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EXCEL - IDEA: XBRL DOCUMENT - ICON LEASING FUND TWELVE, LLCFinancial_Report.xls
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-2.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-1.htm
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-1.htm
EX-32.3 - CERTIFICATION OF PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-3.htm
EX-31.3 - CERTIFICATION OF PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex31-3.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex32-2.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
September 30, 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_
000-53189
 

ICON Leasing Fund Twelve, LLC
(Exact name of registrant as specified in its charter)

Delaware
 20-5651009
(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).       
[X] 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 November 8, 2011 is 348,650.
 
 
 
 

 
 
 
Table of Contents
 
     
     
Page
     
1
     
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2
     
3
     
4
     
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19
     
30
     
30
     
 
     
 
31
     
 
31
     
31
     
31
     
31
     
 
31
     
 
32
     
 
33
 
 

 

 
 
(A Delaware Limited Liability Company)
 
Consolidated Balance Sheets
 
   
Assets
 
   
   
September 30,
       
   
2011
   
December 31,
 
   
(unaudited)
   
2010
 
   
 Current assets:
           
 Cash and cash equivalents
  $ 30,881,111     $ 29,219,287  
 Current portion of notes receivable
    10,719,119       16,178,391  
 Current portion of net investment in finance leases
    17,523,674       23,535,746  
 Other current assets
    2,297,678       3,303,029  
 Assets held for sale, net
    1,404,465       2,496,163  
                 
 Total current assets
    62,826,047       74,732,616  
                 
 Non-current assets:
               
 Notes receivable, less current portion
    27,427,879       45,393,778  
 Net investment in finance leases, less current portion
    154,441,220       155,010,865  
 Leased equipment at cost (less accumulated depreciation of
               
     $80,038,011 and $76,473,310, respectively)
    235,632,423       301,715,924  
 Investment in joint ventures
    7,970,823       3,864,617  
 Other non-current assets, net
    13,694,611       13,531,780  
                 
    Total non-current assets
    439,166,956       519,516,964  
                 
 Total Assets
  $ 501,993,003     $ 594,249,580  
                 
Liabilities and Equity
 
                 
 Current liabilities:
               
 Current portion of non-recourse long-term debt
  $ 50,249,514     $ 56,271,731  
 Derivative instruments
    6,743,653       7,481,194  
 Deferred revenue
    6,069,382       7,063,111  
 Due to Manager and affiliates
    239,809       319,479  
 Accrued expenses and other current liabilities
    3,558,480       2,899,041  
                 
 Total current liabilities
    66,860,838       74,034,556  
                 
 Non-current liabilities:
               
 Non-recourse long-term debt, less current portion
    131,796,302       156,239,574  
 Other non-current liabilities
    54,730,464       53,259,853  
                 
 Total non-current liabilities
    186,526,766       209,499,427  
   
 Total Liabilities
    253,387,604       283,533,983  
   
Commitments and contingencies (Note 13)
 
   
 Equity:
               
 Members' Equity:
               
 Additional Members
    229,469,505       256,441,129  
 Manager
    (795,272 )     (522,927 )
 Accumulated other comprehensive loss
    (7,176,021 )     (7,989,946 )
                 
 Total Members' Equity
    221,498,212       247,928,256  
 
               
 Noncontrolling Interests
    27,107,187       62,787,341  
 
               
 Total Equity
    248,605,399       310,715,597  
                 
 Total Liabilities and Equity
  $ 501,993,003     $ 594,249,580  
   
 
 
See accompanying notes to consolidated financial statements.
 
 
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Operations
 
(unaudited)
 
   
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
                         
 Revenue:
                       
 Finance income
  $ 6,017,824     $ 6,528,507     $ 17,890,211     $ 20,488,557  
 Rental income
    12,569,947       15,034,309       41,947,406       45,970,941  
 (Loss) income from investment in joint ventures
    (1,024,494 )     148,193       (1,556,466 )     445,396  
 (Loss) gain on settlement of interfund agreement
    -       (1,106,240 )     -       1,056,555  
 (Loss) gain on sale of leased assets
    (71,332 )     521,909       (71,332 )     521,909  
 Loss on assets held for sale
    -       -       -       (297,864 )
                                 
   Total revenue
    17,491,945       21,126,678       58,209,819       68,185,494  
                                 
 Expenses:
                               
 Management fees - Manager
    1,462,053       1,074,426       3,740,482       3,239,542  
 Administrative expense reimbursements - Manager
    549,121       659,167       2,243,007       2,574,101  
 General and administrative
    946,298       666,861       1,952,784       2,064,173  
 Interest
    3,621,822       4,145,052       11,473,071       12,684,046  
 Depreciation and amortization
    7,447,490       8,910,794       24,739,028       27,061,087  
 Impairment loss
    -       -       21,902,458       1,282,568  
 Vessel operating expense
    1,326,362       -       1,326,362       -  
 Loss on financial instruments
    138,672       201,270       186,376       424,347  
                                 
