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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________.
Commission file number 0-18169
IEA INCOME FUND IX, L.P.
(Exact name of registrant as specified in its charter)
California 94-3069954
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Front Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 677-8990
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTERESTS
(Title of Class)
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is not applicable.
Documents incorporated by Reference
PART I
Item 1 - Business Prospectus of IEA Income Fund IX, L.P. dated September
12, 1988 included as part of Registration Statement on
Form S-1 (No. 33-23321)
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PART I
Item 1. Business
(a) General Development of Business
The Registrant is a California limited partnership formed on June 8,
1988 to engage in the business of leasing marine dry cargo containers to
unaffiliated third-party lessees. The Registrant was initially capitalized with
$100, and commenced offering its limited partnership interests to the public
during the week of September 12, 1988, pursuant to its Registration Statement on
Form S-1 (File No. 33-23321). The offering terminated on August 31, 1989.
The Registrant raised $16,996,100 in subscription proceeds. The
following table sets forth the use of said subscription proceeds:
Percentage of
Amount Gross Proceeds
----------- --------------
Gross Subscription Proceeds $16,996,100 100.0%
Public Offering Expenses:
Underwriting Commissions $ 1,699,600 10.0%
Offering and Organization Expenses $ 434,497 2.6%
----------- -----
Total Public Offering Expenses $ 2,134,097 12.6%
----------- -----
Net Proceeds $14,862,003 87.4%
Acquisition Fees $ 145,536 0.8%
Working Capital Reserve $ 162,897 1.0%
----------- -----
Gross Proceeds Invested in Equipment $14,553,570 85.6%
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The general partner of the Registrant is Cronos Capital Corp. ("CCC"), a
wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc., a Delaware
corporation. These and other affiliated companies are ultimately wholly-owned by
The Cronos Group, a holding company registered in Luxembourg (the "Parent
Company") and are collectively referred to as the "Group". The activities of the
container division of the Group are managed through the Group's subsidiary in
the United Kingdom, Cronos Containers Limited (the "Leasing Company"). The
Leasing Company manages the leasing operations of all equipment owned by the
Group on its own behalf or managed on behalf of other third-party container
owners, including all other programs organized by CCC.
Pursuant to the Limited Partnership Agreement of the Registrant, all
authority to administer the business of the Registrant is vested in CCC. CCC has
entered into a Leasing Agent Agreement, whereby the Leasing Company has assumed
the responsibility for the container leasing activities of CCC's managed
programs.
For a discussion of recent developments in the Registrant's business,
see Item 7, "Management's Discussion and Analysis of Financial Condition and
Result of Operations."
For information concerning the containers acquired by the Registrant,
see Item 2, "Properties."
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(b) Financial Information About Segments
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which requires that 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. The Leasing Company's management operates the
Registrant'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.
Due to the Registrant'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. Any attempt to separate "foreign" operations from "domestic" operations
would be dependent on definitions and assumptions that are so subjective as to
render the information meaningless and potentially misleading.
No single sub-lessee of the Leasing Company contributed more than 10% of
the Leasing Company's rental revenue earned during 2000, 1999 and 1998 on behalf
of the Registrant.
(c) Narrative Description of Business
(c)(1)(i) A marine cargo container is a reusable metal container
designed for the efficient carriage of cargo with a minimum of exposure to loss
from damage or theft. Containers are manufactured to conform to worldwide
standards of container dimensions and container ship fittings adopted by the
International Standards Organization ("ISO") in 1968. The standard container is
either 20' long x 8' wide x 8'6" high (one twenty-foot equivalent unit ("TEU"),
the standard unit of physical measurement in the container industry) or 40' long
x 8' wide x 8'6" high (two TEU). Standardization of the construction,
maintenance and handling of containers allows containers to be picked up,
dropped off, stored and repaired efficiently throughout the world. This
standardization is the foundation on which the container industry has developed.
Standard dry cargo containers are rectangular boxes with no moving
parts, other than doors, and are typically made of steel or aluminum. They are
constructed to carry a wide variety of cargos ranging from heavy industrial raw
materials to light-weight finished goods. Specialized containers include, among
others, refrigerated containers for the transport of temperature-sensitive goods
and tank containers for the carriage of liquid cargo. Dry cargo containers
currently constitute approximately 87% (in TEU) of the worldwide container
fleet. Refrigerated and tank containers currently constitute approximately 5%
(in TEU) of the worldwide container fleet, with open-tops and other specialized
containers constituting the remaining 8%.
One of the primary benefits of containerization has been the ability of
the shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, railway and ship. Containers require loading
and unloading only once and remain sealed until arrival at the final
destination, significantly reducing transport time, labor and handling costs and
losses due to damage and theft. Efficient movement of containerized cargo
between ship and shore reduces the amount of time that a ship must spend in port
and reduces the transit time of freight moves.
The logistical advantages and reduced freight rates brought about by
containerization have been major catalysts for world trade growth during the
last twenty-five years, resulting in increased demand for containerization. The
world's container fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 14 million TEU by mid-2000.
The container leasing business is cyclical, and depends largely upon the
rate of increase in world trade. The container leasing industry has experienced
cyclical downturns during the last sixteen years.
