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, 2002
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 333-37504
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ICON Income Fund Eight B L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-4101114
- -------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, 10th Floor, New York, New York 10011
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(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]
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 B L.P.
(A Delaware Limited Partnership)
December 31, 2002
TABLE OF CONTENTS
Item Page
PART I
1. Business 3-4
2. Properties 5
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 5
6. Selected Financial and Operating Data 6
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 7-14
7A.Qualitative and Quantitative Disclosures About Market Risk 15
8. Consolidated Financial Statements and Supplementary Data 16-42
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 43
PART III
10.Directors and Executive Officers of the Registrant's
General Partner 43-44
11.Executive Compensation 44
12.Security Ownership of Certain Beneficial Owners
and Management 44
13.Certain Relationships and Related Transactions 44
14.Controls and Procedures 45
PART IV
15.Exhibits, Financial Statement Schedules and Reports on Form 8-K 45-46
SIGNATURES 47
Certifications 48-51
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
PART I
Item 1. Business
--------
General Development of Business
ICON Income Fund Eight B L.P. (the "Partnership"), was formed on February
7, 2000 as a Delaware limited partnership. The Partnership's maximum offering
was $75,000,000. The Partnership commenced business operations on its initial
closing date, June 14, 2000, with the admission of 15,815.51 limited partnership
units at $100 per unit representing $1,581,551 of capital contributions. Between
June 15, 2000 and October 17, 2001, 734,184.49 additional units were admitted
representing $73,418,449 of capital contributions. On October 17, 2001, the
Partnership had its final closing with a cumulative total of 750,000 units
admitted totaling $75,000,000 in capital contributions. The Partnership redeemed
1,554.15 units during 2002, leaving 748,445.85 limited partnership units
outstanding at December 31, 2002.
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
investments for the benefit of its limited partners. To achieve this objective,
the Partnership intends to: (1) acquire a diversified portfolio of low
obsolescence equipment having long economic useful lives and high residual
values; (2) make monthly cash distributions to its limited partners, commencing
with each limited partner's admission to the Partnership, continuing through the
Reinvestment Period, which period will end no later than the eighth anniversary
after the final closing date; (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 limited partners after
the end of the Reinvestment Period.
The equipment leasing industry is highly competitive. When seeking its
leasing transactions for acquisition, the Partnership competes with leasing
companies, manufacturers that lease their products directly, equipment brokers
and dealers and financial institutions, including commercial banks and insurance
companies. Many competitors are larger than the Partnership and have greater
financial resources.
The Partnership had lessees who accounted for more than 10% of the
Partnership's total revenue during the years ended December 31, 2002 and 2001.
During 2002, equipment leased to Cathay Pacific and BAE Systems PLC generated
27% and 10% of total revenue, respectively. During 2001, equipment leased to BAE
Systems PLC generated 11% of total revenue.
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 B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Lease and Finance Transactions
In early 2002, the Partnership formed ICON Aircraft 123 LLC as a wholly
owned subsidiary for the purpose of acquiring all of the outstanding shares of
Alpha Aircraft Leasing Limited ("A.A.L."), a Cayman Islands registered company,
which owns, through an Owner Trust, an Airbus A340-313X aircraft which is on
lease to Cathay Pacific through March 2006. The stock was acquired in the first
quarter of 2002 for $4,250,000 in cash. The aircraft owned by Alpha is subject
to non-recourse debt provided by unaffiliated lenders. The lenders have a
security interest in the aircraft and an assignment of the rentals under the
lease. The estimated fair value of the aircraft was $75,263,566 at the date of
acquisition and the principal balance of the debt was $70,495,058 at such date.
During the year ended December 31, 2001, the Partnership purchased
equipment subject to leases for purchase prices aggregating $41,666,367
(including initial direct costs).
The acquisitions were as follows:
(i) An aircraft simulator acquired in the first quarter of 2001, leased to an
unaffiliated third party for a term scheduled to expire in March 2006, for
a purchase price of $13,232,105, of which $10,830,109 was provided by the
assumption of non-recourse debt and the balance of $2,401,996 provided from
available cash;
(ii) Retail signage equipment purchased in the second quarter of 2001 for
$4,250,000, subject to a lease with an unaffiliated third party,
scheduled to expire in June 2005. The purchase was paid for with cash;
(iii) An engine module, purchased in the second quarter of 2001, subject to a
lease with an unaffiliated third party, scheduled to expire in May 2008,
for a purchase price of $5,950,000, of which $1,911,210 was provided by
the assumption of non recourse debt with the balance of $4,038,790 paid
for with cash; and
(iv) Retail photography development equipment, purchased throughout the year
with scheduled lease expirations ranging from May 2006 to January 2007,
for purchase prices aggregating $18,234,262, of which $17,552,542 was
provided by the assumption of non-recourse debt and the balance of
$681,720 paid for with cash.
Additionally, the Partnership invested $2,406,128 in an unguaranteed
residual and $2,100,000 ($400,000 of which was provided by a 8.5% recourse note)
for an option to purchase an aircraft. Finally, the Partnership had placed cash
totaling $13,723,196 in various escrow accounts for three transactions scheduled
to be completed in 2002. Two of the proposal transactions were cancelled and
$7,623,196 of the escrowed funds were returned to the Partnership.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
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 Company, 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 during the fourth
quarter of 2002.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
-----------------------------------------------------------------------
Matter
------
The Partnership's limited partnership interests are not publicly traded nor
is there currently a market for the Partnership's limited partnership units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of December 31,
-------------- ----------------------------------
2002 2001
---- ----
Limited Partners 2,814 2,825
General Partner 1 1
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Item 6. Selected Consolidated Financial and Operating Data
--------------------------------------------------
Year Ended December 31,
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2002 2001 2000(1)
---- ---- ----
Total revenue $ 25,467,361 $ 20,231,996 $ 742,302
=============== =============== =============
Net income $ (136,897) $ 820,109 $ 291,236
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Net income allocable to limited partners $ (135,528) $ 811,908 $ 288,324
=============== =============== =============
Net income allocable to the General Partner $ (1,369) $ 8,201 $ 2,912
=============== =============== =============
Weighted average limited
partnership units outstanding 749,475 502,536 132,049
=============== =============== =============
Net income per weighted average
limited partnership unit $ (.18) $ 1.62 $ 2.18
=============== =============== =============
Distributions to limited partners $ 8,056,975 $ 4,932,964 $ 536,708
=============== =============== =============
Distributions to the General Partner $ 81,384 $ 49,845 $ 5,228
=============== =============== =============
December 31,
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2002 2001 2000 (1)
---- ---- ----
Total assets $ 189,408,747 $ 143,918,696 $ 88,108,178
=============== =============== =============
Partners' equity $ 52,820,395 $ 61,212,600 $ 18,764,181
=============== =============== =============
(1) No data is presented for the periods prior to 2000 since the Partnership
commenced operations on February 7, 2000, the initial closing date. The
Partnership had its first admission of limited partners in June 2000 and
commenced its acquisition efforts at that time. As a result, revenue and net
income for 2000 does not reflect a full year's operations.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
----------------------------------------------------------------------
The Partnership was formed on February 7, 2000 as a Delaware limited
partnership. The Partnership's maximum offering was $75,000,000. The Partnership
commenced business operations on its initial closing date, June 14, 2000, with
the admission of 15,815.51 limited partnership units at $100 per unit
representing $1,581,551 of capital contributions. Between June 15, 2000 and
October 17, 2001, 734,184.49 additional units were admitted representing
$73,418,449 of capital contributions. On October 17, 2001, the Partnership had
its final closing with a cumulative total of 750,000 units admitted totaling
$75,000,000 in capital contributions. The Partnership redeemed 1,554.15 units
during 2002, leaving 748,445.85 limited partnership units outstanding at
December 31, 2002.
