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
|
March 31, 2012
|
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_
|
000-50654
|
|
ICON Income Fund Ten, LLC
|
|
(Exact name of registrant as specified in its charter)
|
|
Delaware
|
35-2193184
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
|
3 Park Avenue, 36th Floor, New York, New York
|
10016
|
|
(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 [ ] Smaller reporting company [X]
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 4, 2012 is 148,211.
|
ICON Income Fund Ten, LLC
Table of Contents
|
||
|
Page
|
||
|
|
||
|
|
||
|
1
|
||
|
2
|
||
|
3
|
||
|
4
|
||
|
6
|
||
|
13
|
||
|
17
|
||
|
17
|
||
|
|
||
|
18
|
||
|
18
|
||
|
18
|
||
|
18
|
||
|
18
|
||
|
18
|
||
|
19
|
||
|
20
|
||
|
ICON Income Fund Ten, LLC
|
||||||||
|
(A Delaware Limited Liability Company)
|
||||||||
|
Assets
|
||||||||
|
March 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 1,164,807 | $ | 6,171,596 | ||||
|
Current portion of net investment in finance leases
|
2,416,344 | 183,913 | ||||||
|
Current portion of notes receivable
|
350,927 | 422,568 | ||||||
|
Other current assets
|
12,142 | 38,341 | ||||||
|
Total current assets
|
3,944,220 | 6,816,418 | ||||||
|
Non-current assets:
|
||||||||
|
Net investment in finance leases, less current portion
|
38,195,278 | 39,832,259 | ||||||
|
Notes receivable, less current portion
|
- | 20,097 | ||||||
|
Investments in joint ventures
|
8,037,209 | 8,378,185 | ||||||
|
Other non-current assets
|
25,129 | 25,717 | ||||||
|
Total non-current assets
|
46,257,616 | 48,256,258 | ||||||
|
Total Assets
|
$ | 50,201,836 | $ | 55,072,676 | ||||
|
Liabilities and Equity
|
||||||||
|
Current liabilities:
|
||||||||
|
Due to Manager and affiliates
|
$ | 92,907 | $ | 111,615 | ||||
|
Accrued expenses
|
83,975 | 162,530 | ||||||
|
Accrued tax liability
|
368,086 | 357,211 | ||||||
|
Other current liabilities
|
43,000 | 45,205 | ||||||
|
Total Liabilities
|
587,968 | 676,561 | ||||||
|
Commitments and contingencies (Note 8)
|
||||||||
|
Equity:
|
||||||||
|
Members' Equity:
|
||||||||
|
Additional Members
|
50,529,273 | 55,278,766 | ||||||
|
Manager
|
(802,035 | ) | (754,060 | ) | ||||
|
Accumulated other comprehensive loss
|
(133,014 | ) | (148,725 | ) | ||||
|
Total Members' Equity
|
49,594,224 | 54,375,981 | ||||||
|
Noncontrolling Interests
|
19,644 | 20,134 | ||||||
|
Total Equity
|
49,613,868 | 54,396,115 | ||||||
|
Total Liabilities and Equity
|
$ | 50,201,836 | $ | 55,072,676 | ||||
See accompanying notes to consolidated financial statements.
