UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended September 30, 2004
--------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from _______________________ to ____________________
Commission File Number 000-50654
ICON Income Fund Ten, LLC
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(Exact name of registrant as specified in its charter)
Delaware 35-2193184
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
100 Fifth Avenue, 10th floor, New York, New York 10011-1505
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(Address of principal executive offices) (Zip Code)
(212) 418-4700
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Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [x] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2004 2003
---- ----
Assets
Cash and cash equivalents $ 36,873,936 $ 15,908,041
Investments in operating leases:
Equipment, at cost 81,458,147 2,880,000
Accumulated depreciation (4,109,572) (219,423)
-------------- ------------
77,348,575 2,660,577
-------------- -------------
Escrow deposits 976,000 -
Equipment held for sale or lease, net 503,108 665,321
Prepaid service fees, net 4,328,238 1,417,995
Due from affiliates 168,593 38
Investments in joint ventures 377,607 -
Other assets 132,482 -
-------------- -------------
Total assets $ 120,708,539 $ 20,651,972
============== =============
Liabilities and Members' Equity
Notes payable - non-recourse $ 50,062,856 $ -
Security deposits and other liabilities 570,604 233,524
Deferred rental income 1,226,528 -
Member refunds payable 45,000 203,000
Due to Manager and affiliates 151,909 50,159
Minority interest 1,304,679 -
-------------- -------------
Total liabilities 53,361,576 486,683
-------------- --------------
Commitments and Contingencies
Members' equity:
Manager (one share outstanding,
$1,000 per share original issue price) (52,656) (3,092)
Additional members (83,427.834 and 23,784.330 shares
outstanding, $1,000 per share original issue price) 67,399,619 20,168,381
-------------- -------------
Total members' equity 67,346,963 20,165,289
-------------- -------------
Total liabilities and members' equity $ 120,708,539 $ 20,651,972
============== =============
See accompanying notes to consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Operations
(Unaudited)
For the Period For the Period
For the Three from For the Nine from
Months Ended August 22, 2003 Months Ended August 22, 2003
September 30, (Commencement September 30, (Commencement
2004 of Operations) 2004 of Operations)
---- to ---- to
September 30, 2003 September 30, 2003
------------------ ------------------
Revenues:
Rental income $ 3,736,412 $ 91,930 $ 6,520,570 $ 91,930
Interest income - 2,856 - 2,856
Net gain on sale of equipment - - 18,893 -
Income from investment in joint venture 3,275 - 3,275 -
--------------- ---------------- --------------- -------------
Total revenues 3,739,687 94,786 6,542,738 94,786
--------------- --------------- --------------- ------------
Expenses:
Depreciation expense 3,029,065 68,525 5,383,047 68,525
Amortization of prepaid service fees 458,584 - 968,844 -
Interest 688,135 - 886,008 -
Management fees - Manager 192,407 - 460,101 -
Administrative expense reimbursements
- Manager 319,220 - 850,571 -
General and administrative 50,977 30,647 98,124 30,647
Minority interest 11,094 - 28,186 -
--------------- ---------------- --------------- -------------
Total expenses 4,749,482 99,172 8,674,881 99,172
--------------- ---------------- --------------- --------------
Net loss $ (1,009,795) $ (4,386) $ (2,132,143) $ (4,386)
=============== ================ =============== =============
Net loss allocable to:
Managing member $ (10,098) $ (44) $ (21,321) $ (44)
Additional members (999,697) (4,342) (2,110,822) (4,342)
--------------- ---------------- --------------- -------------
$ (1,009,795) $ (4,386) $ (2,132,143) $ (4,386)
=============== ================ =============== ==============
Weighted average number of
additional members shares 70,350 7,259 49,674 7,259
============== ================ =============== =============
Net loss per weighted average
additional members share $ (14.21) $ (.60) $ (42.49) $ (.60)
=============== ================ =============== =============
See accompanying notes to consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statement of Changes in Members' Equity
For the Nine Months Ended September 30, 2004
(Unaudited)
Additional Members' Distributions
---------------------------------
Return of Investment Additional Managing
Capital Income Members Member Total
------- ------ ------- ------ -----
(Per weighted average share)
Balance at January 1, 2004 $ 20,168,381 $ (3,092) $ 20,165,289
Proceeds from issuance of additional
member shares (59,678.505 shares) 59,678,505 - 59,678,505
Sales and offering expenses (7,512,310) - (7,512,310)
Additional member shares redeemed (33,896) - (33,896)
Cash distributions to members $ 56.17 $ - (2,790,239) (28,243) (2,818,482)
Net loss (2,110,822) (21,321) (2,132,143)
--------------- ------------ --------------
Balance at September 30, 2004 $ 67,399,619 $ (52,656) $ 67,346,963
=============== ============= ==============
See accompanying notes to consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Cash Flows
(Unaudited)
For the Period
from August 22, 2003
For The Nine (Commencement
Months Ended of Operations)
September 30, to September 30,
2004 2003
---- ----
Cash flows from operating activities:
Net loss $ (2,132,143) $ (4,386)
