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
|
June 30, 2010
|
or
[ ] Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For
the transition period from
|
|
to
|
|
Commission_File_Number_
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000-53189
|
ICON Leasing Fund Twelve,
LLC
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(Exact
name of registrant as specified in its
charter)
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Delaware
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20-5651009
|
(State
or other jurisdiction of incorporation or organization)
|
(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)
|
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 a 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 August 6, 2010 is 348,650.
Table
of Contents
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Page
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1
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2
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3
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4
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6
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23
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35
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35
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36
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36
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36
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36
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36
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36
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37
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38
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(A
Delaware Limited Liability Company)
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||||||||
Consolidated
Balance Sheets
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||||||||
Assets
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||||||||
June
30,
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||||||||
2010
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December
31,
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|||||||
(unaudited)
|
2009
|
|||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
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$ | 39,784,068 | $ | 27,075,059 | ||||
Current
portion of net investment in finance leases
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19,678,658 | 17,565,862 | ||||||
Current
portion of notes receivable
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21,787,275 | 22,786,334 | ||||||
Other
current assets
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3,115,179 | 1,740,046 | ||||||
Assets
held for sale, net
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5,913,189 | 8,982,354 | ||||||
Total
current assets
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90,278,369 | 78,149,655 | ||||||
Non-current
assets:
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||||||||
Net
investment in finance leases, less current portion
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136,977,937 | 139,014,358 | ||||||
Leased
equipment at cost (less accumulated depreciation of
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||||||||
$60,432,515
and $43,506,562, respectively)
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347,325,959 | 335,480,153 | ||||||
Notes
receivable, less current portion
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42,976,778 | 51,122,271 | ||||||
Investment
in joint venture
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4,237,699 | 4,609,644 | ||||||
Due
from Manager and affiliates
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2,234,294 | - | ||||||
Other
non-current assets, net
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12,730,057 | 12,602,305 | ||||||
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||||||||
Total
non-current assets
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546,482,724 | 542,828,731 | ||||||
Total
Assets
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$ | 636,761,093 | $ | 620,978,386 | ||||
Liabilities
and Equity
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of non-recourse long-term debt
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$ | 44,539,395 | $ | 43,305,938 | ||||
Derivative
instruments
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8,359,030 | 4,779,552 | ||||||
Deferred
revenue
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6,383,408 | 6,576,971 | ||||||
Due
to Manager and affiliates
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293,096 | 482,301 | ||||||
Accrued
expenses and other current liabilities
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3,229,681 | 3,154,453 | ||||||
Total
current liabilities
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62,804,610 | 58,299,215 | ||||||
Non-current
liabilities:
|
||||||||
Non-recourse
long-term debt, less current portion
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191,666,292 | 176,961,900 | ||||||
Other
non-current liabilities
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53,190,101 | 44,082,046 | ||||||
Total
non-current liabilities
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244,856,393 | 221,043,946 | ||||||
Total
Liabilities
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307,661,003 | 279,343,161 | ||||||
Commitments
and contingencies (Note 13)
|
||||||||
Equity:
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||||||||
Members'
Equity:
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||||||||
Additional
Members
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271,127,846 | 278,405,366 | ||||||
Manager
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(374,576 | ) | (301,542 | ) | ||||
Accumulated
other comprehensive loss
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(9,397,909 | ) | (5,024,109 | ) | ||||
Total
Members' Equity
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261,355,361 | 273,079,715 | ||||||
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||||||||
Noncontrolling
Interests
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67,744,729 | 68,555,510 | ||||||
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||||||||
Total
Equity
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329,100,090 | 341,635,225 | ||||||
Total
Liabilities and Equity
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$ | 636,761,093 | $ | 620,978,386 |
See accompanying notes to consolidated financial statements.
(A
Delaware Limited Liability Company)
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||||||||||||||||
Consolidated
Statements of Operations
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||||||||||||||||
(unaudited)
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||||||||||||||||
Three Months Ended June 30,
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Six Months Ended June 30,
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|||||||||||||||
2010
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2009
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2010
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2009
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|||||||||||||
Revenue:
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||||||||||||||||
Rental
income
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$ | 15,279,370 | $ | 13,213,846 | $ | 30,936,632 | $ | 26,044,236 | ||||||||
Finance
income
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3,719,557 | 2,567,011 | 7,685,324 | 3,447,921 | ||||||||||||
Income
from investment in joint venture
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148,245 | 130,962 | 297,203 | 292,866 | ||||||||||||
Interest
and other income
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3,050,974 | 2,583,355 | 6,274,726 | 4,999,171 | ||||||||||||
Gain
on guaranty
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2,162,795 | - | 2,162,795 | - | ||||||||||||
Loss
on assets held for sale
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(297,864 | ) | - | (297,864 | ) | - | ||||||||||
Total
revenue
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24,063,077 | 18,495,174 | 47,058,816 | 34,784,194 | ||||||||||||
Expenses:
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||||||||||||||||
Management
fees - Manager
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1,092,234 | 766,823 | 2,165,116 | 1,466,852 | ||||||||||||
Administrative
expense reimbursements - Manager
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1,229,491 | 1,109,954 | 1,914,934 | 1,960,023 | ||||||||||||
General
and administrative
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763,825 | 576,073 | 1,397,312 | 1,022,570 | ||||||||||||
Interest
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4,005,795 | 2,265,842 | 8,538,994 | 4,507,220 | ||||||||||||
Depreciation
and amortization
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8,977,551 | 7,999,787 | 18,150,293 | 15,599,376 | ||||||||||||
Impairment
loss
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1,282,568 | - | 1,282,568 | - | ||||||||||||
(Gain)
loss on financial instruments
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(7,374 | ) | 5,860 | 223,077 | 19,295 | |||||||||||
Total
expenses
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17,344,090 | 12,724,339 | 33,672,294 | 24,575,336 | ||||||||||||
Net
income
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6,718,987 | 5,770,835 | 13,386,522 | 10,208,858 | ||||||||||||
Less:
Net income attributable to noncontrolling interests
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1,554,917 | 2,057,940 | 3,668,786 | 3,424,285 | ||||||||||||
Net
income attributable to Fund Twelve
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$ | 5,164,070 | $ | 3,712,895 | $ | 9,717,736 | $ | 6,784,573 | ||||||||
Net
income attributable to Fund Twelve allocable to:
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||||||||||||||||
Additional
Members
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$ | 5,112,429 | $ | 3,675,766 | $ | 9,620,558 | $ | 6,716,727 | ||||||||
Manager
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51,641 | 37,129 | 97,178 | 67,846 | ||||||||||||
$ | 5,164,070 | $ | 3,712,895 | $ | 9,717,736 | $ | 6,784,573 | |||||||||
Weighted
average number of additional shares of
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||||||||||||||||
limited
liability company interests outstanding
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348,709 | 342,374 | 348,709 | 318,735 | ||||||||||||
Net
income attributable to Fund Twelve per weighted
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||||||||||||||||
average
additional share of limited liability company
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||||||||||||||||
interests
outstanding
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$ | 14.66 | $ | 10.74 | $ | 27.59 | $ | 21.07 |
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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Members'
Equity
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||||||||||||||||||||||||||||
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Accumulated
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|||||||||||||||||||||||||||
Additional
Shares of
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Other
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Total
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Limited
Liability Company Interests |
Additional Members |
Manager
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Comprehensive Loss |
Members' Equity
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Noncontrolling Interests |
Total Equity |
||||||||||||||||||||||
Balance,
December 31, 2009
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348,709 | $ | 278,405,366 | $ | (301,542 | ) | $ | (5,024,109 | ) | $ | 273,079,715 | $ | 68,555,510 | $ | 341,635,225 | |||||||||||||
Comprehensive
income:
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Net
income
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- | 4,508,129 | 45,537 | - | 4,553,666 | 2,113,869 | 6,667,535 | |||||||||||||||||||||
Change
in valuation of
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||||||||||||||||||||||||||||
derivative
instruments
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- | - | - | (1,043,025 | ) | (1,043,025 | ) | (36,768 | ) | (1,079,793 | ) | |||||||||||||||||
Currency
translation adjustment
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- | - | - | (621,581 | ) | (621,581 | ) | - | (621,581 | ) | ||||||||||||||||||
Total
comprehensive income
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2,889,060 | 2,077,101 | 4,966,161 | |||||||||||||||||||||||||
Cash
distributions
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- | (8,412,614 | ) | (84,976 | ) | - | (8,497,590 | ) | (3,800,206 | ) | (12,297,796 | ) | ||||||||||||||||
Investment
in joint venture by
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||||||||||||||||||||||||||||
noncontrolling
interest
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- | - | - | - | - | 111,987 | 111,987 | |||||||||||||||||||||
Balance,
March 31, 2010 (unaudited)
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348,709 | 274,500,881 | (340,981 | ) | (6,688,715 | ) | 267,471,185 | 66,944,392 | 334,415,577 | |||||||||||||||||||
Comprehensive
income:
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||||||||||||||||||||||||||||
Net
income
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- | 5,112,429 | 51,641 | - | 5,164,070 | 1,554,917 | 6,718,987 | |||||||||||||||||||||
Change
in valuation of
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||||||||||||||||||||||||||||
derivative
instruments
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- | - | - | (1,838,355 | ) | (1,838,355 | ) | (21,680 | ) | (1,860,035 | ) | |||||||||||||||||
Currency
translation adjustment
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- | - | - | (870,839 | ) | (870,839 | ) | - | (870,839 | ) | ||||||||||||||||||
Total
comprehensive income
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2,454,876 | 1,533,237 | 3,988,113 | |||||||||||||||||||||||||
Cash
distributions
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- | (8,412,615 | ) | (84,976 | ) | - | (8,497,591 | ) | (3,448,829 | ) | (11,946,420 | ) | ||||||||||||||||
Shares
of limited liability
|
||||||||||||||||||||||||||||
company
interests repurchased
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(59 | ) | (47,129 | ) | - | - | (47,129 | ) | - | (47,129 | ) | |||||||||||||||||
Investment
in joint ventures by
|
||||||||||||||||||||||||||||
noncontrolling
interests
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- | (25,720 | ) | (260 | ) | - | (25,980 | ) | 2,715,929 | 2,689,949 | ||||||||||||||||||
Balance,
June 30, 2010 (unaudited)
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348,650 | $ | 271,127,846 | $ | (374,576 | ) | $ | (9,397,909 | ) | $ | 261,355,361 | $ | 67,744,729 | $ | 329,100,090 |
See accompanying notes to consolidated financial
statements.