   Total expenses
    15,491,818       15,657,570       67,563,568       49,329,864  
                                 
 Net income (loss)
    2,000,127       5,469,108       (9,353,749 )     18,855,630  
                                 
 Less: Net income (loss) attributable to noncontrolling interests
    529,360       2,100,318       (7,598,233 )     5,769,104  
                                 
 Net income (loss) attributable to Fund Twelve
  $ 1,470,767     $ 3,368,790     $ (1,755,516 )   $ 13,086,526  
                                 
 Net income (loss) attributable to Fund Twelve allocable to:
                               
 Additional Members
  $ 1,456,059     $ 3,335,103     $ (1,737,961 )   $ 12,955,661  
 Manager
    14,708       33,687       (17,555 )     130,865  
                                 
    $ 1,470,767     $ 3,368,790     $ (1,755,516 )   $ 13,086,526  
                                 
 Weighted average number of additional shares of
                               
 limited liability company interests outstanding
    348,650       348,650       348,650       348,689  
                                 
 Net income (loss) attributable to Fund Twelve per weighted
                               
 average additional share of limited liability company
                               
 interests outstanding
  $ 4.18     $ 9.57     $ (4.98 )   $ 37.16  
   
 
 
See accompanying notes to consolidated financial statements.
 
 
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Changes in Equity
 
   
   
Members' Equity
       
 
Additional Shares of
 Limited Liability
 Company Interests
   
Additional
 Members
         
Accumulated
 Other
 Comprehensive
 Loss
                   
                       
       
Total
 Members' Equity
   
Noncontrolling
 Interests
   
Total
 Equity
 
 
Manager
 
 Balance, December 31, 2010
    348,650     $ 256,441,129     $ (522,927 )   $ (7,989,946 )   $ 247,928,256     $ 62,787,341     $ 310,715,597  
                                                         
 Comprehensive (loss) income:
                                                       
 Net loss
    -       (1,269,235 )     (12,821 )     -       (1,282,056 )     (4,141,757 )     (5,423,813 )
 Change in valuation of
                                                       
derivative instruments
    -       -       -       1,145,811       1,145,811       90,447       1,236,258  
 Currency translation adjustment
    -       -       -       303,404       303,404       -       303,404  
 Total comprehensive (loss) income
                                    167,159       (4,051,310 )     (3,884,151 )
 Cash distributions
    -       (8,411,222 )     (84,961 )     -       (8,496,183 )     (1,563,675 )     (10,059,858 )
 Deconsolidation of
                                                       
 noncontrolling interests in
                                                       
 joint ventures
    -       -       -       -       -       (17,068,983 )     (17,068,983 )
                                                         
 Balance, March 31, 2011 (unaudited)
    348,650       246,760,672       (620,709 )     (6,540,731 )     239,599,232       40,103,373       279,702,605  
                                                         
 Comprehensive loss:
                                                       
 Net loss
    -       (1,924,785 )     (19,442 )     -       (1,944,227 )     (3,985,836 )     (5,930,063 )
 Change in valuation of
                                                       
derivative instruments
    -       -       -       (546,710 )     (546,710 )     14,334       (532,376 )
 Currency translation adjustment
    -       -       -       96,347       96,347       -       96,347  
 Total comprehensive loss
                                    (2,394,590 )     (3,971,502 )     (6,366,092 )
 Cash distributions
    -       (8,411,220 )     (84,867 )     -       (8,496,087 )     (1,206,258 )     (9,702,345 )
                                                         
 Balance, June 30, 2011 (unaudited)
    348,650       236,424,667       (725,018 )     (6,991,094 )     228,708,555       34,925,613       263,634,168  
                                                         
 Comprehensive income:
                                                       
 Net income
    -       1,456,059       14,708       -       1,470,767       529,360       2,000,127  
 Change in valuation of
                                                       
derivative instruments
    -       -       -       57,070       57,070       35,116       92,186  
 Currency translation adjustment
    -       -       -       (241,997 )     (241,997 )     -       (241,997 )
 Total comprehensive income
                                    1,285,840       564,476       1,850,316  
 Cash distributions
    -       (8,411,221 )     (84,962 )     -       (8,496,183 )     (8,382,902 )     (16,879,085 )
                                                         
 Balance, September 30, 2011 (unaudited)
    348,650     $ 229,469,505     $ (795,272 )   $ (7,176,021 )   $ 221,498,212     $ 27,107,187     $ 248,605,399  
                                                         
 
 
See accompanying notes to consolidated financial statements.
 