--------------- ---------------
Adjustments to reconcile net loss to
net cash provided by operating activities:
Rental income paid directly to lenders by lessees (4,700,646) -
Interest expense on non-recourse financing paid directly
to lenders by lessees 886,008 -
Depreciation expense 5,383,047 68,525
Amortization of prepaid service fees 968,844 -
Gain on sale of equipment (18,893) -
Income from investment in joint venture (3,275) -
Minority interest 28,186 -
Changes in operating assets and liabilities:
Other assets (132,482) -
Security deposits and other liabilities 150,231 -
Deferred rental income 478,262 -
Due to Manager and affiliates, net 99,470 174,929
--------------- ---------------
Total adjustments 3,138,752 243,454
--------------- ---------------
Net cash provided by operating activities 1,006,609 239,068
--------------- ---------------
Cash flows from investing activities:
Investments in operating leases,
net of security deposits assumed (29,857,650) (2,730,000)
Investment in equipment held for sale or lease - (720,000)
Prepaid services fees paid (3,879,087) -
Proceeds from sale of equipment 61,000 -
Sale of interest in joint venture 2,130,604 -
--------------- ---------------
Net cash used in investing activities (31,545,133) (3,450,000)
--------------- ---------------
Cash flows from financing activities:
Issuance of additional members shares, net of
sales and offering expenses paid 52,166,195 7,486,479
Cash distributions to members (2,818,482) (44,237)
Member shares redeemed (33,896) -
Minority interest contribution in consolidated joint venture 2,348,602 -
Member refunds payable (158,000) -
-------------- --------------
Net cash provided by financing activities 51,504,419 7,442,242
-------------- --------------
Net increase in cash and cash equivalents 20,965,895 4,231,310
Cash and cash equivalents at beginning of period 15,908,041 1,000
-------------- --------------
Cash and cash equivalents at end of period $ 36,873,936 $ 4,232,310
============== ==============
(continued on next page)
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
Supplemental disclosures of non-cash investing and financing activities:
- ------------------------------------------------------------------------
For The Period
From August 22, 2003
For The Nine (Commencement Of
Months Ended Operations) to
September 30, September 30,
2004 2003
---- ----
Non-cash portion of equipment purchased $ 70,057,207 $ -
Non-recourse notes assumed in purchase of operating leases (70,057,207) -
---------------- -----------------
$ - $ -
================ =================
Equipment transferred in connection with $ (15,216,101) $ -
the execution of an option agreement
Non-recourse notes transferred in connection with
the execution of an option agreement 15,216,101 -
----------------- ------------------
$ - $ -
------------------ -----------------
Other liabilities assumed in connection with
the acquisition of equipment $ (152,849) -
================= ==================
Rental income from operating leases
paid directly to lender by lessee $ 4,700,646 $ -
Deferred rental income on operating leases
paid directly to lenders by lessees, net 919,431 -
Principal and interest on non-recourse debt paid directly
to lenders by lessees (5,620,077) -
----------------- ------------------
$ - $ -
================= =================
Interest expense on non-recourse financing accrued
or paid directly to lenders by lessees $ 886,008 $ -
================= =================
See accompanying notes to condensed consolidated financial statements.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
1. Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") for Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
included in the LLC's 2003 Annual Report on Form 10-K. The results for the
interim period are not necessarily indicative of the results for the full year.
The accompanying consolidated financial statements include the accounts of
ICON Income Fund Ten, LLC and its ownership interest in ICON GeicJV at September
30, 2004 and for the period April 30, 2004 through September 30, 2004 and ICON
Aircraft 46837, LLC for the period from April 1, 2004 to June 30, 2004. All
intercompany balances and transactions have been eliminated in consolidation.
2. Organization
ICON Income Fund Ten, LLC (the "LLC") was formed on January 2, 2003 as a
Delaware limited liability company for the purpose of acquiring equipment to
engage in equipment leasing and sales activities.
The Manager of the LLC, ICON Capital Corp. (the "Manager"), is a
Connecticut corporation. The Manager manages and controls the business affairs
of the LLC's equipment leases and financing transactions under the terms of a
management agreement with the LLC.
The initial capitalization of the LLC was $1,000 provided by the Managing
Member, which is also a member. The LLC is offering membership interests on a
"best efforts" basis with the intention of raising up to $150,000,000 of
capital. The LLC had its initial closing on August 22, 2003 when it admitted
additional members holding 5,065.736 member shares, representing $5,065,736 in
capital contributions. At September 30, 2004 the LLC had admitted additional
members holding 78,362.098 member shares (net of 33.896 additional member shares
redeemed), representing $78,362,098 in capital contributions. Since commencement
of operations on August 22, 2003, total capital contributions and additional
member shares are $83,427,834 and 83,427.834, respectively.
