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 March 31, 2005
-------------------------------------------------
[ ] 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
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ICON Income Fund Eight B L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-4101114
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(State or other jurisdiction of (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
ICON Income Fund Eight B L.P.
Index
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets at March 31, 2005 (Unaudited)
and December 31, 2004 3-4
Consolidated Statements of Operations for the three months ended
March 31, 2005 and 2004 (Unaudited) 5
Consolidated Statement of Changes in Partners' Equity for the three
months ended March 31, 2005 (Unaudited) 6
Consolidated Statements of Cash Flows for the three months ended March
31, 2005 and 2004 (Unaudited) 7-8
Notes to Consolidated Financial Statements (Unaudited) 9-14
Item 2. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations 15-24
Item 3. Quantitative and Qualitative Disclosures About Market Risk 24
Item 4. Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters To A Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits 26
Signatures 27
Certifications 28-31
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
ASSETS
(Unaudited)
March 31 December 31
2005 2004
---- ----
Cash and cash equivalents $ 959,729 $ 1,249,480
--------------- -------------
Investments in finance leases:
Minimum rents receivable 9,476,598 10,440,930
Estimated unguaranteed residual values 1,227,902 1,227,902
Initial direct costs, net 57,055 74,841
Unearned income (642,357) (840,885)
Allowance for doubtful accounts (411,742) (411,742)
--------------- -------------
Net investments in finance leases 9,707,456 10,491,046
--------------- -------------
Investments in operating leases:
Equipment, at cost 136,954,992 138,085,569
Accumulated depreciation (42,299,796) (39,597,336)
--------------- -------------
Net investments in operating leases 94,655,196 98,488,233
--------------- -------------
Investments in joint ventures 6,121,236 5,308,848
Due from General Partner and affiliates 13,496 14,071
Investment in option, at cost 2,100,000 2,100,000
Other assets, net 1,570,329 1,495,344
--------------- -------------
Total assets $ 115,127,442 $ 119,147,022
=============== =============
See accompanying notes to consolidated financial statements.
3
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
LIABILITIES AND PARTNERS' EQUITY
(Unaudited)
March 31 December 31
2005 2004
---- ----
Notes payable - non-recourse $ 75,771,171 $ 83,080,022
Notes payable - recourse 5,120,000 3,225,000
Due to General Partner and affiliates 168,968 169,543
Deferred rental income 4,263,973 1,036,168
Equipment sales advances - 72,600
Security deposits and other liabilities 1,167,564 1,145,673
Minority interest 770,405 820,725
---------------- ---------------
Total liabilities 87,262,081 89,549,731
---------------- ---------------
Commitments and contingencies
Partners' equity:
General Partner (371,437) (354,117)
Limited Partners: 743,279.34 and 743,279.34 units
outstanding, $100 per unit original issue price 28,236,798 29,951,408
---------------- ---------------
Total partners' equity 27,865,361 29,597,291
---------------- ---------------
Total liabilities and partners' equity $ 115,127,442 $ 119,147,022
================ ===============
See accompanying notes to consolidated financial statements.
4
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
Three Months Ended March 31,
(Unaudited)
2005 2004
---- ----
Revenue:
Rental income $ 5,138,607 $ 5,050,467
Finance income 198,528 334,191
Net loss on sales of equipment (177,729) (483,330)
Income from investments in joint ventures 139,396 100,222
Gain from sale of investment in unguaranteed residual values 315,426 -
Interest and other income - 16,989
---------------- --------------
Total revenue 5,614,228 5,018,539
---------------- -------------
Expenses:
Depreciation 3,407,388 4,005,440
Interest 1,150,722 1,660,538
Management fees - General Partner 511,695 559,734
Administrative expense reimbursements - General Partner 221,473 244,331
Aircraft maintenance - 109,260
General and administrative 502,273 355,723
Amortization of initial direct costs 17,786 40,323
Bad debt expense - 411,742
Minority interest 33,244 (70,632)
---------------- --------------
Total expenses 5,844,581 7,316,459
---------------- -------------
Net loss $ (230,353) $ (2,297,920)
================ ==============
Net loss allocable to:
Limited Partners $ (228,049) $ (2,274,941)
General Partners (2,304) (22,979)
----------------- -------------
$ (230,353) $ (2,297,920)
================ ==============
Weighted average number of limited partnership
units outstanding 743,279 745,003
================ ==============
Net loss per weighted average limited
partnership unit $ (0.31) $ (3.05)
================ ==============
See accompanying notes to consolidated financial statements.
