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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, 2004
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
Commission File Number 333-54011
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ICON Income Fund Eight A L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-4006824
- -------------------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
100 Fifth Avenue, 10th floor, New York, New York 10011
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 418-4700
-----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Units of limited
partnership interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last day of the registrant's most recently completed second fiscal quarter:
Not applicable. There is no established market for units of the registrant.
Table of Contents
Item
PART I
1. Business 3-5
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 6
6. Selected Consolidated Financial Data 7
7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations 8-18
7A. Qualitative and Quantitative Disclosures About Market Risk 19
8. Consolidated Financial Statements 20-42
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 43
9A. Controls and Procedures 43
9B. Other Information 43
PART III
10. Directors and Executive Officers of the Registrant's General Partner 44-45
11. Executive Compensation 45
12. Security Ownership of Certain Beneficial Owners and Management 46
13. Certain Relationships and Related Transactions 46
14. Principal Accountant Fees and Services 46
PART IV
15. Exhibits, Financial Statement Schedules 47
SIGNATURES 48
Certifications 49-52
2
PART I
Item 1. Business
General Development of Business
ICON Income Fund Eight A L.P. (the "Partnership"), was formed on July 9,
1997 as a Delaware limited partnership. When used in this report, the terms "we"
"us" and "ours" refers to the Partnership.
Our maximum offering was $75,000,000 and we commenced business operations
on our initial closing date, October 14, 1998, with the admission of 12,000
limited partnership units at $100 per unit representing $1,200,000 of capital
contributions. Between October 15, 1998 and May 17, 2000, the date of our final
closing, 737,965.04 additional units were admitted representing $73,796,504 of
capital contributions bringing the total admission to 749,965.04 units totaling
$74,996,504 in capital contributions. Between 2000 and 2004, we redeemed
10,449.64 limited partnership units leaving 739,515.40 limited partnership units
outstanding at December 31, 2004.
Our General Partner is ICON Capital Corp. (the "General Partner"), a
Connecticut corporation. The General Partner manages and controls the business
affairs of our equipment leases and financing transactions under the terms of a
management agreement with us.
Segment Information
We have only one operating segment: the business of acquiring equipment
subject to leases with companies that we believe to be creditworthy.
Narrative Description of Business
We are an equipment leasing income fund. Our principal investment objective
is to obtain the maximum economic return from our investments for the benefit of
our partners. To achieve this objective we have: (i) acquired a diversified
portfolio of equipment leases and financing transactions; (ii) made monthly cash
distributions to our partners commencing with each partner's admission, (iii)
re-invested substantially all undistributed cash from operations and cash from
sales of equipment and financing transactions during the reinvestment period;
and (iv) when we start our disposition period we will sell our investments and
distribute the cash from sales of such investments to our partners.
Our reinvestment period is anticipated to end during the summer of 2005.
However, we may extend the reinvestment period for an additional three years, at
our discretion. During the disposition period, we will continue to distribute
substantially all distributable cash from operations and equipment sales to the
partners and continue the orderly termination of our operations and affairs. If
we believe it would benefit investors to reinvest our cash flow in equipment
during the disposition period, we may do so, but the General Partner will not
receive any additional fees in connection with such reinvestments. Our goal is
to complete the disposition period in three years after the end of the
reinvestment period, but it may take longer to do so.
At December 31, 2004 and 2003, we had total assets of $55,918,196 and
$48,073,352, respectively. During the year ended December 31, 2004, our total
revenue was $7,581,851, which included three leases which accounted for
approximately 84% of our total rental revenue. We incurred a net loss for the
year ended December 31, 2004 of $3,521,353. For the year ended December 31, 2003
our total revenue was $8,406,757 which included four leases which accounted for
approximately 77% of our total rental revenue. We incurred a net loss for the
year ended December 31, 2003 of $7,912,634. For the year ended December 31, 2002
our total revenue was $11,200,364 which included five leases which accounted for
approximately 88% of our total rental revenue. We incurred a net loss for the
year ended December 31, 2002 of $1,196,680.
We have no direct employees. The General Partner has full and exclusive
control over our management and operations.
Our Competition
The equipment leasing industry is highly competitive. When seeking leasing
transactions for acquisition or sale, we compete 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 us and have greater financial resources than we
do.
3
Lease Transactions
During the year ended December 31, 2004, we engaged in the following
purchases and financings of additional equipment. We did not purchase nor
finance and additional equipment for the years ended December 31, 2003 and 2002.
Acquisition of a 1979 McDonnell Douglas DC-10-30F Aircraft
On March 31, 2004 we and ICON Income Fund Ten, LLC ("Fund Ten"), an
affiliate, formed a joint venture, ICON Aircraft 46837, LLC ("ICON Aircraft
46837"), for the purpose of acquiring a 1979 McDonnell Douglas DC-10-30F
aircraft on lease to Federal Express Corporation ("FedEx") with a remaining
lease term of 36 months. We acquired a 28.6% ownership interest in this joint
venture for a total of approximately $6,065,000, consisting of approximately
$1,100,000 in cash and the assumption of approximately $4,965,000 of
non-recourse debt. The non-recourse debt accrues interest at 4.0% per year and
matures in March 2007. The lender has a security interest in the aircraft and an
assignment of the rental payments under the lease with FedEx.
We had an option to acquire an additional 61.4% ownership interest from
Fund Ten. The cost of the option was $419,672, which included $10,000 paid to
Fund Ten and $409,672 paid to the General Partner as an acquisition fee. On July
1, 2004, this option was exercised and Fund Ten sold 61.4% of its ownership
interest to us giving us a 90% ownership interest in ICON Aircraft 46837. Fund
Ten received approximately $2,297,000 for its 61.40% interest. We now
consolidate ICON Aircraft 46837's balance sheet at December 31, 2004 and the
results of operations and cash flows for the period from July 1, 2004 to
December 31, 2004.
FedEx is a global provider of transportation, e-commerce and supply chain
management services. Services offered by its companies include worldwide express
delivery, ground small-package delivery, less-than-truck load freight delivery,
express delivery, global logistics, supply chain management and customs
brokerage, as well as trade facilitation and electronic commerce solutions. This
information was obtained from http://www.hoovers.com.
Sale of Boeing Aircraft
During July 2004, one of our joint ventures, ICON Aircraft 24846, sold its
only asset, a Boeing 767-300ER, for a loss of approximately $601,800 of which
our share was approximately $12,000. The General Partner had determined that it
was in the best interest of ICON Aircraft 24846 and its members to sell the
Boeing 767-300ER aircraft to BTM Capital Corp., the lender, for an amount equal
to the then outstanding debt balance. The decision to sell the aircraft was
based, in part, on the following factors: (i) the aircraft's current fair market
value was estimated to be between $24,000,000 and $27,000,000 and the balance of
the outstanding debt was $34,500,000; (ii) any new lease for the aircraft would
have required an additional $850,000 in equity (at a minimum) in order to
reconfigure the aircraft and upgrade the engines; and (iii) if we were to
continue to remarket the aircraft, the lender would have required interest only
payments of approximately $100,000 per month until the aircraft was re-leased.
Acquisition of Additional Interest in ICON/Boardman Facility
We and several affiliates have ownership interests in a joint venture,
ICON/Boardman Facility LLC ("ICON BF"), for the purpose of acquiring a coal
handling facility on lease with Portland General Electric ("PGE"), a utility
company. On September 24, 2004, ICON Cash Flow Partners L.P. Seven ("L.P.
Seven") assigned its entire .0525% ownership interest in ICON BF to us for
$65,325, thereby increasing our ownership in ICON BF to 99.4975%. This
assignment was made in order for L.P. Seven to repay its outstanding debt
obligation to us as required by the Contribution Agreement, which is more fully
explained elsewhere in this document (Refer to Financing and Borrowings located
in Liquidity and Capital Resources section). This amount represented L.P.
Seven's proportionate fair value of L.P. Seven's interest in ICON BF at
September 24, 2004. This amount was determined to represent the fair value of
the Partnership's interest in ICON BF based upon the expected net proceeds from
the sale of the coal handling facility currently being negotiated.
Dissolution of ICON/AIC Trust
ICON AIC/Trust sold its remaining leases, subject to the related debt, in
exchange for a note receivable of (pound)2,575,000 ($3,744,822 converted at the
exchange rate at December 31, 2001) which was payable in six installments
through June 2004. In July 2004, the final installment on the note was
collected, and distributed. On September 30, 2004, AIC Trust was dissolved. We
recognized a gain of $177,832 from the dissolution of its investment in AIC
Trust.
4
Acquisition of Rowan Cash Flow
On November 24, 2004, L.P. Seven assigned .8% of its interest in the
profits, losses and future cash flows of a mobile offshore drilling rig, subject
to a lease with Rowan Companies, Inc. to us for $200,000. This assignment was
made in order for L.P. Seven to repay its outstanding debt obligation to us as
required by the Contribution Agreement, which is more fully explained elsewhere
in this document (See Financing and Borrowings located in the Liquidity and
Capital Resources section). This amount represented L.P. Seven's proportionate
fair value of L.P. Seven's interest in the mobile offshore drilling rig at
November 24, 2004. The fair value of the mobile offshore drilling rig was
determined using an independent third party appraisal and cash flow analysis.
Modular Furniture
We had a 100% ownership interest in modular furniture on lease to Varilease
Corporation as lessor and E*Trade Corporation as lessee. During November 2004,
we were notified of the lessee's intent to exercise its fair market value
purchase option. The lease expired during February 2005 and Varilease
Corporation purchased the equipment for $252,137 in cash. We received the cash
in February 2005, resulting in a gain of $62,518.
Available Information
Our Annual Reports on Form 10-K and our most recent Quarterly Reports on
Form 10-Q and amendments to those reports, if any, are available free of charge
on our internet website at http://www.iconcapital.com as soon as reasonably
practicable after such reports are electronically filed with or furnished to the
Securities and Exchange Commission. This information is also available on the
Securities and Exchange Commission's website, at http://www.sec.gov.
Item 2. Properties
We neither own nor lease office space or any other real property in our
business at the present time.
Item 3. Legal Proceedings
In the ordinary course of conducting our business, there may be certain
claims, suits, and complaints filed against us. In the opinion of management,
the outcome of such matters, if any, will not have a material impact on our
consolidated financial position or results of operations. No material legal
proceedings are currently pending against us or against any of our assets.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders for the fourth
quarter 2004.
5
PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters
Our limited partnership interests are not publicly traded nor is there
currently a market for our limited partnership units. It is unlikely that any
such market will develop.
Number of Equity Security Holders
Title of Class as of March 18, 2005
--------------------------- ---------------------------------------
General Partner 1
Limited Partners 2,894
We do not, in the normal course of business, pay dividends. We do pay
monthly distributions to our partners beginning with their admission to the
Partnership through the termination of the operating period, which we anticipate
will be during the summer of 2005. For the years ended December 31, 2004, 2003
and 2002, we paid distributions to our limited partners totaling $3,924,505,
$6,040,214 and $8,000,244, respectively. For the years ended December 31, 2004
2003 and 2002, we paid distributions to our General Partner totaling $40,221,
$61,012 and $80,811, respectively.
In order for National Association of Securities Dealers ("NASD") members
and their associated persons to have participated in the offering and sale of
interests in limited partnership units (the "Units") pursuant to the fourth
offering or to participate in any future offering of our Units, we are required
pursuant to NASD Rule 2710(c)(6) to disclose in each annual report distributed
to our limited partners a per unit estimated value of our Units, the method by
which we developed the estimated value and the date used to develop the
estimated value. In addition, our General Partner must prepare annual statements
our estimated Unit values to assist fiduciaries of retirement plans subject to
the annual reporting requirements of Employee Retirement Income Security Act
("ERISA") in the preparation of their reports relating to an investment in our
Units. For these purposes, the estimated value of our Units is deemed to be
$39.33 per Unit at September 30, 2004.
This estimate was based on the amount of remaining undiscounted lease
payments on our existing leases, the booked estimated residual values of the
equipment held by us upon the termination of those leases and our cash on hand.
From this amount we then subtracted our total debt outstanding and then divided
that sum by the total number of Units outstanding. This valuation was based
solely on the General Partner's perception of market conditions and the types
and amounts of our assets. No independent valuation was sought. However, as set
forth below, there is no significant public trading market for our Units at this
time, and there can be no assurance that limited partners could receive $39.33
per Unit if such a market did exist and they sold their Units or that they will
be able to receive such amount for their Units in the future. The foregoing
valuation was performed solely for the ERISA and NASD purposes described above.
There is no market for our Units, and, accordingly, this value does not
represent an estimate of the amount a limited partner would receive if he were
to seek to sell his Units. Furthermore, there can be no assurance as to the
amount we may actually receive if and when we seek to liquidate our assets or
the amount of lease payments and equipment disposition proceeds we will actually
receive over our remaining term. Our limited partnership interests are not
publicly traded nor is there currently a market for our limited partnership
units. It is unlikely that any such market will develop.
6
Item 6. Selected Consolidated Financial Data
The selected financial data should be read in conjunction with the
consolidated financial statements and related notes included in Item 8,
Financial Statements and Supplemental Data contained elsewhere in this report.
