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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 2003
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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
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(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, 2003
TABLE OF CONTENTS
Item Page
- ---- ----
PART I
1. Business 3-4
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Securities and Related
Security Holder Matters 4
6. Selected Financial Data 5
7. General Partner's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
7A. Qualitative and Quantitative Disclosures About Market Risk 13
8. Consolidated Financial Statements 14-37
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 38
9A. Controls and Procedures 38
PART III
10. Directors and Executive Officers of the Registrant's
General Partner 38-39
11. Executive Compensation 39
12. Security Ownership of Certain Beneficial Owners
and Management 40
13. Certain Relationships and Related Transactions 40
14. Principal Accounting Fees and Services
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K 40-41
SIGNATURES 42
Certifications 43-46
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
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
2,954.46 and 1,554.15 units during 2003 and 2002, respectively leaving
745,491.39 limited partnership units outstanding at December 31, 2003.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner manages and controls
the business affairs of the Partnership including equipment, leases and
financing transactions under a management agreement with the Partnership.
Segment Information
The Partnership has only one operating segment: the business of acquiring
and managing equipment subject to leases with companies that the Partnership
believes to be creditworthy.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal
objective of the Partnership is to obtain the maximum economic return from its
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, 2003, 2002 and
2001. During 2003, equipment leased to Cathay Pacific and BAE Systems PLC
generated 33% and 10% of total revenue, respectively. 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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
The Partnership has no direct employees. The General Partner has full and
exclusive discretion in management and control of the Partnership.
Lease and Finance Transactions
In 2003 the Partnership did not invest individually in any lease or finance
transactions. However, the Partnership invested in a joint venture with an
affiliate, ICON Income Fund Nine LLC for acquiring a McDonnell Douglas DC 10-30F
aircraft subject to lease with Fedex Corporation. (See Note 3 to the
consolidated financial statements).
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 A.A.L. 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.
Item 2. Properties
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The Partnership neither owns nor leases office space or equipment for the
purpose of managing its day-to-day affairs.
Item 3. Legal Proceedings
-----------------
The Partnership, from time-to-time, in the ordinary course of business,
commences legal actions when necessary to protect or enforce the rights of the
Partnership. We are not a defendant party to any litigation and are not aware of
any pending or threatened litigation against the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
The Partnership's limited partnership interests are not publicly traded nor
is there currently a market for the Partnership's limited partnership units. It
is unlikely that any such market will develop.
Number of Equity Security Holders
Title of Class as of February 29, 2004
-------------- -----------------------
Limited Partners 2,814
General Partner 1
The Partnership made cash distributions to the partners for 2003 and 2002
on a monthly basis, totaling , $7,078,646 and $8,138,359 for the respective
years. For the year 2004, the Partnership has since made cash distributions of
$1,480,759 to the partners.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 6. Selected Consolidated Financial Data
------------------------------------
Year Ended December 31,
-----------------------
2003 2002 2001 2000
---- ---- ---- ----
Total revenue $ 25,150,087 $ 25,467,361 $ 20,231,996 $ 742,302
================ =============== =============== ===============
Net income $ (5,181,209) $ (136,897) $ 820,109 $ 291,236
================ =============== =============== ===============
Net income allocable to limited partners $ (5,129,397) $ (135,528) $ 811,908 $ 288,324
================ =============== =============== ===============
Net income allocable to the General Partner $ (51,812) $ (1,369) $ 8,201 $ 2,912
================ =============== =============== ===============
Weighted average limited
partnership units outstanding 747,189 749,475 502,536 $ 132,049
================ =============== =============== ===============
Net income per weighted average
limited partnership unit $ (6.86) $(.18) $ 1.62 $ 2.18
================ =============== =============== ===============
Distributions to limited partners $ 7,008,299 $ 8,056,975 $ 4,932,964 $ 536,708
================ =============== =============== ===============
Distributions per weighted average
limited Partnership units $ 9.32 $10.75 $ 9.82 $ 4.06
================ =============== =============== ===============
Distributions to the General Partner $ 70,347 $ 81,384 $ 49,845 $ 5,228
================ =============== =============== ===============
December 31,
------------
2003 2002 2001 2000
---- ---- ---- ----
Total assets $ 180,747,120 $ 189,408,747 $ 143,918,696 $ 88,108,178
================ =============== =============== ==============
Notes payable $ 134,938,722 $ 133,631,339 $ 79,752,204 $ 67,497,834
================ =============== =============== ==============
Partners' equity $ 40,363,969 $ 52,820,395 $ 61,212,600 $ 18,764,181
================ =============== =============== ==============
For the year 2003, the Partnership though realizing revenues approximating
that of 2002, had an increase in depreciation expense with the addition of an
aircraft subject to lease with Fedex Corporation. Depreciation expense for this
aircraft was approximately $4.1 million.
The selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in Item 8 of this
report.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - The following discussion and analysis should
be read in conjunction with the audited consolidated financial statements
included herein. Certain statements within this document may constitute
forward-looking statements made pursuant to the safe harbor provision of the
Private Securities Litigation Reform Act of 1995. These statements are
identified by words such as "anticipate," "believe," "estimate," "expects,"
"intend," "predict" or "project" and similar expressions. This information may
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Although the Partnership
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected.
