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EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex-32.2.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex-31.2.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, LLCex-31.1.htm
EX-32.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex-32.3.htm
EX-31.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex-31.3.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON LEASING FUND TWELVE, LLCex-32.1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[x]         Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended

June 30, 2015

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.)

 

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.

 

Yes  

o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes  

o  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  (Do not check if a smaller reporting company)

Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

o Yes  

 No

 

Number of outstanding shares of limited liability company interests of the registrant on August 11, 2015 is 348,335.

   

  

 


 

       

       

 

ICON Leasing Fund Twelve, LLC

Table of Contents

 

 

Page

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.  Consolidated Financial Statements

1

 

 

 

Consolidated Balance Sheets

1

 

 

 

Consolidated Statements of Comprehensive (Loss) Income

2

 

 

 

Consolidated Statements of Changes in Equity

3

 

 

 

Consolidated Statements of Cash Flows

4

 

 

 

Notes to Consolidated Financial Statements

6

 

 

 

Item 2. Manager’s Discussion and Analysis of Financial Condition and Results of Operations

17

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

28

 

 

 

Item 4. Controls and Procedures

28

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1. Legal Proceedings

 

29

 

 

 

Item 1A. Risk Factors

 

29

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

29

 

 

 

Item 3. Defaults Upon Senior Securities

29

 

 

 

Item 4. Mine Safety Disclosures

29

 

 

 

Item 5. Other Information

 

29

 

 

 

Item 6. Exhibits

 

30

 

 

 

Signatures

 

31

 

          

 

 

       

 


  

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

Item 1.  Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

ICON Leasing Fund Twelve, LLC

 (A Delaware Limited Liability Company)

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

 

 

 

 

 

(unaudited)

 

 

 

Assets

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

$

6,946,690

 

$

15,410,563

 

Current portion of net investment in notes receivable

 

6,949,503

 

 

6,482,004

 

Current portion of net investment in finance leases

 

7,128,163

 

 

12,142,423

 

Other current assets

 

1,487,875

 

 

620,599

 

 

 

Total current assets

 

22,512,231

 

 

34,655,589

Non-current assets:

 

 

 

 

 

 

Net investment in notes receivable, less current portion

 

44,180,979

 

 

52,238,006

 

Net investment in finance leases, less current portion

 

58,205,861

 

 

62,143,299

 

Leased equipment at cost (less accumulated depreciation of

 

 

 

 

 

 

 

$21,935,409 and $18,430,584, respectively)

 

69,246,950

 

 

72,751,775

 

Vessels (less accumulated depreciation of

 

 

 

 

 

 

 

$2,144,246 and $1,286,547, respectively)

 

17,408,978

 

 

18,266,677

 

Investment in joint ventures

 

18,060,464

 

 

25,235,827

 

Other non-current assets

 

2,789,699

 

 

2,138,020

 

 

 

Total non-current assets

 

209,892,931

 

 

232,773,604

Total assets

$

232,405,162

 

$

267,429,193

Liabilities and Equity

Current liabilities:

 

 

 

 

 

 

Current portion of non-recourse long-term debt

$

7,500,522

 

$

7,332,765

 

Deferred revenue

 

127,025

 

 

167,813

 

Due to Manager and affiliates, net

 

26,401

 

 

2,798,414

 

Accrued expenses and other current liabilities

 

719,994

 

 

1,941,246

 

 

 

 Total current liabilities

 

8,373,942

 

 

12,240,238

 Non-current liabilities:

 

 

 

 

 

 

Non-recourse long-term debt, less current portion

 

48,115,352

 

 

51,863,021

 

Seller's credits

 

12,516,606

 

 

12,295,998

 

Other non-current liabilities

 

150,000

 

 

150,000

 

 

 

Total non-current liabilities

 

60,781,958

 

 

64,309,019

 

 

 

Total liabilities

 

69,155,900

 

 

76,549,257

Commitments and contingencies (Note 11)

 

 

 

 

 

Equity:

 

Members’ equity:

 

 

 

 

 

 

 

Additional members

 

137,226,974

 

 

162,960,082

 

 

Manager

 

(1,725,174)

 

 

(1,465,243)

 

        

 

Total members’ equity

 

135,501,800

 

 

161,494,839

 

Noncontrolling interests

 

27,747,462

 

 

29,385,097

 

 

 

Total equity

 

163,249,262

 

 

190,879,936

Total liabilities and equity

$

232,405,162

 

$

267,429,193

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

1


      

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Comprehensive (Loss) Income

(unaudited)

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

 

 

June 30,

 

June 30,

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

Revenue and other income:

 

 

 

 

 

 

 

Finance income

$

3,498,451

 

$

58,463,355

 

$

7,163,516

 

$

61,938,747

 

Rental income

 

3,532,158

 

 

2,609,028

 

 

7,064,315

 

 

6,640,999

 

Time charter revenue

 

1,593,787

 

 

1,460,867

 

 

2,965,098

 

 

1,460,867

 

(Loss) income from investment in joint ventures

 

(7,279,778)

 

 

1,204,994

 

 

(6,682,551)

 

 

1,844,350

 

Loss on lease termination

 

-

 

 

(18,800)

 

 

-

 

 

(18,800)

 

 

Total revenue and other income

 

1,344,618

 

 

63,719,444

 

 

10,510,378

 

 

71,866,163

 Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

319,464

 

 

599,561

 

 

704,300

 

 

1,138,751

 

Administrative expense reimbursements

 

312,286

 

 

668,467

 

 

751,299

 

 

1,129,099

 

General and administrative

 

616,048

 

 

487,545

 

 

1,523,095

 

 

1,574,065

 

Interest 

 

1,030,421

 

 

1,558,245

 

 

2,080,411

 

 

2,983,221

 

Depreciation

 

2,181,075

 

 

1,227,615

 

 

4,362,524

 

 

3,114,154

 

Credit loss, net

 

4,486,313

 

 

-

 

 

4,848,978

 

 

-

 

Vessel operating

 

924,100

 

 

1,369,672

 

 

2,420,756

 

 

1,369,672

 

Loss on derivative financial instruments

 

-

 

 

365,467

 

 

-

 

 

329,190

 

 

Total expenses

 

9,869,707

 

 

6,276,572

 

 

16,691,363

 

 

11,638,152

Net (loss) income

 

(8,525,089)

 

 

57,442,872

 

 

(6,180,985)

 

 

60,228,011

 

 

Less: net income attributable to noncontrolling interests

 

1,079,066

 

 

1,001,041

 

 

2,110,188

 

 

1,622,162

Net (loss) income attributable to Fund Twelve

 

(9,604,155)

 

 

56,441,831

 

 

(8,291,173)

 

 

58,605,849

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

Change in fair value of derivative financial instruments

 

-

 

 

-

 

 

-

 

 

282,919

 

Reclassification adjustment for losses on derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

financial instruments due to early termination

 

-

 

 

346,668

 

 

-

 

 

346,668

 

Currency translation adjustment during the period

 

-

 

 

-

 

 

-

 

 

(7)

 

 

Total other comprehensive income

 

-

 

 

346,668

 

 

-

 

 

629,580

Comprehensive (loss) income

 

(8,525,089)

 

 

57,789,540

 

 

(6,180,985)

 

 

60,857,591

 

Less: comprehensive income attributable to noncontrolling interests

 

1,079,066

 

 

1,001,041

 

 

2,110,188

 

 

1,622,162

Comprehensive (loss) income attributable to Fund Twelve

$

(9,604,155)

 

$

56,788,499

 

$

(8,291,173)

 

$

59,235,429

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income attributable to Fund Twelve allocable to:

 

 

 

 

 

 

 

 

 

 

 

 

Additional members

$

(9,508,113)

 

$

55,877,413

 

$

(8,208,261)

 

$

58,019,791

 

Manager

 

(96,042)

 

 

564,418

 

 

(82,912)

 

 

586,058

 

 

 

$

(9,604,155)

 

$

56,441,831

 

$

(8,291,173)

 

$

58,605,849

Weighted average number of additional shares of limited liability

 

 

 

 

 

 

 

 

 

 

 

 

company interests outstanding

 

348,335

 

 

348,335

 

 

348,335

 

 

348,335

Net (loss) income attributable to Fund Twelve per weighted average

 

 

 

 

 

 

 

 

 

 

 

 

 additional share of limited liability company interests outstanding

$

(27.30)

 

$

160.41

 

$

(23.56)

 

$

166.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

2


 

 

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Consolidated Statements of Changes in Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members' Equity

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Limited Liability

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

Company

 

 

Additional

 

 

 

 

 

Members'

 

 

Noncontrolling

 

 

Total

 

 

 

 

 

Interests

 

 

Members

 

 

Manager

 

 

Equity

 

 

Interests

 

 

Equity

Balance, December 31, 2014

348,335

 

$

162,960,082

 

$

(1,465,243)

 

$

161,494,839

 

$

29,385,097

 

$

190,879,936

 

Net income

-

 

 

1,299,852

 

 

13,130

 

 

1,312,982

 

 

1,031,122

 

 

2,344,104

 

Distributions

-

 

 

(11,209,831)

 

 

(113,231)

 

 

(11,323,062)

 

 

(2,099,276)

 

 

(13,422,338)

Balance, March 31, 2015 (unaudited)

348,335

 

 

153,050,103

 

 

(1,565,344)

 

 

151,484,759

 

 

28,316,943

 

 

179,801,702

 

Net (loss) income

-

 

 

(9,508,113)

 

 

(96,042)

 

 

(9,604,155)

 

 

1,079,066

 

 

(8,525,089)

 

Distributions

-

 

 

(6,315,016)

 

 

(63,788)

 

 

(6,378,804)

 

 

(1,706,373)

 

 

(8,085,177)

 

Investment by noncontrolling interests

-

 

 

-

 

 

-

 

 

-

 

 

57,826

 

 

57,826

Balance, June 30, 2015 (unaudited)

348,335

 

$

137,226,974

 

$

(1,725,174)

 

$

135,501,800

 

$

27,747,462

 

$

163,249,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

3


  

ICON Leasing Fund Twelve, LLC

 

(A Delaware Limited Liability Company)

 

Consolidated Statements of Cash Flows

 

(unaudited)

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

2015

 

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(6,180,985)

 

$

60,228,011

 

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

Finance income

 

 

(3,567,083)

 

 

(59,567,812)

 

 

 

Rental income paid directly to lenders by lessees

 

 

-

 

 

(1,088,550)

 

 

 

Loss (income) from investment in joint ventures

 

 

6,682,551

 

 

(1,844,350)

 

 

 

Depreciation

 

 

4,362,524

 

 

3,114,154

 

 

 