Years Ended December 31,
--------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Total revenue (a) $ 7,581,851 $ 8,406,757 $ 11,200,364 $ 12,975,571 $ 14,229,916
============= ============ ============= ============= ============
Net (loss) income (b) $ (3,521,353) $ (7,912,634) $ (1,196,680) $ (29,316) $ 102,001
============= ============ ============= ============= ============
Net (loss) income allocable
to the limited partner $ (3,486,139) $ (7,833,508) $ (1,184,713) $ (29,023) $ 100,981
============= ============ ============= ============= ============
Net (loss) income allocable
to the General Partner $ (35,214) $ (79,126) $ (11,967) $ (293) $ 1,020
============= ============ ============= ============= ============
Weighted average limited partnership
units outstanding $ 739,966 $ 742,719 $ 744,600 $ 746,378 $ 710,779
============= ============ ============= ============= ============
Net (loss) income per weighted
average limited partnership unit $ (4.71) $ (10.55) $ (1.59) $ (0.04) $ 0.14
============= ============ ============= ============= ============
Distributions to limited partners $ 3,924,505 $ 6,040,214 $ 8,000,244 $ 8,022,337 $ 7,640,879
============= ============ ============= ============= ===========
Distributions per weighted average
limited partnership unit $ 5.30 $ 8.13 $ 10.74 $ 10.75 $ 10.75
============= ============ ============= ============= ============
Distributions to the General Partner $ 40,221 $ 61,012 $ 80,811 $ 81,039 $ 77,127
============= ============ ============= ============= ============
December 31,
-------------------------------------------------------------------------
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Total assets $55,918,196 $48,073,352 $91,208,154 $107,774,081 $130,291,422
=========== =========== =========== ============ ============
Notes payable $38,271,477 $23,358,727 $51,474,674 $ 59,507,566 $ 73,114,595
=========== =========== =========== ============ ============
Partner's equity $16,607,978 $23,604,943 $37,661,379 $ 47,108,809 $ 55,293,693
=========== =========== =========== ============ ============
(a) In 2003 we had an early termination of two leases of approximately
$2,547,000 or approximately $3.40 per limited partnership unit.
(a) In 2002 we had an early termination of two leases due to the bankruptcy
filing of the lessee and the expiration of five leases of approximately
$2,498,000 or approximately $3.30 per limited partnership unit.
(b) In 2003 we had losses from terminated leases of approximately
$7,365,000 or approximately $9.90 per limited partnership unit.
(b) In 2002 we had a full year effect of the 2001 reclassification in the
amount of approximately $1,287,000 or approximately $1.70 per. limited
partnership unit. We also recorded a provision for bad debt of $300,000 or
approximately $.40 per limited partnership unit.
7
Item 7. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - Certain statements within this document may
constitute forward-looking statements within the meaning 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. We believe 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. Any such forward-looking
statements are subject to risks and uncertainties and our future results of
operations could differ materially from historical results or current
expectations. Some of these risks are discussed in this report, and include,
without limitation, fluctuations in oil and gas prices; level of fleet additions
by competitors and industry overcapacity; changing customer demands for
aircraft; acts of terrorism; unsettled political conditions, war, civil unrest
and governmental actions, and environmental and labor laws. Our actual results
could differ materially from those anticipated by such forward-looking
statements due to a number of factors, some of which may be beyond our control,
including, without limitation:
o changes in our industry, interest rates or the general economy;
o the degree and nature of our competition;
o availability of qualified personnel;
o cash flows from operating activities may be less than our current level of
expenses and debt obligations;
o the financial condition of lessees; and
o lessee defaults.
a. Overview
We are an equipment leasing business formed on July 9, 1997. We began
active operations on October 14, 1998. We primarily engage in the business of
acquiring equipment subject to lease and, to a lesser degree, acquiring
ownership rights to items of leased equipment at lease expiration. Some of our
equipment leases are acquired for cash and are expected to provide current cash
flow, which we refer to as "income" leases. The majority of the purchase price
of our other equipment leases will be borrowed, so these leases will generate
little or no current cash flow because substantially all of the rental payments
received from a lessee will be paid to a lender. For these "growth" leases, we
anticipate that the future value of the leased equipment will exceed the cash
portion of the purchase price paid for the equipment. We are currently in our
"reinvestment" phase, wherein we seek to purchase equipment from time to time
through the summer of 2005.
Capital Resources and Liquidity
We initially invested most of the net proceeds from our offering in items
of equipment subject to a lease. Additionally, additional investments have been
made with the cash generated from our initial investments to the extent that
cash has not been needed for expenses, reserves and distributions to investors.
The investment in additional equipment in this manner is called "reinvestment."
We anticipate purchasing equipment from time to time until five years from the
date we completed the offering of limited partnership interests, which we may
extend at our discretion for an additional three years. That time frame is
called the "reinvestment period." After the "reinvestment period," we will then
sell our assets in the ordinary course of business during a time frame called
the "disposition period." If we believe it would benefit investors to reinvest
our cash flow in equipment during the disposition period, we may do so, but the
General Partner will not receive any additional fees in connection with such
reinvestments. Our goal is to complete the disposition period in three years
after the end of the reinvestment period, but it may take longer to do so.
Accordingly, an investor should expect to hold his units for at least 10 years
from the time he invests.
8
Our current portfolio, which we hold either directly or through joint
venture investments with affiliates and others, consists primarily of the
following equipment subject to lease:
Air Transportation Industry:
o We have a 90% interest in a McDonnell Douglas DC-10-30F aircraft subject to
lease with FedEx. The lease has a remaining term of 30 months. Our portion
of the purchase price was approximately $18,999,000 consisting of
approximately $3,783,000 in cash and the assumption of non-recourse debt of
approximately $15,216,000. The lender has a security interest in the
aircraft and an assignment of the rental payments under the lease.
o We have a 100% interest in a Boeing 737-200 aircraft on lease to America
West Corporation. The lease is scheduled to expire on December 31, 2005.
The total aggregate purchase price was approximately $6,569,000 consisting
of approximately $1,535,000 in cash and the assumption of non-recourse debt
of approximately $5,034,000. The lender has a security interest in the
aircraft and an assignment of the rental payments under the lease.
o We have a 100% interest in a Boeing 737-200 aircraft on lease to America
West Corporation. The lease is scheduled to expire on December 31, 2005.
The total aggregate purchase price was approximately $6,650,000 consisting
of approximately $1,615,000 in cash and the assumption of non-recourse debt
of approximately $5,035,000. The lender has a security interest in the
aircraft and an assignment of the rental payments under the lease.
o We have a 100% interest in various aircraft rotables that were originally
on lease to Sabena Belgian World Airways and Sabena Oman. The aggregate
purchase price of the parts for Sabena Belgian World Airways and Sabena
Oman was $2,978,345 and $1,961,000, respectively. All of this equipment is
currently off lease and being remarketed.
Energy Industry
o We have a 99.4975% interest in equipment used in a coal handling facility
on lease to PGE. The lease has been extended and is currently scheduled to
expire on July 23, 2010, at which time the lessee has the option to renew
for another 20 years. The purchase price of the equipment was approximately
$27,422,000, consisting of approximately $15,193,000 in cash and the
assumption of non-recourse debt of approximately $12,229,000. On May 6,
2004, we refinanced our non-recourse debt for $11,193,368 which is due on
January 23, 2010 and accrues interest at 3.65% per year. We are currently
in negotiations with PGE for the purchase of the coal handling facility
from us and anticipate completion of the sale during 2005.
o We have a 100% interest in one tugboat ("M/V MICHIGAN") bearing official
number 650770 and one oil barge ("GREAT LAKES") bearing official number
650771 on lease to Keystone Great Lakes, whose obligations are ultimately
guaranteed by BP Amoco Plc. The lease is scheduled to expire on January 1,
2008. The purchase price of the equipment was approximately $12,923,000,
consisting of approximately $5,628,000 in cash and the assumption of
approximately $7,295,000 of non-recourse debt.
Substantially all of our recurring operating cash flows are generated from
the operations of the "income" leases in our portfolio. On a monthly basis, we
deduct the expenses related to the recurring operations of the portfolio from
such revenues and assess the amount of the remaining cash flows that will be
required to fund known or anticipated re-leasing costs and equipment management
costs. Any residual operating cash flows are considered available for
distribution to the partners and paid monthly (up until the disposition period).
Portfolio Activity
Acquisition of 1979 McDonnell Douglas DC-10-30F Aircraft
During March 2004, we and Fund Ten, an affiliate, formed a joint venture,
ICON Aircraft 46837, for the purpose of acquiring a 1979 McDonnell Douglas
DC-10-30F aircraft on lease to FedEx with a remaining lease term of 36 months.
We initially acquired a 28.6% ownership interest in this joint venture for
approximately $6,065,000, consisting of approximately $1,100,000 in cash and the
assumption of approximately $4,965,000 of non-recourse debt.
We had an option to acquire an additional 61.4% ownership interest from
Fund Ten. The cost of the option was $419,672, which included $10,000 paid to
Fund Ten and $409,672 paid to the General Partner as an acquisition fee. During
the third quarter 2004 this option was exercised and Fund Ten sold 61.4% of its
ownership interest to us giving us a 90% ownership interest in ICON Aircraft
46837. Fund Ten received $2,296,879 from us.
9
Acquisition of Additional Interest in ICON/Boardman Facility
We and several affiliates have ownership interests in a joint venture, ICON
BF, for the purpose of acquiring a coal handling facility on lease with PGE, a
utility company. On September 24, 2004, L.P. Seven assigned its entire .0525%
ownership interest in ICON BF to us for $65,325, thereby increasing our
ownership in ICON BF to 99.4975%. This assignment was made in order for L.P.
Seven to repay its outstanding debt obligation to us as required by the
Contribution Agreement, which is more fully explained elsewhere in this document
(Refer to Financing and Borrowings located in Liquidity and Capital Resources
section). This amount represented L.P. Seven's proportionate fair value of L.P.
Seven's interest in ICON BF at September 24, 2004. This amount was determined to
represent the fair value of the Partnership's interest in ICON BF based upon the
expected net proceeds from the sale of the coal handling facility.
Sale of Boeing Aircraft
During July 2004, one of our joint ventures, ICON Aircraft 24846, sold its
only asset, a Boeing 767-300ER, for a loss of approximately $601,800 of which
our share was approximately $12,000. The General Partner had determined that it
was in the best interest of ICON Aircraft 24846 and its members to sell the
Boeing 767-300ER aircraft to BTM Capital Corp., the lender, for an amount equal
to the then outstanding debt balance. The decision to sell the aircraft was
based, in part, on the following factors: (i) the aircraft's current fair market
value was estimated to be between $24,000,000 and $27,000,000 and the balance of
the outstanding debt was $34,500,000; (ii) any new lease for the aircraft would
have required an additional $850,000 in equity (at a minimum) in order to
reconfigure the aircraft and upgrade the engines; and (iii) if we were to
continue to remarket the aircraft, the lender would have required interest only
payments of approximately $100,000 per month until the aircraft was re-leased.
Dissolution of AIC Trust
ICON AIC/Trust sold its remaining leases, subject to the related debt, in
exchange for a note receivable of (pound)2,575,000 ($3,744,822 converted at the
exchange rate at December 31, 2001) which was payable in six installments
through June 2004. In July 2004, the final installment on the note was
collected, and distributed. On September 30, 2004, AIC Trust was dissolved. We
recognized a gain of $177,832 from the dissolution of its investment in AIC
Trust.
Acquisition of Rowan Cash Flow
On November 24, 2004, L.P. Seven assigned .8% of its interest in the
profits, losses and future cash flows of a mobile offshore drilling rig, subject
to a lease with Rowan Companies, Inc. to us for $200,000. This assignment was
made in order for L.P. Seven to repay its outstanding debt obligation to us as
required by the Contribution Agreement, which is more fully explained elsewhere
in this document (See Financing and Borrowings located in the Liquidity and
Capital Resources section). This amount represented L.P. Seven's proportionate
fair value of L.P. Seven's interest in the mobile offshore drilling rig at
November 24, 2004. The fair value of the mobile offshore drilling rig was
determined using an independent third party appraisal and cash flow analysis.
Sale of Airplane Rotables
For the year ended December 31, 2004, we sold approximately $108,000 in
airplane rotables. This amount has been recorded as a recovery of the cost of
the equipment held for sale or lease investment therefore; no gain or loss has
been recognized.
Modular Furniture
We had a 100% ownership interest in modular furniture on lease to Varilease
Corporation as lessor and E*Trade Corporation as lessee. During November 2004,
we were notified of the lessee's intent to exercise its fair market value
purchase option. The lease expired during February 2005 and Varilease
Corporation purchased the equipment for $252,137 in cash. We received the cash
in February 2005, resulting in a gain of $62,518.
Economic and Industry Factors
Our results continue to be impacted by a number of factors influencing the
United States of America's economy as well as the equipment leasing industry,
some of which are discussed below.
10
United States Economy
The economy of the United States of America appears to be recovering, and
the leasing industry's outlook for the foreseeable future is encouraging. We
foresee an increase in capital spending by corporations through 2007 which
should increase available leases, and to that end, we believe there will be 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.