(A
Delaware Limited Liability Company)
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 13,386,522 | $ | 10,208,858 | ||||
Adjustments
to reconcile net income to net cash provided by
|
||||||||
operating
activities:
|
||||||||
Rental
income paid directly to lenders by lessees
|
(17,485,218 | ) | (16,916,011 | ) | ||||
Finance
income
|
(7,685,324 | ) | (3,447,921 | ) | ||||
Income
from investment in joint venture
|
(297,203 | ) | (292,866 | ) | ||||
Depreciation
and amortization
|
18,150,293 | 15,599,376 | ||||||
Interest
expense on non-recourse financing paid directly
|
||||||||
to
lenders by lessees
|
3,339,777 | 3,974,954 | ||||||
Interest
expense from amortization of debt financing costs
|
608,739 | 428,255 | ||||||
Accretion
of seller's credit and other
|
1,120,003 | 60,261 | ||||||
Impairment
loss
|
1,282,568 | - | ||||||
Gain
on guaranty
|
(2,162,795 | ) | - | |||||
Loss
on assets held for sale, net
|
297,864 | - | ||||||
Loss
on financial instruments
|
223,077 | 19,295 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Collection
of finance leases
|
15,225,426 | 6,885,840 | ||||||
Prepaid
acquisition fees
|
239,297 | (2,662,032 | ) | |||||
Other
assets, net
|
(3,489,619 | ) | (2,499,180 | ) | ||||
Accrued
expenses and other current liabilities
|
(364,839 | ) | (133,628 | ) | ||||
Deferred
revenue
|
(225,651 | ) | (2,200,335 | ) | ||||
Due
to/from Manager and affiliates, net
|
(260,704 | ) | (179,549 | ) | ||||
Distributions
from joint venture
|
297,203 | 292,866 | ||||||
Net
cash provided by operating activities
|
22,199,416 | 9,138,183 | ||||||
Cash
flows from investing activities:
|
||||||||
Purchase
of equipment
|
(4,474,998 | ) | (53,977,555 | ) | ||||
Proceeds
from sale of equipment
|
539,368 | - | ||||||
Distributions
received from joint venture in excess of profits
|
371,945 | 376,282 | ||||||
Restricted
cash
|
(375,932 | ) | (569,796 | ) | ||||
Investment
in notes receivable
|
- | (21,239,728 | ) | |||||
Repayment
of notes receivable
|
10,056,600 | 8,771,761 | ||||||
Net
cash provided by (used in) investing activities
|
6,116,983 | (66,639,036 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from non-recourse long-term debt
|
12,448,656 | - | ||||||
Repayments
of non-recourse long-term debt
|
(6,553,125 | ) | - | |||||
Issuance
of additional shares of limited liability company
interests,
|
||||||||
net
of sales and offering expenses
|
- | 66,979,190 | ||||||
Shares
of limited liability company interests repurchased
|
(47,129 | ) | (85,669 | ) | ||||
Investment
in joint ventures by noncontrolling interests
|
2,801,936 | - | ||||||
Distributions
to noncontrolling interests
|
(7,249,035 | ) | (5,882,791 | ) | ||||
Cash
distributions to members
|
(16,995,181 | ) | (14,876,970 | ) | ||||
Net
cash (used in) provided by financing activities
|
(15,593,878 | ) | 46,133,760 | |||||
Effects
of exchange rates on cash and cash equivalents
|
(13,512 | ) | 28,419 | |||||
Net
increase (decrease) in cash and cash equivalents
|
12,709,009 | (11,338,674 | ) | |||||
Cash
and cash equivalents, beginning of period
|
27,075,059 | 45,408,378 | ||||||
Cash
and cash equivalents, end of period
|
$ | 39,784,068 | $ | 34,069,704 |
See accompanying notes to consolidated financial
statements.
ICON
Leasing Fund Twelve, LLC
|
||||||||
(A
Delaware Limited Liability Company)
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the period for interest
|
$ | 3,599,649 | $ | 43,750 | ||||
Supplemental
disclosure of non-cash investing and financing activities:
|
||||||||
Principal
and interest on non-recourse long-term debt
|
||||||||
paid
directly to lenders by lessees
|
$ | 17,485,218 | $ | 16,916,011 | ||||
Equipment
purchased with non-recourse long-term debt paid directly by
lender
|
$ | 24,522,223 | $ | 34,800,000 | ||||
Equipment
purchased with subordinated financing provided by seller
|
$ | 10,577,777 | $ | 27,500,000 | ||||
Investment
in joint venture by noncontrolling interest
|
$ | - | $ | 18,381,998 |
See
accompanying notes to consolidated financial statements.
5
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(1)
|
Organization
|
ICON
Leasing Fund Twelve, LLC (the “LLC”) was formed on October 3, 2006 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, 2026, 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, notes receivable 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 on May 1, 2009.
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 limited
liability company 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)
|
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, 2009.
The results for the interim period are not necessarily indicative of the results
for the full year.
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.
6
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(2)
|
Basis
of Presentation and Consolidation -
continued
|
The LLC
accounts for its noncontrolling interest in a joint venture where the LLC has
influence over financial and operational matters, generally 50% or less
ownership interest, under the equity method of accounting. In such case, the
LLC’s original investment is recorded at cost and adjusted for its share of
earnings, losses and distributions. The LLC accounts for its
investment in a joint venture where the LLC has virtually no influence over
financial and operational matters using the cost method of
accounting. In such case, the LLC’s original investment is 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.
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
revenue 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
In June
2009, the Financial Accounting Standards Board (“FASB”) issued an update to
Accounting Standard Codification 810 – Consolidation (“ASC 810”). The update
amends the consolidation guidance applicable to variable interest entities
(“VIEs”) and changes how a reporting entity evaluates whether an entity is
considered the primary beneficiary of a VIE and is therefore required to
consolidate such VIE. ASC 810 also requires assessments at each reporting period
of which party within the VIE is considered the primary beneficiary and requires
a number of new disclosures related to VIEs. The adoption of this
guidance, effective January 1, 2010, did not have a material impact on the
LLC’s consolidated financial statements.
In
January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value
Measurements and Disclosures (Topic 820), Improving Disclosures about Fair Value
Measurements (“ASU 2010-06”), amending Accounting Standards Codification 820.
ASU 2010-06 requires new disclosures and clarifies existing disclosures on fair
value measurements. It requires new disclosures including (i)
separate disclosure of the amounts of significant transfers in and out of Level
1 and Level 2 fair value measurements and a description of the reasons for the
transfers and (ii) separate presentation of information about purchases, sales,
issuances and settlements in the reconciliation of Level 3 fair value
measurements. This update also clarifies existing disclosures requiring the LLC
to (i) determine each class of assets and liabilities based on the nature and
risks of the investments rather than by major security type and (ii) for each
class of assets and liabilities, disclose the valuation techniques and inputs
used to measure fair value for both Level 2 and Level 3 fair value
measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning
after December 15, 2009, except for the disclosures about purchases, sales,
issuances, and settlements in Level 3 fair value measurements, which are
effective for fiscal years beginning after December 15, 2010. The adoption
of ASU 2010-06 did not have a material effect on the LLC’s consolidated
financial statements.
7
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(3)
|
Net
Investment in Finance Leases
|
Net
investment in finance leases consisted of the following:
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Minimum
rents receivable
|
$ | 200,793,937 | $ | 203,775,000 | ||||
Estimated
residual values
|
17,664,044 | 16,545,104 | ||||||
Initial
direct costs, net
|
5,448,731 | 5,663,856 | ||||||
Unearned
income
|
(67,250,117 | ) | (69,403,740 | ) | ||||
Net
investment in finance leases
|
156,656,595 | 156,580,220 | ||||||
Less: Current
portion of net
|
||||||||
investment
in finance leases
|
19,678,658 | 17,565,862 | ||||||
Net
investment in finance leases,
|
||||||||
less
current portion
|
$ | 136,977,937 | $ | 139,014,358 |
Manufacturing
Equipment
Due to
the global downturn in the automotive industry, Sealynx Automotive Transieres
SAS (“Sealynx”) requested a restructuring of its lease payments during the third
quarter of 2009 and the LLC agreed to reduce Sealynx’s lease payments. On
January 4, 2010, the LLC restructured Sealynx’s payment obligations under the
lease to provide it with cash flow flexibility while at the same time attempting
to preserve the LLC’s projected economic return on this investment. As
additional security for restructuring the payment obligations, ICON French
Equipment II, LLC, a wholly-owned subsidiary of the LLC (“ICON French Equipment
II”), received an additional mortgage on certain real property owned by Sealynx
located in Charleval, France. On July 5, 2010, Sealynx filed for a
conciliation procedure with the Commercial Court of Nanterre requesting it
to repay, over a two year period, approximately $1,900,000 of rental
payments currently due to the LLC on July 1, 2010. The Commercial
Court of Nanterre has not yet ruled on Sealynx’s request.
Marine
Vessels and Equipment
On
December 18, 2009, the LLC, through its wholly-owned subsidiary, ICON Faulkner,
LLC (“ICON Faulkner”), entered into a Memorandum of Agreement (the “Faulkner
MOA”) to purchase the pipelay barge, the Leighton Faulkner, from Leighton
Contractors (Asia) Limited (“Leighton Contractors”) for $20,000,000.
Simultaneously with the execution of the Faulkner MOA, ICON Faulkner entered
into a bareboat charter with Leighton Contractors for a period of ninety-six
months commencing on January 5, 2010. The purchase price for the Leighton
Faulkner consisted of $1,000,000 in cash and $19,000,000 in non-recourse
indebtedness, which included $12,000,000 of senior debt pursuant to a senior
facility agreement with Standard Chartered Bank, Singapore Branch (“SCB”) and a
$7,000,000 subordinated seller’s credit. The loan from SCB has a term of five
years, with an option to extend for another three years. The interest rate has
been fixed pursuant to a swap agreement. All of Leighton Contractors’
obligations are guaranteed by its ultimate parent company, Leighton Holdings
Limited (“Leighton Holdings”). The LLC paid an acquisition fee to its Manager of
$600,000 relating to this transaction.
On March
31, 2010, the LLC, through its wholly-owned subsidiary, ICON Mynx Pte. Ltd.
(“ICON Mynx”), entered into an agreement with Leighton Offshore Pte. Ltd.
(“Leighton Offshore”) to upgrade the accommodation and work barge, the Leighton
Mynx, by acquiring certain equipment and making certain upgrades to the Leighton
Mynx in an amount equal to $20,000,000. The upgrades include the addition of a
helicopter deck, as well as a new crane and accommodation unit. The cost of the
upgrades will be financed with $2,000,000 in cash and $18,000,000 in
non-recourse indebtedness, which includes $4,000,000 of subordinated
contractor’s credit and $14,000,000 of senior debt pursuant to an amended senior
facility agreement (the “Amended Facility Agreement”) with SCB. The
Amended Facility Agreement will be repaid in quarterly installments beginning on
March 31, 2011 and interest will be fixed pursuant to a swap agreement with SCB.
In consideration for financing the upgrades, ICON Mynx and Leighton Offshore
agreed to amend the bareboat charter for the Leighton Mynx to, among other
things, increase the amount of monthly charter hire payable by Leighton Offshore
and increase the value of the purchase option price at the expiry of the
charter. All of Leighton Offshore's obligations are guaranteed by Leighton
Holdings. The LLC paid an acquisition fee to its Manager of $600,000 relating to
this transaction.
8
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(3)
|
Net
Investment in Finance Leases -
continued
|
Non-cancelable
minimum annual amounts due on investment in finance leases over the next five
years were as follows at June 30, 2010:
For
the period July 1 to December 31, 2010
|
$ | 17,303,671 | ||
For
the year ending December 31, 2011
|
29,851,718 | |||
For
the year ending December 31, 2012
|
22,998,434 | |||
For
the year ending December 31, 2013
|
20,039,500 | |||
For
the year ending December 31, 2014
|
24,056,000 | |||
Thereafter
|
86,544,614 | |||
$ | 200,793,937 |
(4)
|
Leased
Equipment at Cost
|
Leased
equipment at cost consisted of the following:
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
Marine
vessels and equipment
|
$ | 344,874,833 | $ | 316,103,074 | ||||
Manufacturing
equipment
|
19,559,700 | 19,559,700 | ||||||
Mining
equipment
|
20,122,452 | 20,122,452 | ||||||
Telecommunications
equipment
|
6,116,887 | 6,116,887 | ||||||
Motor
coaches
|
5,473,082 | 5,473,082 | ||||||
Gas
compressors
|
11,611,520 | 11,611,520 | ||||||
407,758,474 | 378,986,715 | |||||||
Less:
Accumulated depreciation
|
60,432,515 | 43,506,562 | ||||||
$ | 347,325,959 | $ | 335,480,153 |
Depreciation
expense was $8,375,607 and $7,617,357 for the three months ended June 30, 2010
and 2009, respectively. Depreciation expense was $16,925,953 and $14,929,094 for
the six months ended June 30, 2010 and 2009, respectively.
