Attached files
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, 2009
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or
[ ] Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from
|
|
to
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Commission_File_Number_
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000-50654
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ICON Income Fund Ten,
LLC
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(Exact
name of registrant as specified in its
charter)
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Delaware
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35-2193184
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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100 Fifth Avenue, 4th Floor, New York, New York
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10011
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(Address
of principal executive offices)
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(Zip
code)
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(212) 418-4700
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Registrant's
telephone number, including area
code
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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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).
[ ]
Yes [ ] No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting company. See
the definitions of “large accelerated filer,’’ “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer [ ] Accelerated
filer [ ] Non-accelerated filer
[X] Smaller reporting
company [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
[ ]
Yes [X] No
Number of
outstanding shares of limited liability company interests of the
registrant on November 1, 2009 is 148,211.
Table
of Contents
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Page
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2
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3
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4
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6
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20
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28
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28
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29
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29
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29
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29
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29
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30
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31
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(A
Delaware Limited Liability Company)
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||||||||
Consolidated
Balance Sheets
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||||||||
(unaudited)
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||||||||
Assets
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||||||||
September
30,
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December
31,
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|||||||
2009
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2008
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|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
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$ | 2,363,345 | $ | 3,784,794 | ||||
Current
portion of net investment in finance lease
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- | 725,220 | ||||||
Equipment
held for sale or lease, net
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23,350 | 98,350 | ||||||
Restricted
cash
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- | 226,882 | ||||||
Service
contracts receivable, net
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528,985 | - | ||||||
Other
current assets
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6,278,576 | 282,062 | ||||||
Total
current assets
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9,194,256 | 5,117,308 | ||||||
Non-current
assets:
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||||||||
Net
investment in finance lease, less current portion
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- | 6,916,347 | ||||||
Leased
equipment at cost (less accumulated depreciation of
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||||||||
$49,886,724
and $47,649,844, respectively)
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43,678,347 | 45,553,277 | ||||||
Equipment
(less accumulated depreciation of $2,013,187)
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6,900,969 | - | ||||||
Investments
in joint ventures
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26,111,771 | 30,591,890 | ||||||
Investments
in unguaranteed residual values
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350,049 | 754,090 | ||||||
Other
non-current assets, net
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54,047 | 66,285 | ||||||
Total
non-current assets
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77,095,183 | 83,881,889 | ||||||
Total
Assets
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$ | 86,289,439 | $ | 88,999,197 | ||||
Liabilities
and Equity
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||||||||
Current
liabilities:
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||||||||
Current
portion of non-recourse long-term debt
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$ | - | $ | 7,076,252 | ||||
Interest
rate swap contracts
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- | 88,214 | ||||||
Deferred
revenue
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162,438 | 48,699 | ||||||
Due
to Manager and affiliates
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6,391,655 | 1,048,301 | ||||||
Accrued
expenses and other current liabilities
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2,295,399 | 256,595 | ||||||
Total
Liabilities
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8,849,492 | 8,518,061 | ||||||
Commitments
and contingencies (Note 13)
|
||||||||
Equity:
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||||||||
Members'
Equity:
|
||||||||
Additional
Members
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77,721,534 | 81,937,867 | ||||||
Manager
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(527,365 | ) | (484,924 | ) | ||||
Accumulated
other comprehensive loss
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(2,077,086 | ) | (3,145,791 | ) | ||||
Total
Members' Equity
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75,117,083 | 78,307,152 | ||||||
Noncontrolling
Interests
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2,322,864 | 2,173,984 | ||||||
Total
Equity
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77,439,947 | 80,481,136 | ||||||
Total
Liabilities and Equity
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$ | 86,289,439 | $ | 88,999,197 |
See
accompanying notes to consolidated financial statements.
(A
Delaware Limited Liability Company)
|
||||||||||||||||
Consolidated
Statements of Operations
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||||||||||||||||
(unaudited)
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||||||||||||||||
Three
Months Ended
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Nine
Months Ended
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|||||||||||||||
September 30,
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September 30,
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|||||||||||||||
2009
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2008
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2009
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2008
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|||||||||||||
Revenue:
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||||||||||||||||
Rental
income
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$ | 3,916,066 | $ | 4,242,949 | $ | 11,630,938 | $ | 16,144,269 | ||||||||
Finance
income
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- | 553,841 | - | 1,866,734 | ||||||||||||
Servicing
income
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1,483,037 | - | 4,049,257 | - | ||||||||||||
Income
from investments in joint ventures
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924,856 | 654,336 | 3,037,586 | 3,183,846 | ||||||||||||
Net
gain on sales of equipment and unguaranteed residual
values
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1,267,808 | 34,615 | 1,342,663 | 6,816,132 | ||||||||||||
Interest
and other income
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52,751 | 247,719 | 67,329 | 487,936 | ||||||||||||
Total
revenue
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7,644,518 | 5,733,460 | 20,127,773 | 28,498,917 | ||||||||||||
Expenses:
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||||||||||||||||
Management
fees - Manager
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318,417 | 337,033 | 997,865 | 1,284,596 | ||||||||||||
Administrative
expense reimbursements - Manager
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192,321 | 342,806 | 904,095 | 1,051,241 | ||||||||||||
General
and administrative
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2,262,642 | 94,447 | 5,421,161 | 850,055 | ||||||||||||
Interest
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- | 204,296 | 212,839 | 944,442 | ||||||||||||
Depreciation
and amortization
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2,731,973 | 1,655,714 | 6,937,949 | 10,918,452 | ||||||||||||
Total
expenses
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5,505,353 | 2,634,296 | 14,473,909 | 15,048,786 | ||||||||||||
Net
income
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2,139,165 | 3,099,164 | 5,653,864 | 13,450,131 | ||||||||||||
Less:
Net income attributable to noncontrolling interests
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(83,147 | ) | (83,038 | ) | (240,629 | ) | (243,319 | ) | ||||||||
Net
income attributable to Fund Ten
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$ | 2,056,018 | $ | 3,016,126 | $ | 5,413,235 | $ | 13,206,812 | ||||||||
Net
income attributable to Fund Ten allocable to:
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||||||||||||||||
Additional
Members
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$ | 2,035,458 | $ | 2,985,965 | $ | 5,359,103 | $ | 13,074,744 | ||||||||
Manager
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20,560 | 30,161 | 54,132 | 132,068 | ||||||||||||
$ | 2,056,018 | $ | 3,016,126 | $ | 5,413,235 | $ | 13,206,812 | |||||||||
Weighted
average number of additional
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||||||||||||||||
shares
of limited liability company interests outstanding
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148,214 | 148,256 | 148,226 | 148,289 | ||||||||||||
Net
income attributable to Fund Ten per weighted
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||||||||||||||||
average
additional share of limited liability company interests
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$ | 13.73 | $ | 20.14 | $ | 36.15 | $ | 88.17 | ||||||||
See
accompanying notes to consolidated financial statements.
(A
Delaware Limited Liability Company)
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||||||||||||||||||||||||||||
Consolidated
Statements of Changes in Equity
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(unaudited)
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Members' Equity
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Additional
Shares
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Accumulated Other |
Total
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|||||||||||||||||||||||
of
Limited Liability Company Interests |
Additional Members |
Manager
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Comprehensive Loss |
Members' Equity |
Noncontrolling Interests |
Total Equity |
||||||||||||||||||||||
Balance, December 31, 2008
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148,231 | $ | 81,937,867 | $ | (484,924 | ) | $ | (3,145,791 | ) | $ | 78,307,152 | $ | 2,173,984 | $ | 80,481,136 | |||||||||||||
Comprehensive
income:
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||||||||||||||||||||||||||||
Net
income
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- | 1,576,887 | 15,928 | - | 1,592,815 | 82,224 | 1,675,039 | |||||||||||||||||||||
Change
in valuation of interest
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||||||||||||||||||||||||||||
rate
swap contracts
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- | - | - | 8,863 | 8,863 | - | 8,863 | |||||||||||||||||||||
Currency
translation adjustments
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- | - | - | (129,926 | ) | (129,926 | ) | - | (129,926 | ) | ||||||||||||||||||
Total
comprehensive income
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- | - | - | (121,063 | ) | 1,471,752 | 82,224 | 1,553,976 | ||||||||||||||||||||
Cash
distributions to members and
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||||||||||||||||||||||||||||
noncontrolling
interests
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- | (3,186,975 | ) | (32,192 | ) | - | (3,219,167 | ) | (271,330 | ) | (3,490,497 | ) | ||||||||||||||||
Balance,
March 31, 2009
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148,231 | 80,327,779 | (501,188 | ) | (3,266,854 | ) | 76,559,737 | 1,984,878 | 78,544,615 | |||||||||||||||||||
Comprehensive
income:
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||||||||||||||||||||||||||||
Net
income
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- | 1,746,758 | 17,644 | - | 1,764,402 | 75,258 | 1,839,660 | |||||||||||||||||||||
Change
in valuation of interest
|
||||||||||||||||||||||||||||
rate
swap contracts
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- | - | - | 267,768 | 267,768 | - | 267,768 | |||||||||||||||||||||
Currency
translation adjustments
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- | - | - | 1,099,912 | 1,099,912 | - | 1,099,912 | |||||||||||||||||||||
Total
comprehensive income
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- | - | - | 1,367,680 | 3,132,082 | 75,258 | 3,207,340 | |||||||||||||||||||||
Cash
distributions to members and
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||||||||||||||||||||||||||||
noncontrolling
interests
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- | (3,186,975 | ) | (32,192 | ) | - | (3,219,167 | ) | (271,331 | ) | (3,490,498 | ) | ||||||||||||||||
Balance,
June 30, 2009
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148,231 | 78,887,562 | (515,736 | ) | (1,899,174 | ) | 76,472,652 | 1,788,805 | 78,261,457 | |||||||||||||||||||
Comprehensive
income:
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||||||||||||||||||||||||||||
Net
income
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- | 2,035,458 | 20,560 | - | 2,056,018 | 83,147 | 2,139,165 | |||||||||||||||||||||
Change
in valuation of interest
|
||||||||||||||||||||||||||||
rate
swap contracts
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- | - | - | (81,456 | ) | (81,456 | ) | - | (81,456 | ) | ||||||||||||||||||
Currency
translation adjustments
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- | - | - | (96,456 | ) | (96,456 | ) | - | (96,456 | ) | ||||||||||||||||||
Total
comprehensive income
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- | - | - | (177,912 | ) | 1,878,106 | 83,147 | 1,961,253 | ||||||||||||||||||||
Shares
of limited liability company
|
||||||||||||||||||||||||||||
interests
redeemed
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(20 | ) | (14,798 | ) | - | - | (14,798 | ) | - | (14,798 | ) | |||||||||||||||||
Establishment
of noncontrolling
|
||||||||||||||||||||||||||||
interest
upon gaining control
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- | - | - | - | - | 714,780 | 714,780 | |||||||||||||||||||||
Cash
distributions to members and
|
||||||||||||||||||||||||||||
noncontrolling
interests
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- | (3,186,688 | ) | (32,189 | ) | - | (3,218,877 | ) | (263,868 | ) | (3,482,745 | ) | ||||||||||||||||
Balance,
September 30, 2009
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148,211 | $ | 77,721,534 | $ | (527,365 | ) | $ | (2,077,086 | ) | $ | 75,117,083 | $ | 2,322,864 | $ | 77,439,947 |
See
accompanying notes to consolidated financial statements.
