Item 1. Business
General Development of Business
ICON Cash Flow Partners, L.P., Series A (the "Partnership") was formed in May 1985 as a Delaware limited partnership. The Partnership commenced business operations on its initial closing date, May 6, 1988, with the admission of 2,415 limited partnership units. Between June 1, 1988 and December 31, 1988, 1,352 additional units were admitted. Between January 1, 1989 and February 1, 1989 (the final closing date), 1,242 additional units were admitted bringing the final admission to 5,009 units totaling $2,504,500 in capital contributions. The sole general partner is ICON Capital Corp. (the "General Partner").
In December 1994, the consent of the 225 limited partners was solicited to amend, effective January 31, 1995, the Partnership Agreement. The vote was passed 151 affirmative to 31 negative with 43 abstaining. The amendments to the Partnership Agreement include: (1) extending the Reinvestment Period from six years, to eight to ten years, (2) allowing the General Partner to lend funds to the Partnership for a term which can exceed 12 months, up to $250,000 and (3) decreasing the management fees to a flat rate of 1% of rents for all investments under management.
In February 1995 and March 1995, the General Partner lent $75,000 and $100,000, respectively, to the Partnership. Principal on the loans will be repaid only after the extended Reinvestment Period expires, and, the limited partners have received at least a 6% return on their capital. These notes bear interest at the lower of 6% or prime. Interest on the loans will be repaid if the Partnership determines that there are sufficient funds available.
The General Partner contributed $125,000 to the Partnership in the form of capital in 1994. These contributions increased the General Partner's basis in the Partnership, however, profits, losses, cash distributions and disposition proceeds will continue to be allocated 95% to the limited partners and 5% to the General Partner until each limited partner has received cash distributions and disposition proceeds sufficient to reduce its adjusted capital account to zero.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal investment objective of the Partnership is to acquire a diversified portfolio of equipment on lease to credit-worthy lessees which will: (1) preserve, protect and return the Partnership's invested capital; (2) generate cash available for distribution from which the Partnership has made and intends to continue to make distributions to the partners, with any balance remaining to be used to purchase additional equipment during a reinvestment period ending not earlier than eight years, and not later than ten years, after the final closing date (between February 1, 1997 and February 1, 1999); and (3) provide cash distributions and net disposition and re-lease proceeds, periodically, following the reinvestment period until all the equipment purchased by the Partnership has been sold. In addition to acquiring equipment for lease, the Partnership also provides financing to certain manufacturers, lessors and lessees.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
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 access to more favorable financing. Competitive factors in the equipment leasing business primarily involve pricing and other financial arrangements, equipment remarketing capabilities and servicing of lessees.
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, 1996 and 1995, the Partnership purchased and leased or financed $15,297 and $41,357 of equipment, respectively, with a weighted average initial transaction term of 20 and 50 months, respectively. At December 31, 1996 the weighted average initial transaction term of the portfolio was 49 months. A summary of the portfolio equipment cost by category held at December 31, 1996 and 1995 is as follows:
December 31, 1996 December 31, 1995 ----------------------- ------------------------- Cost Percent Cost Percent ---- ------- ---- -------
Computer systems $ 311,285 31.7% $ 419,384 29.6% Retail systems 255,038 26.0 299,712 21.2 Manufacturing & production 198,530 20.3 231,721 16.4 Copiers 53,149 5.4 170,387 12.0 Video production 44,248 4.5 85,713 6.1 Telecommunications 41,535 4.2 26,238 1.9 Printing 33,033 3.4 33,034 2.3 Material handling 27,258 2.8 54,079 3.8 Medical 12,963 1.3 25,128 1.8 Sanitation 3,571 0.4 41,675 2.9 Office furniture & fixtures - - 28,431 2.0 --------- -------- ---------- ------
$ 980,610 100.0% $1,415,502 100.0% ========= ===== ========== =====
At December 31, 1996, the Partnership did not lease or finance any equipment which individually represents greater than 10% of the total portfolio equipment cost at December 31, 1996.
