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 0-21518
IEA INCOME FUND XII, L.P.
(Exact name of registrant as specified in its charter)
California 94-3143940
(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 XII, L.P.
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 Condensed 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 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.
3
4
IEA INCOME FUND XII, L.P.
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
2000 1999
------------- -------------
Assets
Current assets:
Cash and cash equivalents, includes $1,073,931 at June 30, 2000 and
$1,111,325 at December 31, 1999 in interest-bearing accounts $ 1,107,140 $ 1,111,425
Net lease receivables due from Leasing Company
(notes 1 and 2) 467,002 585,156
------------- -------------
Total current assets 1,574,142 1,696,581
------------- -------------
Container rental equipment, at cost 61,036,141 61,857,061
Less accumulated depreciation 27,557,912 26,191,802
------------- -------------
Net container rental equipment 33,478,229 35,665,259
------------- -------------
Total assets $ 35,052,371 $ 37,361,840
============= =============
Liabilities and Partners' Capital
Current liabilities:
Accrued expenses $ 152,700 $ 254,500
------------- -------------
Partners' capital (deficit):
General partner (138,270) (116,193)
Limited partners 35,037,941 37,223,533
------------- -------------
Total partners' capital 34,899,671 37,107,340
------------- -------------
Total liabilities and partners' capital $ 35,052,371 $ 37,361,840
============= =============
The accompanying notes are an integral part of these condensed financial
statements.
4
5
IEA INCOME FUND XII, L.P.
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) $ 1,110,443 $ 807,130 $ 2,064,964 $ 1,900,605
Other operating expenses:
Depreciation 903,406 915,596 1,809,169 1,831,492
Other general and administrative expenses 28,986 24,779 59,469 57,730
----------- ----------- ----------- -----------
932,392 940,375 1,868,638 1,889,222
----------- ----------- ----------- -----------
Income (loss) from operations 178,051 (133,245) 196,326 11,383
Other income (loss):
Interest income 13,491 23,621 28,210 47,574
Net gain (loss) on disposal of equipment (126,245) 14,061 (167,021) (78,624)
----------- ----------- ----------- -----------
(112,754) 37,682 (138,811) (31,050)
----------- ----------- ----------- -----------
Net income (loss) $ 65,297 $ (95,563) $ 57,515 $ (19,667)
=========== =========== =========== ===========
Allocation of net income (loss):
General partner $ 37,637 $ 47,419 $ 76,393 $ 95,966
Limited partners 27,660 (142,982) (18,878) (115,633)
----------- ----------- ----------- -----------
$ 65,297 $ (95,563) $ 57,515 $ (19,667)
=========== =========== =========== ===========
Limited partners' per unit share of net income (loss) $ 0.01 $ (0.04) $ (0.01) $ (0.03)
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
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6
IEA INCOME FUND XII, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
-----------------------------
June 30, June 30,
2000 1999
----------- -----------
Net cash provided by operating activities $ 2,061,992 $ 2,025,957
Cash provided by (used in) investing activities:
Proceeds from disposal of equipment 198,907 365,461
Purchase of container rental equipment -- (199,342)
Acquisition fees paid to general partner -- (9,967)
----------- -----------
Net cash provided by investing activities 198,907 156,152
----------- -----------
Cash used in financing activities:
Distribution to partners (2,265,184) (2,581,492)
----------- -----------
Net decrease in cash and cash equivalents (4,285) (399,383)
Cash and cash equivalents at January 1 1,111,425 2,407,614
----------- -----------
Cash and cash equivalents at June 30 $ 1,107,140 $ 2,008,231
=========== ===========
The accompanying notes are an integral part of these condensed financial
statements.
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7
IEA INCOME FUND XII, L.P.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund XII, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of California on
August 28, 1991 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.
Cronos Capital Corp. ("CCC") is the general partner and, 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 general partner. The Partnership shall continue
until December 31, 2011, unless sooner terminated upon the
occurrence of certain events.
The Partnership commenced operations on January 31, 1992, when the
minimum subscription proceeds of $2,000,000 were obtained. The
Partnership offered 3,750,000 units of limited partnership interest
at $20 per unit, or $75,000,000. The offering terminated on November
30, 1992, at which time 3,513,594 limited partnership units had been
purchased.
(b) Leasing Company and Leasing Agent Agreement
The Partnership 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 and the Leasing Company. 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 condensed
financial statements.
7 (Continued)
8
IEA INCOME FUND XII, L.P.
