UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the quarterly period ended September 30, 2004
--------------------------------------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
for the transition period from ______________________ to________________________
Commission File Number 333-37504
ICON Income Fund Eight B L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4101114
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
100 Fifth Avenue, New York, New York 10011-1505
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(212) 418-4700
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
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 whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2) [ ] Yes [x] No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
2004 2003
---- ----
Assets
Cash and cash equivalents $ 956,359 $ 1,760,803
------------- --------------
Investments in finance leases:
Minimum rents receivable 11,631,582 15,192,886
Estimated unguaranteed residual values 1,737,662 1,737,662
Initial direct costs, net 95,384 194,985
Unearned income (1,068,244) (1,974,924)
Allowance for doubtful accounts (411,742) -
------------- -------------
Net investment in finance leases 11,984,642 15,150,609
------------- -------------
Investments in operating leases:
Equipment, at cost 136,105,659 148,112,061
Accumulated depreciation and amortization (34,503,234) (31,289,197)
------------- --------------
Net investment in operating leases 101,602,425 116,822,864
------------- --------------
Equipment held for sale or lease - 36,741,848
Investments in joint ventures 5,900,394 6,382,227
Due from affiliates 923,921 167,170
Investment in unguaranteed residual values - 409,586
Investment in option 2,100,000 2,100,000
Other assets, net 1,341,862 1,212,013
------------- --------------
Total assets $ 124,809,603 $ 180,747,120
============= ==============
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets - Continued
(Unaudited)
September 30, December 31,
2004 2003
---- ----
Liabilities and Partners' Equity
Notes payable - non-recourse $ 84,919,449 $ 132,938,722
Note payable - recourse 3,195,000 2,000,000
Due to affiliates 1,229 98,203
Deferred rental income 2,828,642 1,255,076
Equipment sales advances 368,908 1,361,506
Security deposits and other liabilities 1,708,514 1,377,023
Minority interests 467,616 1,352,621
----------------- -----------------
Total liabilities 93,489,358 140,383,151
----------------- -----------------
Commitment and Contingencies
Partners' equity (deficit)
General Partner (337,039) (247,872)
Limited Partners (743,529.34 and 745,491.39 units outstanding,
$100 per unit original issue price) 31,657,284 40,611,841
----------------- -----------------
Total partners' equity 31,320,245 40,363,969
----------------- -----------------
Total liabilities and partners' equity $ 124,809,603 $ 180,747,120
================= =================
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
---- ---- ---- ----
Revenues
Rental income $ 4,497,884 $ 5,457,298 $ 14,471,720 $ 16,703,527
Finance income 269,921 498,738 906,679 1,590,795
Net (loss) gain on sales of equipment (265,443) 10,033 (938,671) 21,828
Income from investments in joint ventures 118,882 107,035 386,500 246,356
Gain from investment in
unguaranteed residual values 1,194 - 99,426 -
Interest income and other 19,102 3,628 36,687 19,457
------------- ------------- ------------ ------------
Total revenues 4,641,540 6,076,732 14,962,341 18,581,963
------------- ------------- ------------ -----------
Expenses
Depreciation 3,159,140 4,697,297 11,103,749 13,313,166
Interest 1,264,151 1,881,472 4,486,392 5,633,365
Management fees - General Partner 421,985 503,790 1,245,749 1,698,373
Administrative expense
reimbursements - General Partner 195,259 229,672 636,681 785,107
Aircraft maintenance - 745,872 171,180 745,872
General and administrative 152,805 377,974 761,839 885,559
Amortization of initial direct costs 21,766 56,989 99,560 181,354
Provision for bad debts - - 411,742 -
Provision for impairment loss - - 601,788 -
Minority interest (18,531) (88,004) (152,837) (111,576)
------------- ------------- ------------- -------------
Total expenses 5,196,575 8,405,062 19,365,843 23,131,220
------------- ------------- ------------- -------------
Net loss $ (555,035) $ (2,328,330) $ (4,403,502) $ (4,549,257)
============= ============== ============ =============
Net loss allocable to:
Limited Partners $ (549,485) $ (2,305,047) $ (4,359,467) $ (4,503,764)
General Partner (5,550) (23,283) (44,035) (45,493)
------------- ------------- ------------ ------------
$ (555,035) $ (2,328,330) $ (4,403,502) $ (4,549,257)
============ ============= ============ ============
Weighted average number of limited
partnership units outstanding 743,648 746,526 744,463 747,525
============ ============= ============ ============
Net loss per weighted average
limited partnership unit $ (.74) $ (3.09) $ (5.86) $ (6.03)
============= ============= ============ ============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statement of Changes in Partners' Equity
For the Nine Months Ended September 30, 2004
(Unaudited)
Limited Partner Distributions
Return of Investment Limited General
Capital Income Partners Partner Total
------- ------ -------- -------- -----
(Per weighted average unit)
Balance at January 1, 2004 $ 40,611,841 $ (247,872) $ 40,363,969
Cash distributions to partners $ 6.00 $ - (4,468,092) (45,132) (4,513,224)
Limited partnership units
redeemed (1,962.05 units) (126,998) - (126,998)
Net loss (4,359,467) (44,035) (4,403,502)
--------------- ------------- ------------
Balance at September 30, 2004 $ 31,657,284 $ (337,039) $ 31,320,245
--------------- ------------ ------------
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
2004 2003
---- ----
Cash flows from operating activities:
Net loss $ (4,403,502) $ (4,549,257)
---------------- ----------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Finance income paid directly to lenders by lessees (628,091) (841,707)
Depreciation 11,103,749 13,313,166
Amortization of initial direct costs 99,560 181,354
Minority interest (152,837) (111,576)
Income from investments in joint ventures (386,501) (246,356)
Net loss (gain) on sales of equipment 938,671 (21,828)
Gain from investment in unguaranteed residuals (99,426) -
Provision for impairment loss 601,788 -
Provision for bad debts 411,742 -
Rental income paid directly to lenders by lessees (13,684,723) (16,158,540)
Interest expense on non-recourse financing
paid directly to lenders by lessees 3,832,042 4,707,878
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables 1,096,893 2,068,755
Due from affiliates 58,865 (300,548)
Other assets (129,849) 136,522
Due to affiliates (96,974) (6,960)
Deferred rental income 96,366 (353,779)
Security deposits and other liabilities 1,324,089 877,070
