Item 1. Business
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May 23, 1995 as a Delaware limited partnership. The Partnership's maximum offering was $100,000,000. The Partnership commenced business operations on its initial closing date, January 19, 1996 with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units were admitted representing $24,917,252 of capital contributions. In 1997, 285,927.35 units were admitted representing $28,592,735 of capital contributions, and from January 1, 1998 through September 16, 1998 (the final closing date) 438,528.99 units were admitted representing $43,852,899 of capital contributions. The Partnership redeemed 6,232, 1,902 and 1,625 limited partnership units in 1999, 1998 and 1997, respectively, leaving 990,238 limited partnership units outstanding at December 31, 1999.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal objective of the Partnership is to obtain the maximum economic return from its investments for the benefit of its limited partners. To achieve this objective, the Partnership intends to: (1) acquire a diversified portfolio of leases and financing transactions; (2) make monthly cash distributions to its limited partners from cash from operations, commencing with each limited partner's admission to the Partnership, continuing through the reinvestment period, which period will end no later than September 16, 2004; (3) re-invest substantially all undistributed cash from operations and cash from sales in additional equipment and financing transactions during the reinvestment period; and (4) sell the Partnership's investments and distribute the cash from sales of such investments to its limited partners within six to thirty-six months after the end of the reinvestment period.
The equipment leasing industry is highly competitive. In initiating its leasing transactions, the Partnership competes with leasing companies, manufacturers that lease their products directly, equipment brokers and dealers and financial institutions, including commercial banks and insurance companies. Many competitors are larger than the Partnership and have greater financial resources.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
The Partnership has no direct employees. The General Partner has full and exclusive discretion in management and control of the Partnership.
Lease and Financing Transactions
For the years ended December 31, 1999 and 1998, the Partnership purchased and leased or financed $677,632 and $91,615,445 of equipment, respectively, with a weighted average initial transaction term of 47 and 48 months, respectively. Included in the summary of equipment cost by category below is 100% of the equipment cost acquired by a joint venture in which the Partnership has a 99% interest. The Partnership accounts for this investment by consolidating 100% of the assets and liabilities of the joint venture and reflecting as a liability the related minority interest. The equipment purchased by four other joint ventures in which the Partnership has a less than 50% interest are not included in this table. At December 31, 1999, the weighted average initial transaction term of the portfolio was 56 months. A summary of the portfolio equipment cost by category held at December 31, 1999 and 1998 is as follows:
The Partnership has one transaction which individually represents 14.8% of the total portfolio equipment cost at December 31, 1999. The equipment is an aircraft subject to lease with Federal Express, which represented 14.6% of the total portfolio equipment cost at December 31, 1998.
Item 2.
Item 2. Properties
The Partnership neither owns nor leases office space or equipment for the purpose of managing its day-to-day affairs.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 3.
Item 3. Legal Proceedings
The Partnership is not a party to any pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 1999.
PART II
Item 5.
Item 5. Market for the Registrant's Securities and Related Security Holder Matters
The Partnership's limited partnership interests are not publicly traded nor is there currently a market for the Partnership's limited partnership units. It is unlikely that any such market will develop.
Number of Equity Security Holders Title of Class as of December 31, -------------- --------------------------------- 1999 1998 ---- ----
Limited Partners 4,650 4,649 General Partner 1 1
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 6.
Item 6. Selected Consolidated Financial and Operating Data
December 31, --------------------------------------------------------- 1999 1998 1997 1996 ---- ---- ---- ----
Total assets ... $172,007,288 $216,387,240 $153,066,319 $ 48,486,070 ============ ============ ============ ============
Partners' equity $ 70,045,138 $ 77,741,448 $ 45,901,123 $ 22,865,854 ============ ============ ============ ============
The above selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report. No data is presented for 1995 since the Partnership commenced operations on January 19, 1996, the initial closing date.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 7.
Item 7. General Partner's Discussion and Analysis of Financial Condition and Results of Operations
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May 23, 1995 as a Delaware limited partnership. The Partnership commenced business operations on its initial closing date, January 19, 1996 with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units were admitted representing $24,917,252 of capital contributions. In 1997, 285,927.35 units were admitted representing $28,592,735 of capital contributions and from January 1, 1998 through September 16, 1998 (the final closing date) 438,529 units were admitted representing $43,852,899 of capital contributions. The Partnership redeemed 6,232, 1,902 and 1,625 limited partnership units in 1999, 1998 and 1997, respectively, leaving 990,238 limited partnership units outstanding at December 31, 1999
The Partnership's portfolio consisted of net investments in finance leases, investments in estimated unguaranteed residual values, leveraged leases, equity investments in joint ventures and financings representing 70%, 21%, 6%, 3% and 1% of total investments at December 31, 1999, respectively, and 77%, 15%, 6%, 1% and 1% of total investments at December 31, 1998, respectively.
Results of Operations for the Years Ended December 31, 1999 and 1998
For the years ended December 31, 1999 and 1998, the Partnership purchased and leased or financed equipment with an initial cost of $677,632 and $91,615,445, respectively, to 1 and 42 lessees or equipment users.