1
|
(A Delaware Limited Liability Company)
|
||||||||
|
Consolidated Statements of Operations and Comprehensive Income (Loss)
|
||||||||
|
Three Months Ended March 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Revenue:
|
||||||||
|
Rental income
|
$ | 3,878 | $ | 160,197 | ||||
|
Finance income
|
1,674,892 | 1,520,305 | ||||||
|
Servicing income
|
- | 1,248,347 | ||||||
|
Loss from investments in joint ventures
|
(413,365 | ) | (4,509,963 | ) | ||||
|
Net gain on sales of equipment and unguaranteed residual values
|
- | 588,889 | ||||||
|
Interest and other income
|
14,079 | 95,837 | ||||||
|
Total revenue
|
1,279,484 | (896,388 | ) | |||||
|
Expenses:
|
||||||||
|
Management fees - Manager
|
109,611 | 125,094 | ||||||
|
Administrative expense reimbursements - Manager
|
99,178 | 167,363 | ||||||
|
General and administrative
|
312,328 | 1,943,538 | ||||||
|
Interest
|
135 | 6,348 | ||||||
|
Depreciation and amortization
|
590 | 402,508 | ||||||
|
Total expenses
|
521,842 | 2,644,851 | ||||||
|
Net income (loss)
|
757,642 | (3,541,239 | ) | |||||
|
Less: Net (loss) income attributable to noncontrolling interests
|
(490 | ) | 36,032 | |||||
|
Net income (loss) attributable to Fund Ten
|
$ | 758,132 | $ | (3,577,271 | ) | |||
|
Net income (loss) attributable to Fund Ten allocable to:
|
||||||||
|
Additional Members
|
$ | 750,551 | $ | (3,541,498 | ) | |||
|
Manager
|
7,581 | (35,773 | ) | |||||
| $ | 758,132 | $ | (3,577,271 | ) | ||||
|
Comprehensive income (loss):
|
||||||||
|
Net income (loss)
|
$ | 757,642 | $ | (3,541,239 | ) | |||
|
Change in valuation of derivative instruments
|
16,862 | 90,447 | ||||||
|
Currency translation adjustment
|
(1,151 | ) | 142,021 | |||||
|
Total comprehensive income (loss)
|
773,353 | (3,308,771 | ) | |||||
|
Less: Comprehensive (loss) income attributable to noncontrolling interests
|
(490 | ) | 36,032 | |||||
|
Comprehensive income (loss) attributable to Fund Ten
|
$ | 773,843 | $ | (3,344,803 | ) | |||
|
Weighted average number of additional
|
||||||||
|
shares of limited liability company interests outstanding
|
148,211 | 148,211 | ||||||
|
Net income (loss) attributable to Fund Ten per weighted
|
||||||||
|
average additional share of limited liability company interests
|
$ | 5.06 | $ | (23.89 | ) | |||
See accompanying notes to consolidated financial statements.
2
|
ICON Income Fund Ten, LLC
|
||||||||||||||||||||||||||||
|
(A Delaware Limited Liability Company)
|
||||||||||||||||||||||||||||
|
Members' Equity
|
||||||||||||||||||||||||||||
| Additional |
Accumulated
|
|||||||||||||||||||||||||||
|
Shares of
|
Other
|
Total
|
||||||||||||||||||||||||||
|
Limited Liability
|
Additional
|
Comprehensive
|
Members'
|
Noncontrolling
|
Total
|
|||||||||||||||||||||||
|
Company Interests
|
Members
|
Manager
|
(Loss) Income
|
Equity
|
Interests
|
Equity
|
||||||||||||||||||||||
|
Balance, December 31, 2011
|
148,211 | $ | 55,278,766 | $ | (754,060 | ) | $ | (148,725 | ) | $ | 54,375,981 | $ | 20,134 | $ | 54,396,115 | |||||||||||||
|
Net income (loss)
|
- | 750,551 | 7,581 | - | 758,132 | (490 | ) | 757,642 | ||||||||||||||||||||
|
Change in valuation of interest
|
||||||||||||||||||||||||||||
|
rate swap contracts
|
- | - | - | 16,862 | 16,862 | - | 16,862 | |||||||||||||||||||||
|
Currency translation adjustments
|
- | - | - | (1,151 | ) | (1,151 | ) | - | (1,151 | ) | ||||||||||||||||||
|
Cash distributions
|
- | (5,500,044 | ) | (55,556 | ) | - | (5,555,600 | ) | - | (5,555,600 | ) | |||||||||||||||||
|
Balance, March 31, 2012
|
148,211 | $ | 50,529,273 | $ | (802,035 | ) | $ | (133,014 | ) | $ | 49,594,224 | $ | 19,644 | $ | 49,613,868 | |||||||||||||
See accompanying notes to consolidated financial statements.