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. The General Partner has exclusive control over all aspects of the business of the Partnership, including providing any necessary office space. As such, the General Partner is compensated for services related to the management of the Partnership's business.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
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 1996.
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 interests. It is unlikely that any such market will develop.
Number of Equity Security Holders Title of Class as of December 31,
1996 1995 ---- ----
Limited partners 225 225 General Partner 1 1
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
Item 6.
Item 6. Selected Financial and Operating Data
Years Ended December 31,
The above selected financial and operating data should be read in conjunction with the financial statements and related notes appearing elsewhere in this report.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
Item 7.
Item 7. General Partner's Discussion and Analysis of Financial Condition and Results of Operations
The Partnership's portfolio consisted of a net investment in financings, finance leases and operating leases representing 85%, 15% and less than 1% of total investments at December 31, 1996, respectively, and 71%, 28% and 1% of investments at December 31, 1995, respectively.
For the years ended December 31, 1996 and 1995, the Partnership leased or financed equipment with initial costs of $15,297 and $41,357 and weighted average initial transaction terms of 20 and 50 months, respectively, to 2 lessees or equipment users for both 1996 and 1995.
Results of Operations for the Years Ended December 31, 1996 and 1995
Revenues for the year ended December 31, 1996 were $195,278, representing a decrease of $8,627 or 4% from 1995. The decrease in revenues was attributable to a decrease in finance income of $43,135 or 49% and a decrease in rental income of $34,947 or 100% from 1995. The decrease in revenue was partially offset by an increase in net gain on sales or remarketing of equipment of $67,267 or 90% and an increase in interest income and other of $2,188 or 43%. Finance income decreased due to the decreased investment in finance leases and financings. The decrease in rental income resulted from the Partnership's reduced investment in operating leases. The net gain on sales or remarketing of equipment increased due to an increase in the number of leases maturing, and the underlying equipment being sold or remarketed, for which the proceeds received were in excess of the remaining carrying value of the equipment. Interest income and other increased due to an increase in the average cash balance from 1995 to 1996.
Expenses for the year ended December 31, 1996 were $58,532, representing a decrease of $61,336 or 51% from 1995. The decrease in expenses was primarily attributable to a decrease in interest expense of $24,258 or 62%, a decrease in depreciation expense of $18,236 or 100%, a decrease in the provision for bad debts of $10,000 or 100%, a decrease in general and administrative expense of $4,389 or 12%, a decrease in administrative expense reimbursements of $2,557 or 26% and a decrease in management fees of $1,896 from 1995. Interest expense decreased due to a decrease in the average debt outstanding from 1995 to 1996. Depreciation expense decreased due to the Partnership's reduced investment in operating leases. As a result of an analysis of delinquency, an assessment of overall risk and a review of historical losses experience, it was determined that no provision for bad debts was required in 1996. General and administrative expense, administrative expense reimbursements, and management fees decreased due to the decrease in the average size of the portfolio.
Net income for the years ended December 31, 1996 and 1995 was $136,746 and $84,037, respectively. The net income per weighted average limited partnership unit was $25.94 and $15.94 for 1996 and 1995, respectively.
Results of Operations for the Years Ended December 31, 1995 and 1994
Revenues for the year ended December 31, 1995 were $203,905, representing a decrease of $72,228 or 26% from 1994. The decrease in revenues was attributable to a decrease in finance income of $50,783 or 36%, a decrease in net gain on sales or remarketing of equipment of $13,015 or 15%, a decrease in interest income and other of $5,244 or 51% and a decrease in rental income of $3,186 or 8% from 1994. Finance income decreased due to the decreased investment in finance leases and financings. The net gain on sales or remarketing of equipment decreased due to a decrease in the number of leases maturing, and the underlying equipment being sold or remarketed, for which the proceeds received were in excess of the remaining carrying value of the equipment. Interest income and other decreased due to a decrease in the average cash balance
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
from 1994 to 1995. The decrease in rental income resulted from the Partnership's reduced investment in operating leases.