Other factors which may negatively affect the leasing industry are the proposed
legal and regulatory changes that may affect tax benefits of leasing and the
continued misperception by potential lessees, stemming from Enron, WorldCom and
others, that leasing should not play a central role as a financing alternative.
However, as economic growth continues and interest rates inevitably begin to
rise over time, we are optimistic that more lessees will return to the
marketplace.
Air Transportation Industry
The domestic aircraft leasing industry has been on the downside of a
business cycle and continues to remain there. This has resulted in depressed
sales prices for assets such as our aircraft interests. It does not appear that
the industry will recover significantly in the very near future especially with
the recent increases in the price of gasoline and the fare wars within the
domestic air transportation industry. We are optimistic that a recovery will
occur within two to three years. However, a further weakening of the industry
could cause the proceeds realized from the future sale of our aircraft to be
even less than suggested by recent appraisals.
Energy Industry
The energy industry, which includes our investment in the coal handling
facility and our investment in the tug boat, is highly cyclical and dependent on
numerous factors, including the current level of exploration and development of
offshore oil areas. Despite the current high prices of oil, oil companies are
reluctant to make the capital investment necessary in shelf drilling, as the
high energy prices are perceived as being temporary by oil companies.
Inability to Remarket Assets
The market for some of our assets is not very liquid. If current equipment
lessees choose not to renew their leases or purchase other equipment upon
expiration of the existing lease, we will need to remarket the equipment. There
is no assurance that we will be able to locate a willing buyer or lessee for our
assets, or if one is located, that the buyer or lessee will pay a price for the
asset at least equal to the appraised value.
Critical Accounting Policies
An appreciation of our critical accounting policies is necessary to
understand our financial results. These policies may require the Manager to make
difficult and subjective judgments regarding uncertainties, and as a result,
such estimates may significantly impact our financial results. The precision of
these estimates and the likelihood of future changes depend on a number of
underlying variables and a range of possible outcomes.
11
We applied our critical accounting policies and estimation methods
consistently in all periods presented. We consider the following accounting
policies to be critical to our business:
o Lease classification and revenue recognition
o Asset impairments
o Depreciation
Lease Classification and Revenue Recognition
The equipment we lease to third parties is classified either as a finance
lease, a leveraged lease, or an operating lease, which is determined based upon
the terms of each lease. Initial direct costs are capitalized and amortized over
the term of the related lease for both a finance lease and a leveraged lease.
For an operating lease, the initial direct costs are included as a component of
the cost of the equipment and depreciated.
For finance leases, we record, at lease inception, the total minimum lease
payments receivable from the lessee, the estimated unguaranteed residual value
of the equipment at lease termination, the initial direct costs related to the
lease 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 ratably over the term of the lease.
For leveraged leases, we record, at lease inception, our net investment in
the equipment which consists of the minimum lease payments receivable, the
estimated unguaranteed residual value of the equipment at lease termination and
the initial direct costs related to the lease, net of the unearned income and
principal and interest on the related non-recourse debt. Unearned income is
recognized as income over the life of the lease at a constant rate of return on
the positive net investment.
For operating leases, income is recorded as rental income and is recognized
on the straight line method over the lease term.
Our General Partner has an Investment Committee that approves each new
equipment acquisition. As part of their process the Investment Committee
determines the residual value to be used once the acquisition has been approved.
The factors considered in determining the residual value include, but are not
limited to, the creditworthiness of the potential lessee, the type of equipment
being considered, how the equipment is integrated into the potential lessees
business, the length of the lease and industry in which the potential lessee
operates. Residual values are reviewed in accordance with our policy to review
all significant assets in our portfolio.
12
Asset Impairments
The significant assets in our asset portfolio are periodically reviewed, at
least annually, by management, to determine whether events or changes in
circumstances indicate that the carrying value of an asset may not be
recoverable. Management uses qualified third party appraisers to assist in the
review process. An impairment loss will be recognized if the carrying amount of
a long-lived asset is not recoverable and exceeds its fair value. In such
circumstances, we will estimate the future cash flows (undiscounted and without
interest charges) expected to result from the use of the asset and its eventual
disposition. Future cash flows are the cash inflows expected to be generated by
an asset less the cash outflows expected to be necessary to obtain those
inflows. An impairment loss will be measured as the amount by which the carrying
amount of a long-lived asset exceeds its fair value.
The events or changes in circumstances which generally indicate that an
asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than our carrying value or (ii) the lessee is experiencing
financial difficulties and it does not appear likely that the estimated proceeds
from the disposition of the asset will be sufficient to satisfy the remaining
obligation to the lender and our residual position in the asset. Generally in
the latter situation, the residual position relates to equipment subject to
third party notes payable where the lessee remits their rental payments directly
to the lender and we do not recover our residual position until the note payable
is repaid in full.
Depreciation
We record depreciation expense on equipment classified as an operating
lease. In order to calculate depreciation, we first determine the depreciable
equipment cost, which is the cost less estimated residual value. The estimated
residual value is our estimate of the value of the equipment at lease
termination. The estimated residual value is reviewed annually, by management,
to determine whether an impairment charge may be required. Management uses
qualified third party appraisers to assist in the review process. Depreciation
expense is recorded ratably over the term of the related lease.
New Accounting Pronouncements
During December 2004, the FASB issued SFAS No. 153 "Exchanges of
Nonmonetary Assets--an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153
is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
Opinion 29, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. SFAS 153
is effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not expect the adoption of SFAS 153 to have an impact
on our financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
b. Results of Operations for the Years Ended December 31, 2004 ("2004") and
2003 ("2003")
Revenue for 2004 and 2003 are summarized as follows:
Years Ended December 31,
2004 2003 Change
---- ---- ------
Total revenue $ 7,581,851 $ 8,406,757 $ (824,906)
============= =========== ==========
Rental income $4,853,982 $ 4,242,768 $ 611,214
Finance income 2,331,181 2,924,694 (593,513)
Income (loss) from investments in joint ventures 120,762 (53,618) 174,380
Net gain (loss) on sales of equipment - 675,825 (675,825)
Gain from investment in unguaranteed residual values 124,206 616,690 (492,484)
Interest and other income 151,720 398 151,322
13
Revenues for 2004, decreased by $824,906 or 10% as compared to 2003. The
increase in rental income is due primarily to the consolidation of a joint
venture, ICON Aircraft 46837 for the six months ended December 31, 2004. The
decrease in finance income is due to several factors. We renegotiated of one of
our leases with Regus Business Center ("Regus") during 2003 which resulted to a
reduction of finance income during 2004. The renegotiation was related to a
bankruptcy filing by Regus. Additionally, there were two lease terminations with
Rental Services Corp., during 2003 and another lease termination with E*Trade
during 2003. The increase in income (loss) from investments in joint ventures is
due primarily to the gain we realized on AIG of $177,832. During 2004 we did not
recognize any gain on sales of equipment while we did have equipment sales in
2003.
Since January 1, 2005 through March 20, 2005, we entered into the following
sales transaction:
o On February 28, 2005, the E*Trade Group, Inc. exercised its buyout option
under the lease and purchased the Tekion Modular Furniture for $252,137,
resulting in a gain of $62,518.
Expenses for 2004 and 2003 are summarized as follows:
Years Ended December 31,
2004 2003 Change
---- ---- ------
Total expenses $ 11,103,204 $ 16,319,391 $ (5,216,187)
=============== ============== ====================
Loss on lease termination 3,420 7,365,477 (7,362,057)
Depreciation 4,345,375 3,486,214 859,161
Interest 1,955,361 3,389,986 (1,434,625)
General and administrative 271,914 834,950 (563,036)
Management fees - General Partner 538,159 737,943 (199,784)
Administrative expense reimbursements -
General Partner 301,704 292,117 9,587
Amortization of initial direct costs 247,355 198,211 49,144
Bad debt (reversal) expense (102,879) - (102,879)
Impairment loss 3,529,480 - 3,529,480
Minority interest 13,315 14,493 (1,178)
Expenses for 2004 decreased by $5,216,187 or 32%, over 2003. The decrease
in loss on lease terminations is due to the lease default of Sky Airlines in
2003 while there were no similar lease defaults in 2004. The increase in
depreciation expense is due principally to the consolidation of a joint venture,
ICON Aircraft 46837 for the six months ended December 31, 2004. The decrease in
interest expense is due to the termination of operating leases during 2003 which
had non-recourse debt, Boeing and Sky Airlines. Additionally, the decrease in
interest expense is also due to the decrease in the principle balance of the
debt during the year. The decrease in general and administrative expenses was
primarily due to a reduction in professional fees due to the above mentioned
reduction in fund activity. The decreases in management fees - General Partner
were a result of the reduction in the average size of the Partnership's lease
portfolio in 2003: E* Trade, Sky Airlines and Boeing leases. The decrease in
general and administrative expenses was primarily due to a decrease in
professional fees and remarketing fees. During 2004 management determined that
the two America West Boeing 737-200 aircraft were impaired and recorded an
impairment charge.
Net Loss
As a result of the factors discussed above, the net loss for 2004 and 2003
was $3,521,353 and $7,912,634 respectively. The net loss per weighted average
number of limited partner's shares outstanding was $4.71 and $10.55 for 2004 and
2003, respectively.
14
c. Results of Operations for the Years Ended December 31, 2003 ("2003") and
2002 ("2002")
Revenue for 2003 and 2002 are summarized as follows:
Years Ended December 31,
2003 2002 Change
---- ---- ------
Total revenue $ 8,406,757 $ 11,200,364 $ (2,793,607)
============== =============== ===============
Rental income $ 4,242,768 $ 6,790,022 $ (2,547,254)
Finance income 2,924,694 4,663,843 (1,739,149)
Income (loss) from investments in joint ventures (53,618) 122,305 (175,923)
Net gain (loss) on sales of equipment 675,825 (404,710) 1,080,535
Gain from investment in unguaranteed residual values 616,690 - 616,690
Interest and other income 398 28,904 (28,506)
Revenue for 2003 decreased by $2,793,607, or 25%, as compared to 2002.
Revenues decreased primarily due to the fact that finance lease income decreased
due to the continued collection of the related finance lease receivables, which
reduced the investments on which such revenue is based. In addition, one lease
was terminated in an early buy-out by the lessee, E-Trade, one lease, Petsmart
expired in accordance its scheduled term. Rental income from operating leases
decreased due to the early termination of the Boeing Connexion and Sky Airlines
leases and the maturing of the Sabena Lease of which the equipment is currently
being held for sale.
Expenses for 2003 and 2002 are summarized as follows:
Years Ended December 31,
2003 2002 Change
---- ---- ------
Total expenses $ 16,319,391 $ 12,397,044 $ 3,922,347
=============== ================= ================
Loss on lease termination 7,365,477 - 7,365,477
Depreciation 3,486,214 4,016,556 (530,342)
Interest 3,389,986 5,181,248 (1,791,262)
General and administrative 834,950 936,992 (102,042)
Management fees - General Partner 737,943 1,128,431 (390,488)
Administrative expense reimbursements -
General Partner 292,117 488,133 (196,016)
Amortization of initial direct costs 198,211 332,183 (133,972)
Bad debt (reversal) expense - 300,000 (300,000)
Impairment loss - - -
Minority interest 14,493 13,501 992
Expenses for 2003 increased by $3,922,347 or 32% as compared to 2002. The
increase is primarily the result that we experienced a loss of $7,365,477 on
leases terminated as described in Note 5 of the 2003 financial statements which
it did not experience in 2002. This loss offsets decreases due to the decrease
in depreciation due to the early termination of two leases described in Note 5
of the 2003 financial statements related to the terminated leases in 2003.
Interest expense decreased due primarily to the repayment of non-recourse
indebtedness by the application of lease payments in accordance with the
repayment schedules, and partially offset by the interest associated with an
increase in recourse debt. General and administrative expenses decreased due
primarily to a reduction in the unamortized balances of legal fees, appraisal
and inspection costs that were capitalized under the balance sheet caption
"Other Assets" at leases inception. Management fees - General Partner decreased
consistent with the change in lease payments on which such fees are based.
Administrative expense reimbursements - General Partner decreased consistent
with our level of operations. Amortization of initial direct costs decreased due
principally to the continued reduction of the amortizable balance of initial
direct costs and the method used to calculate amortization of initial direct
costs on finance leases.
Based upon our review of receivables and the credit quality of our lessees,
there was a bad debt expense recorded of $300,000 in 2002. We did not record
such a provision for impairment in 2003.
Net Loss
As a result of the foregoing factors, the net loss for the years ended
December 31, 2003 and 2002 was $7,912,634, $1,196,680 respectively. The net loss
per weighted average number of limited partner's shares outstanding was $10.55
and $1.59, for 2003 and 2002, respectively.
15
d. Liquidity and Capital Resources
Sources of Cash
We believe that with the cash we have currently available, cash being
generated from our leases, cash distributions from our joint ventures and
proceeds from equipment sales, we have sufficient cash to continue our
operations into the foreseeable future.
Our main source of cash during 2004 and 2003 was from financing activities.