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) Financial Statement Presentation
These condensed 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 condensed 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, and reimbursed administrative expenses 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:
June 30, December 31,
2000 1999
------------- -------------
Gross lease receivables $ 1,753,164 $ 1,676,207
Less:
Direct operating payables and accrued expenses 512,044 432,023
Damage protection reserve 162,543 189,163
Base management fees payable 254,608 271,648
Reimbursed administrative expenses 87,290 33,911
Allowance for doubtful accounts 269,677 164,306
------------- -------------
Net lease receivables $ 467,002 $ 585,156
============= =============
8 (Continued)
9
IEA INCOME FUND XII, L.P.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC and
its affiliates 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 were as follows:
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Rental revenue (note 4) $1,714,440 $1,607,095 $3,473,528 $3,469,521
Less:
Rental equipment operating expenses 382,873 585,546 947,946 1,123,244
Base management fees 116,994 110,702 232,984 238,968
Reimbursed administrative expenses 104,130 103,717 227,634 206,704
---------- ---------- ---------- ----------
$1,110,443 $ 807,130 $2,064,964 $1,900,605
========== ========== ========== ==========
(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 its revenues from cargo marine containers. As of
June 30, 2000, the Partnership operated 9,101 twenty-foot, 5,110
forty-foot and 204 forty-foot high-cube dry cargo marine containers, as
well as 210 twenty-foot and 278 forty-foot refrigerated cargo marine
containers. A summary of gross lease revenue, by product, for the three
and six-month periods ended June 30, 2000 and 1999 follows:
Three Months Ended Six Months Ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
Dry cargo containers $1,380,036 $1,315,528 $2,802,901 $2,805,445
Refrigerated containers 334,404 291,567 670,627 664,076
---------- ---------- ---------- ----------
Total $1,714,440 $1,607,095 $3,473,528 $3,469,521
========== ========== ========== ==========
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.
******
9
10
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.
At June 30, 2000, the Registrant had $1,107,140 in cash and cash
equivalents, a decrease of $4,285 from the cash balances at December 31,
1999.
The Registrant's allowance for doubtful accounts increased from $164,306
at December 31, 1999 to $269,677 at June 30, 2000. This increase was
attributable to the delinquent account receivable balances of
approximately 13 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.
The Registrant's cash distribution from operations for the second quarter
of 2000 was 5.0% (annualized) of the limited partners' original capital
contributions, unchanged from the first quarter of 2000. These
distributions are directly related to the Registrant's results from
operations and may fluctuate accordingly. The cash distribution from
sales proceeds for the second quarter of 2000 was 0.75% (annualized) of
the limited partners' original capital contributions, an increase from
the 0.25% (annualized) in the first quarter of 2000. Sales proceeds to
its partners may fluctuate in subsequent periods, reflecting the level of
container disposals. Distributions for the general and limited partners
are calculated based upon the Partnership Agreement.
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.
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 $1,110,443 and $2,064,964, respectively, an increase of 38% and 9%,
from the same respective periods 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 $1,714,440 and $3,473,528, respectively,
reflecting an increase of 7% and less than 1% from the same respective
periods in the prior year. Gross lease revenue was primarily impacted by
higher utilization levels and lower per-diem rental rates. Average dry
cargo container per-diem rental rates for the three and six-month periods
ended June 30, 2000 declined approximately 7% and 10%, respectively, when
compared to the same periods in the prior year. Average refrigerated
container per-diem rental rates for the three and six-month periods ended
June 30, 2000 declined approximately 3% and 10%, respectively, when
compared to the same periods in the prior year.
10 (Continued)
11
The Registrant's average fleet size and utilization rates for the three
and six-month periods ended June 30, 2000 and 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))
Dry cargo containers 19,787 20,103 19,873 20,116
Refrigerated containers 777 805 776 806
Average Utilization
Dry cargo containers 76% 67% 75% 67%
Refrigerated containers 85% 68% 84% 69%
The Registrant's declining fleet size contributed to reductions in
depreciation expense of 1% for both the three and six-month periods ended
June 30, 2000 when compared to the same three and six-month periods in
the prior year. Rental equipment operating expenses, as a percent of the
Registrant's gross lease revenue, were 22% and 27%, respectively, during
the three and six-month periods ended June 30, 2000, as compared to 36%
and 32%, respectively, during the three and six-month periods ended June
30, 1999. The Registrant's operating results contributed to a 3% decline
in base management fees during the six-month period ended June 30, 2000
as compared to the same period in the prior year.
The Registrant disposed of 73 twenty-foot and 32 forty-foot dry cargo
marine containers, as well as 11 forty-foot refrigerated cargo container
during the second quarter of 2000, compared to 46 twenty-foot and 15
forty-foot dry cargo marine containers during the same period in the
prior year. These disposals resulted in a loss of $167,021 for the second
quarter of 2000, as compared to a loss of $78,624 for the same period in
the prior year. The Registrant does not believe that the carrying amount
of its containers has been permanently impaired or that events or changes
in circumstances have indicated that the carrying amount of its
containers may not be fully recoverable. The Registrant believes that the
loss on container disposals was a result of various factors including the
age, condition, suitability for continued leasing, as well as the
geographical location of the containers when disposed. These factors will
continue to influence the amount of sales proceeds received and the
related gain or loss on container disposals, which may fluctuate in
subsequent periods.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
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PART II - OTHER INFORMATION
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 December 2, 1991
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with Cronos Containers Limited ***
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 December 2, 1991, included as part of Registration
Statement on Form S-1 (No. 33-42697)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-42697)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-42697)
12
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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 XII, L.P.
By Cronos Capital Corp.
The 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
14
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
-------- --------------------------------------------------------------------- ------------------------
3(a) Limited Partnership Agreement of the Registrant, amended and restated *
as of December 2, 1991
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with Cronos Containers Limited ***
27 Financial Data Schedule Filed with this document
- ------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 2, 1991, included as part of Registration
Statement on Form S-1 (No. 33-42697)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-42697)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-42697)