1
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 JUNE 30, 2000
OR
[ ] 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 0-14440
IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-2942941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(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. Yes [X]. No [ ].
2
IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 2000
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - June 30, 2000 and December 31, 1999 (unaudited) 4
Condensed Statements of Operations for the three and six months ended June
30, 2000 and 1999 (unaudited) 5
Condensed Statements of Cash Flows for the six months ended June 30, 2000 and 1999
(unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
2
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's condensed balance sheets as of
June 30, 2000 and December 31, 1999, condensed statements of operations
for the three and six months ended June 30, 2000 and 1999, and
condensed statements of cash flows for the six months ended June 30,
2000 and 1999.
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4
IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents, includes $443,227 at June 30, 2000 and
$471,468 at December 31, 1999 in interest-bearing accounts $ 490,007 $ 471,568
Net lease receivables due from Leasing Company
(notes 1 and 2) 12,563 87,904
------------- -------------
Total current assets 502,570 559,472
------------- -------------
Container rental equipment, at cost 4,483,580 5,218,975
Less accumulated depreciation 3,137,450 3,678,434
------------- -------------
Net container rental equipment 1,346,130 1,540,541
------------- -------------
Total assets $ 1,848,700 $ 2,100,013
============= =============
Partners' Capital
Partners' capital:
General partners $ 3,174 $ 5,687
Limited partners 1,845,526 2,094,326
------------- -------------
Total partners' capital $ 1,848,700 $ 2,100,013
============= =============
The accompanying notes are an integral part of these financial statements.
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IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------- -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Net lease revenue (notes 1 and 3) $ 105,865 $ 142,393 $ 207,051 $ 313,393
Other operating expenses:
Depreciation -- 35,970 -- 69,112
Other general and administrative expenses 15,513 9,884 31,710 27,411
--------- --------- --------- ---------
15,513 45,854 31,710 96,523
--------- --------- --------- ---------
Income from operations 90,352 96,539 175,341 216,870
Other income:
Interest income 5,205 7,775 10,408 15,948
Net gain (loss) on disposal of equipment (1,412) 60,199 14,862 113,822
--------- --------- --------- ---------
3,793 67,974 25,270 129,770
--------- --------- --------- ---------
Net income $ 94,145 $ 164,513 $ 200,611 $ 346,640
========= ========= ========= =========
Allocation of net income:
General partners $ 18,768 $ 34,920 $ 37,659 $ 73,581
Limited partners 75,377 129,593 162,952 273,059
--------- --------- --------- ---------
$ 94,145 $ 164,513 $ 200,611 $ 346,640
========= ========= ========= =========
Limited partners' per unit share of net income $ 1.72 $ 2.95 $ 3.71 $ 6.22
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
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IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------------
June 30, June 30,
2000 1999
--------- ---------
Net cash provided by operating activities $ 233,640 $ 333,647
Cash provided by investing activities:
Proceeds from disposal of equipment 236,723 457,663
Cash used in financing activities:
Distribution to partners (451,924) (888,781)
--------- ---------
Net increase (decrease) in cash and cash equivalents 18,439 (97,471)
Cash and cash equivalents at January 1 471,568 786,433
--------- ---------
Cash and cash equivalents at June 30 $ 490,007 $ 688,962
========= =========
The accompanying notes are an integral part of these financial statements.
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IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VI, A California Limited Partnership (the
"Partnership") is a limited partnership organized under the laws of the
State of California on August 1, 1984 for the purpose of owning and
leasing marine cargo containers worldwide to ocean carriers. To this
extent, the Partnership's operations are subject to the fluctuations of
world economic and political conditions. Such factors may affect the
pattern and levels of world trade. The Partnership believes that the
profitability of, and risks associated with, leases to foreign
customers is generally the same as those of leases to domestic
customers. The Partnership's leases generally require all payments to
be made in United States currency.
The managing general partner is Cronos Capital Corp. ("CCC"); the
associate general partners are four individuals. CCC, with its
affiliate Cronos Containers Limited (the "Leasing Company"), manages
the business of the Partnership. CCC and the Leasing Company also
manage the container leasing business for other partnerships affiliated
with the managing general partner. The Partnership shall continue until
December 31, 2006, unless sooner terminated upon the occurrence of
certain events.