We increased our non-recourse and recourse debt by approximately, $11,193,000
and $6,015,000, respectively during 2004. During 2003 we increased our
non-recourse and recourse debt by approximately, $3,685,000 and $2,625,000,
respectively. Additionally, we received cash from investing activities during
2004 from proceeds from sales of equipment of approximately $1,275,000 and from
distributions from our joint ventures of approximately $650,000. During 2003 we
received cash from investing activities from proceeds from the sale of equipment
and investments in unguaranteed residual values of approximately $1,662,000 and
$1,718,000, respectively and from distributions from our joint ventures of
approximately $339,000.
Our primary cash outflow during 2004 was for distributions to partners of
approximately $3,965,000, repayment of non-recourse and recourse debt of
approximately $3,620,000 and $5,575,000, respectively, and investment in options
and joint ventures of approximately $3,950,000. Our primary cash outflow during
2003 was for distributions to partners of approximately $6,101,000, and
repayment of non-recourse and recourse debt of approximately $2,246,000 and
$353,000, respectively.
We have amounts available to borrow, if necessary, under our line of
credit agreement with Comerica Bank.
Financings and Borrowings
We have non-recourse debt in which the lenders are paid directly by the
lessees. This non-recourse debt accrues interest at rates ranging from 3.65% per
year to 10.63% per year. On May 6, 2004, we refinanced our non-recourse debt for
$11,193,368 which is due on November 23, 2010 and accrues interest at 3.65% per
year. We used a majority of these proceeds to pay our recourse debt under the
Second Amended and Restated Contribution Agreement dated as of July 29, 2004.
We and certain of our affiliates, specifically; L.P. Seven; ICON Income
Fund Eight B L.P. and ICON Income Fund Nine, LLC (collectively, the "Initial
Funds"), were parties to a Loan and Security Agreement dated as of May 30, 2002,
as amended (the "Loan Agreement"). Under the terms of the Loan Agreement, the
Initial Funds may borrow money from Comerica Bank with all borrowings to be
jointly and severally collateralized by (i) cash and (ii) the present values of
certain rents receivable and equipment owned by the Initial Funds. Such Loan
Agreement, effective August 5, 2004, was amended to add Fund Ten as a borrower
to the Loan Agreement. On December 6, 2004, the Initial Funds and Fund Ten,
entered into a Sixth Amendment to the Loan and Security Agreement with Comerica
Bank wherein the maturity date of the loan was extended from December 31, 2004
to December 30, 2005. The Loan and Security Agreement provides for a joint and
several line of credit of up to $17,500,000 collateralized by the present value
of rents receivable and equipment owned by the borrowers.
In connection with the Loan Agreement, the Initial Funds previously entered
into a Contribution Agreement dated as of May 30, 2002, as amended (the
"Contribution Agreement"). Pursuant to the Contribution Agreement, the Initial
Funds agreed to restrictions on the amount and the terms of their respective
borrowings under the Loan Agreement in order to minimize the unlikely 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 promptly 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 Initial Funds' obligations to each other
under the Contribution Agreement are collateralized by a subordinate lien on the
assets of each participating Fund. In order to facilitate Fund Tens' addition to
the Contribution Agreement, the Initial Funds entered into a Second Amended and
Restated Contribution Agreement effective as of August 5, 2004. The Second
Amended and Restated Contribution Agreement contains substantially identical
terms and limitations as did the original Contribution Agreement.
16
During 2004, we paid Comerica Bank a portion of the outstanding obligations
of L.P. Seven. As required under the terms of the Contribution Agreement, L.P.
Seven was required to promptly repay us the amounts we have paid on L.P. Seven's
behalf. Since L.P. Seven did not have sufficient liquidity to repay us, L.P.
Seven assigned to us interests in certain joint venture investments as full
repayment of monies due to us.
On September 24, 2004, L.P. Seven assigned its entire .0525% ownership
interest in ICON BF to us for $65,325, thereby increasing our ownership in ICON
BF to 99.4975%. This amount represented L.P. Seven's proportionate fair value of
L.P. Seven's interest in ICON BF at September 24, 2004. This amount was
determined to represent the fair value of the Partnership's interest in ICON BF
based upon the expected net proceeds from the sale of the coal handling
facility.
On November 24, 2004, L.P. Seven assigned .8% of its interest in the
profits, losses and future cash flows of a mobile offshore drilling rig, subject
to a lease with Rowan Companies, Inc. to us for $200,000. This amount
represented L.P. Seven's proportionate fair value of L.P. Seven's interest in
the mobile offshore drilling rig at November 24, 2004. The fair value of the
mobile offshore drilling rig was determined using an independent third party
appraisal.
Effective March 8, 2005, the Initial Funds and ICON Income Fund Ten LLC
entered into a Seventh Amendment to the Loan and Security Agreement with
Comerica Bank. This Agreement releases ICON Cash Flow Partners L.P. Seven from
all of its obligations under the Loan and Security Agreement dated as of May 30,
2002. As such, ICON Cash Flow Partners L.P. Seven is no longer a party to the
$17,500,000 line of credit.
Aggregate borrowings by all Funds under the line of credit agreement
amounted to $10,272,992 at December 31, 2004. We currently have borrowings in
the amount of $4,625,000.
Distributions
We do not, in the normal course of business, pay dividends. We do pay
monthly distributions to our partners beginning with their admission to the
Partnership through the termination of the operating period, which we anticipate
will be during the summer of 2005. For the years ended December 31, 2004, 2003
and 2002, we paid distributions to our limited partners totaling $3,924,505,
$6,040,214 and $8,000,244, respectively. For the years ended December 31, 2004
2003 and 2002, we paid distributions to our general partner totaling $40,221,
$61,012 and $80,811, respectively.
Commitments
At December 31, 2004 we are party to both recourse and non-recourse debt.
The lenders have security interests in equipment relating to the non-recourse
debt and an assignment of the rental payments under the leases. If the lessee
were to default on the non-recourse debt the equipment would be returned to the
lender in extinguishment of the non-recourse debt. The recourse debt relates to
the Comerica Bank line of credit which is more fully discussed in the financings
and borrowings section above. Principal maturities of our notes payable consist
of the following at December 31, 2004:
Year Ending
December 31,
2005 $ 15,167,353
2006 10,615,803
2007 4,757,112
2008 5,270,773
2009 1,614,188
Thereafter 846,248
------------
$ 38,271,477
17
Risks & Uncertainties
At December 31, 2004, except as noted above in the Overview section and
listed below, and to the best of our knowledge, there were no known trends or
demands, commitments, events or uncertainties which are likely to have a
material effect on our liquidity.
Set forth below and elsewhere in this report and in other documents we file
with the Securities and Exchange Commission are risks and uncertainties that
could cause our actual results to differ materially from the results
contemplated by the forward-looking statements contained in this report and
other periodic statements we make, including but not limited to, the following:
o The current market is improving for wide-body freighters, such as 1979
McDonnell Douglas DC-10-30F, but the market is still soft. It is expected
that there may be a gradual improvement during 2005 and full recovery for
freighter aircraft by lease termination. While the market for these
aircraft is cyclical, there can be no assurance that the market will
recover by lease termination. Failure of the market to recover
significantly may result in our inability to realize our investment in the
residuals of the 1979 McDonnell Douglas DC-10-30F aircraft currently on
lease to FedEx.
o Our operations are subject to the jurisdiction of a number of federal
agencies, including the Federal Aviation Administration. New regulatory
rulings may negatively impact our financial results and the economic value
of our assets.
o We may face difficulty remarketing the aircraft rotables. Due to the
current condition of the airline industry, there is a depressed market for
these rotables. Therefore, we cannot assure when, or if, we will be able to
re-sell these rotables.
o Some states require relatively burdensome processes to repossess and sell
equipment subject to a defaulted debt. In the event repossession is
required, there is no assurance that we will be able to quickly repossess
the asset and remarket it.
o The energy industry is highly cyclical and dependent on numerous factors,
including the current level of exploration and development of offshore oil
areas. Despite the current high prices of oil, oil companies are reluctant
to make the capital investment necessary in shelf drilling, as the high
energy prices are perceived as being temporary by oil companies. As such,
while it is hoped that the remaining industry will recover, a continuing
depressed market will affect the resale value of our remaining supply
vessel.
o The equipment leasing industry is highly competitive. When seeking leasing
transactions for acquisition and sale, we compete 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 us and have greater
financial resources than we do.
e. Inflation and Interest Rates
The potential effects of inflation on us are difficult to predict. If the
general economy experiences significant rates of inflation, however, it could
affect us in a number of ways. We do not currently have or expect to have rent
escalation clauses tied to inflation in our leases. The anticipated residual
values to be realized upon the sale or re-lease of equipment upon lease
terminations (and thus the overall cash flow from our leases) may be expected to
increase with inflation as the cost of similar new and used equipment increases.
If interest rates increase significantly, the lease rates that we can
obtain on future leases may be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Leases already in place,
for the most part, would not be affected by changes in interest rates.
18
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
We, like most other companies, are exposed to certain market risks, which
includes changes in interest rates and the demand for equipment (and the related
residuals) owned by us. We believe to the best of our knowledge that our
exposure to other market risks, including foreign currency exchange rate risk,
commodity risk and equity price risk, are insignificant, at this time, to both
our financial position and our results of operations.
In general, we manage our exposure to interest rate risk by obtaining fixed
rate debt. The fixed rate debt is structured so as to match the cash flows
required to service the debt to the payment streams under fixed rate lease
receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. We may finance leases with a floating interest rate
and we are therefore exposed to interest rate risk until fixed rate financing is
arranged.
19
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Financial Statements
Report of Independent Registered Public Accounting Firm 21
Consolidated Balance Sheets at December 31, 2004 and 2003 22-23
Consolidated Statements of Operations for the Years Ended
December 31, 2004, 2003 and 2002 24
Consolidated Statement of Changes in Partners' Equity
for the Years Ended December 31, 2002, 2003 and 2004 25
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2004, 2003 and 2002 26-27
Notes to Consolidated Financial Statements 28-42
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying consolidated balance sheets of ICON Income Fund
Eight A L.P. (a Delaware limited partnership) and subsidiaries as of December
31, 2004 and 2003, and the related consolidated statements of operations,
changes in partners' equity, and cash flows for each of the three years in the
period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ICON Income Fund
Eight A L.P. and subsidiaries as of December 31, 2004 and 2003 and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Hays & Company, LLP
April 1, 2005
New York, New York
21
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
ASSETS
2004 2003
---- ----
Cash and cash equivalents $ 718,195 $ 52,101
------------- -------------
Investments in finance leases:
Minimum rents receivable 5,142,302 10,827,643
Estimated unguaranteed residual values 16,589,619 26,686,729
Initial direct costs, net 97,999 248,472
Unearned income (1,318,548) (3,697,612)
Allowance for doubtful accounts (125,842) (228,721)
-------------- -------------
Net investments in finance leases 20,385,530 33,836,511
------------- ------------
Investments in operating leases:
Equipment, at cost 37,873,680 10,765,766
Accumulated depreciation (7,752,404) (2,202,024)
-------------- -------------
Net investments in operating leases 30,121,276 8,563,742
------------- ------------
Equipment held for sale or lease, net 1,621,154 2,505,332
Investments in estimated unguaranteed
residual values 1,997,000 1,997,000
Investments in joint ventures 274,054 693,023
Due from affiliates - 295,386
Convertible notes receivable 625,000 -
Other assets, net 175,987 130,257
------------- ------------
Total assets $ 55,918,196 $ 48,073,352
============= ============
See accompanying notes to consolidated financial statements.
(continued on next page)
22
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31,
LIABILITIES AND PARTNERS' EQUITY
2004 2003
---- ----
Notes payable - non-recourse $ 33,646,477 $ 19,174,180
Notes and accrued interest payable - recourse 4,625,000 4,184,547
Due to affiliates 73,682 236,822
Deferred rental income 540,114 -
Security deposits and other payables 818 731,628
Minority interest 424,127 141,232
--------------- --------------
Total liabilities 39,310,218 24,468,409
--------------- --------------
Commitments and contingencies
Partners' equity:
General Partner (489,833) (414,398)
Limited Partners: (739,515.40 and 742,308.87 units
outstanding, $100 per unit original issue price) 16,472,811 24,019,341
Accumulated other comprehensive income 625,000 -
--------------- -------------
Total partners' equity 16,607,978 23,604,943
--------------- --------------
Total liabilities and partners' equity $ 55,918,196 $ 48,073,352
=============== ==============
See accompanying notes to consolidated financial statements.