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited 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.
The Partnership's portfolio consists of net investments in operating
leases, investments in finance leases, equipment held for sale or lease,
investments in estimated unguaranteed residual values, investment in option,
cash held in escrow and equity investments in unconsolidated joint ventures,
representing 75%, 13%, 1%, 1%, 1%, 0% and 4% of total assets at December 31,
2002, respectively, and 58%, 21%, 0%, 2%, 1%, 10% and 0% of total portfolio
interests at December 31, 2001, respectively.
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
effects 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.
Basis of Accounting and Presentation - The Partnership's records are
maintained on the accrual basis. 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 include the allowance for doubtful assets and unguaranteed residual
values. Management believes that the estimates and assumptions utilized in
preparing its financial statements are reasonable and prudent. In addition,
management is required to disclose contingent assets and contingent liabilities.
Actual results could differ from those estimates.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as either finance leases or operating leases,
as appropriate. For finance leases, the Partnership records, at the inception of
the lease, the total minimum lease payments receivable, the estimated
unguaranteed residual values, the initial direct costs related to the leases and
the related unearned income. Unearned income represents the difference between
the sum of the minimum lease payments receivable plus the estimated unguaranteed
residual minus the cost of the leased equipment. Unearned income is recognized
as finance income over the terms of the related leases using the interest
method. 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 and subject to the Partnership's impairment policy
discussed below. 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. Initial 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
depreciated on the straight-line method over the lease terms.
Investments in 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 market value, subject to the Partnership's
policy relating to impairments of residuals discussed below. Gains or losses
will be recognized upon the sale or disposition of the investments.
Investments in Options - The Partnership carries its investment in an
option to purchase equipment at cost, which is equal to or less than market
value, subject to the Partnership's policy relating to impairment discussed
below. Gain or loss will be recognized upon the sale or disposition of the
investment.
Impairment of Estimated Residual Values - The Partnership's policy with
respect to impairment of estimated residual values is to review, on a periodic
basis, the carrying value of its residuals on an individual asset basis to
determine whether events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable and, therefore, an impairment loss
should be recognized. The events or changes in circumstances which generally
indicate that the residual value of an asset has been impaired are (i) the
estimated fair value of the underlying equipment is less than the Partnership's
carrying value or (ii) the lessee is experiencing financial difficulties and it
does not appear likely that the estimated proceeds from disposition of the asset
will be sufficient to satisfy the remaining obligation to the non-recourse
lender and the Partnership's residual position. Generally in the latter
situation, the residual position relates to equipment subject to third party
non-recourse notes payable where the lessee remits their rental payments
directly to the lender and the Partnership does not recover its residual until
the non-recourse note obligation is repaid in full.
The Partnership measures its impairment loss as the amount by which the
carrying amount of the residual value exceeds the estimated proceeds to be
received by the Partnership from re-lease or sale of the equipment. Generally,
third party appraisals, reviews of future cash flows and anticipated future cash
flows and detailed market analyses are used as the basis for measuring whether
an impairment loss should be recognized.
Allowance for Doubtful Accounts - 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 for or written off when the
analysis indicates that the probability of collection of the account is remote.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Partnership Activities During 2002 - In early 2002, the Partnership formed
ICON Aircraft 123 LLC as a wholly owned subsidiary for the purpose of acquiring
all of the outstanding shares of Alpha Aircraft Leasing Limited ("A.A.L."), a
Cayman Islands registered company, which owns, through an Owner Trust, an Airbus
A340-313X aircraft which is on lease to Cathay Pacific through March 2006. The
stock was acquired in the first quarter of 2002 for $4,250,000 in cash. The
aircraft owned by Alpha is subject to non-recourse debt provided by unaffiliated
lenders. The lenders have a security interest in the aircraft and an assignment
of the rentals under the lease. The fair value of the aircraft was estimated to
be $75,263,566 at the date of acquisition and the principal balance of the
non-recourse debt was $70,495,058 at such date.
During 2002, the Partnership and an affiliate, ICON Income Fund Nine, LLC
("Fund Nine"), have formed several joint ventures for the purpose of acquiring
and managing various assets. The Partnership and Fund Nine 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 the affiliate desires to sell its interest in the equipment
or in the joint venture. In the instance where the Partnership is not the
majority owner, the investment is accounted for following the equity method.
Where the Partnership is the majority owner, the joint venture is consolidated,
with the other joint venturer's interest reflected on the Partnership's balance
sheet as "Minority interest in joint venture". The net investment in the
unconsolidated joint venture is recorded on the Partnership's balance sheet as
"Investment in unconsolidated joint venture", with the summarized financial data
of the unconsolidated joint venture presented in footnote 3 to the Partnership's
consolidated financial statements. The Partnership's share of equity, income and
distributions (if any) are also presented in the footnote. The Partnership's
share of income of the non-consolidated joint venture is reflected on the
statement of operations as income from investment in joint venture. Because the
Partnership's share of the joint venture is pari passu with the other joint
venturer, the impact on net income is the same as if the joint venture were
consolidated.
Partnership Activities During 2001 - During the year ended December 31,
2001, the Partnership purchased equipment subject to leases for purchase prices
aggregating $41,666,367 (including initial direct costs).
The acquisitions were as follows:
(i) An aircraft simulator acquired in the first quarter of 2001, leased to an
unaffiliated third party for a term scheduled to expire in March 2006, for
a purchase price of $13,232,105, of which $10,830,109 was provided by the
assumption of non-recourse debt and the balance of $2,401,996 provided from
available cash;
(ii) Retail signage equipment purchased in the second quarter of 2001 for
$4,250,000, subject to a lease with an unaffiliated third party, scheduled
to expire in June 2005. The purchase was paid for with cash;
(iii)An engine module, purchased in the second quarter of 2001, subject to a
lease with an unaffiliated third party, scheduled to expire in May 2008,
for a purchase price of $5,950,000, of which $1,911,210 was provided by the
assumption of non recourse debt with the balance of $4,038,790 paid for
with cash; and
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
(iv) Retail photography development equipment, purchased throughout the year
with scheduled lease expirations ranging from May 2006 to January 2007, for
purchase prices aggregating $18,234,262, of which $17,552,542 was provided
by the assumption of non-recourse debt and the balance of $681,720 paid for
with cash.
Additionally, the Partnership invested $2,406,128 in an unguaranteed
residual and $2,100,000 ($400,000 of which was provided by a 8.5% recourse note)
for an option to purchase an aircraft. Finally, the Partnership had placed cash
totaling $13,723,196 in various escrow accounts for three transactions scheduled
to be completed in 2002. Two of the proposal transactions were cancelled and
$7,623,196 of the escrowed funds were returned to the Partnership.