Manufacturing
Equipment
On
January 13, 2010, the LLC further amended the lease with LC Manufacturing, LLC
(“LC Manufacturing”) to reduce LC Manufacturing’s payment obligations under the
lease and to provide the LLC with an excess cash flow sweep in the event that
excess cash is available in the future. On May 31, 2010, MW Universal,
Inc. (“MWU”) sold its equity interest in LC Manufacturing to an entity
controlled by LC Manufacturing’s management and the personal guaranty of MWU’s
principal was reduced to $6,500,000 with respect to LC
Manufacturing. On July 26, 2010, the LLC, in consideration for all
amounts due under the lease, sold the equipment the LLC leased to the MWU
affiliate, Metavation, LLC (“Metavation”), and terminated the
lease.
9
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(4)
|
Leased
Equipment at Cost -
continued
|
Gas
Compressors
On April
1, 2010, the LLC sold to an unaffiliated third party, Hardwood Partners, LLC
(“Hardwood Partners”), a 5.460% nonvoting, noncontrolling interest in ICON
Atlas, LLC (“ICON Atlas”) for the purchase price of $550,000. As a
result, the LLC recorded a gain on sale in the amount of approximately $1,000,
which was included in members’ equity, and the LLC’s economic interest in ICON
Atlas was reduced to 49.540%, although the LLC's controlling interest
remained at 55%.
Telecommunications
Equipment
On June
29, 2010, the LLC, through its wholly-owned subsidiary, ICON Broadview, LLC
(“ICON Broadview”), entered into a master lease agreement for information
technology equipment with Broadview Networks Holdings, Inc. and Broadview
Networks Inc. (collectively, “Broadview”). During the period beginning June 29,
2010 through December 31, 2010, ICON Broadview will acquire up to four schedules
of information technology equipment, which will be leased to Broadview. The
aggregate purchase price for the equipment will be equal to at least
$5,000,000. The LLC paid an acquisition fee to its Manager of
$150,000 relating to this transaction.
On July
15, 2010, ICON Broadview purchased information technology equipment from Juniper
Networks (US), Inc. for the purchase price of approximately $602,000 and
simultaneously leased the equipment to Broadview. The base term of
the schedule is for a period of thirty-six months, which commenced on August 1,
2010.
Aggregate
annual minimum future rentals receivable from the LLC’s non-cancelable leases
over the next five years consisted of the following at June 30,
2010:
For
the period July 1 to December 31, 2010
|
$ | 32,097,260 | ||
For
the year ending December 31, 2011
|
58,244,482 | |||
For
the year ending December 31, 2012
|
52,822,912 | |||
For
the year ending December 31, 2013
|
37,269,673 | |||
For
the year ending December 31, 2014
|
12,404,850 | |||
Thereafter
|
21,260,000 | |||
$ | 214,099,177 |
(5)
|
Notes
Receivable
|
Note
Receivable Secured by a Machine Paper Coating Manufacturing Line
On
February 26, 2010, the LLC, through its wholly-owned subsidiary, ICON Appleton,
LLC (“ICON Appleton”), amended certain financial covenants in the loan agreement
with Appleton Papers, Inc. (“Appleton”). In consideration for
amending the loan agreement, the LLC received an amendment fee from Appleton in
the amount of approximately $117,000.
On April
1, 2010, the LLC sold to Hardwood Partners a 5.1% noncontrolling interest in
ICON Appleton for the purchase price of $1,000,000. As a result, the
LLC recorded a gain on sale in the amount of approximately $6,000, which was
included in members’ equity, and the LLC’s controlling interest in ICON Appleton
was reduced to 94.900%.
10
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(5)
|
Notes
Receivable -
continued
|
On July
20, 2010, the LLC amended the loan agreement to release two borrowers that were
being sold by Appleton to a third party, American Plastics Company, Inc. and New
England Extrusion, Inc. In consideration for amending the loan
agreement, the LLC received an amendment fee in the amount of $40,000 from
Appleton.
Notes
Receivable Secured by Analog Seismic System Equipment
On April
1, 2010, the LLC sold to Hardwood Partners a 2.913% noncontrolling interest in
ICON ION, LLC (“ICON ION”) for the purchase price of $550,000. As a
result, the LLC recorded a gain on sale in the amount of approximately $4,000,
which was included in members’ equity, and the LLC’s controlling interest in
ICON ION was reduced to 52.087%.
Note
Receivable Secured by Rail Support Construction Equipment
On April
1, 2010, the LLC sold to Hardwood Partners a 5.873%
nonvoting, noncontrolling interest in ICON Quattro, LLC (“ICON Quattro”)
for the purchase price of $550,000. As a result, the LLC recorded a
loss on sale in the amount of approximately $37,000, which was included in
members’ equity, and the LLC’s economic interest in ICON Quattro was reduced to
49.127%, although the LLC's controlling interest remained at 55%.
Note
Receivable Secured by Aframax Tankers
On June
30, 2010, the LLC, through its wholly-owned subsidiary, ICON Palmali 12, LLC
(“ICON Palmali 12”), and ICON Equipment and Corporate Infrastructure Fund
Fourteen, L.P. (“Fund Fourteen”), an entity managed by the Manager, through its
wholly-owned subsidiary, ICON Palmali 14, LLC (“ICON Palmali 14”), participated
in a $96,000,000 loan facility by making second priority secured term loans to
Ocean Navigation 5 Co. Ltd. and Ocean Navigation 6 Co. Ltd. (collectively,
“Ocean Navigation”) pursuant to a loan agreement (the “Palmali Loan
Agreement”). The proceeds of the loans will be used by Ocean Navigation to
purchase two Aframax tanker vessels, the Shah Deniz and the Absheron (each a
“Vessel,” and collectively, the “Vessels”).
The
aggregate principal amounts of ICON Palmali 12’s and ICON Palmali 14’s loans are
$9,600,000 and $14,400,000, respectively, half of which will be made available
to Ocean Navigation for the purchase price of each Vessel. Interest
on the secured term loans accrues at a rate of 15.25% per year and is payable
quarterly in arrears for a period of six years from the delivery date of each
Vessel. The entire principal amounts will be due at the maturity of the
loans. Ocean Navigation has the option to prepay the loans in whole or in
part following the third anniversary of the date of the first advance for each
Vessel.
On July
28, 2010, ICON Palmali 12 and ICON Palmali 14 made loans in the amounts of
$4,800,000 and $7,200,000, respectively, to Ocean Navigation for the purchase of
the Shah Deniz. In connection with the loans, ICON Palmali 12 and
ICON Palmali 14 collected (i) arrangement fees in the amounts of $240,000 and
$360,000, respectively, and (ii) unused commitment fees of 2% per year on the
undrawn loan amounts. In addition, Ocean Navigation is required to pay an unused
commitment fee of 2% per year of the undrawn loan amounts from July 29, 2010
through September 30, 2010, 4% per year from October 1, 2010 through December
31, 2010 and 6% per year from January 1, 2011 through March 31,
2011.
11
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(5)
|
Notes
Receivable - continued
|
The loans
are secured by, among other things, second priority security interests in (i)
the Vessels, (ii) the earnings from the Vessels and (iii) the equity interests
of Ocean Navigation. In addition, Ocean Navigation or the Palmali Guarantors (as
defined below) must provide ICON Palmali 12 and ICON Palmali 14 additional
security for the loans with a fair market value of not less than $10,000,000
within twelve months of the date of the Palmali Loan Agreement. All
of Ocean Navigation’s obligations under the Palmali Loan Agreement are
guaranteed by its direct and indirect parent companies and affiliates, Palmali
Holding Company Limited, Palmali International Holding Company Limited, Palocean
Shipping Limited and Ocean Holding Company Limited (collectively, the “Palmali
Guarantors”).
Simultaneously
with ICON Palmali 12’s and ICON Palmali 14’s loans, DVB Bank SE (“DVB”) will,
pursuant to the Palmali Loan Agreement, lend $72,000,000 to Ocean Navigation
(the “DVB Loan”) for the purchase of the Vessels. The DVB Loan is secured
by, among other things, a first priority security interest in (x) the Vessels,
(y) the earnings from the Vessels and (z) the equity interests of Ocean
Navigation. The proceeds from the enforcement of any security will be applied
(i) first, to pay all costs and expenses incurred by DVB, ICON Palmali 12 and
ICON Palmali 14, (ii) second, to DVB for accrued and unpaid interest, (iii)
third, to DVB for unpaid principal, (iv) fourth, pro rata to ICON Palmali 12 and
ICON Palmali 14 for accrued and unpaid interest, and (v) fifth, pro rata to ICON
Palmali 12 and ICON Palmali 14 for unpaid principal. The LLC paid an
acquisition fee to its Manager of approximately $1,388,000 relating to ICON
Palmali 12’s investment in this transaction.
(6)
|
Assets
Held for Sale
|
On June
2, 2010, ICON EAR, LLC (“ICON EAR”), a joint venture owned 55% by the LLC and
45% by ICON Leasing Fund Eleven, LLC (“Fund Eleven”), in conjunction with ICON
EAR II, LLC (“ICON EAR II”), a wholly-owned subsidiary of Fund Eleven, sold a
parcel of real property in Jackson Hole, Wyoming that was received as additional
security under their respective leases with Equipment Acquisition Resources,
Inc. (“EAR”). The real property was sold for the aggregate net
purchase price of approximately $757,000. As a result, the LLC
recognized a loss on such assets held for sale of approximately
$298,000. This amount was recorded to loss on assets held for sale on
the consolidated statements of operations. In addition, on June 7,
2010, ICON EAR and ICON EAR II received judgments in New York State Supreme
Court against two principals of EAR who had guaranteed EAR’s lease
obligations. ICON EAR and ICON EAR II are in the process of having
the judgments recognized in Illinois, where the principals live. At
this time, it is not possible to determine the abilities of ICON EAR and ICON
EAR II to collect the amounts due under their respective leases from EAR’s
principals.
The Manager periodically reviews the
significant assets in the LLC’s portfolio to determine whether events or changes
in circumstances indicate that the net book value of an asset may not be
recoverable. In light of recent developments in the real estate market and the
sale of a parcel of real property located in Jackson Hole, Wyoming on June 2,
2010, the Manager reviewed the LLC’s investment in ICON EAR.
Based on the Manager’s review, the net
book value of the remaining parcels of real property located in Jackson Hole,
Wyoming exceeded their fair market value. As a result, ICON EAR
recognized a non-cash impairment charge of approximately
$1,283,000.
12
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(7)
|
Non-Recourse
Long-Term
Debt
|
The LLC had the following non-recourse
long-term debt:
June
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
ICON
Mayon, LLC
|
$ | 10,098,559 | $ | 12,341,338 | ||||
ICON
Aegean Express, LLC
|
13,988,750 | 15,039,415 | ||||||
ICON
Arabian Express, LLC
|
13,988,750 | 15,039,415 | ||||||
ICON
Eagle Holdings, LLC
|
40,944,562 | 45,743,677 | ||||||
ICON
Eagle Carina Holdings, LLC
|
19,813,682 | 22,229,602 | ||||||
ICON
Eagle Corona Holdings, LLC
|
20,649,893 | 23,107,724 | ||||||
ICON
Mynx, LLC
|
17,847,223 | 5,700,000 | ||||||
ICON
Stealth, LLC
|
25,560,000 | 27,360,000 | ||||||
ICON
Eclipse, LLC
|
41,171,875 | 45,000,000 | ||||||
ICON
Ionian, LLC
|
4,950,000 | 5,500,000 | ||||||
ICON
Coach, LLC
|
2,743,737 | 3,206,667 | ||||||
ICON
Global Crossing IV, LLC
|
12,448,656 | - | ||||||
ICON
Faulkner, LLC
|
12,000,000 | - | ||||||
Total
non-recourse long-term debt
|
236,205,687 | 220,267,838 | ||||||
Less: Current
portion of non-recourse long-term debt
|
44,539,395 | 43,305,938 | ||||||
Total
non-recourse long-term debt, less current portion
|
$ | 191,666,292 | $ | 176,961,900 |
As of
June 30, 2010 and December 31, 2009, the LLC had capitalized net debt financing
costs of $3,180,206 and $3,699,981, respectively. For the three months ended
June 30, 2010 and 2009, the amortization of debt financing costs resulted in the
recognition of interest expense of $298,562 and $192,614, respectively. For the
six months ended June 30, 2010 and 2009, the amortization of debt financing
costs resulted in the recognition of interest expense of $608,739 and $428,255,
respectively.
