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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2003
-------------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 333-54011
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ICON Income Fund Eight A L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4006824
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, 10th Floor, New York, New York 10011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 418-4700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last day of the registrant's most recently completed second fiscal quarter:
Not applicable. There is no established market for units of limited partnership
interest in the registrant.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business 3-4
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 4
6. Selected Financial Data 5
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 6-13
7A. Qualitative and Quantitative Disclosures About Market Risk 13-14
8. Consolidated Financial Statements 15-37
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
9A. Controls and Procedures 38
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 38-39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners
and Management 40
13. Certain Relationships and Related Transactions 40
14. Principal Accounting Fees and Services 40
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40-41
SIGNATURES 42
Certifications 43-46
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
PART I
Item 1. Business
--------
General Development of Business
ICON Income Fund Eight A L.P. (the "Partnership"), was formed on July 9,
1997 as a Delaware limited partnership. The Partnership's maximum offering was
$75,000,000. The Partnership commenced business operations on its initial
closing date, October 14, 1998, with the admission of 12,000 limited partnership
units at $100 per unit representing $1,200,000 of capital contributions. Between
October 15, 1998 and May 17, 2000, the date of the Partnership's final closing,
737,965.04 additional units were admitted representing $73,796,504 of capital
contributions bringing the total admission to 749,965.04 units totaling
$74,996,504 in capital contributions. Between 2000 and 2003, the Partnership
redeemed 7,656.17 limited partnership units leaving 742,308.87 limited
partnership units outstanding at December 31, 2003.
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.
Segment Information
The Partnership has only one operating segment: the business of acquiring
and managing equipment subject to leases with companies that the Partnership
believes to be creditworthy.
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
equipment leasing investments. To achieve this objective, the Partnership: (1)
invests in a diversified portfolio of low obsolescence equipment having long
lives and high residual values; (2) makes periodic cash distributions to its
partners, continuing through the Reinvestment Period, which will end on May 17,
2008; (3) re-invest substantially all undistributed cash from operations and
cash from sales of 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 partners after the end of the Reinvestment
Period.
The equipment leasing industry is highly competitive. When seeking leasing
transactions for acquisition, the LLC 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 LLC and have greater financial resources.
The Partnership has no direct employees. The General Partner has full and
exclusive discretion in management and control of the Partnership.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Lease and Financing Transactions
During the years ended December 31, 2003 and 2002, the Partnership did not
purchase nor finance any additional equipment.
The Partnership had four, five and three lessees who accounted for 10% or
more of total revenue during the years ended December 31, 2003, 2002 and 2001.
During 2003 the equipment leased to Portland General Electric, American West,
Boeing Connexion and Sky Airlines generated 26%, 17%, 18% and 16% respectively
of total revenue. Both the Boeing Connexion and Sky Airlines leases were
terminated in the third quarter 2003. During 2002, the equipment leased to
America West, Sky Airlines, The Boeing Connexion, BP Amoco and Portland General
Electric generated 13%, 23%, 21%, 10% and 21%, respectively, of total revenue.
During 2001, equipment leased to Boeing Connexion, Portland General Electric and
Sky Airlines generated 20%, 19%, and 15%, respectively of total revenue.
Item 2. Properties
----------
The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs.
Item 3. Legal Proceedings
-----------------
The Partnership, from time-to-time, in the ordinary course of business,
commences legal actions when necessary to protect or enforce the rights of the
Partnership. We are not a defendant party to any litigation and are not aware of
any pending or threatened litigation against the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders for the fourth
quarter 2003.
PART II
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 February 29, 2004
-------------- -----------------------
Limited Partners 2,885
General Partner 1
The Partnership made distributions to the partners on a monthly basis,
totaling $6,101,226 and $8,081,055 for the year 2003 and 2002, respectively. For
the year 2004, the Partnership has since made distributions of $1,006,732 to the
partners.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 6. Selected Consolidated Financial Data
Year Ended December 31,
-----------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
Total revenue $ 8,406,757 $ 11,200,364 $ 12,975,571 $ 14,229,916 $ 9,131,846
================ ============= ============ ============= ==============
Net (loss) income $ (7,912,634) $ (1,196,680) $ (29,316) $ 102,001 $ 1,262,140
================ ============= ============ ============= ==============
Net (loss) income allocable to
the limited partners $ (7,833,508) $ (1,184,713) $ (29,023) $ 100,981 $ 1,249,519
================ ============= ============ ============= ==============
Net (loss) income allocable to the
General Partner $ (79,126) $ (11,967) $ (293) $ 1,020 $ 12,621
================ ============= ============ ============= ==============
Weighted average limited partnership
units outstanding 742,719 744,600 746,378 710,779 337,936
================ ============= ============ ============= ==============
Net (loss) income per weighted average
limited partnership unit $ (10.55) $ (1.59) $ (.04) $ .14 $ 3.70
================ ============= ============ ============= ==============
Distributions to limited partners $ 6,040,214 $ 8,000,244 $ 8,022,337 $ 7,640,879 $ 3,632,817
================ ============= ============ ============= ==============
Distributions per weighted average,
limited Partnership units $ 8.13 $ 10.74 $ 10.75 $ 10.75 $ 10.75
================ ============= ============ ============= ==============
Distributions to the General Partner $ 61,012 $ 80,811 $ 81,039 $ 77,127 $ 37,282
================ ============= ============ ============= ==============
December 31,
------------
2003 2002 2001 2000 1999
---- ---- ---- ----
Total assets $ 48,073,352 $ 91,208,154 $ 107,774,081 $ 130,291,422 $ 137,921,891
============== ================ =============== ============= ===============
Notes Payable $ 23,358,727 $ 51,474,674 $ 59,507,566 $ 73,114,595$ 87,790,864
============== ================ =============== ============= ===============
Partners' equity $ 23,604,943 $ 37,661,379 $ 47,108,809 $ 55,293,693 $ 49,476,423
============== ================ =============== ============= ===============
The selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in Item 8 of this
report.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited consolidated financial statements
included herein. Certain statements within this document may constitute
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995. These statements are
identified by words such as "anticipate," "believe," "estimate," "expects,"
"intend," "predict" or "project" and similar expressions. This information may
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Although the Partnership
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected.
Overview - The results of operations reflect the risk factors outlined in
the Partnership's prospectus. Such risk factors include, but are not limited to,
the decline in the value of the Partnership's equipment, no guarantee of
profitability, the potential of lessee default, and economic factors such as
prevailing interest rates. These risk factors affect the Partnership's ability
to realize income, in that they increase the Partnership's expenses by way of
additional depreciation, impairment loss, and provision for bad debts. In
addition, depending on the size of the portfolio and the amount of equipment
purchased by the Partnership during the Reinvestment Period the risk factors
outlined above could negatively impact the cash flow.
During the year ended December 31, 2003, our attention was primarily
focused on identifying investments which met our investment criteria in order to
seize of acquisition opportunities. Management anticipates that substantially
all revenues will be generated from the rentals derived from the equipment on
lease, re-financing of existing transactions, and proceeds from the sale of
equipment. Our most significant challenges and risks in the future include our
ability to continue to identify leases involving business-essential equipment on
lease to creditworthy lessees.