3. Investments in Joint Ventures
An investment where the LLC owns 50% or less of the ownership interest of
another entity is recorded using the equity method. Under this method, the
initial investment is recorded at cost and is increased or decreased to reflect
the LLC's share of income, losses and dividends actually paid. An investment
where the LLC owns more than 50% of the ownership interest of another entity is
consolidated with the LLC and minority interest is recorded to reflect the
ownership of the minority venturer.
Minority Interest
Minority interest represents the minority venturer's proportionate share of
the equity of ICON GeicJV, which was 26% at September 30, 2004. The minority
interest is adjusted for the minority venturer's share of the earnings or loss
of the joint venture.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
4. Joint Ventures
The LLC and its affiliates formed two joint ventures, discussed below, for
the purpose of acquiring and managing various assets. The LLC and these
affiliates have substantially identical investment objectives and participate on
the same terms and conditions. The LLC and the other joint venturers have a
right of first refusal to purchase the equipment, on a pro-rata basis, if any of
the other joint venturers desire to sell their interests in the equipment or
joint venture.
The joint venture described below is majority owned and is consolidated
with the LLC.
ICON GeicJV
-----------
On April 30, 2004 the LLC and ICON Income Fund Nine, LLC ("Fund Nine"), an
entity also managed by ICON Capital Corp., formed a joint venture, ICON GeicJV,
for the purpose of purchasing information technology equipment on a three year
lease with Government Employees Insurance Company ("GEICO"). The LLC paid
$4,330,626, in cash, for its 74% ownership interest in the joint venture. The
LLC has a right of first refusal to purchase the equipment, on a pro-rata basis,
if Fund Nine desires to sell its interest in the equipment or joint venture.
The joint venture described below is less than 50% owned and is accounted
for under the equity method.
ICON Aircraft 46837, LLC
------------------------
On March 31, 2004 the LLC and ICON Income Fund Eight A L.P. ("Fund Eight
A"), an entity also managed by ICON Capital Corp., formed a joint venture, ICON
Aircraft 46837, LLC ("ICON Aircraft 46837"), for the purpose of acquiring a 1979
McDonnell Douglas DC-10-30F aircraft on lease to Federal Express Corporation
("FedEx") with a remaining lease term of 33 months. The LLC acquired a 71.4%
ownership interest in this joint venture for a total of $2,466,226 in cash. The
aircraft owned by ICON Aircraft 46837 is subject to non-recourse debt which
accrues interest at 4.0% per annum and matures in March 2007. The lender has a
security interest in the aircraft and an assignment of the rental payments under
the lease with FedEx. Legal fees of $36,050 were also paid and capitalized as
part of the cost of the aircraft. Subsequent to closing, an additional $202,571
in bank fees and legal expenses were paid and capitalized as part of the cost of
the aircraft.
In connection with the formation of the joint venture, Fund Eight A
acquired an option from the LLC to acquire an additional 61.4% ownership
interest in ICON Aircraft 46837 from the LLC. During the third quarter 2004,
this option was exercised by Fund Eight A and the LLC sold 61.4% of its
ownership interest to Fund Eight A. The exercise price was $2,296,879 and the
LLC received $2,130,604 and is due another $166,275. There was no gain or loss
on this transaction. The LLC now accounts for this investment using the equity
method of accounting.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
Information as to the unaudited results of operations of ICON Aircraft
46837 for the nine months ended September 30, 2004 is summarized below:
Net income $ 53,716
=================
Partnership's share of net income $ 3,275
=================
Contributions $ 3,722,347
=================
Partnership's share of net contributions $ 359,360
=================
5. Related Party Transactions
The LLC has entered into certain agreements with ICON Securities Corp., a
subsidiary of the Manager, and the Manager whereby the LLC pays certain fees and
reimbursements to those parties.
Fees and expenses paid or accrued by the LLC to the Manager or its
affiliates for the nine months ended September 30, 2004 and for the period from
August 22, 2003 (commencement of operations) to September 30, 2003 are as
follows:
2004 2003
---- ----
Prepaid service fees $ 3,879,087 $ 608,276 Capitalized
Organization and offering expenses 1,544,484 327,533 Charged to members' equity
Underwriting commissions 1,193,565 187,162 Charged to members' equity
Management fees 460,101 - Charged to operations
Administrative expense reimbursements 850,571 - Charged to operations
------------ -----------
Total $ 7,927,808 $ 1,122,971
============ ===========
Included in the balance sheet item Due to Manager and affiliates is a net
payable of $70,515 due to the Manager for sales and offering expenses, $25,004
due to ICON Securities Corp. for underwriting commissions, $56,390 due to Fund
Nine for a joint venture investment, $166,275 due from Fund Eight A for the sale
of a portion of the LLC's interest in a joint venture and $2,318 due from ICON
Income Fund Eight B L.P. ("Fund Eight B") for operating expenses.