ICON
Global Crossing IV, LLC
On June
25, 2010, the LLC, through its wholly-owned subsidiary, ICON Global Crossing IV,
LLC (“ICON Global Crossing IV”), borrowed approximately $12,449,000 from
CapitalSource Bank (“CapitalSource”). In consideration for making the
loan, CapitalSource received a first priority security interest in ICON Global
Crossing IV's interest in Schedules 1, 2, 3, 5, 12 and 13 to ICON Global
Crossing IV’s master lease agreement with Global Crossing Telecommunications,
Inc. (“Global Crossing”). The loan is payable monthly in arrears beginning
on July 1, 2010 through March 1, 2012. Interest is payable at a rate of 9%
per year throughout the term of the loan.
The
aggregate maturities of non-recourse long-term debt over the next five years
were as follows at June 30, 2010:
For
the period July 1 to December 31, 2010
|
$ | 26,680,031 | ||
For
the year ending December 31, 2011
|
56,357,792 | |||
For
the year ending December 31, 2012
|
43,333,839 | |||
For
the year ending December 31, 2013
|
51,014,924 | |||
For
the year ending December 31, 2014
|
53,786,846 | |||
Thereafter
|
5,032,255 | |||
$ | 236,205,687 |
13
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(8)
|
Revolving
Line of Credit,
Recourse
|
The LLC
and certain entities managed by the Manager, ICON Income Fund Eight B L.P., ICON
Income Fund Nine, LLC, ICON Income Fund Ten, LLC (“Fund Ten”), Fund Eleven and
Fund Fourteen (collectively, 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
June 30, 2010, 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.
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 non-prime rate 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 June 30, 2010 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 $1,350,000 at June
30, 2010, all of which was borrowed by Fund Ten. Subsequent to June 30, 2010,
Fund Ten repaid $1,350,000, which reduced its outstanding loan balance to
$0.
Pursuant
to the Loan Agreement, the Borrowers are required to comply with certain
covenants. At June 30, 2010, the Borrowers were in compliance with
all covenants.
(9)
|
Transactions
with Related Parties
|
The LLC
entered into certain agreements with its Manager and ICON Securities Corp., a
wholly-owned subsidiary of the Manager and dealer-manager of the LLC’s offering
(“ICON Securities”), whereby the LLC paid certain fees and reimbursements to
these parties. The Manager was entitled to receive an organizational
and offering expense allowance of 3.5% of capital raised up to $50,000,000, 2.5%
of capital raised between $50,000,001 and $100,000,000, 1.5% of capital raised
between $100,000,001 and $200,000,000, 1.0% of capital raised between
$200,000,001 and $250,000,000 and 0.5% of capital raised over
$250,000,000. ICON Securities was entitled to receive a 2%
underwriting fee from the gross proceeds from sales of shares of limited
liability company interests (“Shares”) to additional members.
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.
14
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(9)
|
Transactions
with Related Parties -
continued
|
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 or loan payments from borrowers, re-leasing services in
connection with equipment which is off-lease, inspections of the equipment,
liaising with and general supervision of lessees and borrowers 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, office rent, travel expenses
and other administrative costs incurred by individuals with a controlling
interest in the Manager.
Fees and
other expenses paid or accrued by the LLC to the Manager or its affiliates were
as follows:
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||||||
Entity
|
Capacity
|
Description
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||
ICON
Capital Corp.
|
Manager
|
Organizational
and
|
||||||||||||||||||
offering
expense allowance (1)
|
$ | - | $ | 150,820 | $ | - | $ | 372,809 | ||||||||||||
ICON
Securities Corp.
|
Managing
broker-dealer
|
Underwriting
fees (1)
|
- | 603,280 | - | 1,441,563 | ||||||||||||||
ICON
Capital Corp.
|
Manager
|
Acquisition
fees (2)
|
1,538,400 | 5,422,675 | 2,138,400 | 7,228,249 | ||||||||||||||
ICON
Capital Corp.
|
Manager
|
Administrative
expense
|
||||||||||||||||||
reimbursements
(3)
|
1,229,491 | 1,109,954 | 1,914,934 | 1,960,023 | ||||||||||||||||
ICON
Capital Corp.
|
Manager
|
Management
fees (3)
|
1,092,234 | 766,823 | 2,165,116 | 1,466,852 | ||||||||||||||
$ | 3,860,125 | $ | 8,053,552 | $ | 6,218,450 | $ | 12,469,496 | |||||||||||||
(1)
Amount charged directly to members' equity.
|
||||||||||||||||||||
(2)
Amount capitalized and amortized to operations over the estimated service
period in accordance with the LLC's accounting policies.
|
||||||||||||||||||||
(3)
Amount charged directly to operations.
|
At June
30, 2010, the LLC had a net receivable of $1,941,198 due from Manager and
affiliates, which consisted primarily of the accrued obligations from Fund Ten
and Fund Eleven in connection with the MWU credit support agreement (see Note
13).
(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 on 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.
15
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(10)
|
Derivative
Financial Instruments -
continued
|
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 on
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
on 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.
Interest
Rate Risk
The LLC’s
objectives in using interest rate derivatives are to add stability to interest
expense and to manage its exposure to interest rate movements on its variable
non-recourse debt. The LLC’s 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 LLC making fixed
interest rate payments over the life of the agreements without exchange of the
underlying notional amount.
As of
June 30, 2010, the LLC had eleven floating-to-fixed interest rate swaps, one
relating to each of ICON Stealth Pte. Ltd. (“ICON Stealth”), ICON Eclipse Pte.
Ltd. (“ICON Eclipse”), ICON Eagle Corona Holdings, LLC (“ICON Corona Holdings”),
ICON Eagle Carina Holdings, LLC (“ICON Carina Holdings”), ICON Aegean Express,
LLC, ICON Arabian Express, LLC and ICON Mayon, LLC and two relating to each of
ICON Mynx and ICON Eagle Holdings, LLC (“ICON Eagle Holdings”), that are
designated and qualifying as cash flow hedges with an aggregate notional amount
of $203,625,794. These interest rate swaps have maturity dates ranging from July
25, 2011 to September 30, 2014.
For these
derivatives, the LLC records 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 within
the same line item on the statements of operations as the impact of the hedged
transaction. During the three and six months ended June 30, 2010, the LLC
recorded $13,250 and $26,798 of hedge ineffectiveness in earnings, respectively.
At June 30, 2010, the total unrealized loss recorded to AOCI related to the
change in fair value of these interest rate swaps was $7,131,909.
During
the twelve months ending June 30, 2011, the LLC estimates that $3,944,702 will
be transferred from AOCI to interest expense.
16
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(10)
|
Derivative
Financial Instruments –
continued
|
Foreign
Exchange Risk
The LLC
is exposed to fluctuations in Euros and pounds sterling. The LLC, at times, uses
foreign currency derivatives, including currency forward agreements, to manage
its exposure to fluctuations in the USD-Euro and USD-pounds sterling exchange
rates. Currency forward agreements involved fixing the foreign exchange rate for
delivery of a specified amount of foreign currency on a specified date. The
currency forward agreements were typically cash settled in U.S. dollars for
their fair value at or close to their settlement date.
Non-designated
Derivatives
As of
June 30, 2010, the LLC had two interest rate swaps, one relating to each of ICON
Faulkner and ICON Ionian, LLC (“ICON Ionian”), with a notional balance of
$16,950,000 that are not speculative and are used to meet the LLC’s objectives
in using interest rate derivatives to add stability to interest expense and to
manage its exposure to interest rate movements. The LLC’s strategy to accomplish
this objective is to match the projected future cash flows with the underlying
debt service. Each interest rate swap involves the receipt of floating-rate
interest payments from a counterparty in exchange for the LLC making fixed
interest rate payments over the life of the agreement without exchange of the
underlying notional amount.
Additionally,
the LLC holds warrants that are held for purposes other than hedging. All
changes in the fair value of the interest rate swaps not designated as hedges
and the warrants are recorded directly in earnings.
