Attached files

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EX-10.6 - LOAN TERMINATION AGREEMENT - ICON INCOME FUND NINE LLCex10-6.htm
EX-31.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-3.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-2.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-2.htm
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex31-1.htm
EX-32.3 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-3.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON INCOME FUND NINE LLCex32-1.htm
 



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
March 31, 2011
 
 
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_
000-50217
 

ICON Income Fund Nine, LLC
(Exact name of registrant as specified in its charter)

Delaware
13-4183234
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

100 Fifth Avenue, 4th Floor, New York, New York
10011
(Address of principal executive offices)
(Zip code)

(212) 418-4700
(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 May 11, 2011 is 97,955.

 
 
 

 
 
 
Table of Contents
   
Page
     
 
     
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12
     
16
     
16
     
 
     
 
17
     
 
17
     
17
     
17
     
17
     
 
17
     
 
18
     
 
19
 





 
 
(A Delaware Limited Liability Company)
 
Consolidated Balance Sheets
 
   
   
Assets
 
   
March 31,
       
   
2011
   
December 31,
 
   
(unaudited)
   
2010
 
 Current assets:
           
 Cash and cash equivalents
  $ 1,734,096     $ 929,220  
 Current portion of net investment in finance leases
    5,825,895       5,582,987  
                 
 Total current assets
    7,559,991       6,512,207  
                 
 Non-current assets:
               
 Net investment in finance leases, less current portion
    10,829,038       12,379,833  
 Leased equipment at cost (less accumulated depreciation of
               
     $23,037,981 and $21,751,790, respectively)
    56,267,178       68,871,626  
 Investments in joint ventures
    1,301,680       1,259,152  
 Investment in unguaranteed residual values
    257,813       257,813  
 Other non-current assets, net
    1,301,267       1,337,142  
                 
 Total non-current assets
    69,956,976       84,105,566  
                 
 Total Assets
  $ 77,516,967     $ 90,617,773  
 
               
Liabilities and Members' Equity
 
                 
 Current liabilities:
               
 Current portion of non-recourse long-term debt
  $ 34,726,780     $ 36,374,188  
 Interest rate swap contracts
    1,047,403       1,279,541  
 Deferred revenue
    292,800       904,608  
 Accrued expenses and other current liabilities
    1,278,638       232,269  
                 
 Total current liabilities
    37,345,621       38,790,606  
                 
 Non-current liabilities:
               
 Non-recourse long-term debt, less current portion
    9,450,000       10,800,000  
                 
 Total Liabilities
    46,795,621       49,590,606  
                 
 Commitments and contingencies (Note 8)
               
 
               
 Members' Equity:
               
Additional Members
    32,273,880       42,720,633  
Manager
    (543,602 )     (438,082 )
Accumulated other comprehensive loss
    (1,008,932 )     (1,255,384 )
                 
 Total Members' Equity
    30,721,346       41,027,167  
                 
 Total Liabilities and Members' Equity
  $ 77,516,967     $ 90,617,773  

See accompanying notes to consolidated financial statements.
 

 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Operations
 
(unaudited)
 
 
           
   
Three Months Ended March 31,
 
   
2011
   
2010
 
 Revenue:
           
 Rental income
  $ 2,674,362     $ 3,220,494  
 Finance income
    772,612       1,004,635  
 Income from investments in joint ventures
    37,706       27,258  
 Net loss on sales of equipment
    (2,960 )     (1,205 )
 Interest and other income
    13,797       154,063  
                 
 Total revenue
    3,495,517       4,405,245  
                 
 Expenses:
               
 General and administrative
    202,110       185,653  
 Interest
    843,066       1,150,057  
 Depreciation and amortization
    1,319,181       1,359,469  
 Impairment loss
    11,279,403       -  
                 
 Total expenses
    13,643,760       2,695,179  
                 
 Net (loss) income
  $ (10,148,243 )   $ 1,710,066  
                 
 Net (loss) income allocable to:
               
 Additional Members
  $ (10,046,761 )   $ 1,692,965  
 Manager
    (101,482 )     17,101  
                 
    $ (10,148,243 )   $ 1,710,066  
                 
 Weighted average number of additional shares
               
 of limited liability company interests outstanding
    97,955       97,955  
                 
 Net (loss) income per weighted average additional share
               
  of limited liability company interests outstanding
  $ (102.57 )   $ 17.28  
 

 See accompanying notes to consolidated financial statements.