As part of the Comerica Bank Loan and Security Agreement, there is a
Contribution Agreement between the LLC, ICON Cash Flow Partners L.P. Seven, Fund
Eight A, Fund Eight B and Fund Nine (each a "Borrower" and collectively, "the
Borrowers"). Under the Contribution Agreement each Borrower is jointly and
severalty liable for all amounts outstanding to Comerica Bank. The Contribution
Agreement allows a Borrower to repay another Borrowers obligation to Comerica
Bank so long as the repaid amounts are promptly reimbursed to the paying
Borrower. The LLC currently has no borrowings under this agreement.
6. Investments in Operating Leases and Notes Payable - Non-Recourse
During June 2004, the LLC, through two wholly-owned special purpose
entities, ICON Containership I, LLC and ICON Containership II, LLC, acquired two
shipping container vessels from ZIM Israel Navigation Co., Ltd. ("ZIM"). The LLC
simultaneously entered into a bareboat charter agreement with ZIM for the use of
each of the vessels. The bareboat charter agreement expires June 23, 2009, with
an option to extend the lease for two one-year extensions.
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
6. Investments in Operating Leases and Notes Payable - Non-Recourse -
continued
The purchase price of the vessels was $70,700,000 which was funded with
cash of $18,400,000 and the assumption of non-recourse debt of $52,300,000. The
non-recourse debt is cross collateralized with a fixed interest rate of 5.36%
per annum and matures in July 2009. The lenders have a security interest in the
vessels and an assignment of the rental payments under the lease with ZIM. Bank
fees, legal fees and other expenses of $563,150 were also paid and capitalized
as part of the acquisition cost of the vessels. The outstanding non-recourse
debt balance was $50,062,856 at September 30, 2004.
During July 2004, the LLC purchased additional equipment subject to
operating leases for $1,309,951 in cash. The equipment consists of Hussman
refrigeration equipment which is on lease to P.W. Supermarkets, Inc. The monthly
rental payment is $44,411 for a three-year period, commencing August 6, 2004,
with an option to extend the lease for one additional year.
Item 2. Manager's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited financial statements and notes included
in the LLC's annual report on Form 10-K dated December 31, 2003. Certain
statements within this document may constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements are identified by words such as "anticipate," "believe," "estimate,"
"expects," "intend," "predict" or "project" and similar expressions. We believe
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions. Any such forward-looking statements are subject to risks
and uncertainties and our future results of operations could differ materially
from historical results or current expectations. Some of these risks are
discussed in this report, and include, without limitation, fluctuations in oil
and gas prices; level of fleet additions by competitors and industry
overcapacity; changes in capital spending by customers in the cargo delivery
industry; changing customer demands for vessel and aircraft; acts of terrorism;
unsettled political conditions, war, civil unrest and governmental actions,
especially in higher risk countries of operations, such as Israel; foreign
currency fluctuations; and environmental and labor laws. Our actual results
could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which may be beyond our control,
including, without limitation:
o changes in our industry, interest rates or the general economy;
o the degree and nature of our competition;
o availability of qualified personnel;
o cash flows from operating activities may be less than our current level of
expenses and debt obligations;
o the financial condition of lessees; and
o lessee defaults.
a. Overview
We are an equipment leasing business formed on January 2, 2003 and began
active operations on August 22, 2003. We primarily engage in the business of
acquiring equipment subject to lease and, to a lesser degree, acquiring
ownership rights to items of leased equipment at lease expiration. Some of our
equipment leases will be acquired for cash and are expected to provide current
cash flow, which we refer to as "income" leases. The majority of the purchase
price of our other equipment leases will be borrowed, so these leases will
generate little or no current cash flow because substantially all of the rental
payments received from a lessee will be paid to a lender. For these "growth"
leases, we anticipate that the future value of the leased equipment will exceed
the cash portion of the purchase price paid for the equipment.
We expect to invest most of the net proceeds from this offering in items of
equipment that will be subject to a lease. After the net offering proceeds have
been invested, it is anticipated that additional investments will be made with
the cash generated from our initial investments to the extent that cash is not
needed for expenses, reserves and distributions to investors. The investment in
additional equipment in this manner is called "reinvestment." We anticipate
purchasing equipment from time to time until five years from the date we
complete the current offering of membership. That time frame is called the
"reinvestment period", which we may extend at our discretion for an additional
three years. After the "reinvestment period", we will then sell our assets in
the ordinary course of business during a time frame called the "liquidation
period". If we believe it would benefit investors to reinvest our cash flow in
equipment during the liquidation period, we may do so, but we will not receive
any additional fees in connection with such reinvestments. Our goal is to
complete the liquidation period in three years after the end of the reinvestment
period, but it may take longer to do so. Accordingly, an investor should expect
to hold his shares for at least 10 years from the time he invests.
