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
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March 31, 2011
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
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to
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Commission_File_Number_
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000-53189
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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
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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100 Fifth Avenue, 4th Floor, New York, New York
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10011
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(Address of principal executive offices)
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(Zip code)
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(212) 418-4700
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ ] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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 348,650.
Table of Contents
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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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March 31,
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||||||||
2011
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December 31,
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|||||||
(unaudited)
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2010
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|||||||
Current assets:
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Cash and cash equivalents
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$ | 19,282,475 | $ | 29,219,287 | ||||
Current portion of notes receivable
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9,952,631 | 16,178,391 | ||||||
Current portion of net investment in finance leases
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18,143,418 | 23,535,746 | ||||||
Other current assets
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3,258,738 | 3,303,029 | ||||||
Assets held for sale, net
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1,605,490 | 2,496,163 | ||||||
Total current assets
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52,242,752 | 74,732,616 | ||||||
Non-current assets:
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Notes receivable, less current portion
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33,050,172 | 45,393,778 | ||||||
Net investment in finance leases, less current portion
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156,972,848 | 155,010,865 | ||||||
Leased equipment at cost (less accumulated depreciation of
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$83,112,107 and $76,473,310, respectively)
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279,903,634 | 301,715,924 | ||||||
Investment in joint ventures
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15,894,967 | 3,864,617 | ||||||
Other non-current assets, net
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12,569,364 | 13,531,780 | ||||||
Total non-current assets
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498,390,985 | 519,516,964 | ||||||
Total Assets
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$ | 550,633,737 | $ | 594,249,580 | ||||
Liabilities and Equity
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Current liabilities:
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Current portion of non-recourse long-term debt
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$ | 54,001,208 | $ | 56,271,731 | ||||
Derivative instruments
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6,235,090 | 7,481,194 | ||||||
Deferred revenue
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5,207,649 | 7,063,111 | ||||||
Due to Manager and affiliates
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338,798 | 319,479 | ||||||
Accrued expenses and other current liabilities
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3,100,630 | 2,899,041 | ||||||
Total current liabilities
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68,883,375 | 74,034,556 | ||||||
Non-current liabilities:
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Non-recourse long-term debt, less current portion
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148,277,836 | 156,239,574 | ||||||
Other non-current liabilities
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53,769,921 | 53,259,853 | ||||||
Total non-current liabilities
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202,047,757 | 209,499,427 | ||||||
Total Liabilities
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270,931,132 | 283,533,983 | ||||||
Commitments and contingencies (Note 13)
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Equity:
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Members' Equity:
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Additional Members
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246,760,672 | 256,441,129 | ||||||
Manager
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(620,709 | ) | (522,927 | ) | ||||
Accumulated other comprehensive loss
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(6,540,731 | ) | (7,989,946 | ) | ||||
Total Members' Equity
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239,599,232 | 247,928,256 | ||||||
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Noncontrolling Interests
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40,103,373 | 62,787,341 | ||||||
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Total Equity
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279,702,605 | 310,715,597 | ||||||
Total Liabilities and Equity
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$ | 550,633,737 | $ | 594,249,580 |
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 March 31,
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2011
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2010
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Revenue:
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Finance income
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$ | 6,242,567 | $ | 7,189,519 | ||||
Rental income
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15,076,446 | 15,657,262 | ||||||
Income from investment in joint venture
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146,531 | 148,958 | ||||||
Total revenue
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21,465,544 | 22,995,739 | ||||||
Expenses:
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Management fees - Manager
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1,141,084 | 1,072,882 | ||||||
Administrative expense reimbursements - Manager
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640,592 | 685,443 | ||||||
General and administrative
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718,672 | 633,487 | ||||||
Interest
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4,000,179 | 4,533,199 | ||||||
Depreciation and amortization
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9,175,435 | 9,172,742 | ||||||
Impairment loss
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11,290,617 | - | ||||||
(Gain) loss on financial instruments
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(77,222 | ) | 230,451 | |||||
Total expenses
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26,889,357 | 16,328,204 | ||||||
Net (loss) income
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(5,423,813 | ) | 6,667,535 | |||||
Less: Net (loss) income attributable to noncontrolling interests
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(4,141,757 | ) | 2,113,869 | |||||
Net (loss) income attributable to Fund Twelve
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$ | (1,282,056 | ) | $ | 4,553,666 | |||
Net (loss) income attributable to Fund Twelve allocable to:
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Additional Members
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$ | (1,269,235 | ) | $ | 4,508,129 | |||
Manager
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(12,821 | ) | 45,537 | |||||
$ | (1,282,056 | ) | $ | 4,553,666 | ||||
Weighted average number of additional shares of
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limited liability company interests outstanding
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348,650 | 348,709 | ||||||
Net (loss) 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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$ | (3.64 | ) | $ | 12.93 |
See accompanying notes to consolidated financial statements.