Results of Operations for the Period Ended December 31, 2002 and 2001
Revenues for the year ended December 31, 2002 (the "2002 Period") were
$25,467,361 representing an increase of $5,235,365 over the year ended December
31, 2001. The increase in revenue resulted from continued purchase of equipment
subject to lease. Increases in rental income of $4,803,096, finance income of
$410,134, income from investment in joint venture of $337,653, and gain on sale
of equipment of $182,794, were partially off-set by a decrease in interest
income and other of $170,971 and gain from sale of investment in joint venture
to an affiliate of $327,341. During the 2002 Period the Partnership sold
equipment from the Cheyenne portfolio for total proceeds of $2,341,096 which
resulted in a gain of $275,489.
Expenses for 2002 were $25,604,258 representing an increase of $6,192,371
over 2001. The increase in expenses resulted from the increase in the size of
the Partnership's lease portfolio, an increase in the Partnership's borrowing
levels and overall growth in size of the operations of the Partnership from one
year ago and is consistent with the Partnership's level of operations.
Depreciation expense increased by $2,490,519, due to the additional
investments in operating leases made subsequent to 2001. Interest expense
increased by $2,239,253 due to the additional debt used to acquire investments
in operating leases subsequent to 2001. Management fees - General Partner
increased by $793,042 and administrative expense reimbursements - General
Partner increased by $393,851 in 2002 as compared to 2001. The increase in
management fees was consistent with increases in rentals (including operating
leases, finances leases and through joint ventures) on which such fees are
dependant. The increase in administrative expense reimbursements - General
Partner was consistent with the increase in operating activities of the
Partnership. Minority interest expense increased by $19,754, amortization of
initial direct costs increased by $76,169 and general and administrative
expenses increased by $179,783 in 2002 period as compared to 2001.
Net (loss) income for the year ended 2002 and 2001 was ($136,897) and
$820,109, respectively. The net (loss) income per weighted average limited
partnership unit outstanding was ($.18) and $1.62 for 2002 and 2001,
respectively.
The increase in depreciation expense, interest expense, management
fees-General Partner and administrative expense reimbursements which reduced net
income in 2002 as compared to 2001 was the primary reason for the net loss for
the year ended December 31, 2002.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
As of December 31, 2002 there were no known trends or demands, commitments,
events or uncertainties, which are likely to have any material effect on net
revenues and the results of operations.
Results of Operations for the Period Ended December 31, 2001 and 2000
The Partnership was formed on February 7, 2000 and commenced operations
upon the first admission of limited partners on June 14, 2000. Because the
Partnership began operations in June 2000, was raising additional capital
through the issuance of units until the offering was completed in October 2001,
and invested such proceeds in additional leased equipment throughout the 2001
year, the 2001 and 2000 operating results are not comparable. The results of
operations for 2001 and 2000 are consistent with the level of acquisition of
lease equipment completed and the terms of the leases and related borrowings.
Rental income (from operating leases) increased by $17,035,827, from
$164,361 in 2000 to $17,200,188 in 2001, attributable primarily to receiving a
full year of rent in 2001 on equipment purchased in the second half of 2000 for
total purchase prices of $76,284,645 (including initial direct costs) as well as
equipment acquired in 2001 for purchase prices totaling $19,744,804 (including
initial direct costs) partially offset by the sale of equipment in 2001 which
was originally acquired for $872,881.
Finance lease income increased by $1,812,235 from $521,406 in 2000 to
$2,333,641 in 2001. This was primarily attributable to the full year effect of
finance leases acquired in the third and fourth quarters of 2000. Additionally
during 2001 the Partnership acquired equipment subject to finance leases
totaling $18,234,162, on lease to Kmart, Inc. ("Kmart") (see item 7A, Liquidity
and Capital Resources for a discussion of Kmart's bankruptcy and its effect on
the Partnership). The Kmart leases began generating finance lease income in
2001.
During 2001, the Partnership recognized a gain on a sale of an investment
in a joint venture to an affiliate of $327,341 and gains on the sales of
equipment of $92,695.
During 2001, the Partnership recognized income from an investment in a
joint venture with an affiliate of $43,953. The Partnership made its investment
in the joint venture in 2001 and sold the investment in the joint venture late
in 2001 for a gain (see above).
Interest income was $234,178 in 2001 as compared to $56,535 in 2000 due to
an increase (primarily from the proceeds of the offering) of amounts available
for investment, partially offset by a decline in interest rates.
Depreciation expense increased in 2001 by $11,568,595, from $111,940 in
2000 to $11,680,535 in 2001 due to the full year effect in 2001 of investments
in operating leases acquired in 2000 as well as the effect of investments in
operating leases completed in 2001.
Interest expense increased in 2001 by $4,886,339, from $123,815 in 2000 to
$5,010,154 in 2001 due principally to the increase in acquisition indebtedness.
During 2001, the Partnership incurred additional non-recourse indebtedness of
$30,293,861. This was partially offset by a reduction in the outstanding debt
under the variable rate line of credit from $7,000,000 at December 31, 2000 to
$2,500,000 at December 31, 2001, and a decline in interest rates under the line
of credit. Further the Partnership repaid non-recourse indebtedness by
$13,939,491 in 2001 in accordance with the related payment schedules.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Management fees - General Partner increased by $1,252,497 from $92,140 in
2000 to $1,344,637 in 2001. This increase is consistent with the increase in
lease payments on which such fees are based.
Administrative expense reimbursements - General Partner increased by
$535,540, from $37,441 in 2000 to $572,981 in 2001 and is consistent with the
Partnership's increased level of operations.
Amortization of initial direct costs increased $179,238, from $33,510 in
2000 to $212,748 in 2001 due the full year effect of amortizing such costs on
acquisitions completed.
General and administrative expenses increased in 2001 by $348,747, from
$51,576 in 2000 to $400,323 in 2001 which was consistent with the Partnership's
increased level of operations. The Partnership acquired equipment throughout the
second half of 2000 and throughout 2001.
Net income for 2001 was $820,109 as compared to $291,236 in 2000 and net
income per weighted average limited partnership unit was $1.62 in 2001 compared
to $2.18 in 2000.
Liquidity and Capital Resources
The Partnership's primary source of liquidity for 2002 was access to debt
associated with the Partnerships investments in unconsolidated joint ventures in
the amount of $35,138,367 and consolidated subsidiaries of $70,495,058. In
addition, the Partnership had cash provided by operating activities of
$4,490,451, and the Partnership received funds from the return of $13,723,196
from cash held in escrow and proceeds from non-recourse borrowings of
$3,593,693.
During the quarter ended June 30, 2002, the Partnership entered into a
$17,500,000 joint and several line of credit agreement dated as of May 30, 2002
shared with ICON Income Fund Eight A L.P. and L. P. Seven (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,
5.25% at December 31, 2002) 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 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
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. The expiration date of this line of credit is
May 31, 2003. The Partnership violated a financial covenant at December 31, 2002
creating an Event of Default. The bank granted a waiver to the Partnership with
respect to this Event of Default. As of December 31, 2002, there were no
borrowings by the Partnership under the line. Aggregate borrowing by all Funds
under the line of credit agreement aggregated $9,731,310 on December 31, 2002.
Such funds were utilized for investments in leases and joint ventures, with
related costs aggregating $14,102,611, (including initial direct costs
(acquisition fees) of $3,498,611), repayment of amounts outstanding under a line
of credit of $2,500,000, and cash to make cash distributions to partners of
$8,138,359. As cash is realized from operations and with proceeds from
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.