23
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
Years Ended December 31,
2004 2003 2002
---- ---- -----
Revenue:
Rental income $ 4,853,982 $ 4,242,768 $ 6,790,022
Finance income 2,331,181 2,924,694 4,663,843
Income (loss) from investments in joint ventures 120,762 (53,618) 122,305
Net gain (loss) on sales of equipment - 675,825 (404,710)
Gain from investment in unguaranteed residual values 124,206 616,690 -
Interest and other income 151,720 398 28,904
----------------- ---------------- ----------------
Total revenue 7,581,851 8,406,757 11,200,364
----------------- ---------------- ----------------
Expenses:
Loss on lease termination 3,420 7,365,477 -
Depreciation 4,345,375 3,486,214 4,016,556
Interest 1,955,361 3,389,986 5,181,248
General and administrative 271,914 834,950 936,992
Management fees - General Partner 538,159 737,943 1,128,431
Administrative expense reimbursements - General Partner 301,704 292,117 488,133
Amortization of initial direct costs 247,355 198,211 332,183
Bad debt (reversal) expense (102,879) - 300,000
Impairment loss 3,529,480 - -
Minority interest 13,315 14,493 13,501
----------------- ---------------- ----------------
Total expenses 11,103,204 16,319,391 12,397,044
------------------ ---------------- ----------------
Net loss $ (3,521,353) $ (7,912,634) $ (1,196,680)
================= ================= ================
Net loss allocable to:
Limited Partners $ (3,486,139) $ (7,833,508) $ (1,184,713)
General Partner (35,214) (79,126) (11,967)
------------------ ---------------- -----------------
$ (3,521,353) $ (7,912,634) $ (1,196,680)
================= ================ ================
Weighted average number of limited partnership
units outstanding 739,966 742,719 744,600
================= ================ ================
Net loss per weighted average limited
partnership unit $ (4.71) $ (10.55) $ (1.59)
================ =============== ================
See accompanying notes to consolidated financial statements.
24
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Statement of Changes in Partners' Equity
Years Ended December 31, 2002, 2003 and 2004
Limited Partner Distributions Accumulated
(Per weighted average unit) Other Total
Return of Investment Limited General Comprehensive Partners'
Capital Income Partners Partner Income (Loss)* Equity
------ ------ -------- ------- ------------ ------
Balance, January 1, 2002 $ 47,290,291 $ (181,482) $ - $ 47,108,809
Limited partnership units redeemed
(2,893.62 units) (169,695) - - (169,695)
Cash distributions to partners $ 10.74 $ - (8,000,244) (80,811) - (8,081,055)
Net loss (1,184,713) (11,967) - (1,196,680)
------------- ------------- ---------- -------------
Balance, December 31, 2002 37,935,639 (274,260) - 37,661,379
Limited partnership units redeemed
(661.40 units) (42,576) - - (42,576)
Cash distributions to partners $ 8.13 $ - (6,040,214) (61,012) - (6,101,226)
Net loss (7,833,508) (79,126) - (7,912,634)
------------- ------------- ---------- -------------
Balance, December 31, 2003 24,019,341 (414,398) - 23,604,943
Limited partnership units redeemed
(2,793.4670 units) (135,886) - - (135,886)
Cash distributions to partners $ 5.30 $ - (3,924,505) (40,221) - (3,964,726)
Valuation adjustment on convertible notes - - 625,000 625,000
Net loss (3,486,139) (35,214) - (3,521,353)
------------- -------------- ---------- -------------
Balance, December 31, 2004 $ 16,472,811 $ (489,833) $ 625,000 $ 16,607,978
============= ============= ========== =============
* See Note 15 for statement of other comprehensive income (loss).
See accompanying notes to consolidated financial statements.
25
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Years Ended December 31,
Increase (decrease) in cash and cash equivalents 2004 2003 2002
---- ---- ----
Cash flows from operating activities
Net loss $ (3,521,353) $ (7,912,634) $ (1,196,680)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Rental income paid directly to lenders by lessees (4,131,697) (4,072,768) (6,375,250)
Interest expense on non-recourse financing
paid directly to lenders by lessees 1,542,589 2,867,181 4,747,596
Finance income portion of receivable
paid directly to lenders by lessees (2,331,181) (2,488,027) (4,081,646)
Net (gain) loss on sales of equipment - (675,825) 404,710
Gain on sale of investment in unguaranteed
residual value - (616,690) -
Loss on lease termination 3,420 7,365,477 -
Amortization of initial direct costs and loan fees 247,355 198,211 332,183
Bad debt (reversal) expense (102,879) - 300,000
Impairment loss 3,529,480 -
Depreciation 4,345,375 3,486,214 4,016,556
(Income) loss from investments in joint ventures (120,762) 53,618 (122,305)
Minority interest 13,315 14,493 13,501
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables 747,763 302,374 1,280,938
Other assets (68,695) 697,471 623,189
Due to affiliates, net 157,299 (288,616) 114,771
Deferred income (607,050) - -
Security deposits and other payables (579,875) (983,682) 670,842
-------------- -------------- ---------------
Net cash (used in) provided by operating activities (876,896) (2,053,203) 728,405
-------------- -------------- ---------------
Cash flows from investing activities:
Investment in operating leases (3,946,759) - -
Proceeds from investments in
unguaranteed residual values - 1,717,774 1,186,863
Proceeds from sales of equipment 1,275,355 1,661,898 1,144,010
Loans and advances to affiliate (265,000) - -
Distributions to Minority Interest in Joint Ventures (72,812) - -
Contributions made to joint ventures (11,540)
Distributions received from joint ventures 649,661 339,151 811,996
-------------- -------------- ---------------
Net cash (used in) provided by investing activities (2,371,095) 3,718,823 3,142,869
-------------- -------------- --------------
Cash flows from financing activities:
Cash distributions to partners (3,964,726) (6,101,226) (8,081,055)
Redemption of additional members' shares (135,886) (42,576) (169,695)
Proceeds from notes payable - non-recourse 11,193,368 3,684,718 -
Principal payments on notes payable - non-recourse (3,619,124) (2,246,324)
Proceeds from notes payable - recourse 6,015,000 2,625,000 3,805,871
Principal payments on notes payable - recourse (5,574,547) (353,039) (1,819,912)
-------------- -------------- ---------------
Net cash provided by (used in) financing activities 3,914,085 (2,433,447) (6,264,791)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 666,094 (767,827) (2,393,517)
Cash and cash equivalents, beginning of the year 52,101 819,928 3,213,445
-------------- -------------- ---------------
Cash and cash equivalents, end of the year $ 718,195 $ 52,101 $ 819,928
============== ============== ==============
See accompanying notes to consolidated financial statements.
26
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Years Ended December 31,
2004 2003 2002
---- ---- ----
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 412,872 $ 522,805 $ 433,652
============= ============= ============
Supplemental disclosure of non-cash investing and financing activities:
Principal and interest from finance lease
paid directly to lenders by lessees $ 9,860,637 $ 7,375,749 $ 8,391,197
============= ============= ============
Transfer of investment in operating leases, net of accumulated
depreciation, to equipment held for sale or lease $ - $ - $ 1,189,167
============= ============= ============
Transfer of investment in finance leases
to equipment held for sale or lease $ - $ - $ 2,281,412
============= ============= ============
Transfer of residual to investment in operating leases $ 8,034,770 $ - $ -
============= ============= ============
Joint venture interests acquired from affiliate in exchange
for amounts owed $ 265,000 $ - $ -
============= ============= ============
Non recourse debt acquired through majority ownership of
a previously minority owned joint venture $ 15,216,101 $ - $ -
============= ============= ============
Investment in operating lease acquired through majority ownership
of a previously minority owned joint venture $ 20,700,354 $ - $ -
============= ============= ============
27
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(1) Organization
ICON Income Fund Eight A L.P. (the "Partnership"), was formed on July 9,
1997 as a Delaware limited partnership. The Partnership is engaged in one
business segment, the business of acquiring equipment subject to leases. The
Partnership will continue until December 31, 2017, unless terminated sooner.
The Partnership's principal investment objective is to obtain the maximum
economic return from its investments for the benefit of its partners. To achieve
this objective the Partnership has: (i) acquired a diversified portfolio of
equipment leases and financing transactions; (ii) made monthly cash
distributions to its partners commencing with each partner's admission through
the reinvestment period, which the Partnership anticipates ending on May 17,
2008, (iii) re-invested substantially all undistributed cash from operations and
cash from sales of equipment and financing transactions during the reinvestment
period; and (iv) when the Partnership starts its disposition period, sell our
investments and distribute the cash from sales of such investments to our
partners.
The Partnership's maximum offering was $75,000,000. The Partnership
commenced business operations on its initial closing date, October 14, 1998,
with the admission of 12,000 limited partnership units at $100 per unit
representing $1,200,000 of capital contributions. Between October 15, 1998 and
May 17, 2000, the final closing date, 737,965.04 additional units were admitted
representing $73,796,504 of capital contributions bringing the total admission
to 749,965.04 units totaling $74,996,504 in capital contributions. Between the
date of the final closing and December 31, 2004, the Partnership redeemed
10,449.64 limited partnership units leaving 739,515.40 limited partnership units
outstanding at December 31, 2004.
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 the terms of a management agreement with the Partnership.
Additionally, the General Partner has a 1% ownership interest in the
Partnership.
Profits, losses, cash distributions and disposition proceeds are allocated
99% to the limited partners and 1% to the General Partner until each limited
partner has received cash distributions and disposition proceeds sufficient to
reduce their adjusted capital contribution account to zero and receive, in
addition, other distributions and allocations which would provide an 8% per
annum cumulative return on their outstanding adjusted capital contribution
account. After such time, distributions will be allocated 90% to the limited
partners and 10% to the General Partner.
(2) Summary of Significant Accounting Policies
Consolidation and Minority Interest
The consolidated financial statements include the accounts of the
Partnership and its majority owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. The Partnership accounts for
its interests in minority 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. In
joint ventures where the Partnership's ownership interest is majority owned,
minority interest represents the minority venturer's proportionate share of
their equity in the joint venture. The minority interest is adjusted for the
minority venturer's share of the earnings or loss of the joint venture.
28
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid
investments with original maturity dates of three months or less.
Concentration of Credit Risk
Concentrations of credit risk with respect to lessees are dispersed across
the different industry segments within the United States of America and
throughout the world; accordingly the Partnership is exposed to business and
economic risk. Although the Partnership does not currently foresee a
concentrated credit risk associated with its lessees, lease payments are
dependent upon the financial stability of the segments in which they operate.
Allowance for Doubtful Accounts
The Partnership estimates collectibility of receivables by analyzing
historical bad debts, lessee concentrations and credit worthiness and current
economic trends when evaluating the adequacy of the allowance for doubtful
accounts. The Partnership records an allowance for doubtful accounts when the
analysis indicates that the probability of full collection is unlikely.
Investments in Operating Leases
Investments in operating leases are stated at cost less accumulated
depreciation. Depreciation is being provided for using the straight-line method
over the term of the related equipment lease to its estimated residual value at
lease end. Upon final disposition of the equipment, the cost and related
accumulated depreciation will be removed from the accounts and the resulting
profit or loss will be reflected in the consolidated statement of operations.
Revenues from operating leases are recognized on a straight line basis over the
lives of the related leases.
Asset Impairment
The Partnership's asset portfolio is periodically reviewed, at least
annually, to determine whether events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. An impairment loss will
be recognized if the carrying amount of a long-lived asset is not recoverable
and exceeds its fair value. In such circumstances, the Partnership will estimate
the future cash flows (undiscounted and without interest charges) expected to
result from the use of the asset and its eventual disposition. Future cash flows
are the cash inflows expected to be generated by an asset less the cash outflows
expected to be necessary to obtain those inflows. An impairment loss will be
measured as the amount by which the carrying amount of a long-lived asset
exceeds its fair value.
The events or changes in circumstances which generally indicate that an
asset may be impaired are (i) the estimated fair value of the underlying
equipment is less than our carrying value or (ii) the lessee is experiencing
financial difficulties and it does not appear likely that the estimated proceeds
from the disposition of the asset will be sufficient to satisfy the remaining
obligation to the lender and our residual position in the asset. Generally in
the latter situation, the residual position relates to equipment subject to
third party notes payable where the lessee remits their rental payments directly
to the lender and we do not recover our residual position until the note payable
is repaid in full.
29
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
Equipment Held for Sale or Lease
Equipment held for sale or lease is recorded at the lower of cost or fair
value expected to be realized upon sale or lease and consists of equipment
previously leased to end users which has been returned to the Partnership
following lease expiration.
Estimated Unguaranteed Residual Values
The Partnership carries its estimated unguaranteed residual value at the
estimated unrecovered cost at lease termination. The value is equal to or less
than market value, and is subject to the Partnership's policy relating to
impairment review.
Convertible Notes Receivable
The Partnership classifies its investments in convertible notes receivable
as available for sale. Available for sale securities are recorded at fair value
based upon quoted market prices or the General Partner's best estimate if quoted
market prices are not available. Unrealized gains and losses during the year are
reflected in other comprehensive income which is a component of partners'
equity.
Redemption of Limited Partnership Units
The Partnership may, at its discretion, redeem units from a limited number
of its limited partners, in any one year, as defined in the partnership
agreement. The redemption amounts are calculated following a specified
redemption formula in accordance with the partnership agreement. Redeemed units
have no voting rights and do not share in distributions. Redeemed limited
partnership units are accounted for as a reduction from partners' equity.
Per Unit Data
Net income (loss) and distributions per unit are based upon the weighted
average number of units outstanding during the period.
Revenue Recognition
The Partnership leases equipment to third parties which may be classified
as either a finance lease or an operating lease, which is determined based upon
the terms of each lease. Initial direct costs are capitalized and amortized over
the term of the related lease for a finance lease. For an operating lease, the
initial direct costs are included as a component of the cost of the equipment
and depreciated.