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
June 30, 2010 and December 31, 2009:
Asset Derivatives
|
Liability Derivatives
|
|||||||||||||||||
June
30,
|
December
31,
|
June
30,
|
December
31,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||||
Balance Sheet
Location
|
Fair Value
|
Fair Value
|
Balance Sheet
Location
|
Fair Value
|
Fair Value
|
|||||||||||||
Derivatives
designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest
rate swaps
|
$ | - | $ | - |
Derivative
instruments
|
$ | 7,817,807 | $ | 4,766,243 | |||||||||
Derivatives
not designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest
rate swaps
|
$ | - | $ | - |
Derivative
instruments
|
$ | 541,223 | $ | 13,309 | |||||||||
Warrants
|
Other
non-current assets
|
$ | 344,905 | $ | 79,371 | $ | - | $ | - |
17
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(10)
|
Derivative
Financial Instruments -
continued
|
The
tables below present the effect of the LLC’s derivative financial instruments
designated as cash flow hedging instruments on the consolidated statements of
operations for the three and six months ended June 30, 2010:
Three
Months Ended June 30, 2010
|
||||||||||||||
Location
of Gain (Loss)
|
Gain
(Loss) Recognized
|
|||||||||||||
Amount
of Gain (Loss)
|
Location
of Gain (Loss)
|
Recognized
in Income on
|
in
Income on Derivative
|
|||||||||||
Recognized
in
|
Reclassified
from
|
Gain
(Loss) Reclassified
|
Derivative
(Ineffective Portion
|
(Ineffective
Portion and
|
||||||||||
AOCI
on Derivative
|
AOCI
into Income
|
from
AOCI into Income
|
and
Amounts Excluded
|
Amounts
Excluded from
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness
Testing)
|
Effectiveness
Testing)
|
|||||||||
Interest
rate swaps
|
$ | (3,119,485 | ) |
Interest
expense
|
$ | (1,281,130 | ) |
(Loss)
gain on financial instruments
|
$ | (13,250 | ) |
Six
Months Ended June 30, 2010
|
||||||||||||||
Location
of Gain (Loss)
|
Gain
(Loss) Recognized
|
|||||||||||||
Amount
of Gain (Loss)
|
Location
of Gain (Loss)
|
Recognized
in Income on
|
in
Income on Derivative
|
|||||||||||
Recognized
in
|
Reclassified
from
|
Gain
(Loss) Reclassified
|
Derivative
(Ineffective Portion
|
(Ineffective
Portion and
|
||||||||||
AOCI
on Derivative
|
AOCI
into Income
|
from
AOCI into Income
|
and
Amounts Excluded
|
Amounts
Excluded from
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness
Testing)
|
Effectiveness Testing)
|
|||||||||
Interest
rate swaps
|
$ | (5,457,541 | ) |
Interest
expense
|
$ | (2,576,161 | ) |
(Loss)
gain on financial instruments
|
$ | (26,798 | ) |
18
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(10)
|
Derivative
Financial Instruments -
continued
|
The
tables below present the effect of the LLC’s derivative financial instruments
designated as cash flow hedging instruments on the consolidated statements of
operations for the three and six months ended June 30, 2009:
Three
Months Ended June 30, 2009
|
||||||||||||||
Location
of Gain (Loss)
|
Gain
(Loss) Recognized
|
|||||||||||||
Amount
of Gain (Loss)
|
Location
of Gain (Loss)
|
Recognized
in Income on
|
in
Income on Derivative
|
|||||||||||
Recognized
in
|
Reclassified
from
|
Gain
(Loss) Reclassified
|
Derivative
(Ineffective Portion
|
(Ineffective
Portion and
|
||||||||||
AOCI
on Derivative
|
AOCI
into Income
|
from
AOCI into Income
|
and
Amounts Excluded
|
Amounts
Excluded from
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness
Testing)
|
Effectiveness
Testing)
|
|||||||||
Foreign
exchange contracts
|
$ | (17,968 | ) |
(Loss)
gain on financial instruments
|
$ | 41,414 |
(Loss)
gain on financial instruments
|
$ | - | |||||
Interest
rate swaps
|
351,401 |
Interest
expense
|
(766,570 | ) |
(Loss)
gain on financial instruments
|
(16,982 | ) | |||||||
Total
|
$ | 333,433 | $ | (725,156 | ) | $ | (16,982 | ) |
Six
Months Ended June 30, 2009
|
||||||||||||||
Location
of Gain (Loss)
|
Gain
(Loss) Recognized
|
|||||||||||||
Amount
of Gain (Loss)
|
Location
of Gain (Loss)
|
Recognized
in Income on
|
in
Income on Derivative
|
|||||||||||
Recognized
in
|
Reclassified
from
|
Gain
(Loss) Reclassified
|
Derivative
(Ineffective Portion
|
(Ineffective
Portion and
|
||||||||||
AOCI
on Derivative
|
AOCI
into Income
|
from
AOCI into Income
|
and
Amounts Excluded
|
Amounts
Excluded from
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness
Testing)
|
Effectiveness Testing)
|
|||||||||
Foreign
exchange contracts
|
$ | (44,960 | ) |
(Loss)
gain on financial instruments
|
$ | 41,414 |
(Loss)
gain on financial instruments
|
$ | - | |||||
Interest
rate swaps
|
(318,569 | ) |
Interest
expense
|
(1,442,977 | ) |
(Loss)
gain on financial instruments
|
(33,042 | ) | ||||||
Total
|
$ | (363,529 | ) | $ | (1,401,563 | ) | $ | (33,042 | ) |
The LLC’s
derivative financial instruments not designated as hedging instruments generated
a loss on financial instruments on the consolidated statements of operations for
the three and six months ended June 30, 2010 of $7,374 and $223,077,
respectively. The LLC’s derivative financial instruments not designated as
hedging instruments generated a gain (loss) on financial instruments on the
consolidated statements of operations for the three and six months ended June
30, 2009 of $2,510 and $(3,272), respectively. The net gain recorded
for the three months ended June 30, 2010 was comprised of a loss of $246,699
relating to interest rate swap contracts and a gain of $267,323 relating
to warrants. The net loss recorded for the six months ended June 30, 2010 was
comprised of a loss of $461,813 relating to interest rate swap contracts
and a gain of $265,534 relating to warrants. The gain recorded for the three
months ended June 30, 2009 was comprised of an unrealized gain relating to
warrants. The loss recorded for the six months ended June 30, 2009 was comprised
of an unrealized loss relating to warrants.
19
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(10)
|
Derivative
Financial Instruments -
continued
|
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.
As of
June 30, 2010, the fair value of the derivatives in a liability position was
$8,359,030. In the event that the LLC would be required to settle its
obligations under the agreements as of June 30, 2010, the termination value was
$8,713,235.
(11)
|
Accumulated
Other Comprehensive
Loss
|
AOCI
includes accumulated unrealized losses on derivative financial instruments and
accumulated unrealized losses on currency translation adjustments of $7,131,909
and $2,266,000, respectively, at June 30, 2010 and accumulated unrealized losses
on derivative financial instruments and accumulated unrealized losses on
currency translation adjustments of $4,250,529 and $773,580, respectively, at
December 31, 2009.
Total
comprehensive income for the three and six months ended June 30, 2010 was
$3,988,113 and $8,954,274, which included: (i) net income of $6,718,987 and
$13,386,522, (ii) the net change in unrealized losses on derivative financial
instruments of $1,860,035 and $2,939,828 and (iii) unrealized losses on currency
translation adjustments of $870,839 and $1,492,420,
respectively. Total comprehensive income for the three and six months
ended June 30, 2009 was $7,684,215 and $11,426,635, which included: (i) net
income of $5,770,835 and $10,208,858, (ii) the net change in unrealized gain on
derivative financial instruments of $1,326,356 and $1,240,049 and (iii)
unrealized gain (loss) on currency translation adjustments of $587,024 and
$(22,272), respectively.
(12)
|
Fair
Value Measurements
|
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.
|
20
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(12)
|
Fair
Value Measurements -
continued
|
Financial
Assets and Liabilities Measured on a Recurring Basis
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.
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 June 30,
2010:
Level
1(1)
|
Level
2(2)
|
Level
3(3)
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | 344,905 | $ | - | $ | 344,905 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative
instruments
|
$ | - | $ | 8,359,030 | $ | - | $ | 8,359,030 | ||||||||
(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
derivative contracts, including interest rate swaps and warrants, are valued
using models based on readily observable market parameters for all substantial
terms of the LLC’s derivative contracts 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 and the fair value of the derivative liabilities was recorded
in derivative instruments within the consolidated balance sheets.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
The LLC
is required, on a nonrecurring basis, to adjust the carrying value or provide
valuation allowances for certain assets and liabilities using fair value
measurements. The LLC’s non-financial assets, such as leased equipment at
cost, are measured at fair value when there is an indicator of impairment and
recorded at fair value only when an impairment charge is recognized. The
following table summarizes the carrying value of the LLC’s material
non-financial assets and liabilities after valuation allowance using fair value
measurement on a nonrecurring basis as of June 30, 2010:
June
30, 2010(1)
|
Level
1(2)
|
Level
2(3)
|
Level
3(4)
|
Total
Impairment Loss
|
||||||||||||||||
Assets
held for sale, net
|
$ | 3,437,813 | $ | - | $ | 3,437,813 | $ | - | $ | 1,282,568 | ||||||||||
(1)
Represents the current value of the assets prior to measurement at fair
value.
|
||||||||||||||||||||
(2)
Quoted prices in active markets for identical assets or
liabilities.
|
||||||||||||||||||||
(3)
Observable inputs other than quoted prices in active markets for identical
assets and liabilities.
|
||||||||||||||||||||
(4)
No observable pricing inputs in the market.
|
21
ICON
Leasing Fund Twelve, LLC
(A
Delaware Limited Liability Company)
Notes to
Consolidated Financial Statements
June 30,
2010
(unaudited)
(12)
|
Fair
Value Measurements -
continued
|
Fair
value information with respect to the LLC’s leased assets and liabilities is not
separately provided since (i) the current accounting pronouncements do not
require fair value disclosures of lease arrangements and (ii) the carrying value
of financial assets, other than lease-related investments, and the recorded
value of recourse debt approximate fair value due to their short-term maturities
and variable interest rates. The estimated fair value of the LLC’s other
non-current liabilities and notes receivable was based on the discounted value
of future cash flows related to the loans based on recent transactions of this
type.
June
30, 2010
|
||||||||
Carrying Amount
|
Fair Value
|
|||||||
Fixed
rate notes receivable
|
$ | 64,764,053 | $ | 65,276,794 | ||||
Other
non-current liabilities
|
$ | 53,190,101 | $ | 50,481,989 |
(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 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 Ten and Fund Eleven (collectively, the “Participating Funds”) have entered
into a credit support agreement, pursuant to which losses incurred by a
Participating Fund with respect to any financing provided 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. At June 30,
2010, the LLC recorded receivables of approximately $807,000 and
$1,356,000 in connection with the obligations of Fund Ten and Fund
Eleven, respectively, under the credit support agreement as of such
date.
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.
In
connection with the acquisitions of the Aframax product tankers, the M/V Eagle
Auriga (the “Eagle Auriga”), the M/V Eagle Centaurus (the “Eagle Centaurus”),
the M/V Eagle Carina (the “Eagle Carina”) and the M/V Eagle Corona (the “Eagle
Corona”), the LLC, through ICON Eagle Holdings, ICON Carina Holdings and ICON
Corona Holdings, maintains four restricted cash accounts with Fortis Bank NV/SA
(“Fortis”). These restricted cash accounts consist of the free cash balances
that result from the difference between the bareboat charter payments from AET,
Inc. Limited (“AET”) and the repayments on the non-recourse long-term debt to
Fortis and DVB. The account of ICON Eagle Holdings is cross-collateralized and
the free cash remains in the restricted cash account until an aggregate amount
of $500,000 is funded into the account. Thereafter, all cash in excess of
$500,000 can be distributed. The free cash for ICON Carina Holdings and ICON
Corona Holdings remain in their restricted cash accounts until $500,000 is
funded into each account. Thereafter, all free cash in excess of $500,000 can be
distributed from the respective accounts.
In
connection with the acquisitions of the Leighton Mynx, the Leighton Stealth and
the Leighton Eclipse, the LLC, through ICON Mynx, ICON Stealth and ICON Eclipse,
is required to maintain a minimum aggregate cash balance of $450,000 among the
respective bank accounts of ICON Mynx, ICON Stealth and ICON
Eclipse.
In
connection with the acquisition of the product tanker vessel, the Ocean
Princess, the LLC, through ICON Ionian, is required to maintain a minimum cash
balance of $300,000 with Nordea Bank Norge ASA (“Nordea”) at all
times.
In
connection with the acquisition of the Leighton Faulkner, the LLC, through ICON
Faulkner, is required to maintain a minimum aggregate cash balance of $75,000
within ICON Faulkner’s bank account.
The
aforementioned cash amounts are presented within other non-current assets in the
LLC’s consolidated balance sheets as of June 30, 2010 and December 31,
2009.
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, 2009. 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 Leasing Fund Twelve, LLC and its consolidated
subsidiaries.
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
Our
offering period ended on April 30, 2009 and our operating period commenced on
May 1, 2009. We operate as an equipment leasing and finance program in which the
capital our members invested was pooled together to make investments, pay fees
and establish a small reserve.
With the proceeds from the
sale of our Shares, we invested and continue to invest in equipment subject to
leases, other equipment financing, and residual ownership rights in items of
leased equipment and establish a cash reserve. After the net offering
proceeds were invested, additional investments will be made with the cash
generated from our initial investments to the extent that cash is not used for
expenses, reserves and distributions to members. The investment in additional
equipment in this manner is called “reinvestment.” We anticipate investing in
equipment from time to time for five years. This time frame is called the
“operating period” and may be extended, at the sole discretion of our Manager,
for up to an additional three years. After the operating period, we
will then sell our assets in the ordinary course of business during a time frame
called the “liquidation period.”
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. Our initial closing was on May 25, 2007, when the minimum
offering of $1,200,000 was achieved (the “Commencement of Operations”). From the
Commencement of Operations through April 30, 2009, the end of our offering
period, we raised total equity of $347,686,947.