During 2002, the Partnership and an affiliate, Fund Nine, have formed
several joint ventures for the purpose of acquiring and managing various assets.
The Partnership and Fund Nine 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 the affiliate
desires to sell its interest in the equipment or in the joint venture. In the
instance where the Partnership is not the majority owner, the investment is
accounted for following the equity method. Where the Partnership is the majority
owner, the joint venture is consolidated, with the other joint venturer's
interest reflected on the Partnership's balance sheet as "Minority interest in
joint venture". The net investment in the unconsolidated joint venture is
recorded on the Partnership's balance sheet as "Investment in unconsolidated
joint venture", with the summarized financial data of the unconsolidated joint
venture presented in footnote 3 to the Partnership's consolidated financial
statements. The Partnership's share of equity, income and distributions (if any)
are also presented in the footnote. The Partnership's share of income of the
non-consolidated joint venture is reflected on the statement of operations as
income from investment in joint venture. Because the Partnership's share of the
joint venture is pari passu with the other joint venturer, the impact on net
income is the same as if the joint venture were consolidated.
Cash distributions to limited partners for 2002 and 2001, which were paid
monthly, totaled $8,056,975 and $4,932,964, respectively.
As of December 31, 2002 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 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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS No. 143") which is effective for fiscal
years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Partnership
does not expect that the adoption of SFAS No. 143 will have a material impact on
its financial position, results of operations or cash flows.
Effective January 1, 2002, the Partnership adopted SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). This statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future net
cash flows expected to be generated by the asset. If the carrying amount of the
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment or in a distribution to
the owners) or classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less the costs to
sell. The adoption of SFAS No. 144 did not have any effect on the Partnership's
financial position or results of operations as the provisions of SFAS No. 144
are similar to the Partnership's current policy for impairment review.
Effective January 1, 2002, the Partnership adopted SFAS No. 145, "Recession
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS No. 145"). SFAS No. 145 amends SFAS No. 13
Accounting for Leases to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002,
the adoption of which did not have a material effect on the Partnership's
financial statements.
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). The standard
replaced Emerging Issues Task Force (EITF) issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" and requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is effective prospectively to exit or disposal activities initiated
after December 31, 2002. The impact on the Partnership's financial statement
from the application of this standard is dependent on any exit or disposal
activities in 2003.
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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
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. Except as discussed below, the Partnership believes its
exposure to other market risks is insignificant to both its financial position
and results of operations.
The Partnership manages its interest rate risk by obtaining fixed rate debt
for the majority of its borrowings. The fixed rate debt service obligation
streams are generally matched by fixed rate lease receivable streams generated
by the Partnership's lease investments.
The Partnership manages its exposure to equipment and residual risk by
monitoring the equipment leasing market and maximizing re-marketing proceeds
through either re-leasing or sale of equipment.
Kmart, Inc., ("Kmart") with whom the Partnership has five leases, filed for
Chapter 11 bankruptcy protection in January 2002. The Partnership's finance
leases with Kmart were acquired during 2001 for an aggregate of $18,234,262,
comprised of a total cash investment of $681,720 and the assumption of
$17,552,542 of non-recourse debt. The bankruptcy court has not ruled on the
affirmation of the leases as of the date of this report. Through March 1, 2003,
Kmart has made all scheduled rental payments.
Regus Business Center Corp. ("Regus"), with whom the Partnership has an
equipment lease, filed for Chapter 11 bankruptcy protection in the United States
of America on January 14, 2003. The Partnership's finance leases with Regus were
acquired in July 2000 at a cost of $5,303,089, and the total lease receivable is
$2,734,738 as of December 31, 2002. Regus has not paid January or February rents
for 2003, and management is currently negotiating an amended lease agreement
whereby Regus will commence making payments on March 15, 2003 continuing for
forty eight months at a new reduced rental rate.
As of December 31, 2002, both Kmart and Regus are current with their
scheduled lease payments, therefore management deems an allowance for doubtful
accounts unnecessary.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2002
Item 8. Consolidated Financial Statements and Supplementary Data
--------------------------------------------------------
Index to Financial Statements
Page Number
Independent Auditors' Reports 18-19
Consolidated Balance Sheets as of December 31, 2002 and 2001 20
Consolidated Statements of Operations for the Years Ended December 31, 2002, 2001
and for the Period February 7, 2000 (date of inception) to December 31, 2000 21
Consolidated Statements of Changes in Partners' Equity for the Years Ended
December 31, 2002, 2001 and for the Period February 7, 2000 (date of
inception) to December 31, 2000 22-23
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001
and for the Period February 7, 2000 (date of inception) to December 31, 2000 24-26
Notes to Consolidated Financial Statements 27-42
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Financial Statements
December 31, 2002
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITOR'S REPORT
The Partners
ICON Income Fund Eight B L.P.:
We have audited the accompanying consolidated balance sheet of ICON Income Fund
Eight B L.P. (a Delaware limited partnership) as of December 31, 2002 and the
related consolidated statements of operations, changes in partners' equity and
cash flows for the year then ended. 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 Unites 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 financial position of ICON Income Fund
Eight B L.P. as of December 31, 2002 and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Hays & Company LLP
------------------------
Hays & Company LLP
March 13, 2003
New York, New York
INDEPENDENT AUDITOR'S REPORT
The Partners
ICON Income Fund Eight B L.P.:
We have audited the accompanying consolidated balance sheet of ICON Income Fund
Eight B L.P. (a Delaware limited partnership) as of December 31, 2001, and the
related consolidated statements of operations, changes in partners' equity, and
cash flows for the year ended December 31, 2001 and for the period from February
7, 2000 (date of inception) to December 31, 2000. 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 B L.P. as of December 31, 2001, and the results of its operations and its
cash flows for the year ended December 31, 2001 and for the period from February
7, 2000 (date of inception) to December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
-----------------
KPMG LLP
April 15, 2002
New York, New York
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
2002 2001
---- ----
Assets
Cash and cash equivalents $ 8,499,026 $ 5,684,652
---------------- ---------------
Investments in finance leases
Minimum rents receivable 24,504,820 32,769,190
Estimated unguaranteed residual values 2,711,893 2,711,893
Initial direct costs, net 457,189 746,106
Unearned income (3,824,928) (6,568,703)
---------------- ---------------
23,848,974 29,658,486
---------------- ---------------
Investments in operating leases
Equipment, at cost 166,325,943 95,156,568
Accumulated depreciation (23,591,192) (11,456,484)
---------------- ---------------
142,734,751 83,700,084
---------------- ----------------
Equipment held for sale or lease 1,211,669 -
---------------- ---------------
Cash held in escrow - 13,723,196
Investment in unguaranteed residual values 2,342,589 2,406,128
Investment in option 2,100,000 2,100,000
Investments in unconsolidated joint ventures 7,290,793 -
Due from affiliates 3,532 3,730,884
Other assets, net 1,377,413 2,915,266
---------------- ---------------
Total assets $ 189,408,747 $ 143,918,696
================ ===============
Liabilities and Partners' Equity
Notes payable - non-recourse $ 133,231,339 $ 76,852,204
Notes payable - recourse 400,000 2,900,000
Due to affiliates 224,167 -
Deferred rental income 534,840 -
Security deposits and other liabilities 863,059 1,269,603
Minority interest in joint ventures 1,334,947 1,684,289
---------------- ---------------
136,588,352 82,706,096
----------------- ---------------