Revenues for the year ended December 31, 1999 were $16,572,257, representing a decrease of $635,361 from 1998. The decrease in revenues resulted primarily from a decrease in gain on sales of equipment of $578,684, a decrease in interest income and other of $323,806 and a decrease in income from investments in joint ventures of $162,014. These decreases were partially offset by increases in finance income of $417,241 and in income from leveraged leases of $11,902. Gain on sales of equipment decreased due to a decrease in the number of leases maturing in which the underlying equipment was sold. The decrease in interest income and other resulted primarily from a decrease in the average cash balance from 1998 to 1999. Income from investments in joint ventures decreased as a result of one of the underlying joint ventures' increase in its provision for bad debts. The increase in finance income resulted from the Partnership's owning and recognizing in 1999 finance income generated from an interest in a lease portfolio acquired in the first half of 1999. Income from leveraged leases increased as a result of the increase in the net investment in leveraged leases.
Expenses for the year ended December 31, 1999 were $13,057,821, representing a decrease of $1,460,621 from 1998. The decrease in expenses resulted primarily from a decrease in interest expense of $1,717,304, a decrease in the provision for bad debts of $500,000 and a decrease in amortization of initial directs costs of $278,752. These decreases were partially offset by an increase in management fees of $729,817, an increase in administrative expense reimbursements of $153,512 and an increase in general and administrative expenses of $151,722. Interest expense decreased due to a decrease in the average debt outstanding from 1998 to 1999. As a result of an analysis of delinquency, assessment of overall risk and a review of historical loss expenses, the Partnership determined that provision for bad debt of $200,000 was required for the year ended December 31, 1999, compared to $700,000 for 1998.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1998
The decrease in amortization of initial direct costs resulted from a decrease in the average size of the finance lease portfolio from 1998 to 1999. Administrative expense reimbursements, management fee expense and general and administrative expenses increased due to an increase in the amount of cash rent collected in 1999 versus 1998.
Net income for the years ended December 31, 1999 and 1998 was $3,514,436 and $2,689,176, respectively. The net income per weighted average limited partnership unit was $3.50 and $3.29 for 1999 and 1998, respectively, weighted from the date each unit was admitted to the Partnership.
Results of Operations for the Years Ended December 31, 1998 and 1997
For the years ended December 31, 1998 and 1997, the Partnership purchased and leased or financed equipment with an initial cost of $91,615,445 and $119,155,086, respectively, to 42 and 13 lessees or equipment users.
Revenues for the year ended December 31, 1998 were $17,207,618, representing an increase of $7,458,374 or 77 % from 1997. The increase in revenues resulted primarily from an increase in finance income of $8,332,118 or 135%, an increase in interest income and other of $239,207 or 204% and an increase in income from leveraged leases of $130,270 or 10%. These increases were partially offset by a decrease in net gain on sales from remarketing of equipment of $1,054,679 or 60% and a decrease in income from equity investments in joint ventures of $188,542 or 43%. The increase in finance income resulted from an increase in the average size of the finance lease portfolio from 1997 to 1998. Interest income and other increased due to an increase in the average cash balance from 1997 to 1998. Income from leveraged leases increased due to the increase in the net investment in leveraged leases from 1997 to 1998. The net gain on sales or remarketing of equipment decreased due to the prior year's termination of the Partnership's residual interests in two offshore supply vessels. The 1997 gain relating to the vessels totaled $1,709,610. The decrease in income from equity investments in joint ventures decreased as a result of one of the underlying joint ventures' increase in its provision for bad debts. In December 1998, the Partnership entered into a new joint venture, however, there were no revenues generated from such joint venture in 1998.
Expenses for the year ended December 31, 1998 were $14,518,442, representing an increase of $7,418,778 or 104% from 1997. The increase in expenses resulted primarily from an increase in interest expense of $4,397,798 or 120%, an increase in amortization of initial direct costs of $997,783 or 107%, an increase in management fees of $815,067 or 54%, an increase in the provision for bad debts of $550,000 or 367%, an increase in administrative expense reimbursements of $353,035 or 54%, an increase in general and administrative fees of $304,959 or 164% and an increase in minority interest in joint venture of $136 or 3%. Interest expense increased due to an increase in the average debt outstanding
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1998
from 1997 to 1998. Amortization of initial direct costs, management fees, administrative expense reimbursements and general and administrative expenses increased due to an increase in the average size of the portfolio from 1997 to 1998. As a result of an analysis of delinquency, assessment of overall risk and a review of historical loss experience, the Partnership determined that a provision for bad debt of $700,000 was required for the year ended December 31, 1998, compared to $150,000 for 1997.
Net income for the years ended December 31, 1998 and 1997 was $2,689,176 and $2,649,580, respectively. The net income per weighted average limited partnership unit was $3.29 and $6.34 for 1998 and 1997, respectively, weighted from the date each unit was admitted to the Partnership.