Our current equipment portfolio, which we own directly or through joint
venture investments with affiliates, consists of the following:
o Boeing 767 aircraft rotables and accessories, of which approximately 80%
are on lease to Flugfelagid Atlanta hf, which is doing business as Air
Atlanta Icelandic ("Air Atlanta") with a lease expiration date of November
30, 2004. This portion of the equipment is currently in the process of
being remarketed. The remaining 20% was on lease with Air Atlanta, but is
now being held for sale or lease and has a net book value of $503,108. The
equipment was originally purchased for $3,600,000 in cash.
o Two (2) 3,300 TEU container vessels, on bareboat charter lease to ZIM
Israel Navigation Co. Ltd. ("ZIM"). The expiration of the bareboat charter
is June 23, 2009. The purchase price for the vessels was $70,700,000
comprised of (i) $18,400,000 in cash, and (ii) $52,300,000 of non-recourse
debt.
o A 74% interest in information technology equipment -- such as Sun servers,
HP servers, Dell desktop computers, and Panasonic laptop computers -- which
are subject to a three year lease with Government Employees Insurance
Company ("GEICO"). The expiration of the lease is March 31, 2007. Our share
of the purchase price was $4,330,626 in cash.
o A 10% interest in a 1979 McDonnell Douglas DC-10-30F aircraft on lease to
Federal Express Corporation ("FedEx") with an expiration of March 2007. Our
original contribution to the purchase price of the aircraft was $2,656,237
in cash and $12, 678,517 in non-recourse debt.
o Hussman refrigeration equipment on lease to P.W. Supermarkets, Inc. ("PW
Supermarkets") with an expiration date of July 2007. The equipment was
originally purchased for $1,309,951 in cash.
Substantially all of our recurring operating cash flows are generated from
the operations of the "income" leases in our portfolio. On a monthly basis, we
deduct the expenses related to the recurring operations of the portfolio from
such revenues and assess the amount of the remaining cash flows that will be
required to fund known re-leasing costs and equipment management costs. Any
residual operating cash flows are considered available for distribution to the
investors and are paid monthly (up until the liquidation period). We anticipate
increases in cash available for distributions to investors from the acquisition
of more single-investor transactions.
From January 1, 2004 through September 30, 2004, we raised approximately
$59,678,000 through the issuance of approximately 59,678 units. At September 30,
2004, approximately 66,500 units remain available for sale pursuant to the
offering agreement.
Industry Factors
Our results continue to be impacted by a number of factors influencing the
equipment leasing industry.
General Economic Conditions
The U.S. economy appears to be recovering, and the leasing industry's
outlook for the foreseeable future is encouraging. We foresee an increase in
capital spending by corporations through 2007 which should increase the pool of
available secondary market leases, and to that end, we believe there will be
more opportunities in this market. Nonetheless, a key obstacle still facing the
leasing industry is the continued low interest rate environment, which reduces
leasing volume inasmuch as customers are more prone to purchase than lease.
Other factors which may negatively affect the leasing industry are the proposed
legal and regulatory changes that may affect tax benefits of leasing and the
continued misperception by potential lessees, stemming from Enron, WorldCom and
others, that leasing should not play a central role as a financing alternative.
However, as economic growth continues and interest rates inevitably begin to
rise over time, we are optimistic that more lessees will return to the
marketplace.
Further Deterioration of the Air Travel Industry.
The aircraft leasing industry is currently on the downside of a business
cycle and this has resulted in depressed sales prices for assets such as our
aircraft interests. It does not appear that the industry will recover
significantly in the very near future, although we are optimistic that within
two to three years, there will be a recovery. However, a further weakening of
the industry could cause the proceeds realized from the future sale of our
aircraft and its rotables to be even less than suggested by recent appraisals.
b. Results of Operations for the Three Months Ended September 30, 2004 and
for the Period from August 22, 2003 (Commencement of Operations) to September
30, 2003
Revenues
Revenues for the three months ended September 30, 2004 ("2004 Quarter")
were $3,739,687, comprised of rental income of $3,736,412 and a gain from
investment in joint ventures of $3,275. Revenues for the period from August 22,
2003 (commencement of operations) to September 30, 2003 ("2003 Quarter") were
$94,786, comprised of rental income of $91,930 and interest income of $2,856.
The increase in revenues from the 2003 Quarter to the 2004 Quarter reflects the
overall increase in both income and growth leases. The GEICO lease is an income
lease while the ZIM leases and FedEx lease are growth leases.