Recent
Significant Transactions
We
engaged in the following significant transactions since December 31,
2009:
Marine
Vessels and Equipment
On
December 18, 2009, we, through our wholly-owned subsidiary, ICON Faulkner,
entered into the Faulkner MOA to purchase the Leighton Faulkner from Leighton
Contractors for $20,000,000. Simultaneously with the execution of the
Faulkner MOA, ICON Faulkner entered into a bareboat charter with Leighton
Contractors for a period of ninety-six months commencing on January 5,
2010. The purchase price for the Leighton Faulkner consisted of
$1,000,000 in cash and $19,000,000 in non-recourse indebtedness, which included
$12,000,000 of senior debt pursuant to a senior facility agreement with SCB and
a $7,000,000 subordinated seller’s credit. The loan with SCB has a
term of five years, with an option to extend for another three years. The
interest rate has been fixed pursuant to a swap agreement. All of
Leighton Contractors’ obligations are guaranteed by its ultimate parent company,
Leighton Holdings, a publicly traded company on the Australian Stock
Exchange. We paid an acquisition fee to our Manager of $600,000
relating to this transaction.
On March
31, 2010, we, through our wholly-owned subsidiary, ICON Mynx, entered into an
agreement with Leighton Offshore to upgrade the Leighton Mynx by acquiring
certain equipment and making certain upgrades to the Leighton Mynx in an amount
equal to $20,000,000. The upgrades include the addition of a helicopter deck, as
well as a new crane and accommodation unit. The cost of the upgrades will be
financed with $2,000,000 in cash and $18,000,000 in non-recourse indebtedness,
which includes $4,000,000 of subordinated contractor’s credit and $14,000,000 of
senior debt pursuant to the Amended Facility Agreement. The Amended Facility
Agreement will be repaid in quarterly installments beginning on March 31, 2011
and interest will be fixed pursuant to a swap agreement with SCB. In
consideration for financing the upgrades, ICON Mynx and Leighton Offshore agreed
to amend the bareboat charter for the Leighton Mynx to, among other things,
increase the amount of monthly charter hire payable by Leighton Offshore and
increase the value of the purchase option price at the expiry of the charter.
All of Leighton Offshore’s obligations are guaranteed by Leighton Holdings. We
paid an acquisition fee to our Manager of $600,000 relating to this
transaction.
Manufacturing
Equipment
Due to
the global downturn in the automotive industry, Sealynx requested a
restructuring of its lease payments during the third quarter of 2009 and we
agreed to reduce Sealynx’s lease payments. On January 4, 2010, we
restructured Sealynx’s payment obligations under the lease to provide it with
cash flow flexibility while at the same time attempting to preserve our
projected economic return on this investment. As additional security
for restructuring the payment obligations, ICON French Equipment II received an
additional mortgage on certain real property owned by Sealynx located in
Charleval, France. On July 5, 2010, Sealynx filed for a conciliation
procedure with the Commercial Court of Nanterre requesting it to repay, over a
two year period, approximately $1,900,000 in deferred rent that became due to us
on July 1, 2010. The Commercial Court of Nanterre has not yet ruled
on Sealynx’s request.
On
January 13, 2010, we further amended the lease with LC Manufacturing to reduce
LC Manufacturing’s payment obligations under the lease and to provide us with an
excess cash flow sweep in the event that excess cash flow is available in the
future. On May 31, 2010, MWU sold its equity interest in LC
Manufacturing to an entity controlled by LC Manufacturing’s management and the
personal guaranty of MWU’s principal was reduced to $6,500,000 with respect to
LC Manufacturing. On July 26, 2010, we, in consideration for all
amounts due under the lease, sold the equipment we leased to the MWU affiliate,
Metavation, and terminated the lease.
Gas
Compressors
On April
1, 2010, we sold to Hardwood Partners a 5.460% nonvoting, noncontrolling
interest in ICON Atlas for the purchase price of $550,000. As a
result, we recorded a gain on sale in the amount of approximately $1,000, which
was included in members’ equity, and our economic interest in ICON Atlas was
reduced to 49.540%, although our controlling interest remained at
55%.
Telecommunications
Equipment
On June
29, 2010, we, through our wholly-owned subsidiary, ICON Broadview, entered into
a master lease agreement for information technology equipment with Broadview.
During the period beginning June 29, 2010 through December 31, 2010, ICON
Broadview will acquire up to four schedules of information technology equipment,
which will be leased to Broadview. The aggregate purchase price for the
equipment will be equal to at least $5,000,000. We paid an
acquisition fee to our Manager of $150,000 relating to this
transaction.
On July
15, 2010, ICON Broadview purchased information technology equipment from Juniper
Networks (US), Inc. for the purchase price of approximately $602,000 and
simultaneously leased the equipment to Broadview. The base term of
the schedule is for a period of thirty-six months, which commenced on August 1,
2010.
Note
Receivable Secured by a Machine Paper Coating Manufacturing Line
On
February 26, 2010, we, through our wholly-owned subsidiary, ICON Appleton,
amended certain financial covenants in the loan agreement with
Appleton. In consideration for amending the loan agreement, we
received an amendment fee from Appleton in the amount of approximately
$117,000.
On April
1, 2010, we sold to Hardwood Partners a 5.1% noncontrolling interest in ICON
Appleton for the purchase price of $1,000,000. As a result, we
recorded a gain on sale in the amount of approximately $6,000, which was
included in members’ equity, and our controlling interest in ICON Appleton was
reduced to 94.900%.
On July
20, 2010, we amended the loan agreement to release two borrowers that were being
sold by Appleton to a third party, American Plastics Company, Inc. and New
England Extrusion, Inc. In consideration for amending the loan
agreement, we received an amendment fee in the amount of $40,000 from
Appleton.
Notes
Receivable Secured by Analog Seismic System Equipment
On April
1, 2010, we sold to Hardwood Partners a 2.913% noncontrolling interest in ICON
ION for the purchase price of $550,000. As a result, we recorded a
gain on sale in the amount of approximately $4,000, which was included in
members’ equity, and our controlling interest in ICON ION was reduced to
52.087%.
Note
Receivable Secured by Rail Support Construction Equipment
On April
1, 2010, we sold to Hardwood Partners a 5.873% nonvoing, noncontrolling
interest in ICON Quattro for the purchase price of $550,000. As a
result, we recorded a loss on sale in the amount of approximately $37,000, which
was included in members’ equity, and our economic interest in ICON Quattro was
reduced to 49.127%, although our controlling interest remained at
55%..
Note
Receivable Secured by Aframax Tankers
On June
30, 2010, we, through our wholly-owned subsidiary, ICON Palmali 12, and Fund
Fourteen, through its wholly-owned subsidiary, ICON Palmali 14, participated in
the Palmali Loan Agreement by making second priority secured term loans to Ocean
Navigation. The proceeds of the loans will be used by Ocean Navigation to
purchase two Vessels.
The
aggregate principal amounts of ICON Palmali 12’s and ICON Palmali 14’s secured
term loans are $9,600,000 and $14,400,000, respectively, half of which will be
made available to Ocean Navigation for the purchase of each
Vessel. Interest on the secured term loans accrues at a rate of
15.25% per year and is payable quarterly in arrears for a period of six years
from the delivery date of each Vessel. The entire principal amounts will
be due at the maturity of the loans. Ocean Navigation has the option to
prepay the loans in whole or in part following the third anniversary of the date
of the first advance for each Vessel.
On July
28, 2010, ICON Palmali 12 and ICON Palmali 14 made loans in the amounts of
$4,800,000 and $7,200,000, respectively, to Ocean Navigation for the purchase of
the Shah Deniz. In connection with the loans, ICON Palmali 12 and
ICON Palmali 14 collected (i) arrangement fees in the amounts of $240,000 and
$360,000, respectively, and (ii) unused commitment fees of 2% per year on the
undrawn loan amounts. In addition, Ocean Navigation is required to
pay an additional unused commitment fee of 2% per year of the undrawn loan
amounts from July 29, 2010 through September 30, 2010, 4% per year from October
1, 2010 through December 31, 2010 and 6% per year from January 1, 2011 through
March 31, 2011.
The loans
are secured by, among other things, second priority security interests in (i)
the Vessels, (ii) the earnings from the Vessels and (iii) the equity interests
of Ocean Navigation. In addition, Ocean Navigation or the Palmali
Guarantors must provide ICON Palmali 12 and ICON Palmali 14 additional
security for the loans with a fair market value of not less than $10,000,000
within twelve months of the date of the Palmali Loan Agreement. All
of Ocean Navigation’s obligations under the Palmali Loan Agreement are
guaranteed by the Palmali Guarantors.
Simultaneously
with ICON Palmali 12’s and ICON Palmali 14’s loans, DVB will, pursuant to the
Palmali Loan Agreement, lend $72,000,000 to Ocean Navigation for the purchase of
the Vessels. The DVB Loan is secured by, among other things, a first
priority security interest in (x) the Vessels, (y) the earnings from the Vessels
and (z) the equity interests of Ocean Navigation. The proceeds from the
enforcement of any security will be applied (i) first, to pay all costs and
expenses incurred by DVB, ICON Palmali 12 and ICON Palmali 14, (ii)
second, to DVB for accrued and unpaid interest, (iii) third, to DVB for
unpaid principal, (iv) fourth, pro rata to ICON Palmali 12 and ICON Palmali 14
for accrued and unpaid interest, and (v) fifth, pro rata to ICON Palmali 12 and
ICON Palmali 14 for unpaid principal. We paid an acquisition fee to
our Manager of approximately $1,388,000 relating to ICON Palmali 12’s investment
in this transaction.
ICON
Global Crossing IV, LLC
On June
25, 2010, we, through our wholly-owned subsidiary, ICON Global Crossing IV,
borrowed approximately $12,449,000 from CapitalSource. In
consideration for making the loan, CapitalSource received a first priority
security interest in ICON Global Crossing IV's interest in Schedules 1, 2, 3, 5,
12 and 13 to ICON Global Crossing IV’s master lease agreement with Global
Crossing. The loan is payable monthly in arrears beginning on July 1, 2010
through March 1, 2012. Interest is payable at a rate of 9% per year
throughout the term of the loan.
Assets
Held for Sale
On June
2, 2010, ICON EAR, a joint venture owned 55% by us and 45% by Fund Eleven, in
conjunction with ICON EAR II, a wholly-owned subsidiary of Fund Eleven, sold a
parcel of real property in Jackson Hole, Wyoming that was received as additional
security under their respective leases with EAR. The real property
was sold for the aggregate net purchase price of approximately
$757,000. As a result, we recognized a loss on such assets held for
sale of approximately $298,000. This amount was recorded to loss on
assets held for sale on the consolidated statements of operations. In addition,
on June 7, 2010, ICON EAR and ICON EAR II received judgments in New York State
Supreme Court against two principals of EAR who had guaranteed EAR’s lease
obligations. ICON EAR and ICON EAR II are in the process of having
the judgments recognized in Illinois, where the principals live. At
this time, it is not possible to determine the abilities of ICON EAR and ICON
EAR II to collect the amounts due under their respective leases from EAR’s
principals.
Our
Manager periodically reviews the significant assets in our portfolio to
determine whether events or changes in circumstances indicate that the net book
value of an asset may not be recoverable. In light of recent developments in the
real estate market and the sale of a parcel of real property located in Jackson
Hole, Wyoming on June 2, 2010, our Manager reviewed our investment in ICON
EAR.
Based on
our Manager’s review, the net book value of the remaining parcels of real
property located in Jackson Hole, Wyoming exceeded their fair market
value. As a result, ICON EAR recognized a non-cash impairment charge
of approximately $1,283,000.