(A Delaware Limited Liability Company)
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Consolidated Statement of Changes in Equity
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Members' Equity
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Additional Shares of
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Accumulated
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Limited Liability
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Other
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Total
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Company Interests
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Additional
Members |
Manager
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Comprehensive
Loss |
Members' Equity
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Noncontrolling
Interests |
Total
Equity |
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Balance, December 31, 2010
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348,650 | $ | 256,441,129 | $ | (522,927 | ) | $ | (7,989,946 | ) | $ | 247,928,256 | $ | 62,787,341 | $ | 310,715,597 | |||||||||||||
Comprehensive (loss) income:
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Net loss
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- | (1,269,235 | ) | (12,821 | ) | - | (1,282,056 | ) | (4,141,757 | ) | (5,423,813 | ) | ||||||||||||||||
Change in valuation of
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derivative instruments
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- | - | - | 1,145,811 | 1,145,811 | 90,447 | 1,236,258 | |||||||||||||||||||||
Currency translation adjustment
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- | - | - | 303,404 | 303,404 | - | 303,404 | |||||||||||||||||||||
Total comprehensive (loss) income
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167,159 | (4,051,310 | ) | (3,884,151 | ) | |||||||||||||||||||||||
Cash distributions
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- | (8,411,222 | ) | (84,961 | ) | - | (8,496,183 | ) | (1,563,675 | ) | (10,059,858 | ) | ||||||||||||||||
Deconsolidation of
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noncontrolling interests in
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joint ventures
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- | - | - | - | - | (17,068,983 | ) | (17,068,983 | ) | |||||||||||||||||||
Balance, March 31, 2011 (unaudited)
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348,650 | $ | 246,760,672 | $ | (620,709 | ) | $ | (6,540,731 | ) | $ | 239,599,232 | $ | 40,103,373 | $ | 279,702,605 |
(A Delaware Limited Liability Company)
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Consolidated Statements of Cash Flows
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(unaudited)
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Three Months Ended March 31,
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2011
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2010
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Cash flows from operating activities:
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Net (loss) income
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$ | (5,423,813 | ) | $ | 6,667,535 | |||
Adjustments to reconcile net (loss) income to net cash provided by
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operating activities:
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Finance income
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(4,260,781 | ) | (3,965,767 | ) | ||||
Rental income paid directly to lenders by lessees
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(8,175,408 | ) | (8,175,408 | ) | ||||
Income from investment in joint venture
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(146,531 | ) | (148,958 | ) | ||||
Depreciation and amortization
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9,175,435 | 9,172,742 | ||||||
Interest expense on non-recourse financing paid directly
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to lenders by lessees
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1,309,097 | 1,846,092 | ||||||
Interest expense from amortization of debt financing costs
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290,426 | 309,849 | ||||||
Accretion of seller's credit and other
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588,018 | 554,588 | ||||||
Impairment loss
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11,290,617 | - | ||||||
(Gain) Loss on financial instruments
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(77,222 | ) | 230,451 | |||||
Changes in operating assets and liabilities:
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Collection of finance leases
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9,573,545 | 7,783,177 | ||||||
Other assets, net
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(157,998 | ) | (246,556 | ) | ||||
Accrued expenses and other current liabilities
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(98,584 | ) | (744,538 | ) | ||||
Deferred revenue
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(1,760,965 | ) | (728,042 | ) | ||||
Due to/from Manager and affiliates, net
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56,305 | (151,056 | ) | |||||
Distributions from joint venture
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146,531 | 148,958 | ||||||
Net cash provided by operating activities
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12,328,672 | 12,553,067 | ||||||
Cash flows from investing activities:
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Purchase of equipment
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(2,012,552 | ) | (1,783,302 | ) | ||||
Proceeds from sale of equipment
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2,729,276 | - | ||||||
Investment in joint venture
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(12,218,393 | ) | - | |||||
Distributions received from joint venture in excess of profits
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188,043 | 185,616 | ||||||
Restricted cash
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(186,746 | ) | (225,683 | ) | ||||
Repayment of notes receivable
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2,470,167 | 5,324,010 | ||||||
Net cash (used in) provided by investing activities
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(9,030,205 | ) | 3,500,641 | |||||
Cash flows from financing activities:
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Repayments of non-recourse long-term debt
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(3,176,867 | ) | (3,784,375 | ) | ||||
Investment in joint ventures by noncontrolling interests
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- | 111,987 | ||||||
Distributions to noncontrolling interests
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(1,563,675 | ) | (3,800,206 | ) | ||||
Cash distributions to members
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(8,496,183 | ) | (8,497,590 | ) | ||||
Net cash used in financing activities
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(13,236,725 | ) | (15,970,184 | ) | ||||
Effects of exchange rates on cash and cash equivalents
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1,446 | (330 | ) | |||||
Net (decrease) increase in cash and cash equivalents
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(9,936,812 | ) | 83,194 | |||||
Cash and cash equivalents, beginning of period
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29,219,287 | 27,075,059 | ||||||
Cash and cash equivalents, end of period
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$ | 19,282,475 | $ | 27,158,253 |
See accompanying notes to consolidated financial statements.
ICON Leasing Fund Twelve, LLC
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(A Delaware Limited Liability Company)
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Consolidated Statements of Cash Flows
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(unaudited)
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Three Months Ended March 31,
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||||||||
2011
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2010
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Supplemental disclosure of cash flow information:
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Cash paid during the period for interest
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$ | 1,029,433 | $ | 2,262,000 | ||||
Supplemental disclosure of non-cash investing and financing activities:
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Principal and interest on non-recourse long-term debt
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paid directly to lenders by lessees
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$ | 8,175,408 | $ | 8,175,408 | ||||
Exchange of equity interest in three consolidated joint ventures for the proportionate share of certain notes receivable
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$ | 17,068,983 | $ | - | ||||
Equipment purchased with non-recourse long-term debt paid directly by lender
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$ | - | $ | 12,000,000 | ||||
Equipment purchased with subordinated financing provided by seller
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$ | - | $ | 7,000,000 |
See accompanying notes to consolidated financial statements.