The U.S. economy appears to be recovering and the leasing industry's
outlook for 2004 is encouraging. Many experts foresee an increase in capital
spending by corporations through 2007 which should increase the pool of
available secondary market leases, and to that end, the Partnership is seeing
more opportunities in this market. Nonetheless, a key obstacle still facing the
leasing industry is the continued low interest rate environment, which reduces
leasing volume inasmuch as customers are more prone to purchase than lease.
However, as economic growth may continue and interest rates may begin to rise
over time, more lessees are expected to return to the marketplace.
The Partnership - The Partnership was formed on July 9, 1997 as a Delaware
limited partnership. The Partnership's maximum offering was $75,000,000. The
Partnership commenced business operations on its initial closing date, October
14, 1998, with the admission of 12,000 limited partnership units at $100 per
unit representing $1,200,000 of capital contributions. Between October 15, 1998
and May 17, 2000, the date of the Partnership's final closing, 737,965.04
additional units were admitted representing $73,796,504 of capital contributions
bringing the total admission to 749,965.04 units totaling $74,996,504 in capital
contributions. Between 2000 and 2003, the Partnership redeemed 7,656.17 limited
partnership units leaving 742,308.89 limited partnership units outstanding at
December 31, 2003.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
The Partnership's portfolio consists of net investments in finance leases,
investments in operating leases, equipment off-lease, investments in estimated
unguaranteed residual values and equity investments in unconsolidated joint
ventures, representing 70%, 18%, 5%, 4% and 2% of total assets at December 31,
2003, respectively, and 44%, 46%, 4%, 3% and 1% of total assets at December 31,
2002, respectively.
Results of Operations for the Years Ended December 31, 2003 and 2002
Revenue for 2003 decreased by $2,793,607 in comparison to 2002. Finance
lease income decreased by $1,739,149, or approximately 37%, in 2003 as compared
to 2002, due to the continued collection of the related finance lease
receivables, which reduced the investments on which such revenue is based. In
addition, one lease was terminated in an early buy-out by the lessee (E-Trade),
one lease (Petsmart) expired in accordance with the scheduled term. The
terminated lease in an early buy-out resulted in a gain of $284,205. The
equipment related to the expired lease was sold in 2003 for a gain totaling
$391,620. Rental income from operating leases decreased by $2,547,254, or
approximately 37%, in 2003 as compared to 2002, attributable to the early
termination of the Boeing Connexion and Sky Airlines leases and the maturing of
the Sabena Lease (of which the equipment is currently being held for sale). The
Partnership recognized an overall gain on the sale of equipment of $675,825, as
compared to losses on the sale of equipment in 2002 of $404,710. The Partnership
recognized gain from investment in unguaranteed residual values of $616,690. In
2000, the Partnership had invested $2,526,696 in acquisition of a portfolio of
residual values interest. During the second quarter 2003, the Partnership had
recovered its invested capital.
The Partnership experienced a loss of $7,365,477 on leases terminated as
described in Note 5 of the consolidated financial statements.
Expenses for 2003 increased by $3,922,347 in comparison to 2002.
Depreciation decreased by $530,342, or approximately 13%, in 2003 as compared to
2002, due to the early termination of two leases described in Note 5 of the
consolidated financial statements. Interest expense decreased by $1,791,262, or
approximately 34%, in 2003 as compared to 2002, due primarily to the repayment
of non-recourse indebtedness by the application of lease payments in accordance
with the repayment schedules, and partially offset by the interest associated
with an increase in recourse debt. General and administrative expenses decreased
by $102,042, or approximately 11%, in 2003 as compared to 2002, due primarily to
a reduction in the unamortized balances of legal fees, appraisal and inspection
costs that were capitalized under the balance sheet caption "Other Assets" at
leases inception. Management fees - General Partner decreased by $390,488, or
approximately 35%, in 2003 as compared to 2002, which was consistent with the
change in lease payments on which such fees are based. Administrative expense
reimbursements - General Partner decreased by $196,016, or approximately 40%, in
2003 as compared to 2002, which was consistent with the Partnership's level of
operations. Amortization of initial direct costs decreased by $133,972, or
approximately 40%, in 2003 as compared to 2002, due principally to the continued
reduction of the amortizable balance of initial direct costs and the method used
to calculate amortization of initial direct costs on finance leases.
Based upon its review of receivables and the credit quality of the
Partnership's lessees, there was a provision for doubtful accounts recorded of
$300,000 in 2002. The Partnership did not record a provision for doubtful
accounts in 2003.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
The net loss for the Partnership was $7,912,634 or $10.55 per weighted
average limited Partnership unit in 2003 as compared to net loss of $1,196,680
or $1.59 per weighted average limited Partnership unit in 2002. The reduction in
rental income, finance income, income from investment in unconsolidated joint
ventures and the loss on lease termination which reduced net income in 2003 as
compared 2002, was partially offset by the increase in gain on sales of
equipment, gain from investment in unguaranteed residual values, and reduction
in depreciation, interest expense, the reduction of amortization of initial
direct costs and the reduction of management fees and administrative
fees-reimbursements.
Results of Operations for the Years Ended December 31, 2002 and 2001
Finance lease income decreased by $2,498,092, or approximately 35%, in 2002
as compared to 2001, due to the continued collection of the related finance
lease receivables, which reduced the investments on which such income is based.
In addition, two leases with one lessee were terminated due to bankruptcy
filings by the lessees during the fourth quarter, as well as the expiration of
five leases in accordance with their scheduled terms. The equipment related to
expired leases was sold in 2002 for gains totaling $272,423. The terminated
leases due to bankruptcy filings resulted in a loss of $656,279, as the
Partnership received no proceeds.
Rental income (from operating leases) increased by $1,403,303, or
approximately 26%, in 2002 as compared to 2001, attributable to earning a full
year of rent in 2002 on the reclassified leases (from finance leases during
2001).
During 2002, the Partnership recognized an overall loss on the sale of
equipment of $404,710, as compared to gains on the sale of equipment in 2001 of
$288,060.
During 2002, the Partnership recognized a net income from investments in
joint ventures of $122,305, as compared to a net loss from such ventures of
$1,146,543 in 2001. The principal reason for the Partnership's loss in 2001 was
its $1,174,769 share of the loss of approximately $2,700,000 recognized by
ICON/AIC Trust ("AIC Trust") (a joint venture in which the Partnership's has a
43.73% interest). AIC Trust's loss was primarily the result of the sale of all
of its leased equipment portfolio at the end of December 2001 for a price which
was less than its carrying value. This was partially offset by income generated
by two other joint ventures in 2001.
Interest income and other was $28,904 in 2002 as compared to $65,490 in
2001. The decrease was attributable to a reduction in cash available for
investment in 2002 as well as a reduction in interest rates.
Interest expense decreased by $1,098,423, or approximately 17%, in 2002 as
compared to 2001, due primarily to the repayment of non-recourse indebtedness by
the application of lease payments in accordance with the repayment schedules,
and partially offset by the interest associated with an increase in recourse
debt.
Depreciation increased by $1,287,504, or approximately 47%, in 2002 as
compared to 2001, due to the full year effect in 2002 of the reclassification of
two aircraft previously accounted for as financing leases to investments in
operating leases in the fourth quarter of 2001.
Management fees - General Partner decreased by $774,272, or approximately
41%, in 2002 as compared to 2001, which was consistent with the change in lease
payments on which such fees are based.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Administrative expense reimbursements - General Partner decreased by
$276,582, or approximately 36%, in 2002 as compared to 2001, which was
consistent with the Partnership's level of operations.