The Partnership commenced operations on December 4, 1984, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 60,000 units of limited partnership interest at
$500 per unit, or $30,000,000. The offering terminated on October 11,
1985, at which time 43,920 limited partnership units had been
purchased.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership, all
authority to administer the business of the Partnership is vested in
CCC. CCC has entered into a Leasing Agent Agreement whereby the
Leasing Company has the responsibility to manage the leasing
operations of all equipment owned by the Partnership. Pursuant to the
Agreement, the Leasing Company is responsible for leasing, managing
and re-leasing the Partnership's containers to ocean carriers, and has
full discretion over which ocean carriers and suppliers of goods and
services it may deal with. The Leasing Agent Agreement permits the
Leasing Company to use the containers owned by the Partnership,
together with other containers owned or managed by the Leasing Company
and its affiliates, as part of a single fleet operated without regard
to ownership. Since the Leasing Agent Agreement meets the definition
of an operating lease in Statement of Financial Accounting Standards
(SFAS) No. 13, it is accounted for as a lease under which the
Partnership is lessor and the Leasing Company is lessee.
The Leasing Agent Agreement generally provides that the Leasing
Company will make payments to the Partnership based upon rentals
collected from ocean carriers after deducting direct operating
expenses and management fees to CCC. The Leasing Company leases
containers to ocean carriers, generally under operating leases which
are either master leases or term leases (mostly one to five years).
Master leases do not specify the exact number of containers to be
leased or the term that each container will remain on hire but allow
the ocean carrier to pick up and drop off containers at various
locations; rentals are based upon the number of containers used and
the applicable per-diem rate. Accordingly, rentals under master leases
are all variable and contingent upon the number of containers used.
Most containers are leased to ocean carriers under master leases;
leasing agreements with fixed payment terms are not material to the
financial statements. Since there are no material minimum lease
rentals, no disclosure of minimum lease rentals is provided in these
financial statements.
7 (Continued)
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IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue is
generally dependent upon operating lease rentals from operating lease
agreements between the Leasing Company and its various lessees, less
direct operating expenses and management fees due in respect of the
containers specified in each operating lease agreement.
(d) Depreciation of Containers
Container rental equipment is depreciated over a twelve-year life on a
straight-line basis to its estimated salvage value of 30%. As of
December 31, 1999, container rental equipment has been fully
depreciated.
(e) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States (GAAP) requires the
Partnership to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented. The
results of operations for such interim periods are not necessarily
indicative of the results to be expected for the full year.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, reimbursed administrative expenses and incentive fees payable
to CCC and its affiliates from the rental billings payable by the Leasing
Company to the Partnership under operating leases to ocean carriers for the
containers owned by the Partnership. Net lease receivables at June 30, 2000
and December 31, 1999 were as follows:
8 (Continued)
9
IEA INCOME FUND VI,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(2) Net Lease Receivables Due from Leasing Company (continued)
June 30, December 31,
2000 1999
------------- -------------
Gross lease receivables $ 275,570 $ 307,763
Less:
Direct operating payables and accrued expenses 101,363 79,424
Damage protection reserve 25,606 25,417
Base management fees payable 53,059 57,191
Reimbursed administrative expenses 10,207 3,260
Allowance for doubtful accounts 49,339 29,461
Incentive fees 23,433 25,106
------------- -------------
Net lease receivables $ 12,563 $ 87,904
============= =============
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management and incentive fees and reimbursed administrative expenses
to CCC from the rental revenue billed by the Leasing Company under
operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for the three and six-month periods ended
June 30, 2000 and 1999 was as follows:
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Rental revenue (note 4) $ 183,674 $ 248,950 $ 382,532 $ 553,905
Less:
Rental equipment operating expenses 35,125 30,738 76,545 80,855
Base management fees 12,000 18,957 24,984 40,756
Reimbursed administrative expenses 12,273 13,343 25,413 28,516
Incentive fees 18,411 43,519 48,539 90,385
--------- --------- --------- ---------
$ 105,865 $ 142,393 $ 207,051 $ 313,393
========= ========= ========= =========
(4) Operating Segment
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public business enterprises report financial and
descriptive information about reportable operating segments. An operating
segment is a component of an enterprise that engages in business activities
from which it may earn revenues and incur expenses, whose operating results
are regularly reviewed by the enterprise's chief operating decision maker
to make decisions about resources to be allocated to the segment and assess
its performance, and about which separate financial information is
available. Management operates the Partnership's container fleet as a
homogenous unit and has determined, after considering the requirements of
SFAS No. 131, that as such it has a single reportable operating segment.