5
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(1)
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Basis of Presentation
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The accompanying consolidated financial statements of ICON Leasing Fund Twelve, 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 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.
Reclassifications
Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current presentation. Interest and other income has been reclassified to finance income within the consolidated statements of operations.
Recent Accounting Pronouncements
In 2010, the LLC adopted the accounting pronouncement related to the disclosures about the credit quality of financing receivables and the allowance for credit losses. The pronouncement requires entities to provide disclosures designed to facilitate financial statements users’ evaluation of (i) the nature of credit risk inherent in the entity’s portfolio of financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses and (iii) the changes and reasons for those changes in the allowances for credit losses. Disclosures must be disaggregated by portfolio segment, the level at which an entity develops and documents a systematic method for determining its allowance for credit losses and class of financing receivable. The required disclosures include, among other things, a rollforward of the allowance for credit losses as well as information about modified, impaired, non-accrual and past due loans and credit quality indicators. Disclosures that relate to activity during a reporting period will be required for the LLC’s consolidated financial statements effective January 1, 2011. The adoption of these additional disclosures did not have a material effect on the LLC’s consolidated financial statements as of March 31, 2011.
(2)
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Notes Receivable
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Effective January 1, 2011, the LLC exchanged its 52.09% ownership interest in a joint venture for its proportionate share of notes receivable from ION Geophysical Corp. (“ION”), which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $8,348,000, which accrue interest at 15% and mature on August 1, 2014. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
Effective January 1, 2011, the LLC exchanged its 52.75% ownership interest in a joint venture for its proportionate share of notes receivable from Northern Capital Associates XIV, L.P. (“Northern Leasing”), which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $5,327,000, which accrue interest from 9.47% to 9.90% and mature between December 15, 2011 and February 15, 2013. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
6
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(2)
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Notes Receivable - continued
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Effective January 1, 2011, the LLC exchanged its 49.13% ownership interest in a joint venture for an assignment of its proportionate share of the future cash flows of a loan receivable from Quattro Plant Limited (“Quattro”), which was previously owned by the joint venture. As a result of this assignment, the LLC recorded a loan receivable of approximately £2,478,000, which accrues interest at 20% and matures on October 1, 2012. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
Credit Quality of Notes Receivable and Allowance for Credit Losses
The Manager weighs all credit decisions on a combination of external credit ratings as well as internal credit evaluations of all potential borrowers. A potential borrower’s credit application is analyzed using those credit ratings as well as the potential borrower’s financial statements and other financial data deemed relevant.
The LLC’s notes receivable are limited in number and are spread across a wide range of industries. Accordingly, the LLC does not aggregate notes receivable into portfolio segments or classes. Due to the limited number of notes receivable, the LLC is able to estimate the allowance for credit losses based on a detailed analysis of each note receivable as opposed to using portfolio based metrics and allowance for credit losses. Notes are analyzed quarterly and categorized as either performing or nonperforming based on payment history. If a note becomes non-performing due to a borrower’s missed scheduled payments or failed financial covenants, the Manager analyzes whether a reserve should be established or the note should be restructured. As of March 31, 2011 and December 31, 2010, the Manager determined that no allowance for credit losses was required.
Interest income recognized on notes receivable is included in finance income within the consolidated statements of operations.
(3)
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Net Investment in Finance Leases
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Net investment in finance leases consisted of the following:
March 31,
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December 31,
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|||||||
2011
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2010
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Minimum rents receivable
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$ | 218,432,316 | $ | 225,642,237 | ||||
Estimated residual values
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22,348,446 | 21,928,543 | ||||||
Initial direct costs, net
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5,409,368 | 5,657,967 | ||||||
Unearned income
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(71,073,864 | ) | (74,682,136 | ) | ||||
Net investment in finance leases
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175,116,266 | 178,546,611 | ||||||
Less: Current portion of net
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investment in finance leases
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18,143,418 | 23,535,746 | ||||||
Net investment in finance leases,
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less current portion
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$ | 156,972,848 | $ | 155,010,865 |
On March 31, 2011, the LLC purchased information technology equipment for the purchase price of approximately $1,954,000 and simultaneously leased the equipment to Broadview Networks Holdings, Inc. and Broadview Networks Inc. (collectively, “Broadview”). The base term of the schedule is for a period of 36 months, which commenced on April 1, 2011.
7
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(4)
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Leased Equipment at Cost
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Leased equipment at cost consisted of the following:
March 31,
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December 31,
|
|||||||
2011
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2010
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Marine - Product tankers
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$ | 197,736,937 | $ | 209,027,554 | ||||
Marine - Container vessels
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52,691,711 | 52,691,711 | ||||||
Marine - Accomodation & work barge
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43,973,698 | 43,973,698 | ||||||
Underground coal conveyor system
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3,493,747 | 7,287,821 | ||||||
Coal drag line
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12,834,631 | 12,834,631 | ||||||
Gas compressors
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11,611,520 | 11,611,520 | ||||||
Marine - Diving system
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10,410,111 | 10,410,111 | ||||||
Automotive manufacturing equipment
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14,035,942 | 14,124,744 | ||||||
Motor coaches
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5,473,082 | 5,473,082 | ||||||
Forging equipment
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4,637,475 | 4,637,475 | ||||||
Telecommunications equipment
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6,116,887 | 6,116,887 | ||||||
363,015,741 | 378,189,234 | |||||||
Less: Accumulated depreciation
|
83,112,107 | 76,473,310 | ||||||
$ | 279,903,634 | $ | 301,715,924 |
On March 4, 2011, the LLC sold the equipment on lease to American Energy Corp. and Ohio American Energy, Incorporated (collectively, “American Energy”) for the purchase price of approximately $1,798,000. No gain or loss was recorded as a result of this transaction.