--------------- ----------------
Total adjustments 4,385,364 3,243,451
--------------- ----------------
Net cash used in operating activities (18,138) (1,305,806)
--------------- ----------------
Cash flows from investing activities:
Cash investment in operating leases - (3,076,564)
Distributions from consolidated joint ventures (550,873) -
Equipment sales advances (992,598) 132,000
Distributions received from unconsolidated joint ventures 868,336 1,030,997
Proceeds from sale of unguaranteed residual values 509,012 1,882,292
Loans and advances from affiliates (815,616) -
Proceeds from the sales of equipment 3,702,243 681,899
--------------- ----------------
Net cash provided by investing activities 2,720,504 650,624
--------------- ----------------
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows - Continued
For the Nine Months Ended September 30,
(Unaudited)
2004 2003
---- ----
Cash flows from financing activities:
Minority interest contribution, net 11,458 352,198
Proceeds from recourse borrowings 1,195,000 -
Cash distributions to partners (4,513,224) (5,527,570)
Redemption of limited partnership units (126,998) (135,248)
Repayment of non-recourse borrowings (73,046) (382,705)
--------------- -----------------
Net cash used in financing activities (3,506,810) (5,693,325)
--------------- -----------------
Net decrease in cash and cash equivalents (804,444) (6,348,507)
Cash and cash equivalents at beginning of the period 1,760,803 8,499,026
-------------- -----------------
Cash and cash equivalents at end of the period $ 956,359 $ 2,150,519
============== ==================
(continued on next page)
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows - Continued
For the Nine Months Ended September 30,
(Unaudited)
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
For the nine months ended September 30, 2004 and 2003, non-cash activities
included the following:
2004 2003
---- ----
Value of equipment and receivables acquired in exchange
for debt $ - $ 24,211,080
Non-recourse notes payable and promissory note
assumed in purchase of equipment and receivables - (24,211,080)
----------------- ---------------
$ - $ -
================= ===============
Notes payable - non-recourse relinquished with sale of
equipment $ 34,491,692 $ -
================== ===============
Principal and interest from finance leases paid
directly to lenders by lessees $ 2,124,714 $ 2,420,526
Rental income from operating leases paid
directly to lenders by lessees 13,684,723 16,158,540
Deferred rental income from operating leases paid
directly to lenders by lessees 1,477,200 3,194,162
Principal and interest paid directly to lenders by lessees (17,286,637) (21,773,228)
----------------- ---------------
$ - $ -
================ ===============
Interest paid directly to lenders by lessees
pursuant to non-recourse financings $ 3,832,042 $ 4,707,878
Other interest paid 654,350 925,487
----------------- ---------------
Total interest expense $ 4,486,392 $ 5,633,365
================= ===============
See accompanying notes to consolidated financial statements.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
1. Basis of Presentation and Consolidation
The accompanying consolidated financial statements of ICON Income Fund
Eight B L.P (the "Partnership") have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the "SEC") for Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. These consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes included in the
Partnership's 2003 Annual Report on Form 10-K. The results for the interim
period are not necessarily indicative of the results for the full year.
The accompanying consolidated financial statements include the accounts of
the Partnership its majority owned subsidiaries, ICON Cheyenne LLC, ICON
Aircraft 24846 LLC and ICON Aircraft 47820 LLC at September 30, 2004 and for the
three and nine months ended September 30, 2004 and 2003. All material
intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to the accompanying consolidated
financial statements for the three and nine months ended September 30, 2003 to
conform to the current period presentation.
2. Organization
The Partnership was formed on February 7, 2000 as a Delaware limited
partnership for the purpose of acquiring equipment subject to leases and, to a
lesser degree, acquiring ownership rights to items of leased equipment at lease
expiration. The Partnership is currently in its "reinvestment" phase, wherein
the Partnership seeks to purchase equipment from time to time through October
2006. After the "reinvestment period", the Partnership will then begin to sell
its assets in the ordinary course of business during a time frame called the
"disposition period". If the Partnership believes it would be beneficial to
reinvest the cash flow in equipment during the disposition period, the
Partnership may do so, but the General Partner will not receive any additional
fees in connection with such reinvestments.
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 partnership agreement.
3. Joint Ventures
The Partnership and its affiliates, entities in which ICON Capital Corp. is
also the General Partner or Managing Partner, formed seven joint ventures
discussed below for the purpose of acquiring and managing various assets. The
Partnership and its affiliates have substantially identical investment
objectives and participate on the same terms and conditions. The Partnership has
a right of first refusal to purchase the equipment, on a pro-rata basis, if any
of the affiliates desire to sell their interests in the equipment or joint
venture.
The three joint ventures described below are majority owned and are
consolidated with the Partnership.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
3. Joint Ventures - continued
ICON Cheyenne LLC
- -----------------
The Partnership and three affiliates, ICON Cash Flow Partners L.P. Six
("L.P. Six"), ICON Cash Flow Partners L.P. Seven ("L.P. Seven") and ICON Income
Fund Eight A L.P. ("Fund Eight A") formed, ICON Cheyenne LLC ("ICON Cheyenne")
for the purpose of acquiring and managing a portfolio of leases. Prior to
September 30, 2004 the Partnership, L.P. Six, L.P. Seven and Fund Eight A had
ownership interests of 87.69%, 1.00%, 10.31% and 1.00%, respectively, in ICON
Cheyenne. In connection with the terms of the Contribution Agreement as
discussed in Note 4, effective September 30, 2004, L.P. Seven assigned a 9.04%
interest in ICON Cheyenne (while retaining a 1.27% interest) to the Partnership
for $204,384. This amount was determined to represent L.P. Seven's proportionate
fair value, which equals the book value of L.P. Seven's interest in ICON
Cheyenne at September 30, 2004. The fair value was determined using discounted
cash flow projections for ICON Cheyenne's portfolio.