The Partnership derives revenues from dry cargo marine containers. As of
June 30, 2000, the Partnership operated 1,179 twenty-foot, 523 forty-foot
and 38 forty-foot high-cube dry cargo marine containers.
Due to the Partnership's lack of information regarding the physical
location of its fleet of containers when on lease in the global shipping
trade, it is impracticable to provide the geographic area information
required by SFAS No. 131.
******
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between June 30, 2000 and December
31, 1999.
During the second quarter of 2000, the Registrant continued disposing of
containers as part of its ongoing container operations. Accordingly, 141
containers were disposed during the second quarter of 2000, contributing to
a decline in the Registrant's operating results. At June 30, 2000, 18% of
the original equipment remained in the Registrant's fleet, as compared to
21% at December 31, 1999, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 99 42 6
Master leases 926 430 21
-------- -------- --------
Subtotal 1,025 472 27
Containers off lease 154 51 11
-------- -------- --------
Total container fleet 1,179 523 38
======== ======== ========
40-Foot
20-Foot 40-Foot High-Cube
---------------- ---------------- ----------------
Units % Units % Units %
----- ----- ----- ----- ----- -----
Total purchases 6,102 100% 3,753 100% 75 100%
Less disposals 4,923 81% 3,230 86% 37 49%
----- ----- ----- ----- ----- -----
Remaining fleet at June 30, 2000 1,179 19% 523 14% 38 51%
===== ===== ===== ===== ===== =====
The Registrant's allowance for doubtful accounts increased from $29,461 at
December 31, 1999 to $49,339 at June 30, 2000. This increase was
attributable to the delinquent account receivable balances of approximately
11 lessees. The Leasing Company has either negotiated specific payment
terms with these lessees or is pursuing other alternatives to collect the
outstanding balances. In each instance, the Registrant believes it has
provided sufficient reserves for all doubtful accounts.
During the second quarter of 2000, distributions issued from operations and
sales proceeds amounted to $225,962, reflecting distributions due to the
general and limited partners for the first quarter of 2000. Such
distributions were unchanged when compared with those issued in the first
quarter of 2000, reflecting distributions due for the fourth quarter of
1999. The Registrant's continuing disposal of containers should produce
lower operating results and, consequently, lower distributions to its
partners in subsequent periods.
The growth in the volume of world trade, a rise in exports to the Far East,
and the global effects of a strong U.S. economy have resulted in improved
market conditions for the container leasing industry. As a result of these
and other factors, including repositioning initiatives implemented earlier
in the year, utilization of the Registrant's fleet of containers has
exhibited steady improvement in recent months. In addition, new container
prices, as well as interest rates, have been rising from historically low
levels. During such times, ocean carriers tend to reduce their capital
spending to supplement their owned fleets of containers in favor of
leasing. The pressure on per diem rates has impacted the Registrant's
revenues, but there has been some rate stabilization in recent months. The
Registrant will continue to take advantage of improving market conditions
by repositioning equipment to locations of greatest demand as well as
seeking out leasing opportunities that will strengthen utilization and
enhance the performance of the fleet.
10 (Continued)
11
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 2000 and the three and six-month periods
ended June 30, 1999.
Net lease revenue for the three and six-month periods ended June 30, 2000
was $105,865 and $207,051, respectively, a decline of 26% and 34% from the
respective three and six-month periods in the prior year. None of the
Registrant's net income was from gain on disposal of equipment during the
three-month period ended June 30, 2000, compared with 37% for the same
period ended June 30, 1999. Approximately 7% of the Registrant's net income
for the six-month period ended June 30, 2000 was from gain on disposal of
equipment, as compared to 33% for the same six-month period in the prior
year.