Overview - The results of operations reflect the risk factors outlined in
the Partnership's prospectus. Such risk factors include, but are not limited to,
the decline in the value of the Partnership's equipment, no guarantee of
profitability, the potential of lessee default, and economic factors such as
prevailing interest rates. These risk factors affect the Partnership's ability
to realize income, in that they increase the Partnership's expenses by way of
additional depreciation, impairment loss, and provision for bad debts. In
addition, depending on the size of the portfolio and the amount of equipment
purchased by the Partnership during the Reinvestment Period the risk factors
outlined above could negatively impact the cash flow.
During the year ended December 31, 2003, our attention was primarily
focused on identifying investments which met our investment criteria in order to
seize of acquisition opportunities. Management anticipates that substantially
all revenues will be generated from the rentals derived from the equipment on
lease, re-financing of existing transactions, and proceeds from the sale of
equipment. Our most significant challenges and risks in the future include our
ability to continue to identify leases involving business-essential equipment on
lease to creditworthy lessees.
The U.S. economy appears to be recovering and the leasing industry's
outlook for 2004 is encouraging. Many experts foresee an increase in capital
spending by corporations through 2007 which should increase the pool of
available secondary market leases, and to that end, the Partnership is seeing
more opportunities in this market. Nonetheless, a key obstacle still facing the
leasing industry is the continued low interest rate environment, which reduces
leasing volume inasmuch as customers are more prone to purchase than lease.
However, as economic growth may continue and interest rates may begin to rise
over time, more lessees are expected to return to the marketplace.
The Partnership - The Partnership was formed on 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
2,954.46 and 1,554.15 units during 2003 and 2002, respectively leaving
745,491.39 limited partnership units outstanding at December 31, 2003.
The Partnership's portfolio consists of net investments in operating
leases, investments in finance leases, equipment held for sale or lease,
off-lease, investments in estimated unguaranteed residual values, investment in
option, and equity investments in unconsolidated joint ventures, representing
85%, 8%, 1%, 1%, 1%, and 4% of total assets at December 31, 2003, respectively,
and 75%, 13%, 1%, 1%, 1%, and 4% of total portfolio interests at December 31,
2002, respectively.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
Results of Operations for the Year Ended December 31, 2003 and 2002
Revenues for the year ended December 31, 2003 (the "2003 Period") were
$25,150,087 representing a decrease of $317,274 from the year ended December 31,
2002 (the "2002 Period"). The decrease in revenue resulted primarily from a
decrease in finance income of $730,499. The decrease in revenues was partially
offset by an increase in net gain on sale of equipment of $523,001. The decrease
in finance income resulted from the continued collection of minimum lease
rentals reducing the investment balance outstanding on which such revenues are
based. Net gain on sale of equipment increased due to the sale of equipment in
the fourth quarter of the 2003 Period not present in the 2002 Period. During the
2003 Period, the Partnership sold equipment from the portfolio of leases held by
the joint venture ICON Cheyenne LLC for total proceeds of $691,556, and realized
a gain of $36,400. In addition, the Partnership sold equipment from its
portfolio for total proceeds of $3,670,921 for a gain of $762,856.
Expenses for the 2003 Period were $30,331,296 representing an increase of
$4,727,038 over the 2002 Period. The primary reasons for the increase in
expenses were that depreciation expense increased by $2,725,409 due to
additional investments in operating leases made subsequent to the 2002 Period
and additional depreciation taken on equipment held for sale or lease. Interest
expense increased $236,792 due to the assumption of additional debt related to
the additional investments in operating leases. General and administrative
expenses along with vessel maintenance increased by $1,217,372 due to increased
marketing activities and maintenance expense associated with the Boeing 767-300
ER aircraft that was previously leased to Scandinavian Airline Systems. (See
Note 3 to the consolidated financial statements). An impairment loss of $900,000
was recorded on operating equipment held in one of the Partnership's
consolidated joint ventures. The Partnership also recognized an impairment loss
of $900,000 in 2003. The increase in expenses were partially offset by a
decrease in Management fees - General Partner of $128,809 and administrative
expense reimbursements - General Partner of $30,227 due to the overall decrease
in the average size of the Partnership's lease portfolio in one of the
Partnership's consolidated joint ventures in the 2003 Period as compared to the
2002 Period and minority interest in consolidated joint ventures decreased by
$359,824.
Net loss for the years ended December 31, 2003 and 2002 was $5,181,209 and
$136,897, respectively. The net loss per weighted average limited partnership
unit outstanding was $6.86 and $0.18 for, the years ended December 31 2003 and
2002, respectively.
As of December 31, 2003 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 Year Ended December 31, 2002 and 2001
Revenues for the 2002 Period were $25,467,361 representing an increase of
$5,235,365 over the year ended December 31, 2001 (the "2001 Period"). 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 portfolio of leases held by the joint venture ICON Cheyenne LLC for
total proceeds of $2,341,096 which resulted in a gain of $275,489.
Expenses for the 2002 Period were $25,604,258 representing an increase of
$6,192,371 over the 2001 Period. 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 the 2001 Period to the 2002 Period and is consistent with
the Partnership's level of operations.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
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 the 2002 Period as compared to the 2001 Period.
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 the 2002 Period as compared to
the 2001 Period.
Net (loss) income for the years ended December 31, 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 the years
ended December 31, 2002 and 2001, respectively.
The increase in depreciation expense, interest expense, management
fees-General Partner and administrative expense reimbursements - General Partner
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.
As of December 31, 2003 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.
Liquidity and Capital Resources
The Partnership's primary sources of funds for the year ended December 31,
2003 were proceeds from the sale of its investment in unguaranteed residual
values totaling $1,933,003, proceeds recourse from notes payable of $2,000,000
advances received and, proceeds from the sale of equipment of $5,720,100 and
distributions received from unconsolidated joint venture of $1,245,127.