The outstanding balance of the non-recourse debt secured by these assets,
at September 30, 2004, was $570,172. The leases expire on various dates through
September 2006.
ICON Aircraft 24846 LLC
- -----------------------
The Partnership and two affiliates, L.P. Seven and Fund Eight A formed,
ICON Aircraft 24846 LLC ("ICON Aircraft 24846") for the purpose of acquiring an
investment in a Boeing 767-300ER aircraft on lease to Scandinavian Airline
Systems. The Partnership, L.P. Seven and Fund Eight A had ownership interests of
96.0%, 2.0% and 2.0%, respectively, in ICON Aircraft 24846.
The aircraft was sold on July 29, 2004 and ICON Aircraft 24846 realized a
loss on the sale of approximately $601,800. 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 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 the Partnership to contribute an additional $850,000 in equity (at
minimum) in order to reconfigure the aircraft and/or 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.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
3. Joint Ventures - continued
ICON Aircraft 47820 LLC
- ------------------------
The Partnership and an affiliate, Fund Nine formed, ICON Aircraft 47820 LLC
("ICON 47820") for the purpose of acquiring an investment in a McDonnell Douglas
DC10-30F aircraft on lease to Federal Express Corporation ("Fedex"). The
aircraft owned by ICON 47820 was acquired with cash and the assumption of
non-recourse debt. The Partnership and Fund Nine have ownership interests of 90%
and 10%, respectively, in ICON 47820. The lender has a security interest in the
aircraft and an assignment of the rental payments under the lease. The lease is
scheduled to expire in March 2007, at which time the final lease payment of
$2,916,523 will be used to repay the remaining balance of the outstanding
non-recourse debt. The outstanding balance of the non-recourse debt secured by
this aircraft, at September 30, 2004, was $13,738,593.
The four joint ventures described below are 50% or less 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 Aircraft 126, LLC
- ----------------------
The Partnership and an affiliate, Fund Nine formed, ICON Aircraft 126 LLC
("ICON 126") for the purpose of acquiring all of the outstanding shares of Delta
Aircraft Leasing Limited ("D.A.L."), a Cayman Islands registered company, which
owns, through an Owner Trust, an Airbus A340-313X aircraft which is on lease to
Cathay Pacific through March 2006. The Partnership and Fund Nine each have
ownership interests of 50% in ICON 126. ICON 126 consolidates the financial
position and operations of D.A.L. in its financial statements. The aircraft is
subject to non-recourse debt provided by unaffiliated lenders. The outstanding
balance of the non-recourse debt secured by this aircraft at September 30, 2004
was $59,728,210.
Information as to the unaudited results of operations of ICON 126 for the
nine month period ending September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income $ 439,908 $ 290,362
=============== ================
Partnership's share of net income $ 219,955 $ 145,181
=============== ================
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
3. Joint Ventures - continued
ICON SPK 2023-A, LLC
- ---------------------
The Partnership and an affiliate, Fund Nine formed, ICON SPK 2023-A, LLC
("ICON SPK") for the purpose of acquiring a portfolio of leases. The leases
expire on various dates through April 2008. The Partnership and Fund Nine have
ownership interests of 49% and 51%, respectively, in ICON SPK.
Information as to the unaudited results of operations of ICON SPK for the
nine month period ending September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income $ 254,175 $ 145,033
================ ===============
Partnership's share of net income $ 124,546 $ 71,066
================ ===============
Distributions $ 1,759,288 $ 2,059,280
================ ===============
Partnership's share of distribution $ 862,057 $ 1,009,047
================ ===============
ICON/Kenilworth LLC
-------------------
The Partnership and an affiliate, Fund Nine, an entity managed by the ICON
Capital Corp., formed ICON/Kenilworth LLC for the purpose of acquiring a natural
gas-fired 25MW co-generation facility for cash and non-recourse debt. The
Partnership and Fund Nine have ownership interests of 5% and 95%, respectively.
The base lease for the co-generation facility was through July 2004 and has been
extended until 2009. During the extension term, rental payments will, in part,
be a function of natural gas prices. If natural gas prices are sustained at the
current record high levels, rental payments will be deferred until natural gas
prices return to previous levels. The outstanding balance of the non-recourse
debt was fully repaid at the end of the base lease term in July 2004.
Under the terms of the Renewal Rent Agreement (the "Agreement") the
lessee's rent is contingent upon the price of natural gas. If the price of
natural gas for the quarter is equal to or greater than $4.50 per mmbtu then the
lessee's rent shall be the lesser of the lessee's excess cash, as defined in the
Agreement or the base renewal rent which is $250,000 per quarter. If the price
of natural gas for the quarter is equal to $4.00 per mmbtu but less than $4.50
per mmbtu than the lessee's rent shall be equal to the base renewal rent plus
the first gas price bonus, as defined in the Agreement. If the price of natural
gas for the quarter is less than $4.00 per mmbtu then the lessee's rent shall be
equal to the base renewal rent plus other incentives and a second gas price
bonus, as defined in the Agreement. In accordance with accounting principles
generally accepted in the United States of America the Partnership will not
accrue contingent rental income until such time as the payment becomes due.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
3. Joint Ventures - continued
Information as to the unaudited results of operations of ICON/Kenilworth
LLC for the nine months ending September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ -----------------
Net income $ 483,281 $ 615,300
============= =============
Partnership's share of net income $ 19,973 $ 30,765
============= =============
Distributions $ 125,671 $ 439,000
============= =============
Partnership's share of distribution $ 6,284 $ 21,950
============= =============
ICON Aircraft 46835, LLC
- ------------------------
The Partnership and an affiliate, Fund Nine, formed ICON Aircraft 46835,
LLC ("ICON 46835") for the purpose of acquiring an investment in a McDonnell
Douglas DC-10-30F aircraft on lease to Fedex. The Partnership and Fund Nine have
ownership interests of 15% and 85%, respectively. ICON 46835 acquired the
aircraft subject to the Fedex lease with cash and the assumption of non-recourse
debt. The lender has a security interest in the aircraft and an assignment of
the rental payments under the lease. The lease is scheduled to expire in March
2007, at which time the final lease payment of $2,708,000 will be used to repay
the remaining outstanding balance of the non-recourse debt. The outstanding
balance of the non-recourse debt at September 30, 2004 was $12,754,529.