5
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statement of Changes in Partners' Equity
Three Months Ended March 31, 2005
(Unaudited)
Limited Partner Distributions
(Per weighted average unit) Total
Return of Investment Limited General Partners'
Capital Income Partners Partner Equity
------ ----- -------- ------- ------
Balance, January 1, 2005 29,951,408 (354,117) 29,597,291
Cash distributions to partners 2.00 $ - (1,486,561) (15,016) (1,501,577)
Net loss (228,049) (2,304) (230,353)
--------------- -------------- ---------------
Balance, March 31, 2005 $ 28,236,798 $ (371,437) $ 27,865,361
=============== ============== ==============
See accompanying notes to consolidated financial statements.
6
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
Increase (decrease) in cash and cash equivalents 2005 2004
---- ----
Cash flows from operating activities
Net loss $ (230,353) $ (2,297,920)
Adjustments to reconcile net loss
to net cash used in operating activities:
Rental income paid directly to lenders by lessees (4,491,678) (4,675,227)
Interest expense on non-recourse financing
paid directly to lenders by lessees 1,059,817 1,309,081
Depreciation 3,407,388 4,005,440
Finance income paid directly to lenders by lessees (151,950) (227,871)
Net loss on sales of equipment 177,729 483,330
Income from investments in joint ventures (139,396) (100,222)
Amortization of initial direct costs 17,786 40,323
Gain from sale of investment in unguaranteed residual values (315,426) -
Bad debt expense - 411,742
Minority interest 33,244 (70,632)
Changes in operating assets and liabilities:
Collection of principal - non-financed receivables 148,209 371,421
Due from General Partner and affiliates - (10,152)
Other assets (30,389) (56,872)
Deferred rental income 28,643 (34,250)
Security deposits and other liabilities 75,273 327,472
---------------- ------------------
Net cash used in operating activities (411,103) (524,337)
---------------- ------------------
Cash flows from investing activities:
Proceeds from sales of equipment 169,060 100,000
Equipment sales advances - 2,387,260
Loans and advances to affiliates (672,992) -
Distributions to minority interest in joint venture (83,565) (356,990)
Proceeds from sale of investment in unguaranteed residual values 315,426 323,577
Distributions received from joint ventures - 227,166
---------------- ------------------
Net cash (used in) provided by investing activities (272,071) 2,681,013
---------------- ------------------
Cash flows from financing activities:
Cash distributions to partners (1,501,577) (1,505,566)
Proceeds from recourse borrowings 1,895,000 -
Redemption of limited partnership units - (50,355)
---------------- ------------------
Net cash provided by (used in) financing activities 393,423 (1,555,921)
---------------- ------------------
Net (decrease) increase in cash and cash equivalents (289,751) 600,755
Cash and cash equivalents, beginning of the period 1,249,480 1,760,803
---------------- ------------------
Cash and cash equivalents, end of the period $ 959,729 $ 2,361,558
================ ==================
See accompanying notes to consolidated financial statements.
7
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
2005 2004
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 90,905 $ 351,457
================ ============
Supplemental disclosure of non-cash investing and financing activities:
Principal and interest paid directly to lenders by lessees $ 8,368,668 $ 8,561,695
================ ============
Transfer of investment in operating leases, net of accumulated
depreciation , to equipment held for sale or lease $ - $ 35,761,800
================ ============
Joint venture interests acquired from affiliate in exchange
for amounts owed $ 672,992 $ -
================ ============
See accompanying notes to consolidated financial statements.
8
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
(1) Basis of Presentation
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 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 2004 Annual Report on Form 10-K. The results for the interim
period are not necessarily indicative of the results for the full year.
The consolidated financial statements include the accounts of the
Partnership and its majority owned subsidiary. 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.