Interest expense on non-recourse financing paid directly to lenders by lessees

 

 

-

 

 

63,647

 

 

 

Interest expense from amortization of debt financing costs

 

 

 90,591 

 

 

 509,962 

 

 

 

Net accretion of seller's credits

 

 

 220,608 

 

 

 610,270 

 

 

 

Credit loss, net

 

 

 4,848,978 

 

 

-

 

 

 

Net loss on lease termination

 

 

-

 

 

 18,800 

 

 

 

Loss on derivative financial instruments

 

 

-

 

 

 520,932 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Collection of finance leases

 

 

 8,243,952 

 

 

 10,563,900 

 

 

 

 

Other assets

 

 

(1,609,546)

 

 

(1,225,986)

 

 

 

 

Accrued expenses and other current liabilities

 

 

(1,221,252)

 

 

 410,264 

 

 

 

 

Deferred revenue

 

 

(40,788)

 

 

(333,729)

 

 

 

 

Interest rate swaps

 

 

-

 

 

(698,318)

 

 

 

 

Due to Manager and affiliates, net

 

 

(2,772,013)

 

 

(145,875)

 

 

 

 

Distributions from joint ventures

 

 

57,017

 

 

 70,199 

 

Net cash provided by operating activities

 

 

 9,114,554 

 

 

 11,205,519 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Purchase of equipment

 

 

-

 

 

(58,894,722)

 

 

 

Proceeds from exercise of purchase options

 

 

 144,521 

 

 

 106,964,516 

 

 

 

Investment in joint ventures

 

 

(10,513)

 

 

(25,756)

 

 

 

Distributions received from joint ventures in excess of profits

 

 

 446,308 

 

 

 2,221,191 

 

 

 

Investment in notes receivable, net

 

 

-

 

 

(3,955,500)

 

 

 

Principal received on notes receivable

 

 

 6,870,858 

 

 

 22,317,284 

 

Net cash provided by investing activities

 

 

 7,451,174 

 

 

 68,627,013 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Proceeds from non-recourse long-term debt

 

 

-

 

 

 7,500,000 

 

 

 

Repayment of non-recourse long-term debt

 

 

(3,579,912)

 

 

(49,046,901)

 

 

 

Proceeds from revolving line of credit, recourse

 

 

-

 

 

 10,000,000 

 

 

 

Payment of debt financing costs

 

 

-

 

 

(400,000)

 

 

 

Repayment of seller's credits

 

 

-

 

 

(210,000)

 

 

 

Investment by noncontrolling interests

 

 

 57,826 

 

 

 16,356,266 

 

 

 

Distributions to noncontrolling interests

 

 

(3,805,649)

 

 

(2,577,818)

 

 

 

Distributions to members

 

 

(17,701,866)

 

 

(12,755,179)

 

Net cash used in financing activities

 

 

(25,029,601)

 

 

(31,133,632)

 

Effects of exchange rates on cash and cash equivalents

 

 

-

 

 

(7)

 

Net (decrease) increase in cash and cash equivalents

 

 

(8,463,873)

 

 

 48,698,893 

 

Cash and cash equivalents, beginning of period

 

 

 15,410,563 

 

 

 13,985,307 

 

Cash and cash equivalents, end of period

 

$

 6,946,690 

 

$

 62,684,200 

 

 

 

See accompanying notes to consolidated financial statements.

 

4


ICON Leasing Fund Twelve, LLC

 

(A Delaware Limited Liability Company)

 

Consolidated Statements of Cash Flows

 

(unaudited)

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

2015

 

 

2014

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,759,616

 

$

1,601,006

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Principal and interest on non-recourse long-term debt paid directly to lenders by lessees

 

$

-

 

$

1,088,550

 

 

Funds withheld from seller on asset acquisition

 

$

-

 

$

500,000

 

 

Vessels purchased with non-recourse long-term debt paid directly to seller

 

$

-

 

$

50,800,000

 

 

Vessels purchased with subordinated non-recourse financing provided by seller

 

$

-

 

$

7,786,104

 

 

Satisfaction of seller's credits netted at sale

 

$

-

 

$

40,863,178

 

 

Reclassification of leased equipment to Vessels

 

$

-

 

$

19,190,776

 

 

Debt financing costs netted at funding

 

$

-

 

$

520,800

 

 

Investment by noncontrolling interests

 

$

-

 

$

885,593

 

 

Interest reserve net against principal repayment of note receivable

 

$

-

 

$

206,250

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
                         

 

5


Table of contents 

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

(1) Organization 

ICON Leasing Fund Twelve, LLC (the “LLC”) was formed on October 3, 2006 as a Delaware limited liability company. When used in these notes to consolidated financial statements, the terms “we,” “us,” “our” or similar terms refer to the LLC and its consolidated subsidiaries.

We operated 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.  We primarily acquired equipment subject to lease, purchased equipment and leased it to third-party end users or financed equipment for third parties and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration.

Our manager is ICON Capital, LLC, a Delaware limited liability company (the “Manager”).  Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, pursuant to the terms of our limited liability company agreement (the “LLC Agreement”).

Our operating period ended on April 30, 2014. On May 1, 2014, we commenced our liquidation period, during which we will sell our assets and/or let our investments mature in the ordinary course of business.

(2) Summary of Significant Accounting Policies 

Basis of Presentation and Consolidation

Our accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. 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 our 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 our Annual Report on Form 10-K for the year ended December 31, 2014.  The results for the interim period are not necessarily indicative of the results for the full year.

 

Restricted Cash

Cash that is restricted from use in operations is generally classified as restricted cash. Classification of changes in restricted cash within the consolidated statements of cash flows depends on the predominant source of the related cash flows. For the six months ended June 30, 2015, the predominant cash inflows into restricted cash were related to interest income receipts associated with our leasing operations. The use of this cash was restricted pursuant to a provision in the non-recourse long-term debt agreement. For the six months ended June 30, 2014, the predominant cash outflow from restricted cash was related to the release of previously restricted cash derived from interest income receipts to pay down certain non-recourse long-term debt. Restricted cash is presented within other non-current assets in our consolidated balance sheets. As a result, changes in restricted cash were classified within net cash provided by operating activities for both periods.

 

Credit Quality of Notes Receivable and Finance Leases and Credit Loss Reserve

Our Manager monitors the ongoing credit quality of our financing receivables by (i) reviewing and analyzing a borrower’s financial performance on a regular basis, including review of financial statements received on a monthly, quarterly or annual basis as prescribed in the loan or lease agreement, (ii) tracking the relevant credit metrics of each financing receivable and a borrower’s compliance with financial and non-financial covenants, (iii) monitoring a borrower’s payment history and public credit rating, if available, and (iv) assessing our exposure based on the current investment mix. As part of the monitoring process, our Manager may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis.

 

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

As our financing receivables, generally notes receivable and finance leases, are limited in number, our Manager is able to estimate the credit loss reserve based on a detailed analysis of each financing receivable as opposed to using portfolio-based metrics. Our Manager does not use a system of assigning internal risk ratings to each of our financing receivables. Rather, each financing receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments and compliance with financial covenants. A financing receivable is usually categorized as non-performing only when a borrower experiences financial difficulties and has failed to make scheduled payments. Our Manager then analyzes whether the financing receivable should be placed on a non-accrual status, a credit loss reserve should be established or the financing receivable should be restructured. As part of the assessment, updated collateral value is usually considered and such collateral value can be based on a third party industry expert appraisal or, depending on the type of collateral and accessibility to relevant published guides or market sales data, internally derived fair value. Material events would be specifically disclosed in the discussion of each financing receivable held. 

 

Financing receivables are generally placed in a non-accrual status when payments are more than 90 days past due. Additionally, our Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days and based upon our Manager’s judgment, these accounts may be placed in a non-accrual status.

 

In accordance with the cost recovery method, payments received on non-accrual financing receivables are applied to principal if there is doubt regarding the ultimate collectability of principal. If collection of the principal of non-accrual financing receivables is not in doubt, interest income is recognized on a cash basis. Financing receivables in non-accrual status may not be restored to accrual status until all delinquent payments have been received, and we believe recovery of the remaining unpaid receivable is probable.

 

When our Manager deems it is probable that we will not be able to collect all contractual principal and interest on a non-performing financing receivable, we perform an analysis to determine if a credit loss reserve is necessary. This analysis considers the estimated cash flows from the financing receivable, and/or the collateral value of the asset underlying the financing receivable when financing receivable repayment is collateral dependent. If it is determined that the impaired value of the non-performing financing receivable is less than the net carrying value, we will recognize a credit loss reserve or adjust the existing credit loss reserve with a corresponding charge to earnings.  We then charge off a financing receivable in the period that it is deemed uncollectible by reducing the credit loss reserve and the balance of the financing receivable.

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This new revenue standard may be applied retrospectively to each prior period presented, or retrospectively with the cumulative effect recognized as of the date of adoption. In July 2015, FASB officially deferred implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted, but not before our original effective date of January 1, 2017.  We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The adoption of ASU 2014-15 becomes effective for us on our fiscal year ending December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (“ASU 2015-01”), which simplifies income statement presentation by eliminating the concept of extraordinary items.  The adoption of ASU 2015-01 becomes effective for us on January 1, 2016, including interim periods within that reporting period.  Early adoption is permitted.  The adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements.

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

 

In February 2015, FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis (“ASU 2015-02”), which modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis by reducing the frequency of application of related party guidance and excluding certain fees in the primary beneficiary determination. The adoption of ASU 2015-02 becomes effective for us on January 1, 2016. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.

 

In April 2015, FASB issued ASU No. 2015-03, Interest – Imputation of Interest (“ASU 2015-03”), which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of such debt liability, consistent with debt discounts. ASU 2015-03 will be applied on a retrospective basis. The adoption of ASU 2015-03 becomes effective for us on January 1, 2016, including interim periods within that reporting period.  Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2015-03 on our consolidated financial statements.

 

(3)  Net Investment in Notes Receivable

 

As of June 30, 2015 and December 31, 2014, we had net investment in notes receivable on non-accrual status of $268,975 and $966,359, respectively, and no net investment in notes receivable that was past due 90 days or more and still accruing.

 

Net investment in notes receivable consisted of the following:

  

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

Principal outstanding (1)

$

51,274,560

 

$

59,474,788

 

Initial direct costs

 

343,657

 

 

522,261

 

Deferred fees

 

(487,735)

 

 

(645,053)

 

Credit loss reserve (2)

 

-

 

 

(631,986)

 

 

Net investment in notes receivable (3)

 

51,130,482

 

 

58,720,010

 

Less: current portion of net investment in notes receivable

 

6,949,503

 

 

6,482,004

 

 

Net investment in notes receivable, less current portion

$

44,180,979

 

$

52,238,006

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) As of June 30, 2015 and December 31, 2014, total principal outstanding related to our impaired loan of $268,975 and $1,598,345, respectively, was related to VAS (defined below).