Information as to the unaudited results of operations of ICON 46835 for the
nine months ending September 30, 2004 and 2003 is summarized below:
Nine Months Ended Nine Months Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Net income (loss) $ 146,842 $ (4,373)
=============== ==============
Partnership's share of net income (loss) $ 22,026 $ (656)
=============== ==============
4. Related Party Transactions
As part of the Comerica Bank Loan and Security Agreement, there is a
Contribution Agreement between the Partnership, L.P. Seven, ICON Income Fund
Eight A L.P., Fund Nine and ICON Income Fund Ten, LLC ("Fund Ten") (each a
"Borrower" and collectively, "the Borrowers"). Under the Contribution Agreement
each Borrower is jointly and severally liable for all amounts outstanding to
Comerica Bank. The Contribution Agreement allows a Borrower to repay another
Borrowers obligation to Comerica Bank as long as the repaid amounts are promptly
reimbursed to the paying Borrower. At September 30, 2004, the Partnership paid
advances to Comerica Bank of, $1,020,000, on behalf of the obligations of the
L.P. Seven. The Partnership is accruing interest income at 8.0% per annum on all
unpaid advances. Offsetting this advance was $204,384 in amounts paid to L.P.
Seven with the assignment of its interest in ICON Cheyenne. L.P. Seven
anticipates repaying these advances either from rental income, proceeds from
equipment sales and the sale of the Partnership's joint venture interests or a
combination of the three.
Additionally, the Partnership is due $102,000 from ICON SPK.
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes to Consolidated Financial Statements
September 30, 2004
(Unaudited)
4. Related Party Transactions - continued
Fees and expenses paid or accrued by the Partnership to the General Partner
or its affiliates directly or on behalf of joint ventures in which the
Partnership has an interest for the period ended September 30, 2004 and 2003,
respectively, were as follows:
2004 2003
---- ----
Acquisition fees $ - $ 736,766 Capitalized as part of investment
in operating leases
Acquisition fees - - Capitalized as part of
investment in joint venture
Management fees 1,245,749 1,698,373 Charged to operations
Administrative expense
reimbursements 636,681 785,107 Charged to operations
------------- -------------
$ 1,882,430 $ 3,220,246
============= =============
5. Allowance for Doubtful Accounts
During the quarter ended March 31, 2004, the Partnership established a
provision for doubtful accounts of $411,742 relating to finance receivables from
Kmart, Inc., based upon Kmart's failure to make monthly payments on one of the
five leases with the Partnership has with the lessee. In current proceedings in
the U.S. Bankruptcy Court, Kmart is attempting to reject the lease. At September
30, 2004, the non-recourse debt associated with the equipment was $3,398,406 and
the related gross receivable was $3,810,148. The Partnership is monitoring the
proceedings, as the lender of the non-recourse debt is contesting the rejection
of the lease.
Item 2. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Information - The following discussion and analysis should be
read in conjunction with the audited consolidated financial statements and notes
included in our annual report on Form 10-K dated December 31, 2003. 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. We believe
that the expectations reflected in such forward-looking statements are based on
reasonable assumptions. 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; changes in capital spending by customers in the cargo delivery
industry; changing customer demands for aircraft; acts of terrorism; unsettled
political conditions, war, civil unrest and governmental actions; disease;
foreign currency fluctuations; 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 February 7, 2000 and which
began active operations on June 14, 2000. We are primarily engaged in the
business of acquiring equipment subject to lease.
We have invested most of the net proceeds of this offering in items of
equipment that are subject to lease. After the net offering proceeds were
invested, additional investments were made with the cash generated from our
initial investments to the extent that cash is not needed for our expenses or
reserves or used to fund distributions to investors. The investment in
additional equipment in this manner is called "reinvestment." We are currently
operating in the "reinvestment period" and anticipate doing so through the end
of October, 2006. After the "reinvestment period", we will then begin to sell
our assets in the ordinary course of business during a time frame called the
"disposition period".
Our current equipment portfolio which is held directly or through
investments in joint ventures with affiliates consists substantially of:
o A portfolio of conveyor systems, frames, racks, carousels and forklifts
that are on lease to PetSmart, Inc. and was purchased for $3,331,179. The
lease terminated on October 25, 2004, at which time PetSmart, Inc.
purchased all of the equipment, at fair value, for approximately $1,300,000
which resulted in an estimated gain of $750,000.
o A flight simulator on lease to British Aerospace, Inc. ("BAE"). The
purchase price consisted of $2,062,472 cash and assumption of the remaining
outstanding non-recourse debt of $10,830,109. The lease will expire on
March 27, 2006, at which time BAE may renew the lease for two additional
terms of one year each. o A 15% interest in a McDonnell Douglas DC-10-30F
aircraft on lease with Federal Express Corporation with an expiration date
of March 31, 2007. The aircraft lease may be renewed for up to five years
thereafter. Our share of the purchase price was $450,000 cash and our pro
rata share of $22,291,593 in non-recourse debt.
o A 90% interest in a McDonnell Douglas DC-10-30F aircraft on lease with
Federal Express Corporation with an expiration date of March 31, 2007. The
aircraft lease may be renewed for up to five years thereafter. Our share of
the purchase price was $2,615,080 in cash and our pro rata share of
$24,211,080 in non-recourse debt.
o Effective September 30, 2004, L.P. Seven assigned 9.04% of its interest in
ICON Cheyenne LLC ("ICON Cheyenne") to us for $204,384 increasing our
ownership to 96.73%. ICON Cheyenne is a joint venture which holds a
portfolio consisting of various equipment leases, including over the road
rolling stock, manufacturing equipment and materials handling equipment.