 
(A Delaware Limited Liability Company)
 
Consolidated Statement of Changes in Members' Equity
 
 
 
                     
Accumulated
   
 
 
   
Additional Member
   
Additional
         
Other
Comprehensive
   
Total
Members'
 
   
Shares
   
Members
   
Manager
   
Loss
   
Equity
 
Balance, December 31, 2010
    97,955     $ 42,720,633     $ (438,082 )   $ (1,255,384 )   $ 41,027,167  
                                         
 Net loss
    -       (10,046,761 )     (101,482 )     -       (10,148,243 )
 Change in valuation of interest rate swap contracts
    -       -       -       246,452       246,452  
 Comprehensive loss
                                    (9,901,791 )
 Cash distributions
    -       (399,992 )     (4,038 )     -       (404,030 )
                                         
Balance, March 31, 2011 (unaudited)
    97,955     $ 32,273,880     $ (543,602 )   $ (1,008,932 )   $ 30,721,346  

 
See accompanying notes to consolidated financial statements.

 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
 
 
   
Three Months Ended March 31,
 
   
2011
   
2010
 
 Cash flows from operating activities:
           
 Net (loss) income
  $ (10,148,243 )   $ 1,710,066  
 Adjustments to reconcile net (loss) income to net cash
               
 provided by operating activities:
               
 Rental income paid directly to lenders by lessees
    (1,993,000 )     (2,638,000 )
 Finance income
    (772,612 )     (1,004,635 )
 Income from investments in joint ventures
    (37,706 )     (27,258 )
 Net loss on sale of equipment
    2,960       1,205  
 Depreciation and amortization
    1,319,181       1,359,469  
 Interest expense on non-recourse financing paid directly to lenders by lessees
    661,918       1,105,448  
 Interest expense from amortization of debt financing costs
    31,009       44,297  
 Impairment loss
    11,279,403       -  
 Changes in operating assets and liabilities:
               
Collection of finance leases
    446,190       597,795  
Other assets, net
    -       3,623  
Deferred revenue
    (611,808 )     (510,953 )
Due to Manager and affiliates
    -       13,281  
Accrued expenses and other current liabilities
    1,023,844       (12,668 )
Distributions from joint ventures
    -       40,132  
                 
 Net cash provided by operating activities
    1,201,136       681,802  
                 
 Cash flows from investing activities:
               
 Proceeds from sales of equipment
    7,770       91,000  
 Distributions received from joint ventures in excess of profits
    -       101,125  
                 
 Net cash provided by investing activities
    7,770       192,125  
                 
 Cash flows from financing activities:
               
 Cash distributions to members
    (404,030 )     (832,782 )
                 
 Net cash used in financing activities
    (404,030 )     (832,782 )
                 
 Net increase in cash and cash equivalents
    804,876       41,145  
                 
 Cash and cash equivalents, beginning of the period
    929,220       1,033,840  
                 
 Cash and cash equivalents, end of the period
  $ 1,734,096     $ 1,074,985  

 
See accompanying notes to consolidated financial statements.

 
ICON Income Fund Nine, LLC
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
       
   
Three Months Ended March 31,
 
   
2011
   
2010
 
 Supplemental disclosure of non-cash investing and financing activities:
           
 Principal and interest on non-recourse long-term debt paid directly to lenders by lessees
  $ 3,627,310     $ 4,367,080  
 
 
See accompanying notes to consolidated financial statements.
 
5

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)


(1)
Basis of Presentation and Consolidation

The accompanying consolidated financial statements of ICON Income Fund Nine, LLC (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 of the LLC, ICON Capital Corp., a Delaware Corporation (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, 2010. 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.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that had or are expected to have a significant impact on the LLC’s consolidated financial statements.