(A
Delaware Limited Liability Company)
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Nine
Months Ended
|
||||||||
September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 5,653,864 | $ | 13,450,131 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Rental
income paid directly to lenders by lessees
|
(4,386,104 | ) | (9,521,447 | ) | ||||
Finance
income
|
- | (1,866,734 | ) | |||||
Income
from investments in joint ventures
|
(3,037,586 | ) | (3,183,846 | ) | ||||
Net
gain on sales of equipment and unguaranteed residual
values
|
(1,342,663 | ) | (6,816,132 | ) | ||||
Depreciation
and amortization
|
6,937,949 | 10,918,452 | ||||||
Interest
expense on non-recourse financing paid directly
|
||||||||
to
lenders by lessees
|
196,304 | 833,545 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Collection
of finance leases
|
695,943 | 2,046,262 | ||||||
Restricted
cash
|
226,882 | 22,297 | ||||||
Service
contracts receivable, net
|
(528,985 | ) | - | |||||
Equipment
|
(1,091,691 | ) | - | |||||
Other
assets, net
|
(497,263 | ) | (7,733 | ) | ||||
Deferred
revenue
|
(42,233 | ) | (12,366 | ) | ||||
Due
to Manager and affiliates, net
|
(152,190 | ) | 86,717 | |||||
Accrued
expenses and other current liabilities
|
2,129,001 | (178,294 | ) | |||||
Distributions
from joint ventures
|
1,520,592 | 901,726 | ||||||
Net
cash provided by operating activities
|
6,281,820 | 6,672,578 | ||||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sales of equipment and unguaranteed residual values
|
2,123,339 | 17,832,275 | ||||||
Investment
in financing facility
|
- | (164,822 | ) | |||||
Repayment
of financing facility
|
- | 4,367,055 | ||||||
Distributions
received from joint ventures in excess of profits
|
3,394,319 | 2,193,314 | ||||||
Net
cash provided by investing activities
|
5,517,658 | 24,227,822 | ||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from revolving line of credit, recourse
|
2,185,000 | - | ||||||
Repayment
of revolving line of credit, recourse
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(2,185,000 | ) | (5,000,000 | ) | ||||
Repayments
of non-recourse long-term debt
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(2,817,772 | ) | (707,082 | ) | ||||
Cash
distributions to members
|
(9,657,211 | ) | (9,662,426 | ) | ||||
Shares
of limited liability company interests redeemed
|
(14,798 | ) | (123,301 | ) | ||||
Cash
distributions to noncontrolling interests
|
(806,529 | ) | (615,353 | ) | ||||
Net
cash used in financing activities
|
(13,296,310 | ) | (16,108,162 | ) | ||||
Effects
of exchange rates on cash and cash equivalents
|
75,383 | (1,184 | ) | |||||
Net
(decrease) increase in cash and cash equivalents
|
(1,421,449 | ) | 14,791,054 | |||||
Cash
and cash equivalents, beginning of the period
|
3,784,794 | 4,448,826 | ||||||
Cash
and cash equivalents, end of the period
|
$ | 2,363,345 | $ | 19,239,880 |
See accompanying notes to consolidated financial
statements.
ICON
Income Fund Ten, LLC
|
||||||||
(A
Delaware Limited Liability Company)
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Nine Months Ended September
30,
|
||||||||
2009
|
2008
|
|||||||
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||
Principal
and interest paid on non-recourse long-term debt
|
||||||||
directly
to lenders by lessees
|
$ | 4,386,104 | $ | 9,521,447 | ||||
Transfer
from net investment in finance lease to equipment
|
$ | 6,829,746 | $ | - | ||||
Transfer
of leased equipment at cost to equipment held for
|
||||||||
sale
or lease, net
|
$ | - | $ | 324,000 | ||||
Transfer
from investments in unguaranteed residual values to
|
||||||||
leased
equipment at cost
|
$ | 52,722 | $ | 1,935 | ||||
Transfer
of non-recourse long-term debt in connection with
|
||||||||
sale
of a subsidiary
|
$ | - | $ | 10,906,321 |
See accompanying notes to consolidated financial
statements.
5
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(1)
|
Organization
|
ICON
Income Fund Ten, LLC (the “LLC”) was formed on January 2, 2003 as a Delaware
limited liability company. The LLC is engaged in one business
segment, the business of purchasing equipment and leasing it to third parties,
providing equipment and other financing, acquiring equipment subject to lease
and, to a lesser degree, acquiring ownership rights to items of leased equipment
at lease expiration. The LLC will continue until December 31, 2023,
unless terminated sooner.
The LLC’s
principal investment objective is to obtain the maximum economic return from its
investments for the benefit of its members. To achieve this
objective, the LLC: (i) acquires a diversified portfolio by making investments
in leases and other financing transactions; (ii) makes monthly cash
distributions, at the LLC’s manager’s discretion, to its members commencing with
each member’s admission to the LLC, continuing until the end of the operating
period; (iii) reinvests substantially all undistributed cash from operations and
cash from sales of equipment and other financing transactions during the
operating period; and (iv) will dispose of its investments and distribute the
excess cash from such dispositions to its members beginning with the
commencement of the liquidation period. The LLC is currently in its
operating period, which commenced in April 2005.
The
manager of the LLC is ICON Capital Corp., a Delaware corporation (the
“Manager”). The Manager manages and controls the business affairs of
the LLC, including, but not limited to, the equipment leases and other financing
transactions that the LLC enters into pursuant to the terms of the LLC’s amended
and restated operating agreement (the “LLC Agreement”). Additionally,
the Manager has a 1% interest in the profits, losses, cash distributions and
liquidation proceeds of the LLC.
Members’
capital accounts are increased for their initial capital contribution plus their
proportionate share of earnings and decreased by their proportionate share of
losses and distributions. Profits, losses, cash distributions and liquidation
proceeds are allocated 99% to the additional members and 1% to the Manager until
each additional member has (a) received cash distributions and liquidation
proceeds sufficient to reduce its adjusted capital account to zero and (b)
received, in addition, other distributions and allocations that would provide an
8% per year cumulative return, compounded daily, on its outstanding adjusted
capital account. After such time, distributions will be allocated 90%
to the additional members and 10% to the Manager.
(2)
|
Summary
of Significant Accounting Policies
|
Basis of
Presentation and Consolidation
The
accompanying consolidated financial statements of the LLC have been prepared in
accordance with U.S. generally accepted accounting principles (“US GAAP”) for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission for Quarterly Reports on Form
10-Q. In the opinion of the Manager, all adjustments considered
necessary for a fair presentation have been included. These
consolidated financial statements should be read together with the consolidated
financial statements and notes included in the LLC’s Annual Report on Form 10-K
for the year ended December 31, 2008. The results for the interim
period are not necessarily indicative of the results for the full
year. The Manager has evaluated all subsequent events through
November 12, 2009, the date the consolidated financial statements were
issued.
6
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(2)
|
Summary
of Significant Accounting Policies -
continued
|
The
consolidated financial statements include the accounts of the LLC and its
majority-owned subsidiaries and other controlled entities. All
intercompany accounts and transactions have been eliminated in
consolidation. In joint ventures where the LLC has majority
ownership, the financial condition and results of operations of the joint
venture are consolidated. Noncontrolling interest represents the
minority owner’s proportionate share of its equity in the joint
venture. The noncontrolling interest is adjusted for the minority
owner’s share of the earnings, losses, investments and distributions of the
joint venture.
The LLC
accounts for its noncontrolling interests in joint ventures where the LLC has
influence over financial and operational matters, generally 50% or less
ownership interest, under the equity method of accounting. In such
cases, the LLC’s original investments are recorded at cost and adjusted for its
share of earnings, losses and distributions. The LLC accounts for
investments in joint ventures where the LLC has virtually no influence over
financial and operational matters using the cost method of
accounting. In such cases, the LLC’s original investments are
recorded at cost and any distributions received are recorded as
revenue. All of the LLC’s investments in joint ventures are subject
to its impairment review policy.
Effective
January 1, 2009, the LLC adopted and, for presentation and disclosure purposes,
retrospectively applied the accounting pronouncement relating to noncontrolling
interests in consolidated financial statements. As a result,
noncontrolling interests are reported as a separate component of consolidated
equity and net income attributable to the noncontrolling interest is included in
consolidated net income (loss). The attribution of income between
controlling and noncontrolling interests is disclosed on the accompanying
consolidated statements of operations. Accordingly, the prior year consolidated
financial statements have been revised to conform to the current year
presentation.
Risks and
Uncertainties
In the normal course of business, the
LLC is exposed to two significant types of economic risk: credit and
market. Credit risk is the risk of a lessee, borrower or other
counterparty’s inability or unwillingness to make contractually required
payments. Concentrations of credit risk with respect to lessees,
borrowers or other counterparties are dispersed across different industry
segments within the United States of America and throughout the
world. Although the LLC does not currently foresee a concentrated
credit risk associated with its lessees, borrowers or other counterparties,
contractual payments are dependent upon the financial stability of the industry
segments in which such counterparties operate. Market risk reflects
the change in the value of debt instruments, derivatives and credit
facilities due to changes in interest rate spreads or other market factors.