Liquidity and Capital Resources
The Partnership's primary sources of funds in 1999, 1998 and 1997 was cash provided by operations of $844,971, $535,582 and $1,596,086, respectively, capital contributions, net of offering expenses, of $0, $37,935,017 and $24,730,458, respectively, and proceeds from sale of equipment of $4,750,000, $4,903,647 and $7,315,408, respectively. These funds were used to purchase equipment and pay cash distributions. The Partnership intends to purchase additional equipment and fund cash distributions, utilizing cash from operations, proceeds from sales of equipment and additional borrowings.
The Partnership's notes payable at December 31, 1999 and 1998 total $100,544,315 and $137,072,754, respectively. These amounts consist of $71,944,352 and $110,848,356 in non-recourse notes, respectively, and recourse notes payable of $28,599,963 and $26,224,398.
The Partnership entered into a line of credit agreement (the "Facility") with a lender in 1998. The maximum amount available under the Facility is $5,000,000. The Facility is secured by eligible receivables and residuals and bears interest at Prime plus a half percent. At December 31, 1999 the Partnership had $4,424,529 outstanding under the Facility.
Cash distributions to the limited partners for the years ended December 31, 1999 and 1998, which were paid monthly totaled $10,677,316 and $8,692,479, respectively of which $3,479,291 and $2,662,284 was investment income and $7,198,025 and $6,030,195 was a return of capital, respectively. The monthly annualized cash distribution rate to limited partners for the years ended December 31, 1999 and 1998 was 10.75%, of which 3.50% and 3.29% was investment income and 7.25% and 7.46% was a return of capital respectively, calculated as a percentage of each partners' initial capital contribution. The limited partner distribution per weighted average unit outstanding for the years ended December 31, 1999 and 1998 was $10.75, of which $3.50 and $3.29 was investment income and $7.25 and $7.46 was a return of capital, respectively.
As of December 31, 1999, except as noted above, there were no known trends or demands, commitments, events or uncertainties which are likely to have any material effect on liquidity. As cash is realized from operations, sales of equipment and borrowings, the Partnership will invest in equipment leases and financings where it deems it to be prudent while retaining sufficient cash to meet its reserve requirements and recurring obligations.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 1999
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying consolidated balance sheets of ICON Cash Flow Partners L.P. Seven (a Delaware limited partnership) as of December 31, 1999 and 1998, and the related statements of operations, changes in partners' equity, and cash flows for each of the years in the three year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ICON Cash Flow Partners L.P. Seven as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1999, in conformity with generally accepted accounting principles.
/s/ KPMG LLP KPMG LLP
March 28, 2000 New York, New York
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
(continued on next page)
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Consolidated Balance Sheets (Continued)
December 31,
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31,
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity
For the Years Ended December 31, 1999, 1998 and 1997
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(continued on next page)
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31,
See accompanying notes to consolidated financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
Interest expense of $6,333,011, $8,050,315 and $3,652,517 for the years ended December 31, 1999, 1998 and 1997 consisted of: interest expense on non-recourse financings paid or accrued to lenders by lessees of $5,716,602, $7,701,737 and $3,463,617, respectively, and other interest of $616,409, $348,578 and $188,900, respectively.
For the years ended December 31, 1999, 1998 and 1997, non-cash activities included the following:
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1999
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May 23, 1995 as a Delaware limited partnership. The Partnership's maximum offering was $100,000,000. The Partnership commenced business operations on its initial closing date, January 19, 1996 with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 units were admitted representing $24,917,252 of capital contributions, in 1997, 285,927.35 units were admitted representing $28,592,735 of capital contributions and from January 1, 1998 through September 16, 1998 (the final closing date) 438,528.99 units were admitted representing $43,852,899 of capital contributions. The Partnership redeemed 6,232, 1,902 and 1,625 partnership units in 1999, 1998 and 1997, respectively, leaving 990,238 limited partnership units outstanding at December 31, 1999.
The General Partner of the Partnership is ICON Capital Corp. (the "General Partner"), a Connecticut corporation. The General Partner manages and controls the business affairs of the Partnership's equipment, leases and financing transactions under a management agreement with the Partnership.
ICON Securities Corp., an affiliate of the General Partner, received an underwriting commission on the gross proceeds from sales of all units. The total underwriting compensation paid by the Partnership, including underwriting commissions, sales commissions, incentive fees, public offering expense reimbursements and due diligence activities is limited to 13 1/2% of the gross proceeds received from the sale of the units. Such offering expenses aggregated $13,499,957, including $5,499,981 paid to the General Partner or its affiliates, and such costs charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be allocated 99% to the limited partners and 1% to the General Partner until each limited partner has received cash distributions and disposition proceeds sufficient to reduce its adjusted capital contribution account to zero and receive, in addition, other distributions and allocations which would provide a 10% per annum cumulative return, compounded daily, on its outstanding adjusted capital contribution account. After such time, the distributions will be allocated 90% to the limited partners and 10% to the General Partner.