(2)
Net Investment in Finance Leases

Net investment in finances leases consisted of the following:

   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
 
       
 Minimum rents receivable
  $ 20,805,000     $ 22,885,499  
 Unearned income
    (4,150,067 )     (4,922,679 )
                 
 Net investment in finance leases
    16,654,933       17,962,820  
                 
 Less:  Current portion of net investment in finance leases
    5,825,895       5,582,987  
                 
                 
 Net investment in finance leases, less current portion
  $ 10,829,038     $ 12,379,833  

(3)
Leased Equipment at Cost

Leased equipment at cost consisted of the following:
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
 Aircraft
  $ 48,453,180     $ 48,453,180  
 Marine vessel
    29,006,384       40,285,787  
 Manufacturing, telecommunications and computer equipment
    1,845,595       1,884,449  
      79,305,159       90,623,416  
                 
 Less: Accumulated depreciation
    23,037,981       21,751,790  
                 
    $ 56,267,178     $ 68,871,626  
 

 
6

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
 
(3)
Leased Equipment at Cost - continued

Depreciation expense was $1,314,314 and $1,317,211 for the three months ended March 31, 2011 and 2010, respectively.

Marine Vessel

As a result of recent negotiations to remarket certain vessels during the three months ended March 31, 2011, the Manager reviewed the LLC’s investment in ICON Samar, LLC (“ICON Samar”) and determined that the net book value of the vessel under lease exceeded the fair value.  As a result, the LLC recognized a non-cash impairment charge of approximately $11,279,000.

(4)
Revolving Line of Credit, Recourse

As of March 31, 2011, the LLC and certain entities managed by the Manager (collectively, the “Borrowers”) were party to a Commercial Loan Agreement, as amended (the “Prior Loan Agreement”), with California Bank & Trust (“CB&T”).  At March 31, 2011, there were no obligations outstanding under the Prior Loan Agreement and the Borrowers were in compliance with all covenants under the Prior Loan Agreement.  As of May 10, 2011, the Prior Loan Agreement was terminated.

(5)
Derivative Financial Instruments

The LLC may enter into derivative transactions for purposes of hedging specific financial exposures, including changes in interest rates of its non-recourse long-term debt. The LLC enters into these instruments only for hedging underlying exposures. The LLC does not hold or issue derivative financial instruments for purposes other than hedging, except for warrants, which are not hedges. Certain derivatives may not meet the established criteria to be designated as qualifying accounting hedges, even though the LLC believes that these are effective economic hedges.

The LLC accounts for derivative financial instruments in accordance with the accounting pronouncements that established accounting and reporting standards for derivative financial instruments.  These accounting pronouncements require the LLC to recognize all derivatives as either assets or liabilities 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.
 
 
 
7

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
 
(5)
Derivative Financial Instruments - continued

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 business 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 March 31, 2011, the LLC had four floating-to-fixed interest rate swaps relating to the financing of the three car and truck carrying vessels (“Wilhelmsen Vessels”) on bareboat charter to Wilhelmsen Lines Shipowning AS (“Wilhelmsen”) and the Samar Spirit, an Aframax product tanker, on lease to Teekay Corporation (“Teekay”), that were designated as cash flow hedges with an aggregate notional amount of approximately $18,724,760.  These interest rate swaps have maturity dates ranging from July 25, 2011 to September 23, 2013.

For these derivatives, the LLC reports 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 transferred into earnings in the period that the hedged forecasted transaction affects earnings and within the same line item on the statement of operations as the impact of the hedged transaction. During the three months ended March 31, 2011, the LLC recorded no hedge ineffectiveness in earnings.  At March 31, 2011, total unrealized loss recorded to AOCI related to the change in fair value of these interest rate swaps was approximately $1,009,000.

During the twelve months ending March 31, 2012, the LLC estimates that an additional $696,112 will be transferred from AOCI to interest expense.
 