3
|
(A Delaware Limited Liability Company)
|
||||||||
|
|
||||||||
|
Three Months Ended March 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Net income (loss)
|
$ | 757,642 | $ | (3,541,239 | ) | |||
|
Adjustments to reconcile net income (loss) to net cash
|
||||||||
|
provided by operating activities:
|
||||||||
|
Finance income
|
(1,674,892 | ) | (1,520,305 | ) | ||||
|
Loss from investments in joint ventures
|
413,365 | 4,509,963 | ||||||
|
Net gain on sales of equipment and unguaranteed residual values
|
- | (588,889 | ) | |||||
|
Depreciation and amortization
|
590 | 402,508 | ||||||
|
Stock-based compensation expense
|
- | 298,388 | ||||||
|
Loss on financial instruments
|
- | 2,740 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Collection of finance leases
|
1,079,442 | 996,338 | ||||||
|
Service contracts receivable
|
- | 45,699 | ||||||
|
Other assets, net
|
22,684 | (174,714 | ) | |||||
|
Due to Manager and affiliates
|
(18,708 | ) | (54,332 | ) | ||||
|
Accrued expenses
|
(78,555 | ) | (35,833 | ) | ||||
|
Other current liabilities
|
(2,205 | ) | (155,976 | ) | ||||
|
Distributions from joint ventures
|
- | 363,440 | ||||||
|
Net cash provided by operating activities
|
499,363 | 547,788 | ||||||
|
Cash flows from investing activities:
|
||||||||
|
Proceeds from sales of equipment and unguaranteed residual values
|
- | 1,125,243 | ||||||
|
Principal repayment on notes receivable
|
95,251 | 247,072 | ||||||
|
Investment in joint venture
|
(55,527 | ) | - | |||||
|
Distributions received from joint ventures in excess of profits
|
- | 568,060 | ||||||
|
Net cash provided by investing activities
|
39,724 | 1,940,375 | ||||||
|
Cash flows from financing activities:
|
||||||||
|
Proceeds from sale of subsidiary shares
|
- | 158,639 | ||||||
|
Cash distributions to members
|
(5,555,600 | ) | (1,565,672 | ) | ||||
|
Distributions to noncontrolling interests
|
- | (122,407 | ) | |||||
|
Net cash used in financing activities
|
(5,555,600 | ) | (1,529,440 | ) | ||||
|
Effects of exchange rates on cash and cash equivalents
|
9,724 | 98,361 | ||||||
|
Net (decrease) increase in cash and cash equivalents
|
(5,006,789 | ) | 1,057,084 | |||||
|
Cash and cash equivalents, beginning of the period
|
6,171,596 | 2,740,590 | ||||||
|
Cash and cash equivalents, end of the period
|
$ | 1,164,807 | $ | 3,797,674 | ||||
See accompanying notes to consolidated financial statements.
4
|
ICON Income Fund Ten, LLC
|
||||||||
|
(A Delaware Limited Liability Company)
|
||||||||
|
Consolidated Statements of Cash Flows
|
||||||||
|
Three Months Ended March 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Supplemental disclosure of non-cash investing activities:
|
||||||||
|
Transfer from investment in joint ventures to notes receivable
|
$ | - | $ | 1,251,414 | ||||
See accompanying notes to consolidated financial statements.
5
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
The accompanying consolidated financial statements of ICON Income Fund Ten, 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, which are of a normal recurring nature, 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, 2011. The results for the interim period are not necessarily indicative of the results for the full year.
The consolidated financial statements include the accounts of the LLC and its majority-owned subsidiaries and other controlled entities. All intercompany accounts and transactions have been eliminated in consolidation. In joint ventures where the LLC has a controlling financial interest, the financial condition and results of operations of the joint venture are consolidated. A noncontrolling interest represents the minority owner’s proportionate share of its equity in the joint venture. The noncontrolling interest is adjusted for the minority owner’s share of the earnings, losses, investments and distributions of the joint venture.
The LLC accounts for its noncontrolling interests in joint ventures where the LLC has influence over financial and operational matters, generally 50% or less ownership interest, under the equity method of accounting. In such cases, the LLC's original investments are recorded at cost and adjusted for its share of earnings, losses and distributions. The LLC accounts for investments in joint ventures where the LLC has virtually no influence over financial and operational matters using the cost method of accounting. In such cases, the LLC's original investments are recorded at cost and any distributions received are recorded as revenue. All of the LLC's investments in
joint ventures are subject to its impairment review policy.
Net income attributable to the LLC per weighted average additional share of limited liability company interests (“Share”) outstanding is based upon the weighted average number of additional Shares outstanding during the year.
Certain reclassifications have been made to the accompanying consolidated financial statements in prior periods to conform to the current presentation.
Recent Accounting Pronouncements
In May 2011, the FASB issued ASU No 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and IFRSs (“ASU 2011-04”), which amends its guidance related to fair value measurements in order to align the definition of fair value measurements and the related disclosure requirements between US GAAP and International Financial Reporting Standards. The new guidance also changes certain existing fair value measurement principles and disclosure requirements. The adoption of ASU 2011-04 became effective for the LLC on January 1, 2012. The adoption of these additional disclosures did not have a material effect on the LLC’s consolidated financial
statements.