 
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
   
   
Nine Months Ended September 30,
 
   
2011
   
2010
 
             
 Cash flows from operating activities:
           
 Net (loss) income
  $ (9,353,749 )   $ 18,855,630  
 Adjustments to reconcile net (loss) income to net cash provided by
               
 operating activities:
               
 Finance income
    (12,786,603 )     (11,268,132 )
 Rental income paid directly to lenders by lessees
    (25,848,069 )     (26,830,477 )
 Loss (income) from investment in joint ventures
    1,556,466       (445,396 )
 Depreciation and amortization
    24,739,028       27,061,087  
 Interest expense on non-recourse financing paid directly
               
 to lenders by lessees
    3,497,207       4,854,316  
 Interest expense from amortization of debt financing costs
    864,804       898,029  
 Accretion of seller's credit and other
    1,805,227       1,672,819  
 Impairment loss
    21,902,458       1,282,568  
 Gain on settlement of interfund agreement
    -       (1,056,555 )
 Loss (gain) on sale of leased assets
    71,332       (521,909 )
 Loss on assets held for sale, net
    -       297,864  
 Loss on financial instruments
    186,376       424,347  
 Changes in operating assets and liabilities:
               
 Collection of finance leases
    29,423,138       22,440,363  
 Prepaid acquisition fees
    (1,282,875 )     658,150  
 Other assets, net
    (518,559 )     (6,298,377 )
 Accrued expenses and other current liabilities
    43,120       597,886  
 Deferred revenue
    565,102       791,642  
 Due to/from Manager and affiliates, net
    (42,684 )     327,663  
 Distributions from joint venture
    440,512       445,396  
                 
 Net cash provided by operating activities
    35,262,231       34,186,914  
                 
 Cash flows from investing activities:
               
 Purchase of equipment
    (2,012,552 )     (6,748,123 )
 Proceeds from sale of equipment
    12,349,402       2,962,240  
 Investment in joint venture
    (12,191,868 )     -  
 Distributions received from joint ventures in excess of profits
    6,088,684       591,783  
 Restricted cash
    (538,863 )     (635,243 )
 Investment in notes receivable
    -       (22,550,000 )
 Repayment of notes receivable
    7,391,255       14,870,621  
                 
 Net cash provided by (used in) investing activities
    11,086,058       (11,508,722 )
                 
 Cash flows from financing activities:
               
 Proceeds from non-recourse long-term debt
    10,628,119       12,448,656  
 Repayments of non-recourse long-term debt
    (18,674,379 )     (9,514,596 )
 Shares of limited liability company interests repurchased
    -       (47,129 )
 Investment in joint ventures by noncontrolling interests
    -       2,833,114  
 Distributions to noncontrolling interests
    (11,152,835 )     (10,829,983 )
 Cash distributions to members
    (25,488,453 )     (25,491,814 )
                 
 Net cash used in financing activities
    (44,687,548 )     (30,601,752 )
                 
 Effects of exchange rates on cash and cash equivalents
    1,083       (12,872 )
                 
 Net increase (decrease) in cash and cash equivalents
    1,661,824       (7,936,432 )
                 
 Cash and cash equivalents, beginning of period
    29,219,287       27,075,059  
                 
 Cash and cash equivalents, end of period
  $ 30,881,111     $ 19,138,627  
                 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
ICON Leasing Fund Twelve, LLC
 
(A Delaware Limited Liability Company)
 
Consolidated Statements of Cash Flows
 
(unaudited)
 
   
   
Nine Months Ended September 30,
 
   
2011
   
2010
 
             
 Supplemental disclosure of cash flow information:
           
             
 Cash paid during the period for interest
  $ 4,146,597     $ 5,028,579  
                 
 Supplemental disclosure of non-cash investing and financing activities:
               
                 
 Principal and interest on non-recourse long-term debt
               
 paid directly to lenders by lessees
  $ 25,848,069     $ 26,830,477  
                 
 Exchange of equity interests in three consolidated joint ventures for the
               
 proportionate share of certain notes receivable
  $ 17,068,983     $ -  
                 
 Reclassification of net assets from leased equipment at cost to net
               
 investment in finance lease
  $ 9,815,569     $ -  
   
 Equipment purchased with non-recourse long-term debt paid directly by lender
  $ -     $ 28,450,000  
                 
 Equipment purchased with subordinated financing provided by seller
  $ -     $ 11,000,000  
                 
 Investment in joint venture by noncontrolling interest
  $ -     $ 1,051,201  
   
 
 
See accompanying notes to consolidated financial statements.
 
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(1) 
Basis of Presentation
 
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 the manager, 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 are 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.
 