For finance leases, the Partnership records, at lease inception, the total
minimum lease payments receivable from the lessee, the estimated unguaranteed
residual value of the equipment at lease termination, the initial direct costs
related to the lease 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 term of the lease using the
effective interest rate method.
30
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(2) Summary of Significant Accounting Policies - continued
For operating leases, rental income is recognized on the straight line
method over the lease term. Billed and uncollected operating lease receivables
are included in other assets. Deferred rental income is the difference between
the timing of the cash payments and the rentals recognized on a straight line
basis.
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 at December 31, 2004 and 2003 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. The estimated fair value of the Partnership's notes payable at December
31, 2004 is approximately $32,476,000.
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.
Recent Accounting Pronouncements
During December 2004, the FASB issued SFAS No. 153 "Exchanges of
Nonmonetary Assets--an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153
is based on the principle that exchanges of nonmonetary assets should be
measured based on the fair value of the assets exchanged. The guidance in
Opinion 29, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. SFAS 153
is effective for nonmonetary exchanges occurring in fiscal periods beginning
after June 15, 2005. We do not expect the adoption of SFAS 153 to have an impact
on our financial position or results of operations.
Management does not believe that any recently issued, but not yet effective
accounting pronouncements, if currently adopted, would have a material effect on
the accompanying consolidated financial statements.
Reclassifications
Certain reclassifications have been made to the accompanying consolidated
financial statements in prior years to conform to the current presentation.
31
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(3) Joint Ventures
The Partnership and its affiliates, entities also managed by the General
Partner, formed six joint ventures, discussed below, for the purpose of
acquiring and managing various assets. The Partnership and these affiliates have
substantially identical investment objectives and participate on the same terms
and conditions. The Partnership and the other joint venturers have a right of
first refusal to purchase the equipment, on a pro-rata basis, if any of the
other joint venturers desire to sell their interests in the equipment or joint
venture.
The two joint ventures described below are majority owned and
consolidated with the Partnership.
ICON Aircraft 46837, LLC
On March 31, 2004 the Partnership and ICON Income Fund Ten, LLC ("Fund
Ten"), an affiliate, formed a joint venture, ICON Aircraft 46837, LLC ("ICON
Aircraft 46837"), for the purpose of acquiring a 1979 McDonnell Douglas
DC-10-30F aircraft on lease to Federal Express Corporation ("FedEx") with a
remaining lease term of 36 months. The Partnership acquired a 28.6% ownership
interest in this joint venture for a total of approximately $6,065,000,
consisting of approximately $1,100,000 in cash and the assumption of
approximately $4,965,000 of non-recourse debt. The non-recourse debt accrues
interest at 4.0% per annum and matures in March 2007. The lender has a security
interest in the aircraft and an assignment of the rental payments under the
lease with FedEx. Legal and bank fees of $238,621 were also paid and capitalized
as part of the cost of the aircraft.
The Partnership had an option to acquire an additional 61.4% ownership
interest in ICON Aircraft 46837 from Fund Ten. The cost of the option was
$419,672, which included $10,000 paid to Fund Ten and $409,672 paid to the
General Partner as an acquisition fee. During the third quarter 2004, the option
was exercised and Fund Ten sold 61.4% of its ownership interest to the
Partnership giving the Partnership a 90% ownership interest in ICON Aircraft
46837. Fund Ten received approximately $2,297,000 for its 61.40% interest. The
Partnership consolidates ICON Aircraft 46837's balance sheet at December 31,
2004 and the results of operations and cash flows for the six months ended
December 31, 2004. The outstanding balance of the non-recourse debt secured by
this aircraft was $12,803,882 at December 31, 2004.
ICON/Boardman Facility LLC
The Partnership and two affiliates, ICON Cash Flow Partners L.P. Six ("L.P.
Six") and ICON Cash Flow Partners L.P. Seven ("L.P. Seven") formed ICON/Boardman
Facility LLC ("ICON BF") for the purpose of acquiring a coal handling facility
on lease with Portland General Electric ("PGE"), a utility company. Prior to
September 24, 2004 the Partnership, L.P. Seven and L.P. Six owned 98.995%,
..5025%, and .5025% interests, respectively, in ICON BF.
32
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(3) Joint Ventures - continued
As discussed in Note 10, in connection with the Comerica Bank Loan and
Security Agreement, the Partnership entered into a Contribution Agreement with
ICON Cash Flow Partners L.P. Seven ("L.P. Seven"), ICON Income Fund Eight B L.P.
("Fund Eight B"), ICON Income Fund Nine, LLC ("Fund Nine") Fund Ten (each a
"Borrower" and collectively, "the Borrowers") which requires a Borrower to repay
another Borrowers obligations to Comerica Bank as long as the repaid amounts are
promptly reimbursed to the paying Borrower. Effective September 24, 2004, the
L.P. Seven assigned its entire .5025% interest in ICON BF to the Partnership in
exchange for $65,325 to partially satisfy L.P. Seven's obligations to the
Partnership for amounts paid under the Contribution Agreement. This amount was
determined to represent the fair value of L.P. Seven's interest in ICON BF based
upon the expected net proceeds from the anticipated sale of the coal handling
facility.
ICON BF is currently in negotiations with PGE for the purchase of the coal
handling facility from ICON BF. The sale is expected to be completed during 2005
with PGE acquiring ownership of the coal handling facility.
The four joint ventures described below are minority owned by the
Partnership and are accounted for under the equity method, whereby the
Partnership's original investment was recorded at cost and is adjusted by its
share of earnings, losses and distributions of the joint ventures.
ICON/AIC Trust
The Partnership and two affiliates, L.P. Six and L.P. Seven formed,
ICON/AIC Trust ("AIC Trust") for the purpose of owning and managing a portfolio
of equipment leases located in England. On December 28, 2001, AIC Trust sold its
remaining leases, subject to the related debt, in exchange for a note receivable
of (pound)2,575,000 ($3,744,822 converted at the exchange rate at December 31,
2001) which was payable in six installments through June 2004. In July 2004, the
final installment on the note was collected and distributed. On September 30,
2004, AIC Trust was dissolved. The Partnership, L.P. Six and L.P. Seven owned
interests of 43.73%, 25.51% and 30.76%, respectively.
The Partnership recognized an additional $177,832 of foreign currency
translation gains from the transaction which is included in income from
investments in joint ventures in the accompanying consolidated statement of
operations.
Information as to the financial position and results of operations of AIC
Trust at December 31, 2004 and 2003 and for the years ended December 31, 2004
and 2003 are summarized below:
December 31,
2004 2003
------------- -------------
Assets $ - $ 1,330,632
============= =============
Liabilities $ - $ -
============= =============
Equity $ - $ 1,330,632
============= =============
Partnership's share of equity $ - $ 581,886
============= =============
Years Ended December 31,
2004 2003
------------- -------------
Net income $ 7,700 $ 37,009
============= =============
Partnership's share of net income $ 3,367 $ 16,184
============= =============
Distributions $ 1,378,141 $ 1,396,948
============= =============
Partnership's share of distributions $ 602,661 $ 610,885
============= =============
33
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(3) Joint Ventures - continued
ICON Aircraft 24846 LLC
The Partnership and two affiliates, L.P. Seven and Fund Eight B, formed
ICON Aircraft 24846 LLC ("ICON Aircraft 24846") for the purpose of acquiring an
investment in a Boeing 767-300ER aircraft on lease to Scandinavian Airline
Systems. The Partnership, L.P. Seven and Fund Eight B had ownership interests of
2.0%, 2.0% and 96.0%, respectively.
The aircraft was sold on July 29, 2004 and ICON Aircraft 24846 realized a
net loss on the sale of approximately $601,800, of which the Partnership's share
was approximately $12,000. The General Partner had determined that it was in the
best interest of ICON Aircraft 24846 and its members to sell the Boeing
767-300ER aircraft to BTM Capital Corp., the lender, for an amount equal to the
then outstanding debt balance. The decision to sell the aircraft was based, in
part, on the following factors: (i) the aircraft's fair market value was
estimated to be between $24,000,000 and $27,000,000 and the balance of the
outstanding debt was $34,500,000; (ii) any new lease for the aircraft would have
required an additional $850,000 in equity (at a minimum) in order to reconfigure
the aircraft and upgrade the engines; and (iii) if the Partnership were to
continue to remarket the aircraft, the lender would have required interest only
payments of approximately $100,000 per month until the aircraft was re-leased.
Information as to the financial position and results of operations of ICON
Aircraft 24846 at December 31, 2004 and 2003 and for the years ended December
31, 2004 and 2003 are summarized below:
December 31,
2004 2003
------------- -------------
Assets $ - $ 36,430,187
============= =============
Liabilities $ - $ 34,493,632
============= =============
Equity $ - $ 1,938,555
============= =============
Partnership's share of equity $ - $ 38,771
============= =============
Years Ended December 31,
2004 2003
------------- -------------
Net loss $ (2,515,576) $ (3,467,329)
============= =============
Partnership's share of net loss $ (50,312) $ (69,347)
============= =============
Contributions $ 577,021 $ 1,649,551
============= =============
Partnership's share of contributions $ 11,540 $ 32,992
============= =============
ICON Cheyenne LLC
The Partnership and three affiliates, L.P. Six, L.P. Seven, and Fund Eight
B formed, ICON Cheyenne LLC ("ICON Cheyenne") for the purpose of acquiring and
managing a portfolio of equipment leases. At December 31, 2004, the Partnership,
L.P. Six, L.P. Seven, and Fund Eight B had ownership interests of 1.0%, 1.0%,
1.27% and 96.73%, respectively.
The outstanding balance of the non-recourse debt secured by these assets at
December 31, 2004 was $397,850. The leases expire on various dates through
September 2006.
34
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(3) Joint Ventures - continued
Information as to the financial position and results of operation of ICON
Cheyenne at December 31, 2004 and 2003 are summarized below:
December 31,
2004 2003
------------- -------------
Assets $ 1,241,215 $ 10,440,643
============= =============
Liabilities $ 656,923 $ 3,204,090
============= =============
Equity $ 584,292 $ 7,236,553
============= =============
Partnership's share of equity $ 5,843 $ 72,366
============= =============
Years Ended December 31,
2004 2003
------------- -------------
Net loss $ (1,952,262) $ (45,540)
============= =============
Partnership's share of net loss $ (19,523) $ (455)
============== =============
Distributions $ 4,700,001 $ 2,341,759
============= =============
Partnership's share of distributions $ 47,000 $ 23,418
============= =============
North Sea (Connecticut) Limited Partnership
On November 24, 2004, in consideration for a $200,000 obligation payable to
the Partnership which also arose as part of the Comerica Bank Contribution
Agreement (See Note 10), L.P. Seven assigned to the Partnership a .8% interest
in the profits, losses and future cash flows of North Sea (Connecticut) Limited
Partnership ("North Sea"). North Sea owns a 50% interest in a mobile offshore
drilling rig, subject to lease with Rowan Companies, Inc. The fair value of the
mobile offshore drilling rig was determined using an independent third party
appraisal and cash flow analysis.
Information as to the financial position and results of operations of North
Sea at December 31, 2004 and 2003 and for the years ended December 31, 2004 and
2003 are summarized below:
December 31,
2004 2003
------------- -------------
Assets $ 9,174,080 $ 9,839,209
============= =============
Liabilities $ 15,838,485 $ 19,574,474
============= =============
Deficit $ (6,664,405) $ (9,735,265)
============ ============
Partnership's share of equity (a) $ 33,722 $ -
============= =============
Years Ended December 31,
2004 2003
------------- -------------
Net income $ 3,070,860 $ 2,743,802
============= =============
Partnership's share of net income $ 1,024 $ -
============= =============
(a) During the year ended December 31, 2002, all equity distributions were
allocated to the co-venturer.
(4) Investments in Finance Leases
The Partnership has an investment in finance leases with Regus Business
Center Corp. ("Regus"), which leases office, telecommunications and computer
equipment from the Partnership under a direct finance lease since August of
2000.
35
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(4) Investments in Finance Leases - continued
Regus filed for bankruptcy protection under Chapter 11 of the United States
bankruptcy code on January 14, 2003. The Partnership had been negotiating an
amended lease with Regus which was approved when Regus emerged from bankruptcy
protection. Under the revised lease agreement, Regus commenced making payments
at a reduced rental rate, with an extension for 48 months, effective from March
15, 2003. At December 31, 2004, Regus was current on its payments under the
revised lease agreement.
Non-cancelable minimum annual amounts due on finance leases are as follows:
Year Ending
December 31,
2005 $ 4,263,728
2006 747,763
2007 130,811
---------
$ 5,142,302
The allowance for doubtful accounts consists of the following:
2004 2003 2002
------------- ------------- -------------
Balance, beginning of year $ (228,721) $ (228,721) $ (585,000)
Reversal (Provision) for bad debts 102,879 - (300,000)
Write-offs - - 656,279
------------- ------------- -------------
Balance, end of year $ (125,842) $ (228,721) $ (228,721)
============ ============ ============
(5) Investments in Operating Leases
The Partnership has two leases, for a Boeing 737-277 aircraft and for a
Boeing 737-2E3A aircraft (the "Aircraft"), with America West Airlines, Inc
("America West"). In January 2002, those leases were restructured in conjunction
with America West's agreement with the Air Transportation Stabilization Board.