Amortization of initial direct costs decreased by $369,820, or
approximately 53%, in 2002 as compared to 2001, due principally to the continued
reduction of the amortizable balance of initial direct costs and the method
(interest method) used to calculate amortization of initial direct costs on
finance leases.
General and administrative expenses increased by $328,823, or approximately
54%, in 2002 as compared to 2001, due primarily to amortized legal fees,
appraisal and inspection costs that were capitalized under the balance sheet
caption "Other Assets" at leases inception.
Based upon its review of receivables and the credit quality of the
Partnership's lessees, there was a provision for doubtful accounts recorded of
$300,000 in 2002. The Partnership did not record a provision for doubtful
accounts in 2001.
The net loss for the Partnership was $1,196,680 or $1.59 per weighted
average limited Partnership unit in 2002 as compared to net income of $29,316 or
$.04 per weighted average limited Partnership unit in 2001. The reduction in
finance income, the loss from sale of equipment, the provision for doubtful
accounts, the increase in general and administrative expenses and the increase
in depreciation expenses, which reduced net income in 2002 as compared 2001, was
partially offset by the increase in rental income, the increase in income from
joint ventures, the reduction in interest expense, the reduction of amortization
of initial direct costs and the reduction of management fees and administrative
fees-reimbursements.
Liquidity and Capital Resources
The Partnership's primary sources of liquidity in 2003 were proceeds from a
non-recourse note payable of $3,684,718, proceeds from recourse debt of
$2,625,000 proceeds from sale of investment in unguaranteed residual values of
$1,717,774, proceeds from sales of equipment of $1,661,898, and distributions
received from unconsolidated joint ventures of $339,151. Besides proceeds from
the new line of credit, the Partnership's primary source of funds for 2002 was
cash provided by investing activities of $3,142,869. Distributions to partners
aggregated $6,101,226, and the Partnership repaid recourse debt of $2,246,324
and utilized $2,053,203 in operating activities. As a result of these activities
of the Partnership, liquidity was reduced.
The Partnership's cash flow from operating activities may be less than the
Partnership's current level of expenses. To the extent that cash flow is
insufficient to pay such expenses, the Partnership may be required to sell
assets prior to maturity or borrow against future cash flows.
On May 2002, the Partnership entered into a $17,500,000 joint and several
line of credit agreement shared with Cash Flow Partner L.P. Seven and Income
Fund Eight B (the "Initial Funds"), with Comerica Bank as lender. Under the
terms of the agreement, the Partnership may borrow at a rate equal to the
Comerica Bank base rate plus 1% (together, 5.00% at December 31, 2003) and all
borrowings are to be jointly and severally collateralized by the present values
of rents receivable and equipment owned by all of the Initial Funds sharing in
the joint line of credit. On December 12, 2002, the agreement was amended to
admit Fund Nine, collectively along with the Initial Funds (the "Funds"), as a
borrower sharing the $17,500,000 joint line of credit agreement. The Funds have
entered into a Contribution Agreement, dated as of May 30, 2002, as amended
December 12, 2002, pursuant to which the Funds have agreed to restrictions
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
on the amount and the terms of their respective borrowings under the line of
credit in order to minimize the risk that a Fund would not be able to repay its
allocable portion of the outstanding revolving loan obligation at any time,
including restrictions on any Fund borrowing in excess of the lesser of (A) an
amount each Fund could reasonably expect to repay in one year out of its
projected free cash flow, or (B) the greater of (i) the Borrowing Base (as
defined in the line of credit agreement) as applied to such Fund, and (ii) 50%
of the net worth of such Fund. The Contribution Agreement provides that, in the
event a Fund pays an amount under the agreement in excess of its allocable share
of the obligation under the agreement whether by reason of an Event of Default
or otherwise, the other Funds will immediately make a contribution payment to
such Fund in such amount that the aggregate amount paid by each Fund reflects
its allocable share of the aggregate obligations under the agreement.
The Funds' obligations to each other under the Contribution Agreement are
collateralized by a subordinate lien on the assets of each participating Fund.
The line of credit was extended for twelve additional months expiring May 31,
2004. As of December 31, 2003, there were borrowings of $4,184,547 by the
Partnership under the line of credit. Aggregate borrowing by all Funds under the
line of credit agreement aggregated $12,799,986 on December 31, 2003.
Sky Airlines, a lessee of the Partnership, is a tour operator based in
Antalya, Turkey whose main business operation is flying tourists from Germany to
resorts in Turkey owned by an affiliate of Sky Airlines (who is also the
Guarantor of the Lease). Sky Airlines experienced service interruptions during
the conflict in Iraq. As a result, Sky Airlines became delinquent on its payment
obligations under the lease with the entity that owns the aircraft, ICON
Aircraft 23865 LLC a wholly-owned subsidiary of the Partnership. The lender on
the transaction delivered notice that an event of default existed as a result of
Sky Airlines failing to pay all amounts due under the lease on a timely basis.
Consequently, ICON Aircraft 23865 LLC notified Sky Airlines that it is in
default under the lease agreement and has made demand for payment in full. ICON
Aircraft 23865 LLC purchased the aircraft leased to Sky Airlines in conjunction
with ICON Aircraft 24231 LLC's (also a wholly-owned subsidiary of the
Partnership) purchase of an aircraft leased to Boeing Connexion. Both aircraft
were re-financed with a single lender and were cross-collateralized by the
non-recourse notes.
The lender on the transaction exercised its right to repossess the aircraft
which was on lease to Sky Airlines, along with the aircraft which was on lease
to Boeing Connexion during the quarter ended September 30, 2003. While Boeing
Connexion was never in default, the cross-collateralization term of the loan
agreement, which was entered into at purchase date of the aircrafts, resulted in
both aircrafts being repossessed. As a result of the repossession of the two
aircraft the Partnership has relinquished $23,244,966 of related note payable -
non recourse and written-off its remaining net investment in operating leases of
$279,139, which resulted in a loss on termination of leases of $7,365,477, of
which $7,086,338 was recognized in the quarter ended June 30, 2003. The aircraft
were the sole assets owned by ICON Aircraft 23865 LLC and ICON Aircraft 24231
LLC, both wholly-owned subsidiaries of the Partnership.
The Partnership has the following contractual obligations as of December
31, 2003. This obligation arises mainly from the acquisition of equipment
subject to lease. Rental payments from the leases associated with this equipment
are assigned to paydown such obligations.
Payments Due By Period
----------------------
Total 2004 2005 2006 2007 2008
----- ---- ---- ---- ---- ----
Long-term obligation (Notes payable) $23,358,727 $10,189,411 $4,860,939 $3,995,783 $598,401 $3,714,193
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
See Note 8 to the Consolidated Financial Statements, as set forth in Part
II, Item 8 Consolidated Financial Statements, for information regarding
non-recourse and recourse debt.
Cash distributions to limited partners for 2003 and 2002, which were paid
monthly, totaled $6,040,214 and $8,000,244, respectively.
As of December 31, 2003, there were no known trends or demands,
commitments, events or uncertainties apart from those mention above, which are
likely to have any material effect on liquidity. As cash is realized from
operations and additional borrowings, the Partnership will continue to 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.