6
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(1) Basis of Presentation and Consolidation - continued
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 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 became effective for the LLC on January 1, 2012. The adoption of this guidance did not have a material impact on the LLC’s consolidated financial statements, as it only required a change in the format of
presentation.
|
(2)
|
Net Investment in Finance Leases
|
Net investment in finance leases consisted of the following:
|
March 31,
|
December 31,
|
|||||||
|
2012
|
2011
|
|||||||
|
Minimum rents receivable
|
$ | 50,964,909 | $ | 52,044,351 | ||||
|
Estimated residual values
|
7,300,000 | 7,300,000 | ||||||
|
Unearned income
|
(17,653,287 | ) | (19,328,179 | ) | ||||
|
Net investment in finance leases
|
40,611,622 | 40,016,172 | ||||||
|
Less: Current portion of net investment in finance leases
|
2,416,344 | 183,913 | ||||||
|
Net investment in finance leases, less current portion
|
$ | 38,195,278 | $ | 39,832,259 | ||||
Credit Quality of Direct Finance Leases 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 is analyzed using those credit ratings as well as the potential borrower’s financial statements and other financial data deemed relevant.
As the LLC’s direct finance leases are limited in number, the LLC is able to estimate the allowance for credit losses based on a detailed analysis of each lease as opposed to using portfolio based metrics and allowance for credit losses. Leases are analyzed quarterly and categorized as either performing or non-performing based on payment history. If a lease becomes non-performing due to a borrower’s missed scheduled payments or failed financial covenants, the Manager analyzes if a reserve should be established or if the lease should be restructured. Material events would be specifically disclosed in the discussion of each lease held.
|
(3)
|
Notes Receivable
|
Effective January 1, 2011, the LLC exchanged its 12.25% ownership interest in a joint venture for notes receivable from Northern Capital Associates XIV, L.P. (“Northern Capital Associates”), which notes receivable were previously owned by the joint venture. As of January 1, 2011, the aggregate principal balance of the notes was approximately $1,237,000, and the notes bore interest at rates ranging from 9.47% to 9.895% per year. On May 2, 2012, Northern Capital Associates satisfied its remaining obligations in connection with the notes by making a payment of approximately $355,000.
7
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(4) Investments in Joint Ventures
ICON Mayon, LLC
The LLC and ICON Leasing Fund Twelve, LLC, an entity also managed by the Manager (“Fund Twelve”) own ICON Mayon, LLC (“ICON Mayon”), with ownership interests of 49% and 51%, respectively. As a result of negotiations to remarket and ultimately dispose of certain vessels, the Manager reviewed the joint venture’s investment in the vessel subject to charter and determined that the net book value exceeded the fair value. As a result, during the three months ended March 31, 2011, the joint venture recognized an impairment charge of approximately $11,291,000, of which the LLC’s share of the impairment charge was approximately $5,532,000. On September 23, 2011, the joint venture sold
the vessel for net proceeds of approximately $8,275,000 and satisfied the remaining third-party debt.
The results of operations of the joint venture are summarized below:
|
Three Months Ended March 31, 2011
|
||||
|
Revenue
|
$ | 1,549,555 | ||
|
Net loss
|
$ | (10,560,060 | ) | |
|
LLC's share of net loss
|
$ | (5,155,603 | ) | |
ICON Eagle Corona Holdings, LLC
On December 18, 2008, ICON Eagle Corona Holdings, LLC, a Marshall Islands limited liability company owned 35.7% by the LLC and 64.3% by Fund Twelve, purchased an Aframax product tanker, the Eagle Corona, for $41,270,000, of which $28,000,000 was financed with non-recourse debt. The Eagle Corona is subject to an eighty-four month bareboat charter with AET, Inc. Limited, that expires on November 14, 2013.