The Partnership's cash flow from operating activities may be less than the
Partnership's current level of expenses. To the extent that cash flow is
insufficient to pay such expenses, the Partnership may be required to sell
assets prior to maturity or borrow against future cash flows.
Such funds were utilized for investments in leases and joint ventures, with
related costs aggregating $3,076,564, (including initial direct costs
(acquisition fees) of $736,766), payments of non-recourse borrowings of
$5,179,053 payments of notes payable-recourse of $400,000 and to make cash
distributions to partners of $7,078,646. 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.
On May 30, 2002, the Partnership entered into a $17,500,000 joint and
several line of credit agreement shared with Cash Flow Partners L.P. Seven and
Fund Eight-A L.P. (the "Initial Funds"), with Comerica Bank as lender. Under the
terms of the agreement, the Partnership may borrow at a rate equal to the
Comerica Bank base rate plus 1% (together, 5.00% at December 31, 2003) and all
borrowings are to be jointly and severally collateralized by the present values
of rents receivable and equipment owned by all of the Initial Funds sharing in
the joint line of credit. On December 12, 2002, the agreement was amended to
admit Income Fund Nine LLC, 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
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
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 Contribution Agreement are
collateralized by a subordinate lien on the assets of each participating Fund.
The line of credit was extended for twelve additional months expiring May 31,
2004. As of December 31, 2003, the Partnership had $2,000,000 outstanding under
the line. Aggregate borrowing by all Funds under the line of credit agreement
aggregated $12,779,986 on December 31, 2003.
The Partnership has the following contractual obligations as of December
31, 2003. These obligations arise mainly from the acquisition of equipment
subject to lease. Rental payments from the leases associated with equipment are
assigned to paydown such obligations.
Payments Due By Period
----------------------
Total 2004 2005 2006 2007 2008
----- ---- ---- ---- ---- ----
Long-term obligation (Notes payable) $134,938,722 $53,193,700 $16,403,542 $61,812,697 $2,731,787 $796,996
See Note 8 to the consolidated financial statements, as set forth in Part
II, Item 8, Consolidated Financial Statements for information regarding
non-recourse debt.
Cash distributions to limited partners for 2003 and 2002, which were paid
monthly, totaled $7,008,299 and $8,056,975, respectively.
As of December 31, 2003 there were no known trends or demands, commitments,
events or uncertainties apart from those mentioned above which are likely to
have any material effect on liquidity. As cash is realized from operations and
additional borrowings, the Partnership will continue to invest in equipment
leases and financings where it deems it to be prudent while retaining sufficient
cash to meet its reserve requirements and recurring obligations.
We do not consider the impact of inflation to be material in the analysis
of our overall operations.
Critical Accounting Policies and Management Estimates
The policies discussed below are considered by the General Partner to be
critical to an understanding of the Partnership's financial statements because
their application places the most significant demands on the General Partner's
judgments, with financial reporting results relying on estimation about the
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, the General Partner cautions that future events rarely
develop exactly as forecast, and the best estimates routinely require
adjustment.
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the dates of the financial statements and
revenues and expenses during the reporting periods. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
Leases and Revenue Recognition - The Partnership accounts for owned
equipment leased to third parties as finance leases, leveraged leases, or
operating leases, as appropriate. Initial direct costs are capitalized and are
amortized over the terms of the related leases using the interest method.
For finance leases, the Partnership records, at the inception of the lease,
the total minimum lease payments receivable, the estimated unguaranteed residual
values, the initial direct costs related to the leases and the related unearned
income. Unearned income represents the difference between the sum of the minimum
lease payments receivable plus the estimated unguaranteed residual minus the
cost of the leased equipment. Unearned income is recognized as finance income
over the terms of the related leases using the interest method.
The Partnership's net investment in leveraged leases consists of minimum
lease payments receivable, the estimated unguaranteed residual values and the
initial direct costs related to the leases, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income from leveraged leases over the life of the lease at a
constant rate of return on the positive net investment.
For operating leases, equipment is recorded and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
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 fair value, subject to the Partnership's
policy relating to impairments of residuals as discussed below. Gains or losses
will be recognized upon the sale or disposition of the investments.
Investments in Options - The Partnership carries its investment in an
option to purchase equipment at cost, which is equal to or less than fair 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 - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates of undiscounted future rents. The residual value assumes, among
other things, that the asset is utilized normally in an open, unrestricted and
stable market. Short-term fluctuations in the market place are disregarded and
it is assumed that there is no necessity either to dispose of a significant
number of the assets simultaneously, if held in quantity, or to dispose of the
asset quickly. Impairment is measured as the difference between the fair value
of the assets and its carrying value on the measurement date.
Credit Risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
The Partnership records a provision for doubtful accounts to provide for
estimated credit losses in its portfolio. The allowance for doubtful accounts is
based on an analysis of delinquency, an assessment of overall risk and a review
of historical loss experience. The Partnership's write-off policy is based on an
analysis of the aging of the Partnership's portfolio, a review of the
non-performing receivables and leases, and prior collection experience. An
account is fully reserved for or written-off when the analysis indicates that
the probability of collection of the account is remote.
Partnership Activities During 2003 - During 2003, the Partnership and an
affiliate, ICON Income Fund Nine, LLC ("Fund Nine"), formed a joint venture for
the purpose of acquiring a McDonnell Douglas DC 10-30F aircraft subject to lease
with Fedex Corporation. 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.
The Partnership is the majority owner and 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". (See Note 3 to the consolidated
financial statements.)