(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 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 its adjusted capital contribution account to zero and receive, in
addition, other distributions and allocations which would provide a 10% per
annum cumulative return on their outstanding adjusted capital contribution
account. After such time, the distributions will be allocated 90% to the limited
partners and 10% to the General Partner.
9
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
(2) Organization - continued
Certain reclassifications have been made to the accompanying consolidated
financial statements for the three months ended March 31, 2004 to conform to the
current period presentation.
(3) Joint Ventures
The Partnership and its affiliates, entities managed and controlled 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 three joint ventures described below are majority owned and
consolidated with the Partnership.
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 equipment leases
consisting of 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, of which 26 remain active, with
expiration dates ranging between March 2005 and October 2006. At March 31, 2005,
the Partnership, L.P. Six, L.P. Seven and Fund Eight A had ownership interests
of 96.73%, 1.0%, 1.27%, and 1.0%, respectively, in ICON Cheyenne. The
outstanding balance of the non-recourse debt secured by these assets, at March
31, 2005, was $234,997.
ICON Aircraft 47820 LLC
The Partnership and an affiliate, ICON Income Fund Nine LLC, ("Fund Nine"),
formed, ICON Aircraft 47820 LLC ("ICON 47820") for the purpose of acquiring an
investment in a McDonnell Douglas DC 10-30F 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 March 31, 2005, was $11,098,919.
10
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
(3) Joint Ventures - continued
ICON SPK 2023-A, LLC
The Partnership and an affiliate, Fund Nine, formed ICON SPK 2023-A LLC
("SPK 2023-A") for the purpose of acquiring and managing a portfolio of
equipment leases consisting of material handling, telecommunication, and
computer equipment. The original transaction involved acquiring a portfolio of
32 leases, of which 17 remain active with lease expiration dates at various
dates through April 2008.
The three 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 consolidated financial statements. The
aircraft is subject to non-recourse debt provided by unaffiliated lenders.
Information as to the unaudited results of operations of ICON 126 is
summarized below:
Three Months Ended
March 31,
2005 2004
------------- -------------
Net income $ 227,801 $ 149,756
============= =============
Partnership's share of net income $ 113,901 $ 74,878
============= =============
ICON Aircraft 46835, LLC
The Partnership and an affiliate, Fund Nine, formed ICON Aircraft 46835,
LLC ("ICON 46835") for the purpose of acquiring a McDonnell Douglas DC-10-30F
aircraft on lease to Fedex. 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 Partnership and Fund Nine have
ownership interests of 15% and 85%, respectively.
11
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
(3) Joint Ventures - continued
Information as to the unaudited results of operations of ICON 46835 is
summarized below:
Three Months Ended
March 31,
2005 2004
------------- -------------
Net income $ 81,229 $ 33,183
============= =============
Partnership's share of net income $ 12,184 $ 4,977
============= =============
North Sea (Connecticut) Limited Partnership
At March 31, 2005 the Partnership had a 5.93% interest in the profits,
losses and future cash flows of North Sea (Connecticut) Limited Partnership
("North Sea"). North Sea owns a mobile offshore drilling rig leased to the Rowan
Companies, Inc. which is in operation in the Gulf of Mexico. On February 23,
2005, in consideration for a $672,992 obligation payable to the Partnership
which arose as part of the Comerica Bank Contribution Agreement (See Note 5),
L.P. Seven assigned to the Partnership a 2.69% interest in the profits, losses
and future cash flows of North Sea. After this transaction, the Partnership has
a 5.93% interest in the profits, losses and future cash flows of North Sea. The
fair value of the interest in North Sea was determined using an independent
third party appraisal and cash flow analysis.
(4) Related Party Transactions
The Partnership has a net payable in the amount of $155,472 due to the
General Partner and affiliates at March 31, 2005. The Partnership owed the
General Partner $76,895 for unpaid management fees and administrative expense
reimbursements for the year ended December 31, 2004. The Partnership owned Fund
Nine $92,648 for advances made during prior years to a joint venture, SPK
2023-A, formerly consolidated with Fund Nine and now consolidated with the
Partnership.