2. Significant Accounting Policies
Basis of Accounting and Presentation - The Partnership's records are maintained on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Consolidation - The consolidated financial statements include the accounts of the Partnership and its majority owned subsidiary, ICON Cash Flow Partners L.L.C. III. All inter-company accounts and transactions have been eliminated. The Partnership accounts for its interests in less than 50% owned joint ventures under the equity method of accounting. In such cases, the Partnership's original investments are recorded at cost and adjusted for its share of earnings, losses and distributions thereafter.
Leases - The Partnership accounts for owned equipment leased to third parties as finance leases or leveraged leases, as appropriate. For finance leases, the Partnership records, at the inception of the lease, the total minimum lease payments receivable, the estimated unguaranteed residual values, the initial direct costs related to the leases and the related unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable plus the estimated unguaranteed residual minus the cost of the leased equipment. Unearned income is recognized as finance income over the terms of the related leases using the interest method. The Partnership's net investment in leveraged leases consists of minimum lease payments receivable, the estimated unguaranteed residual values and the initial direct costs related to the leases, net of the unearned income and principal and interest on the related non-recourse debt. Unearned income is recognized as income from leveraged leases over the life of the lease at a constant rate of return on the positive net investment. Initial direct costs of finance leases and leverage leases are capitalized and are amortized over the terms of the related leases using the interest method. The Partnership's leases have terms ranging from two to five years. Each lease is expected to provide aggregate contractual rents that, along with residual proceeds, return the Partnership's cost of its investments along with investment income.
Investment in Estimated Unguaranteed Residual Values - In December 1996, the Partnership purchased an option to acquire an interest in a drilling rig. The Partnership exercised its option at the time of purchase and became the 50% owner of the future estimated unguaranteed residual. In July 1997, the Partnership purchased options to acquire the interests in three Boeing 737-300 aircraft. The Partnership exercised its options at the time of purchase and became the owner of the future estimated unguaranteed residuals. The assets are carried at cost (which is at least equal to or less than market value) until sale or release of the equipment, at which time a gain or loss will be recognized on each transaction. No income will be recognized until the underlying equipment is sold or released. (See Note 4 for discussion of investment in estimated unguaranteed residual value).
Investment in Financings - Investment in financings represent the gross receivables due from the financing of equipment plus the initial direct costs related thereto less the related unearned income. The unearned income is recognized as finance income, and the initial direct costs are amortized, over the terms of the receivables using the interest method. Financing transactions are supported by a written promissory note evidencing the obligation of the user to repay the principal, together with interest, which will be sufficient to return the Partnership's full cost associated with such financing transaction, together with some investment income. Furthermore, the repayment obligation is collateralized by a security interest in the tangible or intangible personal property.
Disclosures About Fair Value of Financial Instruments - Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosures about the fair value of financial instruments, except for lease related instruments. Separate disclosure of fair
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
value information as of December 31, 1999 and 1998 with respect to the Company's assets and liabilities is not provided because (i) SFAS No. 107 does not require disclosures about the fair value of lease arrangements and (ii) the carrying value of financial assets, other than lease related investments, and certain payables approximates market value and (iii) fair value information concerning certain non-recourse debt obligations is not practicable to estimate without incurring excessive costs to obtain all the information that would be necessary to derive a market rate.
Allowance for Doubtful Accounts - The Partnership records a provision for bad debts to provide for estimated credit losses in the portfolio. The allowance for doubtful accounts is based on an analysis of delinquency, an assessment of overall risk and a review of historical loss experience. The Partnership's write-off policy is based on an analysis of the aging of the Partnership's portfolio, a review of the non-performing receivables and leases, and prior collection experience. An account is fully reserved for or written off when the analysis indicates that the probability of collection of the account is remote.
Impairment of Estimated Residual Values -- The Partnership's policy with respect to impairment of estimated residual values is to review, on a periodic basis, the carrying value of its residuals on an individual asset basis to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable and, therefore, an impairment loss should be recognized. The events or changes in circumstances which generally indicate that the residual value of an asset has been impaired are (i) the estimated fair value of the underlying equipment is less than the Partnership's carrying value or (ii) the lessee is experiencing financial difficulties and it does not appear likely that the estimated proceeds from disposition of the asset will be sufficient to satisfy the remaining obligation to the non-recourse lender and the Partnership's residual position. Generally in the latter situation, the residual position relates to equipment subject to third party non-recourse notes payable where the lessee remits their rental payments directly to the lender and the Partnership does not recover its residual until the non-recourse note obligation is repaid in full.
The Partnership measures its impairment loss as the amount by which the carrying amount of the residual value exceeds the estimated proceeds to be received by the Partnership from release or resale of the equipment. Generally, quoted market prices are used as the basis for measuring whether an impairment loss should be recognized.
Income Taxes - No provision for income taxes has been made as the liability for such taxes is that of each of the partners rather than the Partnership.