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 A.A.L. 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.
Also during 2002, the Partnership and Fund Nine, formed several joint
ventures for the purpose of acquiring and managing various assets. 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. 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". In the
instance where the Partnership is not the majority owner, the investment is
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
accounted for following the equity method. 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 Note 3 to the Partnership's
consolidated financial statements. The Partnership's share of equity, income and
distributions (if any) are also presented in Note 3. 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.
Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. The
Statement requires that contracts with comparable characteristics be accounted
for similarly and clarifies when a derivative contains a financing component
that warrants special reporting in the statement of cash flows. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except in
certain circumstances, and for hedging relationships designated after June 30,
2003. The adoption of this standard did not have a material effect on the
Partnership's financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Partnership's financial
position or results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity is required to consolidate the entity if the company's interest in the
VIE is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the entity's expected residual returns, if any.
VIE's created after January 31, 2003, but prior to January 1, 2004, may be
accounted for either based on the original interpretation or the Revised
Interpretations. However, the Revised Interpretations must be applied no later
than the first quarter of fiscal year 2004. VIE's created after January 1, 2004
must be accounted for under the Revised Interpretations. There has been no
material impact to the Partnership's financial statements and there is no
expected impact from the adoption of the deferred provisions in the first
quarter of fiscal year 2004.
The Partnership does not believe that any other recently issued, but not
yet effective, accounting standards will have a material effect on the Company's
financial position or results of operations.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
December 31, 2003
Item 8. Consolidated Financial Statements
---------------------------------
Index to Financial Statements
Page Number
-----------
Independent Auditors' Reports 16-17
Consolidated Balance Sheets as of December 31, 2003 and 2002 18
Consolidated Statements of Operations for the Years Ended December 31, 2003, 2002
and 2001 19
Consolidated Statements of Changes in Partners' Equity for the Years Ended
December 31, 2001, 2002 and 2003 20
Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002
and 2001 21-23
Notes to Consolidated Financial Statements 24-37
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Financial Statements
For the Years Ended December 31, 2003
(With Independent Auditors' Reports Thereon)
The Partners
ICON Income Fund Eight B L.P.
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying consolidated balance sheet of ICON Income Fund
Eight B L.P. (a Delaware limited partnership) and subsidiaries as of December
31, 2003 and 2002 and the related consolidated statements of operations, changes
in partners' equity and cash flows for each of the two years in the period ended
December 31, 2003. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 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. and subsidiaries as of December 31, 2003 and 2002 and the results
of their operations and their cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Hays & Company LLP
March 19, 2004
New York, New York
Independent Auditors' Report
----------------------------
The Partners
ICON Income Fund Eight B L.P.:
We have audited the accompanying consolidated statements of operations,
partners' equity, and cash flows of ICON Income Fund Eight B L.P. (a Delaware
limited partnership) for the year ended December 31, 2001. These consolidated
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the results of the operations and the cash
flows of ICON Income Fund Eight B L.P. for the year ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America.
/s/KPMG LLP
April 15, 2002
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 2003 and 2002
2003 2002
---- ----
Assets
Cash and cash equivalents $ 1,760,803 $ 8,499,026
---------------- ---------------
Investments in finance leases
Minimum rents receivable 15,192,886 24,504,820
Estimated unguaranteed residual values 1,737,662 2,711,893
Initial direct costs, net 194,985 457,189
Unearned income (1,974,924) (3,824,928)
---------------- ---------------
15,150,609 23,848,974
---------------- ----------------
Investments in operating leases
Equipment, at cost 192,627,477 166,325,943
Accumulated depreciation (39,374,434) (23,591,192)
---------------- ----------------
153,253,043 142,734,751
---------------- --------------
Equipment held for sale or lease, net 311,669 1,211,669
---------------- ---------------
Investment in unguaranteed residual values 409,586 2,342,589
Investment in option 2,100,000 2,100,000
Investments in unconsolidated joint ventures 6,382,227 7,290,793
Due from affiliates, net 167,170 3,532
Other assets, net 1,212,013 1,377,413
----------------- ---------------
Total assets $ 180,747,120 $ 189,408,747
================ ===============
Liabilities and Partners' Equity
Notes payable - non-recourse $ 132,938,722 $ 133,231,339
Notes payable - recourse 2,000,000 400,000
Due to affiliates, net 98,203 224,167
Deferred rental income 1,255,076 534,840
Equipment sales advances 1,361,506 402,926
Security deposits and other liabilities 1,377,023 460,133
Minority interest in consolidated joint ventures 1,352,621 1,334,947
---------------- ---------------
140,383,151 136,588,352
---------------- ---------------
Commitment and Contingencies
Partners' equity (deficiency)
General Partner (247,872) (125,713)
Limited Partners (745,491.39 and 748,445.85 units