The original transaction involved acquiring from Cheyenne Leasing Company a
portfolio of 119 leases for a purchase price of $29,705,716. The purchase
price consisted of an equity contribution of $11,401,151 and the assumption
of non-recourse debt of $18,304,565. Of the original 119 schedules, 30 are
still active with expiration dates ranging between January of 2005 and
October of 2006.
o An Airbus A340-313 aircraft on lease to Cathay Pacific Airways Limited. The
purchase price of the aircraft consisted of $4,250,000 in cash and the
assumption of non-recourse debt in the amount of $72,216,650. The lease is
scheduled to terminate on March 31, 2006.
o A 50% interest in an Airbus A340-313 aircraft is on lease to Cathay Pacific
Airways Limited. The aircraft was purchased for $2,125,000 in cash and our
pro-rata share of non-recourse debt in the amount of $72,000,000. The lease
is scheduled to terminate on March 31, 2006.
o Five aircraft engines on lease to TWA, LLC, a subsidiary of American
Airlines. The aggregate purchase price was $5,950,000. The lease is
scheduled to terminate on May 28, 2008.
o Computer equipment on lease to Regus Business Centre Corp. The equipment
was purchased for $4,507,626. On March 1, 2003, the lease was restructured,
and the expiration date is now March 14, 2007.
o Five (5) schedules consisting of 179 photo labs subject to lease with Kmart
Corporation. The aggregate purchase price for the equipment was $18,234,162
which consisted of $681,720 in cash and $17,552,442 of non-recourse debt.
The lease expiration dates range between April 30, 2006 and January 31,
2007.
Substantially all of our recurring operating cash flows are generated from
the single investor 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 re-leasing costs and equipment management costs. Any residual operating
cash flows are considered available for distribution to the investors and are
paid monthly (up until the distribution period). We anticipate increases in cash
available for operating distributions to investors due to the acquisition of
more single-investor deals.
Kmart
On January 22, 2002, Kmart and its affiliate debtors filed a voluntary
petition in the United States Bankruptcy Court for the Eastern District of
Illinois seeking relief under Chapter 11 of the United States Bankruptcy Code.
We are the lessor of 210 Noritsu Optical/Digital photo processing mini-labs
located at Kmart retail locations throughout the country.
We were one of multiple lessors that financed mini-labs. Kmart neither
affirmed nor rejected any of the leases for this equipment in their current
form. Instead, Kmart attempted to invoke a provision within the lease agreements
that allegedly allows Kmart to substitute like equipment on each schedule even
if the equipment is encumbered. Kmart's plan was to substitute equipment among
the various schedules, regardless of lessor/lender, and to affirm or reject each
newly defined schedule.
On January 24, 2003 Kmart filed its Joint Plan of Reorganization. The plan,
which excluded any of the schedules of the mini-labs, was confirmed and Kmart
emerged from Bankruptcy on May 5, 2003. The court maintained special
jurisdiction over the mini-lab leases. Kmart and the lessors/lenders each filed
motions for summary judgment supporting their respective positions.
Subsequently, the court rejected each of the motions and has ordered the parties
go to trial.
While we expect to prevail in this matter, there is no certainty of the
outcome and therefore we may be adversely affected by an unfavorable decision of
the Bankruptcy Court. In our 2003 annual report on Form 10-K, we indicated that
Kmart was current on payments through March 2004. This statement was made as a
result of having not received notice from any lenders of a payment default.
We are currently in negotiations with Kmart and anticipate resolving this
dispute via a Stipulation Agreement. We hope to have the Stipulation Agreement
approved by the Bankruptcy Court at hearing currently scheduled during December
2004. As part of the Stipulation Agreement, Kmart would make payment on all past
due property taxes, as well as, our request to the Court to grant us title to
all of the substituted machines on our lease schedules. The fifth lease schedule
- - Schedule 23, would officially be rejected. Kmart continues to remain current
on all of its rent obligations on the other four lease schedules.
Sale of Assets
The Boeing 767-300ER aircraft was sold on July 29, 2004. ICON Aircraft
24846 LLC realized a loss on the sale of approximately $601,800 and recorded an
impairment charge on this asset in the second quarter. The General Partner
determined that it was in the best interests of the joint venture, which had
been holding the Boeing 767-300ER aircraft to sell the aircraft to BTM Capital
Corp., the lender, for an amount equal to the outstanding debt balance. The
decision to sell the aircraft was based, in part, on the following factors:
1) The aircraft's fair market value was estimated to be between $24MM and
$27MM, and the balance of the outstanding debt was $34.5MM.
2) Any new lease for the aircraft would have required the Partnership to
contribute an additional $850,000 in equity (at minimum) in order to
reconfigure the aircraft and/or upgrade the engines.
3) 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-lessee.
Industry Factors
Our results continue to be impacted by a number of factors influencing the
equipment leasing industry.
General Economic Conditions
The United States of America's economy appears to be recovering, and we
believe that the leasing industry's outlook for the foreseeable future is
encouraging. Many experts foresee an increase in capital spending by
corporations through 2007 which should increase the pool of available secondary
market leases, and to that end, we are seeing more opportunities in this market.
Nonetheless, a key obstacle still facing the leasing industry is the continued
low interest rate environment, which reduces leasing volume inasmuch as
customers are more prone to purchase than lease. 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 many 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,
more lessees will return to the marketplace.
Further Deterioration of the Air Travel Industry.