The table below presents the fair value of the LLC’s derivative financial instruments and classification within the LLC’s consolidated balance sheets as of March 31, 2011 and December 31, 2010:

Derivatives designated as hedging instruments:
Liability Derivative
 
     
March 31,
   
December 31,
 
     
2011
   
2010
 
 
 Balance Sheet Location
 
Fair Value
   
Fair Value
 
 Interest rate swaps
 Interest rate swap contracts
  $ 1,047,403     $ 1,279,541  

The table below presents the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statement of operations for the three months ended March 31, 2011:
 
Derivatives
 
Amount of Gain (Loss) Recognized in
AOCI on Derivative (Effective Portion)
 
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
                       
 Interest rate swaps
  $ (18,347 )
 Interest expense
  $ (264,799 )
 Gain (loss) on financial instruments
  $ -  
 
 
 
8

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
 
(5)
Derivative Financial Instruments - continued

The table below presents the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statement of operations for the three months ended March 31, 2010:
 
Derivatives
 
Amount of Gain (Loss) Recognized in
AOCI on Derivative (Effective Portion)
 
Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
                       
 Interest rate swaps
  $ (237,237 )
 Interest expense
  $ (364,663 )
 Gain (loss) on financial instruments
  $ -  

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 March 31, 2011, the fair value of derivatives in a liability position was $1,047,403. In the event that the LLC would be required to settle its obligations under the agreements as of March 31, 2011, the termination value would be $1,077,758.
 
(6)
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.

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.

 
 
9

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
 
(6)
Fair Value Measurements - continued
 
The following table summarizes the valuation of the LLC’s material financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2011:

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Liabilities:
                       
                         
Derivative liabilities
  $ -     $ 1,047,403     $ -     $ 1,047,403  
 
The LLC’s derivative contracts, including interest rate swaps, 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 derivative liabilities was recorded in interest rate swap contracts 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 March 31, 2011:
   
March 31, 2011
                         
   
Level 1
   
Level 2
   
Level 3
   
Total Impairment Loss
 
Leased equipment at cost
  $ 19,359,061     $ -     $ -     $ 19,359,061     $ 11,279,403  
 
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 non-recourse long-term debt was based on the discounted value of future cash flows expected to be paid on the loan based on recent transactions of this type.
 
   
March 31, 2011
 
   
Carrying Amount
   
Fair Value
 
 Fixed rate non-recourse long-term debt
  $ 25,452,020     $ 26,177,357  
 
 
(7)
Accumulated Other Comprehensive Loss
 
Total comprehensive (loss) income for the three months ended March 31, 2011 and 2010 was ($9,901,791) and $1,837,492, respectively.
 
 
 
10

(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
 
(8)
Commitments and Contingencies
 
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 may be shared with these third parties based on specific formulas. The obligation related to these agreements is recorded at fair value.

ICON Aircraft 128 LLC (“ICON 128”) is a party to a residual sharing agreement with Airfleet Credit Corporation (“Airfleet”) and HXO Leasing Limited.  Pursuant to the terms of this residual sharing agreement, all proceeds received in connection with the sale or lease extension of Airbus A340-313X aircraft in excess of $4,250,000 of the loan balance associated with the aircraft will be allocated 55% to ICON 128 and 45% to Airfleet.  As of March 31, 2011, no liability has been accrued in connection with this agreement.

The LLC has a right to a portion of the profits, losses, and cash flows from a limited partnership interest (its “Interest”) in North Sea (Connecticut) Limited Partnership (“North Sea”), an entity that owns a 100% interest in a mobile offshore drilling rig that was subject to lease with Rowan Companies, Inc. (“the Charterer”). In 2005, the Charterer notified the owner trustee of the rig that an “Event of Loss” occurred with respect to the rig as a result of Hurricane Rita.  The charter provides that the Charterer will pay to the lender (and upon satisfaction of all of the debt outstanding, to the owner trustee on behalf of North Sea) an amount equal to the “Stipulated Loss Value” of the rig as determined according to the terms of the charter.  The calculation of “Stipulated Loss Value”, among other things, is the subject of a dispute between the Charterer and North Sea.