We do not consider the impact of inflation to be material in the analysis
of our overall operations.
Critical Accounting Policies and Management Estimates
The policies discussed below are considered by the General Partner to be
critical to an understanding of the Partnership's financial statements because
their application places the most significant demands on the General Partner's
judgments, with financial reporting results relying on estimation about the
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, the General Partner cautions that future events rarely
develop exactly as forecast, and the best estimates routinely require
adjustment.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the dates of the financial statements and
revenues and expenses during the reporting periods. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as finance leases, leveraged leases, or
operating leases, as appropriate. Initial direct costs are capitalized and are
amortized over the terms of the related leases using the interest method.
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 and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Equipment Held for Lease or Sale - The off-lease rotables are carried at
cost, less accumulated depreciation, subject to the Partnership's impairment
policy discussed below
Impairment - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be 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.
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates of undiscounted future rents. The residual value assumes, among
other things, that the asset is utilized normally in an open, unrestricted and
stable market. Short-term fluctuations in the market place disregarded and it is
assumed that there is no necessity either to dispose of a significant number of
the assets simultaneously, if held in quantity, or to dispose of the asset
quickly. Impairment is measured as the difference between the fair value of the
assets and its carrying value on the measurement date.
Investments in Unguaranteed Residual Values - The Partnership carries its
investments in the future estimated unguaranteed residuals of assets at cost,
which is equal to or less than fair value, and is subject to the Partnership's
policy relating to impairments of residuals as discussed below. Gains or losses
will be recognized upon the sale or disposition of the investments.
Credit risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
The Partnership records a provision for bad debts to provide for estimated
credit losses in its portfolio. The allowance for doubtful accounts is based on
the ongoing analysis of delinquency trends, loss experience and an assessment of
overall credit risk. 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 or written-off when the analysis indicates that the probability of
collection of the account is remote.
Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. The
Statement requires that contracts with comparable characteristics be accounted
for similarly and clarifies when a derivative contains a financing component
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
that warrants special reporting in the statement of cash flows. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except in
certain circumstances, and for hedging relationships designated after June 30,
2003. The adoption of this standard did not have a material effect on the
Partnership's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Partnership's financial
position or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a
Partnership's consolidated financial statements. A Partnership that holds
variable interests in an entity is required to consolidate the entity if the
Partnership's interest in the VIE is such that the Partnership will absorb a
majority of the VIE's expected losses and/or receive a majority of the entity's
expected residual returns, if any. VIE's created after January 31, 2003, but
prior to January 1, 2004, may be accounted for either based on the original
interpretation or the Revised Interpretations. However, the Revised
Interpretations must be applied no later than the first quarter of fiscal year
2004. VIE's created after January 1, 2004 must be accounted for under the
Revised Interpretations. There has been no material impact to the Partnership's
financial statements and there is no expected impact from the adoption of the
deferred provisions in the first quarter of fiscal year 2004.
The Partnership does not believe that any other recently issued, but not
yet effective, accounting standards will have a material effect on the
Partnership's financial position or results of operations.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
The Partnership is exposed to certain market risks, including changes in
interest rates and the demand for equipment (and the related residuals) owned by
the Partnership and its investees. Except as described below, the Partnership
believes its exposure to other market risks are insignificant to both its
financial position and results of operations.
The Partnership manages its interest rate risk by obtaining fixed rate
debt. The fixed rate debt service obligation streams are generally matched by
fixed rate lease receivable streams generated by the Partnership's lease
investments.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Additionally, the Partnership borrows funds under a floating rate line of
credit and is therefore exposed to interest rate risk until the floating rate
line of credit is repaid. The Partnership's aggregate borrowings under the
floating rate line of credit as of December 31, 2003 was $4,184,547 as compared
to $3,805,871 at December 31, 2002. The Partnership believes the risk associated
with rising interest rates under this line is not significant.
The Partnership manages its exposure to equipment and residual risk by
monitoring the market and maximizing re-marketing proceeds received through
re-lease or sale of equipment.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 8. Consolidated Financial Statements
---------------------------------
Index to Financial Statements
Page Number
-----------
Independent Auditors' Reports 17-18
Consolidated Balance Sheets as of December 31, 2003 and 2002 19
Consolidated Statements of Operations for the
Years Ended December 31, 2003, 2002 and 2001 20
Consolidated Statement of Changes in Partners' Equity for the
Years Ended December 31, 2001, 2002 and 2003 21
Consolidated Statements of Cash Flows for the
Years Ended December 31, 2003, 2002 and 2001 22-24
Notes to Consolidated Financial Statements 25-37
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Financial Statements
For the Years Ended December 31, 2003, 2002, and 2001
(With Independent Auditors' Reports Thereon)
INDEPENDENT AUDITOR'S REPORT
----------------------------
The Partners
ICON Income Fund Eight A L.P.
We have audited the accompanying consolidated balance sheets of ICON Income Fund
Eight A L.P. (a Delaware limited partnership) and subsidiaries as of December
31, 2003 and 2002, and the related consolidated statements of operations,
changes in partners' equity, and cash flows for each of the two years in the
period ended December 31, 2003. 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 auditing standards generally accepted
in the United States of America. 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 Income Fund
Eight A L.P. and subsidiaries as of December 31, 2003 and 2002 and the results
of their operations and their cash flows for each of the two years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Hays & Company LLP
March 19, 2004
New York, New York
Independent Auditors' Report
----------------------------
The Partners
ICON Income Fund Eight A L.P.:
We have audited the accompanying consolidated statements of operations,
partners' equity, and cash flows of ICON Income Fund Eight A L.P. (a Delaware
limited partnership) for the year ended December 31, 2001. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of the operations and the cash
flows of ICON Income Fund Eight A L.P. for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/KPMG LLP
April 15, 2002
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 2003 and 2002
2003 2002
---- ----
Assets
- ------
Cash and cash equivalents $ 52,101 $ 819,928
---------------- ---------------
Investment in finance leases
Minimum rents receivable 10,827,643 17,200,391
Estimated unguaranteed residual values 26,686,729 28,560,807
Initial direct costs, net 248,472 446,683
Unearned income (3,697,612) (5,842,801)
Allowance for doubtful accounts (228,721) (228,721)
---------------- ---------------
33,836,511 40,136,359
---------------- ---------------
Investment in operating leases
Equipment, at cost 10,765,766 50,773,532
Accumulated depreciation (2,202,024) (9,214,386)
---------------- ---------------
8,563,742 41,559,146
---------------- ---------------
Equipment held for lease or sale, net 2,505,332 3,470,579
---------------- ---------------
Investments in unguaranteed residual values 1,997,000 3,098,084
---------------- ---------------
Investments in unconsolidated joint ventures 693,023 1,296,330
---------------- ---------------
Due from Affiliates, net 295,386 -
---------------- ---------------
Other assets, net 130,257 827,728
---------------- ---------------
Total assets $ 48,073,352 $ 91,208,154