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 Mayon, LLC (“ICON Mayon”) 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 $11,291,000.
Depreciation expense was $8,645,049 and $8,550,346 for the three months ended March 31, 2011 and 2010, respectively.
(5)
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Assets Held for Sale
|
On March 16, 2011, the LLC, in conjunction with ICON Leasing Fund Eleven, LLC (“Fund Eleven”), an entity also managed by the Manager, sold certain parcels of real property for a net purchase price of approximately $1,183,000, of which the LLC’s portion was approximately $843,000. No gain or loss was recorded as a result of this transaction.
(6)
|
Investment in Joint Ventures
|
ICON AET Holdings, LLC
On March 29, 2011, the LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”), an entity also managed by the Manager, entered into a joint venture, ICON AET Holdings, LLC (“ICON AET”), owned 25% by the LLC and 75% by Fund Fourteen, for the purpose of acquiring two Aframax tankers and two Very Large Crude Carriers (the “VLCCs”) (collectively, the “AET Vessels”). The Aframax tankers were each acquired for a purchase price of $13,000,000, of which $9,000,000 of non-recourse long-term debt was borrowed from DVB Bank SE (“DVB”), and were simultaneously bareboat chartered to AET Inc. Limited (“AET”) for a period of three years. The VLCCs were each acquired for a purchase price of $72,000,000, of which $55,000,000 of non-recourse long-term debt was borrowed from DVB, and were simultaneously bareboat chartered to AET for a period of 10 years.
8
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(6)
|
Investment in Joint Ventures - continued
|
On April 5, 2011, ICON AET borrowed $22,000,000 of subordinated non-recourse long-term debt from an unaffiliated third-party in connection with the LLC’s investment in ICON AET. The loan is for a period of sixty months and at the Manager’s option may be extended for an additional twelve months. The loan is secured by the equity interests of ICON AET.
(7)
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Non-Recourse Long-Term Debt
|
As of March 31, 2011 and December 31, 2010, the LLC had non-recourse long-term debt obligations of $202,279,044 and $212,511,305, respectively, with maturity dates ranging from August 31, 2011 to January 31, 2015, and interest rates ranging from 3.85% to 7.96% per year, fixed after giving effect to the respective interest rate swap agreements.
(8)
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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.
On May 10, 2011, the LLC entered into a Commercial Loan Agreement (the “Loan Agreement”) with CB&T. The Loan Agreement provides for a revolving line of credit of up to $10,000,000 pursuant to a senior secured revolving loan facility (the “Facility”), which is secured by all of the LLC’s assets not subject to a first priority lien, as defined in the Loan Agreement. 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 loans and lease agreements in which the LLC has a beneficial interest.
The Facility expires on March 31, 2013 and the LLC 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 90-day 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. In addition, the LLC is obligated to pay a commitment fee based on an annual rate of 0.50% on unused commitments under the Facility.
Pursuant to the Loan Agreement, the LLC is required to comply with certain covenants.
9
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(9)
|
Transactions with Related Parties
|
Fees and other expenses paid or accrued by the LLC to the Manager or its affiliates were as follows:
Three Months Ended March 31,
|
||||||||||||
Entity
|
Capacity
|
Description
|
2011
|
2010
|
||||||||
ICON Capital Corp.
|
Manager
|
Acquisition fees (1)
|
$ | 1,302,313 | $ | 600,000 | ||||||
ICON Capital Corp.
|
Manager
|
Administrative expense
|
||||||||||
reimbursements (2)
|
640,592 | 685,443 | ||||||||||
ICON Capital Corp.
|
Manager
|
Management fees (2)
|
1,141,084 | 1,072,882 | ||||||||
Total
|
$ | 3,083,989 | $ | 2,358,325 | ||||||||
(1) Amount capitalized and amortized to operations over the estimated service period in accordance with the LLC's accounting policies.
|
||||||||||||
(2) Amount charged directly to operations.
|
At March 31, 2011, the LLC had a payable of $338,798 due to the Manager and its affiliates primarily related to administrative expense reimbursements.
(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.
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.
10
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(10)
|
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 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 twelve floating-to-fixed interest rate swaps that are designated and qualifying as cash flow hedges with an aggregate notional amount of $176,366,055. 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 months ended March 31, 2011, the LLC recorded $12,078 of hedge ineffectiveness in earnings. At March 31, 2011, the accumulated unrealized loss recorded to AOCI related to the change in fair value of these interest rate swaps was $5,338,226.
During the twelve months ending March 31, 2012, the LLC estimates that approximately $3,612,000 will be reclassified from AOCI to interest expense.
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 involve fixing the foreign exchange rate for delivery of a specified amount of foreign currency on a specified date. The currency forward agreements typically have been cash settled in U.S. dollars for their fair value at or close to their settlement date. The LLC had no foreign currency derivatives outstanding at March 31, 2011.
Non-designated Derivatives
As of March 31, 2011, the LLC had two interest rate swaps with a notional balance of $14,963,710 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.