Gross rental revenue (a component of net lease revenue) for the three and
six-month periods ended June 30, 2000 was $183,674 and $382,532,
respectively, reflecting a decline of 26% and 31% from the comparable three
and six-month periods in 1999. Gross rental revenue was primarily impacted
by the Registrant's diminishing fleet size and a decline in per-diem rental
rates. Average per-diem rental rates decreased approximately 14% and 16%,
respectively, when compared to the same three and six-month periods in the
prior year. The Registrant's average fleet size and utilization rates for
the three and six-month periods ended June 30, 2000 and June 30, 1999 were
as follows:
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
Average fleet size (measured in
twenty-foot equivalent units (TEU)) 2,346 3,242 2,492 3,406
Average utilization 89% 84% 87% 84%
Rental equipment operating expenses were 19% and 20%, respectively, of the
Registrant's gross lease revenue during the three and six-month periods
ended June 30, 2000, as compared to 12% and 15%, respectively, during the
three and six-month periods ended June 30, 1999. The Registrant's declining
fleet size and related operating results also contributed to a decline in
base management fees, reimbursed administrative expenses and incentive
fees.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 20, 2000, KM Investments, LLC, a California limited liability company
("KM") filed its complaint (the "Complaint") in the Superior Court for the
County of Los Angeles against CCC, as general partner of the Partnership,
alleging violation of the California Revised Limited Partnership Act, breach of
fiduciary duty, and unfair competition. KM claims to be an assignee of units of
limited partnership interests in the Partnership and six other California
limited partnerships (collectively, the "Cronos Partnerships") managed by CCC as
general partner. KM, which is in the business of making unregistered tender
offers for up to 4.9% of the outstanding interests in limited partnerships,
claims that CCC has wrongfully refused to provide KM with lists of the limited
partners of the Cronos Partnerships to enable KM to make unregistered tender
offers to the limited partners of the Cronos Partnerships.
KM asks for declaratory relief, damages according to proof, attorneys' fees,
costs, interest, a temporary restraining order and/or a preliminary injunction
barring CCC from giving limited partner lists to any other party before
delivering such lists to KM, punitive damages, and an order prohibiting CCC from
receiving reimbursement of its legal fees incurred in defending the action from
the Cronos Partnerships.
On April 24, 2000, CCC filed its demurrer to the Complaint and its motion to
strike those portions of the Complaint seeking punitive damages. By its
demurrer, CCC asserted that KM, as an assignee of units of the Cronos
Partnerships, is not entitled to review or receive a copy of the lists of the
limited partners of the Cronos Partnerships; that CCC has not breached any
fiduciary duty to KM; and that CCC has not engaged in unfair competition as
alleged by KM. CCC requested that the Court dismiss KM's Complaint.
On June 8, 2000, the Court heard CCC's demurrer, and sustained (i.e., granted)
it in its entirety, allowing KM thirty days to file an amended complaint. KM did
so on or about July 10, 2000, asserting the same causes of action as set forth
in its original complaint. CCC intends to demurr to KM's amended complaint and
to move to strike those portions of the complaint seeking punitive damages. CCC
believes that KM's complaint is without merit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
-------- ------------------------------------------------ ---------------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of October 11, 1984
3(b) Certificate of Limited Partnership of the **
Registrant
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended June 30, 2000.
- ------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 12, 1984, included as part of Registration
Statement on Form S-1 (No. 2-92883)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-92883)
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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.
IEA INCOME FUND VI,
A California Limited Partnership
By Cronos Capital Corp.
The Managing General Partner
By /s/ Dennis J. Tietz
-------------------------------------------
Dennis J. Tietz
President and Director of Cronos Capital
Corp. ("CCC")
Principal Executive Officer of CCC
Date: August 14, 2000
13
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EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- ------------------------------------------------ ----------------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of October 11, 1984
3(b) Certificate of Limited Partnership of the **
Registrant
27 Financial Data Schedule Filed with this
document
- -------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 12, 1984, included as part of Registration
Statement on Form S-1 (No. 2-92883)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-92883)