 

(2) As of June 30, 2015 and December 31, 2014, the credit loss reserve of $0 and $631,986, respectively, was related to VAS.

 

(3) As of June 30, 2015 and December 31, 2014, net investment in notes receivable related to our impaired loan was $268,975 and $966,359, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

During the year ended December 31, 2014, VAS Aero Services, LLC (“VAS”) experienced financial hardship resulting in its failure to make the final monthly payment under the secured term loan as well as the balloon payment due on the October 6, 2014 maturity date. As a result, our Manager determined that we should record a credit loss reserve based on an estimated liquidation value of VAS’s inventory and accounts receivable. Accordingly, the loan was placed on non-accrual status and a credit loss reserve of $631,986 was recorded during the year ended December 31, 2014 based on our pro-rata share of the liquidation value of the collateral. The value of the collateral was based on a third-party appraisal using a sales comparison approach. As of December 31, 2014, the net carrying value of the loan was $966,359. In March 2015, the 90-day standstill period provided for in the loan agreement ended without a viable restructuring or refinancing plan agreed upon. In addition, the senior lender continued to charge VAS forbearance fees. Although discussions among the parties were still ongoing, these factors resulted in our Manager making a determination to record an additional credit loss reserve of $362,665 during the three months ended March 31, 2015 to reflect a potential forced liquidation of the collateral. The forced liquidation value of the collateral was primarily based on a third-party appraisal using a sales comparison approach. On July 23, 2015, we sold all of our interest in the loan to GB Loan, LLC (“GB”) for $268,975.  As a result, we recorded an additional credit loss of $334,719

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

and wrote off the credit loss reserve and corresponding balance of the loan of $1,329,370 during the three months ended June 30, 2015. As of June 30, 2015, the net carrying value of the loan was $268,975. No finance income was recognized since the date the loan was considered impaired. Accordingly, no finance income was recognized for the three and six months ended June 30, 2015. Finance income recognized on the loan prior to recording the credit loss reserve was $59,338 and $125,290 for the three and six months ended June 30, 2014, respectively.

 

On January 30, 2015, Superior Tube Company, Inc. and Tubes Holdco Limited (collectively, “Superior”) satisfied their obligations in connection with a secured term loan scheduled to mature on September 10, 2017 by making a prepayment of approximately $4,191,000, comprised of all outstanding principal, accrued interest and a prepayment fee of approximately $122,000. As a result, we recognized additional finance income of approximately $51,000.

 

On May 7 and July 15, 2015, NARL Marketing Inc. and certain of its affiliates (collectively, “NARL”) made partial prepayments on its secured term loan of $827,333 and $6,296,855, respectively, pursuant to the excess cash sweep provision of the loan agreement. On August 6, 2015, NARL satisfied its obligations in full by making a prepayment of $4,319,854, comprised of all outstanding principal and unpaid interest. No significant income or loss was recognized as a result of these transactions.

 

Credit loss allowance activities for the three months ended June 30, 2015 were as follows:

 

Credit Loss Allowance

 

Allowance for credit loss as of March 31, 2015

$

994,651

 

Provisions

 

334,719

 

Write-offs, net of recoveries

 

(1,329,370)

 

Allowance for credit loss as of June 30, 2015

$

-

 

Credit loss allowance activities for the six months ended June 30, 2015 were as follows:

 

Credit Loss Allowance

 

Allowance for credit loss as of December 31, 2014

$

631,986

 

Provisions

 

697,384

 

Write-offs, net of recoveries

 

(1,329,370)

 

Allowance for credit loss as of June 30, 2015

$

-

 

There was no allowance for credit loss as of June 30, 2014 and no related activities during the three and six months ended June 30, 2014.

 

(4) Net Investment in Finance Leases

 

As of June 30, 2015 and December 31, 2014, we had net investment in finance leases on non-accrual status of $700,000 and $0, respectively, and no net investment in finance leases that was past due 90 days or more and still accruing.

 

Net investment in finance leases consisted of the following:

 

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

Minimum rents receivable (1)

$

86,885,897

 

$

95,179,750

 

Estimated unguaranteed residual values

 

7,960,055

 

 

7,988,228

 

Initial direct costs

 

1,636,687

 

 

1,878,164

 

Unearned income

 

(26,982,615)

 

 

(30,760,420)

 

Credit loss reserve (2)

 

(4,166,000)

 

 

-

 

 

Net investment in finance leases

 

65,334,024

 

 

74,285,722

 

Less: current portion of net investment in finance leases

 

7,128,163

 

 

12,142,423

 

 

Net investment in finance leases, less current portion

$

58,205,861

 

$

62,143,299

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

 As of June 30, 2015, the total minimum rents receivable related to our impaired finance lease of $4,866,000 was related to Patriot Coal (defined below). As of December 31, 2014, we had no impaired finance lease.

 

(2)

 As of June 30, 2015, the credit loss reserve of $4,166,000 was related to Patriot Coal.

 

On May 12, 2015, Patriot Coal Corporation (“Patriot Coal”) commenced a voluntary Chapter 11 proceeding in the Bankruptcy Court for the Eastern District of Virginia. On July 24, 2015, Patriot Coal notified us that it was terminating the lease prior to its August 1, 2015 expiration date and that it would not be making the balloon payment of $4,866,000 due at the end of the lease term. We subsequently agreed with Patriot Coal to extend the term of the lease by one month and to reduce the balloon payment to $700,000, subject to the bankruptcy court’s approval. If approved, our bankruptcy claim against Patriot Coal will be strengthened from an unsecured to an administrative claim. Upon our receipt of the balloon payment, title to the underlying equipment will be transferred to Patriot Coal. As a result, the finance lease was placed on non-accrual status and a credit loss of $4,151,594 was recorded during the three months ended June 30, 2015. For the three months ended June 30, 2015 and 2014, we recognized finance income of $0 and $11,772, respectively.  For the six months ended June 30, 2015 and 2014, we recognized finance income of $9,694 and $24,589, respectively.  As of June 30, 2015 and December 31, 2014, the net investment in finance lease related to Patriot Coal was $700,000 and $5,741,902, respectively.

 

(5) Leased Equipment at Cost 

 

Leased equipment at cost consisted of the following:

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

Offshore oil field services equipment

$

84,324,285

 

$

84,324,285

 

Mining equipment

 

6,858,074

 

 

6,858,074

 

 

Leased equipment at cost

 

91,182,359

 

 

91,182,359

 

Less: accumulated depreciation

 

21,935,409

 

 

18,430,584

 

 

Leased equipment at cost, less accumulated depreciation

$

69,246,950

 

$

72,751,775

 

Depreciation expense was $2,181,075 and $1,227,615 for the three months ended June 30, 2015 and 2014, respectively. Depreciation expense was $4,362,524 and $3,114,154 for the six months ended June 30, 2015 and 2014, respectively. Included in depreciation expense for the three and six months ended June 30, 2015 was $428,850 and $857,699, respectively, related to the Aegean Express and the Arabian Express, which were reclassified from leased equipment at cost to vessels on our consolidated balance sheets in April 2014. Included in depreciation expense for the three and six months ended June 30, 2014 was $66,401 related to our vessels, the Aegean Express and Arabian Express.

 

(6) Investment in Joint Ventures

 

On December 22, 2011, ICON Mauritius MI I, LLC (“ICON Mauritius MI I”), a joint venture owned 25% by us and 75% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”), an entity also managed by our Manager, made a $20,124,000 subordinated term loan to Jurong Aromatics Corporation Pte. Ltd. (“JAC”).

 

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

On May 15, 2013, ICON Mauritius MI II, LLC (“ICON Mauritius MI II”), a joint venture owned 21% by us, 39% by ICON Leasing Fund Eleven, LLC (“Fund Eleven”) and 40% by ICON ECI Fund Fifteen, L.P. (“Fund Fifteen”), each an entity also managed by our Manager, purchased a portion of an approximately $208,000,000 subordinated credit facility for JAC from Standard Chartered Bank (“Standard Chartered”) at $28,462,500.  

 

As of March 31, 2015, JAC was in technical default of the loan and facility as a result of its failure to provide certain financial data to us. In addition, JAC realized lower than expected operating results caused in part by a temporary shutdown of its manufacturing facility due to technical constraints that have since been resolved.  As a result, JAC failed to make the expected payments that were due to the joint ventures during the three months ended March 31, 2015.  Although these delayed payments did not trigger a payment default under the loan agreements, the interest rate payable by JAC under the loan and facility increased from 12.5% to 15.5%.

 

During the three months ended June 30, 2015, the expected tolling arrangement did not commence and JAC’s stakeholders were unable to agree upon a restructuring plan. As a result, the manufacturing facility has not yet resumed operations and JAC continues to experience liquidity constraints. Accordingly, our Manager has determined that there is doubt regarding the ultimate collectability of the loan and facility. Our Manager visited JAC’s facility and continues to engage in discussions with JAC’s other stakeholders to agree upon a restructuring plan. Based upon recent discussions, the joint ventures may convert a portion of the loan and facility to equity and/or restructure the loan and facility. Based upon this proposal, our Manager believes that the joint ventures may potentially not be able to recover approximately $13,500,000 to $47,300,000 of the outstanding balance due under the loan and facility from JAC as of June 30, 2015. During the three months ended June 30, 2015, the joint ventures recognized a total credit loss of $33,264,710, which our Manager believes is the most likely outcome based on ongoing negotiations. Our share of the total credit loss for the three months ended June 30, 2015 was $7,834,118. An additional credit loss may be recorded by the joint ventures in future periods if a restructuring plan is not agreed upon or if an agreed upon plan results in less of a recovery from our current estimate. Our Manager has also assessed impairment under the equity method of accounting for our investment in these joint ventures and concluded that they are not impaired. During the three months ended June 30, 2015, the joint ventures placed the loan and facility on non-accrual status and no finance income was recognized.  As of June 30, 2015 and December 31, 2014, our total investment in the joint ventures was $8,494,483 and $15,838,805, respectively.    

 

Information as to the results of operations of ICON Mauritius MI I is summarized as follows:

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 

2015

 

2014

 

2015

 

2014

 

 

Revenue

 

$

-

 

$

1,007,884

 

$

1,161,471

 

$

1,992,661

 

 

Net (loss) income

 

$

(15,922,160)

 

$

807,824

 

$

(14,946,710)

 

$

1,606,365

 

 

Our share of net (loss) income

 

$

(4,063,388)

 

$

195,417

 

$

(3,825,860)

 

$

388,663

 

 

As of June 30, 2015 and December 31, 2014, our investment in ICON Mauritius MI I was $4,366,201 and $8,187,437, respectively.

