the Federal Express transaction,
the rent in excess of the senior debt payments and a portion of the residual
value thereof was acquired by an affiliated partnership, Series D for
$11,503,251. A portion of this investment by Series D was later refinanced.
7. Receivables Due in Installments
Non-cancelable minimum annual amounts due on finance leases and financings
are as follows:
Finance
Year Leases Financings Total
1999 $ 52,684,758 $ 469,877 $ 53,154,635
2000 38,450,524 459,400 38,909,924
2001 22,019,616 438,466 22,458,082
2002 6,388,514 411,740 6,800,254
2003 1,684,397 508,350 2,192,747
Thereafter 1,312,149 70,159 1,382,308
------------ ------------ ------------
$122,539,958 $ 2,357,992 $124,897,950
============ ============ ============
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
8. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in finance
leases and financings consisted of the following:
Finance
Leases Financings Total
Balance at December 31, 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
Charged to operations ...... 713,450 (13,450) 700,000
--------- --------- ---------
Balance at December 31, 1998 $ 868,450 $ 8,772 $ 877,222
========= ========= =========
9. Notes Payable
Notes payable consists of non-recourse notes payable of $110,848,356 (of
which $109,063,850 is being paid directly to the lenders by the lessees and
$1,784,506 is being paid from proceeds received from an individual lease) and
recourse notes payable of $26,224,398, which relate to the Partnership's
investment estimated in unguaranteed residual values (see Note 4). The notes
bear interest at rates ranging from 6.5% to 9.4% and mature as follows:
Notes Payable Note Payable
Year Non-Recourse Recourse Total
---- ------------ ------------ -----
1999 $ 39,192,106 $ 2,250,000 $ 41,442,106
2000 30,573,731 5,575,000 36,148,731
2001 26,936,354 -- 26,936,354
2002 12,077,636 -- 12,077,636
2003 1,085,351 18,399,398 19,484,749
Thereafter 983,178 -- 983,178
------------ ------------ ------------
$110,848,356 $ 26,224,398 $137,072,754
============ ============ ============
The Partnership and an affiliate, ICON Income fund Eight A L.P. ("Eight A")
entered into a joint line of credit agreement (the "Facility") with a lender in
December 1998. The maximum amount available under the Facility is $5,000,000.
The Facility is secured by eligible receivables and residuals and bears interest
at Prime plus a half percent. At December 31, 1998 the Partnership and Eight A
had $0 and $5,000,000, respectively, outstanding under the Facility.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
10. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General
Partner or its affiliates for the years ended December 31, 1998, 1997 and 1996
were as follows:
Charged to Charged to
Equity Capitalized Operations
---------- ----------- ----------
Underwriting commissions ............ $ 551,081 $ -- $ --
Organization and offering expenses .. 964,392 -- --
Acquisition fees .................... -- 2,737,818 --
Management fees ..................... -- -- 264,784
Administrative expense reimbursements -- -- 117,809
---------- ---------- ----------
Year ended December 31, 1996 ........ $1,515,473 $2,737,818 $ 382,593
========== ========== ==========
Underwriting commissions ............ $ 571,855 $ -- $ --
Organization and offering expenses .. 1,000,744 -- --
Acquisition fees .................... -- 3,363,765 --
Management fees ..................... -- -- 1,522,045
Administrative expense reimbursements -- -- 652,319
---------- ---------- ----------
Year ended December 31, 1997 ........ $1,572,599 $3,363,765 $2,174,364
========== ========== ==========
Underwriting commissions ............ $ 877,058 $ -- $ --
Organization and offering expenses .. 1,534,851 -- --
Acquisition fees .................... -- 3,268,593 --
Management fees ..................... -- -- 2,337,112
Administrative expense reimbursements -- -- 1,005,354
---------- ---------- ----------
Year ended December 31, 1998 ........ $2,411,909 $3,268,593 $3,342,466
========== ========== ==========
The Partnership and an affiliate, Eight A entered into a joint line of
credit agreement with a lender in December 1998. (See Note 9 for additional
information relating to the line of credit.)
The Partnership and affiliates formed four joint ventures for the purpose
of acquiring and managing various assets. (See Note 3 for additional information
relating to the joint ventures.)
On March 11, 1997, the Partnership borrowed $4,250,000 from 1997-A, an
affiliate of the Partnership. The note was a short term note, bore interest at
Libor plus 1.5% and was paid in September 1997, from the Partnership's share of
securitization proceeds.
ICON Cash Flow Partners L. P. Seven
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
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,
1998 the Partnership paid $16,084 to third parties as their share of such
proceeds.