The aircraft leasing industry is currently in on the downside of a business
cycle, and this has resulted in depressed sales prices for assets such as our
aircraft. It does not appear that the industry will recover significantly in the
very near future, although we are optimistic that within two to three years,
there will be a recovery. However, a further weakening of the industry could
cause the proceeds realized from the future sale of our aircraft, engines, and
flight simulator to be even less than suggested by recent appraisals.
International Risks.
Our portfolio includes leases with foreign companies, such as Cathay
Pacific Airways, which makes our assets especially subject to geo-political
events as well as other foreign concerns, such as SARS. A reemergence of SARS
may affect travel to the Far East, which would adversely affect the financial
condition of Cathay Pacific. b. Results of Operations for the Three Months Ended
September 30, 2004 and 2003
Revenues for the quarterly periods ended September 30, 2004 (the "2004
Quarter") and 2003 (the "2003 Quarter") are summarized as follows:
- --------------------------------------------------------------------------------
For Quarter Ended, September 30, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2004 Quarter 2003 Quarter Change
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Total Revenues $ 4,641,540 $ 6,076,732 $(1,435,192)
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Rental income $ 4,497,884 $ 5,457,298 $ (959,414)
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Finance income $ 269,921 $ 498,738 $ (228,817)
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Net (loss) gain on sales of equipment $ (265,443) $ 10,033 $ (275,476)
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Income from investments in joint ventures $ 118,882 $ 107,035 $ 11,847
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Gain from investment in unguaranteed
residual values $ 1,194 $ - $ 1,194
- ----------------------------------------- ------------ ------------- -----------
- ----------------------------------------- ------------ ------------- -----------
Interest income and other $ 19,102 $ 3,628 $ 15,474
- ----------------------------------------- ------------ ------------- -----------
Revenue for the 2004 Quarter decreased $1,435,192, or 23.6%, as compared to
the 2003 Quarter. The decrease in rental income resulted primarily from the sale
of equipment in one of our joint ventures, ICON Aircraft 24846 and ICON
Cheyenne. The decrease in finance income resulted primarily from the termination
of equipment on lease to CSK Auto during 2003. Net loss on sale of equipment
increased primarily due to the sale of equipment on lease to EMC Corporation,
Warner Lambert and Lucent Technologies which were included in one of our joint
ventures, ICON Cheyenne, LLC.
Expenses for the quarterly periods ended September 30, 2004 and 2003 are
summarized as follows:
- --------------------------------------------------------------------------------
For Quarter Ended, September 30, 2004
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2004 Quarter 2003 Quarter Change
- ----------------------------------------- ------------- ------------ -----------
- ----------------------------------------- ------------- ------------ -----------
Total Expense $5,196,575 $ 8,405,062 $(3,208,487)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Depreciation $3,159,140 $ 4,697,297 $(1,538,157)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Interest $1,264,151 $ 1,881,472 $ (617,321)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Management fees - General Partner $ 421,985 $ 503,790 $ (81,805)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Administrative expense reimbursements -
General Partner $ 195,259 $ 229,672 $ (34,413)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Aircraft maintenance $ - $ 745,872 $ (745,872)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
General & administrative $ 152,805 $ 377,974 $ (225,169)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Amortization of initial direct costs $ 21,766 $ 56,989 $ (35,223)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Minority interest $ (18,531) $ (88,004) $ 69,473
- ----------------------------------------- ------------ ------------ ------------
Expenses for the 2004 Quarter decreased $3,208,487, or 38.2%, from the 2003
Quarter. Depreciation expense decreased due to the sale of equipment in several
joint ventures, ICON Cheyenne and ICON Aircraft 24846, during 2003. The decrease
in interest expense was due to the repayment of a note payable associated with
equipment sold during 2003 in ICON Aircraft 24846. The decrease in management
fees - General Partner, administrative expense reimbursements - General Partner
and general and administrative expenses were the result of a decrease in the
average size of the lease portfolios due primarily to lease terminations.
Aircraft maintenance decreased because the marketing activities and maintenance
expense associated with ICON Aircraft 24846 taken in the 2003 Quarter was not
present in the 2004 Quarter due to the sale of the equipment.
Net Loss
As a result of the factors discussed above, the net loss for the 2004
Quarter and the 2003 Quarter was $555,035 and $2,328,330, respectively. The net
loss per weighted average limited partnership unit outstanding was $.74 and
$3.09 for the 2004 Quarter and the 2003 Quarter, respectively.
c. Results of Operations for the Nine Months Ended September 30, 2004 and 2003
Revenues for the nine month periods ended September 30, 2004 (the "2004
Period") and 2003 (the "2003 Period") are summarized as follows:
- --------------------------------------------------------------------------------
For Period Ended, September 30, 2004
- --------------------------------------------------------------------------------
- ----------------------------------------- ------------ ----------- -----------
2004 Period 2003 Period Change
- ----------------------------------------- ------------ ----------- ------------
- ----------------------------------------- ------------ ----------- ------------
Total Revenues $14,962,341 $18,581,963 $(3,619,622)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Rental income $14,471,720 $16,703,527 $(2,231,807)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Finance income $ 906,679 $ 1,590,795 $ (684,116)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Net (loss) gain on sales of equipment $ (938,671) $ 21,828 $ (960,499)
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Income from investments in joint ventures $ 386,500 $ 246,356 $ 140,144
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Gain from investment in unguaranteed
residual values $ 99,426 $ - $ 99,426
- ----------------------------------------- ------------ ------------ ------------
- ----------------------------------------- ------------ ------------ ------------
Interest income and other $ 36,687 $ 19,457 $ 17,230
- ----------------------------------------- ------------ ------------ ------------
Revenue for the 2004 Period decreased $3,619,622, or 19.5%, as compared to
the 2003 Period. The decrease in rental income resulted primarily from the sale
of equipment in several of our joint ventures, ICON Aircraft 24846 and ICON
Cheyenne. The decrease in finance income resulted primarily from the termination
of equipment on lease to CSK Auto in 2003. Our net loss on sale of equipment
increased due to the sale of equipment on lease to Alliant Food, The Perrier
Group, National Steel, EMC Corporation, Warner Lambert and Lucent Technologies
which were included in one of our joint ventures ICON Cheyenne. Our increase in
income from joint ventures is primarily due to our increase in net income in the
ICON 126 and ICON SPK.