 

Information as to the results of operations of ICON Mauritius MI II is summarized as follows:

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

 

2015

 

2014

 

2015

 

2014

 

 

Revenue

 

$

-

 

$

971,586

 

$

1,152,580

 

$

1,967,275

 

 

Net (loss) income

 

$

(17,343,365)

 

$

952,687

 

$

(16,200,511)

 

$

1,940,033

 

 

Our share of net (loss) income

 

$

(3,759,965)

 

$

190,767

 

$

(3,528,975)

 

$

388,937

 

 

As of June 30, 2015 and December 31, 2014, our investment in ICON Mauritius MI II was $4,128,282 and $7,651,368, respectively.  

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

 

(7) Non-Recourse Long-Term Debt 

As of June 30, 2015 and December 31, 2014, we had non-recourse long-term debt obligations of $55,615,874 and $59,195,786, respectively. As of June 30, 2015, our non-recourse long-term debt obligations had maturity dates ranging from February 1, 2018 to April 8, 2022 and interest rates ranging from 5.04% to 7.50% per year.  

 

All of our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the underlying assets. If the borrower were to default on the underlying lease or loan, resulting in our default on the non-recourse long-term debt, the assets could be foreclosed upon and the proceeds would be remitted to the lender in extinguishment of that debt. As of June 30, 2015 and December 31, 2014, the total carrying value of assets subject to non-recourse long-term debt was $102,261,670 and $107,226,456, respectively.

 

At June 30, 2015, we were in compliance with all covenants related to our non-recourse long-term debt.

 

(8) Transactions with Related Parties

We paid distributions to our Manager of $63,788 and $177,019 for the three and six months ended June 30, 2015, respectively. We paid distributions to our Manager of $63,778 and $127,552 for the three and six months ended June 30, 2014, respectively. Additionally, our Manager’s interest in the net loss attributable to us was $96,042 and $82,912 for the three and six months ended June 30, 2015, respectively. Our Manager’s interest in the net income attributable to us was $564,418 and $586,058 for the three and six months ended June 30, 2014, respectively.

Fees and other expenses incurred by us to our Manager or its affiliates were as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 Entity

 

 Capacity

 

 Description

 

2015

 

2014

 

 

2015

 

 

2014

 

ICON Capital, LLC

Manager

 

Acquisition fees(1)

 

$

-

 

$

2,272,500

 

$

-

 

$

3,884,570

 

ICON Capital, LLC

Manager

 

Management fees (2)

 

 

319,464

 

 

599,561

 

 

704,300

 

 

1,138,751

 

ICON Capital, LLC

Manager

 

Administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reimbursements(2)

 

 

312,286

 

 

668,467

 

 

751,299

 

 

1,129,099

 

 

 

 

$

631,750

 

$

3,540,528

 

$

1,455,599

 

$

6,152,420

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Amount capitalized and amortized to operations.

 

(2)

Amount charged directly to operations.

 

At June 30, 2015 and December 31, 2014, we had a net payable due to our Manager and affiliates of $26,401 and $2,798,414, respectively, primarily related to administrative expense reimbursements. The administrative expense reimbursements incurred during the year ended December 31, 2014 included approximately $2,100,000 of professional fees and other costs in connection with our Manager’s proposed sale of our assets during our liquidation period. Our Manager may continue to incur additional professional fees and costs on our behalf as it continues to pursue the sale of our assets in one or more strategic transactions.

 

(9) Derivative Financial Instruments

We may enter into derivative financial instruments for purposes of hedging specific financial exposures, including movements in foreign currency exchange rates and changes in interest rates on our non-recourse long-term debt. We enter into these instruments only for hedging underlying exposures. We do 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 we believe that these are effective economic hedges.

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ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

We recognize all derivative financial instruments as either assets or liabilities on our 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 we must document and assess at inception and on an ongoing basis, we recognize the changes in fair value of such instruments in accumulated other comprehensive income (“AOCI”), a component of equity on our consolidated balance sheets. Changes in the fair value of the ineffective portion of all derivatives are recognized immediately in earnings.

U.S. GAAP and relevant International Swaps and Derivatives Association, Inc. agreements permit a reporting entity that is a party to a master netting agreement to offset fair value amounts recognized for derivative instruments that have been offset under the same master netting agreement. We elected to present the fair value of derivative contracts on a gross basis on our consolidated balance sheets.

Interest Rate Risk

 

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements on our variable non-recourse debt. Our strategy to accomplish these objectives is to match the projected future cash flows with the underlying debt service. Each interest rate swap involves the receipt of floating-rate interest payments from a counterparty in exchange for us making fixed-rate interest payments over the life of the agreement without exchange of the underlying notional amount.

 

Counterparty Risk

 

We manage exposure to possible defaults on derivative financial instruments by monitoring the concentration of risk that we have with any individual bank and through the use of minimum credit quality standards for all counterparties. We do not require collateral or other security in relation to derivative financial instruments. Since it is our policy to enter into derivative contracts only with banks of internationally acknowledged standing and the fair value of our derivatives is in a liability position, we consider the counterparty risk to be remote.

 

As of June 30, 2015 and December 31, 2014, we no longer hold any derivative financial instruments.

 

Non-designated Derivative

 

On April 1, 2014, our only remaining interest rate swap with Standard Chartered that was not designated and not qualifying as a cash flow hedge was terminated prior to its maturity date. The lessee to the transaction associated with this interest rate swap was responsible for all costs related to such termination. Additionally, we held warrants for purposes other than hedging. On July 21, 2014, we exercised all of such warrants for cash consideration. All changes in the fair value of the interest rate swap and the warrants were recorded directly in earnings, which was included in gain or loss on derivative financial instruments.

 

Our derivative financial instrument not designated as a hedging instrument generated a (loss) gain on derivative financial instruments on our consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2014 of $(10,282) and $29,427, respectively. The loss recorded for the three months ended June 30, 2014 was comprised of losses of $4,038 relating to the interest rate swap contract and $6,244 relating to warrants. The gain recorded for the six months ended June 30, 2014 was comprised of a gain of $32,618 relating to interest rate swap contracts and a loss of $3,191 relating to warrants. These amounts were recorded as a component of loss on derivative financial instruments on our consolidated statements of comprehensive (loss) income.

 

Designated Derivatives

 

13


Table of contents 

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

On April 1, 2014, our two interest rate swaps with Standard Chartered that were designated and qualifying as cash flow hedges were terminated prior to their maturity date. The lessee to the transaction associated with the interest rate swaps was responsible for all costs related to such termination. On April 24, 2014, our two interest rate swaps with BNP Paribas that were designated and qualifying as cash flow hedges matured. As a result, $346,668 was reclassified from AOCI to interest expense and loss on derivative financial instruments during the three months ended June 30, 2014.

 

For these derivatives, we recorded 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 was subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings and within the same line item on the consolidated statements of comprehensive (loss) income as the impact of the hedged transaction. During the three and six months ended June 30, 2014, we recorded $3,431 of hedge ineffectiveness in earnings, which was included in loss on derivative financial instruments.

 

The table below presents the effect of our derivative financial instruments designated as cash flow hedging instruments on the consolidated statements of comprehensive (loss) income for the three and six months ended June 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of

 

 

Amount of

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss

 

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

Recognized in

 

 

Recognized in

 

 

 

 

 

 

 

 

 

 

 

 

 

Income on

 

 

Income on

 

 

 

 

 

Amount of

 

 

Location of

 

 

Amount of

 

Derivatives

 

 

Derivatives

 

 

 

 

 

Loss

 

 

Loss

 

 

Loss

 

(Ineffective

 

 

(Ineffective

 

 

 

 

 

Recognized in

 

 

Reclassified

 

 

Reclassified

 

Portion and

 

 

Portion and

 

 

Derivatives

 

 

AOCI on

 

 

from AOCI into

 

 

from AOCI into

 

Amounts

 

 

Amounts

 

 

Designated as

 

 

Derivatives

 

 

Income

 

 

Income

 

Excluded from

 

 

Excluded from

 

 

Hedging

 

 

(Effective

 

 

(Effective

 

 

(Effective

 

Effectiveness

 

 

Effectiveness

Period

 

Instruments

 

 

Portion)

 

 

Portion)*

 

 

Portion)*

 

Testing)

 

 

Testing)

 

 

 

 

 

 

 

 

Loss on derivative

 

 

 

 

Loss

 

 

 

Three Months

 

 

 

 

 

 

 

financial

 

 

 

 

on derivative

 

 

 

Ended

 

Interest rate

 

 

 

 

 

instruments/

 

 

 

 

financial

 

 

 

June 30, 2014

 

swaps

 

$

(11,057)

 

 

Interest expense

 

$

(357,725)

 

instruments

 

$

(3,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on derivative

 

 

 

 

Loss

 

 

 

Six Months

 

 

 

 

 

 

 

financial

 

 

 

 

on derivative

 

 

 

Ended

 

Interest rate

 

 

 

 

 

instruments/

 

 

 

 

financial

 

 

 

June 30, 2014

 

swaps

 

$

(23,878)

 

 

Interest expense

 

$

(653,465)

 

instruments

 

$

(3,431)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* For the three and six months ended June 30, 2014, a loss in the amount of approximately $361,000 was reclassified into earnings as a loss on derivative financial instruments as a result of the discontinuance of two cash flow hedges because it was probable that the original forecasted transactions would not occur by the end of the originally specified time period or within the additional period of time. These two cash flow hedges were related to the Leighton Eclipse and the Leighton Stealth, which were sold during the three months ended June 30, 2014.

 

(10) Fair Value Measurements

Assets and liabilities carried at fair value are 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.

14


Table of contents 

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

·         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 are supported by little or no market data.

 

Assets Measured at Fair Value on a Nonrecurring Basis

 

We are required, on a nonrecurring basis, to adjust the carrying value or provide valuation allowances for certain assets using fair value measurements. To determine the fair value when impairment indicators exist, we utilize different valuation approaches based on transaction-specific facts and circumstances to determine fair value, including, but not limited to, discounted cash flow models and the use of comparable transactions. The valuation of our financial assets, such as notes receivable or direct financing leases, is included below only when fair value has been measured and recorded based on the fair value of the underlying collateral.