Information as to the results of operations of ICON Corona Holdings is summarized below:
|
Three Months Ended March 31,
|
||||||||
|
2012
|
2011
|
|||||||
|
Revenue
|
$ | 1,522,206 | $ | 1,522,206 | ||||
|
Net (loss) income
|
$ | (544,868 | ) | $ | 421,204 | |||
|
LLC's share of net (loss) income
|
$ | (194,518 | ) | $ | 150,370 | |||
8
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(5) Transactions with Related Parties
The LLC pays or paid the Manager (i) management fees ranging from 1% to 5% based on a percentage of the rentals and other contractual payments recognized either directly by the LLC or through its joint ventures and (ii) acquisition fees, through the end of the operating period, of 3% of the purchase price of the LLC’s investments. In addition, the Manager is reimbursed for administrative expenses incurred in connection with the LLC’s operations. The Manager also has a 1% interest in the LLC’s profits, losses, cash distributions and liquidation proceeds. The Manager performs certain services relating to the management of the LLC’s equipment leasing and other financing
activities. Such services include, but are not limited to, the collection of lease payments from the lessees of the equipment, re-leasing services in connection with equipment which is off-lease, inspections of the equipment, liaising with and general supervision of lessees to ensure that the equipment is being properly operated and maintained, monitoring performance by the lessees of their obligations under the leases and the payment of operating expenses.
Administrative expense reimbursements are costs incurred by the Manager or its affiliates that are necessary to the LLC’s operations. These costs include the Manager’s and its affiliates’ legal, accounting, investor relations and operations personnel costs, as well as professional fees and other costs that are charged to the LLC based upon the percentage of time such personnel dedicate to the LLC. Excluded are salaries and related costs, office rent, travel expenses and other administrative costs incurred by individuals with a controlling interest in the Manager.
Fees and other expenses paid or accrued by the LLC to the Manager or its affiliates were as follows:
|
Three Months Ended March 31,
|
||||||||||||
|
Entity
|
Capacity
|
Description
|
2012
|
2011
|
||||||||
|
ICON Capital Corp.
|
Manager
|
Management fees (1)
|
$ | 109,611 | $ | 125,094 | ||||||
|
ICON Capital Corp.
|
Manager
|
Administrative expense reimbursements (1)
|
$ | 99,178 | $ | 167,363 | ||||||
|
(1) Amount charged directly to operations.
|
||||||||||||
At March 31, 2012, the LLC had a net obligation of $92,907 due to the Manager and affiliates, which consisted primarily of a net payable due to the Manager for administrative expense reimbursements.
9
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(6) Derivative Financial Instruments
The LLC may enter into derivative transactions for purposes of hedging specific financial exposures, including movements in foreign currency exchange rates and changes in interest rates of its non-recourse long-term debt. The LLC enters into these instruments only for hedging underlying exposures. The LLC does not hold or issue derivative financial instruments for purposes other than hedging. Certain derivatives may not meet the criteria to be designated as accounting hedges, even though the LLC believes that these are effective economic hedges.
The LLC accounts for derivative financial instruments as either assets or liabilities on the consolidated balance sheets and measure those instruments at fair value. Changes in the fair value of such instruments are recognized immediately in earnings unless certain criteria 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 (loss) income (“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
Interest rate derivatives are used to add stability to interest expense and to manage exposure to interest rate movements on its variable non-recourse debt. The hedging strategy to accomplish this objective is to match the projected future cash flows with the underlying debt service. Interest rate swaps designated as cash flow hedges involve the receipt of floating-rate interest payments from a counterparty in exchange for the joint ventures making fixed interest rate payments over the life of the agreements without exchange of the underlying notional amount.
As of March 31, 2012, the LLC has interests through joint ventures in two floating-to-fixed interest rate swaps relating to ICON Eagle Corona Holdings, LLC and ICON Eagle Carina Holdings, LLC designated and qualifying as cash flow hedges with an aggregate notional amount of $22,691,811. These interest rate swaps mature November 14, 2013.
For these derivatives, the joint ventures record their interest in the gain or loss from the effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges in AOCI and such gain or loss is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings and is recorded as a component of loss from investments in joint ventures. During the three months ended March 31, 2012, the joint ventures recorded no hedge ineffectiveness in earnings.