Expenses for the nine month periods ended September 30, 2004 (the "2004
Period") and 2003 (the "2003 Period") are summarized as follows:
- --------------------------------------------------------------------------------
For Period Ended, September 30, 2004
- --------------------------------------------------------------------------------
- --------------------------------------- ------------ ------------- -------------
2004 Period 2003 Period Change
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Total Expense $19,365,843 $23,131,220 $(3,765,377)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Depreciation $11,103,749 $13,313,166 $(2,209,417)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Interest $ 4,486,392 $ 5,633,365 $(1,146,973)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Management fees - General Partner $ 1,245,749 $ 1,698,373 $ (452,624)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Administrative expense reimbursements - $ 636,681 $ 785,107 $ (148,426)
General Partner
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Aircraft maintenance $ 171,180 $ 745,872 $ (574,692)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
General & administrative $ 761,839 $ 885,559 $ (123,720)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Amortization of initial direct costs $ 99,560 $ 181,354 $ (81,794)
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Provision for bad debts $ 411,742 $ - $ 411,742
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Provision for impairment loss $ 601,788 $ - $ 601,788
- --------------------------------------- ------------ ------------- ------------
- --------------------------------------- ------------ ------------- ------------
Minority interest $ (152,837) $ (111,576) $ (41,261)
- --------------------------------------- ------------ ------------- ------------
Expenses for the 2004 Period decreased $3,765,377, or 16.3% from the 2003
Period. Depreciation expense decreased due to the sale of equipment in several
joint ventures, ICON Cheyenne and ICON Aircraft 24846, during 2003. The decrease
in interest expense was due to the repayment of a note payable associated with
equipment sold during 2003 in ICON Aircraft 24846. The decrease in management
fees - General Partner, administrative expense reimbursements - General Partner
and general and administrative expenses were the result of a decrease in the
average size of the lease portfolios due primarily to lease terminations.
Aircraft maintenance decreased because the marketing activities and maintenance
expense associated with ICON Aircraft 24846 taken in the 2003 Period was not as
extensive as in the 2004 Period due to the sale of the equipment. During the
2004 Period, we recorded a provision for bad debt relating to the equipment
leased to K-Mart. Additionally, we recorded an impairment loss during the 2004
Period relating to an aircraft in ICON Aircraft 24846.
Net Loss
As a result of the foregoing factors, net loss for the 2004 Period and the
2003 Period was $4,403,502 and $4,549,257, respectively. The net loss per
weighted average limited partnership unit outstanding was $5.86 and $6.03 for
the 2004 Period and the 2003 Period, respectively.
d. Liquidity and Capital Resources
Cash Requirements
We believe there are sufficient funds necessary to maintain our current
operations and to continue to invest in business essential assets subject to
lease.
Sources of Cash
Operations
During the nine months ended September 30, 2004, our overall cash position
decreased by $804,444. The principal reasons for this decrease were cash
distributions to partners totaling $4,513,224 and cash used in operations in the
amount of $1,978,267. We also received cash proceeds associated with equipment
sold and advances received and for the sale of equipment of $3,702,243 and
distributions received from joint ventures of $868,336. As a result of this
activity, our liquidity has decreased during the 2004 Period. As cash is
realized from operations we will continue to invest in equipment leases and
financings where we deem it to be prudent while retaining sufficient cash to
meet our reserve requirements and recurring obligations.
Sale of Boeing 767-300ER Aircraft
The aircraft was sold on July 29, 2004. ICON Aircraft 24846 LLC realized a
loss on the sale of approximately $601,800 and recorded an impairment charge on
this asset in the second quarter. The General Partner determined that it was in
the best interests of the joint venture, which had been holding the Boeing
767-300ER aircraft, to sell the aircraft to BTM Capital Corp., the lender, for
an amount equal to the outstanding debt balance. The decision to sell the
aircraft was based, in part, on the following factors:
1. The aircraft's current fair market value was between $24,000,000 and
$27,000,000, and the balance of the outstanding debt was $34,500,000.
2. Any new lease for the aircraft would have required us to contribute
approximately an additional $850,000 in equity (at minimum) in order to
reconfigure the aircraft and/or upgrade the engines.
3. If we were to continue to remarket the aircraft, the lender would have
required interest only payments of $100,000 per month until the aircraft
was placed with a new lessee.
Financings and Recourse Borrowings
Certain affiliates of ours, specifically; ICON Income Fund Nine, LLC; ICON
Income Fund Eight A L.P. and ICON Cash Flow Partners L.P. Seven (collectively,
the "Initial Funds"), are 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 ICON
Income Fund Ten, LLC as a borrower to the Loan Agreement. The expiration of the
Loan Agreement is December 31, 2004.
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 ICON Income Fund Ten,
LLC's addition to the Contribution Agreement, the Funds entered into a Second
Amended and Restated Contribution Agreement effective as of August 5, 2004. The
Second Amended and Restated Contribution Agreement contain substantially
identical terms and limitations as did the original Contribution Agreement.
At September 30, 2004, we paid to Comerica Bank on behalf of ICON Cash Flow
Partners L.P. Seven $1,020,000, under the provisions of the Contribution
Agreement. We are accruing interest income at 8.0% per annum on all unpaid
advances. ICON Cash Flow Partners L.P. Seven anticipates repayment either from
rental income, proceeds from equipment sales or the sale of their joint venture
interests or a combination of the three.
Aggregate borrowings by all funds under the line of credit agreement
amounted to $9,417,992 at September 30, 2004. We currently have $3,195,000 of
borrowings under this line.