The LLC evaluates the recoverability of its investment as part of its impairment testing.  As of March 31, 2011, the LLC’s carrying value related to its Interest in North Sea was $1,154,668.  The LLC did not receive any cash distributions with respect to its Interest in the three months ended March 31, 2011.

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.
 
(9)
Subsequent Event

On April 5, 2011, the LLC sold its remaining investment in unguaranteed residual values to Key Finance Group Limited for the purchase price of $257,813.
 
 

 
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, 2010.  This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON Income Fund Nine, 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

We operate as an equipment leasing program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily acquired equipment subject to lease, purchased equipment and leased it to third-party end users or financed equipment for third parties, provided equipment and other financing and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration. Some of our equipment leases were acquired for cash and provide current cash flow, which we refer to as “income” leases. For the other equipment leases, we financed the majority of the purchase price through borrowings from third parties. We refer to these leases as “growth” leases. These growth leases generate little or no current cash flow because substantially all of the rental payments received from the lessee are used to service the indebtedness associated with acquiring or financing the lease. For these leases, we anticipated that the future value of the leased equipment would exceed our cash portion of the purchase price.

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 amended and restated operating agreement (our “LLC Agreement”). We completed our operating period on April 30, 2008 and entered our liquidation period effective May 1, 2008. During our liquidation period, we are selling and will continue to sell our assets in the ordinary course of business. As we sell our assets, both rental income and finance income will decrease over time, as will expenses related to our assets, such as depreciation and amortization expense. Additionally, interest expense should decrease as we reach the expiration of leases that were financed and the debt is repaid to the lenders. As leased equipment is sold, we will incur gains or losses on these sales. We will continue to liquidate our assets during this period and we expect to see a reduction in revenue and expenses accordingly.
 
 
 
Recent Significant Transactions

We engaged in the following significant transaction since December 31, 2010:

Marine Vessel

As a result of recent negotiations to remarket certain vessels during the three months ended March 31, 2011, our Manager reviewed our investment in ICON Samar and determined that the net book value of the vessel under lease exceeded the fair value.  As a result, we recognized a non-cash impairment charge of approximately $11,279,000.

Investment in Unguaranteed Residual Values

On April 5, 2011, we sold our remaining investment in unguaranteed residual values to Key Finance Group Limited for the purchase price of $257,813.

Recent Accounting Pronouncements

There are no recent accounting pronouncements that had or are expected to have a significant impact on our consolidated financial statements.  

Results of Operations for the Three Months Ended March 31, 2011 (the “2011 Quarter”) and 2010 (the “2010 Quarter”)

Revenue for the 2011 Quarter and the 2010 Quarter is summarized as follows:

   
Three Months Ended March 31,
       
   
2011
   
2010
   
Change
 
 Rental income
  $ 2,674,362     $ 3,220,494     $ (546,132 )
 Finance income
    772,612       1,004,635       (232,023 )
 Income from investments in joint ventures
    37,706       27,258       10,448  
 Net loss on sales of equipment
    (2,960 )     (1,205 )     (1,755 )
 Interest and other income
    13,797       154,063       (140,266 )
                         
 Total revenue
  $ 3,495,517     $ 4,405,245     $ (909,728 )

Total revenue for the 2011 Quarter decreased $909,728, or 20.7%, as compared to the 2010 Quarter. The decrease in rental income was primarily due to a change in revenue recorded by ICON 128.  The decrease in finance income was primarily due to the normal lifecycle of our bareboat charters with Wilhelmsen, which experience scheduled, declining revenue over the course of the bareboat charters. The decrease in interest and other income was primarily due to the sale of our unsecured claim against Spansion LLC to a third party during the 2010 Quarter.