10
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(6) Derivative Financial Instruments - continued
Designated Derivatives
The table below presents the effect of the LLC’s share of the joint ventures’ derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2012 and 2011:
|
Three Months Ended March 31, 2012
|
|||||||||
|
Amount of Gain (Loss)
|
Location of Gain (Loss)
|
||||||||
|
Recognized
|
Reclassified
|
Gain (Loss) Reclassified
|
|||||||
|
in AOCI on Derivatives
|
from AOCI into Income
|
from AOCI into Income
|
|||||||
|
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
||||||
|
Interest rate swaps
|
$ | (20,019 | ) |
Loss from investments in joint ventures
|
$ | (36,881 | ) | ||
|
Three Months Ended March 31, 2011
|
|||||||||
|
Amount of Gain (Loss)
|
Location of Gain (Loss)
|
||||||||
|
Recognized
|
Reclassified
|
Gain (Loss) Reclassified
|
|||||||
|
in AOCI on Derivatives
|
from AOCI into Income
|
from AOCI into Income
|
|||||||
|
Derivatives
|
(Effective Portion)
|
(Effective Portion)
|
(Effective Portion)
|
||||||
|
Interest rate swaps
|
$ | (6,522 | ) |
Loss from investments in joint ventures
|
$ | (96,969 | ) | ||
At March 31, 2012, the total unrealized loss recorded to AOCI related to the joint ventures’ interest in the change in fair value of interest rate swaps was approximately $133,000. During the three months ended March 31, 2012, the LLC recorded no hedge ineffectiveness in earnings.
During the twelve months ending March 31, 2013, the LLC estimates that approximately $102,000 will be reclassified from AOCI to loss from investments in joint ventures.
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.
(7) Accumulated Other Comprehensive Loss
AOCI includes accumulated loss on derivative financial instruments of joint ventures of approximately $133,000 at March 31, 2012, and accumulated loss on derivative financial instruments of joint ventures of approximately $150,000 and gain on currency translation adjustments of $1,151 at December 31, 2011.
11
ICON Income Fund Ten, LLC
(A Delaware Limited Liability Company)
Notes to Consolidated Financial Statements
March 31, 2012
(unaudited)
(8) Commitments and Contingencies
At the time the LLC acquires or divests of its interest in an equipment lease or other financing transaction, the LLC may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. The Manager believes that any liability of the LLC that may arise as a result of any such indemnification obligations will not have a material adverse effect on the consolidated financial condition of the LLC taken as a whole.
12
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, 2011. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements” and the “Risk Factors” set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.
As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON Income Fund Ten, LLC and its consolidated subsidiaries.
Forward-Looking Statements
Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or
events. You can identify these statements by the use of words such as “may,” “will,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events and are based on assumptions and are subject to risks and uncertainties and other factors outside our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new
information, future developments or otherwise.
Overview
We operate as an equipment leasing program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve. We primarily engage in the business of purchasing equipment and leasing or servicing it to third parties, equipment financing, acquiring equipment subject to lease and, to a lesser degree, acquiring ownership rights to items of leased equipment at lease expiration. Some of our equipment leases were acquired for cash and provide current cash flow, which we refer to as “income” leases. For our other equipment leases, we financed the majority of the purchase price through borrowings from third
parties. We refer to these leases as “growth” leases. These growth leases generate little or no current cash flow because substantially all of the rental payments received from the lessee are used to service the indebtedness associated with acquiring or financing the lease. For these leases, we anticipated that the future value of the leased equipment would exceed the cash portion of the purchase price.
Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions.
Effective April 30, 2010, we completed our operating period. On May 1, 2010, we entered our liquidation period, during which, we have sold and will continue to sell our assets in the normal course of business. If our Manager believes it would benefit our members to reinvest the proceeds received from investments in additional investments during the liquidation period, our Manager may do so. Our Manager will not receive any acquisition fees on equipment purchased during the liquidation period.
Subsequent Event
On May 2, 2012, Northern Capital Associates satisfied its remaining obligations in connection with the notes receivable by making a payment of approximately $355,000.
13
Recent Accounting Pronouncements
See Note 1 to our consolidated financial statements.