Recently
Adopted Accounting Pronouncements
There are
no recent accounting pronouncements that are expected to have a significant
impact on our consolidated financial statements as of June 30,
2010. 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. 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. Nevertheless,
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 charges during the six months ended June 30, 2010, 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 June 30, 2010 (the “2010 Quarter”) and
2009 (the “2009 Quarter”)
Our
offering period ended on April 30, 2009 and our operating period commenced on
May 1, 2009. We invested most of the net proceeds from our offering in equipment
leases and other financing transactions. During our operating period, we have
made and will continue to make investments with the cash generated from our
initial investments and our additional investments to the extent that the cash
is not used for expenses, reserves and distributions to members. As our
investments mature, we may reinvest the proceeds in additional investments in
equipment or other financing transactions. We anticipate incurring gains or
losses on our investments during our operating period. Additionally, we expect
to see our rental income and finance income increase, as well as related
expenses such as depreciation and amortization expense and interest expense. We
anticipate that the fees we pay to our Manager to manage our investment
portfolio will increase during this period as the size and volume of activity in
our investment portfolio will increase.
Revenue
for the 2010 Quarter and the 2009 Quarter is summarized as follows:
Three Months Ended June 30,
|
||||||||||||
2010
|
2009
|
Change
|
||||||||||
Rental
income
|
$ | 15,279,370 | $ | 13,213,846 | $ | 2,065,524 | ||||||
Finance
income
|
3,719,557 | 2,567,011 | 1,152,546 | |||||||||
Income
from investment in joint venture
|
148,245 | 130,962 | 17,283 | |||||||||
Interest
and other income
|
3,050,974 | 2,583,355 | 467,619 | |||||||||
Gain
on guaranty
|
2,162,795 | - | 2,162,795 | |||||||||
Loss
on assets held for sale
|
(297,864 | ) | - | (297,864 | ) | |||||||
Total
revenue
|
$ | 24,063,077 | $ | 18,495,174 | $ | 5,567,903 |
Total
revenue for the 2010 Quarter increased $5,567,903, or 30.1%, as compared to the
2009 Quarter. The gain on guaranty recorded during the 2010 Quarter
was in connection with the credit support agreement related to financing
provided to the MWU subsidiaries, which resulted in accrued obligations from
both Fund Ten and Fund Eleven. The increase in rental income was due
to the acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and
August 2009, (ii) the diving equipment by ICON Diving Marshall Islands, LLC
(“ICON DMI”) in June 2009 and (iii) the mining equipment by ICON Murray II, LLC
(“ICON Murray II”) in May 2009. The increase in finance income was primarily due
to the acquisitions of (i) the vessel by ICON Faulkner in January 2010, (ii) the
vessels by ICON Ionian and by ICON Eclipse in October 2009 and (iii) the vessel
by ICON Stealth in June 2009.
Expenses
for the 2010 Quarter and the 2009 Quarter are summarized as
follows:
Three Months Ended June 30,
|
||||||||||||
2010
|
2009
|
Change
|
||||||||||
|
||||||||||||
Management
fees - Manager
|
$ | 1,092,234 | $ | 766,823 | $ | 325,411 | ||||||
Administrative
expense reimbursements - Manager
|
1,229,491 | 1,109,954 | 119,537 | |||||||||
General
and administrative
|
763,825 | 576,073 | 187,752 | |||||||||
Interest
|
4,005,795 | 2,265,842 | 1,739,953 | |||||||||
Depreciation
and amortization
|
8,977,551 | 7,999,787 | 977,764 | |||||||||
Impairment
loss
|
1,282,568 | - | 1,282,568 | |||||||||
(Gain)
loss on financial instruments
|
(7,374 | ) | 5,860 | (13,234 | ) | |||||||
Total
expenses
|
$ | 17,344,090 | $ | 12,724,339 | $ | 4,619,751 |
Total
expenses for the 2010 Quarter increased $4,619,751, or 36.3%, as compared to the
2009 Quarter. The increase in interest expense was due to the interest incurred
on the debt obligations owed by ICON Faulkner, ICON Coach, LLC (“ICON Coach”),
ICON Ionian, ICON Eclipse and ICON Stealth during the 2010
Quarter. The impairment loss was due to the recognition of a non-cash
impairment charge by ICON EAR during the 2010 Quarter. The increase
depreciation and amortization expense due to the acquisitions of (i) the gas
compressors by ICON Atlas in June 2009 and August 2009, (ii) the diving
equipment by ICON DMI in June 2009 and (iii) the mining equipment by ICON Murray
II in May 2009. Furthermore, the increase in depreciation and
amortization expense was also due to the amortization expense for capitalized
fees on direct finance leases for the acquisitions of (i) the vessel by ICON
Faulkner in January 2010, (ii) the vessels by ICON Ionian and ICON Eclipse in
October 2009 and (iii) the vessels by ICON Mynx and ICON Stealth in June 2009,
as well as the amortization expense for capitalized fees on the notes receivable
invested in by ICON Quattro in December 2009 and ICON ION in June 2009 and July
2009.
Noncontrolling
Interests
Net
income attributable to noncontrolling interests for the 2010 Quarter decreased
$503,023, or 24.4%, as compared to the 2009 Quarter. The decrease in net income
attributable to noncontrolling interests was primarily due to the recognition of
a non-cash impairment charge by ICON EAR during the 2010
Quarter. Additionally, on October 23, 2009, EAR filed a petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code, and as a result,
ICON EAR did not generate the revenue stream that was present in the 2009
Quarter. Offsetting the decrease was our investments in controlling interests in
ICON Quattro, ICON Atlas and ICON ION during 2009, in each of which Fund
Fourteen has a noncontrolling interest. Also offsetting the decrease
was Hardwood Partners’ investment in a noncontrolling interest in each of ICON
Quattro, ICON Atlas, ICON ION and ICON Appleton during the 2010
Quarter.
Net
Income Attributable to Fund Twelve
As a
result of the foregoing factors, net income attributable to us for the 2010
Quarter and the 2009 Quarter was $5,164,070 and $3,712,895, respectively. Net
income attributable to us per weighted average additional Share outstanding for
the 2010 Quarter and the 2009 Quarter was $14.66 and $10.74,
respectively.
Results
of Operations for the Six Months Ended June 30, 2010 (the “2010 Period”) and
2009 (the “2009 Period”)
Revenue
for the 2010 Period and the 2009 Period is summarized as follows:
Six Months Ended June 30,
|
||||||||||||
2010
|
2009
|
Change
|
||||||||||
Rental
income
|
$ | 30,936,632 | $ | 26,044,236 | $ | 4,892,396 | ||||||
Finance
income
|
7,685,324 | 3,447,921 | 4,237,403 | |||||||||
Income
from investment in joint venture
|
297,203 | 292,866 | 4,337 | |||||||||
Interest
and other income
|
6,274,726 | 4,999,171 | 1,275,555 | |||||||||
Gain
on guaranty
|
2,162,795 | - | 2,162,795 | |||||||||
Loss
on assets held for sale
|
(297,864 | ) | - | (297,864 | ) | |||||||
Total
revenue
|
$ | 47,058,816 | $ | 34,784,194 | $ | 12,274,622 |
Total
revenue for the 2010 Period increased $12,274,622, or 35.3%, as compared to the
2009 Period. The increase in rental income was due to the
acquisitions of (i) the gas compressors by ICON Atlas in June 2009 and August
2009, (ii) the diving equipment by ICON DMI in June 2009, (iii) the mining
equipment by ICON Murray, LLC (“ICON Murray”) and ICON Murray II in February
2009 and May 2009, respectively, (iv) the motor coaches by ICON Coach in April
2009 and (v) the vessel by Victorious, LLC (“Victorious”) in March 2009. The
increase in finance income was primarily due to the acquisitions of (i) the
vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and by
ICON Eclipse in October 2009, (iii) the vessels by ICON Mynx and ICON Stealth in
June 2009 and (iv) the additional telecommunications equipment by ICON Global
Crossing IV in March 2009. The gain on guaranty recorded during the 2010 Period
was in connection with the credit support agreement related to financing
provided to the MWU subsidiaries, which resulted in accrued obligations from
both Fund Ten and Fund Eleven. The increase in interest and other
income was primarily due to the interest earned from the investments in notes
receivable by ICON Quattro in December 2009, ICON ION in June 2009 and July 2009
and ICON Northern Leasing II, LLC (“ICON Northern Leasing II”) in March
2009.
Expenses
for the 2010 Period and the 2009 Period are summarized as follows:
Six Months Ended June 30,
|
||||||||||||
2010
|
2009
|
Change
|
||||||||||
|
||||||||||||
Management
fees - Manager
|
$ | 2,165,116 | $ | 1,466,852 | $ | 698,264 | ||||||
Administrative
expense reimbursements - Manager
|
1,914,934 | 1,960,023 | (45,089 | ) | ||||||||
General
and administrative
|
1,397,312 | 1,022,570 | 374,742 | |||||||||
Interest
|
8,538,994 | 4,507,220 | 4,031,774 | |||||||||
Depreciation
and amortization
|
18,150,293 | 15,599,376 | 2,550,917 | |||||||||
Impairment
loss
|
1,282,568 | - | 1,282,568 | |||||||||
Loss
on financial instruments
|
223,077 | 19,295 | 203,782 | |||||||||
Total
expenses
|
$ | 33,672,294 | $ | 24,575,336 | $ | 9,096,958 |
Total
expenses for the 2010 Period increased $9,096,958, or 37.0%, as compared to the
2009 Period. The increase in total expenses was primarily due to increases in
interest expense due to the interest incurred on the debt obligations owed by
ICON Faulkner, ICON Coach, ICON Ionian, ICON Eclipse, ICON Mynx and ICON Stealth
during the 2010 Period. The increase in depreciation and amortization
expense is due to the acquisitions of (i) the gas compressors by ICON Atlas in
June 2009 and August 2009, (ii) the diving equipment by ICON DMI in June 2009,
(iii) the mining equipment by ICON Murray and ICON Murray II in February 2009
and May 2009, respectively, (iv) the motor coaches by ICON Coach in April 2009
and (v) the vessel by Victorious in March 2009. Furthermore, the increase in
depreciation and amortization expense was also due to the amortization expense
for capitalized fees on direct finance leases for the acquisitions of (i) the
vessel by ICON Faulkner in January 2010, (ii) the vessels by ICON Ionian and
ICON Eclipse in October 2009, (iii) the vessels by ICON Mynx and ICON Stealth in
June 2009 and (iv) the telecommunications equipment by ICON Global Crossing IV
in March 2009, as well as the amortization expense for capitalized fees on the
notes receivable invested in by ICON Quattro in December 2009, ICON ION in June
2009 and July 2009 and ICON Northern Leasing II in March 2009. The impairment
loss was due to the recognition of a non-cash impairment charge by ICON EAR
during the 2010 Period.
Noncontrolling
Interests
Net
income attributable to noncontrolling interests for the 2010 Period increased
$244,501, or 7.1%, as compared to the 2009 Period. The increase in net income
attributable to noncontrolling interests was primarily due to our investments in
controlling interests in ICON Quattro, ICON Atlas and ICON ION during 2009, in
each of which Fund Fourteen has a noncontrolling interest. The
increase was also due to Hardwood Partners’ investment in a noncontrolling
interest in each of ICON Quattro, ICON Atlas, ICON ION and ICON Appleton during
the 2010 Period.
Net
Income Attributable to Fund Twelve
As a
result of the foregoing factors, net income attributable to us for the 2010
Period and the 2009 Period was $9,717,736 and $6,784,573, respectively. Net
income attributable to us per weighted average additional Share outstanding for
the 2010 Period and the 2009 Period was $27.59 and $21.07,
respectively.
Financial
Condition
This
section discusses the major balance sheet variances at June 30, 2010 compared to
December 31, 2009.