================ ===============
Liabilities and Partners' Equity
Notes payable - non-recourse $ 19,174,180 $ 47,668,803
Note payable - recourse 4,184,547 3,805,871
Security deposits and other 731,628 1,715,310
Due to affiliates, net 236,822 230,052
Minority interests in joint venture 141,232 126,739
---------------- ---------------
24,468,409 53,546,775
---------------- ---------------
Commitments and Contingencies
Partners' equity (deficiency)
General Partner (414,398) (274,260)
Limited partners (742,308.87 and 745,863.89 units
outstanding, $100 per unit original issue price) 24,019,341 37,935,639
---------------- ---------------
Total partners' equity 23,604,943 37,661,379
---------------- ---------------
Total liabilities and partners' equity $ 48,073,352 $ 91,208,154
================ ===============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Revenues
Rental income $ 4,242,768 $ 6,790,022 $ 5,386,719
Finance income 2,924,694 4,663,843 7,161,935
(Loss) income from investments in
unconsolidated joint ventures (53,618) 122,305 (1,146,543)
Net gain (loss) on sales of equipment 675,825 (404,710) 288,060
Gain from investment in unguaranteed residual values 616,690 - -
Gain on sale of option to acquire an
unguaranteed residual - - 1,219,910
Interest income and other 398 28,904 65,490
----------- ------------ ------------
Total revenues 8,406,757 11,200,364 12,975,571
----------- ------------ ------------
Expenses
Loss on Lease termination (note 3) 7,365,477 - -
Depreciation 3,486,214 4,016,556 2,729,052
Interest 3,389,986 5,181,248 6,279,671
General and administrative expense 834,950 936,992 608,169
Management fees - General Partner 737,943 1,128,431 1,902,703
Administrative expense
reimbursements - General Partner 292,117 488,133 764,715
Amortization of initial direct costs 198,211 332,183 702,003
Minority interest expense 14,493 13,501 18,574
Provision for doubtful accounts - 300,000 -
----------- ------------ ------------
Total expenses 16,319,391 12,397,044 13,004,887
Net loss $ (7,912,634) $ (1,196,680) $ (29,316)
----------- ------------ ------------
Net loss allocable to:
Limited partners $ (7,833,508) $ (1,184,713) $ (29,023)
General Partner (79,126) (11,967) (293)
----------- ------------ ------------
$ (7,912,634) $ (1,196,680) $ (29,316)
=========== ============ ============
Weighted average number of limited
partnership units outstanding 742,719 744,600 746,378
=========== ============ ============
Net loss per weighted average
limited partnership unit $ (10.55) $ (1.59) $ (.04)
=========== ============ ============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statement of Changes in Partners' Equity
For the Years Ended December 31, 2001, 2002 and 2003
Limited Partner Distributions
-----------------------------
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- ------- -----
(Per weighted average unit)
Balance at January 1, 2001 $ 55,393,843 $ (100,150) $ 55,293,693
Cash distributions to partners $ 10.75 $ - (8,022,337) (81,039) (8,103,376)
Limited partnership units
redeemed (880 units) (52,192) - (52,192)
Net loss (29,023) (293) (29,316)
-------------- ----------- -------------
Balance at December 31, 2001 47,290,291 (181,482) 47,108,809
Cash distributions to partners $ 10.74 $ - (8,000,244) (80,811) (8,081,055)
Limited partnership units
redeemed (2,893.62 units) (169,695) - (169,695)
Net loss (1,184,713) (11,967) (1,196,680)
-------------- ----------- -------------
Balance at December 31, 2002 37,935,639 (274,260) 37,661,379
Cash distributions to partners $8.13 $ - (6,040,214) (61,012) (6,101,226)
Limited partnership units
redeemed (661.40 units) (42,576) - (42,576)
Net loss (7,833,508) (79,126) (7,912,634)
-------------- ----------- -------------
Balance at December 31, 2003 $ 24,019,341 $ (414,398) $ 23,604,943
============== =========== =============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net loss $ (7,912,634) $ (1,196,680) $ (29,316)
--------------- -------------- ---------------
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Rental income paid directly to lenders by lessees (4,072,768) (6,375,250) (4,972,825)
Finance income portion of receivables paid directly
to lenders by lessees (2,488,027) (4,081,646) (5,563,502)
Interest expense on non-recourse financing paid
directly by lessees 2,867,181 4,747,596 5,522,977
Depreciation expense 3,486,214 4,016,556 2,729,052
(Gain) loss of sales of equipment (675,825) 404,710 (288,060)
Amortization of initial direct costs 198,211 332,183 702,003
Provision for doubtful accounts - 300,000 -
Minority interest expense 14,493 13,501 18,574
Loss on lease termination 7,365,477 - -
Loss (income) from investments in
unconsolidated joint ventures 53,618 (122,305) 1,146,543
Gain on sale of investment in unguaranteed residual (616,690) - (1,219,910)
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables 302,374 1,280,938 5,598,071
Due from affiliates, net (295,386) - -
Other assets, net 697,471 623,189 190,747
Security deposits and others (983,682) 670,842 (153,286)
Due to affiliates, net 6,770 114,771 (537,085)
--------------- -------------- ---------------
Total adjustments 5,859,431 1,925,085 3,173,299
--------------- -------------- ---------------
Net cash (used in) provided by operating activities (2,053,203) 728,405 3,143,983
--------------- -------------- ---------------
Cash flows from investing activities:
Proceeds from investment
in unguaranteed residual values 1,717,774 1,186,863 2,608,659
Proceeds from the sales of equipment 1,661,898 1,144,010 3,664,324
Distributions received from unconsolidated joint ventures 339,151 811,996 362,587
Equipment purchased - - (1,280,666)
Acquisition of minority interest in
consolidated joint venture - - (55,804)
--------------- -------------- ---------------
Net cash provided by investing activities 3,718,823 3,142,869 5,299,100
--------------- -------------- ---------------
(continued on next page)
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Cash flows from financing activities:
Proceeds from non-recourse borrowing 3,684,718 - 3,004,674
Proceeds from notes payable - recourse 2,625,000 3,805,871 -
Repayment of non-recourse debt (353,039) - (1,510,523)
Repayment of notes payable - recourse (2,246,324) (1,819,912) (1,774,113)
Cash distributions to partners (6,101,226) (8,081,055) (8,103,376)
Redemption of limited partnership units (42,576) (169,695) (52,192)
--------------- -------------- ---------------
Net cash used in financing activities (2,433,447) (6,264,791) (8,435,530)
Net (decrease) increase in cash and cash equivalents (767,827) (2,393,517) 7,553
Cash and cash equivalents at beginning of the year 819,928 3,213,445 3,205,892
--------------- -------------- ---------------
Cash and cash equivalents at end of year $ 52,101 $ 819,928 $ 3,213,445
=============== ============== ===============
(continued on next page)
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2003, 2002 and 2001
Supplemental Disclosures of Cash Flow Information
- -------------------------------------------------
During the years ended December 31, 2003, 2002 and 2001, non-cash
activities included the following:
2003 2002 2001
---- ---- ----
Principal and interest on direct finance receivables
paid directly to lenders by lessees $ 7,375,749 $ 8,391,197 $ 13,877,218
Rental income-assigned - operating lease receivables
paid directly to lenders by lessees 4,072,768 6,375,250 4,972,825
Principal and interest on non-recourse financing
paid directly to lenders by lessees (11,448,517) (14,766,447) (18,850,043)
---------------- --------------- ----------------
$ - $ - $ -
================ =============== ================
Notes payable - non-recourse relinquished
upon termination (Note 3) $ 23,244,966 $ - $ -
================ =============== ================
Interest paid directly to
non-recourse lenders by lessees $ 2,867,181 $ 4,747,596 $ 5,522,977
Other interest paid 522,805 433,652 756,694
================ =============== ================
Total interest expense $ 3,389,986 $ 5,181,248 $ 6,279,671
================ =============== ================
Reclassification of a finance lease
to equipment held for lease or sale $ - $ 2,281,412 $ -
Reclassification of an operating lease
to equipment held for lease or sale - 1,189,167 -
Reclassification of finance leases upon lease -
restructurings to operating leases - 10,765,766
================ =============== ================
$ - $ 3,470,579 $ 10,765,766
================ =============== ================
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2003, 2002, and 2001
1. Organization
ICON Income Fund Eight A L.P. (the "Partnership"), was formed on July 9,
1997 as a Delaware limited partnership. The Partnership's maximum offering was
$75,000,000. The Partnership commenced business operations on its initial
closing date, October 14, 1998, with the admission of 12,000 limited partnership
units at $100 per unit representing $1,200,000 of capital contributions. Between
October 15, 1998 and May 17, 2000, the date of the Partnership's final closing,
737,965.04 additional units were admitted representing $73,796,504 of capital
contributions bringing the total admission to 749,965.04 units totaling
$74,996,504 in capital contributions. Between 2000 and 2003, the Partnership
redeemed 7,656.17 limited partnership units leaving 742,308.87 limited
partnership units outstanding at December 31, 2003.