 

The following table summarizes the valuation of our material financial assets measured at fair value on a nonrecurring basis, which is presented as of the date the credit loss was recorded, while the carrying value of the assets is presented as of June 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit loss

 

 

Carrying Value at

 

Fair Value at Impairment Date

 

for the Six Months Ended

 

 

June 30, 2015

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

June 30, 2015

 

Net investment in note receivable

$

268,975

 

$

-

 

$

-

 

$

268,975

 

$

697,384

 

 

 

Our collateral dependent note receivable related to VAS was valued using inputs that are generally unobservable and are supported by little or no market data and was classified within Level 3. For the credit loss of $362,665 recorded during the three months ended March 31, 2015, the collateral dependent note receivable related to VAS was valued based primarily on the liquidation value of the collateral provided by an independent third-party appraiser. In July 2015, we sold all of our interest in the note receivable to a third party (see Note 3). For the credit loss of $334,719 recorded during the three months ended June 30, 2015, our note receivable related to VAS was valued based upon the agreed sales price of our interest in note receivable with a third party.

 

Assets and Liabilities for which Fair Value is Disclosed

 

Certain of our financial assets and liabilities, which include fixed-rate notes receivable, fixed-rate non-recourse long-term debt and seller’s credits, for which fair value is required to be disclosed, were valued using inputs that are generally unobservable and are supported by little or no market data and are therefore classified within Level 3. Under U.S. GAAP, we use projected cash flows for fair value measurements of these financial assets and liabilities. Fair value information with respect to certain of our other assets and liabilities is not separately provided since (i) U.S. GAAP does not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets and liabilities, other than lease-related investments, approximates fair value due to their short-term maturities.

 

The estimated fair value of our fixed-rate notes receivable was based on the discounted value of future cash flows related to the loans at inception, adjusted for changes in variables, including, but not limited to, credit quality, industry, financial markets and other recent comparables. The estimated fair value of our fixed-rate non-recourse long-term debt and seller’s credits was based on the discounted value of future cash flows related to the debt and seller’s credits based on a discount rate derived from the margin at inception, adjusted for material changes in risk, plus the applicable fixed rate based on the current interest rate curve. The fair value of the principal outstanding on fixed-rate notes receivable was derived using discount rates ranging between 7.22% and 13.50% as of June 30, 2015. The fair value of the principal outstanding on fixed-rate non-recourse long-term debt and the seller’s credits was derived using discount rates ranging between 1.38% and 7.64% as of June 30, 2015.

15


Table of contents 

ICON Leasing Fund Twelve, LLC

(A Delaware Limited Liability Company)

Notes to Consolidated Financial Statements

June 30, 2015

(unaudited)

 

 

 

 

 

 

 

 

 

June 30, 2015

 

 

 

 

 

 

 

Carrying

 

Fair Value

 

 

 

 

 

 

 

Value

 

(Level 3)

 

Principal outstanding on fixed-rate notes receivable

$

51,274,560

 

$

47,775,151

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal outstanding on fixed-rate non-recourse long-term debt

$

55,615,874

 

$

55,935,971

 

 

 

 

 

 

 

 

 

 

 

 

 

Seller's credits

$

12,516,606

 

$

12,927,949

 

 

 

 

 

 

 

 

 

 

 

 

 

(11) Commitments and Contingencies       

At the time we acquire or divest of our interest in an equipment lease or other financing transaction, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities. Our Manager believes that any liability of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole.

 

In connection with certain debt obligations, we are required to maintain restricted cash accounts with certain banks. At June 30, 2015, we had restricted cash of approximately $2,093,000, which is presented within other non-current assets in our consolidated balance sheets.

 

During 2008, a joint venture, ICON EAR, LLC (“ICON EAR”), owned 55% by us and 45% by Fund Eleven, purchased and simultaneously leased semiconductor manufacturing equipment to Equipment Acquisition Resources, Inc. (“EAR”) for approximately $15,730,000. On October 23, 2009, EAR filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against ICON EAR seeking the recovery of the lease payments that the trustee alleged were fraudulently transferred from EAR to ICON EAR. The complaint also sought 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 sought the imposition of a constructive trust over certain real property and the proceeds from the sale that the ICON EAR received as security in connection with its investment. Our Manager filed an answer to the complaint that included certain affirmative defenses. Since that time, substantial discovery was completed.  Our Manager still believes these claims are unsupported by the facts, but given the risks, costs and uncertainty surrounding litigation in bankruptcy, our Manager would engage in prudent settlement discussions to resolve this matter expeditiously. At this time, we are unable to predict the outcome of this action or loss therefrom, if any; however, an adverse ruling or settlement may have a material impact on our consolidated financial position or results of operations.

Subsequent to the filing of the bankruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. The equipment was subsequently sold as part of the Illinois State Court proceeding. On March 6, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against ICON EAR, thereby dismissing ICON EAR’s claims to the proceeds resulting from the sale of the EAR equipment. ICON EAR appealed this decision. On September 16, 2013, the lower court’s ruling was affirmed by the Illinois Appellate Court. On October 21, 2013, ICON EAR filed a Petition for Leave to Appeal with the Supreme Court of Illinois appealing the decision of the Illinois Appellate Court, which petition was denied on January 29, 2014.

We have entered into remarketing agreements with third parties.  Residual proceeds received in excess of specific amounts will be shared with these third parties in accordance with the terms of the remarketing agreements.  The present value of the obligations related to these agreements was approximately $75,000 at June 30, 2015.              

(12) Subsequent Event

On August 7, 2015, the time charter for the Aegean Express was extended to October 7, 2015.   

 

16


Item 2.   Manager’s Discussion and Analysis of Financial Condition and Results of Operations

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, 2014. 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,” “would,” “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. They are based on assumptions and are subject to risks and uncertainties and other factors outside of 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 operated 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. We primarily acquired equipment subject to lease, purchased equipment and leased it to third-party end users or financed equipment for third parties and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration.  Some of our equipment leases were acquired for cash and were expected to 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 generated little or no current cash flow because substantially all of the rental payments we received from the lessee were 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, under the terms of our LLC Agreement.

 

Our offering period ended on April 30, 2009 and our operating period commenced on May 1, 2009. During our offering period, we raised total equity of $347,686,947. Our operating period ended on April 30, 2014 and our liquidation period commenced on May 1, 2014. During our liquidation period, we will sell our assets and/or let our investments mature in the ordinary 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 is not paid acquisition fees or management fees for additional investments initiated during the liquidation period, although management fees continue to be paid for investments that were part of our portfolio prior to the commencement of the liquidation period.

 

Recent Significant Transactions

 

We engaged in the following significant transactions since December 31, 2014:

 

Notes Receivable

17


During the year ended December 31, 2014, VAS experienced financial hardship resulting in its failure to make the final monthly payment under the secured term loan as well as the balloon payment due on the October 6, 2014 maturity date. As a result, our Manager determined that we should record a credit loss reserve based on an estimated liquidation value of VAS’s inventory and accounts receivable. Accordingly, the loan was placed on non-accrual status and a credit loss reserve of $631,986 was recorded during the year ended December 31, 2014 based on our pro-rata share of the liquidation value of the collateral. The value of the collateral was based on a third-party appraisal using a sales comparison approach. As of December 31, 2014, the net carrying value of the loan was $966,359. In March 2015, the 90-day standstill period provided for in the loan agreement ended without a viable restructuring or refinancing plan agreed upon. In addition, the senior lender continued to charge VAS forbearance fees. Although discussions among the parties were still ongoing, these factors resulted in our Manager making a determination to record an additional credit loss reserve of $362,665 during the three months ended March 31, 2015 to reflect a potential forced liquidation of the collateral. The forced liquidation value of the collateral was primarily based on a third-party appraisal using a sales comparison approach. On July 23, 2015, we sold all of our interest in the loan to GB for $268,975. As a result, we recorded an additional credit loss of $334,719 and wrote off the credit loss reserve and corresponding balance of the loan of $1,329,370 during the three months ended June 30, 2015. As of June 30, 2015, the net carrying value of the loan was $268,975. No finance income was recognized since the date the loan was considered impaired. Accordingly, no finance income was recognized for the three and six months ended June 30, 2015. Finance income recognized on the loan prior to recording the credit loss reserve was $59,338 and $125,290 for the three and six months ended June 30, 2014, respectively.  

 

On December 22, 2011, ICON Mauritius MI I made a $20,124,000 subordinated term loan to JAC. On May 15, 2013, ICON Mauritius MI II purchased a portion of an approximately $208,000,000 subordinated credit facility for JAC from Standard Chartered at $28,462,500. As of March 31, 2015, JAC was in technical default of the loan and facility as a result of its failure to provide certain financial data to us. In addition, JAC realized lower than expected operating results caused in part by a temporary shutdown of its manufacturing facility due to technical constraints that have since been resolved.  As a result, JAC failed to make the expected payments that were due to the joint ventures during the three months ended March 31, 2015.  Although these delayed payments did not trigger a payment default under the loan agreements, the interest rate payable by JAC under the loan and facility increased from 12.5% to 15.5%. During the three months ended June 30, 2015, the expected tolling arrangement did not commence and JAC’s stakeholders were unable to agree upon a restructuring plan. As a result, the manufacturing facility has not yet resumed operations and JAC continues to experience liquidity constraints. Accordingly, our Manager has determined that there is doubt regarding the ultimate collectability of the loan and facility. Our Manager visited JAC’s facility and continues to engage in discussions with JAC’s other stakeholders to agree upon a restructuring plan. Based upon recent discussions, the joint ventures may convert a portion of the loan and facility to equity and/or restructure the loan and facility. Based upon this proposal, our Manager believes that the joint ventures may potentially not be able to recover approximately $13,500,000 to $47,300,000 of the outstanding balance due under the loan and facility from JAC as of June 30, 2015. During the three months ended June 30, 2015, the joint ventures recognized a total credit loss of $33,264,710, which our Manager believes is the most likely outcome based on ongoing negotiations. Our share of the total credit loss for the three months ended June 30, 2015 was $7,834,118. An additional credit loss may be recorded by the joint ventures in future periods if a restructuring plan is not agreed upon or if an agreed upon plan results in less of a recovery from our current estimate. Our Manager has also assessed impairment under the equity method of accounting for our investment in these joint ventures and concluded that they are not impaired. During the three months ended June 30, 2015, the joint ventures placed the loan and facility on non-accrual status and no finance income was recognized. As of June 30, 2015 and December 31, 2014, our total investment in the joint ventures was $8,494,483 and $15,838,805, respectively.   

 

On January 30, 2015, Superior satisfied its obligations in connection with a secured term loan scheduled to mature on September 10, 2017 by making a prepayment of approximately $4,191,000, comprised of all outstanding principal, accrued interest and a prepayment fee of approximately $122,000. As a result, we recognized additional finance income of approximately $51,000.