The LLC believes that the carrying value of its investments and derivative
obligations is reasonable, taking into consideration these risks, along with
estimated collateral values, payment history and other relevant
information.
Revenue
Recognition
The LLC
provides financing to third parties, generally in the form of leases and
loans. Additionally, the LLC may make loans to borrowers secured by
various capital. With respect to leases of equipment, each lease is
classified as either a finance lease or an operating lease, which is based upon
the terms of the lease. Loans are typically classified as notes
receivable.
7
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(2)
|
Summary
of Significant Accounting Policies -
continued
|
For
finance leases and notes receivable, the LLC records finance and interest
income, respectively, on the consolidated statements of operations using the
effective interest rate method, which results in a constant rate of return over
the term of the lease or loan, as applicable. For operating leases,
rental income is recognized on a straight-line basis over the lease
term. Billed operating lease receivables are included in accounts
receivable until collected. Deferred revenue is the difference
between the timing of the receivables billed and the income recognized on a
straight-line basis.
The
recognition of revenue may be suspended when deemed appropriate by the Manager,
in accordance with the LLC’s policy on doubtful accounts.
Goodwill
and Intangible Assets
Business
combinations are accounted for under the purchase method of
accounting. Goodwill resulting from a business combination represents
the difference between the cost of an acquisition and the LLC’s interest in the
net fair value of the identifiable assets, liabilities and contingent
liabilities of the entity recognized at the date of
acquisition. Intangible assets generally represent customer and
technology relationships and intellectual property.
In accordance with the accounting
standard on goodwill and other intangible assets, the LLC tests goodwill and
intangible assets for impairment on an annual basis, or more frequently if
events or circumstances indicate that it or they might be
impaired. An impairment loss will be recognized to the extent that
the carrying amount exceeds the fair value of the asset.
Goodwill
is initially recorded as an asset at cost and is subsequently measured at cost
less accumulated impairment losses. Intangible assets are depreciated
on a straight-line basis over the estimated useful lives and stated at cost less
accumulated amortization and impairment losses.
Income
Taxes
The LLC is taxed as a partnership for
federal and State income tax purposes. No provision for income taxes
has been recorded since the liability for such taxes is that of each of the
members rather than the LLC. The LLC's income tax returns are subject
to examination by the federal and State taxing authorities, and changes, if any,
could adjust the individual income tax of the members.
Some
of the LLC’s wholly-owned foreign subsidiaries are taxed as corporations in
their local tax jurisdictions. For these entities, the LLC uses the
liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax basis of assets and liabilities. Deferred
tax assets and liabilities are measured using enacted tax rates and laws that
will be in effect when the differences are expected to
reverse. Valuation allowances are established when it is determined
that it is more likely than not that the deferred tax assets will not be
realized.
In
accordance with the accounting standard on accounting for uncertainty in income
taxes, the LLC records a liability for unrecognized tax benefits resulting from
uncertain tax positions taken or expected to be taken in a tax
return. The LLC recognizes interest and penalties, if any, related to
unrecognized tax benefit in income tax expense.
8
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(2)
|
Summary
of Significant Accounting Policies -
continued
|
Use of
Estimates
The
preparation of financial statements in conformity with US GAAP requires the
Manager to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities as
of the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant
estimates primarily include the determination of allowance for doubtful
accounts, depreciation and amortization, impairment losses, estimated useful
lives and residual values. Actual results could differ from those
estimates.
Reclassifications
Certain
reclassifications have been made to the accompanying consolidated financial
statements in prior periods to conform to the current presentation.
Recently
Adopted Accounting Pronouncements
On
January 1, 2009, the LLC adopted the accounting pronouncement relating to
accounting for fair value measurements, which establishes a framework for
measuring fair value and enhances fair value measurement disclosure for
non-financial assets and liabilities. The adoption of this accounting
pronouncement for non-financial assets and liabilities did not have a
significant impact on the LLC’s consolidated financial
statements.
On
January 1, 2009, the LLC adopted the accounting pronouncement relating to
accounting for business combinations, which requires an entity to recognize the
assets acquired, liabilities assumed, contractual contingencies, and contingent
consideration at their fair value on the acquisition date. It further
requires that acquisition-related costs be recognized separately from the
acquisition and expensed as incurred; that restructuring costs generally be
expensed in periods subsequent to the acquisition date; and that changes in
accounting for deferred tax asset valuation allowances and acquired income tax
uncertainties after the measurement period be recognized as a component of the
provision for taxes. The adoption of this accounting pronouncement
changed the LLC’s accounting treatment for business combinations on a
prospective basis beginning January 1, 2009.
On
January 1, 2009, the LLC adopted the accounting pronouncement that amended the
current accounting and disclosure requirements for derivative instruments. The
requirements were amended to enhance how: (a) an entity uses derivative
instruments; (b) derivative instruments and related hedged items are accounted
for; and (c) derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. The LLC was required
to provide such disclosures beginning with the quarter ended March 31,
2009.
During the quarter ended June 30, 2009,
the LLC adopted the accounting pronouncement that provides additional guidance
for estimating fair value in accordance with the accounting standard for fair
value measurements when the volume and level of activity for the asset or
liability have significantly decreased. This pronouncement also provides
guidance for identifying transactions that are not orderly. This pronouncement
was effective prospectively for all interim and annual reporting periods ending
after June 15, 2009. The adoption of this accounting pronouncement did not have
a significant impact on the LLC’s consolidated financial
statements.
9
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(2)
|
Summary
of Significant Accounting Policies -
continued
|
During the quarter ended June 30, 2009,
the LLC adopted the accounting pronouncement that amends the requirements for
disclosures about fair value of financial instruments, regarding the fair value
of financial instruments for annual, as well as interim, reporting periods. This
pronouncement was effective prospectively for all interim and annual reporting
periods ending after June 15, 2009. The adoption of this accounting
pronouncement did not have a significant impact on the LLC’s consolidated
financial statements.
During
the quarter ended June 30, 2009, the LLC adopted the accounting pronouncement
regarding the general standards of accounting for, and disclosure of, events
that occur after the balance sheet date but before the financial statements are
issued. This pronouncement was effective prospectively for interim and annual
reporting periods ending after June 15, 2009. The adoption of this
accounting pronouncement did not have a significant impact on the LLC’s
consolidated financial statements.
During
the quarter ended September 30, 2009, the LLC adopted Accounting Standards
Codification 105, “Generally Accepted Accounting Principles,” which establishes
the Financial Accounting Standards Board Accounting Standards Codification (the
“Codification”), which supersedes all existing accounting standard documents and
will become the single source of authoritative non-governmental US
GAAP. All other accounting literature not included in the
Codification will be considered non-authoritative. This accounting
standard is effective for interim and annual periods ending after September 15,
2009. The LLC has conformed its consolidated financial statements and
related notes to the new Codification for the quarter ended September 30,
2009.
(3)
|
Net
Investment in Finance Lease
|
On June 30, 2005, the LLC, through its
wholly-owned subsidiary, ICON Premier, LLC (“ICON Premier”), executed a sales
and purchase agreement, a master lease agreement and related documents
(collectively, the “Lease”) with Premier Telecom Contracts Limited (“Premier
Telecom”), a licensee providing bedside entertainment services to hospitals in
the United Kingdom, in connection with the purchase of approximately 5,000
bedside entertainment and communication terminals installed in several National
Health Service hospitals in the United Kingdom. The base term of the
Lease, which commenced on January 1, 2006, was for a period of 84
months. ICON Premier purchased approximately $13,944,600 (£8,091,000)
of bedside entertainment and communication terminals, inclusive of initial
direct costs, on lease to Premier Telecom. In January 2009, ICON
Premier reached an agreement with the equity holders of Pretel Group Limited
(“Pretel”), the ultimate parent company of Premier Telecom, in which ICON
Premier acquired a 51% ownership interest in Pretel in consideration for
restructuring the lease financing between ICON Premier and Premier
Telecom. As a result of this business combination, the LLC
consolidates Pretel in its financial statements. The LLC reclassified
its investment from a finance lease to equipment on a consolidated
basis. See Note 5 for further discussion.
10
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(4)
|
Leased
Equipment at Cost
|
Leased
equipment at cost consisted of the following:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Marine
vessels
|
$ | 70,987,238 | $ | 70,987,238 | ||||
Telecommunications
equipment
|
17,319,286 | 13,884,669 | ||||||
Manufacturing
equipment
|
5,177,696 | 8,278,522 | ||||||
Information
technology equipment
|
80,851 | 52,692 | ||||||
93,565,071 | 93,203,121 | |||||||
Less:
Accumulated depreciation
|
49,886,724 | 47,649,844 | ||||||
$ | 43,678,347 | $ | 45,553,277 |
Depreciation expense on leased
equipment was $1,639,285 and $1,643,537 for the three months ended September 30,
2009 and 2008, respectively. Depreciation expense was $4,953,609 and $10,875,424
for the nine months ended September 30, 2009 and 2008,
respectively.
Marine
Vessels
On June
24, 2004, the LLC, through two wholly-owned subsidiaries, ICON Containership I,
LLC (“ICON Containership I”) and ICON Containership II, LLC (“ICON Containership
II”), acquired two container vessels, the M/V ZIM Canada (the “ZIM Canada”) and
the M/V ZIM Korea (the “ZIM Korea”), from ZIM Israel Navigation Co. Ltd.
(“ZIM”). The LLC simultaneously entered into bareboat charters with ZIM
for the ZIM Canada and the ZIM Korea. The charters were for a period of 60
months with a charterer option for two 12-month extension periods. The
aggregate purchase price for the ZIM Canada and the ZIM Korea was approximately
$70,700,000, including approximately $52,300,000 of non-recourse debt. On
July 1, 2008, the bareboat charters were extended to June 30, 2014.
On
October 30, 2009, ICON Containership I and ICON Containership II amended the
bareboat charters for the ZIM Canada and the ZIM Korea to restructure each
respective charterer’s payment obligations. The charter for the ZIM Canada
was extended from June 30, 2014 to March 31, 2017 and the charter for the ZIM
Korea was extended from June 30, 2014 to March 31, 2016.