New Accounting Pronouncements - In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that an entity recognize all derivative instruments as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 133 as amended, is effective for all quarters of fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133 is not expected to have a material effect on the Partnership's net income, partners' equity or total assets.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
3. Investments in Joint Ventures
The Partnership and affiliates formed five joint ventures for the purpose of acquiring and managing various assets.
The joint venture described below is majority owned and is consolidated with the Partnership.
ICON Cash Flow Partners L.L.C. III
On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow Partners, L.P., Series E ("Series E") formed ICON Cash Flow Partners L.L.C. III ("ICON Cash Flow LLC III"), for the purpose of acquiring and managing an aircraft currently on lease to Continental Airlines, Inc. The aircraft is a 1976 McDonnell Douglas DC-10-30 and cost $11,429,751. The lease is a leveraged lease and the lease term expires in March 2003 (see Note 6). Profits, losses, excess cash and disposition proceeds are allocated 99% to the Partnership and 1% to Series E. The Partnership's financial statements include 100% of the assets and liabilities of ICON Cash Flow LLC III. Series E's investment in ICON Cash Flow LLC III has been reflected as "Minority interest in joint venture."
The four joint ventures described below are less than 50% owned and are accounted for following the equity method.
ICON Receivables 1997-A L.L.C.
In March 1997 the Partnership, ICON Cash Flow Partners, L.P., Series D ("Series D"), and ICON Cash Flow Partners L.P. Six ("L.P. Six"), contributed and assigned equipment lease and finance receivables and residuals to ICON Receivables 1997-A L.L.C. ("1997-A"), a special purpose entity created for the purpose of originating leases, managing existing contributed assets and securitizing its portfolio. In September 1997 the Partnership, Series E and L.P. Six contributed and assigned additional equipment lease and finance receivables and residuals to 1997-A. The Partnership, Series D, Series E and L.P. Six received a 19.97%, 17.81%, 31.19% and 31.03% interest, respectively, in 1997-A based on the present value of their related contributions. The Partnership's contributions amounted to $5,391,216 in assigned leases and $275,000 of cash in 1997, $105,719 of cash in 1998 and $43,597 of cash and $73,545 of assigned leases in 1999. In September 1997, 1997-A securitized substantially all of its equipment leases and finance receivables and residuals. 1997-A became the beneficial owner of a trust. The Partnership's original investment was recorded at cost and is adjusted by its share of earnings, losses and distributions thereafter.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of 1997-A as of and for the year ended December 31, 1999 and 1998 is summarized below:
December 31, 1999 December 31, 1998
Assets $ 17,967,741 $ 31,845,710 =============== =============
Liabilities $ 14,701,353 $ 27,065,004 =============== =============
Equity $ 3,266,388 $ 4,780,706 =============== =============
Partnership's share of equity $ 803,353 $ 1,097,916 =============== =============
Net income $ 108,923 $ 1,050,957 =============== =============
Partnership's share of net income $ 21,761 $ 209,824 =============== =============
Distributions $ 2,171,133 $ 2,367,147 =============== =============
Partnership's share of distributions $ 433,467 $ 512,544 =============== =============
ICON Receivables 1997-B L.L.C.
In August 1997 the Partnership, Series E and L.P. Six formed ICON Receivables 1997-B L.L.C. ("1997-B"), a special purpose entity formed for the purpose of originating leases and securitizing its portfolio. The Partnership, Series E and L.P. Six contributed cash and received a 16.67%, 75.00% and 8.33% interest, respectively, in 1997-B. The Partnership's cash contributions amounted to $500,000 in 1997, $328,155 in 1998 and $60,656 in 1999. In order to fund the acquisition of leases, 1997-B obtained a warehouse borrowing facility from Prudential Securities Credit Corporation (the "1997-B Warehouse Facility"). In October 1998, 1997-B completed an equipment securitization. The net proceeds from the securitization of these assets were used to pay-off the remaining 1997-B Warehouse Facility balance and any remaining proceeds were distributed to the 1997-B members in accordance with their membership interests. The Partnership's original investment was recorded at cost and is adjusted by its share of earnings, losses and distributions thereafter.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of 1997-B as of and for the year ended December 31, 1999 and 1998 is summarized below:
December 31, 1999 December 31, 1998 ----------------- -----------------
Assets $ 29,921,557 $ 39,665,292 ================ ===============
Liabilities $ 27,991,447 $ 37,649,430 ================ ===============
Equity $ 1,930,110 $ 2,015,862 ================ ===============
Partnership's share of equity $ 330,777 $ 335,944 ================ ===============
Year Ended Year Ended December 31, 1999 December 31, 1998 ----------------- -----------------
Net income $ 293,193 $ 227,057 ================ ===============
Partnership's share of net income $ 48,875 $ 37,850 ================ ===============
Distributions $ 688,051 $ 3,380,904 ================ ===============
Partnership's share of distributions $ 114,698 $ 563,597 ================ ===============
ICON Boardman Funding L.L.C.