Expenses for the year ended December 31, 1995 were $119,868, representing a decrease of $82,891 or 41% from 1994. The decrease in expenses was primarily attributable to a decrease in depreciation expense of $28,094 or 61%, a decrease in interest expense of $24,073 or 38%, a decrease in the provision for bad debts of $23,500 or 70%, a decrease in management fees of $7,656 or 56% and a decrease in administrative expense reimbursements of $1,714 or 15% from 1994. Depreciation expense decreased due to the Partnership's reduced investment in operating leases. The decrease in interest expense resulted from the decrease in the average debt outstanding from 1994 to 1995. The provision for bad debts was reduced to $10,000 for the year ended December 31, 1995 as a result of an analysis of delinquency, an assessment of overall risk and a review of historical loss experience. Management fees and administrative expense reimbursements decreased due to a decrease in the size of the average portfolio from 1994 to 1995. Management fees were also affected by the reduction in management fee rates. Under the original Partnership agreement, the General Partner was entitled to management fees at either 2% or 5% of rents, depending on the type of investments under management. In conjunction with the solicitation to amend the Limited Partnership Agreement, effective January 31, 1995, the General Partner reduced its management fees to a flat rate of 1% of rents for all investments under management. The General Partner previously reduced its management fees on January 1, 1994 to a flat rate of 2%. The foregone management fees, the difference between the flat rate (1% or 2%) and the allowable rates per the Partnership Agreement (2% or 5%) of rents, totaled $12,651 for the year ended December 31, 1995. These foregone management fees are not accruable in future years. General and administrative expenses remained relatively constant from 1994 to 1995.
Net income for the years ended December 31, 1995 and 1994 was $84,037 and $73,374, respectively. The net income per weighted average limited partnership unit was $15.94 and $13.92 for 1995 and 1994, respectively.
Liquidity and Capital Resources
The Partnership's primary sources of funds in 1996, 1995 and 1994 were net cash provided by operations of $210,327, $268,467, and $301,679, respectively, proceeds from sales of equipment of $202,787, $136,363, and $216,200, respectively, General Partner loans totaling $175,000 in 1995, borrowings related to a term loan of $720,000 in 1994, respectively, and a General Partner capital contribution of $125,000 in 1994. These funds were used to make payments on borrowings, to fund cash distributions and to purchase equipment. The Partnership intends to continue to purchase additional equipment and to fund cash distributions, to the extent there are sufficient funds available after servicing the Partnership's current debt obligation, utilizing cash provided by operations and proceeds from sales of equipment.
In February 1995 and March 1995, the General Partner lent $75,000 and $100,000, respectively, to the Partnership. Principal on the loans will be repaid only after the extended Reinvestment Period expires, and the limited partners have received at least a 6% return on their capital. These notes bear interest at the lower of 6% or prime. Interest on the loans will be repaid if the Partnership determines that there are sufficient funds available.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
The General Partner contributed $125,000 to the Partnership in the form of capital in 1994. These contributions increased the General Partner's basis in the Partnership, however, profits, losses, cash distributions and disposition proceeds will continue to be allocated 95% to the limited partners and 5% to the General Partner until each limited partner has received cash distributions and disposition proceeds sufficient to reduce its adjusted capital account to zero.
The Partnership had notes payable of $194,613 and $352,271 at December 31, 1996 and 1995, respectively, and such amounts consisted of $194,613 and $184,113 in General Partner loans, $0 and $116,500 in term loans and $0 and $51,658 in non-recourse notes, respectively.
In December 1994, the consent of the limited partners was solicited to amend the Limited Partnership Agreement of which 151 investors, representing a 74% majority of the limited partnership units outstanding, responded affirmatively and the amendments were adopted, effective January 31, 1995. The amendments: (1) extend the Reinvestment Period from six years to eight to ten years, (2) allow the General Partners to lend to the Partnership for a term which can exceed twelve months, up to $250,000 and (3) decrease management fees to a flat rate of 1% for all investments under management.