Total Assets
Total
assets increased $15,782,707, from $620,978,386 at December 31, 2009 to
$636,761,093 at June 30, 2010. The increase was primarily due to the
cash received from the debt borrowed by ICON Global Crossing IV in June
2010. The increase was also due to the acquisition of a vessel by
ICON Faulkner and the Mynx upgrade during the 2010 Period. This
increase was partially offset by depreciation of leased equipment at cost,
scheduled repayments of our notes receivable, and cash distributions to our
members and noncontrolling interests.
Current Assets
Current
assets increased $12,128,714, from $78,149,655 at December 31, 2009 to
$90,278,369 at June 30, 2010. The increase was primarily due to the
cash received from the debt borrowed by ICON Global Crossing IV in June
2010. The increase was also due to the acquisition of a vessel by
ICON Faulkner during the 2010 Period. This increase was partially
offset by cash distributions to our members and noncontrolling
interests.
Total
Liabilities
Total
liabilities increased $28,317,842, from $279,343,161 at December 31, 2009 to
$307,661,003 at June 30, 2010. The increase was primarily due to an increase in
derivative instrument obligations as well as debt obligations incurred by ICON
Global Crossing IV, ICON Mynx and ICON Faulkner during the 2010 Period. The
increase was partially offset by scheduled repayments of our non-recourse
long-term debt.
Current
Liabilities
Current
liabilities increased $4,505,395, from $58,299,215 at December 31, 2009 to
$62,804,610 at June 30, 2010. The increase was primarily due to the
non-recourse debt obligations incurred by ICON Global Crossing IV, ICON Mynx and
ICON Faulkner during the 2010 Period, and the increase in our derivative
instrument obligations during the 2010 Period.
Equity
Equity
decreased $12,535,135, from $341,635,225 at December 31, 2009 to $329,100,090 at
June 30, 2010. The decrease was primarily due to the distributions paid to our
members and noncontrolling interests and the change in fair value of derivative
instruments and currency translation adjustments during the 2010 Period. The
decrease was partially offset by net income and the investment in joint ventures
by noncontrolling interests during the 2010 Period.
Liquidity
and Capital Resources
Summary
At June
30, 2010 and December 31, 2009, we had cash and cash equivalents of $39,784,068
and $27,075,059, respectively. During our offering period, our main source of
cash was from financing activities and our main use of cash was in investing
activities. During our operating period, our main source of cash is from
operating activities and our main use of cash is in investing and financing
activities. Our liquidity will vary in the future, increasing to the extent cash
flows from investments and proceeds from the sale of our investments exceed
expenses and decreasing as we enter into new investments, pay distributions to
our members and to the extent that expenses exceed cash flows from operations
and the proceeds from the sale of our investments.
We
currently have adequate cash balances and generate a sufficient amount of cash
flow from operations to meet our short-term working capital
requirements. We expect to generate sufficient cash flows from
operations to sustain our working capital requirements in the foreseeable
future. In the event that our working capital is not adequate to fund our
short-term liquidity needs, we could borrow against our revolving line of
credit, with $28,650,000 available at June 30, 2010, to meet such
requirements. For additional information, see Note 8 to our
consolidated financial statements.
We
anticipate that our liquidity requirements for the remaining life of the fund
will be financed by the expected results of our operations, as well as cash
received from our investments at maturity.
We
anticipate being able to meet our liquidity requirements into the foreseeable
future. However, 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.
Pursuant
to the terms of our offering, we established a cash reserve in the amount of
0.5% of the gross offering proceeds. As of June 30, 2010, the cash
reserve was $1,738,435.
Cash
Flows
The following table sets forth
summary cash flow data:
Six Months Ended June 30,
|
||||||||
2010
|
2009
|
|||||||
Net
cash provided by (used in):
|
||||||||
Operating
activities
|
$ | 22,199,416 | $ | 9,138,183 | ||||
Investing
activities
|
6,116,983 | (66,639,036 | ) | |||||
Financing
activities
|
(15,593,878 | ) | 46,133,760 | |||||
Effects
of exchange rates on cash and cash equivalents
|
(13,512 | ) | 28,419 | |||||
Net
increase (decrease) in cash and cash equivalents
|
$ | 12,709,009 | $ | (11,338,674 | ) |
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
Cash
provided by operating activities increased $13,061,233, from $9,138,183 in the
2009 Period to $22,199,416 in the 2010 Period. The increase was
primarily due to increases in the collection of finance leases, depreciation and
amortization expense and net income during the 2010 Period. Such
amounts were partially offset by increases in finance income and other assets
during the 2010 Period.
Investing
Activities
Cash
provided by investing activities increased $72,756,019, from a use of cash of
$66,639,036 in the 2009 Period, to a source of cash of $6,116,983 in the 2010
Period. We invested in one equipment lease during the 2010 Period as compared to
nine equipment leases and two other financing transactions during the 2009
Period. Such amounts were partially offset by repayments of a portion of our
notes receivable during the 2010 Period.
Financing
Activities
Cash used
in financing activities increased $61,727,638, from a source of cash of
$46,133,760 in the 2009 Period, to a use of cash of $15,593,878 in the 2010
Period. The net use of cash was primarily due to a decrease in the
proceeds we received from the issuance of additional Shares as compared to the
2009 Period, as our offering period ended on April 30, 2009. The net
use of cash in financing activities was also due to the increase in
distributions paid to our members and noncontrolling interests. The
increase in cash used in financing activities was offset by the increase in the
investment in joint ventures by noncontrolling interests and the net proceeds
received from our non-recourse long-term debt.
Non-Recourse
Long-Term Debt
We had
non-recourse long-term debt obligations at June 30, 2010 of $236,205,687. Most
of our non-recourse long-term debt obligations consist of notes payable in which
the lender has a security interest in the equipment and an assignment of the
rental payments under the lease, in which case the lender is being paid directly
by the lessee. In other cases, we receive the rental payments and pay the
lender. If the lessee were to default on the non-recourse long-term
debt, the equipment would be returned to the lender in extinguishment of the
non-recourse long-term debt.
Distributions
We, at
our Manager’s discretion, pay monthly distributions to each of our additional
members and noncontrolling interests starting with the first month after each
such 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 $169,952, $16,825,229 and $7,249,035,
respectively, during the 2010 Period.
Commitments
and Contingencies and Off-Balance Sheet Transactions
Commitments
and Contingencies
At June
30, 2010, we had non-recourse debt obligations. The lender has a security
interest in the majority of the equipment collateralizing each non-recourse
long-term debt instrument and an assignment of the rental payments under the
lease associated with the equipment. In such cases, the lender is being paid
directly by the lessee. In other cases, we receive the rental
payments and pay the lender. If the lessee defaults on the lease, the equipment
would be returned to the lender in extinguishment of the non-recourse debt. At
June 30, 2010, our outstanding non-recourse long-term indebtedness was
$236,205,687. We are a party to the Facility and had no borrowings
under the Facility at June 30, 2010.
The
Participating Funds have entered into a credit support agreement, pursuant to
which losses incurred by a Participating Fund with respect to any financing
provided 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. At June 30, 2010, we recorded receivables of approximately $807,000
and $1,356,000 in connection with the accrued obligations of Fund Ten
and Fund Eleven, respectively, under the credit support agreement as of such
date.
We have
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.
In
connection with the acquisitions of the Eagle Auriga, the Eagle Centaurus, the
Eagle Carina and the Eagle Corona, we, through ICON Eagle Holdings, ICON Carina
Holdings and ICON Corona Holdings, maintain four restricted cash accounts with
Fortis. These restricted cash accounts consist of the free cash balances that
result from the difference between the bareboat charter payments from AET and
the repayments on the non-recourse long-term debt to Fortis and DVB. The account
of ICON Eagle Holdings is cross-collateralized and the free cash remains in the
restricted cash account until an aggregate amount of $500,000 is funded into the
account. Thereafter, all cash in excess of $500,000 can be distributed. The
free cash for ICON Carina Holdings and ICON Corona Holdings remain in their
restricted cash accounts until $500,000 is funded into each account. Thereafter,
all free cash in excess of $500,000 can be distributed from the respective
accounts.
In
connection with the acquisitions of the Leighton Mynx, the Leighton Stealth and
the Leighton Eclipse, we, through ICON Mynx, ICON Stealth and ICON Eclipse, are
required to maintain a minimum aggregate cash balance of $450,000 among the
respective bank accounts of ICON Mynx, ICON Stealth and ICON
Eclipse.
In
connection with the acquisition of the Ocean Princess, we, through ICON Ionian,
are required to maintain a minimum cash balance of $300,000 with Nordea at all
times.
In
connection with the acquisition of the Leighton Faulkner, we, through ICON
Faulkner, are required to maintain a minimum aggregate cash balance of $75,000
within ICON Faulkner’s bank account.
The
aforementioned cash amounts are presented within other non-current assets in our
consolidated balance sheets as of June 30, 2010 and December 31,
2009.
Off-Balance
Sheet Transactions
None.
There are
no material changes to the disclosures related to this item since the filing of
our Annual Report on Form 10-K for the year ended December 31,
2009.
Evaluation of disclosure controls
and procedures
In
connection with the preparation of this Quarterly Report on Form 10-Q for the
three months ended June 30, 2010, 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, as amended. 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 June 30, 2010 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, we may be subject to certain claims,
suits and complaints filed against us. In our Manager’s opinion, the
outcome of such matters, if any, will not have a material impact on our
consolidated financial position, cash flows 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,
2009.
Our
Manager consented to our repurchase of 59 Shares during the 2010 Quarter.
The repurchase amounts are calculated according to a specified repurchase
formula pursuant to our 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 June
30, 2010:
Total
Number of
|
Average
Price Paid
|
|||||||
Period
|
Shares Repurchased
|
Per Share
|
||||||
April
1, 2010 through April 30, 2010
|
- | $ | - | |||||
May
1, 2010 through May 31, 2010
|
- | $ | - | |||||
June
1, 2010 through June 30, 2010
|
59 | $ | 798.80 | |||||
Total
|
59 |
Not
applicable.
Not
applicable.
3.1
|
Certificate
of Formation of Registrant (Incorporated by reference to Exhibit 3.1 to
Registrant’s Registration Statement on Form S-1 filed with the SEC on
November 13, 2006 (File No.
333-138661)).
|
4.1
|
Limited
Liability Company Agreement of Registrant (Incorporated by reference
to Exhibit A to Registrant’s Prospectus filed with the SEC on May 8, 2007
(File No.
333-138661)).
|
10.1
|
Commercial
Loan Agreement, dated as of August 31, 2005, by and among 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 June 20,
2007).
|
10.2
|
Loan
Modification Agreement, dated as of December 26, 2006, 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 10.2 to Registrant’s Current Report
on Form 8-K dated June 20,
2007).
|
10.3 |
Loan
Modification Agreement, dated as of June 20, 2007, 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 10.3 to
Registrant’s Current Report on Form 8-K dated June 20,
2007).
|
10.4
|
Third
Loan Modification Agreement, dated as of May 1, 2008, 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 15,
2008).
|
10.5 |
Fourth
Loan Modification Agreement, dated as of August 12, 2009, 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,
ICON Leasing Fund Twelve, LLC and ICON Equipment and Corporate
Infrastructure Fund Fourteen, L.P. (Incorporated by reference to Exhibit
10.5 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. §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. §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. §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, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
ICON
Leasing Fund Twelve, LLC
(Registrant)
By: ICON
Capital Corp.
(Manager
of the Registrant)
August
13, 2010
By:
/s/ Michael A.
Reisner
|
Michael
A. Reisner
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
August 13, 2010
By:
/s/ Mark
Gatto
|
Mark
Gatto
|
Co-Chief
Executive Officer and Co-President
(Co-Principal
Executive Officer)
|
August 13, 2010
By:
/s/ Anthony J.
Branca
|
Anthony
J. Branca
|
Chief
Financial Officer
(Principal
Accounting and Financial
Officer)
|
38
|