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 March 31, 2005 and 2004,
respectively, were as follows:
Three Months Ended
March 31,
2005 2004
------------- -------------
Management fees $ 511,695 $ 559,734
Administrative expense reimbursements 221,473 244,331
------------- -------------
$ 733,168 $ 804,065
============= =============
(5) Line of Credit Agreement
On May 30, 2002, the Partnership, along with certain of its affiliates;
L.P. Seven, Fund Eight A 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, 6.75% at March
31, 2005). Under the terms of the line of credit agreement, the Initial Funds
may borrow 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 ICON Income Fund Ten LLC ("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.
12
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
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 is required to pay
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.
During 2005, the Partnership paid Comerica Bank a portion of L.P. Seven's
outstanding obligations. As required under the terms of the Contribution
Agreement, L.P. Seven was required to promptly repay the Partnership the amount
paid on L.P. Seven's behalf. L.P. Seven did not have sufficient liquidity to
repay the Partnership. Therefore, L.P. Seven assigned the Partnership 2.69% of
L.P. Seven's interest in the profits, losses and cash flows of North Sea valued
at $672,992 as full repayment of monies due to them.
Aggregate borrowings by the Borrowers under the Loan Agreement amounted to
$11,830,000 at March 31, 2005. The Partnership has advances of $5,120,000
outstanding under this line of credit.
Effective March 8, 2005, the Initial Funds and Fund Ten entered into a
Seventh Amendment to the Loan and Security Agreement with Comerica Bank. This
Agreement releases L.P. Seven from all of its rights and obligations under the
Loan and Security Agreement dated as of May 30, 2002. As such, L.P. Seven is no
longer a party to the $17,500,000 line of credit.
(6) Recent Accounting Pronouncements
On June 1, 2005 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 154 "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinion No.
20, "Accounting Changes" ("APB 20") and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements," and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS 154
requires retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable. APB 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. The Partnership does not
expect the adoption of SFAS 154 to have an impact on our financial position or
results of operations.
13
ICON Income Fund Eight B L.P.
(A Delaware Limited Partnership)
Notes To Consolidated Financial Statements
March 31, 2005
(Unaudited)
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.
(7) K-Mart Litigation
On January 22, 2002, K-Mart Corporation ("K-Mart") 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. The Partnership is the lessor of 179 Noritsu
Optical/Digital photo processing mini-labs located at Kmart retail locations
throughout the country.
The General Partner has been negotiating with K-Mart in an attempt to enter
into a stipulation agreement with K-Mart in the near future wherein K-Mart would
affirm four of the five equipment lease schedules covering the Noritsu mini-labs
they have leased from us. As part of the settlement, Kmart would also agree to
reimburse us for overdue property tax payments made by the Partnership. Although
K-Mart emerged from Chapter 11 during 2004, the Bankruptcy Court has retained
jurisdiction over this matter.
At March 31, 2005, K-Mart was current on their rental payments for four of
the five equipment lease schedules. On June 21, 2005, the Bankruptcy Court
rejected one of our equipment leases and title for this equipment was granted to
us. Additionally, we were awarded approximately $220,000 for overdue property
tax payments previously paid by us.
14
Item 2. General Partner's Discussion and Analysis of Financial Condition and
Results of Operations
The following is a discussion of our results of operations and current
financial position. This discussion should be read in conjunction with our
unaudited consolidated financial statements and related notes included elsewhere
in this report and the audited consolidated financial statements and related
notes included in our Annual Report on Form 10-K for the year ended December 31,
2004.
As used in this quarterly report on Form 10-Q, references to "we," "us,"
"our" or similar terms include ICON Income Fund Eight B L.P. and its
consolidated subsidiaries.
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, 2004.
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.
Business Overview
We are an equipment leasing business formed on February 7, 2000 which began
active operations on June 14, 2000. 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 financed, 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 October 2006.
15
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. That time frame
is called the "reinvestment period," which we may extend for an additional three
years, at our discretion. 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.
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.
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 on lease
with Federal Express Corporation with an expiration date of March 31, 2007.