Manufacturing
Equipment
On December 10, 2007, the LLC completed
the acquisition of and simultaneously leased back substantially all of the
machining and metal working equipment (the “Equipment”) of MW Monroe Plastics,
Inc. (“Monroe”), a wholly-owned subsidiary of MW Universal, Inc. (“MWU”), for a
purchase price of $2,000,000. On July 28, 2009, the LLC agreed to terminate the
lease with Monroe. Simultaneously with the termination of the lease with Monroe,
the LLC transferred title to the Equipment to Cerion MPI, LLC (“MPI”), an
affiliate of Monroe, in consideration for MPI transferring title to equipment to
the LLC to be leased back to MPI. Beginning on August 1, 2009, the
LLC leased to MPI such equipment for a term of 41 months. The obligations of MPI
under the lease are guaranteed by its parent company, Cerion, LLC.
11
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(4)
|
Leased
Equipment at Cost – continued
|
On
September 30, 2009, the LLC sold all of the automotive steering column
production and assembly equipment (the “Automotive Equipment”) to Anchor Tool
& Die Co. (“Anchor”) for a purchase price of $1,750,000, which resulted in a
gain recognized by the LLC of $1,189,000. The Automotive Equipment
was originally purchased for approximately $2,817,000 and was subject to a lease
with Anchor that expired on September 30, 2009.
Telecommunications
Equipment
On
November 17, 2005, the LLC, along with ICON Leasing Fund Eleven, LLC (“Fund
Eleven”) and ICON Income Fund Eight A L.P. (“Fund Eight A”), entities also
managed by the Manager, formed ICON Global Crossing, LLC (“ICON Global
Crossing”). As of June 30, 2009, the LLC, Fund Eleven and Fund Eight
A had ownership interests of 30.62%, 61.39% and 7.99%, respectively. The total
capital contributions made to ICON Global Crossing were approximately
$25,131,000, of which the LLC’s share was approximately $7,695,000. During
February and April 2006, ICON Global Crossing purchased telecommunications
equipment subject to a lease with Global Crossing Telecommunications,
Inc. ("Global Crossing"). The purchase price, inclusive of
initial direct costs, was approximately $25,278,000. The equipment is
subject to a 48-month lease that commenced on April 1, 2006.
On
September 30, 2009, ICON Global Crossing sold certain telecommunications
equipment on lease to Global Crossing back to Global Crossing for a purchase
price of $5,493,000. The transaction was effected in order to redeem
Fund Eleven’s 61.39% ownership interest in ICON Global Crossing.
After the redemption, the LLC’s and Fund Eight A’s ownership interests in
ICON Global Crossing are 79.31% and 20.69%, respectively. Following the
transaction, the LLC consolidates the financial condition and results of
operations of ICON Global Crossing as of September 30, 2009.
(5)
|
Business
Acquisition
|
On
January 30, 2009, ICON Premier acquired 51% of the outstanding stock of Pretel
for a purchase price of $1 and in consideration for restructuring its
pre-existing lease transaction with Pretel. The estimated fair value
of the net assets acquired of approximately $116,500 exceeded the total purchase
price. Accordingly, the LLC reduced the estimated fair value of the
non-financial long-term assets acquired to the adjusted purchase
price.
The acquisition was accounted for as a
business combination, and the results of operations for this acquisition have
been included in the consolidated financial statements of the LLC from the date
of acquisition. Had the acquisition occurred as of January 1, 2009,
the impact on the LLC’s consolidated results would have been
immaterial. The purpose of this acquisition was to protect the LLC’s
interest in a direct finance lease in connection with a first priority security
interest in the Lease. Accordingly, the LLC became the majority
shareholder of Pretel until such time that such amounts due to the LLC under the
Lease are paid in full. At such time, the control of the business
will revert back to the original shareholders.
12
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(5)
|
Business
Acquisition - continued
|
The
purchase price was allocated based upon the fair value of the assets and
liabilities acquired. The preliminary purchase price allocation is
subject to adjustment as new or additional information is received, including
final asset valuations. The preliminary allocation of the purchase
price to the fair value of the assets acquired and liabilities assumed at the
date of acquisition was as follows:
Amount
|
||||
Current
assets:
|
||||
Cash
|
$ | 354,332 | ||
Other
receivables, net
|
715,551 | |||
Other
current assets
|
122,309 | |||
Non-current
assets:
|
||||
Equipment
|
1,218,985 | |||
Total
assets acquired
|
2,411,177 | |||
Current
liabilities:
|
||||
Accrued
expenses and other current liabilities
|
2,411,176 | |||
Total
liabilities assumed
|
2,411,176 | |||
Total
purchase price
|
$ | 1 |
(6)
|
Investments
in Joint Ventures
|
ICON
Mayon, LLC
On June
26, 2007, the LLC and ICON Leasing Fund Twelve, LLC (“Fund Twelve”), an entity
also managed by the Manager, formed ICON Mayon, LLC (“ICON Mayon”), with
ownership interests of 49% and 51%, respectively. On July 24, 2007,
ICON Mayon purchased a 98,507 deadweight ton (“DWT”) Aframax product tanker, the
Mayon Spirit, from an affiliate of Teekay Corporation (“Teekay”). The
purchase price for the Mayon Spirit was approximately $40,250,000, with
approximately $15,312,000 funded in the form of a capital contribution to ICON
Mayon and approximately $24,938,000 of non-recourse debt borrowed from Fortis
Capital Corp. Simultaneously with the closing of the purchase of the
Mayon Spirit, the Mayon Spirit was bareboat chartered back to Teekay for a term
of 48 months. The charter commenced on July 24, 2007. The total
capital contributions made to ICON Mayon were approximately $16,020,000, of
which the LLC’s share was approximately $7,548,000.
ICON
Eagle Carina Holdings, LLC
On
December 3, 2008, ICON Eagle Carina Pte. Ltd. (“ICON Eagle Carina”), a Singapore
corporation wholly-owned by ICON Eagle Carina Holdings, LLC (“ICON Carina
Holdings”), a Marshall Islands limited liability company, owned 35.7% by the LLC
and 64.3% by Fund Twelve, executed a Memorandum of Agreement to purchase a
95,639 DWT Aframax product tanker, the M/V Eagle Carina (the “Eagle Carina”),
from Aframax Tanker II AS. On December 18, 2008, the Eagle Carina was
purchased for $39,010,000, of which $27,000,000 was financed as non-recourse
debt borrowed from Fortis Bank NV/SA (“Fortis”) and DVB Bank SE
(“DVB”). The Eagle Carina is subject to an 84-month bareboat charter
with AET, Inc. Limited (“AET”) that expires on November 14, 2013. ICON Carina
Holdings paid an acquisition fee to the Manager of approximately $1,170,000 in
connection with this transaction, of which the LLC’s share was approximately
$418,000.
13
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(6)
|
Investments
in Joint Ventures – continued
|
ICON
Eagle Corona Holdings, LLC
On
December 3, 2008, ICON Eagle Corona Pte. Ltd. (“ICON Eagle Corona”), a Singapore
corporation wholly-owned by ICON Eagle Corona Holdings, LLC (“ICON Corona
Holdings”), a Marshall Islands limited liability company, owned 35.7% by the LLC
and 64.3% by Fund Twelve, executed a Memorandum of Agreement to purchase a
95,634 DWT Aframax product tanker, the M/V Eagle Corona (the “Eagle Corona”),
from Aframax Tanker II AS. On December 31, 2008, the Eagle Corona was
purchased for $41,270,000, of which $28,000,000 was financed as non-recourse
debt borrowed from Fortis and DVB. The Eagle Corona is subject to an
84-month bareboat charter with AET that expires on November 14,
2013. ICON Corona Holdings paid an acquisition fee to the Manager of
approximately $1,238,000 in connection with this transaction, of which the LLC’s
share was approximately $442,000.
(7)
|
Non-Recourse
Long-Term Debt
|
On June
24, 2004, each of ICON Containership I and ICON Containership II, wholly-owned
subsidiaries of the LLC, borrowed $26,150,000 from Fortis Capital Corp. in
connection with the acquisitions of the ZIM Canada and the ZIM Korea from
ZIM. The non-recourse long-term debt obligations accrued interest at
the London Interbank Offered Rate plus 1.50% per year. The
non-recourse long-term debt obligations required 60 monthly payments ranging
from approximately $372,000 to $483,000. The lender had a security
interest in the ZIM Canada and the ZIM Korea and an assignment of the charter
hire with ZIM. The LLC paid and capitalized approximately $523,000 in
debt financing costs. At December 31, 2008, the outstanding balance
of the non-recourse long-term debt obligations was $7,076,252.
On July
1, 2009, the LLC, through ICON Containership I and ICON Containership II, repaid
the outstanding balance of the non-recourse long-term debt obligations and
satisfied all of the LLC’s non-recourse long-term debt obligations.
(8)
|
Revolving
Line of Credit, Recourse
|
The LLC
and certain entities sponsored and organized by the Manager, ICON Income Fund
Eight B L.P. (“Fund Eight B”), ICON Income Fund Nine, LLC (“Fund Nine”), Fund
Eleven, Fund Twelve and ICON Equipment and Corporate Infrastructure Fund
Fourteen, L.P. (“Fund Fourteen” and, together with the LLC, Fund Eight B, Fund
Nine, Fund Eleven and Fund Twelve, the “Borrowers”), are parties to a Commercial
Loan Agreement, as amended (the “Loan Agreement”), with California Bank &
Trust (“CB&T”). The Loan Agreement provides for a revolving line
of credit of up to $30,000,000 pursuant to a senior secured revolving loan
facility (the “Facility”), which is secured by all assets of the Borrowers not
subject to a first priority lien, as defined in the Loan
Agreement. Each of the Borrowers is jointly and severally liable for
all amounts borrowed under the Facility. At September 30, 2009, no
amounts were accrued related to the LLC’s joint and several obligations under
the Facility. Amounts available under the Facility are subject to a
borrowing base that is determined, subject to certain limitations, on the
present value of the future receivables under certain lease agreements and loans
in which the Borrowers have a beneficial interest.
14
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(8)
|
Revolving
Line of Credit, Recourse -
continued
|
The
Facility expires on June 30, 2011 and the Borrowers may request a one year
extension to the revolving line of credit within 390 days of the then-current
expiration date, but CB&T has no obligation to extend. The interest rate for
general advances under the Facility is CB&T’s prime rate and the interest
rate on up to five separate advances that are permitted to be made under the
Facility is the rate at which U.S. dollar deposits can be acquired by CB&T
in the London Interbank Eurocurrency Market plus 2.5% per year, provided that
neither interest rate is permitted to be less than 4.0% per year. The interest
rate at September 30, 2009 was 4.0%. In addition, the Borrowers are obligated to
pay a quarterly commitment fee of 0.50% on unused commitments under the
Facility.