In June 2011, the FASB issued ASU No 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”), which revises the manner in which companies present comprehensive income in their financial statements. The new guidance removes the current option to report other comprehensive income and its components in the statement of changes in equity and instead requires presentation in one continuous statement of comprehensive income or two separate but consecutive statements. The adoption of ASU 2011-05 becomes effective for the LLC's interim and annual periods beginning January 1, 2012. The LLC does not believe the adoption of this guidance will have a material impact on its consolidated financial statements, as it only requires a change in the format of presentation.
 
(2) 
Notes Receivable
 
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, and the notes bear interest at 15% per year and mature on August 1, 2014.  No gain or loss was recorded as a result of this transaction.  Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(2) 
Notes Receivable - continued
 
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, and the notes bear interest at 9.47% to 9.90% per year and mature between December 15, 2011 and February 15, 2013.  No gain or loss was recorded as a result of this transaction.  Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
 
Effective January 1, 2011, the LLC exchanged its 49.13% ownership interest in a joint venture for an assignment of its proportionate share of 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 bears interest at 20% per year and matures on October 1, 2012.  No gain or loss was recorded as a result of this transaction.  Upon 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 based 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 September 30, 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.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(3) 
Net Investment in Finance Leases
 
Net investment in finance leases consisted of the following:
 
   
   
September 30,
   
December 31,
 
   
2011
   
2010
 
             
       Minimum rents receivable
  $ 206,058,429     $ 225,642,237  
       Estimated residual values
    27,683,816       21,928,543  
       Initial direct costs, net
    4,927,197       5,657,967  
       Unearned income
    (66,704,548 )     (74,682,136 )
                 
       Net investment in finance leases
    171,964,894       178,546,611  
                 
       Less:  Current portion of net
               
    investment in finance leases
    17,523,674       23,535,746  
                 
       Net investment in finance leases,
               
    less current portion
  $ 154,441,220     $ 155,010,865  
 
On March 31, 2011, the LLC purchased information technology equipment for 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 lease schedule is for a period of thirty-six months commencing on April 1, 2011.
 
On May 16, 2011, the LLC entered into an agreement to sell certain automotive manufacturing equipment subject to lease for €3,000,000.  The purchase price will be paid in three installments and will bear interest at a rate of 5.5% per year.  The LLC will retain title to the equipment until the final payment is received on or before June 1, 2013.
 
On July 15, 2011, a joint venture controlled by the LLC and owned 49.54% by the LLC, 40.53% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P., an entity also managed by the Manager (“Fund Fourteen”), and 9.93% by an unaffiliated third-party amended the master lease agreement with Atlas Pipeline Mid-Continent, LLC (“Atlas”).  The amendment requires Atlas to purchase the assets subject to lease upon termination.  The joint venture received an amendment fee of $500,000 and the lease was reclassified from an operating lease to a direct finance lease.
 
On September 14, 2011, the joint venture entered into a loan agreement with Wells Fargo Equipment Finance, Inc. (“Wells Fargo”) in the amount of $10,628,000.  Wells Fargo received a first priority security interest in the leased equipment, among other collateral.  The loan bears interest at the rate of 4.08% per year and matures on September 1, 2013.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(4) 
Leased Equipment at Cost
  
Leased equipment at cost consisted of the following:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
      Marine - Crude oil tanker
  $ 168,120,037     $ 209,027,554  
      Offshore oil field services equipment
    54,383,809       54,383,809  
      Marine - Container vessels
    52,691,711       52,691,711  
      Automotive manufacturing equipment
    14,035,942       14,124,744  
      Coal drag line
    12,834,631       12,834,631  
      Motor coaches 
    5,473,082       5,473,082  
      Forging equipment 
    4,637,475       4,637,475  
      Underground coal conveyor system
    3,493,747       7,287,821  
      Gas compressors
    -       11,611,520  
      Telecommunications equipment 
    -       6,116,887  
      315,670,434       378,189,234  
                 
      Less: Accumulated depreciation
    80,038,011       76,473,310  
                 
    $ 235,632,423     $ 301,715,924  
 
On March 4, 2011, the LLC sold equipment on lease to American Energy Corp. and Ohio American Energy, Incorporated (collectively, “American Energy”) for approximately $1,798,000.  No gain or loss was recorded as a result of this transaction.
 
As a result of negotiations to remarket and ultimately dispose of certain vessels, the Manager reviewed ICON Mayon, LLC’s (“ICON Mayon”) investment in the vessel subject to charter and determined that the net book value of the vessel subject to charter exceeded its fair value.  As a result, the LLC recognized  non-cash impairment charges of approximately $21,858,000 during the six months ended June 30, 2011.  On September 23, 2011, ICON Mayon sold the vessel for net proceeds of approximately $8,200,000 and satisfied the remaining third-party debt.  The LLC recorded a loss on sale of approximately $71,000.
 