This lease may be renewed for up to five years thereafter. Our portion of
the purchase price was approximately $24,405,000 comprised of approximately
$2,615,000 in cash and approximately $21,790,000 of non-recourse debt.
o We have a 100% interest in one Airbus A340-313X aircraft and a 50% interest
in a second Airbus A340-313X aircraft, both on lease to Cathay with
expiration dates of March 31, 2006. We have entered into preliminary
negotiations with Cathay regarding possible lease extensions. The purchase
price of the first aircraft was approximately $76,467,000 comprised of
$4,250,000 in cash and approximately $72,217,000 of non-recourse debt. Our
portion of the purchase price of the second aircraft was approximately
$38,125,000 comprised of approximately $2,125,000 in cash and approximately
$36,000,000 of non-recourse debt.
o We have a 100% interest in five aircraft engines on lease to TWA, LLC, a
subsidiary of American Airlines. The lease is scheduled to expire on May
28, 2008. The aggregate purchase price was $5,950,000 in cash.
o We have a 100% interest in one flight simulator on lease to British
Aerospace, Inc. ("BAE"). The lease will expire on March 27, 2006, at which
time BAE may renew the lease for two additional terms of one year each. The
purchase price was approximately $12,892,000 comprised of approximately
$2,062,000 in cash and $10,830,000 of non-recourse debt.
Information Technology Industry
o We have a 100% interest in five schedules consisting of 179 Noritsu
Optical/Digital photo processing mini-labs subject to lease with K-Mart.
The lease expiration dates range between April 30, 2006 and January 31,
2007. The aggregate purchase price for the equipment was approximately
$18,234,000 comprised of approximately $682,000 in cash and approximately
$17,552,000 of non-recourse debt.
16
On January 22, 2002, K-Mart 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 have been negotiating with K-Mart and we are currently hopeful that we will
be able to enter into a stipulation agreement with K-Mart in the near future
wherein K-Mart would affirm four of the five equipment lease schedules covering
the Noritsu mini-labs they have on lease with us. As part of the settlement,
K-Mart would also agree to reimburse us for overdue property tax payments.
Although K-Mart emerged from bankruptcy last year, the Bankruptcy Court has
retained jurisdiction over this matter. K-Mart is current in their payments to
us on the remaining four equipment lease schedules. On June 21, 2005, the
Bankruptcy Court rejected one of our equipment leases and title for this
equipment was granted to us. Additionally, we were awarded approximately
$240,000 for overdue property tax payments previously paid by us.
Other Equipment
o We have a 96.73% interest in ICON Cheyenne. ICON Cheyenne is a joint
venture which holds an equipment 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, of which 26 remain
active with expiration dates ranging between March 2005 and October 2006.
Our portion of the purchase price was approximately $29,706,000 comprised
of approximately $11,401,000 in cash and approximately $18,305,000 of
non-recourse debt.
2005 Portfolio Activity
Mobile Offshore Oil Rig
On February 23, 2005, L.P. Seven assigned 2.69% 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 $672,992, increasing our
ownership interest to 5.93%. This assignment was made in order for L.P. Seven to
repay its outstanding debt obligation to us as required by the Contribution
Agreement. This amount represented L.P. Seven's proportionate fair value of L.P.
Seven's interest in the mobile offshore drilling rig at February 23, 2005. The
fair value of the mobile offshore drilling rig was determined using an
independent third party appraisal and cash flow analysis.
Cathay Pacific Aircraft Lease Extension
We have entered into negotiations with Cathay regarding a possible lease
extension. The initial term of all equipment on lease to Cathay is scheduled to
expire on March 31, 2006.
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.
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.
17
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 time. 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.
Information Technology Industry
As a result of the cyclical behavior of the information technology industry
and its focus on the consumer, all manufacturers are vulnerable to market down
turns. Regardless of the product being offered, the intrinsic boom-bust nature
of the technology sector challenges companies to constantly try to improve
and/or create innovative changes in their products, aggressively pushing the
incumbent equipment into obsolescence. 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.
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 General Partner
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. 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.
18
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 for impairment in accordance with our
policy to review all significant assets in our portfolio.
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.
19
New Accounting Pronouncements
On June 1, 2005 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 154 "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinion No.
20, "Accounting Changes" ("APB 20") and SFAS No. 3, "Reporting Accounting
Changes in Interim Financial Statements," and changes the requirements for the
accounting for and reporting of a change in accounting principle. SFAS 154
requires retrospective application to prior periods' financial statements of a
voluntary change in accounting principle unless it is impracticable. APB 20
previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle.