11
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
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 March 31, 2011 and December 31, 2010:
Asset Derivatives
|
Liability Derivatives
|
|||||||||||||||||
March 31,
|
December 31,
|
March 31,
|
December 31,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||||
Balance Sheet Location
|
Fair Value
|
Fair Value
|
Balance Sheet Location
|
Fair Value
|
Fair Value
|
|||||||||||||
Derivatives designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest rate swaps
|
$ | - | $ | - |
Derivative instruments
|
$ | 5,801,218 | $ | 6,949,480 | |||||||||
Derivatives not designated as hedging
|
||||||||||||||||||
instruments:
|
||||||||||||||||||
Interest rate swaps
|
$ | - | $ | - |
Derivative instruments
|
$ | 433,872 | $ | 531,714 | |||||||||
Warrants
|
Other non-current assets
|
$ | 337,584 | $ | 340,324 | $ | - | $ | - |
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 months ended March 31, 2011:
Location of Gain (Loss)
|
Gain (Loss) Recognized
|
|||||||||||||
Amount of Gain (Loss)
|
Location of Gain (Loss)
|
Recognized in Income on
|
in Income on Derivative
|
|||||||||||
Recognized
|
Reclassified
|
Gain (Loss) Reclassified
|
Derivative (Ineffective Portion
|
(Ineffective Portion and
|
||||||||||
in AOCI on Derivative
|
from AOCI into Income
|
from AOCI into Income
|
and Amounts Excluded
|
Amounts Excluded
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness Testing)
|
from Effectiveness Testing)
|
|||||||||
Interest rate swaps
|
$ | 11,481 |
Interest expense
|
$ | (1,134,330 | ) |
Loss on financial instruments
|
$ | (12,078 | ) |
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 months ended March 31, 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
|
Reclassified
|
Gain (Loss) Reclassified
|
Derivative (Ineffective Portion
|
(Ineffective Portion and
|
||||||||||
in AOCI on Derivative
|
from AOCI into Income
|
from AOCI into Income
|
and Amounts Excluded
|
Amounts Excluded
|
||||||||||
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
from Effectiveness Testing)
|
from Effectiveness Testing)
|
|||||||||
Interest rate swaps
|
$ | (2,338,056 | ) |
Interest expense
|
$ | (1,295,031 | ) |
Loss on financial instruments
|
$ | (13,548 | ) |
12
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(10)
|
Derivative Financial Instruments – continued
|
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 months ended March 31, 2011 and 2010 of $89,300 and ($216,903), respectively. The net gain recorded for the three months ended March 31, 2011 was comprised of a gain of $92,040 relating to interest rate swap contracts and losses of ($2,740) relating to warrants. The net loss recorded for the three months ended March 31, 2010 was comprised of losses of ($215,114) relating to interest rate swap contracts and ($1,789) relating to warrants.
Derivative Risks
The LLC manages exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that the LLC has with any individual bank and through the use of minimum credit quality standards for all counterparties. The LLC does not require collateral or other security in relation to derivative financial instruments. Since it is the LLC’s policy to enter into derivative contracts with banks of internationally acknowledged standing only, the LLC considers the counterparty risk to be remote.
As of March 31, 2011, the fair value of the derivatives in a liability position was $6,235,090. 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 $6,440,323.
(11)
|
Accumulated Other Comprehensive Loss
|
AOCI includes accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $5,338,226 and $1,202,505, respectively, at March 31, 2011 and accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $6,484,037 and $1,505,909, respectively, at December 31, 2010. Total comprehensive (loss) income for the three months ended March 31, 2011 and 2010 was ($3,884,151) and $4,966,161, 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.
|
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.
13
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(unaudited)
(12)
|
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:
Assets:
|
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Warrants
|
$ | - | $ | - | $ | 337,584 | $ | 337,584 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative Instruments
|
$ | - | $ | 6,235,090 | $ | - | $ | 6,235,090 |
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 December 31, 2010:
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Assets:
|
||||||||||||||||
Warrants
|
$ | - | $ | - | $ | 340,324 | $ | 340,324 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative Instruments
|
$ | - | $ | 7,481,194 | $ | - | $ | 7,481,194 |
The LLC’s derivative contracts, including interest rate swaps and warrants, are valued using models based on readily observable or unobservable market parameters for all substantial terms of the LLC’s derivative contracts and are classified within Level 2 or Level 3. 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 valuation of the LLC’s material non-financial assets and liabilities measured at fair value 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
|
$ | 19,393,283 | $ | - | $ | - | $ | 19,393,283 | $ | 11,290,617 |
The LLC’s non-financial assets are valued using inputs that are generally unobservable and cannot be corroborated by market data and are classified within Level 3. As permitted by the accounting pronouncements, the LLC uses projected cash flows for fair value measurements of its non-financial assets.
14
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2011
(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, approximates fair value due to their short-term maturities and variable interest rates. The carrying value of the LLC’s non-recourse debt approximates its fair value due to its floating 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 expected to be received from the loans based on terms consistent with the range of the LLC’s internal pricing strategies for transactions of this type.
March 31, 2011
|
||||||||
Carrying Amount
|
Fair Value
|
|||||||
Fixed rate notes receivable
|
$ | 43,002,803 | $ | 43,167,557 | ||||
Other non-current liabilities
|
$ | 53,769,921 | $ | 57,375,787 | ||||
(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 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 certain investments, the LLC is required to maintain restricted cash accounts with certain banks. The aforementioned cash amounts are presented within other non-current assets in the LLC’s consolidated balance sheets at March 31, 2011 and December 31, 2010.