The Partnership is an equipment leasing income fund. The principal
objective of the Partnership is to obtain the maximum economic return from its
equipment leasing investments. To achieve this objective, the Partnership: (1)
invests in a diversified portfolio of low obsolescence equipment having long
lives and high residual values; (2) makes periodic cash distributions to its
partners, continuing through the Reinvestment Period, which will end on May 17,
2008; (3) re-invest substantially all undistributed cash from operations and
cash from sales of 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 partners after the end of the Reinvestment
Period.
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.
Profits, losses, cash distributions and disposition proceeds are 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 an 8% per
annum cumulative return 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
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the dates of the financial statements and
revenues and expenses during the reporting periods. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiary, ICON/Boardman Facility LLC
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
("ICON BF"). All inter-company accounts and transactions have been eliminated in
consolidation. The Partnership accounts for its interests in 50% or less 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.
Cash and Cash Equivalents - Cash and cash equivalents are defined as cash
in banks and highly liquid investments with original maturity dates of three
months or less. The Partnership's cash and cash equivalents are held principally
at one financial institution and at times may exceed insured limits.
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as finance leases, leveraged leases, or
operating leases, as appropriate. Initial direct costs are capitalized and are
amortized over the terms of the related leases using the interest method.
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.
For operating leases, equipment is recorded and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
Equipment Held for Lease or Sale - Off-lease equipment that is held for
lease or sale is carried at cost, less accumulated depreciation, subject to the
Partnership's impairment review policy.
Impairment - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be 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.
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
of undiscounted future rents. The residual value assumes, among other things,
that the asset is utilized normally in an open, unrestricted and stable market.
Short-term fluctuations in the market place are disregarded and it is assumed
that there is no necessity either to dispose of a significant number of the
assets simultaneously, if held in quantity, or to dispose of the asset quickly.
Impairment is measured as the difference between the fair value of the assets
and its carrying value on the measurement date.
Investments in Estimated Unguaranteed Residual Values - The Partnership
carries its investments in the future estimated unguaranteed residual values of
assets at cost, which is equal to or less than fair value, and is subject to the
Partnership's policy relating to impairments of residuals. Gains or losses are
recognized upon the sale or disposition of the investments in accordance with
the cost recovery method of accounting.
Credit risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
The Partnership records a provision for bad debts to provide for estimated
credit losses in its portfolio. The allowance for doubtful accounts is based on
the ongoing analysis of delinquency trends, loss experience and an assessment of
overall credit risk. 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 or written-off when the analysis indicates that the probability of
collection of the account is remote.
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.
Separate disclosure of fair value information as of December 31, 2003 and 2002
with respect to the Partnership's assets and liabilities is not separately
provided since (i) SFAS No. 107 does not require fair value disclosures of lease
arrangements and (ii) the carrying value of financial assets, other than lease
related investments, and the recorded value of payables approximates market
value.
Redemption of Limited Partnership Units - The General Partner consented to
the Partnership redeeming 661.40, 2,893.62 and 880.00 limited partnership units
during the years ended December 31, 2003, 2002, and 2001 respectively. The
redemption amounts are calculated following the specified redemption formula in
accordance with the Partnership agreement. Redeemed limited partnership units
have no voting rights and do not share in distributions. The Partnership
agreement limits the number of units which can be redeemed in any one year and
redeemed limited partnership units may not be reissued. Redeemed limited
partnership units are accounted for as a reduction from partners' equity.
Income Taxes - No provision for income taxes has been recorded since the
liability for such taxes is that of each of the partners rather than the
Partnership. The Partnership's income tax returns are subject to examination by
the federal and state taxing authorities, and changes, if any could adjust the
individual income taxes of the partners.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Recent Accounting Pronouncements - In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. The Statement requires
that contracts with comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except in certain
circumstances, and for hedging relationships designated after June 30, 2003. The
adoption of this standard did not have a material effect on the Partnership's
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Partnership's financial
position or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a
Partnership's consolidated financial statements. A Partnership that holds
variable interests in an entity is required to consolidate the entity if the
Partnership's interest in the VIE is such that the Partnership will absorb a
majority of the VIE's expected losses and/or receive a majority of the entity's
expected residual returns, if any. VIE's created after January 31, 2003, but
prior to January 1, 2004, may be accounted for either based on the original
interpretation or the Revised Interpretations. However, the Revised
Interpretations must be applied no later than the first quarter of fiscal year
2004. VIE's created after January 1, 2004 must be accounted for under the
Revised Interpretations. There has been no material impact to the Partnership's
financial statements and there is no expected impact from the adoption of the
deferred provisions in the first quarter of fiscal year 2004.
The Partnership does not believe that any other recently issued, but not
yet effective, accounting standards will have a material effect on the
Partnership's financial position or results of operations.
3. Joint Venture
The Partnership and its affiliates formed four joint ventures discussed
below for the purpose of acquiring and managing various assets. The Partnership
and its affiliates have identical investment objectives and participate on the
same terms and conditions. The Partnership has a right of first refusal to
purchase the equipment, on a pro-rata basis, if any of the affiliates desire to
sell their interests in the equipment.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Consolidated Joint Venture
The joint ventures described below are majority owned and is consolidated
with the Partnership.
ICON/Boardman Facility LLC
--------------------------
In December 1998, the Partnership and three affiliates, ICON Cash Flow
Partners, L.P., Series C ("Series C"), ICON Cash Flow Partners L.P. Six ("L.P.
Six") and ICON Cash Flow Partners L.P. Seven, ("L.P. Seven") formed ICON BF, for
the purpose of acquiring a coal handling facility on lease with Portland General
Electric, a utility company. The purchase price totaled $27,421,810 and was
funded with cash and the assumption of non-recourse debt. The Partnership,
Series C, L.P. Six, and L.P. Seven received a 98.5%, .5%, .5% and .5% interest,
respectively, in ICON BF.