outstanding, $100 per unit original issue price) 40,611,841 52,946,108
---------------- ---------------
Total partners' equity 40,363,969 52,820,395
---------------- ---------------
Total liabilities and partners' equity $ 180,747,120 $ 189,408,747
================ ===============
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, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Revenues
Rental income $ 21,965,472 $ 22,003,284 $ 17,200,188
Finance income 2,013,276 2,743,775 2,333,641
Gain from sale of investment in
joint venture to an affiliate - - 327,341
Interest income and other 30,857 63,207 234,178
Net gains on sales of equipment 798,490 275,489 92,695
Income from investment in
unconsolidated joint ventures 341,992 381,606 43,953
--------------- --------------- ---------------
Total revenues 25,150,087 25,467,361 20,231,996
--------------- --------------- ---------------
Expenses
Depreciation 16,896,463 14,171,054 11,680,535
Impairment loss 900,000 - -
Interest 7,486,199 7,249,407 5,010,154
Management fees - General Partner 2,008,870 2,137,679 1,344,637
Administrative expense
reimbursements - General Partner 936,605 966,832 572,981
Aircraft maintenance 745,872 - -
General and administrative 1,277,570 580,106 400,323
Amortization of initial direct costs 229,278 288,917 212,748
Minority interest expense (149,561) 210,263 190,509
Total expenses 30,331,296 25,604,258 19,411,887
--------------- ---------------- ---------------
Net (loss) income $ (5,181,209) $ (136,897) $ 820,109
=============== ================ ===============
Net (loss) income allocable to:
Limited partners $ (5,129,397) $ (135,528) $ 811,908
General partner (51,812) (1,369) 8,201
--------------- ---------------- ---------------
$ (5,181,209) $ (136,897) $ 820,109
=============== ================= ===============
Weighted average number of limited
partnership units outstanding 747,189 749,475 502,536
=============== ================ ===============
Net (loss) income per weighted average
limited partnership unit $ (6.86) $ (.18) $ 1.62
=============== =============== ===============
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, 2001, 2002 and 2002
Limited Partner Distributions
-----------------------------
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- ------- -----
(Per weighted average unit)
Balance at
January 1, 2001 $ 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
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
Limited partnership units
redeemed (2,954.46 units) (196,571) - (196,571)
Cash distributions to partners $ 9.32 $ - (7,008,299) (70,347) (7,078,646)
Net loss (5,129,397) (51,812) (5,181,209)
--------------- ------------ ------------
Balance at
December 31, 2003 $ 40,611,841 $ (247,872) $ 40,636,969
=============== ============ =============
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, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net (loss) income $ (5,181,209) $ (136,897) $ 820,109
--------------- --------------- ---------------
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating activities:
Finance income paid directly to lenders by lessees (1,087,564) (1,351,387) (732,737)
Depreciation 16,896,463 14,171,054 11,680,535
Impairment loss 900,000 - -
Amortization of initial direct costs 229,278 288,917 212,748
Minority interest expense (149,561) 210,263 190,509
Gain from sale of investment in joint venture - - (327,341)
Income from investment in unconsolidated
joint venture (341,992) (381,606) (43,953)
Net gains on sales of equipment (798,490) (275,489) (92,695)
Rental income paid directly to lender by lessees (20,680,057) (19,268,406) (16,181,472)
Interest expense on non-recourse financing
paid directly by lessees 5,987,533 6,822,451 4,620,569
Changes in operating assets and liabilities:
Collection of principal -
non-financed receivables 1,853,879 2,438,584 3,148,917
Due from affiliates, net (163,638) 224,167 -
Other assets, net 165,400 1,537,853 (214,459)
Due to affiliates, net (125,964) 82,651 (86,183)
Deferred rental income 175,090 534,840 -
Security deposits and other liabilities 513,964 (406,544) 917,220
------------- ------------- ------------
Total adjustments 3,374,341 4,627,348 3,091,658
------------- ------------- ------------
Net cash (used in) provided by operating activities (1,806,868) 4,490,451 3,911,767
------------- ------------- ------------
Cash flows from investing activities:
Proceeds from sales of equipment 4,358,594 1,938,170 629,514
Advances received for sale of equipment 1,361,506 402,926 -
Distribution received from unconsolidated joint ventures 1,245,127 1,252,443 -
Receipt of cash held in escrow - 13,723,196 (13,723,196)
Equipment purchased (3,076,564) (4,250,000) (11,372,506)
Investment in option - (1,700,000)
Proceeds from sale of unguaranteed residual 1,933,003 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)
Prepaid initial direct costs included in other assets - - (2,237,025)
Distribution to minority interest in joint venture (288,269) (559,605) -
------------- ------------- ------------
Net cash provided by (used in) investing activities 5,533,397 5,811,388 (35,322,550)
------------- ------------- ------------
(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, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
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
Proceeds from notes payable - recourse 2,000,000 - 2,500,000
Payment of notes payable - recourse (400,000) (2,500,000) (7,000,000)
Payment of non-recourse borrowings (5,179,053) (325,850) (1,348,581)
Cash distributions to partners (7,078,646) (8,138,359) (4,982,809)
Redemption of limited partnership units (196,571) (116,949) -
Minority interest contributions, net 389,518 - -
--------------- --------------- ---------------
Net cash (used in) provided
by financing activities (10,464,752) (7,487,465) 35,779,729
Net (decrease) increase in cash and cash equivalents (6,738,223) 2,814,374 4,368,946
Cash and cash equivalents at beginning of the year 8,499,026 5,684,652 1,315,706
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 1,760,803 $ 8,499,026 $ 5,684,652
=============== =============== ===============
(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, 2003, 2002 and 2001.