(14)
|
Subsequent Event
|
On April 4, 2011, the LLC sold certain telecommunications equipment to Global Crossing Telecommunications, Inc. (“Global Crossing”) for the aggregate purchase price of approximately $1,188,000.
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 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 shares of our limited liability company interests (“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 established 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 limited liability company 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 $347,686,947 in total equity.
Recent Significant Transactions
We engaged in the following significant transactions since December 31, 2010:
New Investments
·
|
On March 29, 2011, we and Fund Fourteen entered into a joint venture, ICON AET, owned 25% by us and 75% by Fund Fourteen, for the purpose of acquiring two Aframax tankers and two VLCCs. The Aframax tankers were each acquired for a purchase price of $13,000,000, of which $9,000,000 of non-recourse long-term debt was borrowed from DVB, and were simultaneously bareboat chartered to AET for a period of three years. The VLCCs were each acquired for a purchase price of $72,000,000, of which $55,000,000 of non-recourse long-term debt was borrowed from DVB, and were simultaneously bareboat chartered to AET for a period of 10 years.
|
On April 5, 2011, ICON AET borrowed $22,000,000 of subordinated non-recourse long-term debt from an unaffiliated third-party in connection with our investment in ICON AET. The loan is for a period of sixty months and at our Manager’s option may be extended for an additional twelve months. The loan is secured by the equity interests of ICON AET.
·
|
On March 31, 2011, we purchased information technology equipment for the purchase price of approximately $1,954,000 and simultaneously leased the equipment to Broadview. The base term of the schedule is for a period of 36 months, which commenced on April 1, 2011.
|
Dispositions
·
|
On March 4, 2011, we sold the equipment on lease to American Energy for the purchase price of approximately $1,798,000. No gain or loss was recorded as a result of this transaction.
|
·
|
On March 16, 2011, in conjunction with Fund Eleven, we sold certain parcels of real property for a net purchase price of approximately $1,183,000, of which our portion was approximately $843,000. No gain or loss was recorded as a result of this transaction.
|
Notes Receivable
·
|
Effective January 1, 2011, we exchanged our 52.09% ownership interest in a joint venture for our proportionate share of notes receivable from ION, which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $8,348,000, which accrue interest at 15% and mature on August 1, 2014. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
|
·
|
Effective January 1, 2011, we exchanged our 52.75% ownership interest in a joint venture for our proportionate share of notes receivable from Northern Leasing, which notes receivable were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $5,327,000 which accrue interest from 9.47% to 9.90% and mature between December 15, 2011 and February 15, 2013. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
|
·
|
Effective January 1, 2011, we exchanged our 49.13% ownership interest in a joint venture for an assignment of our proportionate share of the future cash flows of a loan receivable from Quattro, which was previously owned by the joint venture. As a result of this assignment, we recorded a loan receivable of approximately £2,478,000, which accrues interest at 20% and matures on October 1, 2012. No gain or loss was recorded as a result of this transaction. Upon the completion of the exchange, the joint venture was deconsolidated and then terminated.
|
Impairment
·
|
As a result of recent negotiations to remarket certain vessels during the three months ended March 31, 2011, the Manager reviewed our investment in ICON Mayon 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 $11,291,000.
|
Acquisition Fees
In connection with the new investments made since December 31, 2010, we paid total acquisition fees to our Manager of approximately $1,302,000.
Subsequent Event
On April 4, 2011, we sold certain telecommunications equipment to Global Crossing for the aggregate purchase price of approximately $1,188,000.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that are expected to have a significant impact on our consolidated financial statements as of March 31, 2011. See Note 1 to our consolidated financial statements for a discussion of accounting pronouncements that we have recently adopted.
Results of Operations for the Three Months Ended March 31, 2011 (the “2011 Quarter”) and 2010 (the “2010 Quarter”)
Financing Transactions
We provide financing in diverse industries. The following tables set forth the types of assets securing the investments in our portfolio at March 31, 2011 and December 31, 2010:
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
Percentage of Total Net Carrying Value
|
Percentage of Total Net Carrying Value
|
|||||||||||||||
Net
|
Net
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Asset Type
|
Value
|
Value
|
||||||||||||||
Marine - Pipelaying barge
|
$ | 102,810,026 | 47% | $ | 104,587,726 | 44% | ||||||||||
Marine - Accomodation & work barge
|
47,127,853 | 22% | 47,837,957 | 20% | ||||||||||||
Marine - Product tankers
|
18,199,092 | 8% | 18,616,177 | 8% | ||||||||||||
Telecommunications equipment
|
12,328,476 | 6% | 12,234,879 | 5% | ||||||||||||
Cranes & transportation equipment
|
9,384,375 | 4% | 9,750,000 | 4% | ||||||||||||
Point of sale equipment
|
9,172,802 | 4% | 15,174,761 | 6% | ||||||||||||
Analog seismic system equipment
|
7,912,650 | 4% | 16,027,940 | 7% | ||||||||||||
Automotive manufacturing equipment
|
4,250,820 | 2% | 4,869,872 | 2% | ||||||||||||
Rail support construction equipment
|
3,732,975 | 2% | 7,819,468 | 3% | ||||||||||||
Metal cladding & production equipment
|
3,200,000 | 1% | 3,200,000 | 1% | ||||||||||||
$ | 218,119,069 | 100% | $ | 240,118,780 | 100% |
The net carrying value of our financing transactions include the balances of our notes receivable and our net investment in finance leases, which are included in our consolidated balance sheets.