In 2001 the joint venturers in ICON BF acquired Series C's interest in
accordance with their proportionate shares of ICON BF, at an aggregate cost of
$56,370, which represented Series C's carrying value of the investment. The
Partnership's share of the purchase price was $55,803. The remaining venturers'
shares in ICON BF were increased to 98.995%, .5025%, and .5025% for the
Partnership, L.P. Six, and L.P. Seven, respectively.
The Partnership's financial statements include 100% of the assets and
liabilities and 100% of the revenues and expenses of ICON BF. L.P. Six's and
L.P. Seven's interests in ICON BF have been reflected as minority interests in
joint ventures on the consolidated balance sheets and minority interest expense
on the consolidated statements of operations.
Unconsolidated Joint Ventures
The three joint ventures described below are less than 50% owned and are
accounted for following the equity method.
ICON/AIC Trust
--------------
In 1999, ICON/AIC Trust ("AIC Trust") was formed to own and manage a
portfolio of leases in England. The Partnership, L.P. Six and L.P. Seven own
43.73%, 25.51% and 30.76% interests in AIC Trust, respectively.
On December 28, 2001, AIC Trust sold its remaining leases, subject to the
related debt, in exchange for a note receivable of (Pound)2,575,000 ($3,744,822
converted at the exchange rate at December 28, 2001) which is payable in six
installments through June 2004. At December 31, 2003, the remaining amount
receivable is (Pound)750,000 ($1,330,633 converted at the exchange rate at
December 31, 2003).
Information as to the financial position and results of operations of AIC
Trust as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 1,330,633 $ 2,572,522
=============== ================
Liabilities $ - $ -
=============== ================
Equity $ 1,330,633 $ 2,572,522
=============== ================
Partnership's share of equity $ 581,885 $ 1,124,964
=============== ================
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
---------------- -----------------
Net income $ 37,009 $ 212,349
=============== ================
Partnership's share of net income $ 16,184 $ 92,860
=============== ================
Distributions $ 1,396,948 $ 1,752,885
=============== ================
Partnership's share of distributions $ 610,885 $ 766,537
=============== ================
At December 31, 2003 approximately $295,152 of the Partnership's share of
distribution is a receivable from L.P. Six, and is included in the caption "Due
from Affiliates, net" on the accompanying condensed consolidated balance sheet.
ICON Aircraft 24846 LLC
-----------------------
In 2000, the Partnership and two affiliates, L.P. Seven and ICON Income
Fund Eight B L.P. ("Fund Eight B"), formed ICON Aircraft 24846 LLC ("ICON
Aircraft 24846") for the purpose of acquiring an investment in a 767-300 ER
aircraft originally leased to Scandinavian Airline Systems ("SAS") for a
purchase price of $44,515,416. The purchase price was funded with cash of
$2,241,371 and the assumption of non-recourse debt in the amount of $42,274,045.
The lenders have a security interest in the aircraft and an assignment of the
rental payments under the lease. The lease with SAS expired in March 2003, at
which time the balance of the non-recourse debt outstanding was approximately
$34,500,000. The Partnership has been making contributions toward interest only
payments on the outstanding non-recourse debt, during the remarketing of the
aircraft by the General Partner. The Partnership, L.P. Seven and Fund Eight B
have ownership interests of 2.0%, 2.0% and 96.0%, respectively, in ICON Aircraft
24846.
Information as to the financial position and results of operations of ICON
Aircraft 24846 as of and for the years ended December 31, 2003 and 2002 is
summarized below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 36,430,187 $ 39,175,547
=============== ================
Liabilities $ 34,491,632 $ 35,419,214
=============== ================
Equity $ 1,938,555 $ 3,756,333
=============== ================
Partnership's share of equity $ 38,772 $ 75,127
=============== ================
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net (loss) income $ (3,467,329) $ 749,434
=============== ================
Partnership's share of net (loss) income $ (69,347) $ 14,989
=============== ================
Contributions $ 1,649,551 $ -
=============== ================
Partnership's share of contributions $ 32,992 $ -
=============== ================
ICON Cheyenne LLC
In December 2000, the Partnership and three affiliates, L.P. Six, L.P.
Seven and Fund Eight B formed ICON Cheyenne LLC ("ICON Cheyenne") for the
purpose of acquiring a portfolio of leases for an aggregate purchase price of
$29,705,716. The purchase price consisted of cash of $11,401,151 and the
assumption of non-recourse debt of $18,304,565. The non-recourse debt is
structured so as to be amortized with rentals due under the leases. The leases
expire on various dates through September 2006. The Partnership, L.P. Seven,
L.P. Six and Fund Eight B have ownership interests of 1.0%, 10.31%, 1.0% and
87.69%, respectively, in ICON Cheyenne.
Information as to the financial position and results of operations of ICON
Cheyenne as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 10,440,643 $ 14,765,333
=============== ===============
Liabilities $ 3,204,090 $ 5,141,481
=============== ===============
Equity $ 7,236,553 $ 9,623,852
=============== ===============
Partnership's share of equity $ 72,366 $ 96,239
=============== ===============
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net (loss) income $ (45,540) $ 1,445,607
=============== ===============
Partnership's share of net (loss) income $ (455) $ 14,456
=============== ===============
Distributions $ 2,341,759 $ 4,545,920
=============== ===============
Partnership's share of distributions $ 23,418 $ 45,459
=============== ===============
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
4. Finance Lease Receivables
Regus Business Center Corp. ("Regus"), with whom the Partnership has been
negotiating an amended lease agreement, has emerged from bankruptcy, with the
approval of the new lease agreement. Regus had originally filed for Chapter 11
bankruptcy protection in the United States on January 14, 2003.
Under the new lease agreement, Regus commenced making payments at a reduced
rental rate, with an extension for 48 months, effective from March 15, 2003. As
of December 31, 2003, Regus was current on payments.
Non-cancelable minimum annual amounts due on finance leases are as follows:
Year ending December 31,
------------------------
2004 $ 5,691,524
2005 4,263,728
2006 747,763
2007 124,628
----------------
$ 10,827,643
================
The allowance for doubtful accounts consisted of the following:
Amount
Balance at January 1, 2001 $ 585,000
-------------
Balance at December 31, 2001 585,000
-------------
Provision for bad debts 300,000
Writeoffs (656,279)
-------------
Balance at December 31, 2002 228,721
-------------
Balance at December 31, 2003 $ 228,721
-------------
5. Investment in Operating Leases
Sky Airlines, a lessee of the Partnership, is a tour operator based in
Antalya, Turkey whose main business operation is flying tourists from Germany to
resorts in Turkey owned by an affiliate of Sky Airlines (who is also the
Guarantor of the Lease). Sky Airlines experienced service interruptions during
the conflict in Iraq. As a result, Sky Airlines became delinquent on its payment
obligations under the lease with the entity that owns the aircraft, ICON
Aircraft 23865 LLC, a wholly-owned subsidiary of the Partnership. The lender on
the transaction delivered notice that an event of default existed as a result of
Sky Airlines failing to pay all amounts due under the lease on a timely basis.