Results of Operations for the Three Months Ended March 31, 2012 (the “2012 Quarter”) and 2011 (the “2011 Quarter”)
Revenue for the 2012 Quarter and the 2011 Quarter is summarized as follows:
|
Three Months Ended March 31,
|
||||||||||||
|
2012
|
2011
|
Change
|
||||||||||
|
Rental income
|
$ | 3,878 | $ | 160,197 | $ | (156,319 | ) | |||||
|
Finance income
|
1,674,892 | 1,520,305 | 154,587 | |||||||||
|
Servicing income
|
- | 1,248,347 | (1,248,347 | ) | ||||||||
|
Loss from investments in joint ventures
|
(413,365 | ) | (4,509,963 | ) | 4,096,598 | |||||||
|
Net gain on sales of equipment and unguaranteed residual values
|
- | 588,889 | (588,889 | ) | ||||||||
|
Interest and other income
|
14,079 | 95,837 | (81,758 | ) | ||||||||
|
|
||||||||||||
|
Total revenue
|
$ | 1,279,484 | $ | (896,388 | ) | $ | 2,175,872 | |||||
Total revenue for the 2012 Quarter increased $2,175,872, or 242.7%, as compared to the 2011 Quarter. The increase in total revenue was primarily due to the loss in the 2011 Quarter from investments in joint ventures from our 49% ownership interest in ICON Mayon, which recognized an impairment loss of approximately $11,291,000, of which our share was approximately $5,532,000. This increase was partially offset by a decrease in servicing income as a result of the sale of Pretel Group Limited (“Pretel”) in December 2011.
Expenses for the 2012 Quarter and the 2011 Quarter are summarized as follows:
|
Three Months Ended March 31,
|
||||||||||||
|
2012
|
2011
|
Change
|
||||||||||
|
Management fees - Manager
|
$ | 109,611 | $ | 125,094 | $ | (15,483 | ) | |||||
|
Administrative expense reimbursements - Manager
|
99,178 | 167,363 | (68,185 | ) | ||||||||
|
General and administrative
|
312,328 | 1,943,538 | (1,631,210 | ) | ||||||||
|
Interest
|
135 | 6,348 | (6,213 | ) | ||||||||
|
Depreciation and amortization
|
590 | 402,508 | (401,918 | ) | ||||||||
|
Total expenses
|
$ | 521,842 | $ | 2,644,851 | $ | (2,123,009 | ) | |||||
Total expenses for the 2012 Quarter decreased $2,123,009, or 80.3%, as compared to the 2011 Quarter. General and administrative expense and depreciation and amortization expense decreased as a result of the sale of Pretel in December 2011.
Noncontrolling Interests
Net (loss) income attributable to noncontrolling interests decreased $36,522, from income of $36,032 in the 2011 Quarter to a loss of $490 in the 2012 Quarter. This decrease was primarily attributable to the sale of assets on lease to Global Crossing Telecommunications, Inc., as well as the sale of Pretel.
14
Net Income (Loss) Attributable to Fund Ten
As a result of the foregoing factors, net income (loss) attributable to us for the 2012 Quarter and the 2011 Quarter was $758,132 and ($3,577,271), respectively. Net income (loss) attributable to us per weighted average additional Share outstanding for the 2012 Quarter and the 2011 Quarter was $5.06 and ($23.89), respectively.
Financial Condition
This section discusses the major balance sheet variances at March 31, 2012 compared to December 31, 2011.
Total Assets
Total assets decreased $4,870,840, from $55,072,676 at December 31, 2011 to $50,201,836 at March 31, 2012. The decrease was primarily due to the cash distributions made to the members in the 2012 Quarter.
Current Assets
Current assets decreased $2,872,198, from $6,816,418 at December 31, 2011 to $3,944,220 at March 31, 2012. The decrease was primarily due to the cash distributions made to our members in the 2012 Quarter. The decrease was partially offset by the increase in the current portion of the net investment in finance lease resulting from the scheduled change in charter payments due pursuant to our bareboat charters on two vessels, the M/V China Star and the M/V Dubai Star.
Equity
Equity decreased $4,782,247, from $54,396,115 at December 31, 2011 to $49,613,868 at March 31, 2012. The decrease was primarily the result of distributions paid to our members, which was partially offset by net income in the 2012 Quarter.
Liquidity and Capital Resources
Summary
At March 31, 2012 and December 31, 2011, we had cash and cash equivalents of $1,164,807 and $6,171,596, respectively. During our operating period, which ended on April 30, 2010, our main sources of cash were the collection of rental payments pursuant to our non-leveraged operating and finance leases and proceeds from sales of equipment. Our main uses of cash during our operating period were investing in equipment and leasing it to third parties and distributions to our members. During our liquidation period, which we entered on May 1, 2010, our main sources of liquidity remain the same and our main use of liquidity is distributions to our members.
Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less. Our cash and cash equivalents are held principally at one financial institution and at times may exceed insured limits. We have placed these funds in a high quality institution in order to minimize risk relating to exceeding insured limits.