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.
Results of Operations for the Three Months Ended March 31, 2005 (the "2005
Quarter") and 2004 (the "2004 Quarter")
We are currently in our reinvestment period and anticipate entering our
disposition period during October 2006 unless we extend the reinvestment period
for an additional three years. While in the reinvestment period we continue to
look for equipment leases to purchase, either with cash or with a combination of
cash and financing. As such, we expect our revenue will fluctuate due to our
selling some equipment leases while purchasing other equipment leases. We also
expect to have gains and losses from the sales of equipment during this time
period. As for expenses we anticipate interest expense to decrease our
outstanding debt decreases. If we enter into an equipment lease where we finance
a portion of the purchase price then interest expense may increase.
Revenues for the 2005 Quarter and 2004 Quarter are summarized as follows:
Three Months Ended March 31,
2005 2004 Change
Total revenue $ 5,614,228 $ 5,018,539 $ 595,689
============== ============= =============
Rental income $ 5,138,607 $ 5,050,467 $ 88,140
Finance income $ 198,528 $ 334,191 $ (135,663)
Net loss on sale of equipment $ (177,729) $ (483,330) $ 305,601
Income from investments in joint ventures $ 139,396 $ 100,222 $ 39,174
Gain from investments in unguaranteed residual values $ 315,426 $ - $ 315,426
Interest and other income $ - $ 16,989 $ (16,989)
Revenue for the 2005 Quarter decreased $595,689, or 11.9%, as compared to
the 2004 Quarter. The change in our net loss on sale of equipment was due
primarily to two equipment sales during the 2004 Quarter to Solectron
Corporation and Lucent Technologies. There was an increase in gain from
investments in unguaranteed residual values from sales equipment on lease to
W.H. Smith. We had no related sales during the 2004 Quarter.
20
Expenses for the 2005 Quarter and the 2004 Quarter are summarized as
follows:
2005 2004 Change
Total expenses $ 5,844,581 $ 7,316,459 $ (1,471,878)
============== ============= =============
Depreciation $ 3,407,388 $ 4,005,440 $ (598,052)
Interest $ 1,150,722 $ 1,660,538 $ (509,816)
Management fees - General Partner $ 511,695 $ 559,734 $ (48,039)
Administrative expense reimbursement
- General Partner $ 221,473 $ 244,331 $ (22,858)
Aircraft maintenance $ - $ 109,260 $ (109,260)
General and administrative $ 502,273 $ 355,723 $ 146,550
Amortization of initial direct costs $ 17,786 $ 40,323 $ (22,537)
Bad debt expense $ - $ 411,742 $ (411,742)
Minority interest $ 33,244 $ (70,632) $ 103,876
Expenses for the 2005 Quarter decreased $1,471,878, or 20.1%, from the 2004
Quarter. The decreases in depreciation, interest and aircraft maintenance
expense are all related to the sale of equipment in several joint ventures, ICON
Cheyenne and ICON Aircraft 24846, during 2004. During the 2004 Quarter we
recorded bad debt expense related to one K-Mart equipment lease schedule that
K-Mart has been attempting to reject as part of its bankruptcy proceeding.
21
Net Loss
As a result of the factors discussed above, the net loss for the 2005
Quarter and the 2004 Quarter was $230,353 and $2,297,920, respectively. The net
loss per weighted average limited partnership unit outstanding was $.31 and
$3.05 for the 2005 Quarter and the 2004 Quarter, respectively.
Liquidity and Capital Resources
Sources of Cash
We believe that with the cash we have currently available, cash being
generated from our leases, and proceeds from equipment sales, we have sufficient
cash to continue our operations into the foreseeable future. During the quarter
ended March, 2005, we received approximately $148,000 from our non-financed
equipment leases, approximately $169,000 from the proceeds of sales of equipment
and approximately $1,895,000 from our line of credit. Our primary use of cash
during the quarter ended March 31, 2005 was cash distributions to partners of
approximately $1,502,000 and advances to affiliates of approximately $673,000.