Expenses for the 2011 Quarter and the 2010 Quarter are summarized as follows:

   
Three Months Ended March 31,
       
   
2011
   
2010
   
Change
 
 General and administrative
  $ 202,110     $ 185,653     $ 16,457  
 Interest
    843,066       1,150,057       (306,991 )
 Depreciation and amortization
    1,319,181       1,359,469       (40,288 )
 Impairment loss
    11,279,403       -       11,279,403  
                         
 Total expenses
  $ 13,643,760     $ 2,695,179     $ 10,948,581  

Total expenses for the 2011 Quarter increased $10,948,581, or 406%, as compared to the 2010 Quarter. The increase in total expenses was primarily due to the non-cash impairment charge recorded by ICON Samar.  The increase was offset by a decrease in interest expense resulting from the declining principal balance of our non-recourse debt related to our lease with Cathay Pacific Airways Limited and our bareboat charters with Teekay and Wilhelmsen.

 
 

Net Income

As a result of the foregoing factors, net (loss) income for the 2011 Quarter and the 2010 Quarter was ($10,148,243) and $1,710,066, respectively. Net (loss) income per weighted average additional share of limited liability company interests outstanding for the 2011 Quarter and the 2010 Quarter was ($102.57) and $17.28, respectively.

Financial Condition

This section discusses the major balance sheet variances at March 31, 2011 compared to December 31, 2010.

Total Assets

     Total assets decreased $13,100,806, from $90,617,773 at December 31, 2010 to $77,516,967 at March 31, 2011. The decrease was primarily due to impairment losses recorded with respect to certain leased equipment, the continued depreciation of our leased equipment at cost and the continued run-off of our net investment in finance leases.

Current Assets

Current assets increased $1,047,784, from $6,512,207 at December 31, 2010 to $7,559,991 at March 31, 2011. This increase was primarily due to the increase in cash resulting from a deposit in connection with a proposed transaction and partial proceeds received from the sale of our investment in unguaranteed residual values.
 
Total Liabilities

     Total liabilities decreased $2,794,985, from $49,590,606 at December 31, 2010 to $46,795,621 at March 31, 2011. The decrease was primarily due to the paydown of non-recourse debt in the ordinary course of business, a decrease in deferred revenue resulting from the timing of certain customer payments and a decrease in the fair value of our interest rate swap contracts related to the debt associated with the vessels on bareboat charter with Teekay and Wilhelmsen.

Members’ Equity

Members’ equity decreased $10,305,821, from $41,027,167 at December 31, 2010 to $30,721,346 at March 31, 2011. The decrease was due to the results of our operations and distributions paid to our members, partially offset by the change in the valuation of our interest rate swap contracts.

Liquidity and Capital Resources

At March 31, 2011 and December 31, 2010, we had cash and cash equivalents of $1,734,096 and $929,220, respectively. During our liquidation period, which we entered on May 1, 2008, our main sources of cash have been and will continue to be proceeds from sales of equipment as well as from collections of rentals on non-leveraged operating and direct finance leases, and our main use of cash has been and will continue to be distributions to our members.
 
 

Operating Activities
 
Sources of cash from operating activities increased $519,334, from $681,802 in the 2010 Quarter to $1,201,136 in the 2011 Quarter. The increase in cash from operating activities was primarily due to a deposit in connection with a proposed transaction received in the 2011 Quarter as compared to the 2010 Quarter.
 
      Investing Activities
 
Sources of cash from investing activities decreased $184,355, from $192,125 in the 2010 Quarter to $7,770 in the 2011 Quarter.  The decrease was primarily due to the sale of one of our joint ventures during 2010 and a reduction in proceeds from sales of equipment in the 2011 Quarter as compared to the 2010 Quarter.

Financing Activities

Uses of cash in financing activities decreased $428,752, from $832,782 in the 2010 Quarter to $404,030 in the 2011 Quarter. The decrease was due to cash distributions of $404,030 paid to our members during the 2011 Quarter as compared to distributions of $832,782 paid to our members during the 2010 Quarter.

Financings and Borrowings

Non-Recourse Long-Term Debt

We had non-recourse long-term debt obligations at March 31, 2011 and December 31, 2010 of $44,176,780 and $47,174,188, respectively.  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.   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.  Our existing leases have funded, and we anticipate will continue to fund, these obligations.
 