Aggregate
borrowings by all Borrowers under the Facility amounted to $7,625,000 at
September 30, 2009. The LLC had no borrowings outstanding under the
Facility as of such date. The balances of $365,000 and $7,260,000
were borrowed by Fund Eight B and Fund Eleven,
respectively. Subsequent to September 30, 2009, Fund Eight B and Fund
Eleven repaid $150,000 and $5,000,000, respectively, which reduced Fund Eight
B’s and Fund Eleven’s outstanding loan balances to $215,000 and $2,260,000,
respectively.
Pursuant
to the Loan Agreement, the Borrowers are required to comply with certain
covenants. At September 30, 2009, the Borrowers were in compliance
with all covenants.
(9)
|
Transactions
with Related Parties
|
In
accordance with the terms of the LLC Agreement, the LLC pays or paid the Manager
(i) management fees ranging from 1% to 7% based on a percentage of the rentals
and other contractual payments recognized either directly by the LLC or through
its joint ventures and (ii) acquisition fees, through the end of the operating
period, of 3% of the purchase price of the LLC’s investments. In
addition, the Manager is reimbursed for administrative expenses incurred in
connection with the LLC’s operations. The Manager also has a 1%
interest in the LLC’s profits, losses, cash distributions and liquidation
proceeds.
The
Manager performs certain services relating to the management of the LLC’s
equipment leasing and other financing activities. Such services
include, but are not limited to, 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, liaising with and general
supervision of lessees to ensure 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.
Administrative
expense reimbursements are costs incurred by the Manager or its affiliates that
are necessary to the LLC’s operations. These costs include the Manager’s
and its affiliates’ legal, accounting, investor relations and operations
personnel costs, as well as professional fees and other costs that are charged
to the LLC based upon the percentage of time such personnel dedicate to the
LLC. Excluded are salaries and related costs, travel expenses and other
administrative costs incurred by individuals with a controlling interest in the
Manager.
15
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(9)
|
Transactions
with Related Parties - continued
|
Fees and
other expenses paid or accrued by the LLC to the Manager or its affiliates were
as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||
Entity
|
Capacity
|
Description
|
2009
|
2008
|
2009
|
2008
|
||||||||||||||
ICON
Capital Corp.
|
Manager
|
Management
fees (1)
|
$ | 318,417 | $ | 337,033 | $ | 997,865 | $ | 1,284,596 | ||||||||||
ICON
Capital Corp.
|
Manager
|
Administrative
expense reimbursements (1)
|
$ | 192,321 | $ | 342,806 | $ | 904,095 | $ | 1,051,241 | ||||||||||
$ | 510,738 | $ | 679,839 | $ | 1,901,960 | $ | 2,335,837 | |||||||||||||
(1) Amount
charged directly to operations.
|
At
September 30, 2009, the LLC had a net payable of $6,391,655 due to the Manager
and its affiliates that primarily consisted of a payable of $5,493,000 due to
Fund Eleven from ICON Global Crossing related to the redemption of Fund Eleven’s
membership interest and approximately $899,000 due to the Manager and its
affiliates related to administrative expense reimbursements and amounts owed in
connection with the investments in ICON Carina Holdings and ICON Corona
Holdings.
(10)
|
Derivative
Financial Instruments
|
The LLC
may enter into derivative transactions for purposes of hedging specific
financial exposures, including movements in foreign currency exchange rates and
changes in interest rates of its non-recourse long-term debt. The LLC enters
into these instruments only for hedging underlying exposures. The LLC
does not hold or issue derivative financial instruments for purposes other than
hedging, except for warrants, which are not hedges. Certain
derivatives may not meet the established criteria to be designated as qualifying
accounting hedges, even though the LLC believes that these are effective
economic hedges.
The LLC accounts for derivative
financial instruments in accordance with the accounting pronouncements that
established accounting and reporting standards for derivative financial
instruments. These accounting pronouncements require the LLC to
recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at fair value. The LLC
recognizes the fair value of all derivatives as either assets or liabilities in
the consolidated balance sheets and changes in the fair value of such
instruments are recognized immediately in earnings unless certain accounting
criteria established by the accounting pronouncements are met. These
criteria demonstrate that the derivative is expected to be highly effective at
offsetting changes in the fair value or expected cash flows of the underlying
exposure at both the inception of the hedging relationship and on an ongoing
basis and include an evaluation of the counterparty risk and the impact, if any,
on the effectiveness of the derivative. If these criteria are met,
which the LLC must document and assess at inception and on an ongoing basis, the
LLC recognizes the changes in fair value of such instruments in accumulated
other comprehensive income (loss) (“AOCI”), a component of equity on the
consolidated balance sheets. Changes in the fair value of the
ineffective portion of all derivatives are recognized immediately in
earnings.
16
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(10)
|
Derivative
Financial Instruments – continued
|
Interest
Rate Risk
As of
September 30, 2009, the LLC has interests through joint ventures in three
floating-to-fixed interest rate swaps relating to ICON Corona Holdings, ICON
Carina Holdings and ICON Mayon designated and qualifying as cash flow hedges
with an aggregate notional amount of $61,860,915. These interest rate swaps have
maturity dates ranging from July 25, 2011 to November 14, 2013.
The joint
ventures’ objectives in using interest rate derivatives are to add stability to
interest expense and to manage their exposure to interest rate
movements. The joint ventures’ hedging strategy to accomplish this
objective is to match the projected future cash flows with the underlying debt
service. Interest rate swaps designated as cash flow hedges involve the receipt
of floating-rate interest payments from a counterparty in exchange for the joint
ventures making fixed interest rate payments over the life of the agreements
without exchange of the underlying notional amount.
For these
derivatives, the joint ventures record their interest in the gain or loss
from the effective portion of changes in the fair value of derivatives
designated and qualifying as cash flow hedges in AOCI and such gain or loss is
subsequently reclassified into earnings in the period that the hedged forecasted
transaction affects earnings and is recorded as a component of income (loss)
from investments in joint ventures. During the nine months ended September 30,
2009, the joint ventures recorded no hedge ineffectiveness in earnings. At
September 30, 2009, the total unrealized (loss) recorded to AOCI related to the
joint ventures’ interest in the change in fair value of these interest rate
swaps was approximately $501,000.
During
the twelve months ending September 30, 2010, the LLC estimates that
approximately $513,000 will be transferred from AOCI to income (loss) from
investments in joint venture.
Non-designated
Derivatives
Warrants
are the only derivatives that the LLC holds for purposes other than hedging. All
changes in the fair value of the warrants are recorded directly in earnings. As
of September 30, 2009, the outstanding derivatives that were not designated as
hedges in qualifying hedging relationships were warrants.
The table
below presents the fair value of the LLC’s derivative financial instruments as
well as their classification within the LLC’s consolidated balance sheets as of
September 30, 2009:
Asset Derivatives
|
|||||
Balance
Sheet Location
|
Fair
Value
|
||||
Derivatives
not designated as hedging instruments:
|
|||||
Warrants
|
Other
non-current assets
|
$ | 25,689 |
17
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(10)
|
Derivative
Financial Instruments – continued
|
The LLC’s
derivative financial instruments not designated as hedging instruments generated
a net (loss) gain on the statements of operations for the three and nine months
ended September 30, 2009 of ($43,207) and $37,753, respectively. The net (loss)
recorded for the three months ended September 30, 2009 was comprised of a
realized (loss) recorded in interest expense of $10,588 relating to interest
rate swap contracts which matured during the quarter and an unrealized (loss)
recorded in general and administrative expense of $32,619 relating to warrants.
The gain recorded for the nine months ended September 30, 2009 was comprised of
$73,644 in unrealized gains recorded in interest expense relating to interest
rate swap contracts which matured during the quarter and an unrealized (loss)
recorded in general and administrative expense of $35,891 relating to
warrants.
Derivative
Risks
The
LLC manages exposure to possible defaults on derivative financial instruments by
monitoring the concentration of risk that the LLC has with any individual bank
and through the use of minimum credit quality standards for all
counterparties. The LLC does not require collateral or other security
in relation to derivative financial instruments. Since it is the
LLC’s policy to enter into derivative contracts with banks of internationally
acknowledged standing only, the LLC considers the counterparty risk to be
remote.
(11)
|
Accumulated
Other Comprehensive Loss
|
AOCI
includes unrealized (losses) on derivative financial instruments of joint
ventures and currency translation adjustments of $500,739 and $1,576,347,
respectively, at September 30, 2009 and accumulated (losses) on derivative
financial instruments and currency translation adjustments of $695,914 and
$2,449,877, respectively, at December 31, 2008.
(12)
|
Fair
Value of Financial Instruments
|
The LLC
accounts for the fair value of financial instruments in accordance with the
accounting pronouncements, which require assets and liabilities carried at fair
value to be classified and disclosed in one of the following three
categories:
·
|
Level
1: Quoted market prices available in active markets for
identical assets or liabilities as of the reporting
date.
|
·
|
Level
2: Pricing inputs other than quoted prices in active markets
included in Level 1, which are either directly or indirectly observable as
of the reporting date.
|
·
|
Level
3: Pricing inputs that are generally unobservable and cannot be
corroborated by market data.
|
Financial
assets and liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurement. The
Manager’s assessment, on the LLC’s behalf, of the significance of a particular
input to the fair value measurement requires judgment and may affect the
valuation of the assets and liabilities being measured and their placement
within the fair value hierarchy.
18
ICON
Income Fund Ten, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
September
30, 2009
(unaudited)
(12)
|
Fair
Value of Financial Instruments –
continued
|
The following table summarizes the
valuation of the LLC’s material financial assets and liabilities measured at
fair value on a recurring basis as of September 30, 2009:
Level 1(1)
|
Level 2(2)
|
Level 3(3)
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | 25,689 | $ | - | $ | 25,689 | ||||||||
Liabilities:
|
$ | - | $ | - | $ | - | $ | - | ||||||||
(1)
Quoted prices in active markets for identical assets or
liabilities.
|
||||||||||||||||
(2)
Observable inputs other than quoted prices in active markets for identical
assets and liabilities.
|
||||||||||||||||
(3)
No observable pricing inputs in the market.
|
The LLC’s warrants are valued using
models based on readily observable market parameters for all substantial terms
and are classified within Level 2. As permitted by the accounting
pronouncements, the LLC uses market prices and pricing models for fair value
measurements of its derivative instruments. The fair value of the
warrants was recorded in other non-current assets within the consolidated
balance sheets.