Consequently, ICON Aircraft 23865 LLC notified Sky Airlines that it was in
default under the lease agreement and made demand for payment in full. ICON
Aircraft 23865 LLC purchased the aircraft leased to Sky Airlines in conjunction
with ICON Aircraft 24231 LLC's (also a wholly-owned subsidiary of the
Partnership) purchase of an aircraft leased to Boeing Connexion in a single
transaction when both were being operated by KLM Royal Dutch Airlines. Both
aircraft were re-financed with a single lender and were cross-collateralized by
the non-recourse notes.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The lender on the transaction exercised its right to repossess the aircraft
which was on lease to Sky Airlines, along with the aircraft that was on lease to
Boeing Connexion during the quarter ended September 30, 2003. While Boeing
Connexion was never in default, the cross-collateralization term of the loan
agreement, which was entered into at purchase date of the aircrafts, resulted in
both aircrafts being repossessed. As a result of the repossession of the two
aircraft the Partnership has relinquished $23,244,966 of related note payable -
non recourse and written-off its remaining net investment in operating leases of
$30,610,443, which resulted in a loss on termination of leases of $7,365,477.
The aircrafts were the sole assets owned by ICON Aircraft 23865 LLC and
ICON Aircraft 24231 LLC, both wholly-owned subsidiaries of the Partnership.
The Partnership has two leases with America West Airlines, Inc. In January
2002, those leases were restructured in conjunction with America West's
agreement with the Air Transportation Stabilization Board. In exchange for the
restructuring, the Partnership received $1,000,000 of convertible notes on each
lease which do not mature until December 2005 and January 2006. As of December
31, 2003, management considers these notes to be of no value.
In connection with a restructuring of two aircraft leases with America West
in January 2002, the Partnership received two 7.5% convertible notes of
$1,000,000 each payable on December 31, 2005. These notes are convertible into
shares of America West stock upon the occurrence of certain events, either at
the option of the Partnership or America West. Principle terms of the
restructured lease include monthly rentals of $60,000 per aircraft through the
expiration dates of December 31, 2005. Management has determined that the
convertible notes have no current value due to a lack of a current market,
trading restrictions and uncertainty of collection. These notes have been
pledged as collateral for the non-recourse notes payable related to the two
aircraft.
The investment in operating leases at December 31, 2003 and 2002 consisted
of the following:
2003 2002 2001
---- ---- ----
Equipment at cost, beginning of year $ 50,773,532 $ 52,734,532 40,688,100
Cost to upgrade equipment - - 1,280,666
Transfer from finance leases - - 10,765,766
Equipment dispositions (40,007,766) - -
Transfer to equipment held for lease or sale - (1,961,000) -
---------------- --------------- -----------
Equipment at cost, end of year 10,765,766 50,773,532 52,734,532
---------------- --------------- -----------
Accumulated depreciation, beginning of year (9,214,386) (5,969,663) (3,240,611)
Depreciation expense equipment on hold
for lease or sale 985,290 - -
Accumulated depreciation on equipment
dispositions 9,513,286 - -
Depreciation expense (3,486,214) (3,244,723) (2,729,052)
-------------- ------------- ------------
Accumulated depreciation, end of year (2,202,024) (9,214,386) (5,969,663)
-------------- ------------- -----------
Investment in operating leases, end of year $ 8,563,742 $ 41,559,146 46,764,869
============== ============= ===========
Non-cancelable minimum annual rental amounts due on operating leases are as
follows:
Year ending December 31,
------------------------
2004 $ 1,440,000
2005 1,440,000
----------------
$ 2,880,000
================
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
6. Equipment Held for Sale or Lease
During 2002, the Partnership transferred airplane rotables from investment
in operating leases and investment in finance leases, with an aggregate net book
value of $3,470,579, to equipment held for lease or sale. The Partnership is
currently remarketing the airplane rotables.
Depreciation expense related to equipment held for lease or sale was
$985,290 and $771,833 for the years ended December 31, 2003 and 2002,
respectively.
The Partnership did not record any impairment in the years 2002 and 2001.
7. Investments in Unguaranteed Residual Values
During the year ended December 31, 2001, the Partnership invested
$1,997,000 to acquire an interest in the residual value of an off-shore oil
drilling rig subject to lease with an unaffiliated third party, and $2,526,696
for a residual interest related to a portfolio of technology and other equipment
leases with various lessees in the United Kingdom. During the years ended
December 31, 2003, 2002 and 2001, the Partnership received $1,717,774,
$1,186,863 and $238,749, respectively, related to the sale of equipment from the
portfolio of technology and other equipment leased to lessees in the United
Kingdom. These amounts were recorded as a recovery of investment, with no gain
or loss recognized during the years ended December 31, 2002 and 2001. During the
year ended December 31, 2003, the Partnership recovered its investment and has
realized a gain of $616,690.
During 1999, the Partnership purchased an option to acquire an interest in
an aircraft subject to lease with a United States based commercial airline for
$1,150,000. The Partnership sold this option in the second quarter 2001 for
$2,369,910 and realized a gain of $1,219,910 on the sale.
8. Notes Payable
Notes payable consists of notes payable non-recourse, which are being paid
directly to the lenders by the lessees, and a recourse note payable under a line
of credit. The non-recourse notes bear interest at rates ranging from 7.49% to
10.0%. The balances outstanding at December 31, 2003 and 2002 was $23,358,727
and $51,474,674 respectively.
As discussed in detail in Note 3 the Partnership relinquished $23,244,966
of note payable - non-recourse during 2003 related to the repossession of two
aircraft as a result of a lessee default under the terms of the notes.
On May 2002, the Partnership entered into a $17,500,000 joint and several
line of credit agreement shared with L.P. Seven and Fund Eight A (the "Initial
Funds"), with Comerica Bank as lender. Under the terms of the agreement, the
Partnership may borrow at a rate equal to the Comerica Bank base rate plus 1%
(together, 5.00% at December 31, 2003) and all borrowings are to be jointly and
severally collateralized by the present values of rents receivable and equipment
owned by all of the Initial Funds sharing in the joint line of credit. On
December 12, 2002, the agreement was amended to admit Fund Nine, collectively
along with the Initial Funds (the "Funds"), as a borrower sharing the
$17,500,000 joint line of credit agreement.
The Funds have entered into a Contribution Agreement, dated as of May 30,
2002, as amended December 12, 2002, pursuant to which the Funds have agreed to
restrictions on the amount and the terms of their respective borrowings under
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
the line of credit in order to minimize the risk that a Fund would not be able
to repay its allocable portion of the outstanding revolving loan obligation at
any time, including restrictions on any Fund borrowing in excess of the lesser
of (A) an amount each Fund could reasonably expect to repay in one year out of
its projected free cash flow, or (B) the greater of (i) the Borrowing Base (as
defined in the line of credit agreement) as applied to such Fund, and (ii) 50%
of the net worth of such Fund. The Contribution Agreement provides that, in the
event a Fund pays an amount under the agreement in excess of its allocable share
of the obligation under the agreement whether by reason of an Event of Default
or otherwise, the other Funds will immediately make a contribution payment to
such Fund in such amount that the aggregate amount paid by each Fund reflects
its allocable share of the aggregate obligations under the agreement.
The Funds' obligations to each other under the Contribution Agreement are
collateralized by a subordinate lien on the assets of each participating Fund.
The line of credit was extended for twelve additional months expiring May 31,
2004. As of December 31, 2003, there were borrowings of $4,184,547 by the
Partnership under the line of credit. Aggregate borrowing by all Funds under the
line of credit agreement aggregated $12,799,986 on December 31, 2003.