2003 2002 2001
---- ---- ----
Value of equipment and receivables acquired in
exchange for debt $ 24,211,080 $ 70,495,058 $ 30,693,861
---------------- --------------- ----------------
Non-recourse notes payable and promissory
note assumed in purchase of equipment and receivables (24,211,080) (70,495,058) (30,693,861)
---------------- --------------- ----------------
$ - $ - $ -
================ ================ ================
Principal and interest on direct finance receivables
paid directly to lenders by lessees $ 4,086,974 $ 4,937,811 $ 1,030,007
Rental income on operating lease receivables paid
directly to lenders by lessees 20,680,057 19,268,406 16,181,472
Deferred income on operating lease receivables paid
directly to lenders by lessees 545,146 - -
Principal and interest paid directly to lenders by lessees (25,312,177) (24,206,217) (17,211,479)
---------------- --------------- ---------------
$ - $ - $ -
================ ================ ================
Interest paid directly to lenders by lessees pursuant to
non-recourse financings $ 5,987,533 $ 6,822,451 $ 4,620,569
Interest accrued 200,000 - 66,710
Other interest paid 1,298,666 426,956 322,875
---------------- ---------------- ----------------
Total interest expense $ 7,486,199 $ 7,249,407 $ 5,010,154
================ =============== ================
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, 2003, 2002 and 2001
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
2,954.46 and 1,554.15 units during 2003 and 2002, respectively leaving
745,491.39 limited partnership units outstanding at December 31, 2003.
The Partnership is an equipment leasing income fund. The principal
objective of the Partnership is to obtain the maximum economic return from its
equipment leasing investments. To achieve this objective, the Partnership: (1)
invests in a diversified portfolio of low obsolescence equipment having long
lives and high residual values; (2) makes periodic cash distributions to its
partners, continuing through the Reinvestment Period, which will end on October
17, 2009; (3) re-invest substantially all undistributed cash from operations and
cash from sales of equipment and financing transactions during the Reinvestment
Period; and (4) sell the Partnership's investments and distribute the cash from
sales of such investments to its partners after the end of the Reinvestment
Period.
The General Partner of the Partnership is ICON Capital Corp. (the "General
Partner"), a Connecticut corporation. The General Partner manages and controls
the business affairs of the Partnership's equipment, leases and financing
transactions under a management agreement with the Partnership.
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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
2. Significant Accounting Policies
Use of Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Significant estimates
primarily include the allowance for doubtful accounts and unguaranteed residual
values. In addition, management is required to disclose contingent assets and
contingent liabilities. Actual results could differ from those estimates.
Consolidation - The consolidated financial statements include the accounts
of the Partnership and its majority owned 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.
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. Initial direct costs are capitalized and are amortized over the
terms of the related leases using the interest method.
For finance leases, the Partnership records, at the inception of the lease,
the total minimum lease payments receivable, the estimated unguaranteed residual
values, the initial direct costs related to the leases and the related unearned
income. Unearned income represents the difference between the sum of the minimum
lease payments receivable plus the estimated unguaranteed residual minus the
cost of the leased equipment. Unearned income is recognized as finance income
over the terms of the related leases using the interest method.
For operating leases, equipment is recorded and depreciated on the
straight-line method over the lease term to its estimated residual value at
lease termination and is subject to the Partnership's impairment policy. Related
lease rentals are recognized on the straight line method over the lease terms.
Billed and uncollected operating lease receivables are included in other assets.
Equipment Held for Sale or Lease - This equipment is carried at cost, less
accumulated depreciation, subject to the Partnership's impairment policies
discussed below.
Investments in Options - The Partnership carries its investment in an
option to purchase equipment at cost, which is equal to or less than fair 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 - Residual values of the Partnership's asset portfolio are
periodically reviewed to determine whether events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. The events
or changes in circumstances which generally indicate that the residual value of
an asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than the Partnership's carrying value or (ii) the lessee is
experiencing financial difficulties and it does not appear likely that the
estimated proceeds from disposition of the asset will be sufficient to satisfy
the remaining obligation to the non-recourse lender and the Partnership's
residual position. Generally in the latter situation, the residual position
relates to equipment subject to third party non-recourse notes payable where the
lessee remits their rental payments directly to the lender and the Partnership
does not recover its residual until the non-recourse note obligation is repaid
in full.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
An impairment loss is measured and recognized only if the estimated
undiscounted future cash flows of the asset are less than their net book value.
The estimated undiscounted future cash flows are the sum of the estimated
residual value of the asset at the end of the asset's expected holding period
and estimates of undiscounted future rents. The residual value assumes, among
other things, that the asset is utilized normally in an open, unrestricted and
stable market. Short-term fluctuations in the market place are disregarded and
it is assumed that there is no necessity either to dispose of a significant
number of the assets, simultaneously if held in quantity, or to dispose of the
asset quickly. Impairment is measured as the difference between the fair value
of the assets and its carrying value on the measurement date.
Credit Risk - Financial instruments that potentially subject the
Partnership to concentrations of credit risk include cash and cash equivalents,
direct finance lease receivables and accounts receivable. The Partnership places
its cash deposits and temporary cash investments with creditworthy, high quality
financial institutions. The concentration of such deposits and temporary cash
investments is not deemed to create a significant risk to the Partnership.
Accounts receivable represent amounts due from lessees in various industries,
related to equipment on operating and direct financing leases.
The Partnership records a provision for doubtful accounts to provide for
estimated credit losses in its portfolio. The allowance for doubtful accounts is
based on an analysis of delinquency, an assessment of overall risk and a review
of historical loss experience. The Partnership's write-off policy is based on an
analysis of the aging of the Partnership's portfolio, a review of the
non-performing receivables and leases, and prior collection experience. An
account is fully reserved for or written-off when the analysis indicates that
the probability of collection of the account is remote.