In December 1998 the Partnership and three affiliates, ICON Cash Flow Partners, L.P., Series C ("Series C"), L.P. Six and ICON Income Fund Eight A L.P. ("Eight A") formed ICON Boardman Funding L.L.C. ("ICON BF"), for the purpose of acquiring a lease with Portland General Electric. The purchase price totaled $27,421,810, and was funded with cash and non-recourse debt assumed in the purchase price. The Partnership, Series C, L.P. Six, and Eight A received a .5%, .5%, .5% and 98.5% interest, respectively, in ICON BF. The Partnership's original investment was recorded at cost of $56,960 and will be adjusted by its share of earnings, losses and distributions, thereafter. The Partnership invested $4,111 in 1999. Simultaneously with the acquisition of the Portland General Electric lease by ICON BF, the rent in excess of the senior debt payments was acquired by L.P. Six for $3,801,108.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position of ICON BF as of is summarized below:
December 31, 1999 December 31, 1998 ----------------- -----------------
Assets $ 27,740,665 $ 23,620,702 =============== ================
Liabilities $ 18,880,079 $ 12,228,713 =============== ================
Equity $ 8,860,586 $ 11,391,989 =============== ================
Partnership's share of equity $ 44,298 $ 56,960 =============== ================
Net income $ 1,191,629 $ -- =============== ================
Partnership's share of net income $ 5,958 $ -- =============== ================
Distributions $ 4,546,230 $ -- =============== ================
Partnership's share of distribution $ 22,731 $ -- =============== ================
AIC Trust
The Partnership acquired a portfolio of equipment leases and in 1999 contributed such leases, subject to related debt, with a book value of $6,854,830 to a wholly owned trust ("AIC Trust"). Subsequently, the Partnership sold interests in this trust at various dates in 1999 to Eight A, an affiliate of the Partnership, for $3,000,000 and to L.P. Six, an affiliate of the Partnership, for $1,750,000 at book value, which approximated fair market value at the dates of sale. The Partnership recognized no gain or loss on the sales of these interests to either Eight A or to L.P. Six.
As a result of the sales of these interests, as of December 31, 1999 L.P. Six and Eight A owned interests aggregating 25.51% and 43.73% in the trust with the Partnership owning a 30.76% interest at that date. The trust is operated as a joint venture. Profits, losses, excess cash and disposition proceeds are allocated based upon the Partnerships' percentage ownership interests in the venture during the respective periods the Partnerships held such interests. The Partnership accounts for its investment under the equity method of accounting.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of the venture as of and for the period of inception through December 31, 1999 is summarized below:
December 31, 1999
Assets $ 22,058,522 ==============
Liabilities $ 15,221,822 ==============
Equity $ 6,836,700 ==============
Partnership's share of equity $ 2,113,897 ==============
Dates of Investments by Other Funds Through December 31, 1999
Partnership's share of income $ 9,067 ==============
4. Investment in Estimated Unguaranteed Residual Values
In December 1996, the Partnership purchased a 50% share of an option to acquire the 100% interest in a drilling rig, currently on lease to Rowan Companies, Inc. The residual investment cost $12,325,000 and the lease to Rowan Companies, Inc. expires in September 2000 at which time the Partnership will be entitled to a 50% economic interest in the rig subject to lease.
In July 1997, the Partnership purchased options to acquire the 100% interests in three Boeing 737-300 aircraft, currently on lease with Continental Airlines. The Partnership exercised its options at the time of purchase and became the 100% owner of the future estimated unguaranteed residuals. The residual investments cost $19,393,541 and the leases for each aircraft expire in August, October and November 2003 at which time the Partnership will be entitled to the residuals.
5. Gain on Disposal of Residual Interest
In December 1997 the Partnership disposed of its residual interest in two offshore supply vessels. The disposal of the residual interest occurred in connection with the sale of the vessels to a third party. The vessels had previously been chartered by a subsidiary of Occidental Petroleum, Inc. The Partnership recognized a $1,709,610 gain upon disposal of its interest in December 1997.
6. Net Investment in Leveraged Leases
In August 1996, the Partnership acquired, subject to a leveraged lease, an interest in an aircraft on lease with Federal Express. The aircraft is a McDonnell Douglas DC-10-30F built in 1986, and the lease expires in July 2004. The purchase price was $40,973,585.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
In December 1996, the Partnership and an affiliate (see Note 3) acquired, subject to a leveraged lease, an aircraft on lease with Continental Airlines, Inc. The aircraft is a McDonnell Douglas DC-10-30 built in 1976, and the lease expires in March 2003. The purchase price was $11,429,751.
The net investment in the leveraged leases as of December 31, 1999 consisted of the following:
Non-cancelable minimum rents receivable (net of principal and interest on non-recourse debt) ............ $ 9,848,494 Estimated unguaranteed residual values .................... 20,818,001 Initial direct costs ...................................... 747,718 Unearned income ........................................... (8,859,127) ------------ $ 22,555,086
Unearned income is recognized from leveraged leases over the life of the lease at a constant rate of return based on the positive net investment in the lease in years such investment is positive.