Distributions
We made cash distributions to partners of $4,513,224 during the nine months
ended September 30, 2004. Such distributions have been reflected as a return of
capital, as we recorded a loss for the Period.
Uncertainties
At September 30, 2004, except as noted above in the Overview section and
listed below in the Risk Factors section, and to the best of our knowledge and
belief, there were no known trends or demands, commitments, events or
uncertainties which are likely to have a material effect on liquidity.
Risk Factors
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 Kmart is attempting to reject one our equipment schedules and also
attempting to substitute equipment among all of its equipment schedules,
including schedules not owned by us. The Bankruptcy Court has retained
jurisdiction over this dispute and it is anticipated that the Court will
enter an Order granting us title to the "new" equipment which is being
substituted. If we are not granted title in the new equipment by the
Bankruptcy Court, it will affect our ability to realize our investment. The
Court is also in the process of resolving a dispute with Kmart over
delinquent property taxes.
o TWA, LLC is owned by American Airlines, which has suffered financially with
the rest of the Airline Industry. The possibility of a Chapter 11 filing by
American Airlines may adversely affect our engines which are on lease to
TWA, LLC.
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. The cost of equipment acquisitions could increase
with inflation and revenues from existing leases would not generally increase
with inflation, as we do not currently have or expect to have rent escalation
clauses tied to inflation in our leases. Nevertheless, 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.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
We are exposed to certain market risks, including changes in interest rates
and the demand for equipment (and the related residuals) owned by us.
We attempt to manage our interest rate risk by obtaining fixed rate debt.
The fixed rate debt service obligation streams are generally matched by fixed
rate lease receivable streams generated by our lease investments.
We borrow funds under a floating rate line of credit and are therefore
exposed to interest rate risk until the floating rate line of credit is repaid.
We had $3,195,000 outstanding under the floating rate line of credit at
September 30, 2004.
We attempt to manage our exposure to equipment and residual risk by
monitoring the market and maximizing re-marketing proceeds received through
re-lease or sale of equipment.
Item 4. Controls and Procedures
We carried out an evaluation, under the supervision and with the
participation of management of ICON Capital Corp., the General Partner of the
Partnership, including the Chief Executive Officer and the Principal Financial
and Accounting 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 Chief Executive Officer and the Principal Financial and
Accounting Officer concluded that our disclosure controls and procedures were
effective.
There were no significant changes in our internal control over financial
reporting during the third quarter that have materially affected, or are likely
to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
From time-to-time, in the ordinary course of business, we are involved in
legal actions when necessary to protect or enforce our rights. We are not a
defendant party to any pending litigation and are not aware of any pending or
threatened litigation against us, except as stated below.
Item 3 - Defaults Upon Senior Securities
We established a provision for doubtful accounts of $411,742 for Kmart,
Inc., based upon Kmart's failure to make monthly payments on one of the five
leases we have with the lessee. In current proceedings in the U.S. Bankruptcy
Court, K-mart is attempting to reject the lease. At September 30, 2004, the
non-recourse debt associated with the equipment was $3,398,406 and the related
gross receivable was $3,810,148. We are monitoring these proceedings, as the
lender of the non-recourse debt is contesting the rejection of the lease.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
32.1 Certification of Chairman and Chief Executive Officer
32.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer.
33.1 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.
33.2 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.
(b) Report on Form 8-K - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ICON Income Fund Eight B L.P.
By its General Partner,
ICON Capital Corp.
November 22, 2004 /s/ Thomas W. Martin
- -------------------------- ---------------------------------
Date Thomas W. Martin
Executive Vice President
(Principal financial and accounting officer of the
General Partner of the Registrant)
Exhibit 32.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
Certifications - 10-Q
I, Beaufort J.B. Clarke, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICON Income Fund
Eight B L.P.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the consolidated financial statements and other
financial information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
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 General Partner
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant'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: November 22, 2004
/s/ Beaufort J.B. Clarke
- -----------------------------
Beaufort J. B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
sole General Partner of ICON Income Fund Eight B L.P.
Exhibit 32.2
Principal Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350)
Certifications - 10-Q
I, Thomas W. Martin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ICON Income Fund
Eight B L.P.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the consolidated financial statements and other
financial information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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 quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls and procedures as
of the end of the period covered by this quarterly report based on
such evaluation; and
c) disclosed in this quarterly report any change in the registrant's
internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
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 General Partner
(or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control, are reasonably likely to materially
affect the registrant'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: November 22, 2004
/s/ Thomas W. Martin
- ----------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
ICON Capital Corp.
sole General Partner of ICON Income Fund Eight B L.P.
EXHIBIT 33.1
I, Beaufort J.B. Clarke, Chairman and Chief Executive Officer of ICON
Capital Corp, the sole General Partner of ICON Income Fund Eight B L.P.,
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350), that, to the best of my knowledge and belief :
(1) the Quarterly Report on Form 10-Q for the period ended September 30, 2004
(the "Periodic Report") which this statement accompanies 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 Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of
ICON Income Fund Eight B L.P.
Dated: November 22, 2004
/s/ Beaufort J.B. Clarke
------------------------------------------------------
Beaufort J.B. Clarke
Chairman and Chief Executive Officer
ICON Capital Corp.
General Partner of ICON Income Fund Eight B L.P.
EXHIBIT 33.2
I, Thomas W. Martin, Executive Vice President (Principal Financial and
Accounting Officer) of ICON Capital Corp, the sole General Partner of ICON
Income Fund Eight B L.P., certify, pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (18 U.S.C. 1350), that, to the best of my knowledge and belief:
(1) the Quarterly Report on Form 10-Q for the period ended September 30, 2004
(the "Periodic Report") which this statement accompanies 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 Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of
ICON Income Fund Eight B L.P.
Dated: November 22, 2004
/s/ Thomas W. Martin
-------------------------------------------------------
Thomas W. Martin
Executive Vice President (Principal
Financial and Accounting Officer)
ICON Capital Corp.
General Partner of ICON Income Fund Eight B L.P.