Cash distributions to limited partners in 1996, 1995 and 1994, which were paid quarterly, totaled $225,405, $225,533, and $233,651, respectively, of which $129,909, $79,835, and $69,705 was investment income and $95,496, $145,698, and $163,946 was a return of capital, respectively. The quarterly annualized distribution rate to limited partners was 9.00%, 9.00% and 9.33%, of which 5.2%, 3.2% and 2.78% was investment income and 3.8%, 5.82% and 6.55% was a return of capital, respectively, calculated as a percentage of each partner's initial capital contribution. The limited partner distribution per weighted average unit outstanding for the years ended December 31, 1996, 1995 and 1994 was $45.00, $45.03 and $46.65 of which $25.94, $15.94 and $13.92 was investment income and $19.06, $29.09 and $32.73 was a return of capital, respectively.
As of December 31, 1996, 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 as they become due.
Accounting Developments
In June 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes, among other things, criteria for determining whether a transfer of financial assets is a sale or a secured borrowing effective for all transfers occurring after December 31, 1996. The adoption of SFAS No. 125 is not expected to have a material impact on the Partnership's net income, partners' equity or total assets.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
Item 8.
Item 8. Financial Statements and Supplementary Data
Page Number
Independent Auditors' Report 12
Balance Sheets as of December 31, 1996 and 1995 13
Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 14
Statements of Changes in Partners' Equity for the Years Ended December 31, 1996, 1995 and 1994 15
Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 16-18
Notes to Financial Statements 19-24
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners ICON Cash Flow Partners, L.P., Series A:
We have audited the accompanying balance sheets of ICON Cash Flow Partners, L.P., Series A (a Delaware limited partnership) as of December 31, 1996 and 1995, 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, 1996. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in all material respects, the financial position of ICON Cash Flow Partners, L.P., Series A as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
March 7, 1997 New York, New York
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Balance Sheets
December 31, 1996 1995 ---- ---- Assets
Cash $ 123,808 $ 79,759 ----------- -----------
Investment in financings Receivables due in installments 246,130 439,936 Unearned income (21,268) (54,157) Allowance for doubtful accounts (20,420) (19,920) ----------- ----------- 204,442 365,859 ----------- -----------
Investment in finance leases Minimum rents receivable 29,868 132,210 Estimated unguaranteed residual values 11,811 36,724 Unearned income (3,160) (15,940) Allowance for doubtful accounts (24,123) (15,322) ----------- ----------- 14,396 137,672 ----------- ----------- Investment in operating leases Equipment, at cost 39,887 67,298 Accumulated depreciation (39,787) (63,386) ----------- ----------- 100 3,912 ----------- -----------
Other assets 6,473 11,902 ----------- -----------
Total assets $ 349,219 $ 599,104 =========== ===========
Liabilities and Partners' Equity
Notes payable - General Partner $ 194,613 $ 184,113 Accounts payable to General Partner and affiliates, net 43,760 31,689 Accounts payable - other 13,075 14,044 Security deposits and deferred credits 3,817 6,624 Note payable - term loan - 116,500 Notes payable - non-recourse - 51,658 ----------- ----------- 255,265 404,628 ----------- ----------- Commitments and contingencies
Partners' equity General Partner 17,099 22,125 Limited partners (5,009 units outstanding, $500 per unit original issue price) 76,855 172,351 ----------- -----------
Total partners' equity 93,954 194,476 ----------- -----------
Total liabilities and partners' equity $ 349,219 $ 599,104 =========== ===========
See accompanying notes to financial statements.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Statements of Operations
For the Years Ended December 31,
See accompanying notes to financial statements.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Statements of Changes in Partners' Equity
For the Years Ended December 31, 1996, 1995, and 1994
See accompanying notes to financial statements.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Statements of Cash Flows
For the Years Ended December 31,
See accompanying notes to financial statements.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Statements of Cash Flows (Continued)
Supplemental Disclosures of Cash Flow Information
Interest expense of $15,092, $39,350, and $63,423 for the years ended December 31, 1996, 1995 and 1994, respectively, consisted of: interest expense on non-recourse financing paid directly to lenders by lessees of $2,508, $7,036 and $12,939, respectively, interest on the term loan/revolving credit facility of $2,084, $23,201 and $50,357, respectively, interest on General Partner loans of $10,500 and $9,113 in 1996 and 1995, respectively and other interest of $127 in 1994.