On May 1, 2010, we entered our liquidation period. During this period, cash generated by our investing activities has become a more significant source of our liquidity as we sell assets in the normal course of business. We believe that cash generated from the expected results of our operations will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our members, general and administrative expense, management fees and administrative expense reimbursements. We anticipate that our liquidity requirements for the remaining life of the fund will be financed by the expected results of our operations, as well as cash received from our investments at
maturity.
15
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.
Cash Flows
Operating Activities
Cash provided by operating activities decreased $48,425, from $547,788 in the 2011 Quarter to $499,363 in the 2012 Quarter. The decrease was primarily due to the termination of four leases and the sale of Pretel during the year ended December 31, 2011. The decrease was partially offset by the continued reduction of expenses paid in the 2012 Quarter as compared to the 2011 Quarter as a result of being in our liquidation period.
Investing Activities
Cash provided by investing activities decreased $1,900,651, from $1,940,375 in the 2011 Quarter to $39,724 in the 2012 Quarter. The decrease was primarily due to there being no sales of equipment and unguaranteed residual values in the 2012 Quarter, which generated cash in the 2011 Quarter, and the decrease in distributions received from joint ventures in excess of profits in the 2012 Quarter as compared to the 2011 Quarter.
Financing Activities
Cash used in financing activities increased $4,026,160, from $1,529,440 in the 2011 Quarter to $5,555,600 in the 2012 Quarter. The change was primarily due to an increase in cash distributions to members in the 2012 Quarter as compared to the 2011 Quarter.
Distributions
We, at our Manager’s discretion, paid monthly distributions to our members and noncontrolling interests starting with the first month after each additional member’s admission following the commencement of our operations through the end of our operating period, which was on April 30, 2010. Distributions made during our liquidation period will vary, depending on the timing of the sale of our assets, and our receipt of rental and other income from our investments. We paid distributions to our Manager, additional members and noncontrolling interests of $55,556, $5,500,044 and $0, respectively, during the 2012 Quarter.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At March 31, 2012, we had no debt obligations.
Off-Balance Sheet Transactions
None.
16
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, 2011.
In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended March 31, 2012, 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 Principal Accounting and 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 Principal Accounting and
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, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
17
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, 2011.
We did not sell or redeem any Shares during the three months ended March 31, 2012.
Not applicable.
Not applicable.
Not applicable.
18
|
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 February 28, 2003 (File No. 333-103503)).
|
|
4.1
|
Amended and Restated Operating Agreement of Registrant (Incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 3 to Registrant’s Registration Statement on Form S-1 filed with the SEC on June 2, 2003 (File No. 333-103503)).
|
|
10.1
|
Commercial Loan Agreement, dated as of August 31, 2005, by and among California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 31, 2005).
|
|
10.2
|
Loan Modification Agreement, dated as of December 26, 2006, between California Bank & Trust and ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC and ICON Leasing Fund Eleven, LLC (Incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated December 26, 2006).
|
|
10.3
|
Loan Modification Agreement, dated as of June 20, 2007, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC (Incorporated by reference to Exhibit 10.3 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2009, filed November 12, 2009).
|
|
10.4
|
Third Loan Modification Agreement, dated as of May 1, 2008, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC and ICON Leasing Fund Twelve, LLC (Incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2008, filed May 19, 2008).
|
|
10.5
|
Fourth Loan Modification Agreement, dated as of August 12, 2009, between California Bank & Trust, ICON Income Fund Eight B L.P., ICON Income Fund Nine, LLC, ICON Income Fund Ten, LLC, ICON Leasing Fund Eleven, LLC, ICON Leasing Fund Twelve, LLC and ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (Incorporated by reference to Exhibit 10.4 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, filed August 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 (Incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed May 13, 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 Principal Accounting and 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 Principal Accounting and Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
101.INS*
|
XBRL Instance Document.
|
|
101.SCH*
|
XBRL Taxonomy Extension Schema Document.
|
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
101.LAB*
|
XBRL Taxonomy Extension Labels Linkbase Document.
|
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase.
|
| * |
XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
|
19
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ICON Income Fund Ten, LLC
(Registrant)
By: ICON Capital Corp.
(Manager of the Registrant)
May 11, 2012
|
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/ Keith S. Franz
|
|
Keith S. Franz
|
|
Managing Director
(Principal Accounting and Financial Officer)
|
|
20
|