Fair
value information with respect to the LLC's leased assets and liabilities is not
separately provided since the current accounting pronouncements do not require
fair value disclosures of lease arrangements.
(13)
|
Commitments
and Contingencies
|
At the
time the LLC acquires or divests of its interest in an equipment lease or other
financing transaction, the LLC may, under very limited circumstances, agree to
indemnify the seller or buyer for specific contingent
liabilities. The Manager believes that any liability of the LLC that
may arise as a result of any such indemnification obligations will not have a
material adverse effect on the consolidated financial condition of the LLC taken
as a whole.
The LLC, Fund Eleven and Fund Twelve
(together, the “Participating Funds”) have entered into a credit support
agreement, pursuant to which losses incurred by a Participating Fund with
respect to any MWU subsidiary are shared among the Participating Funds in
proportion to their respective capital investments. The term of the credit
support agreement matches the term of the schedules to the master lease
agreement. No amounts were accrued at September 30, 2009 and the
Manager cannot reasonably estimate at this time the maximum potential amounts,
if any, that may become payable under the credit support agreement.
The LLC
has entered into certain residual sharing and remarketing agreements with
various third parties. In connection with these agreements, residual
proceeds received in excess of specific amounts will be shared with these third
parties based on specific formulas. The obligation related to these
agreements is recorded at fair value.
The
following is a discussion of our current financial position and results of
operations. This discussion should be read together with our unaudited
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q and the audited consolidated financial statements
and related notes included in our Annual Report on Form 10-K for the year ended
December 31, 2008. This discussion should also be read in conjunction
with the disclosures below regarding “Forward-Looking Statements” and the “Risk
Factors” set forth in Item 1A of Part II of this Quarterly Report on Form
10-Q.
As used
in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or
similar terms include ICON Income Fund Ten, LLC and its consolidated
subsidiaries (“Fund Ten”).
Forward-Looking
Statements
Certain
statements within this Quarterly Report on Form 10-Q may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (“PSLRA”). These statements are being
made pursuant to the PSLRA, with the intention of obtaining the benefits of the
“safe harbor” provisions of the PSLRA, and, other than as required by law, we
assume no obligation to update or supplement such
statements. Forward-looking statements are those that do not relate
solely to historical fact. They include, but are not limited to, any
statement that may predict, forecast, indicate or imply future results,
performance, achievements or events. You can identify these
statements by the use of words such as “may,” “will,” “could,” “anticipate,”
“believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,”
“intend,” “predict” or “project” and variations of these words or comparable
words or phrases of similar meaning. These forward-looking statements
reflect our current beliefs and expectations with respect to future events and
are based on assumptions and are subject to risks and uncertainties and other
factors outside our control that may cause actual results to differ materially
from those projected. We undertake no obligation to update publicly or review
any forward-looking statement, whether as a result of new information, future
developments or otherwise.
Overview
We
operate as an equipment leasing program in which the capital our members
invested is pooled together to make investments, pay fees and establish a small
reserve. We primarily engage in the business of purchasing equipment
and leasing or servicing it to third parties, equipment financing, acquiring
equipment subject to lease and, to a lesser degree, acquiring ownership rights
to items of leased equipment at lease expiration.
Our
Manager manages and controls our business affairs, including, but not limited
to, our equipment leases and other financing transactions, under the terms of
our LLC Agreement.
We are
currently in our operating period. During our operating period,
additional investments will continue to be made with the cash generated from our
initial investments and our additional investments to the extent that the cash
is not needed for expenses, reserves and distributions to
members. The investment in additional equipment leases and other
financing transactions in this manner is called “reinvestment.” We
anticipate investing in equipment leases, other financing transactions and
residual ownership rights in items of leased equipment from time to time until
April 2010, unless that date is extended, at our Manager’s sole discretion, for
up to an additional three years.
Recent
Significant Transactions
We
entered into the following recent significant transactions since December 31,
2008:
·
|
On
January 30, 2009, we, through ICON Premier, acquired 51% of the
outstanding stock of Pretel for a purchase price of $1 (the “Pretel
Acquisition”) and in consideration for restructuring our pre-existing
lease transaction with Pretel. The estimated fair value of the
net assets acquired of approximately $116,500 exceeded the total purchase
price. Accordingly, we reduced the estimated fair value of the
non-financial long-term assets acquired to the adjusted purchase
price. The acquisition was accounted for as a business
combination and the results of operations of Pretel have been included in
our consolidated financial statements from the date of
acquisition. Had the acquisition occurred as of January 1,
2009, the impact on our consolidated results would have been
immaterial. The purpose of this acquisition was to protect our
interest in a direct finance lease with Pretel. Accordingly, we
became the majority shareholder of Pretel until such time that such
amounts due to us under the Lease are paid in full. At such
time, the control of the business will revert back to the original
shareholders.
|
·
|
On
December 10, 2007, we completed the acquisition of and simultaneously
leased back substantially all of the Equipment of Monroe, a wholly-owned
subsidiary of MWU, for a purchase price of $2,000,000. On July
28, 2009, we agreed to terminate the lease with Monroe.
Simultaneously with the termination of the lease with Monroe, we
transferred title to the Equipment to MPI in consideration for MPI
transferring title to equipment of greater fair market value to us.
Beginning on August 1, 2009, we entered into a lease with MPI for such
equipment for a term of 41 months. The obligations of MPI under the
lease are guaranteed by its parent company, Cerion,
LLC.
|
·
|
On
September 30, 2009, we sold all of the Automotive Equipment then on lease
to Anchor for a purchase price of $1,750,000, which resulted in a gain of
$1,189,000. The Automotive Equipment was originally purchased
for approximately $2,817,000.
|
·
|
On
September 30, 2009, ICON Global Crossing sold certain telecommunications
equipment on lease to Global Crossing back to it for a purchase price of
$5,493,000 and removed the equipment from the Global Crossing
lease. The transaction was effected in order to redeem
Fund Eleven’s 61.39% ownership interest in ICON Global
Crossing. The sale proceeds will be paid to Fund Eleven and its
ownership interest in ICON Global Crossing was assigned 48.69% to us and
12.7% to Fund Eight A, which adjusted our and Fund Eight A’s ownership
interests in ICON Global Crossing to 79.31% and 20.69%,
respectively. Following the transaction, we consolidate the
financial condition and results of operations of ICON Global
Crossing.
|
·
|
On
October 30, 2009, ICON Containership I and ICON Containership II amended
the bareboat charters for the ZIM Canada and the ZIM Korea to restructure
each respective charterer’s payment obligations. The charter for the
ZIM Canada was extended from June 30, 2014 to March 31, 2017 and the
charter for the ZIM Korea was extended from June 30, 2014 to March 31,
2016. The purpose of the restructuring was to provide the charterers
with additional flexibility while at the same time attempting to
preserve our projected economic return on our
investment.
|
Other
Recent Accounting Pronouncements
There are
no recent accounting pronouncements that are expected to have a significant
impact on our consolidated financial statements as of September 30, 2009. See
Note 2 to our consolidated financial statements for a discussion of accounting
pronouncements that we have recently adopted.
Other
Recent Events
Since the onset of the recession in
December 2007, the rate of payment defaults by lessees, borrowers and other
financial counterparties has generally risen
significantly. Nevertheless, none of the other equipment leasing and
financing funds managed by our Manager has experienced any material defaults in
payment that would materially impact such fund’s liquidity, cash flows or
profitability. Our Manager continuously reviews and evaluates our
transactions to take such action as it deems necessary to mitigate any adverse
developments on our liquidity, cash flows or profitability, which may include
agreeing to restructure a transaction with one or more of our lessees, borrowers
or other financial counterparties. In the event of a restructuring of
a transaction, our Manager generally expects that the lessee, borrower, and/or
other financial counterparty will ultimately be able to satisfy its obligations
to us. As a result thereof, our Manager has discussed and continues
to discuss restructuring options with some of our lessees, borrowers and other
financial counterparties. In many instances, the transaction is not
restructured and continues as initially structured. There can be no
assurance that any future restructurings will not have an adverse effect on our
financial position, results of operations or cash flows. Except as
otherwise disclosed in this Quarterly Report on Form 10-Q, our Manager has not
agreed to restructure any of our transactions and we have not taken any
impairment charge and there is no information that would cause our Manager to
take an impairment charge on any of our transactions at this
time.
Results
of Operations for the Three Months Ended September 30, 2009 (the “2009 Quarter”)
and 2008 (the “2008 Quarter”)
Revenue
for the 2009 Quarter and the 2008 Quarter are summarized as
follows:
Three
Months Ended
|
||||||||||||
September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Rental
income
|
$ | 3,916,066 | $ | 4,242,949 | $ | (326,883 | ) | |||||
Finance
income
|
- | 553,841 | (553,841 | ) | ||||||||
Servicing
income
|
1,483,037 | - | 1,483,037 | |||||||||
Income
from investments in joint ventures
|
924,856 | 654,336 | 270,520 | |||||||||
Net
gain on sales of equipment and unguaranteed residual
values
|
1,267,808 | 34,615 | 1,233,193 | |||||||||
Interest
and other income
|
52,751 | 247,719 | (194,968 | ) | ||||||||
Total
revenue
|
$ | 7,644,518 | $ | 5,733,460 | $ | 1,911,058 | ||||||
Total
revenue for the 2009 Quarter increased $1,911,058, or 33.3%, as compared to the
2008 Quarter. The increase in total revenue was primarily due to
increases in servicing income and net gain on sales of equipment and
unguaranteed residual values, which were partially offset by decreases in rental
income and finance income. Servicing income was generated by the
bedside entertainment and communication terminals operated by Pretel, which we
acquired on January 30, 2009. Our net gain on sales of equipment and
unguaranteed residual values increased primarily due to the sale of the
Automotive Equipment previously on lease to Anchor on September 30, 2009, which
resulted in a gain of $1,189,000. The increase in income from
investments in joint ventures was largely due to the income recognized from our
investments in ICON Northern Leasing, LLC, ICON Carina Holdings and ICON Corona
Holdings during the 2009 Quarter. The decrease in finance income was
primarily due to the acquisition of Pretel on January 30,
2009. Rental income decreased primarily due to the sale of equipment
previously on lease to Rite Aid Corporation (“Rite Aid”) during the third and
fourth quarters of 2008.