Financings and Borrowings
We have both non-recourse debt and recourse debt at March 31, 2005. Our
non-recourse debt consists of notes payable in which the lenders have a security
interest in the equipment and an assignment of the rental payments under the
leases. The lenders are being paid directly by the lessees. Our non-recourse
debt accrues interest at rates ranging from 4.035% per year to 10.05% per year.
The outstanding balances of our non-recourse notes payable at March 31, 2005 was
$75,771,171.
We and certain of our affiliates, specifically L.P. Seven, ICON Income Fund
Eight A L.P., and ICON Income Fund Nine, LLC (collectively, the "Initial
Funds"), entered into a $17,500,000 line of credit agreement with Comerica Bank
as of May 30, 2002, as amended. Interest accrues on all outstanding balances, at
an interest rate equal to the Comerica Bank base interest rate plus 1% (together
is 6.75% at March 31, 2005). 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. The line of credit agreement expires on 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.
22
On February 23, 2005, L.P. Seven assigned 2.69% 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 $672,992, increasing our
ownership interest to 5.93%. This amount represented L.P. Seven's proportionate
fair value of L.P. Seven's interest in the mobile offshore drilling rig at
February 23, 2005. 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 released 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 $11,830,000 at March 31, 2005. We currently have $5,120,000 of
borrowings under this line of credit.
Distributions
We pay monthly distributions to our limited partners beginning with the
first month after the limited partners' admission through the termination of the
operating period, which we anticipate will be October 16, 2006. We paid
distributions to limited partners for the quarter ended March 31, 2005 and 2004
of $1,486,561 and $1,490,510, respectively. We paid distributions to General
Partner for the quarter ended March 31, 2005 and 2004 of $15,016 and $15,056,
respectively.
Commitments
At March 31, 2005 we are parties 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.
Risks and Uncertainties
At March 31, 2005, except as noted above in the Business Overview section
and listed below in the Risk Factors section, 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 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 market for aircraft is currently depressed due to an overabundance of
aircraft on the market resulting from the overall downturn in the aviation
industry following the tragic events of September 11, 2001. While the
market for these aircraft is cyclical, there can be no assurance that
market will recover by October 2006. Failure of the market to recover
significantly may result in our inability to realize our investment in the
residuals of the aircraft in the Partnership's portfolio.
o The Partnership's operations are subject to the jurisdiction of a number of
federal agencies, including the FAA. New regulatory rulings may negatively
impact the Partnership's financial results and economic value of its
assets.
23
o As a result of the cyclical behavior in the information technology industry
and its focus on the consumer, all manufacturers are vulnerable to market
down turns. Regardless of the product being offered, the intrinsic
boom-bust nature of the technology sector challenges companies to
constantly try to improve and/or create innovative changes in their
products, aggressively pushing the incumbent equipment into obsolescence.
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.
o 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.
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.
Item 3. 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.
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 $5,120,000 outstanding under the floating rate line of credit at March
31, 2005.
24
Item 4. Controls and Procedures
Evaluation of disclosure 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 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,
except as noted below, the Chief Executive Officer and the Principal Financial
and Accounting Officer concluded that our disclosure controls and procedures
were effective.
While evaluating our disclosure controls and procedures we recognized that
greater internal controls were needed to aid in a more efficient closing of our
financial statements, thereby requiring additional skilled accounting staff.
Towards the end of the third quarter of 2004, the Company hired a new senior
vice president of accounting and the Company is in the process of seeking
additional accounting staff in order to better effectuate the Company's internal
controls. We will continue to evaluate our disclosure controls and procedures to
determine their effectiveness and adequacy and will take the steps necessary, in
our opinion, to ensure the adequacy of the Company's disclosure controls and
procedures.
In designing and evaluating our disclosure controls and procedures, we
recognized that disclosure controls and procedures, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the
objectives of the disclosure controls and procedures are met. Our disclosure
controls and procedures have been designed to meet reasonable assurance
standards. Disclosure controls and procedures cannot detect or prevent all error
and fraud. Some inherent limitations in disclosure controls and procedures
include costs of implementation, faulty decision-making, simple error and
mistake. Additionally, controls can be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based, in part, upon
certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
anticipated and unanticipated future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
established policies or procedures.