On April 4, 2011, at the expiration of the lease and in accordance with its terms, the LLC sold certain telecommunications equipment to Global Crossing Telecommunications, Inc. (“Global Crossing”) for approximately $1,188,000.  No gain or loss was recorded as a result of this transaction.
 
Depreciation expense was $6,925,985 and $7,690,252 for the three months ended September 30, 2011 and 2010, respectively.  Depreciation expense was $23,190,183 and $24,616,205 for the nine months ended September 30, 2011 and 2010, respectively.
 
(5) 
Assets Held for Sale
 
During 2011, the LLC, in conjunction with ICON Leasing Fund Eleven, LLC, an entity also managed by the Manager (“Fund Eleven”),  sold certain parcels of real property for approximately $1,403,000, of which the LLC’s portion was approximately $996,000. The LLC recorded a loss of approximately $44,000 as a result of these transactions.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(6) 
Investment in Joint Ventures
 
ICON Pliant, LLC
 
On June 30, 2008, the LLC and Fund Eleven entered into a joint venture for the purpose of acquiring manufacturing equipment.
 
The results of operations of the joint venture are summarized below:
 
   
Three Months Ended September 30,
   
Nine Months Ended September 30,
 
   
2011
   
2010
   
2011
   
2010
 
      Revenue
  $ 743,231     $ 743,231     $ 2,229,694     $ 2,230,283  
      Net income
  $ 326,836     $ 403,668     $ 978,915     $ 1,064,120  
      LLC's share of net income
  $ 147,076     $ 181,651     $ 440,512     $ 478,854  
 
ICON AET Holdings, LLC
 
On March 29, 2011, the LLC and Fund Fourteen 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 $13,000,000 and simultaneously bareboat chartered to AET Inc. Limited (“AET”) for a period of three years. The VLCCs were each acquired for $72,000,000 and simultaneously bareboat chartered to AET for a period of ten years.
 
The results of operations of the joint venture are summarized below:
 
   
Three Months Ended September 30, 2011
   
Nine Months Ended September 30, 2011
 
      Revenue
  $ 6,349,152     $ 13,050,625  
      Net loss 
  $ 4,524,032     $ 7,987,906  
      LLC's share of net loss 
  $ 1,131,008     $ 1,996,977  
  
(7) 
Non-Recourse Long-Term Debt
 
As of September 30, 2011 and December 31, 2010, the LLC had non-recourse long-term debt obligations of $182,045,816 and $212,511,305, respectively, with maturity dates ranging from November 1, 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) 
Revolving Line of Credit, Recourse
 
On May 10, 2011, the LLC entered into a Commercial Loan Agreement (the “Loan Agreement”) with California Bank & Trust (“CB&T”). The Loan Agreement provides for a revolving line of credit of $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, based on the present value of the future receivables under certain loans and lease agreements in which the LLC has a beneficial interest. At September 30, 2011, the LLC had $10,000,000 available under the Facility.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(8)
Revolving Line of Credit, Recourse - continued
  
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. At September 30, 2011, there were no obligations outstanding under the Loan Agreement.
 
Pursuant to the Loan Agreement, the LLC is required to comply with certain covenants. At September 30, 2011, the LLC was in compliance with all covenants under the Loan Agreement.
 
(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 September 30,
   
Nine Months Ended September 30,
 
 Entity
 
 Capacity
 
 Description
 
2011
   
2010
   
2011
   
2010
 
      ICON Capital Corp.
 
 Manager
 
 Acquisition fees (1)
  $ -     $ 1,111,000     $ 2,585,188     $ 3,249,400  
      ICON Capital Corp.
 
 Manager
 
 Administrative expense
                               
       
    reimbursements (2)
    549,121       659,167       2,243,007       2,574,101  
      ICON Capital Corp.
 
 Manager
 
 Management fees (2)
    1,462,053       1,074,426       3,740,482       3,239,542  
      Total
          $ 2,011,174     $ 2,844,593     $ 8,568,677     $ 9,063,043  
   
      (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 September 30, 2011, the LLC had a net payable of $239,809 due to the Manager and its affiliates primarily related to administrative expense reimbursements.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(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 recognizes all derivatives as either assets or liabilities on the consolidated balance sheets and measure those instruments at fair value. The LLC recognizes the fair value of all derivatives as either assets or liabilities on the consolidated balance sheets and changes in the fair value of such instruments are recognized immediately in earnings unless certain accounting criteria established by the accounting pronouncements are met. These criteria demonstrate that the derivative is expected to be highly effective at offsetting changes in the fair value or expected cash flows of the underlying exposure at both the inception of the hedging relationship and on an ongoing basis and include an evaluation of the counterparty risk and the impact, if any, on the effectiveness of the derivative. If these criteria are met, which the LLC must document and assess at inception and on an ongoing basis, the LLC recognizes the changes in fair value of such instruments in accumulated other comprehensive income (loss) (“AOCI”), a component of equity on the consolidated balance sheets. Changes in the fair value of the ineffective portion of all derivatives are recognized immediately in earnings.
 