Commitment and Contingencies
Partners' equity (deficiency)
General Partner (125,713) (42,960)
Limited Partners (748,445.85 and 750,000 units
outstanding, $100 per unit original issue price) 52,946,108 61,255,560
---------------- ---------------
Total partners' equity 52,820,395 61,212,600
---------------- ---------------
Total liabilities and partners' equity $ 189,408,747 $ 143,918,696
================ ===============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Years Ended December 31, 2002, 2001 and for the Period from
February 7, 2000 (date of inception) to December 31, 2000
2002 2001 2000
---- ---- ----
Revenues
Rental income $ 22,003,284 $ 17,200,188 $ 164,361
Finance income 2,743,775 2,333,641 521,406
Gain from sale of investment in
joint venture to an affiliate - 327,341 -
Interest income and other 63,207 234,178 56,535
Net gains on sales of equipment 275,489 92,695 -
Income from investment in
unconsolidated joint ventures 381,606 43,953 -
--------------- ---------------- ---------------
Total revenues 25,467,361 20,231,996 742,302
--------------- ---------------- ---------------
Expenses
Depreciation 14,171,054 11,680,535 111,940
Interest 7,249,407 5,010,154 123,815
Management fees - General Partner 2,137,679 1,344,637 92,140
Administrative expense
reimbursements - General Partner 966,832 572,981 37,441
General and administrative 580,106 400,323 51,576
Amortization of initial direct costs 288,917 212,748 33,510
Minority interest expense 210,263 190,509 644
--------------- ---------------- ---------------
Total expenses 25,604,258 19,411,887 451,066
--------------- ---------------- ---------------
Net (loss) income $ (136,897) $ 820,109 $ 291,236
=============== ================ ===============
Net (loss) income allocable to:
Limited partners $ (135,528) $ 811,908 $ 288,324
General partner (1,369) 8,201 2,912
--------------- ---------------- ---------------
$ (136,897) $ 820,109 $ 291,236
=============== ================ ===============
Weighted average number of limited
partnership units outstanding 749,475 502,536 132,049
=============== ================ ===============
Net (loss) income per weighted average
limited partnership unit $ (.18) $ 1.62 $ 2.18
=============== =============== ===============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity
For the Years Ended December 31, 2002, 2001 and for the Period from
February 7, 2000 (date of inception) to December 31, 2000
Limited Partner Distributions
-----------------------------
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- ------- -----
(Per weighted average unit)
Initial partners'
capital contribution $ 1,000 $ 1,000 $ 2,000
Refund of initial
limited partners'
capital contribution (1,000) - (1,000)
Proceeds from issuance
of limited partnership
units (219,813.65 units) 21,981,365 - 21,981,365
Sales and offering expenses (2,967,484) - (2,967,484)
Cash distributions to partners $ 1.88 $ 2.18 (536,708) (5,228) (541,936)
Net income 288,324 2,912 291,236
--------------- ------------ --------------
Balance at
December 31, 2000 18,765,497 (1,316) 18,764,181
Proceeds from issuance
of limited partnership
units (530,186.35 units) 53,018,635 - 53,018,635
Sales and offering expenses (6,407,516) - (6,407,516)
Cash distributions to partners $ 8.20 $ 1.62 (4,932,964) (49,845) (4,982,809)
Net income 811,908 8,201 820,109
--------------- ------------ --------------
Balance at
December 31, 2001 61,255,560 (42,960) 61,212,600
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Changes in Partners' Equity (Continued)
For the Years Ended December 31, 2002, 2001 and for the Period from
February 7, 2000 (date of inception) to December 31, 2000
Limited Partner Distributions
-----------------------------
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- ------- -----
(Per weighted average unit)
Limited partnership units
redeemed (1,554.15 units) (116,949) - (116,949)
Cash distributions to partners $ 10.75 $ - (8,056,975) (81,384) (8,138,359)
Net loss (135,528) (1,369) (136,897)
--------------- ------------ --------------
Balance at
December 31, 2002 $ 52,946,108 $ (125,713) $ 52,820,395
=============== ============ ==============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and for the Period from
February 7, 2000 (date of inception) to December 31, 2000
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net (loss) income $ (136,897) $ 820,109 $ 291,236
--------------- --------------- ---------------
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Finance income paid directly to lenders by lessees (1,351,387) (732,737) -
Depreciation 14,171,054 11,680,535 111,940
Amortization of initial direct costs 288,917 212,748 33,510
Minority interest expense 210,263 190,509 644
Gain from sale of investment in joint venture - (327,341) -
Income from investment in joint venture to
an affiliate (381,606) (43,953) -
Net gains on sales of equipment (275,489) (92,695) -
Rental income paid directly to lender by lessees (19,268,406) (16,181,472) -
Interest expense on non-recourse financing
paid directly by lessees 6,822,451 4,620,569 -
Changes in operating assets and liabilities:
Collection of principal -
non-financed receivables 2,438,584 3,148,917 906,374
Other assets, net 1,537,853 (214,459) (463,781)
Due to affiliates 224,167 - -
Due from affiliates 82,651 (86,183) -
Deferred rental income 534,840 - -
Security deposits and other liabilities (406,544) 917,220 352,383
---------------- --------------- ---------------
Total adjustments 4,627,348 3,091,658 941,070
--------------- --------------- ---------------
Net cash provided by operating activities 4,490,451 3,911,767 1,232,306
--------------- --------------- ---------------
Cash flows used in investing activities:
Proceeds from sales of equipment 2,341,096 629,514 -
Distribution received from unconsolidated joint venture 1,252,443 - -
Receipt of cash held in escrow 13,723,196 (13,723,196) -
Equipment purchased (4,250,000) (11,372,506) (24,415,212)
Investment in option - (1,700,000) -
Proceeds from sale of unguaranteed residual 63,539 - -
Investment in joint venture (4,516,929) (3,273,407) -
Investment in unguaranteed residual values - (2,406,128) -
Initial direct costs paid (2,242,352) (1,239,802) (2,386,693)
Prepaid initial direct costs included in other assets - (2,237,025) -
Distribution to minority interest in joint venture (559,605) - -
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 5,811,388 (35,322,550) (26,801,905)
--------------- --------------- ---------------
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2002, 2001 and for the Period from
February 7, 2000 (date of inception) to December 31, 2000
2002 2001 2000
---- ---- ----
Cash flows from financing activities:
Proceeds from non-recourse borrowings 3,593,693 - -
Issuance of limited partnership units,
net of offering expenses - 46,611,119 19,013,881
Initial limited partners' capital contributions - - 2,000
Refund initial limited partners' contribution - - (1,000)
Proceeds from notes payable - recourse - 2,500,000 7,000,000
Payment of notes payable - recourse (2,500,000) (7,000,000) -
Payment of non-recourse borrowings (325,850) (1,348,581) (80,776)
Cash distributions to partners (8,138,359) (4,982,809) (541,936)
Redemption of limited partnership units (116,949) - -
Minority interests in consolidated joint ventures - - 1,493,136
--------------- --------------- ---------------
Net cash (used in) provided
by financing activities (7,487,465) 35,779,729 26,885,305
--------------- --------------- ---------------
Net increase in cash and cash equivalents 2,814,374 4,368,946 1,315,706
Cash and cash equivalents at beginning of the period 5,684,652 1,315,706 -
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 8,499,026 $ 5,684,652 $ 1,315,706
=============== =============== ===============
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows (Continued)
Supplemental Disclosure of Cash Flow Information
For the years ended December 31, 2002, 2001 and the period from February 7,
2000 (date of inception) to December 31, 2000 non-cash activities included the
following:
2002 2001 2000
---- ---- ----
Value of equipment and receivables to
purchase equipment for debt $ 70,495,058 $ 30,693,861 $ 60,578,610
Non-recourse notes payable and promissory
note assumed in purchase prices (70,495,058) (30,693,861) (60,578,610)
---------------- --------------- ----------------
$ - $ - $ -
================ =============== ================
Principal and interest on direct finance receivables
paid directly to lenders by lessees $ 4,937,811 $ 1,030,007 $ -
Rental income on operating lease receivables paid 19,268,406 16,181,472 -
directly to lenders by lessees
Principal and interest paid directly to lenders by lessees
paid annually to lenders by lessees (24,206,217) (17,211,479) -
---------------- --------------- ----------------
$ - $ - $ -
================ =============== ================
Interest paid directly to lenders by lessees pursuant to
non-recourse financings $ 6,822,451 $ 4,620,569 -
Interest accrued - 66,710 -
Other interest paid 426,956 322,875 123,815
---------------- --------------- ----------------
Total interest expense $ 7,249,407 $ 5,010,154 $ 123,815
================ =============== ================
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2002, 2001 and 2000
1. Organization
ICON Income Fund Eight B L.P. (the "Partnership") was formed on February 7,
2000 as a Delaware limited partnership with an initial capitalization of $2,000.