During the years ended December 31, 1996, 1995 and 1994, non-cash activities included the following:
See accompanying notes to financial statements.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1996
1. Organization
ICON Cash Flow Partners, L.P., Series A (the "Partnership") was formed on May 28, 1985 as a Delaware limited partnership with an initial capitalization of $2,000. It was formed to acquire various types of equipment, to lease such equipment to third parties and, to a lesser degree, enter into secured financing transactions. The Partnership's offering period commenced on January 9, 1987 and by its final closing in 1989, 5,009 units had been admitted into the Partnership with aggregate gross proceeds of $2,504,500.
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 was limited to 14 1/2% of the gross proceeds received from the sale of the units. Such offering costs aggregated $363,152, (including $176,152 paid to the General Partner or its affiliates) and were charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds are allocated 95% to the limited partners and 5% 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 85% to the limited partners and 15% 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.
Leases - The Partnership accounts for owned equipment leased to third parties as finance leases or operating leases. 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. For operating leases, equipment is recorded at cost and is depreciated on the straight-line method over the lease terms to their estimated fair market values at lease terminations. Related lease rentals are recognized on the straight-line method over the lease terms. Billed and uncollected operating lease receivables, net of allowance for doubtful accounts, are included in other assets. Initial
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
direct costs of finance leases are capitalized and are amortized over the terms of the related leases using the interest method. Initial direct costs of operating leases are capitalized and amortized on the straight-line method over the lease terms. The Partnership's leases have terms ranging from two to four years. Each lease is expected to provide aggregate contractual rents that, along with residual proceeds, return the Partnership's cost of its investment along with investment income.
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. Fair value information with respect to the Company's assets and certain non-recourse notes payable is not provided because (i) SFAS No. 107 does not require disclosures about the fair value of lease arrangements, (ii) the carrying value of financial assets other than lease related investments 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 interest rate on a lease by lease basis.
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 - In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which is effective beginning in 1996.
The Partnership's policy with respect to impairment of estimated residual values is to review, on a quarterly 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.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
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.
As a result, the Partnership's policy with respect to measurement and recognition of an impairment loss associated with estimated residual values is consistent with the requirements of SFAS No. 121 and, therefore, the Partnership's adoption of this Statement in the first quarter of 1996 had no material effect on the financial statements.
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.
3. Amendment to Partnership Agreement
In December 1994, the consent of the limited partners was solicited to amend the Limited Partnership Agreement. The amendments were approved with 151 investors, representing a 74% majority of the limited partnership units outstanding, responding affirmatively. The amendments, which were effective January 31, 1995, include: (1) extending the Reinvestment Period from six years, to eight to ten years, (2) allowing the General Partner to lend to the Partnership for a term which can exceed twelve months, up to $250,000 and (3) decreasing the management fees to a flat rate of 1% of rents for all investments under management (see Note 9).
4. General Partner Capital Contribution
The General Partner contributed $125,000 to the Partnership in the form of capital in 1994. This contribution increased the General Partner's basis in the Partnership, however, profits, losses, cash distributions and disposition proceeds will continue to be allocated 95% to the limited partners and 5% to the General Partner until each limited partner has received cash distributions and disposition proceeds sufficient to reduce its adjusted capital account to zero.