Interest Rate Risk
 
The LLC’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements on its variable non-recourse debt. The LLC’s hedging strategy to accomplish this objective is to match the projected future cash flows with the underlying debt service. Interest rate swaps designated as cash flow hedges involve the receipt of floating rate payments from a counterparty in exchange for the LLC making fixed rate payments over the life of the agreements without exchange of the underlying notional amount.
 
Designated Derivatives
 
As of September 30, 2011, the LLC had eleven floating-to-fixed interest rate swaps that are designated and qualifying as cash flow hedges with an aggregate notional amount of $150,874,444. These interest rate swaps have maturity dates ranging from November 14, 2013 to September 30, 2014.
 
For these derivatives, the LLC records the gain or loss from the effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges in AOCI and such gain or loss is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings and within the same line item on the statements of operations as the impact of the hedged transaction. During the three and nine months ended September 30, 2011, the LLC recorded $10,906 and $34,156 of hedge ineffectiveness in earnings, respectively. At September 30, 2011, the accumulated unrealized loss recorded to AOCI related to the change in fair value of these interest rate swaps was $5,827,866.
 
During the twelve months ending September 30, 2012, the LLC estimates that approximately $3,053,462 will be reclassified from AOCI to interest expense.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(10)
Derivative Financial Instruments - continued
 
Non-designated Derivatives
 
As of September 30, 2011, the LLC had two interest rate swaps that are not designated and qualifying as cash flow hedges with an aggregate notional amount of $13,639,516.  These interest rate swaps 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 payments from a counterparty in exchange for the LLC making fixed rate payments over the life of the agreement without exchange of the underlying notional amount.
 
Additionally, the LLC holds warrants that are held for purposes other than hedging. All changes in the fair value of the interest rate swaps not designated as hedges and the warrants are recorded directly in earnings.
 
The table below presents the fair value of the LLC’s derivative financial instruments as well as their classification within the LLC’s consolidated balance sheets as of September 30, 2011 and December 31, 2010:
 
 
Asset Derivatives
 
Liability Derivatives
 
     
September 30,
   
December 31,
     
September 30,
   
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
  $ 6,138,431     $ 6,949,480  
                                     
 Derivatives not designated as hedging
                                   
 instruments:
                                   
 Interest rate swaps
    $ -     $ -  
Derivative instruments
  $ 605,222     $ 531,714  
 Warrants
Other non-current assets, net
  $ 269,655     $ 340,324       $ -     $ -  
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(10)
Derivative Financial Instruments – continued
 
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and nine months ended September 30, 2011:
 
Three Months Ended September 30, 2011
                 
                       
   
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
 (Effective Portion)
 
Location of Gain (Loss)
Reclassified
from AOCI into Income
 (Effective Portion)
 
Gain (Loss) Reclassified
from AOCI into Income
 (Effective Portion)
 
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
 from Effectiveness Testing)
 
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
 Amounts Excluded
 from Effectiveness Testing)
 
 
 
 
 Derivatives
                       
      Interest rate swaps
  $ (967,758 )
 Interest expense
  $ (1,024,828 )
 Loss on financial instruments
  $ (10,906 )
                             
                             
Nine Months Ended September 30, 2011
                     
                             
   
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
 (Effective Portion)
 
Location of Gain (Loss)
Reclassified
from AOCI into Income
 (Effective Portion)
 
Gain (Loss) Reclassified
from AOCI into Income
 (Effective Portion)
 
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
 from Effectiveness Testing)
 
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
 Amounts Excluded
 from Effectiveness Testing)
 
 
 
 
 Derivatives
                             
      Interest rate swaps
  $ (2,586,390 )
 Interest expense
  $ (3,242,561 )
 Loss on financial instruments
  $ (34,156 )
 
The tables below present the effect of the LLC’s derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations for the three and nine months ended September 30, 2010:
 
Three Months Ended September 30, 2010
                 
                       
               
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
 from Effectiveness Testing)
 
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
 Amounts Excluded
 from Effectiveness Testing)
 
   
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
 (Effective Portion)
 
Location of Gain (Loss)
Reclassified
from AOCI into Income
 (Effective Portion)
     
   
Gain (Loss) Reclassified
from AOCI into Income
 (Effective Portion)
 
 
 Derivatives
                       
      Interest rate swaps
  $ (2,485,011 )
 Interest expense
  $ (1,209,297 )
 Loss on financial instruments
  $ (12,736 )
                             
                             
                             
Nine Months Ended September 30, 2010
                     
                             
 Derivatives
 
Amount of Gain (Loss)
Recognized
in AOCI on Derivative
 (Effective Portion)
 