It was primarily formed to acquire various types of equipment subject to lease
with third parties. The Partnership's maximum offering was $75,000,000. The
Partnership commenced business operations on its initial closing date, June 14,
2000, with the admission of limited partners representing 15,815.51 limited
partnership units at the offering price of $100 per unit aggregating $1,581,551
of capital contributions. As of October 17, 2001 (the final closing date),
734,184.49 additional units had been admitted into the Partnership with
aggregate gross proceeds of $73,418,449 bringing the total admission to 750,000
units totaling $75,000,000 in capital contributions. The Partnership redeemed
1,554.15 units during 2002, leaving 748,445.85 limited partnership units
outstanding at December 31, 2002.
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 from the gross proceeds from sales of all units. The
General Partner received organization and offering expenses from the gross
proceeds of such sales 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 13.5% of gross proceeds up to $25,000,000, 12.5% of gross proceeds
from $25,000,001 to $50,000,000 and 11.5% of gross proceeds from $50,000,001 to
$75,000,000. Such offering expenses aggregated $9,375,000, including $2,166,025
and $1,208,975 paid to the General Partner or its affiliates in 2001 and 2000,
respectively (see Note 9) and were charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be
allocated 99% to the limited partners and 1% to the General Partner until each
limited partner has received cash distributions and disposition proceeds
sufficient to reduce its adjusted capital contribution account to zero and
receive, in addition, other distributions and allocations which would provide 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
Basis of Accounting and Presentation - The Partnership's records are
maintained on the accrual basis. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires the General Partner's 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 include the allowance for doubtful assets and
unguaranteed residual values. Management believes that the estimates and
assumptions utilized in preparing its financial statements are reasonable and
prudent. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
ICON Income Fund Eight B L.P. (A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned subsidiaries. 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 thereafter.
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 or operating leases, as
appropriate. For finance leases, the Partnership records, at the inception of
the lease, the total minimum lease payments receivable, the estimated
unguaranteed residual values, the initial direct costs related to the leases and
the related unearned income. Unearned income represents the difference between
the sum of the minimum lease payments receivable plus the estimated unguaranteed
residual minus the cost of the leased equipment. Unearned income is recognized
as finance income over the terms of the related leases following 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 and 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. Initial 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.
Equipment Held for Sale or Lease - This equipment is carried at cost, less
accumulated depreciation, subject to the Partnership's impairment policy
discussed below.
Investments in 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 market value, subject to the Partnership's
policy relating to impairments of residuals. Gains or losses will be recognized
upon the sale or disposition of the investments.
Investments in Options - The Partnership carries its investment in an
option to purchase equipment at cost, which is equal to or less than market
value, subject to the Partnership's policy relating to impairment. Gain or loss
will be recognized upon the sale or disposition of the investment.
Impairment of Estimated Residual Values - The Partnership's policy with
respect to impairment of estimated residual values is to review, on a periodic
basis, the carrying value of its residuals on an individual asset basis to
determine whether events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable and, therefore, an impairment loss
should be recognized. The events or changes in circumstances which generally
indicate that the residual value of an asset has been impaired are (i) the
estimated fair value of the underlying equipment is less than the Partnership's
carrying value or (ii) the lessee is experiencing financial difficulties and it
does not appear likely that the estimated proceeds from disposition of the asset
will be sufficient to satisfy the remaining obligation to the non-recourse
lender and the Partnership's residual position. Generally in the latter
situation, the residual position relates to equipment subject to third party
non-recourse notes payable where the lessee remits their rental payments
directly to the lender and the Partnership does not recover its residual until
the non-recourse note obligation is repaid in full.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated 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 re-lease or sale of the equipment. Generally,
third party appraisals, reviews of future cash flows and anticipated future cash
flows and detailed market analyses are used as the basis for measuring whether
an impairment loss should be recognized.
Allowance for Doubtful Accounts - 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 for 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, 2001 and 2000
with respect to the Partnership's assets and liabilities is not provided because
(i) SFAS No. 107 does not require disclosures about the fair value of lease
arrangements and (ii) the carrying value of financial assets, other than lease
related investments, and certain other payables approximates market value and
(iii) fair value information concerning certain non-recourse debt obligations is
not practicable to estimate without incurring excessive costs to obtain all the
information that would be necessary to derive a market interest rate.
Redemption of Limited Partnership Units - The General Partner consented to
the Partnership redeeming 1,554.15 units during 2002. The redemption amounts are
calculated following the specified redemption formula in accordance with the
Partnership Agreement. Redeemed 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 units may not be reissued. Redeemed
limited partnership units are accounted for as a deduction 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.
Reclassification - Certain items from prior years have been reclassified to
conform to the presentation used in 2002.
New Accounting Pronouncements - In June 2001, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143")
which is effective for fiscal years beginning after June 15, 2002. SFAS No. 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The Partnership does not expect that the adoption of SFAS No. 143 will
have a material impact on its financial position, results of operations or cash
flows.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Effective January 1, 2002, the Partnership adopted the SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). This statement requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to the future net
cash flows expected to be generated by the asset. If the carrying amount of the
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. SFAS No. 144 requires companies to separately report
discontinued operations and extends that reporting to a component of an entity
that either has been disposed of (by sale, abandonment or in a distribution to
the owners) or classified as held for sale. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less the costs to
sell. The adoption of SFAS No. 144 did not have any effect on the Partnership's
financial position or results of operations as the provisions of SFAS No. 144
are similar to the Partnership's current policy for impairment review.