During the 2011 Quarter and the 2010 Quarter, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
Percentage of Total Finance Income
|
||||||
Customer
|
Asset Type
|
2011 Quarter
|
2010 Quarter
|
|||
Leighton Holdings Limited
|
Marine - Pipelay and Accomodation & work barges
|
61%
|
41%
|
|||
Northern Capital Associates
|
Point of sale equipment
|
7%
|
17%
|
|||
ION Geophysical Corporation
|
Analog seismic system equipment
|
5%
|
10%
|
|||
Appleton Papers, Inc.
|
Machine paper coating manufacturing line
|
0%
|
10%
|
|||
73%
|
78%
|
Finance income includes interest income from our notes receivable and finance income from our net investment in finance leases, which are included in finance income in the consolidated statements of operations.
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or finance income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Operating Transactions
We have also financed a diversified portfolio of equipment pursuant to operating leases. The equipment has been leased to customers in various industries. The following tables set forth the types of equipment subject to operating leases in our investment portfolio as of March 31, 2011 and December 31, 2010:
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
Percentage of Total Net Carrying Value
|
Percentage of Total Net Carrying Value
|
|||||||||||||||
Net
|
Net
|
|||||||||||||||
Carrying
|
Carrying
|
|||||||||||||||
Asset Type
|
Value
|
Value
|
||||||||||||||
Marine - Product tankers
|
$ | 152,724,389 | 54% | $ | 168,455,080 | 56% | ||||||||||
Marine - Container vessels
|
42,570,870 | 15% | 43,432,625 | 14% | ||||||||||||
Marine - Accomodation & work barge
|
38,167,089 | 13% | 38,884,891 | 13% | ||||||||||||
Coal drag line
|
10,713,335 | 4% | 10,895,682 | 3% | ||||||||||||
Gas compressors
|
10,048,640 | 4% | 10,281,711 | 3% | ||||||||||||
Marine - Diving system
|
8,240,769 | 3% | 8,547,752 | 3% | ||||||||||||
Automotive manufacturing equipment
|
7,528,842 | 3% | 8,098,800 | 3% | ||||||||||||
Motor coaches
|
4,027,763 | 1% | 4,208,428 | 1% | ||||||||||||
Forging equipment
|
2,427,842 | 1% | 2,594,677 | 1% | ||||||||||||
Underground coal conveyor system
|
2,266,350 | 1% | 4,725,606 | 2% | ||||||||||||
Telecommunications equipment
|
1,187,745 | 1% | 1,590,672 | 1% | ||||||||||||
$ | 279,903,634 | 100% | $ | 301,715,924 | 100% |
During the 2011 Quarter and the 2010 Quarter, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:
Percentage of Total Rental Income
|
||||||
Customer
|
Asset Type
|
2011 Quarter
|
2010 Quarter
|
|||
AET, Inc. Limited
|
Marine - Product Tankers
|
40%
|
39%
|
|||
Swiber Holdings Limited
|
Marine - Accomodation & work barge and Diving system
|
16%
|
15%
|
|||
Vroon Group B.V.
|
Marine - Container Vessels
|
11%
|
11%
|
|||
Teekay Shipping
|
Marine - Product Tankers
|
10%
|
10%
|
|||
77%
|
75%
|
The foregoing percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or rental income as of a stated period, as applicable, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
Revenue for the 2011 Quarter and the 2010 Quarter is summarized as follows:
Three Months Ended March 31,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
Finance income
|
$ | 6,242,567 | $ | 7,189,519 | $ | (946,952 | ) | |||||
Rental income
|
15,076,446 | 15,657,262 | (580,816 | ) | ||||||||
Income from investment in joint venture
|
146,531 | 148,958 | (2,427 | ) | ||||||||
Total revenue
|
$ | 21,465,544 | $ | 22,995,739 | $ | (1,530,195 | ) |
Total revenue for the 2011 Quarter decreased $1,530,195, or 6.7%, as compared to the 2010 Quarter. The decrease in finance income was primarily due to (i) the termination of three consolidated joint ventures during the 2011 Quarter and (ii) the liquidation of our investment in a note receivable during 2010. The decrease in finance income was partially offset by (i) our investment in three notes receivable during 2010 and (ii) our investment in three finance lease transactions during 2010.
Expenses for the 2011 Quarter and the 2010 Quarter are summarized as follows:
Three Months Ended March 31,
|
||||||||||||
2011
|
2010
|
Change
|
||||||||||
|
||||||||||||
Management fees - Manager
|
$ | 1,141,084 | $ | 1,072,882 | $ | 68,202 | ||||||
Administrative expense reimbursements - Manager
|
640,592 | 685,443 | (44,851 | ) | ||||||||
General and administrative
|
718,672 | 633,487 | 85,185 | |||||||||
Interest
|
4,000,179 | 4,533,199 | (533,020 | ) | ||||||||
Depreciation and amortization
|
9,175,435 | 9,172,742 | 2,693 | |||||||||
Impairment loss
|
11,290,617 | - | 11,290,617 | |||||||||
(Gain) loss on financial instruments
|
(77,222 | ) | 230,451 | (307,673 | ) | |||||||
Total expenses
|
$ | 26,889,357 | $ | 16,328,204 | $ | 10,561,153 |
Total expenses for the 2011 Quarter increased $10,561,153, or 64.7%, as compared to the 2010 Quarter. The increase in total expenses is primarily due to the increase in the non-cash impairment charge recorded by ICON Mayon, which was partially offset by the decrease in interest expense as a result of the scheduled repayments of our non-recourse long-term debt obligations and a gain on financial instruments recorded during the 2011 Quarter.