------------------------------ --------------------- ------------------
2004 Quarter 2003 Quarter
------------------------------ --------------------- ------------------
------------------------------ --------------------- ------------------
Total Revenue $3,739,687 $94,786
------------------------------ --------------------- ------------------
------------------------------ --------------------- ------------------
Rental income 3,736,412 91,930
------------------------------ --------------------- ------------------
------------------------------ --------------------- ------------------
Interest income - 2,856
------------------------------ --------------------- ------------------
------------------------------ --------------------- ------------------
Income from investment in
joint venture 3,275 -
------------------------------ --------------------- ------------------
Expenses
Expenses for the 2004 Quarter were $4,749,482, comprised of depreciation
and amortization expense of $3,487,649, interest expense of $688,135, management
fees - Manager of $192,407, administrative expense reimbursements - Manager of
$319,220, general and administrative expenses of $50,977, and minority interest
of $11,094. Expenses for the 2003 Quarter were $99,172, comprised of
depreciation of $68,525 and general and administrative expenses of $30,647.
Our largest expense is depreciation and amortization. It is directly
related to the acquisition of operating lease assets. Our continued acquisition
of operating lease assets will lead to further increases in depreciation and
amortization expense and other operating expenses.
- ---------------------------------------- -------------- -----------------------
2004 Quarter 2003 Quarter
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Total Operating Expenses $4,749,482 $99,172
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Depreciation and amortization 3,487,649 68,525
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Interest 688,135 -
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Management fees 192,407 -
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Administrative expense reimbursements 319,220 -
- - Manager
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
General and administrative 50,977 30,647
- ---------------------------------------- -------------- -----------------------
- ---------------------------------------- -------------- -----------------------
Minority interest 11,094 -
- ---------------------------------------- -------------- -----------------------
Net Income/Loss
Net loss for the 2004 Quarter and the 2003 Quarter was $1,009,795 and
$4,386, respectively. The net loss per weighted average additional member shares
was $14.21 and $.60 for the 2004 Quarter and 2003 Quarter, respectively. The
increase in net loss in the 2004 Quarter as compared to the 2003 Quarter is due
solely to the fact that we began our reinvestment phase of our operations on
August 22, 2003 and therefore had minimal operations for the 2003 Quarter.
- -------------------------------- --------------- --------------------------
2004 Quarter 2003 Quarter
- -------------------------------- --------------- --------------------------
- -------------------------------- --------------- --------------------------
Net loss $1,009,795 $4,386
- -------------------------------- --------------- --------------------------
- -------------------------------- --------------- --------------------------
Net loss per weighted average
number of additional members
shares 14.21 0.60
- -------------------------------- --------------- --------------------------
c. Results of Operations for the Nine Months Ended September 30, 2004 and
for the Period from August 22, 2003 (Commencement of Operations) to September
30, 2003
Revenues
Revenues for the nine months ended September 30, 2004 ("2004 Period") were
$6,542,738, comprised of rental income of $6,520,570, net gain on sales of
equipment of $18,893, and income from investments in joint ventures of $3,275.
Revenues for the period from August 22, 2003 (commencement of operations) to
September 30, 2003 ("2003 Period") were $94,786, comprised of rental income of
$91,930 and interest income of $2,856. The increase in revenues from the 2003
Period to the 2004 Period reflects the overall increase in both income and
growth leases. The GEICO lease is an income lease while the ZIM leases and FedEx
lease are growth leases.
- -------------------------------- --------------- -----------------------
2004 Period 2003 Period
- -------------------------------- --------------- -----------------------
- -------------------------------- --------------- -----------------------
Total Revenue $6,542,738 $94,786
- -------------------------------- --------------- -----------------------
- -------------------------------- --------------- -----------------------
Rental income 6,520,570 91,930
- -------------------------------- --------------- -----------------------
- -------------------------------- --------------- -----------------------
Interest income - 2,856
- -------------------------------- --------------- -----------------------
- -------------------------------- --------------- -----------------------
Net gain on sale of equipment 18,893 -
- -------------------------------- --------------- -----------------------
- -------------------------------- --------------- -----------------------
Income from investment in
joint ventures 3,275 -
- -------------------------------- --------------- -----------------------
Expenses
Expenses for the 2004 Period were $8,674,881, comprised primarily of
depreciation and amortization expense of $6,351,891, interest expense of
$886,008, management fees - Manager of $460,101, administrative expense
reimbursements - Manager of $850,571, general and administrative expenses of
$98,124 and minority interest of $28,186. Expenses for the 2003 Period were
$99,172 comprised of depreciation of $68,525 and general and administrative
expenses of $30,647.
Our largest expense is depreciation and amortization. It is directly
related to the acquisition of operating lease assets. Our continued acquisition
of operating lease assets will lead to further increases in depreciation and
amortization expense and other operating expenses.