Effective January 1, 2002, the Partnership adopted SFAS No. 145, "Recession
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS No. 145"). SFAS No. 145 amends SFAS No. 13
Accounting for Leases to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002,
the adoption of which did not have a material effect on the Partnership's
financial statements.
On July 30, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). The standard
replaced Emerging Issues Task Force (EITF) issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" and requires
companies to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the standard include lease termination costs
and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is effective prospectively to exit or disposal activities initiated
after December 31, 2002. The impact on the Partnership's financial statement
from the application of this standard is dependent on any exit or disposal
activities in 2003.
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. Consolidated Ventures and Investments in Unconsolidated Joint Ventures
The Partnership and its affiliates formed six 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 B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Consolidated Ventures
The two joint ventures described below are majority owned and are
consolidated with the Partnership.
ICON Cheyenne LLC
-----------------
In December 2000, the Partnership and three affiliates, ICON Cash Flow
Partners L.P. Six ("L.P. Six"), ICON Cash Flow Partners L.P. Seven ("L.P.
Seven") and ICON Income Fund Eight A L.P. ("Fund Eight A") formed ICON Cheyenne
LLC ("ICON Cheyenne") for the purpose of acquiring a portfolio of leases for an
aggregate purchase price of $29,705,716, which was paid with cash of $11,401,151
and the assumption of non-recourse debt with an unaffiliated third party lenders
of $18,304,565. The debt is structured to be amortized from the application to
the debt of rentals due under the various leases. The leases expire on various
dates through September 2006. The Partnership, L.P. Seven, L.P. Six and Fund
Eight A have ownership interests of 87.69%, 10.31%, 1.0% and 1.0%, respectively,
in ICON Cheyenne.
The Partnership's consolidated financed statements include 100% of the
assets and liabilities as well as 100% of the related revenues and expenses of
ICON Cheyenne. The interests of L.P. Seven, L.P. Six and Fund Eight A in ICON
Cheyenne have been reflected as minority interests in joint ventures on the
consolidated balance sheets and minority interest expense on the consolidated
statements of operations.
ICON Aircraft 24846, LLC
------------------------
In 2000, the Partnership and two affiliates, L.P. Seven and Fund Eight A
formed ICON Aircraft 24846 LLC ("ICON Aircraft 24846") for the purpose of
acquiring an investment in an aircraft leased to a commercial airline for a
purchase price of $44,515,416, which was funded with cash of $2,241,371 and
non-recourse debt of $42,274,045. The rents and the aircraft have been assigned
to the non-recourse lender. The lease is scheduled to expire in March 2003, at
which time the balance of the non-recourse debt outstanding is scheduled to be
approximately $34,500,000. The Partnership is currently negotiating a lease
agreement with another overseas based airline. Upon termination of the current
lease, the aircraft will first be upgraded before re-leasing. The Partnership,
L.P. Seven and Fund Eight A have ownership interests of 96.0%, 2.0% and 2.0%,
respectively, in ICON Aircraft 24846.
The Partnership's consolidated financial statements include 100% of the
assets and liabilities of ICON Aircraft 24846 as well as 100% of the related
revenues and expenses. L.P. Seven and Fund Eight A's interest in ICON Aircraft
24846 have been reflected as minority interests in joint ventures on the
consolidated balance sheets and minority interest expense on the consolidated
statements of operations.
Investments in Unconsolidated Joint Ventures
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.
The four joint ventures described below are 50%, 49%, 5% and 15% owned by
the Partnership and are accounted for under the equity method.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
ICON Aircraft 126, LLC
----------------------
In early 2002, the Partnership and ICON Income Fund Nine LLC ("Fund Nine")
formed ICON Aircraft 126 LLC ("ICON 126") for the purpose of acquiring all of
the outstanding shares of Delta Aircraft Leasing Limited ("D.A.L."), a Cayman
Islands registered company, which owns, through an Owner Trust, an Airbus
A340-313X aircraft which is on lease to Cathay Pacific through March 2006. The
stock was acquired for $4,250,000 in cash. The aircraft owned by D.A.L. is
subject to non-recourse debt provided by unaffiliated lenders. As of December
31, 2002, there was $67,277,879 outstanding under the non-recourse debt.
The Partnership and Fund Nine each own a 50% interest in ICON 126. ICON 126
consolidates the financial position and results of operations of D.A.L. in its
financial statements.
The Partnership's original investment in ICON 126 was recorded at a cost of
$3,242,901, inclusive of related acquisition fees of $1,117,901.
Information as to the consolidated financial position and results of
operations of ICON 126 as of and for the year ended December 31, 2002 is
summarized below:
December 31, 2002
Assets $ 74,332,428
===============
Liabilities $ 67,598,170
===============
Equity $ 6,734,258
===============
Partnership's share of equity $ 3,367,129
===============
For the Year Ended
December 31, 2002
Net income $ 248,456
===============
Partnership's share of net income $ 124,228
===============
ICON SPK 2023-A, LLC
--------------------
In the quarter ended March 31, 2002, the Partnership and Fund Nine formed
ICON SPK 2023-A, LLC ("ICON SPK") for the purpose of acquiring a portfolio of
leases for an aggregate purchase price of $7,750,000 in cash. The leases expire
on various dates commencing April 2003 through April 2008.
The Partnership and Fund Nine have ownership interests of 49% and 51%,
respectively. The Partnership accounts for its investment following the equity
method. The Partnership's original investment was recorded at a cost of
$3,797,500 and is adjusted for its share of earnings, losses, and distributions
thereafter.
In June 2002, the Partnership paid ICON SPK $113,925 for its pro-rata share
of the acquisition fees.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Information as to the financial position and results of operations of ICON
SPK as of and for the year ended December 31, 2002 is summarized below:
December 31, 2002
-----------------
Assets $ 6,452,790
===============
Liabilities $ 522,168
===============
Equity $ 5,930,622
===============
Partnership's share of equity $ 2,906,004
===============
For the Year Ended
December 31, 2002
-----------------
Net income $ 504,129
===============
Partnership's share of net income $ 247,022
===============
Distributions $ 2,556,006
===============
Partnership's share of distributions $ 1,252,443
===============
ICON/Kenilworth LLC
-------------------
On September 30, 2002, the Partnership and Fund Nine formed ICON/Kenilworth
LLC for the purpose of acquiring a natural gas-fired 25MW co-generation facility
for a total purchase price of $8,630,000 in cash, with an assumed non-recourse
debt of $7,658,892, consisting of a senior debt of $7,420,156 and a junior debt
of $238,736. The facility is subject to a lease with Energy Factors Kenilworth,
Inc., and the lease expires in July 2004. In addition, there was a total of
$459,843 in acquisition fees paid to the General Partner.
Subsequent to the closing of the acquisition, the purchase price was
adjusted by the following amounts. The cash amount was reduced to $8,410,000 and
the non-recourse debt was reduced to $6,918,091, with an adjustment of $740,801
to the senior debt.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The Partnership and Fund Nine have ownership interests of 5% and 95%,
respectively. The Partnership accounts for the investment following the equity
method. The Partnership's original investment was recorded at a cost of
$443,492, inclusive of related acquisition fees of $22,992 and is adjusted for
its share of earnings, losses and distributions thereafter.