Investments in Unguaranteed Residual Values - The Partnership carries its
investments in the future estimated unguaranteed residual values of assets at
recovered cost, which is equal to or less than fair 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.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Values of Financial
Instruments," requires disclosures about the fair value of financial
instruments, except for lease related assets and liabilities. Separate
disclosure of fair value information as of December 31, 2003 and 2002 with
respect to the Partnership's assets and liabilities is not separately provided
since (i) SFAS No. 107 does not require fair value disclosures of lease
arrangements and (ii) the carrying value of financial assets, other than lease
related investments, and the recorded value of payables approximates market
value.
Redemption of Limited Partnership Units - The General Partner consented to
the Partnership redeeming 2,954.46 and 1,554.15 units during 2003 and 2002,
respectively. 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.
Reclassifications - Certain items from prior years have been reclassified
to conform to the 2003 classifications.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Recent Accounting Pronouncements - In April 2003, the FASB issued SFAS No.
149, Amendment of Statement 133 on Derivative Instruments and Hedging
Activities. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. The Statement requires
that contracts with comparable characteristics be accounted for similarly and
clarifies when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003, except in certain
circumstances, and for hedging relationships designated after June 30, 2003. The
adoption of this standard did not have a material effect on the Company's
financial position or results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures in its
statements of financial position certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a financial instrument that is within its scope as a liability (or an
asset in some circumstances) because that financial instrument embodies an
obligation of the issuer. This Statement is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, except for
mandatorily redeemable financial instruments of nonpublic entities. For
nonpublic entities, the effective date of the provisions of SFAS No. 150 that
relate to mandatorily redeemable financial instruments has been deferred until
fiscal years that begin after December 31, 2003. The adoption of this standard
is not expected to have a material effect on the Company's financial position or
results of operations.
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, an Interpretation of ARB No. 51. In December 2003, the FASB issued a
revision to FIN 46, or Revised Interpretation, to clarify some of the provisions
of FIN 46. FIN 46 provides guidance on how to identify a variable interest
entity, or VIE, and determine when the assets, liabilities, non-controlling
interests, and results of operations of a VIE must be included in a company's
consolidated financial statements. A company that holds variable interests in an
entity is required to consolidate the entity if the company's interest in the
VIE is such that the company will absorb a majority of the VIE's expected losses
and/or receive a majority of the entity's expected residual returns, if any.
VIEs created after January 31, 2003, but prior to January 1, 2004, may be
accounted for either based on the original interpretation or the Revised
Interpretations. However, the Revised Interpretations must be applied no later
than the first quarter of fiscal year 2004. VIEs created after January 1, 2004
must be accounted for under the Revised Interpretations. There has been no
material impact to the Company's financial statements and there is no expected
impact from the adoption of the deferred provisions in the first quarter of
fiscal year 2004.
The Company does not believe that any other recently issued, but not yet
effective, accounting standards will have a material effect on the Company's
financial position or results of operations.
3. Joint Ventures
The Partnership and its affiliates, entities in which ICON Capital Corp, is
also the general partner formed seven 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 Joint Ventures
The three ventures described below are majority owned and are consolidated
with the Partnership. The Partnership's consolidated financial statements
include 100% of the assets and liabilities, as well as 100% of the related
revenues and expenses of these ventures. The interests of 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") and ICON Income Fund
Nine, LLC ("Fund Nine") in the related ventures, have been reflected as minority
interests in consolidated joint ventures on the consolidated balance sheets and
consolidated statements of operations.
ICON Cheyenne LLC
-----------------
In December 2000, the Partnership and three affiliates, L.P. Six, L.P.
Seven and 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, the purchase price consisted of $11,401,151 and the assumption of
non-recourse debt of $18,304,565. The non-recourse debt is structured so as to
be amortized with rentals due under the leases. The leases expire on various
dates through September 2006. The Partnership, L.P. Seven, L.P. Six and Fund
Eight 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 a 767-300 ER aircraft originally leased to
Scandinavian Airline Systems ("SAS") for a purchase price of $44,515,416. The
purchase price was funded with cash of $2,241,371 and the assumption of
non-recourse debt of $42,274,045. The lenders have a security interest in the
aircraft and an assignment of the rental payments under the lease. The lease
with SAS expired in March 2003, at which time the balance of the non-recourse
debt outstanding was approximately $34,500,000. The Partnership has been making
contributions toward making interest only payments on the outstanding
non-recourse debt, during the remarketing of the aircraft by the General
Partner. The Partnership, L.P. Seven and Fund Eight A have ownership interests
of 96.0%, 2.0%, and 2.0%, respectively, in ICON Aircraft 24846.
ICON Aircraft 47820 LLC
-----------------------
In 2003, the Partnership and Fund Nine formed ICON Aircraft 47820 LLC
("ICON 47820") for the purpose of acquiring an investment in a McDonnell Douglas
DC10-30F aircraft leased to Fedex Corporation for a purchase price of
$27,287,644, which was funded with cash of $3,076,564 and non-recourse debt of
$24,211,080. The lenders have a security interest in the aircraft and an
assignment of the rental payments under the lease. 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 $2,916,523. In addition, there was
a total of $818,629 in acquisition fees paid to the General Partner of which the
Partnership's share was $736,766.
The Partnership and Fund Nine have ownership interests of 90% and 10%,
respectively, in ICON 47820.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
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, respectively and are accounted for under the equity method.
ICON Aircraft 126, LLC
----------------------
In early 2002, the Partnership and 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, 2003, there was $63,351,443 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 paid to the
General Partner.