 

On May 7 and July 15, 2015, NARL made partial prepayments on its secured term loan of $827,333 and $6,296,855, respectively, pursuant to the excess cash sweep provision of the loan agreement. On August 6, 2015, NARL satisfied its obligations in full by making a prepayment of $4,319,854, comprised of all outstanding principal and unpaid interest. No significant income or loss was recognized as a result of these transactions.

 

Coal Drag Line

 

18


On May 12, 2015, Patriot Coal commenced a voluntary Chapter 11 proceeding in the Bankruptcy Court for the Eastern District of Virginia. On July 24, 2015, Patriot Coal notified us that it was terminating the lease prior to its August 1, 2015 expiration date and that it would not be making the balloon payment of $4,866,000 due at the end of the lease term. We subsequently agreed with Patriot Coal to extend the term of the lease by one month and to reduce the balloon payment to $700,000, subject to the bankruptcy court’s approval. If approved, our bankruptcy claim against Patriot Coal will be strengthened from an unsecured to an administrative claim. Upon our receipt of the balloon payment, title to the underlying equipment will be transferred to Patriot Coal. As a result, the finance lease was placed on non-accrual status and a credit loss of $4,151,594 was recorded during the three months ended June 30, 2015. For the three months ended June 30, 2015 and 2014, we recognized finance income of $0 and $14,106, respectively. For the six months ended June 30, 2015 and 2014, we recognized finance income of $9,694 and $24,589, respectively. As of June 30, 2015 and December 31, 2014, the net investment in finance lease related to Patriot Coal was $700,000 and $5,741,902, respectively.

Subsequent Event

 

On August 7, 2015, the time charter for the Aegean Express was extended to October 7, 2015.   

Recent Accounting Pronouncements

 

In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, which will become effective for us on January 1, 2018, including interim periods within that reporting period, following approval by FASB to defer the effective date by one year. Early adoption is permitted, but not before our original effective date of January 1, 2017. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which will become effective for us on our fiscal year ending December 31, 2016. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.

 

In January 2015, FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, which will become effective for us on January 1, 2016. The adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements.

In February 2015, FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis, which will become effective for us on January 1, 2016. We are currently in the process of evaluating the impact of the adoption of ASU 2015-02 on our consolidated financial statements.

In April 2015, FASB issued ASU 2015-03, Interest – Imputation of Interest, which will become effective for us on January 1, 2016. We are currently in the process of evaluating the impact of the adoption of ASU 2015-03 on our consolidated financial statements.

We do not believe any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our consolidated financial statements.

 

Results of Operations for the Three Months Ended June 30, 2015 (the “2015 Quarter”) and 2014 (the “2014 Quarter”)

 

The following percentages are only as of a stated period and are not expected to be comparable in future periods.  Further, these percentages are only representative of the percentage of the carrying value of such assets, finance income or rental income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

 

Financing Transactions 

The following tables set forth the types of assets securing the financing transactions in our portfolio:

 

19


 

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

 

Net

 

Percentage of

 

 

Net

 

Percentage of

 

 

 

 

Carrying

 

Total Net

 

 

Carrying

 

Total Net

 

Asset Type

 

 

Value

 

Carrying Value

 

 

Value

 

Carrying Value

 

Tanker vessels

 

$

37,205,224

 

32%

 

$

37,998,931

 

29%

 

Platform supply vessels

 

 

21,002,938

 

18%

 

 

21,589,043

 

16%

 

Mining equipment

 

 

20,122,756

 

17%

 

 

22,184,672

 

17%

 

Energy equipment

 

 

10,108,423

 

9%

 

 

11,473,409

 

9%

 

Trailers

 

 

9,825,547

 

8%

 

 

9,809,033

 

7%

 

Transportation

 

 

7,306,045

 

6%

 

 

8,360,217

 

6%

 

Printing equipment

 

 

7,238,367

 

6%

 

 

8,086,659

 

6%

 

Lubricant manufacturing equipment

 

 

2,686,231

 

2%

 

 

2,703,292

 

2%

 

Coal drag line

 

 

700,000

 

1%

 

 

5,741,902

 

4%

 

Aircraft engines

 

 

268,975

 

1%

 

 

966,359

 

1%

 

Tube manufacturing equipment

 

 

-

 

-

 

 

4,092,215

 

3%

 

 

 

$

116,464,506

 

100%

 

$

133,005,732

 

100%

 

The net carrying value of our financing transactions includes the balance of our net investment in notes receivable and our net investment in finance leases as of each reporting date.

 

During the 2015 Quarter and the 2014 Quarter, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:

 

 

 

 

Percentage of Total Finance Income

 

Customer

 

Asset Type

 

2015 Quarter

 

2014 Quarter

 

Técnicas Maritimas Avanzadas, S.A. de C.V.

 

Platform supply vessels

 

24%

 

-

 

Siva Global Ships Limited

 

Tanker vessels

 

22%

 

1%

 

Spurlock Mining, LLC

 

Mining equipment

 

18%

 

1%

 

D&T Holdings, LLC

 

Transportation

 

11%

 

1%

 

Leighton Holdings Limited

 

Offshore oil field services equipment

 

-

 

96%

 

 

 

 

 

75%

 

99%

 

Interest income from our net investment in notes receivable and finance income from our net investment in finance leases are included in finance income in our consolidated statements of comprehensive (loss) income.

 

Non-performing Assets within Financing Transactions

As of June 30, 2015 and December 31, 2014, the net carrying value of our impaired loan related to VAS was $268,975 and $966,359, respectively. In March 2015, the 90-day standstill period provided for in the loan agreement ended without a viable restructuring or refinancing plan agreed upon. In addition, the senior lender continued to charge VAS forbearance fees. Although discussions among the parties were still ongoing, these factors resulted in our Manager making a determination to record an additional credit loss reserve of $362,665 during the three months ended March 31, 2015 to reflect a potential forced liquidation of the collateral. The forced liquidation value of the collateral was primarily based on a third-party appraisal using a sales comparison approach. On July 23, 2015, we sold all of our interest in the loan to GB for $268,975. As a result, we recorded an additional credit loss of $334,719 and wrote off the credit loss reserve and corresponding balance of the loan of $1,329,370 during the 2015 Quarter. No finance income was recognized since the date the loan was considered impaired during the three months ended December 31, 2014. Accordingly, no finance income was recognized for the 2015 Quarter. Finance income recognized on the loan prior to recording the credit loss reserve was $59,338 for the 2014 Quarter.

 

20


On May 12, 2015, Patriot Coal commenced a voluntary Chapter 11 proceeding in the Bankruptcy Court for the Eastern District of Virginia. On July 24, 2015, Patriot Coal notified us that it was terminating the lease prior to its August 1, 2015 expiration date and that it would not be making the balloon payment of $4,866,000 due at the end of the lease term. We subsequently agreed with Patriot Coal to extend the term of the lease by one month and to reduce the balloon payment to $700,000, subject to the bankruptcy court’s approval. If approved, our bankruptcy claim against Patriot Coal will be strengthened from an unsecured to an administrative claim. As a result, the finance lease was placed on non-accrual status and a credit loss of $4,151,594 was recorded during the 2015 Quarter. For the 2015 Quarter and the 2014 Quarter, we recognized finance income of $0 and $11,772, respectively. As of June 30, 2015 and December 31, 2014, the net investment in finance lease related to Patriot Coal was $700,000 and $5,741,902, respectively.

 

Operating Lease Transactions 

 

The following tables set forth the types of equipment subject to operating leases in our portfolio:

  

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

Net

 

Percentage of

 

Net

 

Percentage of

 

 

 

Carrying

 

Total Net

 

Carrying

 

Total Net

 

Asset Type

 

Value

 

Carrying Value

 

Value

 

Carrying Value

 

Offshore oil field services equipment

 

$

63,659,784

 

92%

 

$

66,356,257

 

91%

 

Mining equipment

 

 

5,587,166

 

8%

 

 

6,395,518

 

9%

 

 

 

$

69,246,950

 

100%

 

$

72,751,775

 

100%

 

 

The net carrying value of our operating lease transactions represents the balance of our leased equipment at cost as of each reporting date.

 

During the 2015 Quarter and the 2014 Quarter, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:

 

 

 

 

Percentage of Total Rental Income

 

Customer

 

Asset Type

 

2015 Quarter

 

2014 Quarter

 

Swiber Holdings Limited

 

Offshore oil field services equipment

 

52%

 

90%

 

Pacific Crest Pte. Ltd.

 

Offshore oil field services equipment

 

33%

 

8%

 

Murray Energy Corporation

 

Mining equipment

 

15%

 

-

 

 

 

 

 

100%

 

98%

 

Revenue and other income for the 2015 Quarter and the 2014 Quarter is summarized as follows:

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

Change

 

Finance income

 

$

3,498,451

 

$

58,463,355

 

$

(54,964,904)

 

Rental income

 

 

3,532,158

 

 

2,609,028

 

 

923,130

 

Time charter revenue

 

 

1,593,787

 

 

1,460,867

 

 

132,920

 

(Loss) income from investment in joint ventures

 

 

(7,279,778)

 

 

1,204,994

 

 

(8,484,772)

 

Loss on lease termination

 

 

-

 

 

(18,800)

 

 

18,800

 

 

 Total revenue and other income

 

$

1,344,618

 

$

63,719,444

 

$

(62,374,826)

 

Total revenue and other income for the 2015 Quarter decreased $62,374,826, or 97.9%, as compared to the 2014 Quarter. The decrease was primarily attributable to lower finance income related to the gain on exercise of purchase options associated with the Leighton Stealth, the Leighton Eclipse and the Leighton Faulkner (collectively, the “Leighton Vessels”) by Leighton Offshore Pte. Ltd. (“Leighton”) during the 2014 Quarter and our share of the loss from investment in joint ventures related to JAC due to the credit loss reserve recorded during the 2015 Quarter (see “Recent Significant Transactions” above). These

21


decreases were partially offset by finance income generated by new leases that we entered into subsequent to the 2014 Quarter, as well as an increase in rental income due to new leases that we entered into with Pacific Crest Pte. Ltd. (“Pacific Crest”) and Murray Energy Corporation and certain of its affiliates (collectively, “Murray”) during or subsequent to the 2014 Quarter.