Our General Partner's Chief Executive Officer and Principal Financial and
Accounting Officer have determined that no weakness in disclosure controls and
procedures had any material effect on the accuracy and completeness of the
Company's financial reporting and disclosure included in this report.
25
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.
On January 22, 2002, K-Mart 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.
The Partnership is the lessor of 179 Noritsu Optical/Digital photo processing
mini-labs located at Kmart retail locations throughout the country.
The General Partner has been negotiating with K-Mart in an attempt to enter
into a stipulation agreement with K-Mart in the near future wherein K-Mart would
affirm four of the five equipment lease schedules covering the Noritsu mini-labs
they have leased from us. As part of the settlement, Kmart would also agree to
reimburse us for overdue property tax payments made by the Partnership. Although
K-Mart emerged from Chapter 11 during 2004, the Bankruptcy Court has retained
jurisdiction over this matter.
At March 31, 2005, K-Mart was current on their rental payments for four of
the five equipment lease schedules. On June 21, 2005, the Bankruptcy Court
rejected one of our equipment leases and title for this equipment was granted to
us. Additionally, we were awarded approximately $220,000 for overdue property
tax payments previously paid by us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters To A Vote Of Security Holders
No matters were submitted to a vote of security holders during the
first quarter 2005.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
31.1 Certification of Chairman and Chief Executive Officer.
31.2 Certification of Executive Vice President and Principal Financial and
Accounting Officer.
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.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ICON Cash Income Fund Eight B L.P. (Registrant) By its General Partner, ICON
Capital Corp.
Date: July 1, 2005 /s/ Beaufort J.B. Clarke
--------------------------------------
Beaufort J.B. Clarke
Chairman, Chief Executive Officer and Director
Date: July 1, 2005 /s/ Thomas W. Martin
--------------------------------------
Thomas W. Martin
Executive Vice President
(Principal Financial and Accounting Officer)
27
Exhibit 31.1
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
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 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
report;
3. Based on my knowledge, the financial statements and other financial
information included in this 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 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-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 report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) presented in this 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 General Partner
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control which 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: July 1, 2005
/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.
28
Exhibit 31.2
Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
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 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
report;
3. Based on my knowledge, the 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
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-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 report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) presented in this 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 General Partner
(or persons performing the equivalent function):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control which 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: July 1, 2005
/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.
29
Exhibit 32.1
Principal Executive Officer Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
I, Beaufort J.B. Clarke, Chairman and Chief Executive Officer of ICON Capital
Corp, the General Partner, in connection with the Quarterly Report of ICON
Income Fund Eight B L.P. (the "Partnership") on Form 10-Q for the quarterly
period ended March 31, 2005, as filed with the Securities and Exchange
Commission on the date hereof (the "Periodic Report") certify, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge
and belief:
(1) the Periodic 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 Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
Dated: July 1, 2005
/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.
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
The information contained in this Exhibit 32.1 is being furnished and shall not
be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or otherwise subject to the liabilities of that section.
The information contained in this Exhibit 32.1 shall not be incorporated by
reference into any registration statement or other document pursuant to the
Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific reference to this
Exhibit 32.1 in such filing.
30
Exhibit 32.2
Principal Executive Officer Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. ss.1350)
I, Thomas W. Martin, Executive Vice President (Principal Financial and
Accounting Officer) of ICON Capital Corp, the General Partner, in connection
with the Quarterly Report of ICON Income Fund Eight B L.P. (the "Partnership")
on Form 10-Q for the quarterly period ended March 31, 2005, as filed with the
Securities and Exchange Commission on the date hereof (the "Periodic Report")
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the
best of my knowledge and belief:
(1) the Periodic 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 Periodic Report fairly presents, in all
material respects, the financial condition and results of operations of the
Partnership.
Dated: July 1, 2005
/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.
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
The information contained in this Exhibit 32.2 is being furnished and shall not
be deemed "filed" for the purposes of Section 18 of the Securities Exchange Act
of 1934, as amended, or otherwise subject to the liabilities of that section.
The information contained in this Exhibit 32.2 shall not be incorporated by
reference into any registration statement or other document pursuant to the
Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific reference to this
Exhibit 32.2 in such filing.
31