Information as to the consolidated financial position and results of
operations of ICON 126 as of and for the years ended December 31, 2003 and 2002
is summarized below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 70,492,181 $ 74,332,428
=============== ===============
Liabilities $ 63,351,443 $ 67,598,170
=============== ===============
Equity $ 7,140,738 $ 6,734,258
=============== ===============
Partnership's share of equity $ 3,570,369 $ 3,367,129
=============== ===============
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net income $ 406,480 $ 248,456
=============== ===============
Partnership's share of net income $ 203,240 $ 124,228
=============== ===============
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
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 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.
Information as to the financial position and results of operations of ICON
SPK as of and for the years ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 3,895,288 $ 6,452,790
=============== =============
Liabilities $ 277,499 $ 522,168
=============== =============
Equity $ 3,617,789 $ 5,930,622
=============== =============
Partnership's share of equity $ 1,772,716 $ 2,906,004
=============== =============
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
Net income $ 186,355 $ 504,129
=============== =============
Partnership's share of net income $ 91,314 $ 247,022
=============== =============
Distributions $ 2,499,188 $ 2,556,006
=============== =============
Partnership's share of distributions $ 1,224,602 $ 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, and 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, (i) the cash amount was reduced to $8,410,000
and (ii) the non-recourse debt was reduced to $6,918,091, with an adjustment of
$740,801 to the senior debt.
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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
Information as to the financial position of ICON/Kenilworth LLC as of and
for the years ended December 31, 2002 and 2003 is summarized below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 11,560,661 $ 15,157,182
=============== =============
Liabilities $ 2,168,837 $ 6,109,365
=============== =============
Equity $ 9,391,824 $ 9,047,817
=============== =============
Partnership's share of equity $ 469,591 $ 452,391
=============== =============
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
----------------- ------------------
Net income $ 863,127 $ 177,974
=============== =============
Partnership's share of net income $ 43,156 $ 8,899
=============== =============
Distributions $ 519,120 $ -
=============== =============
Partnership's share of distributions $ 25,956 $ -
=============== =============
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 Fedex Corporation 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 with the security interest in 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.
Information as to the financial position and results of operations of ICON
46835 as of and for the year ended December 31, 2003 and 2002 is summarized
below:
December 31, 2003 December 31, 2002
----------------- -----------------
Assets $ 21,113,830 $ 26,071,518
=============== ===============
Liabilities $ 17,316,827 $ 22,303,057
=============== ===============
Equity $ 3,797,003 $ 3,768,461
=============== ===============
Partnership's share of equity $ 569,551 $ 565,269
=============== ===============
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
For the Year Ended For the Year Ended
December 31, 2003 December 31, 2002
----------------- -----------------
Net income $ 28,542 $ 9,715
================= ===============
Partnership's share of net income $ 4,282 $ 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
affiliate on the balance sheet as of December 31, 2001. The Partnership
recognized $327,341 as a gain on sale of 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 through March 2005.
The Partnership has received $1,933,003 and $63,539 and in proceeds from sales
of these interests for the years ended December 31, 2003, and 2002.
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
included an 8.5% $400,000 promissory note which was to mature in May 2012. On
August 29, 2003, the promissory note was paid in full with accreted interest on
November 27, 2003.
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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
6. Finance Lease Receivables
Regus Business Center Corp. ("Regus"), with whom the Partnership has been
negotiating an amended lease agreement, has emerged from bankruptcy, with the
approval of a new lease agreement. Regus had originally filed for Chapter 11
bankruptcy protection in the United States on January 14, 2003.
Under the new lease agreement, Regus commenced making payments at a reduced
rental rate, with an extension for 48 months, effective from March 15, 2003. As
of December 31, 2003, Regus was current on payments. The receivables from Regus
represents 17% of total receivables from finance leases.
Kmart, Inc., ("Kmart") with whom the Partnership has five leases, had 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,
which consisted of a total cash investment of $681,720 and the assumption of
$17,552,542 of non-recourse debt. Kmart has since emerged from bankruptcy, and
has made all scheduled rental payments through March 2004. The receivables from
Kmart represents 77% of total receivables from finance leases.
Non-cancelable minimum annual amounts receivable on finance leases are as
follows:
Year Ending
December 31,
------------
2004 $ 6,175,716
2005 5,154,943
2006 3,623,305
2007 238,922
----------------
$ 15,192,886
================
7. Investments in Operating Leases
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 A.A.L. is
subject to non-recourse debt provided by unaffiliated lenders. The lenders have
a security interest in the aircraft and an assignment of the rental payments
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 Partnership paid on behalf of ICON Aircraft 24846, LLC, maintenance fee
of $745,872 for the sole aircraft owned by ICON Aircraft 24846, LLC. The
aircraft was on lease to Scandinavian Airlines Systems through March 2003. The
Partnership is currently negotiating with another airline with whom affiliates
of the Partnership have been conducting business.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements - Continued
The investment in operating leases at December 31, 2003, 2002 and 2001
consisted of the following:
2003 2002 2001
---- ---- ----
Equipment cost, beginning of year $ 166,325,943 $ 95,156,568 $ 76,284,645
Equipment acquisitions 27,287,644 75,263,566 19,182,105
Initial direct costs 818,629 2,242,352 562,699
Equipment dispositions (1,804,739) (6,336,543) (872,881)
-------------- -------------- --------------
Equipment cost, end of year 192,627,477 166,325,943 95,156,568
============== ============== ==============
Accumulated depreciation, beginning of year (23,591,192) (11,456,484) (111,940)
Accumulated depreciation on
equipment dispositions 1,113,221 2,036,346 335,991
Depreciation expense (16,896,463) (14,171,054) (11,680,535)
-------------- -------------- --------------
Accumulated depreciation, end of