 

Expenses for the 2015 Quarter and the 2014 Quarter are summarized as follows:

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

2015

 

2014

 

 

Change

 

Management fees

 

$

319,464

 

$

599,561

 

$

(280,097)

 

Administrative expense reimbursements

 

 

312,286

 

 

668,467

 

 

(356,181)

 

General and administrative

 

 

616,048

 

 

487,545

 

 

128,503

 

Interest

 

 

1,030,421

 

 

1,558,245

 

 

(527,824)

 

Depreciation

 

 

2,181,075

 

 

1,227,615

 

 

953,460

 

Credit loss, net

 

 

4,486,313

 

 

-

 

 

4,486,313

 

Vessel operating

 

 

924,100

 

 

1,369,672

 

 

(445,572)

 

Loss on derivative financial instruments

 

 

-

 

 

365,467

 

 

(365,467)

 

 

Total expenses

 

$

9,869,707

 

$

6,276,572

 

$

3,593,135

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses for the 2015 Quarter increased $3,593,135, or 57.2%, as compared to the 2014 Quarter. The increase was primarily attributable to the recognition of the credit loss related to Patriot Coal during the 2015 Quarter and an increase in depreciation expense due to entering into two new operating leases during or subsequent to the 2014 Quarter. These increases were partially offset by (i) lower interest expense as a result of the repayment of our non-recourse long-term debt associated with the Leighton Vessels that were sold during the 2014 Quarter, (ii) higher vessel operating expenses, which included certain one-time fees, during the 2014 Quarter related to the Aegean Express and Arabian Express as we commenced operating such vessels in April 2014, (iii) the termination of our derivative financial instruments during the 2014 Quarter resulting in no loss related to such instruments for the 2015 Quarter, (iv) a decrease in administrative expense reimbursements due to lower costs incurred on our behalf by our Manager and (v) a decrease in management fees primarily due to the sale of our interest in the loans with Ocean Navigation 5 Co. Ltd. and Ocean Navigation 6 Co. Ltd. (collectively, “Ocean Navigation”) and the prepayment by NTS Communications, Inc. and certain of its affiliates (collectively, “NTS”) during the 2014 Quarter.

 

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests increased $78,025, from $1,001,041 in the 2014 Quarter to $1,079,066 in the 2015 Quarter. The increase was primarily due to two new consolidated joint ventures that we entered into during or subsequent to the 2014 Quarter.

 

Other Comprehensive Income

Other comprehensive income decreased $346,668, from $346,668 in the 2014 Quarter to $0 in the 2015 Quarter. The decrease was primarily due to the termination or maturity of all our designated interest rates swaps in April 2014, which resulted in the reclassification from AOCI to interest expense and loss on derivative financial instruments during the 2014 Quarter.

 

Net (Loss) Income Attributable to Fund Twelve

 As a result of the foregoing factors, net (loss) income attributable to us for the 2015 Quarter and the 2014 Quarter was $(9,604,155) and $56,441,831, respectively. Net (loss) income attributable to us per weighted average additional share of limited liability company interests (“Share”) outstanding for the 2015 Quarter and the 2014 Quarter was $(27.30) and $160.41, respectively.

 

Results of Operations for the Six Months Ended June 30, 2015 (the “2015 Period”) and 2014 (the “2014 Period”)

 

The following percentages are only as of a stated period and are not expected to be comparable in future periods.  Further, these percentages are only representative of the percentage of finance income or rental income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

 

Financing Transactions 

22


 

During the 2015 Period and the 2014 Period, certain customers generated a significant portion (defined as 10% or more) of our total finance income as follows:

 

 

 

 

Percentage of Total Finance Income

 

Customer

 

Asset Type

 

2015 Period

 

2014 Period

 

Técnicas Maritimas Avanzadas, S.A. de C.V.

 

Platform supply vessels

 

24%

 

-

 

Siva Global Ships Limited

 

Tanker vessels

 

21%

 

1%

 

Spurlock Mining, LLC

 

Mining equipment

 

18%

 

1%

 

D&T Holdings, LLC

 

Transportation

 

11%

 

1%

 

Leighton Holdings Limited

 

Offshore oil field services equipment

 

-

 

94%

 

 

 

 

 

74%

 

97%

 

Interest income from our net investment in notes receivable and finance income from our net investment in finance leases are included in finance income in our consolidated statements of comprehensive (loss) income.

 

Non-performing Assets within Financing Transactions

As of June 30, 2015 and December 31, 2014, the net carrying value of our impaired loan related to VAS was $268,975 and $966,359, respectively. In March 2015, the 90-day standstill period provided for in the loan agreement ended without a viable restructuring or refinancing plan agreed upon. In addition, the senior lender continued to charge VAS forbearance fees. Although discussions among the parties were still ongoing, these factors resulted in our Manager making a determination to record an additional credit loss reserve of $362,665 during the three months ended March 31, 2015 to reflect a potential forced liquidation of the collateral. The forced liquidation value of the collateral was primarily based on a third-party appraisal using a sales comparison approach. On July 23, 2015, we sold all of our interest in the loan to GB for $268,975. As a result, we recorded an additional credit loss of $334,719 and wrote off the credit loss reserve and corresponding balance of the loan of $1,329,370 during the 2015 Period. No finance income was recognized since the date the loan was considered impaired during the three months ended December 31, 2014. Accordingly, no finance income was recognized for the 2015 Period. Finance income recognized on the loan prior to recording the credit loss reserve was $125,290 for the 2014 Period.

 

On May 12, 2015, Patriot Coal commenced a voluntary Chapter 11 proceeding in the Bankruptcy Court for the Eastern District of Virginia. On July 24, 2015, Patriot Coal notified us that it was terminating the lease prior to its August 1, 2015 expiration date and that it would not be making the balloon payment of $4,866,000 due at the end of the lease term. We subsequently agreed with Patriot Coal to extend the term of the lease by one month and to reduce the balloon payment to $700,000, subject to the bankruptcy court’s approval. If approved, our bankruptcy claim against Patriot Coal will be strengthened from an unsecured to an administrative claim.  As a result, the finance lease was placed on non-accrual status and a credit loss of $4,151,594 was recorded during the 2015 Period. For the 2015 Period and the 2014 Period, we recognized finance income of $9,694 and $24,589, respectively. As of June 30, 2015 and December 31, 2014, the net investment in finance lease related to Patriot Coal was $700,000 and $5,741,902, respectively.

Operating Lease Transactions 

During the 2015 Period and the 2014 Period, certain customers generated significant portions (defined as 10% or more) of our total rental income as follows:

 

 

 

Percentage of Total Rental Income

 

Customer

 

Asset Type

 

2015 Period

 

2014 Period

 

Swiber Holdings Limited

 

Offshore oil field services equipment

 

52%

 

71%

 

Pacific Crest Pte. Ltd.

 

Offshore oil field services equipment

 

33%

 

4%

 

Murray Energy Corporation

 

Mining equipment

 

15%

 

-

 

Vroon Group B.V.

 

Marine - container vessels

 

-

 

25%

 

 

 

 

 

100%

 

100%

 

Revenue and other income for the 2015 Period and the 2014 Period is summarized as follows:

 

23


 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

Change

 

Finance income

 

$

7,163,516

 

$

61,938,747

 

$

(54,775,231)

 

Rental income

 

 

7,064,315

 

 

6,640,999

 

 

423,316

 

Time charter revenue

 

 

2,965,098

 

 

1,460,867

 

 

1,504,231

 

(Loss) income from investment in joint ventures

 

 

(6,682,551)

 

 

1,844,350

 

 

(8,526,901)

 

Loss on lease termination

 

 

-

 

 

(18,800)

 

 

18,800

 

 

Total revenue and other income

 

$

10,510,378

 

$

71,866,163

 

$

(61,355,785)

 

Total revenue and other income for the 2015 Period decreased $61,355,785, or 85.4%, as compared to the 2014 Period. The decrease was primarily attributable to lower finance income related to the gain on exercise of purchase options associated with the Leighton Vessels by Leighton during the 2014 Period and our share of the loss from investment in joint ventures related to JAC due to the credit loss reserve recorded during the 2015 Period (see “Recent Significant Transactions” above). These decreases were partially offset by an increase in time charter revenue related to the Aegean Express and the Arabian Express as we commenced operating such vessels in April 2014 and rental income generated by new leases that we entered into with Pacific Crest and Murray during or subsequent to the 2014 Period.

 

Expenses for the 2015 Period and the 2014 Period are summarized as follows:

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

 

Change

 

Management fees

 

$

704,300

 

$

1,138,751

 

$

(434,451)

 

Administrative expense reimbursements

 

 

751,299

 

 

1,129,099

 

 

(377,800)

 

General and administrative

 

 

1,523,095

 

 

1,574,065

 

 

(50,970)

 

Interest

 

 

2,080,411

 

 

2,983,221

 

 

(902,810)

 

Depreciation

 

 

4,362,524

 

 

3,114,154

 

 

1,248,370

 

Credit loss, net

 

 

4,848,978

 

 

-

 

 

4,848,978

 

Vessel operating

 

 

2,420,756

 

 

1,369,672

 

 

1,051,084

 

Loss on derivative financial instruments

 

 

-

 

 

329,190

 

 

(329,190)

 

 

Total expenses

 

$

16,691,363

 

$

11,638,152

 

$

5,053,211

 

Total expenses for the 2015 Period increased $5,053,211, or 43.4%, as compared to the 2014 Period. The increase was primarily attributable to (i) the recognition of the credit loss related to Patriot Coal during the 2015 Period, (ii) an increase in depreciation expense due to entering into two new operating leases during or subsequent to the 2014 Period and (iii) an increase in vessel operating expenses related to the Aegean Express and the Arabian Express as we commenced operating such vessels in April 2014. These increases were partially offset by (i) lower interest expense as a result of the repayment of our non-recourse long-term debt associated with the Leighton Vessels that were sold during the 2014 Period, (ii) a decrease in management fees primarily due to the sale of our interest in the loans with Ocean Navigation and the prepayment by NTS during the 2014 Quarter and (iii) a decrease in administrative expense reimbursements due to lower costs incurred on our behalf by our Manager.

 

Net Income Attributable to Noncontrolling Interests

Net income attributable to noncontrolling interests increased $488,026, from $1,622,162 in the 2014 Period to $2,110,188 in the 2015 Period. The increase was primarily due to two new consolidated joint ventures that we entered into during or subsequent to the 2014 Period.

 

  Other Comprehensive Income

Other comprehensive income decreased $629,580, from $629,580 in the 2014 Period to $0 in the 2015 Period. The decrease was primarily due to the termination or maturity of all our designated interest rate swaps in April 2014, which resulted in the reclassification from AOCI to interest expense and loss on derivative financial instruments during the 2014 Period and the change in fair value of our designated interest rate swaps during the 2014 Period.

 

Net (Loss) Income Attributable to Fund Twelve

24


 As a result of the foregoing factors, net (loss) income attributable to us for the 2015 Period and the 2014 Period was $(8,291,173) and $58,605,849, respectively. Net (loss) income attributable to us per weighted average additional Share outstanding for the 2015 Period and the 2014 Period was $(23.56) and $166.56, respectively.