Both leases originally had monthly rental payments of $90,780 and expired on
December 31, 2003. The restructured leases include monthly rentals of $60,000
and the expiration date has been extended through December 31, 2005. As part of
the restructuring the Partnership received four 7.5% convertible notes
aggregating $2,000,000 which mature during December 2009 (see note 8).
During 2003, Sky Airlines, a lessee of the Partnership, which operated as a
tour operator based in Antalya, Turkey became delinquent on its payment
obligations under the lease. The lender on the transaction delivered notice that
an event of default existed as a result of Sky Airlines failing to pay all
amounts due under the lease on a timely basis. Consequently the Partnership
notified Sky Airlines that it was in default under the lease agreement and made
demand for payment in full.
36
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(5) Investments in Operating Leases - continued
The lender exercised its right to repossess the aircraft which was on lease
to Sky Airlines, along with the aircraft that was on lease to Boeing Connexion
during the quarter ended September 30, 2003. While Boeing Connexion was never in
default, the cross-collateralization term of the loan agreement, which was
entered into at purchase date of the aircrafts, resulted in both aircrafts being
repossessed. As a result of the repossession of the two aircraft the Partnership
has relinquished $23,244,966 of related note payable - non recourse and
written-off its remaining net investment in operating leases of $30,610,443,
which resulted in a loss on termination of leases of $7,365,477 for the year
ended December 31, 2003.
The aircrafts were the sole assets owned by ICON Aircraft 23865 LLC and
ICON Aircraft 24231 LLC, both wholly-owned subsidiaries of the Partnership.
Investments in operating leases consist of the following at December 31:
2004 2003 2002
------------- ------------- -------------
Equipment at cost, beginning of year $ 10,765,766 $ 50,773,532 $ 52,734,532
Equipment acquisitions 22,073,144 - -
Transfer from finance to operating lease 8,034,770 - -
Equipment dispositions - (40,007,766) -
Transfer to held for sale or lease - - (1,961,000)
------------- ------------- ------------
Equipment at cost, end of year 40,873,680 10,765,766 50,773,532
------------- ------------- -------------
Accumulated depreciation, beginning of year (2,202,024) (9,214,386) (5,969,663)
Accumulated depreciation on equipment
dispositions - 9,513,286 -
Depreciation expense on equipment held for
sale or lease - 985,290 -
Depreciation expense (5,550,380) (3,486,214) (3,244,723)
------------- ------------ ------------
Accumulated depreciation, end of year (7,752,404) (2,202,024) (9,214,386)
------------- ------------ ------------
Balance, beginning of year - - -
Impairment (3,000,000) - -
------------- ------------- -------------
Balance, end of year (3,000,000) - -
------------- ------------- -------------
Net investment in operating leases, end of year $ 30,121,276 $ 8,563,742 $ 41,559,146
============= ============= =============
During 2004, the Partnership reclassified one of its investments in finance
leases to investments in operating leases. A reclassification of $8,034,770 was
made for the vessel and tug boat under lease with Keystone Great Lakes.
37
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(6) Equipment Held for Sale or Lease
Equipment held for sale or lease at December 31, 2004 and 2003, consists
solely of aircraft rotable parts for Boeing A300 aircraft. Aircraft rotables are
replacement spare parts that are held in inventory by an airline. The
Partnership is currently in the process of remarketing this equipment. For the
year ended December 31, 2004, the Partnership sold approximately $108,000 of
this equipment. This amount has been recorded as a recovery of the cost of the
equipment held for sale or lease. For the year ended December 31, 2003 and 2002,
there were no sales of this equipment.
The Partnership recorded an impairment loss of $529,480 for the year ended
December 31, 2004 based upon an appraisal of the fair value of the aircraft
rotables at December 31, 2004.
The provision for impairment relating to equipment held for sale or lease
consists of the following:
2004 2003 2002
------------- ------------- -------------
Balance, beginning of year $ - $ - $ -
Impairment loss (529,480) - -
------------- ------------- -------------
Balance, end of year $ (529,480) $ - $ -
============- ============= =============
(7) Investment in Unguaranteed Residual Values
The Partnership acquired an investment in the unguaranteed residual value
interest of an off-shore oil drilling rig, subject to lease with an unaffiliated
third party for $1,997,000.
Prior to December 31, 2003 the Partnership also had an investment in the
unguaranteed residual value of a portfolio of technology and other equipment
leases with various lessees in the United Kingdom. During the years ended
December 31, 2004, 2003 and 2002, the Partnership received $124,206, $1,717,774
and $1,186,863, respectively, from the sale of equipment from the portfolio of
technology and other equipment leased to lessees in the United Kingdom. These
amounts were recorded as a recovery of investment, with no gain or loss recorded
during the year ended December 31, 2002. During the years ended December 31,
2004 and 2003, and the Partnership realized a net gain of $124,206 and $616,690.
(8) Convertible Notes Receivable
In connection with a restructuring of two aircraft leases with America West
in January 2002 (See Note 5), the Partnership received four 7.5% convertible
notes for an aggregate of $2,000,000 maturing on January 18, 2009. At December
31, 2004 the Partnership determined that the convertible notes had value due to
the Partnership's ability at January 18, 2005 to convert these notes. These
notes are convertible into shares of America West class B common stock upon the
occurrence of certain events, at the option of America West through January 18,
2005 and then at the option of the Partnership through maturity. The initial
conversion price is $12 per share or a conversion ratio of approximately 83.333
shares per $1,000 principal amount of the notes, subject to anti dilution
provisions. At December 31, 2004 the aggregate fair value of these convertible
notes determined to be $625,000. The value was calculated based upon the
estimated fair value of the underlying common stock at December 31, 2004 less a
discount due to uncertainties and restrictions relating to the underlying class
B common stock. These convertible notes are held as collateral by the lender.
(9) Notes Payable - Non-recourse
The Partnership's non-recourse notes payable are paid directly to the
lenders by the lessees and accrue interest at rates ranging from 3.65% per annum
to 10.63% per annum. The outstanding balances of non-recourse notes payable at
December 31, 2004 and 2003 were $33,646,477 and $19,174,180, respectively.
38
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(9) Notes Payable - Non-recourse - continued
On May 6, 2004, ICON BF refinanced its non-recourse debt relating to
equipment on lease to Portland General Electric ("PGE") for $11,193,368 which is
due on January 23, 2010 and accrues interest at 3.65% per annum. The Partnership
used a majority of the refinancing proceeds to repay its outstanding obligations
under the Partnership's recourse debt to Comerica Bank (See Note 10). In
conjunction with the refinancing, PGE has agreed to extend their lease with the
ICON BF to January 23, 2010.
Principal maturities of the Partnership's notes payable - non-recourse
consist of following at December 31, 2004:
Year Ending
December 31,
2005 $ 10,542,353
2006 10,615,803
2007 4,757,112
2008 5,270,773
2009 1,614,188
Thereafter 846,248
------------
$ 33,646,477
(10) Note Payable - Recourse
On May 30, 2002, the Partnership, along with certain of its affiliates;
L.P. Seven; Fund Eight B and Fund Nine, (collectively, the "Initial Funds"),
entered into a $17,500,000 line of credit agreement with Comerica Bank. The
Initial Funds accrue interest, on all outstanding balances, at an interest rate
equal to the Comerica Bank base interest rate plus 1% (together, 6.25% at
December 31, 2004). Under the terms of the line of credit agreement, the Initial
Funds may borrow money from Comerica Bank with all borrowings to be jointly and
severally collateralized by (i) cash and (ii) the present values of certain
rents receivable and equipment owned by the Initial Funds. Effective August 5,
2004, the line of credit agreement was amended to add Fund Ten as a borrower.
The Initial Funds and Fund Ten are collectively referred to as the Borrowers. On
December 6, 2004, the Loan and Security Agreement with Comerica Bank was
extended to December 30, 2005.
The Initial Funds entered into a Contribution Agreement, dated May 30,
2002, as subsequently amended to include Fund Ten, pursuant to which the
Borrowers have agreed to certain restrictions on the amounts and terms of their
respective borrowings under the line of credit agreement in order to minimize
the risk that a Borrower would be unable to repay its allocable portion of
outstanding line of credit obligations at any time. These restrictions include
borrowing in excess of the lesser of (a) an amount each Borrower could
reasonably expect to repay in one year from its projected cash flow, or (b) the
greater of (i) the borrowing base, as defined in the line of credit agreement,
as applied to such and (ii) 50% of the net worth of such Borrower. The
Contribution Agreement provides that, in the event a Borrower pays an amount
under this agreement in excess of its allocable share of the total obligations
under the line of credit agreement, whether by reason of an event or default or
otherwise, the other Borrowers will immediately make a contribution payment to
such Borrower and in such amount that the aggregate amount paid by each Borrower
reflects its allocable share of the aggregate obligations under the line of
credit agreement. The Borrowers' obligations to each other under the
Contribution Agreement are collateralized by a subordinate lien on the assets of
each participating Borrower.
39
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(10) Note Payable - Recourse - continued
At December 31, 2004, the Partnership had $4,625,000 outstanding under the
Loan Agreement. The aggregate borrowing by all Funds under the Loan Agreement
was $10,272,992 at December 31, 2004.
Effective March 8, 2005, ICON Cash Flow Partners L.P. Seven and Comerica
Bank entered into a Seventh Amendment to the Loan and Security Agreement. This
Agreement releases ICON Cash Flow Partners L.P. Seven from all of its
obligations under the Loan and Security Agreement dated as of May 30, 2002. As
such, ICON Cash Flow Partners L.P. Seven is no longer a party to the $17,500,000
line of credit.
(11) Income Taxes (Unaudited)
The Partnership is treated as a partnership for income tax reporting
purposes and as such, no provision for income taxes has been recorded since the
liability for such taxes is that of each of the individual 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 tax of the partners.
At December 31, 2004 and 2003, the partners' capital accounts included in
the consolidated financial statements totaled $16,607,978 and $23,604,943,
respectively. The partners' capital accounts for Federal income tax purposes at
December 31, 2004 and 2003 totaled $6,306,127 and $7,658,083 (unaudited),
respectively. The difference arises primarily from commissions reported as a
reduction in the partners' capital accounts for financial reporting purposes but
not for Federal income tax purposes, and differences in direct finance leases,
depreciation and amortization and provision for losses between financial
reporting and Federal income tax purposes.
The following table reconciles net loss for financial statement reporting
purposes to the loss for Federal income tax purposes as follows:
Years Ended December 31,
------------------------------------------------
2004 2003 2002
------------- ------------- -------------
Net loss per consolidated financial statements $ (3,521,353) $ (7,912,634) $ (1,196,680)
Differences due to:
Direct finance leases financings (1,157,092) 908,057 3,245,792
Interest 392,467 607,362 871,925
Depreciation and impairments 1,818,570 (2,299,992) (5,972,900)
(Recovery of) provision for losses - - 300,000
Gain (loss) on sale of equipment 1,091,859 4,202,620 (1,976,835)
Other 4,124,205 587,303 550,335
------------- ------------- -------------
Net income (loss) for Federal income tax purposes $ 2,748,656 $ (3,907,284) $ (4,178,363)
============= ============= =============
40
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(12) Limited Partnership Redemptions
The General Partner consented to the Partnership redeeming 2,793.4670 and
661.40 limited partnership units for the years ended December 31, 2004, 2003,
respectively. The redemption amounts are calculated according to a 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 reduction from partners' equity.
(13) Transactions with Related Parties
In accordance with the terms of the Management Agreement, the Partnership
pays the General Partner (i) management fees ranging from 1% to 7% based on a
percentage of the rentals received either directly by the Partnership or through
joint ventures and (ii) acquisition fees of 3% calculated based on the gross
value of the transactions. In addition, the General Partner is reimbursed for
administrative expenses incurred in connection with the Partnership's
operations.
The Partnership had a net payable of $73,862 due to the General Partner and
affiliates at December 31, 2004. Of this amount, the Partnership owed the
General Partner $32,896 for unpaid administrative expense reimbursements for the
year ended December 31, 2004. The Partnership had a net receivable from
affiliates of $58,564 at December 31, 2003
Fees and other expenses charged to operations by the Partnership to the
General Partner or its affiliates for the years ended December 31, 2004, 2003
and 2002, respectively, were as follows:
Years Ended December 31,
------------------------------------------------
2004 2003 2002
------------- ------------- -------------
Management fees $ 538,159 $ 737,943 $ 1,128,431
Administrative expense reimbursements 301,704 292,117 488,133
------------- ------------- -------------
$ 839,863 $ 1,030,060 $ 1,616,564
============= ============= =============
(14) Concentration Risks
The Partnership's cash and cash equivalents are held principally at one
financial institution and at times may exceed insured limits. The Partnership
has placed these funds in a high quality institution in order to minimize the
risk
For the year ended December 31, 2004, the Partnership had three leases that
accounted for approximately 84% of total rental income. For the year ended
December 31, 2003, the Partnership had four leases which accounted for
approximately 77% of total rental income. For the year ended December 31, 2002,
the Partnership had five leases that accounted for approximately 88% of total
rental income.