5. Receivables Due in Installments
Non-cancelable minimum annual amounts due on financings and finance leases are as follows: Finance Year Financings Leases Total
1997 $ 190,581 $ 23,868 $ 214,449 1998 46,615 6,000 52,615 1999 7,147 - 7,147 2000 1,787 - 1,787 ----------- ----------- -----------
$ 246,130 $ 29,868 $ 275,998 =========== =========== ===========
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
6. Investment in Operating Leases
The investment in operating leases at December 31, 1996, 1995 and 1994 consisted of the following:
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
7. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in financings, finance leases and operating leases consisted of the following:
8. Notes Payable
The Partnership entered into a three-year secured revolving credit agreement (the "Facility") in October 1992. The Facility was secured by an assignment of eligible receivables and the underlying equipment. The Facility allowed the Partnership to borrow based on eligible, unencumbered receivables. Interest was payable at prime plus 1%. After paying down the Facility by $90,000 in January 1994, the Partnership converted the Facility to a term loan, secured by leases and financing transactions. The new loan was for $720,000 and bore interest at prime, plus 1.5%. The term loan was retired with a final payment in April 1996.
See Note 9 for information pertaining to the Notes Payable - General Partner.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
9. Related Party Transactions
During the years ended December 31, 1996, 1995 and 1994, the Partnership accrued to the General Partner management fees of $4,055, $5,951 and $13,607 and administrative expense reimbursements of $7,133, $9,690 and $11,404, respectively. These items were charged to operations.
The payment of management fees to the General Partner have been deferred since September 1, 1993 and as of December 31, 1996, these unpaid fees totaled $35,528.
Under the original Partnership agreement, the General Partner was entitled to management fees at either 2% or 5% of rents, depending on the type of investment under management. In conjunction with the solicitation to amend the Limited Partnership Agreement, effective, January 31, 1995, the General Partner reduced its management fees to a flat rate of 1% of rents for all investments under management. The General Partner previously reduced its management fees on January 1, 1994 to a flat rate of 2%. The foregone management fees, the difference between the flat rate (1%) and the allowable rates per the Partnership Agreement (2% or 5%) of rents, totaled $10,231 for the year ended December 31, 1996. These foregone management fees are not accruable in future years.
In February 1995 and March 1995, the General Partner, in conjunction with one of the amendments to the Partnership Agreement (see Note 3), lent $75,000 and $100,000, respectively, to the Partnership. Principal on the loans will be repaid only after the extended Reinvestment Period expires, and, the limited partners have received at least a 6% return on their capital. These notes bear interest at the lower of 6% or prime. Interest on the loans will be repaid if the Partnership determines that there are sufficient funds available. The partnership accrued $10,500 and $9,113 in interest related to these loans for 1996 and 1995, respectively.
There were no acquisition fees paid or accrued by the Partnership for the years ended December 31, 1996, 1995 and 1994.
10. Tax Information (Unaudited)
The following table reconciles net income for financial reporting purposes to income for federal income tax purposes for the years ended December 31:
As of December 31, 1996, the partners' capital accounts included in the financial statements totaled $93,954 compared to the partners' capital accounts for federal income tax purposes of $1,315,655 (unaudited). The difference arises primarily from commissions reported as a reduction in the partners' capital 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., Series A (A Delaware Limited Partnership)
December 31, 1996
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 600 Mamaroneck Avenue, Harrison, New York 10528-1632, and its telephone number is (914) 698-0600. 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 operating leases and full payout leases.
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, including tax-oriented leasing and financing. In addition, the General Partner offers financial consulting and placement services for which fees are earned as a result of successful placements of various secured financings and mortgages.
The General Partner is performing or causing to be performed 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, releasing services in connection with equipment which is off-lease, inspections of the equipment, liaison with the general supervision of lessees to assure that the equipment is being properly operated and maintained, supervision of maintenance being performed by third parties, 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 President, Chief Executive Officer and Director
Thomas W. Martin Executive Vice President and Director
Paul B. Weiss Executive Vice President
Gary N. Silverhardt Vice President and Chief Financial Officer
Neil A. Roberts Director
Tim Spring Director
Beaufort J. B. Clarke, age 50, is President, Chief Executive Officer and Director of both the General Partner and ICON Securities Corp. (the "Dealer-Manager"). 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.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
Thomas W. Martin, age 42, is Executive Vice President of both the General Partner and the Dealer-Manager. Prior to his present position, Mr. Martin was the Executive Vice President and Chief Financial Officer of Griffin Equity Partners, Inc. Mr. Martin has over 12 years of senior management experience in the leasing business, particularly in the area of syndication.