 

Financial Condition 

This section discusses the major balance sheet variances at June 30, 2015 compared to December 31, 2014.

 

Total Assets

Total assets decreased $35,024,031, from $267,429,193 at December 31, 2014 to $232,405,162 at June 30, 2015. The decrease was primarily due to (i) cash generated from our investments being used to pay distributions to our members and noncontrolling interests and to repay our non-recourse long-term debt and a portion of certain liabilities due to our Manager during the 2015 Period, (ii) the loss from our investment in joint ventures as a result of the credit loss recorded by our joint ventures, (iii) depreciation of our leased equipment and vessels and (iv) the credit loss related to our finance lease with Patriot Coal.

 

Current Assets

Current assets decreased $12,143,358, from $34,655,589 at December 31, 2014 to $22,512,231 at June 30, 2015. The decrease was primarily due to cash generated from our investments being used to pay distributions to our members and noncontrolling interests and to repay our non-recourse long-term debt and a portion of certain liabilities due to our Manager during the 2015 Period. In addition, we recognized a credit loss related to our finance lease with Patriot Coal.

 

Total Liabilities

Total liabilities decreased $7,393,357, from $76,549,257 at December 31, 2014 to $69,155,900 at June 30, 2015. The decrease was primarily due to (i) the repayment of our non-recourse long-term debt, (ii) the partial repayment of liabilities due to our Manager for expenses incurred in connection with a proposed sale of our assets during our liquidation period in 2014 and (iii) the payment of certain accrued liabilities during the 2015 Period. Our Manager may continue to incur additional professional fees and costs on our behalf as it continues to pursue the sale of our assets in one or more strategic transactions.

 

Current Liabilities

Current liabilities decreased $3,866,296, from $12,240,238 at December 31, 2014 to $8,373,942 at June 30, 2015. The decrease was primarily due to the partial repayment of liabilities due to our Manager for expenses incurred in connection with a proposed sale of our assets during our liquidation period in 2014 and the payment of certain accrued liabilities during the 2015 Period.

 

Equity

Equity decreased $27,630,674, from $190,879,936 at December 31, 2014 to $163,249,262 at June 30, 2015. The decrease was primarily due to distributions to our members and noncontrolling interests during the 2015 Period and our net loss during the 2015 Period.

 

Liquidity and Capital Resources 

 

Summary 

 

At June 30, 2015 and December 31, 2014, we had cash and cash equivalents of $6,946,690 and $15,410,563, respectively. Pursuant to the terms of our offering, we established a cash reserve in the amount of 0.5% of the gross offering proceeds.  As of June 30, 2015, the cash reserve was $1,738,435. During our operating period, our main source of cash was typically from operating activities and our main use of cash was in investing and financing activities. During our liquidation period, which commenced on May 1, 2014, we expect our main sources of cash will be from the collection of income and principal on our notes receivable and finance leases and proceeds from the sale of assets held directly by us or indirectly by our joint ventures and our main use of cash will be for distributions to our members and noncontrolling interests. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we meet our debt obligations, pay distributions to our members and to the extent that expenses exceed cash flows from operations and proceeds from the sale of our investments.

 

25


We anticipate being able to meet our liquidity requirements into the foreseeable future through the expected results of our operations, as well as cash received from our investments at maturity. 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 $2,090,965, from $11,205,519 in the 2014 Period to $9,114,554 in the 2015 Period. The decrease was primarily due to a decrease in the collection of finance income as a result of the termination or expiration of certain finance leases as well as the timing of payments of certain of our liabilities.

 

Investing Activities

 

Cash provided by investing activities decreased $61,175,839, from $68,627,013 in the 2014 Period to $7,451,174 in the 2015 Period. The decrease was primarily due to (i) proceeds received from the exercise of purchase options related to the Leighton Vessels during the 2014 Period, (ii) less principal received on notes receivable primarily due to the sale of our interest in the loans with Ocean Navigation and the prepayment by NTS during the 2014 Period and (iii) lower distributions from our investment in joint ventures during the 2015 Period. These decreases were partially offset by less cash used to purchase equipment and invest in notes receivable during the 2015 Period.

 

Financing Activities

 

Cash used in financing activities decreased $6,104,031, from $31,133,632 in the 2014 Period to $25,029,601 in the 2015 Period. The decrease was primarily due to a larger repayment on our non-recourse long-term debt during the 2014 Period as a result of the sale of the Leighton Vessels, partially offset by (i) less investments made by noncontrolling interests, (ii) less proceeds received from our revolving line of credit and non-recourse long-term debt, and (iii) higher distributions paid to our members.

 

Non-Recourse Long-Term Debt

 

We had non-recourse long-term debt obligations at June 30, 2015 and December 31, 2014 of $55,615,874 and $59,195,786, respectively. All of our non-recourse long-term debt obligations consist of notes payable in which the lender has a security interest in the underlying assets. If the borrower were to default on the underlying loan or lease, resulting in our default on the non-recourse long-term debt, the assets could be foreclosed upon and the proceeds would be remitted to the lender in extinguishment of that debt. As of June 30, 2015 and December 31, 2014, the total carrying value of assets subject to non-recourse long-term debt was $102,261,670 and $107,226,456, respectively.               

At June 30, 2015, we were in compliance with all covenants related to our non-recourse long-term debt.

 

Distributions

 

We, at our Manager’s discretion, paid monthly distributions to each of our additional members beginning with the first month after each such member’s admission through the end of our operating period, which was April 30, 2014. We paid distributions of $177,019, $17,524,847 and $3,805,649 to our Manager, additional members and noncontrolling interests, respectively, during the 2015 Period. During our liquidation period, we have paid and will continue to pay distributions in accordance with the terms our LLC Agreement. We expect that distributions paid during our liquidation period will vary, depending on the timing of the sale of our assets and/or the maturity of our investments, and our receipt of rental, finance and other income from our investments.

 

Commitments and Contingencies and Off-Balance Sheet Transactions

 

Commitments and Contingencies

 

In connection with certain debt obligations, we are required to maintain restricted cash accounts with certain banks. At June 30, 2015, we had restricted cash of approximately $2,093,000, which is presented within other non-current assets in our consolidated balance sheets.

26


 

During 2008, a joint venture, ICON EAR, owned 55% by us and 45% by Fund Eleven, purchased and simultaneously leased semiconductor manufacturing equipment to EAR for approximately $15,730,000. On October 23, 2009, EAR filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On October 21, 2011, the Chapter 11 bankruptcy trustee for EAR filed an adversary complaint against ICON EAR seeking the recovery of the lease payments that the trustee alleged were fraudulently transferred from EAR to ICON EAR. The complaint also sought 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 sought the imposition of a constructive trust over certain real property and the proceeds from the sale that ICON EAR received as security in connection with its investment. Our Manager filed an answer to the complaint that included certain affirmative defenses. Since that time, substantial discovery was completed.  Our Manager still believes these claims are unsupported by the facts, but given the risks, costs and uncertainty surrounding litigation in bankruptcy, our Manager would engage in prudent settlement discussions to resolve this matter expeditiously. At this time, we are unable to predict the outcome of this action or loss therefrom, if any; however, an adverse ruling or settlement may have a material impact on our consolidated financial position or results of operations.

 

Subsequent to the filing of the bankruptcy petition, EAR disclaimed any right to its equipment and such equipment became the subject of an Illinois State Court proceeding. The equipment was subsequently sold as part of the Illinois State Court proceeding. On March 6, 2012, one of the creditors in the Illinois State Court proceeding won a summary judgment motion filed against ICON EAR, thereby dismissing ICON EAR’s claims to the proceeds resulting from the sale of the EAR equipment. ICON EAR appealed this decision. On September 16, 2013, the lower court’s ruling was affirmed by the Illinois Appellate Court. On October 21, 2013, ICON EAR filed a Petition for Leave to Appeal with the Supreme Court of Illinois appealing the decision of the Illinois Appellate Court, which petition was denied on January 29, 2014.

We have entered into remarketing agreements with third parties.  Residual proceeds received in excess of specific amounts will be shared with these third parties in accordance with the terms of the remarketing agreements.  The present value of the obligations related to these agreements was approximately $75,000 at June 30, 2015.

 

Off-Balance Sheet Transactions

None.

27


Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

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, 2014.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended June 30, 2015, 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 Financial and Accounting 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 Financial and Accounting Officer concluded that our Manager’s disclosure controls and procedures were effective.

 

In designing and evaluating our Manager’s disclosure controls and procedures, our Manager recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Our Manager’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.  

 

Evaluation of internal control over financial reporting

There have been no changes in our internal control over financial reporting during the three months ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

28


PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings  

In the ordinary course of conducting our business, we may be subject to certain claims, suits, and complaints filed against us. See “Commitments and Contingencies and Off-Balance Sheet Transactions” above for a complete discussion of the EAR matter. Notwithstanding our Manager’s belief that the EAR trustee’s claims against us are unsupported by the facts, an adverse ruling or settlement may have a material impact on our consolidated financial position or results of operations. We are not aware of any other material legal proceedings that are currently pending against us or against any of our assets.

 

Item 1A. Risk Factors

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, 2014.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 

We did not sell or repurchase any Shares during the three months ended June 30, 2015.

Item 3.  Defaults Upon Senior Securities 

Not applicable.

 

Item 4.  Mine Safety Disclosures 

Not applicable.

 

Item 5.  Other Information 

Not applicable.

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Item 6. Exhibits

3.1                Certificate of Formation of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 13, 2006 (File No. 333-138661)).

4.1                Limited Liability Company Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus filed with the SEC on May 8, 2007 (File No. 333-138661)). 

10.1              Commercial Loan Agreement, by and between California Bank & Trust and ICON Leasing Fund Twelve, LLC, dated as of May 10, 2011 (Incorporated by reference to Exhibit 10.7 to Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed May 16, 2011).

10.2              Loan Modification Agreement, dated as of March 31, 2013, by and between California Bank & Trust and ICON Leasing Fund Twelve, LLC (Incorporated by reference to Exhibit 10.2 to Registrant’s Annual Report on Form 10-K for the year ended December 31, 2012, filed March 22, 2013).

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 Financial and Accounting 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 Financial and Accounting 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.DEF      XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB     XBRL Taxonomy Extension Labels Linkbase Document.

101.PRE      XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

 

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ICON Leasing Fund Twelve, LLC

(Registrant)

 

By: ICON Capital, LLC

      (Manager of the Registrant)

 

August 13, 2015

 

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/ Christine H. Yap

Christine H. Yap

Managing Director

(Principal Financial and Accounting Officer)

 

 

 

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