- ---------------------------------------- -------------- ---------------------
2004 Period 2003 Period
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Total Operating Expenses $8,674,881 $99,172
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Depreciation and amortization 6,351,891 68,525
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Interest 886,008 -
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Management fees 460,101 -
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Administrative expense reimbursements
- - Manager 850,571 -
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
General and administrative 98,124 30,647
- ---------------------------------------- -------------- ---------------------
- ---------------------------------------- -------------- ---------------------
Minority interest 28,186 -
- ---------------------------------------- -------------- ---------------------
Net Loss
Net loss for the 2004 Period and the 2003 Period was $2,132,143 and $4,386,
respectively. The net loss per weighted average additional member shares was
$42.49 and $.60 for the 2004 Quarter and 2003 Quarter, respectively. The
increase in net loss in the 2004 Period as compared to the 2003 Period is due
solely to the fact that we began our reinvestment phase of our operations on
August 22, 2003 and therefore had minimal operations for the 2003 Period.
- -------------------------------- ----------------- -----------------------
2004 Period 2003 Period
- -------------------------------- ----------------- -----------------------
- -------------------------------- ----------------- -----------------------
Net loss $2,132,143 $4,386
- -------------------------------- ----------------- -----------------------
- -------------------------------- ----------------- -----------------------
Net loss per weighted average
number of additional members
shares
42.49 0.60
- -------------------------------- ----------------- -----------------------
d. Liquidity and Capital Resources
Cash Requirements
We have sufficient funds necessary to maintain current operations and to
continue to invest in business essential assets subject to lease. We are
currently focused on increasing cash flow through acquisition of more "income"
leases.
Sources of Cash
Operations
For the nine months ended September 30, 2004, our primary source of
liquidity was from financing activities; specifically from the sale of
additional members' shares. Proceeds from the issuance of additional members'
shares, net of sales and offering expenses, were $52,166,195. These funds, as
well as funds held in reserve by us, were used primarily in investing activities
for the investment in equipment. Equipment subject to operating leases was
purchased for $26,125,301. We expect to continue acquiring equipment subject to
lease, and also make other types of related investments.
Financings and Recourse Borrowings
Certain affiliates of ours, specifically; ICON Income Fund Nine, LLC; ICON
Income Fund Eight A L.P.; ICON Income Fund Eight B L.P. and ICON Cash Flow
Partners L.P. Seven (collectively, the "Initial Funds"), are parties to a Loan
and Security Agreement dated as of May 30, 2002, as amended (the "Loan
Agreement"). Under the terms of the Loan Agreement, the Initial Funds may borrow
money from Comerica Bank with all borrowings to be jointly and severally
collateralized by (i) cash and (ii) the present values of certain rents
receivable and equipment owned by the Initial Funds. Such Loan Agreement,
effective August 5, 2004, was amended to add us as a borrower to the Loan
Agreement. The expiration of the Loan Agreement is December 31, 2004.
In connection with the Loan Agreement, the Initial Funds previously entered
into a Contribution Agreement dated as of May 30, 2002, as amended (the
"Contribution Agreement"). Pursuant to the Contribution Agreement, the Initial
Funds agreed to restrictions on the amount and the terms of their respective
borrowings under the Loan Agreement in order to minimize the unlikely risk that
a Fund would not be able to repay its allocable portion of the outstanding
revolving loan obligation at any time, including restrictions on any Fund
borrowing in excess of the lesser of (A) an amount each Fund could reasonably
expect to repay in one year out of its projected free cash flow, or (B) the
greater of (i) the Borrowing Base (as defined in the line of credit agreement)
as applied to such Fund, and (ii) 50% of the net worth of such Fund. The
Contribution Agreement provides that, in the event a Fund pays an amount under
the agreement in excess of its allocable share of the obligation under the
agreement whether by reason of an Event of Default or otherwise, the other Funds
will promptly make a contribution payment to such Fund in such amount that the
aggregate amount paid by each Fund reflects its allocable share of the aggregate
obligations under the agreement. The Initial Funds' obligations to each other
under the Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. In order to facilitate our addition to the
Contribution Agreement, the Funds entered into a Second Amended and Restated
Contribution Agreement effective as of August 5, 2004. The Second Amended and
Restated Contribution Agreement contain substantially identical terms and
limitations as did the original Contribution Agreement.
Aggregate borrowings by all funds under the line of credit agreement
amounted to $9,417,992 at September 30, 2004. We currently have no borrowings
under this line.
Distributions
We made cash distributions to members of $2,818,482 during the nine months
ended September 30, 2004. Such distributions are reflected as a return of
capital, as we recorded a loss for the period.
Capital Resources
We are an investment vehicle formed for the purpose of acquiring and owning
equipment leases and the related business essential equipment. At September 30,
2004, we were holding net offering proceeds of approximately $36,870,000
available for such investments. At this time, the Manager is unaware of any
specific need requiring capital resources to us.