Noncontrolling Interests
Net (loss) income attributable to noncontrolling interests decreased $6,255,626, from net income of $2,113,869 in the 2010 Quarter to a net loss of $4,141,757 in the 2011 Quarter. The decrease was primarily due to the increase in the non-cash impairment charge recorded by ICON Mayon and the termination of three consolidated joint ventures during the 2011 Quarter.
Net (Loss) Income Attributable to Fund Twelve
As a result of the foregoing factors, net (loss) income attributable to us for the 2011 Quarter and the 2010 Quarter was ($1,282,056) and $4,553,666, respectively. Net (loss) income attributable to us per weighted average additional Share outstanding for the 2011 Quarter and the 2010 Quarter was ($3.64) and $12.93, 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 $43,615,843, from $594,249,580 at December 31, 2010 to $550,633,737 at March 31, 2011. The decrease was primarily due to (i) the termination of three consolidated joint ventures, (ii) the impairment of certain leased equipment and (iii) cash distributions to our members and noncontrolling interests.
Current Assets
Current assets decreased $22,489,864, from $74,732,616 at December 31, 2010 to $52,242,752 at March 31, 2011. The decrease was primarily due to (i) the termination of three consolidated joint ventures, (ii) our investment in a noncontrolling interest and (iii) cash distributions to our members and noncontrolling interests during the 2011 Quarter.
Total Liabilities
Total liabilities decreased $12,602,851, from $283,533,983 at December 31, 2010 to $270,931,132 at March 31, 2011. The decrease was primarily due to scheduled repayments of our non-recourse long-term debt.
Current Liabilities
Current liabilities decreased $5,151,181, from $74,034,556 at December 31, 2010 to $68,883,375 at March 31, 2011. The decrease was primarily due to scheduled repayments of our non-recourse long-term debt and a decrease in our derivative instruments and deferred revenue obligations during the 2011 Quarter.
Equity
Equity decreased $31,012,992, from $310,715,597 at December 31, 2010 to $279,702,605 at March 31, 2011. The decrease was primarily due to the termination of three consolidated joint ventures, the impairment of certain leased equipment and distributions to our members and noncontrolling interests during the 2011 Quarter.
Liquidity and Capital Resources
Summary
At March 31, 2011 and December 31, 2010, we had cash and cash equivalents of $19,282,475 and $29,219,287, 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 typically 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, meet our debt obligations, pay distributions to our members and to the extent that expenses exceed cash flows from operations and the proceeds from 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 Facility, which provides for a revolving line of credit of up to $10,000,000 available to meet such requirements. The Facility replaced the loan facility provided under the Prior Loan Agreement (“the “Prior Loan Facility”) that was terminated on May 10, 2011. At March 31, 2011, the Prior Loan Facility had $30,000,000 available. 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 operating and financing activities, 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 March 31, 2011, the cash reserve was $1,738,435.
Cash Flows
Operating Activities
Cash provided by operating activities decreased $224,395, from $12,553,067 in the 2010 Quarter, to $12,328,672 in the 2011 Quarter. The net decrease in cash provided by operating activities was due to the disposition of certain assets in our portfolio during the 2011 Quarter.
Investing Activities
Cash used in investing activities increased $12,530,846, from a source of cash of $3,500,641 in the 2010 Quarter, to a use of cash of $9,030,205 during the 2011 Quarter. The net increase in cash used in investing activities was due to our investment in a noncontrolling interest during the 2011 Quarter and a decrease in the proceeds received from notes receivable as a result of (i) the termination of three consolidated joint ventures during the 2011 Quarter and (ii) the liquidation of our investment in a note receivable during 2010. The net increase in cash used in investing activities was partially offset by the proceeds received from the sale of certain equipment during the 2011 Quarter.
Financing Activities
Cash used in financing activities decreased $2,733,459, from $15,970,184 in the 2010 Quarter, to $13,236,725 in the 2011 Quarter. The decrease in cash used in financing activities is primarily due to the decrease in distributions made to noncontrolling interests as a result of the termination of three consolidated joint ventures during the 2011 Quarter.
Non-Recourse Long-Term Debt
We had non-recourse long-term debt obligations at March 31, 2011 of $202,279,044. 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 of $84,961, $8,411,222 and $1,563,675 to our Manager, additional members and noncontrolling interests, 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. 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 March 31, 2011, our outstanding non-recourse long-term indebtedness was $202,279,044. We are a party to the Facility, which replaced the Prior Loan Facility and had no borrowings under such Prior Loan Facility at March 31, 2011.
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 certain investments, we are required to maintain restricted cash accounts with certain banks. The aforementioned cash amounts are presented within other non-current assets in our consolidated balance sheets at March 31, 2011 and December 31, 2010.
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 repurchase any Shares during the three months ended March 31, 2011.
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).
|
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. |
10.7 |
Commercial Loan Agreement, by and between California Bank & Trust and ICON Leasing Fund Twelve, LLC, 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 Leasing Fund Twelve, LLC
(Registrant)
By: ICON Capital Corp.
(Manager of the Registrant)
May 16, 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)
|
27
|