Non-cancelable minimum rents receivable relating to the leveraged leases at December 31, 1999 are $40,125,794 while principal and interest on non-recourse debt assumed in the purchase of the leveraged leases is $30,277,300 at December 31, 1999.
Rents Due Debt Payments
2000 $ 8,022,359 $ 5,954,471 2001 8,022,359 5,954,471 2002 8,022,359 5,954,471 2003 6,248,358 4,390,470 2004 9,810,359 8,023,417 ---------------- ----------------
$ 40,125,794 $ 30,277,300 ================ ================
7. Receivables Due in Installments
Non-cancelable minimum annual amounts due on finance leases and financings are as follows:
Finance Year Leases Financings Total
2000 $24,040,577 $ 492,895 $24,533,472 2001 15,688,726 481,815 16,170,541 2002 7,515,749 470,589 7,986,338 2003 4,137,779 544,791 4,682,570 2004 3,496,134 72,456 3,568,590 Thereafter
$54,878,965 $2,062,546 $56,941,511 =========== ========== ===========
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
8. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in finance leases and financings consisted of the following:
Finance Leases Financings Total
Balance at December 31, 1996 $ 65,000 $ 10,000 $ 75,000
Provision for bad debts .... 90,000 60,000 150,000 Accounts written-off ....... -- (47,778) (47,778) ----------- ----------- ----------- Balance at December 31, 1997 155,000 22,222 177,222
Provision for bad debts .... 713,450 (13,450) 700,000 ----------- ----------- ----------- Balance at December 31, 1998 868,450 8,772 877,222
Provision for bad debts .... 199,161 839 200,000 ----------- ----------- ----------- Balance at December 31, 1999 $ 1,067,611 $ 9,611 $ 1,077,222 =========== =========== ===========
9. Notes Payable
Notes payable consists of non-recourse notes payable of $71,944,352 (of which $62,364,352 is being paid directly to the lenders by the lessees and $9,580,000 which will be paid only from lease residual proceeds realized) and recourse notes payable of $28,599,963 of which $24,175,434 relate to the Partnership's investment estimated in unguaranteed residual value (see Note 4) and $4,424,529 relates to the line of credit agreement discussed below. The notes bear interest at rates ranging from 6.5% to 9.4% and mature as follows:
Notes Payable Note Payable Year Non-Recourse Recourse Total
2000 $20,592,755 $13,909,848 $ 34,502,603 2001 23,970,990 2,938,736 26,909,726 2002 11,236,484 2,980,305 14,216,789 2003 326,217 8,771,074 9,097,291 2004 15,817,906 - 15,817,906 ----------- ----------- ------------
$71,944,352 $28,599,963 $100,544,315 =========== =========== ============
The Partnership entered into a line of credit agreement (the "Facility") with a lender in 1998. The maximum amount available under the Facility is $5,000,000. The Facility is secured by eligible receivables and residuals and bears interest at Prime plus a half percent. During 1999, the Partnership borrowed $5,000,000 under the Facility and at December 31, 1999, the Partnership had $4,424,529 outstanding under the Facility
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
The Partnership borrowed $14,010,000 in 1999 to prepay $8,553,492 of leveraged lease debt related to the Federal Express lease (see Note 6) with the remaining proceeds being utilized for general partnership purposes. This debt matures in 2004 and is included in notes payable non-recourse.
10. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General Partner or its affiliates for the years ended December 31, 1999, 1998 and 1997 were as follows:
Charged to Charged to Equity Capitalized Operations
Underwriting commissions ............ $ 571,855 $ -- $ -- Organization and offering expenses .. 1,000,744 -- -- Acquisition fees .................... -- 3,363,765 -- Management fees ..................... -- -- 1,522,045 Administrative expense reimbursements -- -- 652,319 ---------- ---------- ----------
Year ended December 31, 1997 ........ $1,572,599 $3,363,765 $2,174,364 ========== ========== ==========
Underwriting commissions ............ $ 877,058 $ -- $ -- Organization and offering expenses .. 1,534,851 -- -- Acquisition fees .................... -- 3,268,593 -- Management fees ..................... -- -- 2,337,112 Administrative expense reimbursements -- -- 1,005,354 ---------- ---------- ----------
Year ended December 31, 1998 ........ $2,411,909 $3,268,593 $3,342,466 ========== ========== ==========
Management fees ..................... -- -- 3,066,929 Administrative expense reimbursements -- -- 1,158,866 ---------- ---------- ----------
Year ended December 31, 1999 ........ $ -- $ -- $4,225,795 ========== ========== ==========
The Partnership and affiliates formed four joint ventures for the purpose of acquiring and managing various assets. (See Note 3 for additional information relating to the joint ventures.)