41
ICON Income Fund Eight A L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
December 31, 2004 and 2003
(15) Other Comprehensive Income
For the years ended December 31, 2004, 2003 and 2002, other
comprehensive income (loss) consists of the following:
Years Ended December 31,
2004 2003 2002
---- ---- ----
Net loss $ (3,521,353) $ (7,912,634) $ (1,196,680)
Other Comprehensive income (loss):
Valuation of convertible notes
receivable during the period. 625,000 - -
--------------- -------------- -------------
Comprehensive income (loss) $ (2,896,353) $ (7,912,634) $ (1,196,680)
=============== ============== =============
(16) Selected Quarterly Financial Data (Unaudited)
The following table is a summary of selected financial data, by quarter,
for the years ended December 31, 2004 and 2003:
Quarters Ended in 2004
March 31, June 30, September 30, December 31,
--------- -------- ------------- -----------
Revenue $ 1,018,356 $ 962,681 $ 2,669,872 $ 2,930,942
============= ============== ============ ==============
Net (loss) income allocable
to limited partners $ (382,617) $ 59,195 $ 225,207 $ (3,387,924)
============= ============== ============ ==============
Net (loss) income per weighted average
limited partnership unit $ (0.52) $ 0.08 $ 0.30 $ (4.57)
============= ============== ============ ==============
Quarters Ended in 2003
March 31, June 30, September 30, December 31,
--------- -------- ------------- ------------
Revenue $ 2,701,123 $ 2,522,977 $ 2,082,942 $ 1,099,715
============= ============== ============ ==============
Net (loss) income allocable
to limited partners $ (525,270) $ (7,164,648) $ 49,357 $ (192,947)
============= ============== ============ ==============
Net (loss) income per weighted average
limited partnership unit $ (0.71) $ (9.64) $ 0.07 $ (0.27)
============= ============== ============ =============
42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
During the year ended December 31, 2004 we had no disagreements with our
accountants on any matters of accounting or financial reporting.
Item 9A. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., our General Partner,
including the Principal Executive Officer and the Principal Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report pursuant to the
Securities Exchange Act of 1934. Based upon the evaluation, the Principal
Executive Officer and the Principal Financial Officer concluded that our
disclosure controls and procedures were effective.
There were no significant changes in our internal control over financial
reporting during our fourth fiscal quarter that have materially affected, or are
likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
43
PART III
Item 10. Directors and Executive Officers of the Registrant's General Partner
Our General Partner, ICON Capital Corp., a Connecticut corporation, was
formed in 1985. The General Partner's principal offices are located at 100 Fifth
Avenue, 10th Floor, New York, New York 10011, and the telephone number is (212)
418-4700. The officers of the General Partner have extensive experience with
transactions involving the acquisition, leasing, financing and disposition of
equipment, including acquiring and disposing of equipment subject to leases and
full financing transactions.
The General Partner is engaged in a broad range of equipment leasing and
financing activities. Through its sales representatives and through various
broker relationships throughout the United States, the General Partner offers a
broad range of equipment leasing services.
The General Partner performs certain functions relating to the management
of our equipment. Such services include the collection of lease payments from
the lessees of the equipment, re-leasing services in connection with equipment
which is off-lease, inspections of the equipment, liaison with and general
supervision of lessees to assure that the equipment is being properly operated
and maintained, monitoring performance by the lessees of their obligations under
the leases and the payment of operating expenses.
Our officers and directors are:
Beaufort J.B. Clarke Chairman, Chief Executive Officer and Director
Paul B. Weiss President and Director
Thomas W. Martin Executive Vice President, Chief Financial Officer
and Director
Michael A. Reisner Senior Vice President and General Counsel
Sean E. Hoel Senior Vice President
Beaufort J. B. Clarke, 58, has been our Chairman, Chief Executive Officer
and Director since August of 1996. He was our President from August of 1996
until December 31, 1998. Prior to his present positions, Mr. Clarke was founder,
President and Chief Executive Officer of Griffin Equity Partners, Inc. (a
purchaser of equipment leasing portfolios) from October 1993 through August
1996. Prior to that, Mr. Clarke was President of Gemini Financial Holdings, Inc.
(an equipment leasing company) from June 1990 through September 1993.
Previously, Mr. Clarke was a Vice President of AT&T Systems Leasing. Mr. Clarke
formerly was an attorney with Shearman and Sterling. Mr. Clarke received a B.A.
degree from the George Washington University and a J.D. degree from the
University of South Carolina. Mr. Clarke has been in the equipment leasing
business, as a business person and lawyer, since 1979.
Paul B. Weiss, 44, has been our President and Director since January 1,
1999. Mr. Weiss was our Director and Executive Vice President responsible for
lease acquisitions from November of 1996 until December 31, 1998. Mr. Weiss
served as Executive Vice President and co-founder of Griffin Equity Partners,
Inc. from October of 1993 through November of 1996. Prior to that, Mr. Weiss was
Senior Vice President of Gemini Financial Holdings, Inc. from 1991 to 1993 and
Vice President of Pegasus Capital Corporation (an equipment leasing company)
from 1988 through 1991. Mr. Weiss received a B.A. in Economics from Connecticut
College. Mr. Weiss has been in the equipment leasing business since 1988.
44
Thomas W. Martin, 51, has been our Executive Vice President, Chief
Financial Officer and Director (and Director, President and Chief Financial
Officer of the dealer-manager as well) since August of 1996. Mr. Martin was the
Executive Vice President, Chief Financial Officer and a co-founder of Griffin
Equity Partners, Inc. from October 1993 to August 1996. Prior to that, Mr.
Martin was Senior Vice President of Gemini Financial Holdings, Inc. from April
1992 to October 1993 and he held the position of Vice President at Chancellor
Corporation (an equipment leasing company) for 7 years. Mr. Martin received a
B.S. degree from the University of New Hampshire. Mr. Martin has been in the
equipment leasing business since 1983.
Michael A. Reisner, Esq., 34, has been our Senior Vice President and
General Counsel since January 2004. Mr. Reisner was our Vice President and
Associate General Counsel from March 2001 until December 2003. Previously, from
1996 to 2001, Mr. Reisner was an attorney with Brodsky Altman & McMahon, LLP in
New York, concentrating on commercial transactions. Mr. Reisner received a J.D.
from New York Law School and a B.A. from the University of Vermont.
Sean E. Hoel, 35, has been our Senior Vice President since June 1999. Mr.
Hoel is responsible for the acquisition of equipment subject to lease. Mr. Hoel
has a Masters Degree in Finance from Seattle University, preceded by Law School
at the University of Oslo, a B.A. in Finance at the University of Wyoming, as
well as three years of military service as a naval officer.
Code of Ethics
The General Partner on our behalf has adopted a code of ethics for its
Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer.
The Code of Ethics is available free of charge by requesting it in writing from
our General Partner. The General Partner's address is 100 Fifth Avenue, 10th
Floor, New York, New York 10011.
Item 11. Executive Compensation
We have no directors or officers. The General Partner and its affiliates
were paid or accrued the following compensation and reimbursement for costs and
expenses for the years ended December 31, 2004, 2003 and 2002.
Entity Capacity Compensation 2004 2003 2002
- ---------------------- ------------------ ------------------------ ----------- ----------- -----------
ICON Capital Corp. General Partner Management fees $ 538,159 $ 737,943 $ 1,128,431
=========== =========== ===========
ICON Capital Corp. General Partner Administrative fees $ 301,704 $ 292,117 $ 488,133
=========== =========== ===========
The General Partner also has a 1% interest in our profits and
distributions. We paid distributions to the General Partner of $40,221, $61,012
and $80,811, respectively, for the years ended December 31, 2004 2003 and 2002.
Additionally, the General Partners interest in our net loss was $35,214, $79,126
and $11,967, respectively, for the years ended December 31, 2004 2003 and 2002.
45
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) We are a limited partnership and therefore do not have voting shares of
stock. No person of record owns, or is known by us to own beneficially, more
than 5% of any class of our securities.
(b) As of March 30, 2005, Directors and Officers of the General Partner do
not own any of our equity securities.
(c) The General Partner owns the equity securities, as follows; a General
Partner Interest which represents initially a 1% and potentially a 10% interest
in our income, gain and losses. The General Partner owns 100% of the General
Partner Interest.
Item 13. Certain Relationships and Related Transactions
See Item 11 for a discussion of our related party transactions. See Notes 3
and 13 to our consolidated financial statements for a discussion of our related
party activity and investments in joint ventures.
Item 14. Principal Accountant Fees and Services
During the year ended December 31, 2004 and 2003 our auditors provided
audit services relating to our annual report on Form 10-K and our quarterly
reports on Form 10-Q. Additionally, our auditors provided other services in the
form of tax compliance work. Their fees are shown in the table below:
2004 2003
------------- -------------
Audit fees $ 73,313 $ 55,000
Audit related fees 1,350 -
Tax fees (for compliance) 15,300 1,093
------------- -------------
$ 89,963 $ 56,093
============= ============
46
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is included
in the consolidated Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Amended and Restated Agreement of Limited Partnership (Incorporated by
reference to Exhibit A to Amendment No. 2 to Form S-1 Registration Statement No.
333-54011 filed with the Securities and Exchange Commission on September 18,
1998).
(ii) Certificate of Limited Partnership of the Partnership (Incorporated herein
by reference to Exhibit 4.3 to Form S-1 Registration Statement No. 333-54011
filed with the Securities and Exchange Commission on May 29, 1998.
(iii) On December 31, 2004, Jeremiah Silkowski, resigned from his position of
Senior Vice President of ICON Capital Corp., the Company's general partner, so
that he may pursue other opportunities (incorporated by reference to Current
Report on Form 8-K, dated January 6, 2005).
(b) 10.1 Sixth Amendment to the Loan and Security Agreement dated May 30, 2002
as amended.
31.1 Rule 13a-14(a)/15d-14(a) certifications
31.2 Rule 13a-14(a)/15d-14(a) certifications
32.1 Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. 32.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(c) Unconsolidated Joint Venture Financial Statements, See Part II, Item 8, Note
3.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ICON Income Eight A L.P. File No. 333-54011 (Registrant) by its General Partner,
ICON Capital Corp.
Date: May 13, 2005 /s/ Beaufort J.B. Clarke
---------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacity and on the dates indicated. ICON Capital Corp. sole General
Partner of the Registrant
Date: May 13, 2005 /s/ Beaufort J.B. Clarke
-----------------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: May 13, 2005 /s/ Paul B. Weiss
-----------------------------------------------
Paul B. Weiss
President and Director
Date: May 13, 2005 /s/ Thomas W. Martin
-----------------------------------------------
Thomas W. Martin
Executive Vice President and Director
(Principal Financial and Accounting Officer)
Supplemental Information to be furnished with reports filed pursuant to Section
15(d) of the Act by Registrant which has not registered securities pursuant to
Section 12 of the Act. No annual report or proxy material has been sent to
security holders. An annual report will be sent to the limited partners and a
copy will be forwarded to the Commission.
48
Exhibit 31.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Beaufort J.B. Clarke, certify
that:
1. I have reviewed this annual report on Form 10-K of ICON Income Eight A L.P.;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this annual report based on such evaluation; and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the board of directors of the Corporate Manager (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially affect
the Partnership's ability to record, process, summarize and report
financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
Dated: May 13, 2005
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Eight A L.P.
49
Exhibit 31.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Thomas W. Martin, certify that:
1. I have reviewed this annual report on Form 10-K of ICON Income Eight A L.P.;
2. Based on my knowledge, this annual report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15e) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end of
the period covered by this annual report based on such evaluation; and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the board of directors of the Corporate Manager (or
persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially affect
the Partnership's ability to record, process, summarize and report
financial information and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls
over financial reporting.
Dated: May 13, 2005
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Eight A L.P.
50
Exhibit 32.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Beaufort J.B. Clarke, Chairman
and Chief Executive Officer of ICON Capital Corp, the General Partner, in
connection with the Annual Report of ICON Income Eight A L.P. (the
"Partnership") on Form 10-K for the year ended December 31, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Annual Report")
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge and belief:
(1) the Annual Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
Dated: May 13, 2005
/s/ Beaufort J.B. Clarke
------------------------------------------------------
Beaufort J.B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
Manager of ICON Income Eight A L.P.
51
Exhibit 32.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) I, Thomas W. Martin, Executive Vice
President (Principal Financial and Accounting Officer) of ICON Capital Corp, the
General Partner, in connection with the Annual Report of ICON Income Eight A
L.P. (the "Partnership") on Form 10-K for the year ended December 31, 2004, as
filed with the Securities and Exchange Commission on the date hereof (the
"Annual Report") certify, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge and belief:
(1) the Annual Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
(2) the information contained in the Annual Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
Dated: May 13, 2005
/s/ Thomas W. Martin
-------------------------------------------------------
Thomas W. Martin
Executive Vice President (Principal
Financial and Accounting Officer)
ICON Capital Corp.
Manager of ICON Income Eight A L.P.
52