Location of Gain (Loss)
Reclassified
from AOCI into Income
 (Effective Portion)
 
Gain (Loss) Reclassified
from AOCI into Income
 (Effective Portion)
 
Location of Gain (Loss)
Recognized in Income on
Derivative (Ineffective Portion
and Amounts Excluded
 from Effectiveness Testing)
 
Gain (Loss) Recognized
in Income on Derivative
(Ineffective Portion and
 Amounts Excluded
 from Effectiveness Testing)
 
                             
      Interest rate swaps
  $ (7,942,552 )
 Interest expense
  $ (3,785,458 )
 Loss on financial instruments
  $ (39,534 )
                             
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(10)
Derivative Financial Instruments – continued
     
The LLC’s derivative financial instruments not designated as hedging instruments generated a loss on financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2011 of $127,766 and $152,220, respectively. The LLC’s derivative financial instruments not designated as hedging instruments generated a loss on financial instruments on the consolidated statements of operations for the three and nine months ended September 30, 2010 of $188,534 and $384,813, respectively. The net loss recorded for the three months ended September 30, 2011 was comprised of losses of $63,503 relating to interest rate swap contracts and $64,263 relating to warrants. The net loss recorded for the nine months ended September 30, 2011 was comprised of losses of $81,551 relating to interest rate swap contracts and $70,669 relating to warrants.  The net loss recorded for the three months ended September 30, 2010 was comprised of  losses of $186,245 relating to interest rate swap contracts and $2,289 relating to warrants. The net loss recorded for the nine months ended September 30, 2010 was comprised of a loss of $648,058 relating to interest rate swap contracts and a gain of $263,245 relating to warrants.
 
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 September 30, 2011.
 
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 September 30, 2011, the fair value of the derivatives in a liability position was $6,743,653. In the event that the LLC would be required to settle its obligations under the agreements as of September 30, 2011, the termination value would be $7,024,747.
 
(11)
Accumulated Other Comprehensive Loss
 
AOCI includes accumulated unrealized losses on derivative financial instruments and accumulated unrealized losses on currency translation adjustments of $5,827,866 and $1,348,155, respectively, at September 30, 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 income (loss) for the three and nine months ended September 30, 2011 was $1,850,316 and ($8,399,927), respectively. Total comprehensive income for the three and nine months ended September 30, 2010 was $5,154,111 and $14,108,385, respectively.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(12) 
Fair Value Measurements
 
Assets and liabilities are 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.
 
The following table summarizes the valuation of the LLC’s material financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011:
 
 
                       
   
Level 1
   
Level 2
   
Level 3
   
Total
 
      Assets:
                       
                         
   Warrants
  $ -     $ -     $ 269,655     $ 269,655  
                                 
      Liabilities:
                               
                                 
    Derivative Instruments
  $ -     $ 6,743,653     $ -     $ 6,743,653  
 
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  
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(12)
Fair Value Measurements - continued
     
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 September 30, 2011:
 
   
September 30, 2011
   
Level 1
   
Level 2
   
Level 3
   
Total Impairment Loss
 
                               
      Assets held for sale, net
  $ 1,404,465     $ -     $ -     $ 1,404,465     $ 44,072  
 
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 September 30, 2010:
 
   
September 30, 2010
   
Level 1
   
Level 2
   
Level 3
   
Total Impairment Loss
 
                               
      Assets held for sale, net
  $ 6,862,554     $ -     $ -     $ 6,862,554     $ 1,282,568  
 
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, market prices and prices determined based on arm’s length negotiated transactions with a third party for fair value measurements of its non-financial assets.
 
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.
 
 
 
ICON Leasing Fund Twelve, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
September 30, 2011
(unaudited)
 
(12)
Fair Value Measurements - continued
      
   
September 30, 2011
 
   
Carrying Amount
   
Fair Value
 
      Fixed rate notes receivable
  $ 38,146,998     $ 38,933,959  
                 
      Other non-current liabilities
  $ 54,730,464     $ 57,204,974  
 
(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 a residual sharing and remarketing agreement with a third party.  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 September 30, 2011 and December 31, 2010.
 
On October 21, 2011, the Chapter 11 bankruptcy trustee for Equipment Acquisition Resources, Inc. (“EAR”) filed an adversary complaint against ICON EAR, LLC and ICON EAR II, LLC (collectively, “ICON EAR”) seeking the recovery of certain funds that the trustee alleges were fraudulently transferred from EAR to ICON EAR.  The complaint also seeks the recovery of payments made by EAR to ICON EAR during the 90-day period preceding EAR’s bankruptcy filing, alleging that those payments constituted a preference under the U.S. Bankruptcy Code.  Additionally, the complaint seeks the imposition of a constructive trust over certain real property and the proceeds from the sale ICON EAR received as security in connection with its investment. The Manager believes these claims are frivolous and intends to vigorously defend this action.  At this time, the LLC is unable to predict the outcome of this action or loss therefrom, if any.
 