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
12. Tax Information (Unaudited)
The following table reconciles net income for financial reporting purposes to (loss) income for federal income tax purposes for the year ended December 31, 1999:
As of December 31, 1999, the partners' capital accounts included in the financial statements totaled $70,045,138 compared to the partners' capital accounts for federal income tax purposes of $63,508,642 (unaudited). The difference arises primarily from commissions reported as a reduction in the partners' capital accounts for financial reporting purposes but not for federal income tax purposes, and temporary differences related to direct finance leases, depreciation and provision for losses.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant's General Partner
The General Partner, a Connecticut corporation, was formed in 1985. The General Partner's principal offices are located at 111 Church Street, White Plains, New York 10601-1505, and its telephone number is (914) 993-1700. The officers of the General Partner have extensive experience with transactions involving the acquisition, leasing, financing and disposition of equipment, including acquiring and disposing of equipment subject to leases and full financing transactions.
The manager of the Partnership's business is the General Partner. The General Partner is engaged in a broad range of equipment leasing and financing activities. Through its sales representatives and through various broker relationships throughout the United States, the General Partner offers a broad range of equipment leasing services.
The General Partner will perform certain functions relating to the management of the equipment of the Partnership. Such services include the collection of lease payments from the lessees of the equipment, re-leasing services in connection with equipment which is off-lease, inspections of the equipment, liaison with and general supervision of lessees to assure that the equipment is being properly operated and maintained, monitoring performance by the lessees of their obligations under the leases and the payment of operating expenses.
The officers and directors of the General Partner are as follows:
Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Paul B. Weiss President and Director
Thomas W. Martin Executive Vice President and Director
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 10. Continued
Beaufort J. B. Clarke, age 54, has been Chairman, Chief Executive Officer and Director of the General Partner since 1996. Prior to his present position, Mr. Clarke was founder and the President and Chief Executive Officer of Griffin Equity Partners, Inc. Mr. Clarke formerly was an attorney with Shearman and Sterling and has over 20 years of senior management experience in the United States leasing industry.
Paul B. Weiss, age 39, is President and Director of the General Partner. Mr. Weiss has been exclusively engaged in lease acquisitions since 1988 from his affiliations with the General Partner since 1996, Griffin Equity Partners (as Executive Vice President from 1993-1996); Gemini Financial Holdings (as Senior Vice President-Portfolio Acquisitions from 1991-1993) and Pegasus Capital Corporation (as Vice President-Portfolio Acquisitions from 1988-1991). He was previously an investment banker and a commercial banker.
Thomas W. Martin, age 46, has been Executive Vice President of the General Partner since 1996. Prior to his present position, Mr. Martin was the Executive Vice President and Chief Financial Officer of Griffin Equity Partners, Inc. (1993-1996), Gemini Financial Holdings (as Senior Vice President from 1992-1993) and Chancellor Corporation (as Vice President-Syndications from 1985-1992). Mr. Martin has 17 years of senior management experience in the leasing business.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
Item 11.
Item 11. Executive Compensation
The Partnership has no directors or officers. The General Partner and its affiliates were paid or accrued the following compensation and reimbursement for costs and expenses for the years ended December, 31, 1999, 1998 and 1997.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership and therefore does not have voting shares of stock. No person of record owns, or is known by the Partnership to own beneficially, more than 5% of any class of securities of the Partnership.
(b) As of March 24, 2000, Directors and Officers of the General Partner do not own any equity securities of the Partnership.
(c) The General Partner owns the equity securities of the Partnership set forth in the following table:
Title Amount Beneficially Percent of Class Owned of Class
General Partner Represents initially a 1% and potentially a 100% Interest 10% interest in the Partnership's income, gain and loss deductions.
Item 13.
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of the Partnership's related party transactions. See Note 3 for a discussion of the Partnership's related party investments in joint ventures.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Form of Dealer-Manager Agreement (Incorporated by reference to Exhibit 1.1 to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458 filed with the Securities and Exchange Commission on November 9, 1995)
(ii) Form of Selling Dealer Agreement (Incorporated by reference to Exhibit 1.2 to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458 filed with the Securities and Exchange Commission on November 9, 1995)
(iii)Amended and Restated Agreement of Limited Partnership (Incorporated herein by reference to Exhibit A to Amendment No. 3 to Form S-1 Registration Statement No. 33-94458 filed with the Securities and Exchange Commission on November 9, 1995)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter ended December 31, 1999.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ICON CASH FLOW PARTNERS L.P. Seven File No. 33-94458 (Registrant) By its General Partner, ICON Capital Corp.
Date: March 29, 2000 /s/ Beaufort J.B. Clarke ------------------------ Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
ICON Capital Corp. sole General Partner of the Registrant
Date: March 29, 2000 /s/ Beaufort J.B. Clarke ------------------------ Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Date: March 29, 2000 /s/ Paul B. Weiss ----------------- Paul B. Weiss President and Director
Date: March 29, 2000 /s/ Thomas W. Martin -------------------- Thomas W. Martin Executive Vice President (Principal Financial and Accounting Officer)
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrant Which have not Registered Securities Pursuant to Section 12 of the Act
No annual report or proxy material has been sent to security holders. An annual report will be sent to the limited partners and a copy will be forwarded to the Commission.