Expenses
for the 2009 Quarter and the 2008 Quarter are summarized as
follows:
Three
Months Ended
|
||||||||||||
September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Management
fees - Manager
|
$ | 318,417 | $ | 337,033 | $ | (18,616 | ) | |||||
Administrative
expense reimbursements - Manager
|
192,321 | 342,806 | (150,485 | ) | ||||||||
General
and administrative
|
2,262,642 | 94,447 | 2,168,195 | |||||||||
Interest
|
- | 204,296 | (204,296 | ) | ||||||||
Depreciation
and amortization
|
2,731,973 | 1,655,714 | 1,076,259 | |||||||||
Total
expenses
|
$ | 5,505,353 | $ | 2,634,296 | $ | 2,871,057 |
Total
expenses for the 2009 Quarter increased $2,871,057, or 109.0%, as compared to
the 2008 Quarter. The increase in total expenses was primarily due to
increases in general and administrative expenses and depreciation and
amortization expense, which were partially offset by decreases in interest
expense and administrative expense reimbursements due to our
Manager. The increase in general and administrative expenses was
largely due to (i) operating expenses of approximately $1,468,000 incurred by
Pretel during the 2009 Quarter and (ii) remarketing expenses of approximately
$569,000 in connection with the sale of the Automotive Equipment previously on
lease to Anchor. The increase in depreciation and amortization
expense was primarily attributable to the depreciation expense recorded in
connection with the operations of Pretel. Interest expense decreased
primarily due to the scheduled repayment of the outstanding balance of our
non-recourse debt obligations related to the ZIM Canada and the ZIM Korea, which
matured in June 2009. The decrease in administrative expense
reimbursements reflected a decrease in costs incurred by our Manager to
administer our affairs.
Noncontrolling
Interests
Net income attributable to
noncontrolling interests for the 2009 Quarter were consistent with that reported
for the 2008 Quarter.
Net
Income Attributable to Fund Ten
As a
result of the foregoing factors, net income attributable to Fund Ten for the
2009 Quarter and the 2008 Quarter was $2,056,018 and $3,016,126,
respectively. Net income attributable to Fund Ten per weighted
average additional share of limited liability company interests for the 2009
Quarter and the 2008 Quarter was $13.73 and $20.14, respectively.
Results
of Operations for the Nine Months Ended September 30, 2009 (the “2009 Period”)
and 2008 (the “2008 Period”)
Revenue
for the 2009 Period and the 2008 Period are summarized as follows:
Nine Months Ended September
30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Rental
income
|
$ | 11,630,938 | $ | 16,144,269 | $ | (4,513,331 | ) | |||||
Finance
income
|
- | 1,866,734 | (1,866,734 | ) | ||||||||
Servicing
income
|
4,049,257 | - | 4,049,257 | |||||||||
Income
from investments in joint ventures
|
3,037,586 | 3,183,846 | (146,260 | ) | ||||||||
Net
gain on sales of equipment and unguaranteed residual
values
|
1,342,663 | 6,816,132 | (5,473,469 | ) | ||||||||
Interest
and other income
|
67,329 | 487,936 | (420,607 | ) | ||||||||
Total
revenue
|
$ | 20,127,773 | $ | 28,498,917 | $ | (8,371,144 | ) | |||||
Total
revenue for the 2009 Period decreased by $8,371,144, or 29.4%, as compared to
the 2008 Period. The decrease was primarily attributable to decreases
in net gain on sales of equipment and unguaranteed residual values, rental
income and finance income, which were partially offset by an increase in
servicing income. During the 2008 Period, we reported a net gain on
the sale of equipment of approximately $6,741,000 resulting from the sale of
ICON Containership III, LLC (“ICON Containership III”). In
comparison, during the 2009 Period, our net gain on sales of equipment and
unguaranteed residual values was largely due to a net gain of $1,189,000 on the
sale of the Automotive Equipment previously on lease to Anchor. The
decrease in rental income was primarily due to (i) the sale of ICON
Containership III on March 31, 2008, which represented approximately $1,464,000
of the decrease in rental income, (ii) the bareboat charter extensions entered
into in connection with the ZIM Canada and the ZIM Korea on July 1, 2008 (the
“ZIM Charter Extensions”), which resulted in a decrease in rental income of
approximately $1,488,000 as monthly rental income per vessel decreased from
approximately $487,000 to $363,000 and (iii) the sale of equipment previously on
lease to Rite Aid during the third and fourth quarters of 2008, which accounted
for approximately $1,825,000 of the decrease in rental
income. Finance income decreased as a result of the expiration of our
lease with P.W. Supermarkets, Inc. in July 2008 and the acquisition of Pretel on
January 30, 2009. Servicing income was generated by the bedside
entertainment and communication terminals operated by Pretel.
Expenses
for the 2009 Period and the 2008 Period are summarized as follows:
Nine Months Ended September
30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Management
fees - Manager
|
$ | 997,865 | $ | 1,284,596 | $ | (286,731 | ) | |||||
Administrative
expense reimbursements - Manager
|
904,095 | 1,051,241 | (147,146 | ) | ||||||||
General
and administrative
|
5,421,161 | 850,055 | 4,571,106 | |||||||||
Interest
|
212,839 | 944,442 | (731,603 | ) | ||||||||
Depreciation
and amortization
|
6,937,949 | 10,918,452 | (3,980,503 | ) | ||||||||
Total
expenses
|
$ | 14,473,909 | $ | 15,048,786 | $ | (574,877 | ) | |||||
Total
expenses for the 2009 Period decreased by $574,877, or 3.8%, as compared to the
2008 Period. The decrease was primarily due to decreases in
depreciation and amortization expense, interest expense and management fees due
to our Manager, which were partially offset by an increase in general and
administrative expenses. The decrease in depreciation and
amortization expense was primarily due to (i) the sale of ICON Containership III
on March 31, 2008, which represented approximately $1,200,000 of the decrease,
(ii) the ZIM Charter Extensions, which resulted in a decrease in depreciation
expense of approximately $3,408,000 as monthly depreciation expense per vessel
decreased from approximately $380,000 to $96,000 and (iii) the sale of equipment
previously on lease to Rite Aid, which accounted for approximately $1,349,000 of
the decrease. These decreases were partially offset by the
depreciation expense recorded in connection with the operations of
Pretel. Interest expense decreased primarily due to the sale of ICON
Containership III, which resulted in the buyer’s assumption of the related
outstanding non-recourse long-term debt, and the scheduled repayment of the
outstanding balance of our non-recourse debt obligations related to the ZIM
Canada and the ZIM Korea on July 1, 2009. The decrease in management
fees due to our Manager reflected the decline in the number of our active
investments. The increase in general and administrative expenses was
largely due to the operating expenses of approximately $3,912,000 incurred by
Pretel during the 2009 Period. In addition, we incurred remarketing
expenses of approximately $569,000 during the 2009 Period in connection with the
sale of the Automotive Equipment previously on lease to Anchor.
Noncontrolling
Interests
Net income attributable to
noncontrolling interests for the 2009 Period were consistent with that reported
for the 2008 Period.
Net
Income Attributable to Fund Ten
As a
result of the foregoing factors, net income attributable to Fund Ten for the
2009 Period and the 2008 Period was $5,413,235 and $13,206,812,
respectively. Net income attributable to Fund Ten per weighted
average additional share of limited liability company interests for the 2009
Period and the 2008 Period was $36.15 and $88.17, respectively.
Financial
Condition
This
section discusses the major balance sheet variances at September 30, 2009
compared to December 31, 2008.
Total
Assets
Total
assets decreased $2,709,758, from $88,999,197 at December 31, 2008 to
$86,289,439 at September 30, 2009. The decrease was primarily due to
the depreciation of our leased equipment in the amount of approximately
$4,954,000 and distributions to members and noncontrolling interests of
approximately $10,464,000. The decrease in total assets was partially
offset by the increase in other current assets and leased equipment at cost
related to the consolidation of ICON Global Crossing, service contracts
receivable related to the acquisition of Pretel and cash collected from rental
payments with respect to our leases.
Current
Assets
Current
assets increased $4,076,948, from $5,117,308 at December 31, 2008 to $9,194,256
at September 30, 2009. The increase was primarily due to an increase
in other assets due to the consolidation of ICON Global Crossing and the
receivable for recently sold equipment, which was partially offset by a lower
cash position resulting from payments of our non-recourse debt outstanding
related to the ZIM Canada and the ZIM Korea.
Current
Liabilities
Current
liabilities increased $331,431, from $8,518,061 at December 31, 2008 to
$8,849,492 at September 30, 2009. The increase was primarily due to
the consolidation of ICON Global Crossing, which resulted in an increase in due
to affiliates of approximately $5,493,000 for redemption of Fund Eleven’s
interest in the joint venture. The increase was partially offset by a
decrease in our non-recourse debt outstanding due to the full repayment of our
non-recourse debt obligation related to the ZIM Canada and the ZIM Korea on July
1, 2009.
Equity
Equity
decreased $3,041,189, from $80,481,136 at December 31, 2008 to $77,439,947 at
September 30, 2009. The decrease was primarily due to distributions
paid to our members and noncontrolling interests, which exceeded net income
reported in the 2009 Period. The decrease was partially offset by the
addition of the noncontrolling interest from ICON Global Crossing.
Liquidity
and Capital Resources
Cash
Flows Summary
At
September 30, 2009 and December 31, 2008, we had cash and cash equivalents of
$2,363,345 and $3,784,794, respectively. During our operating period,
our main source of cash has been and will continue to be from operating
activities and our main use of cash has been and will continue to be in
financing activities. Investing activities had been a main use of
cash during the fund’s earliest periods, particularly when the fund was making
its initial investments, but now investing activities could be either a source
or a use of cash, depending on the timing of asset sales and the reinvestment of
those proceeds.
Cash and
cash equivalents include cash in banks and highly liquid investments with
original maturity dates of three months or less. Our cash and cash
equivalents are held principally at two financial institutions and at times may
exceed insured limits. We have placed these funds in high quality
institutions in order to minimize risk relating to exceeding insured
limits.