Uncertainties
At September 30, 2004, except as noted above in the Overview section and
listed below in the Risk Factors section, and to the best of our knowledge,
there were no known trends or demands, commitments, events or uncertainties
which we believe are likely to have a material effect on liquidity. As cash is
realized from the continued offering, operations, or borrowings, we will
continue to invest in additional leasing transactions, while retaining
sufficient cash to meet our reserve requirements and recurring obligations.
e. Inflation and Interest Rates
The potential effect of inflation on us is difficult to predict. If the
general economy experiences significant rates of inflation, however, it could
affect us in a number of ways. The cost of equipment acquisitions could increase
with inflation and revenues from existing leases would not generally increase
with inflation, as we do not currently have or expect to have rent escalation
clauses tied to inflation in our leases. Nevertheless, the anticipated proceeds
from residual values to be realized upon the sale or re-lease of equipment upon
lease terminations (and thus the overall cash flow generated from our leases)
may be expected to increase with inflation as the cost of similar new and used
equipment increases.
If interest rates increase significantly, the lease rates that we can
obtain on future leases may be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
We are exposed to certain market risks, including changes in interest rates
and the demand for equipment (and the related residuals) owned by us.
We attempt to manage our interest rate risk by obtaining fixed rate debt
either directly or through its joint ventures. The fixed rate debt service
obligations are matched with fixed rate lease receivable streams generated by
the leases.
We attempt to manage its exposure to equipment and residual risk by
monitoring the market and maximizing remarketing proceeds received through
re-lease or sale of equipment.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., our Manager, including the
Chief Executive Officer and the Principal Financial and Accounting Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report pursuant to the
Securities Exchange Act of 1934. Based upon the evaluation, the Chief Executive
Officer and the Principal Financial and Accounting Officer concluded that the
disclosure controls and procedures were effective.
There were no significant changes in our internal control over financial
reporting during the third quarter that have materially affected, or are likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings
- -------------------------
From time-to-time, in the ordinary course of business, we are involved in
legal actions when necessary to protect or enforce our rights. We are not a
defendant party to any pending litigation and are not aware of any pending or
threatened litigation against the Partnership.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
32.1 Certification of Chairman and Chief Executive Officer.
32.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer.
33.1 Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C.
(Section)1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
33.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer pursuant to 18 U.S.C. (Section)1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Report on Form 8-K
We filed a Current Report on Form 8-K, dated July 13, 2004, which furnished
a narrative on the recently completed ZIM acquisition. As well, it announces
that the LLC filed a Supplement No. 2 to its Prospectus in order to disclose
acquisitions and to provide clarifications related to fees charged by the
Manager.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICON Income Fund Ten, LLC (Registrant)
By its Manager,
ICON Capital Corp.
November 15, 2004 /s/ Thomas W. Martin
------------------------ -----------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Certifications - 10-Q
EXHIBIT 32.1
I, Beaufort J.B. Clarke, certify that:
1. I have reviewed this quarterly report of ICON Income Fund Ten, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the condensed consolidated financial statements and
other financial information included in this quarterly report, fairly
present in all material respects the consolidated financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the board of directors of the Manager (or
persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
Dated: November 15, 2004
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
Certifications - 10-Q
EXHIBIT 32.2
I, Thomas W. Martin, certify that:
1. I have reviewed this quarterly report of ICON Income Fund Ten, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the condensed consolidated financial statements and
other financial information included in this quarterly report, fairly
present in all material respects the consolidated financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the board of directors of the Manager (or
persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant's ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
Dated: November 15, 2004
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
EXHIBIT 33.1
I, Beaufort J.B. Clarke, Chairman and Chief Executive Officer of ICON
Capital Corp, the Manager of ICON Income Fund Ten, LLC, certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, (18 U.S.C. 1350), that, to the
best of my knowledge and belief:
(1) the Quarterly Report on Form 10-Q for the period ended September 30,
2004 (the "Periodic Report") which this statement accompanies fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Periodic Report fairly presents, in
all material respects, the financial condition and results of operations of ICON
Income Fund Ten, LLC.
Dated: November 15, 2004
/s/ Beaufort J.B. Clarke
- ------------------------------------------------------
Beaufort J.B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC
EXHIBIT 33.2
I, Thomas W. Martin, Executive Vice President (Principal Financial and
Accounting Officer) of ICON Capital Corp, the Manager of ICON Income Fund Ten,
LLC, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, (18
U.S.C. 1350), that, to the best of my knowledge and belief:
(1) the Quarterly Report on Form 10-Q for the period ended September 30, 2004
(the "Periodic Report") which this statement accompanies fully complies
with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of
ICON Income Fund Ten, LLC.
Dated: November 15, 2004
/s/ Thomas W. Martin
- -------------------------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Fund Ten, LLC