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, 1998:
1998 1997 1996
---- ---- ----
Net income per financial statements $ 2,689,176 $ 2,649,580 $ 405,451
Differences due to:
Direct finance leases ........... 20,348,042 9,376,627 (258,725)
Depreciation .................... (30,292,366) (11,358,603) --
Provision for losses ............ 700,000 102,222 --
Loss on sale of equipment ....... 309,189 759,191 --
Other ........................... 739,462 806,922 --
------------ ------------ ------------
Partnership income for
federal income tax purposes ...... $ (5,506,497) $ 2,335,939 $ 146,726
============ ============ ============
As of December 31, 1998, the partners' capital accounts included in the
financial statements totaled $77,741,448 compared to the partners' capital
accounts for federal income tax purposes of $81,576,470 (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, 1998
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 leases and full
financing transactions.
The manager of the Partnership's business is the General Partner. The
General Partner is engaged in a broad range of equipment leasing and financing
activities. Through its sales representatives and through various broker
relationships throughout the United States, the General Partner offers a broad
range of equipment leasing services.
The General Partner will perform certain functions relating to the
management of the equipment of the Partnership. Such services include the
collection of lease payments from the lessees of the equipment, re-leasing
services in connection with equipment which is off-lease, inspections of the
equipment, liaison with and general supervision of lessees to assure that the
equipment is being properly operated and maintained, monitoring performance by
the lessees of their obligations under the leases and the payment of operating
expenses.
The officers and directors of the General Partner are as follows:
Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Paul B. Weiss President and Director
Thomas W. Martin Executive Vice President and Director
Kevin F. Redmond Chief Financial Officer
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
Item 10. Continued
Beaufort J. B. Clarke, age 53, is Chairman, 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 20 years of senior management experience
in the United States leasing industry.
Paul B. Weiss, age 38, is President and Director 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). He was previously an investment banker and a commercial banker.
Thomas W. Martin, age 45, is Executive Vice President of the General
Partner and Director of 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 14 years of senior management experience in
the leasing business.
Kevin F. Redmond, age 36, is Chief Financial Officer of both the General
Partner and the Dealer-Manager. Prior to his present position, Mr. Redmond was
Vice President and Controller of the General Partner, Manager of Accounting at
NationsCredit Corp. and Audit Manager with the accounting firm of Deloitte &
Touche.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
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, 1998 and 1997.
Entity Capacity Type of Compensation 1998 1997 1996
------ -------- -------------------- ---- ---- ----
ICON Capital Corp. General Partner Organization and
offering expenses $1,534,851 $1,000,744 $ 964,392
ICON Capital Corp. Manager Acquisition fees 3,268,593 3,363,765 2,737,818
ICON Capital Corp. General Partner Management fees 2,337,112 1,522,045 264,784
ICON Securities Corp. Dealer-Manager Underwriting
commissions 877,058 571,855 551,081
ICON Capital Corp. General Partner Administrative expense
reimbursements 1,005,354 652,319 117,809
---------- ---------- ----------
$9,022,968 $7,110,728 $4,635,884
========== ========== ==========
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 15, 1999, 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 Percent
of Class Amount Beneficially Owned of Class
-------- ---------------------------------------------- --------
General Partner Represents initially a 1% and potentially a 100%
Interest 10% interest in the Partnership's income, gain
and loss deductions.
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of the Partnership's related party
transactions. See Note 3 for a discussion of the Partnership's related party
investments in joint ventures.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set
forth therein is included in the Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Form of Dealer-Manager Agreement (Incorporated by reference to Exhibit
1.1 to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458
filed with the Securities and Exchange Commission on November 9, 1995)
(ii) Form of Selling Dealer Agreement (Incorporated by reference to Exhibit
1.2 to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458
filed with the Securities and Exchange Commission on November 9, 1995)
(iii)Amended and Restated Agreement of Limited Partnership (Incorporated
herein by reference to Exhibit A to Amendment No. 3 to Form S-1
Registration Statement No. 33-94458 filed with the Securities and
Exchange Commission on November 9, 1995)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter
ended December 31, 1998.
ICON Cash Flow Partners L.P. Seven
(A Delaware Limited Partnership)
December 31, 1998
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 31,1999 /s/ Beaufort J.B. Clarke
--------------------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated.
ICON Capital Corp.
sole General Partner of the Registrant
Date: March 31, 1999 /s/ Beaufort J.B. Clarke
--------------------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: March 31, 1999 /s/ Paul B. Weiss
--------------------------------------------------
Paul B. Weiss
President and Director
Date: March 31, 1999 /s/ Kevin F. Redmond
--------------------------------------------------
Kevin F. Redmond
Chief Financial Officer
(Principal Financial and Account 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.