Paul B. Weiss, age 36, is Executive Vice President of the General Partner. Mr. Weiss has been exclusively engaged in lease portfolio acquisitions since 1988 from his affiliations with Griffin Equity Partners (as Executive Vice President and co-founder in 1993); Gemini Financial Holdings (as Senior Vice President-Portfolio Acquisitions and a member of the executive committee from 1991-1993) and Pegasus Capital Corporation (as Vice President-Portfolio Acquisitions).
Gary N. Silverhardt, age 36, is Vice President and Chief Financial Officer of the General Partner. He joined the General Partner in 1989. Prior to joining the General Partner, Mr. Silverhardt was previously employed by Coopers & Lybrand from 1985 to 1989, most recently as an Audit Supervisor. Prior to 1985, Mr. Silverhardt was employed by Katz, Schneeberg & Co. from 1983 to 1985. Mr. Silverhardt received a B.S. degree from the State University of New York at New Paltz in 1983 and is a Certified Public Accountant.
Neil A. Roberts, age 47, has been the Managing Director of Summit Asset Management Limited, a subsidiary of The Summit Group PLC, since 1991. Mr. Roberts has over 25 years of experience in the leasing and finance business, including positions with Kleinwort Benson Group, the United Kingdom subsidiary of Hongkong and Shanghai Banking Corporation and Chemical Bank.
Timothy R. Spring, age 39, has been the Commercial Director of Summit Asset Management Limited, a subsidiary of The Summit Group PLC, since 1991. Mr. Spring has over 13 years of leasing experience in the United Kingdom. He was formerly Lease Commercial Director at Kleinwort Benson Group, the United Kingdom subsidiary of Hongkong and Shanghai Banking Corporation and Chemical Bank.
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, 1996, 1995 and 1994.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
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 7, 1997, 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 5% and 100% Interest potentially a 15% interest in the Partnership's income, gain and loss deductions.
Profits, losses, cash distributions and disposition proceeds are allocated 95% to the limited partners and 5% to the General Partner until each investor 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 the outstanding adjusted capital contribution account. After such time, the distributions will be allocated 85% to the limited partners and 15% to the General Partner.
Item 13.
Item 13. Certain Relationships and Related Transactions
None other than those disclosed in Item 11 herein.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
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) Amended and Restated Agreement of Limited Partnership (Incorporated by reference to Exhibit A to Amendment No. 2 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on December 12, 1986).
(ii) Certificate of Limited Partnership of the Partnership (Incorporated herein by reference to Exhibit 3.01 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 23, 1985 and to Exhibit 3.01 to Amendment No. 1 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 27, 1986).
(iii)Form of Management Agreement between the Partnership and Crossgate Leasing, Inc. (Incorporated herein by reference to Exhibit 10.01 to Amendment No. 1 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 27, 1986).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter ended December 31, 1996.
ICON Cash Flow Partners, L.P., Series A (A Delaware Limited Partnership)
December 31, 1996
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., SERIES A File No. 2-99858 (Registrant) By its General Partner, ICON Capital Corp.
Date: March 28, 1997 Beaufort J.B. Clarke ----------------------------------------- Beaufort J.B. Clarke President, 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 28, 1997 Beaufort J.B. Clarke ------------------------------------------ Beaufort J.B. Clarke President, Chief Executive Officer and Director
Date: March 28, 1997 Thomas W. Martin ------------------------------------------ Thomas W. Martin Executive Vice President and Director
Date: March 28, 1997 Gary N. Silverhardt ------------------------------------------ Gary N. Silverhardt Vice President and Chief Financial 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.