At March 31, 2011, we had $7,559,991 of current assets and $37,345,621 of current liabilities, which results in a $29,785,630 working capital deficit. Of the $37,345,621 of current liabilities, $4,701,892 consisted of direct payments to a lender to be made by our lessee and $24,624,889 of payments due on our non-recourse debt. These direct payments are for a debt that had no corresponding current assets due to the classification of these transactions as operating leases. Therefore, when considering our overall working capital, direct payments should be excluded. The exclusion of these payments yields a working capital deficit of $25,083,738 at March 31, 2011.  The primary reason for this deficit is a balloon payment of approximately $22,750,000 due in 2011 related to the non-recourse financing of Aircraft 128.  Our options related to this payment include, but are not limited to, entering into a new lease arrangement, which would include a refinancing of the debt.  Currently, we are actively remarketing the aircraft.  Our Manager believes that the cash we currently have available, the cash being generated from our remaining leases, and the proceeds we expect to receive from equipment and asset sales will be sufficient to continue our operations 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’ businesses that are beyond our control.

Distributions

We, at our Manager’s discretion, paid monthly distributions to each of our additional members beginning the first month after each such member was admitted through the end of our operating period, which was on April 30, 2008. During the liquidation period, we plan to make distributions in accordance with the terms of our LLC Agreement. We expect that distributions made during the liquidation period will vary, depending on the timing of the sale of our assets and our receipt of rental and other income from our investments. We paid distributions to additional members and our Manager of $399,992 and $4,038, respectively, during the 2011 Quarter.

 
 

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2011, we had non-recourse debt obligations outstanding. The lender has a security interest in the equipment related to each non-recourse 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. If the lessee defaults on the lease, the equipment would be returned to the lender in extinguishment of the non-recourse debt.  At March 31, 2011, our outstanding non-recourse debt obligations were $44,176,780.

At March 31, 2011, there were no obligations outstanding under the Prior Loan Agreement and the Borrowers were in compliance with all covenants under the Prior Loan Agreement.  As of May 10, 2011, the Prior Loan Agreement was terminated.

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, 2010.


Evaluation of disclosure controls and procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended March 31, 2011, 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 March 31, 2011 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, 2010.


We did not sell or redeem any shares of limited liability company interests during the three months ended March 31, 2011.


Not applicable.



Not applicable.


 
 
3.1
Certificate of Formation of Registrant (Incorporated by reference to Exhibit 4.3 to Pre-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on October 12, 2001 (File No. 333-67638)).
   
4.1
Amended and Restated Operating Agreement of Registrant (Incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 2 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 20, 2001 (File No. 333-67638)).
   
4.2
 
Amendment to the Registrant’s Amended and Restated Operating Agreement (Incorporated by reference to Exhibit 4.1.1 to Post-Effective Amendment No. 1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on August 19, 2002 (File No. 333-67638)).
   
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 August 31, 2005).
   
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 10.1 to Registrant’s Current Report on Form 8-K dated December 26, 2006).
   
10.3
Loan Modification Agreement, dated as of June 20, 2007, 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 Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, filed November 6, 2009).
   
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 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 20, 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 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 13, 2009).
   
 10.6
Termination of Commercial Loan Agreement, by and among California Bank & Trust and ICON Income Fund Eight B L.P.; ICON Income Fund Nine, LLC; ICON Income Fund Ten, LLC; ICON Leasing Fund Eleven, LLC; ICON Leasing Fund Twelve, LLC; and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., dated as of May 10, 2011.
   
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 Income Fund Nine, LLC
(Registrant)

By: ICON Capital Corp.
      (Manager of the Registrant)

May 13, 2011
 
By: /s/ Michael A. Reisner
Michael A. Reisner
Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)
 
By: /s/ Mark Gatto
Mark Gatto
Co-Chief Executive Officer and Co-President
(Co-Principal Executive Officer)

By: /s/ Anthony J. Branca
Anthony J. Branca
Chief Financial Officer
(Principal Accounting and Financial Officer)
 
19