In addition, pursuant to the terms of
our offering, we established a reserve in the amount of 1.0% of the gross
offering proceeds, or $1,499,945.
Cash
Flows
The
following table sets forth summary cash flow data:
Nine Months Ended September
30,
|
||||||||
2009
|
2008
|
|||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | 6,281,820 | $ | 6,672,578 | ||||
Investing
activities
|
5,517,658 | 24,227,822 | ||||||
Financing
activities
|
(13,296,310 | ) | (16,108,162 | ) | ||||
Effects
of exchange rates on cash and cash equivalents
|
75,383 | (1,184 | ) | |||||
Net
(decrease) increase in cash and cash equivalents
|
$ | (1,421,449 | ) | $ | 14,791,054 |
Note:
See the Consolidated Statements of Cash Flows included in “Item 1. Consolidated
Financial Statements” of this Quarterly Report on Form 10-Q for additional
information.
Operating
Activities
Sources
of Cash
Sources
of cash from operating activities decreased $390,758, from $6,672,578 in the
2008 Period to $6,281,820 in the 2009 Period. The decrease was
primarily due to a decrease in rental income due to the sale of the equipment
previously on lease to Rite Aid, a decrease in finance income related to the
expiration of our lease with P.W. Supermarkets, Inc. in July 2008 and the
acquisition of Pretel on January 30, 2009. The decrease
was partially offset by an increase in the distributions received from our
investments in joint ventures.
Investing
Activities
Sources
of Cash
Sources
of cash from investing activities decreased $18,874,986, from $24,392,644 in the
2008 Period to $5,517,658 in the 2009 Period. The decrease was
primarily due to net proceeds of approximately $16,930,000 that we received
during the 2008 Period in connection with the sale of ICON Containership
III. We did not sell any comparable assets during the 2009
Period.
Uses
of Cash
Our use
of cash in investing activities decreased from $164,822 in the 2008 Period to $0
in the 2009 Period as we did not make any new investments during the 2009
Period.
Financing
Activities
Sources
of Cash
Sources
of cash from financing activities increased from $0 in the 2008 Period to
$2,185,000 in the 2009 Period related to the proceeds received from our
revolving line of credit.
Uses of Cash
Uses of
cash in financing activities decreased $626,852, from $16,108,162 in the 2008
Period to $15,481,310 in the 2009 Period. The decrease was primarily
due to the repayment of our $5,000,000 borrowing under the revolving line of
credit during the 2008 Period, which was partially offset by repayments totaling
approximately $2,818,000 of the non-recourse debt outstanding related to the ZIM
Canada and the ZIM Korea during the 2009 Period and the repayment of $2,185,000
under our revolving line of credit.
Sources
of Liquidity
Cash
generated by our operating activities continues to be our most significant
source of liquidity during our operating period. We believe that cash
generated from the expected results of our operations will be sufficient to
finance our liquidity requirements for the year ending December 31, 2009,
including distributions to our members, the repayment of principal and interest
on our non-recourse debt obligations, general and administrative expenses,
management fees and administrative expense reimbursements. We
anticipate that our liquidity requirements for the years ending December 31,
2010 through December 31, 2013 will be financed by the expected results of our
operations, as well as cash received from our investments at
maturity. In addition, our revolving line of credit had $22,375,000
available as of September 30, 2009 (see Note 8 to our consolidated financial
statements) for additional working capital needs or new investment
opportunities.
As
discussed above, we anticipate being able to meet our liquidity requirements
into the foreseeable future. Our ability to generate cash in the
future is subject to general economic, financial, competitive, regulatory and
other factors that affect us and our lessees’ and borrowers’ businesses that are
beyond our control.
Non-Recourse
Long-Term Debt
We had no
non-recourse long-term debt obligations at September 30, 2009. All of
our non-recourse obligations were repaid on July 1, 2009.
Distributions
We, at
our Manager’s discretion, pay monthly distributions to our members and
noncontrolling interests starting with the first month after each member’s
admission and the commencement of our joint venture operations, respectively,
and we expect to continue to pay such distributions until the end of our
operating period. We paid distributions to our Manager, additional
members and noncontrolling interests of $96,573, $9,560,638 and $806,529,
respectively, for the 2009 Period.
Commitments
and Contingencies and Off-Balance Sheet Transactions
Commitments
and Contingencies
At
September 30, 2009, we had no non-recourse debt obligations as our outstanding
non-recourse long-term indebtedness was repaid on July 1, 2009. We
have no borrowings under our revolving line of credit at September 30,
2009.
The
Participating Funds have entered into a credit support agreement, pursuant to
which losses incurred by a Participating Fund with respect to any MWU subsidiary
are shared among the Participating Funds in proportion to their respective
capital investments. The term of the credit support agreement matches the term
of the schedules to the master lease agreement. No amounts were accrued at
September 30, 2009 and our Manager cannot reasonably estimate at this time the
maximum potential amounts, if any, that may become payable under the credit
support agreement.
Off-Balance
Sheet Transactions
None.
There are
no material changes to the disclosures related to these items since the filing
of our Annual Report on Form 10-K for the year ended December 31,
2008.
Evaluation of disclosure controls
and procedures
In
connection with the preparation of this Quarterly Report on Form 10-Q for the
three months ended September 30, 2009, as well as the financial statements for
our Manager, our Manager carried out an evaluation, under the supervision and
with the participation of the management of our Manager, including its Co-Chief
Executive Officers and the Chief Financial Officer, of the effectiveness of the
design and operation of our Manager’s disclosure controls and procedures as of
the end of the period covered by this Report pursuant to the Securities Exchange
Act of 1934. Based on the foregoing evaluation, the Co-Chief
Executive Officers and the Chief Financial Officer concluded that our Manager’s
disclosure controls and procedures were effective.
In
designing and evaluating our Manager’s disclosure controls and procedures, our
Manager recognized that disclosure controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the disclosure controls and procedures are
met. Our Manager’s disclosure controls and procedures have been
designed to meet reasonable assurance standards. Disclosure controls and
procedures cannot detect or prevent all error and fraud. Some inherent
limitations in disclosure controls and procedures include costs of
implementation, faulty decision-making, simple error and mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based, in part, upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all anticipated and
unanticipated future conditions. Over time, controls may become inadequate
because of changes in conditions, or the degree of compliance with established
policies or procedures.
Evaluation of internal control over
financial reporting
There
have been no changes in our internal control over financial reporting during the
three months ended September 30, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
In the
ordinary course of conducting our business, there may be certain claims, suits
and complaints filed against us. In the opinion of management, the
outcome of such matters, if any, will not have a material impact on our
consolidated financial position or results of operations. We are not
aware of any material legal proceedings that are currently pending against us or
against any of our assets.
There
have been no material changes from the risk factors disclosed in “Item 1A. Risk
Factors” of our Annual Report on Form 10-K for the year ended December 31,
2008.
Our
Manager consented to our repurchase of 20 Shares during the 2009 Quarter.
The repurchase amounts are calculated according to a specified repurchase
formula pursuant to the LLC Agreement. Repurchased Shares have
no voting rights and do not share in distributions with other
members. Our LLC Agreement limits the number of Shares that can be
repurchased in any one year and repurchased Shares may not be reissued. The
following table details our Share repurchases for the three months ended
September 30, 2009:
Total
Number of
|
|
|||||||
Period
|
Shares Repurchased
|
Average Price Paid Per
Share
|
||||||
July
1, 2009 through July 31, 2009
|
20 | $ | 739.90 | |||||
August
1, 2009 through August 31, 2009
|
- | $ | - | |||||
September
1, 2009 through September 30, 2009
|
- | $ | - | |||||
Total
|
20 |
Not
applicable.
No
matters were submitted to a vote of security holders during the three months
ended September 30, 2009.
Not
applicable.
3.1
|
Certificate
of Limited Liability Company of Registrant (Incorporated by reference
to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed
with the SEC on February 28, 2003 (File No.
333-103503)).
|
4.1
|
Amended
and Restated Operating Agreement of Registrant (Incorporated by
reference to Exhibit 4.1 to Pre-Effective Amendment No. 3 to Registrant’s
Registration Statement on Form S-1 filed with the SEC on June 2, 2003
(File No. 333-103503)).
|
10.1
|
Commercial
Loan Agreement, dated as of August 31, 2005, by and between California
Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund
Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC
(Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report
on Form 8-K dated August 31, 2005).
|
10.2
|
Loan
Modification Agreement, dated as of December 26, 2006, by and between
California Bank & Trust and ICON Income Fund Eight B L.P., ICON
Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund
Eleven, LLC (Incorporated by reference to Exhibit 10.1 to Registrant’s
Current Report on Form 8-K dated December 26,
2006).
|
10.3 |
Loan
Modification Agreement, dated as of June 20, 2007, by and between
California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income
Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC
and ICON Leasing Fund Twelve, LLC.
|
10.4
|
Third
Loan Modification Agreement, dated as of May 1, 2008, by and between
California Bank & Trust, ICON Income Fund Eight B L.P., ICON
Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund
Eleven, LLC and ICON Leasing Fund Twelve, LLC (Incorporated by reference
to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2008, filed May 19,
2008).
|
10.5 |
Fourth
Loan Modification Agreement, by and between California Bank & Trust
and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income
Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON Leasing Fund Twelve,
LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P.,
dated August 12, 2009 (Incorporated by reference to Exhibit 10.4 to
Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2009, filed August 14, 2009).
|
31.1
|
Rule
13a-14(a)/15d-14(a). Certification of Co-Chief Executive
Officer.
|
31.2
|
Rule
13a-14(a)/15d-14(a). Certification of Co-Chief Executive
Officer.
|
31.3
|
Rule
13a-14(a)/15d-14(a). Certification of Chief Financial
Officer.
|
32.1
|
Certification
of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.3
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
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
Income Fund Ten, LLC
(Registrant)
By: ICON
Capital Corp.
(Manager
of the Registrant)
November
12, 2009
By:
/s/ Mark
Gatto
|
Mark
Gatto
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
November
12, 2009
By:
/s/ Michael A.
Reisner
|
Michael
A. Reisner
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
November
12, 2009
By:
/s/ Anthony J.
Branca
|
Anthony
J. Branca
|
Chief
Financial Officer
(Principal
Accounting and Financial Officer)
|
31
|