 
 
 
 
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. During our offering period, we raised $347,686,947 in total equity.  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.
 
 
 
 
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 the AET Vessels. The Aframax tankers were each acquired for $13,000,000 and simultaneously bareboat chartered to AET for a period of three years. The VLCCs were each acquired for $72,000,000 and simultaneously bareboat chartered to AET for a period of ten years.
 
·  
On March 31, 2011, we purchased information technology equipment for approximately $1,954,000 and simultaneously leased the equipment to Broadview. The base term of the lease schedule is for a period of thirty-six months commencing on April 1, 2011.
 
Dispositions and Impairment
 
·  
On March 4, 2011, we sold equipment on lease to American Energy for approximately $1,798,000. No gain or loss was recorded as a result of this transaction.
 
·  
During 2011, we, in conjunction with Fund Eleven, sold certain parcels of real property for approximately $1,403,000, of which our portion was approximately $996,000. We recorded a loss of approximately $44,000 as a result of these transactions.
 
·  
On April 4, 2011, at the expiration of the lease and in accordance with its terms, we sold certain telecommunications equipment to Global Crossing for approximately $1,188,000.  No gain or loss was recorded as a result of this transaction.
 
·  
As a result of negotiations to remarket and ultimately dispose of certain vessels, our Manager reviewed ICON Mayon’s investment in the vessel subject to charter and determined that the net book value of the vessel subject to charter exceeded the fair value.  As a result, we recognized non-cash impairment charges of approximately $21,858,000 during the six months ended June 30, 2011.  On September 23, 2011, ICON Mayon sold the vessel for net proceeds of approximately $8,200,000 and satisfied the remaining third-party debt.  We recorded a loss on sale of approximately $71,000.
 
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, and the notes bear interest at 15% per year and mature on August 1, 2014. No gain or loss was recorded as a result of this transaction.  Upon 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 notes receivable from Northern Leasing, which were previously owned by the joint venture. The aggregate principal balance of the notes was approximately $5,327,000, and the notes bear interest at 9.47% to 9.90% per year and mature between December 15, 2011 and February 15, 2013.  No gain or loss was recorded as a result of this transaction.  Upon 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 bears interest at 20% per year and matures on October 1, 2012.  No gain or loss was recorded as a result of this transaction.  Upon completion of the exchange, the joint venture was deconsolidated and then terminated.
 
 
 
Net Investment in Finance Leases
 
·  
On May 16, 2011, we entered into an agreement to sell certain automotive manufacturing equipment subject to lease for €3,000,000.  The purchase price will be paid in three installments and will bear interest at a rate of 5.5% per year.  We will retain title to the equipment until the final payment is received on or before June 1, 2013.
 
·  
On July 15, 2011, a joint venture controlled by us and owned 49.54% by us, 40.53% by Fund Fourteen and 9.93% by an unaffiliated third-party amended the master lease agreement with Atlas.  The amendment requires Atlas to purchase the assets subject to lease upon termination.  The joint venture received an amendment fee of $500,000 and the lease was reclassified from an operating lease to a direct finance lease.
 
 
On September 14, 2011, the joint venture entered into a loan agreement with Wells Fargo in the amount of $10,628,000.  Wells Fargo received a first priority security interest in the leased equipment, among other collateral.  The loan bears interest at the rate of 4.08% per year and matures on September 1, 2013.
 
      Acquisition Fees
 
In connection with the new investments made since December 31, 2010, we paid total acquisition fees to our Manager of approximately $2,585,000.
 
Recent Accounting Pronouncements
 
There are no recent accounting pronouncements that are expected to have a significant impact on our consolidated financial statements as of September 30, 2011.  See Note 1 to our consolidated financial statements for a discussion of recent accounting pronouncements.
 
 
 
 
Results of Operations for the Three Months Ended September 30, 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 September 30, 2011 and December 31, 2010:
 
   
September 30, 2011
   
December 31, 2010
 
         
Percentage of Total Net Carrying Value
         
Percentage of Total Net Carrying Value
 
   
Net
   
Net
 
   
Carrying
   
Carrying
 
      Asset Type
 
Value
   
Value
 
      Offshore oil field services equipment
  $ 144,348,242       69%     $ 152,425,683       64%  
      Marine - Crude oil tanker
    9,600,000       4%       9,600,000       4%  
      Cranes & transportation equipment
    8,653,125       4%       9,750,000       4%  
      Gas compressors
    8,248,838       4%       -       -  
      Telecommunications equipment
    8,080,884       4%       12,234,879       5%  
      Marine - Product tankers
    8,008,817