Information as to the financial position of ICON/Kenilworth LLC as of
December 31, 2002 is summarized below:
December 31, 2002
Assets $ 15,157,182
===============
Liabilities $ 6,109,365
===============
Equity $ 9,047,817
===============
Partnership's share of equity $ 452,391
===============
For the Year Ended
December 31, 2002
Net income $ 177,974
===============
Partnership's share of net income $ 8,899
===============
ICON Aircraft 46835, LLC
------------------------
In December 2002, the Partnership and Fund Nine formed ICON Aircraft 46835,
LLC ("ICON 46835") for the purpose of acquiring an investment in a McDonnell
Douglas DC-10-30F aircraft leased to a global provider of transportation for a
purchase price of $25,291,593, which was funded with cash of $3,000,000 and
non-recourse debt of $22,291,593. The rents and the aircraft have been assigned
to the non-recourse lender. The lease is scheduled to expire in March 2007, at
which time the balance of the non-recourse debt outstanding is scheduled to be
approximately $2,708,000. In addition, there was a total of $758,748 in
acquisition fees paid to the General Partner of which the Partnership's share
was $113,812.
The Partnership and Fund Nine have ownership interests of 15% and 85%
respectively. The Partnership accounts for the investment following the equity
method. The Partnership's original investment was recorded at a cost of $450,000
inclusive of related acquisition fees of $113,812 and is adjusted for its share
of earnings, losses, and distributions thereafter.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Financial Statements - Continued
Information as to the financial position and results of operations of ICON
46835 as of and for the year ended December 31, 2002 is summarized below:
December 31, 2002
Assets $ 26,071,518
===============
Liabilities $ 22,303,057
===============
Equity $ 3,768,461
===============
Partnership's share of equity $ 565,269
===============
For the Year Ended
December 31, 2002
Net income $ 9,715
===============
Partnership's share of net income $ 1,457
===============
Seacor Joint Ventures
---------------------
On July 13, 2001, the Partnership and L.P. Seven formed three joint
ventures known as "ICON/Janson Graham LLC," "ICON/Pearl Graham LLC" and "ICON
Amanda Graham LLC", the three of which are referred to collectively as the
"Seacor Joint Ventures". L.P. Seven contributed three offshore supply vessels
(one to each of the Seacor Joint Ventures) with a net book value and approximate
market value of $7,595,271, and the Partnership contributed $3,273,407 in cash
into the Seacor Joint Ventures. The Partnership and L.P. Seven received 30.12%
and 69.88% ownership interests, respectively, in each of the Seacor Joint
Ventures as a result of these contributions.
The Partnership had the right during the first year of the Seacor Joint
Ventures to sell any of its three joint venture interests to L.P. Seven at a
price equal to 110% of its outstanding investment balance for any vessel that
did not generate rental revenue for a three month period. All three vessels were
off-lease for part of the third quarter and the entire fourth quarter of 2001.
On December 31, 2001 the Partnership exercised its right and sold its interests
in the Seacor Joint Ventures back to L.P. Seven for $3,644,701 representing 110%
of its outstanding investment balance which amount is included in due from
affiliates on the balance sheet as of December 31, 2001. The Partnership
recognized a net gain of $327,341 on the sale of its joint venture investment
and $43,953 as its share of income from the joint venture during 2001.
4. Investments in Unguaranteed Residual Values
During the year ended December 31, 2001, the Partnership acquired residual
interests in a portfolio of technology and other equipment leases for
$2,406,128. Leases in this portfolio have expiration dates ranging from March
2003 through March 2005.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
5. Investment in Option
In the fourth quarter of 2001, the Partnership invested $2,100,000
(including $900,000 in acquisition fees paid to the General Partner) for an
option, which expires in 2012, to purchase a Boeing 737-524 aircraft on lease to
a United States based commercial airline. The purchase price of the option
includes an 8.5% $400,000 promissory note which matures in May 2012. The
exercise price of the option decreases periodically according to a predetermined
schedule over the term of the option from $30 million in 2001 to $9 million in
2012.
6. Finance Lease Receivables
Non-cancelable minimum annual amounts receivable on finance leases are as
follows:
Year Ending
December 31,
------------
2003 $ 8,773,388
2004 7,607,104
2005 4,737,432
2006 3,048,481
2007 338,415
----------------
$ 24,504,820
================
Included in the above table are scheduled payments of $16,090,450 and
$2,734,738 with respect to equipment on lease to Kmart, Inc. and Regus Business
Center Corp., respectively. (See Note 10)
7. Investments in Operating Leases
In the fourth quarter of 2000, the Partnership, through a consolidated
joint venture, ICON Aircraft 24846, acquired an aircraft leased to a commercial
airline for a purchase price of $44,515,416, which amount was funded with
$2,241,371 of cash and $42,274,045 in floating rate non-recourse notes payable.
The lease, which expires in March 2003, provides for rental payment amounts to
match the non-recourse floating rate debt obligation secured by the lease and
the aircraft (see Note 8) until March 2003, at which time the balance of the
related non-recourse debt outstanding is scheduled to be approximately
$34,500,000. The Partnership is currently negotiating a lease payment agreement
with another overseas based airline. Upon termination of current lease, the
aircraft will first be upgraded before re-leasing. The outstanding balance at
December 31, 2002 is $35,419,214. Also in the fourth quarter of 2000, the
Partnership acquired, through ICON Cheyenne, a portfolio of various types of
equipment leased to several lessees. The purchase price of this portfolio
totaled $29,705,716 of which $11,401,151 was provided in cash and $18,304,565
was provided in non-recourse debt.
In the first quarter of 2001, the Partnership acquired an aircraft
simulator leased to an unaffiliated third party for a purchase price of
$13,232,105, subject to a lease. Rental payment amounts under this lease are
paid directly to the lender who is secured by this lease and the related
equipment. In the second quarter of 2001, the Partnership acquired aircraft
engine modules, which are leased to a commercial airline, for a purchase price
$5,950,000, $1,911,210 of which was provided by a non-recourse note.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
In early 2002, the Partnership formed ICON Aircraft 123 LLC ("ICON 123") as
a wholly owned subsidiary for the purpose of acquiring all of the outstanding
shares of Alpha Aircraft Leasing Limited ("A.A.L."), a Cayman Islands registered
company, which owns, through an Owner Trust, an Airbus A340-313X aircraft which
is on lease to Cathay Pacific through March 2006. The stock was acquired in the
first quarter of 2002 for $4,250,000 in cash. The aircraft owned by Alpha is
subject to non-recourse debt provided by unaffiliated lenders. The lenders have
a security interest in the aircraft and an assignment of the rentals under the
lease. The fair value of the aircraft was $75,263,566 at the date of acquisition
and the principal balance of the debt was $70,495,058 at such date.
The investment in operating leases at December 31, 2002 and 2001 consisted
of the following:
2002 2001
---- ----
Equipment cost, beginning of year $ 95,156,568 $ 76,284,645
Equipment acquisitions 75,263,566 19,182,105
Initial direct costs 2,242,352 562,699
Equipment dispositions (6,336,543) (872,881)
-------------- --------------
Equipment cost, end of year 166,325,943 95,156,568
-------------- -------------
Accumulated depreciation, beginning of year (11,456,484) (111,940)
Accumulated depreciation on
equipment dispositions 2,036,346 335,991
Depreciation expense (14,171,054) (11,680,535)
-------------