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BENEFITS OF LEASING
Leasing companies own approximately 46% of the world's container fleet
with the balance owned predominantly by shipping lines. Shipping lines, which
traditionally operate on tight profit margins, often supplement their owned
fleet of containers by leasing a portion of their equipment from container
leasing companies and, in doing so, achieve the following financial and
operational benefits:
- Leasing allows the shipping lines to utilize the equipment they
need without having to make large capital expenditures;
- Leasing offers a shipping line an alternative source of
financing in a traditionally capital-intensive industry;
- Leasing enables shipping lines to expand their routes and market
shares at a relatively inexpensive cost without making a
permanent commitment to support their new structure;
- Leasing allows shipping lines to respond to changing seasonal
and trade route demands, thereby optimizing their capital
investment and storage costs.
TYPES OF LEASES
The Registrant's containers are leased primarily to shipping lines
operating in major trade routes (see Item 1(d)). Most if not all of the
Registrant's marine dry cargo containers are leased pursuant to operating
leases, primarily master leases, where the containers are leased to the ocean
carrier on a daily basis for any desired length of time, with the flexibility of
picking up and dropping off containers at various agreed upon locations around
the world. Some of the Registrant's containers may be leased pursuant to term
leases, which may have durations of less than one year to five years.
- Master lease. Master leases are short-term leases under which a
customer reserves the right to lease a certain number of
containers, as needed, under a general agreement between the
lessor and the lessee. Such leases provide customers with
greater flexibility by allowing them to pick up and drop off
containers where and when needed, subject to restrictions and
availability, on pre-agreed terms. The commercial terms of
master leases are negotiated annually. Master leases also define
the number of containers that may be returned within each
calendar month, the return locations and applicable drop-off
charges. Due to the increased flexibility they offer, master
leases usually command higher per-diem rates and generate more
ancillary fees (including pick-up, drop-off, handling and
off-hire fees) than term leases. Short-term lease agreements
have a duration of less than one year and include one-way,
repositioning and round-trip leases. Ocean carriers generally
use one-way leases to manage trade imbalances (where more
containerized cargo moves in one direction than another) by
picking up a container in one port and dropping it off at
another location after one or more legs of a voyage.
- Term lease. Term leases are for a fixed period of time and
include both long and short-term commitments, with most
extending from three to five years. Term lease agreements may
contain early termination penalties that apply in the event of
early redelivery. In most cases, however, equipment is not
returned prior to the expiration of the lease. Term leases
provide greater revenue stability to the lessor, but at lower
rates than master leases. Ocean carriers use long-term leases
when they have a need for identified containers for a specified
term. Short-term lease agreements have a duration of less than
one year and include one-way, repositioning and round-trip
leases. They differ from master leases in that they define the
number of containers to be leased and the lease term. Ocean
carriers generally use one-way leases to manage trade imbalances
(where more containerized cargo moves in one direction than
another) by picking up a container in one port and dropping it
off at another location after one or more legs of a voyage.
The terms and conditions of the Leasing Company's leases provide that
customers are responsible for paying all taxes and service charges arising from
container use, maintaining the containers in good and safe operating condition
while on lease and paying for repairs, excluding ordinary wear and tear, upon
redelivery. Some leases provide for a "damage protection plan" whereby lessees,
for an additional payment (which may be in the form of a higher per-diem rate),
are relieved of the responsibility of paying some of the repair costs upon
redelivery of the containers. The Leasing Company has historically provided this
service on a limited basis to selected customers. Repairs provided under such
plans are carried out by the same depots, under the same procedures, as are
repairs to containers not covered by such plans. Customers also are required to
insure leased containers against physical damage and loss, and against third
party liability for loss, damage, bodily injury or death.
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The percentage of equipment on term leases as compared to master leases
varies widely among leasing companies, depending upon each company's strategy or
margins, operating costs and cash flows.
Lease rates depend on several factors including the type of lease,
length of term, maintenance provided, type and age of the equipment, location
and availability, and market conditions.
CUSTOMERS
The Registrant is not dependent upon any particular customer or group of
customers of the Leasing Company. None of those customers account for more than
10% of the Registrant's revenue. Substantially all of the Leasing Company's
customers are billed and pay in United States dollars.
The Leasing Company sets maximum credit limits for the Registrant's
customers, limiting the number of containers leased to each according to
established credit criteria. The Leasing Company continually tracks its credit
exposure to each customer. The Leasing Company's credit committee meets
quarterly to analyze the performance of the Registrant's customers and to
recommend actions to be taken in order to minimize credit risks. The Leasing
Company uses specialist third party credit information services and reports
prepared by local staff to assess credit applications.
The Registrant is subject to unexpected loss in rental revenue from
lessees of its containers that default under their container lease agreements
with the Leasing Company.
FLEET PROFILE
The Registrant acquired high-quality dry cargo containers manufactured
to specifications that exceed ISO standards and are designed to minimize repair
and operating costs.
Dry cargo containers are the most commonly used type of container in the
shipping industry. The Registrant's dry cargo container fleet is constructed of
all Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage),
which is a high-tensile steel yielding greater damage and corrosion resistance
than mild steel.
The Registrant purchased all but 600 of its dry cargo containers from
manufacturers in Korea, Taiwan, and India as part of a policy of sourcing
container production in locations where it can meet customer demands most
effectively.
As of December 31, 2000, the Registrant owned 1,396 twenty-foot, 523
forty-foot and 918 forty-foot high-cube marine dry cargo containers. The
following table sets forth the number of containers on lease, by container type
and lease type as of December 31, 2000:
Number of
Containers on Lease
-------------------
20-Foot Dry Cargo Containers:
Term Leases 150
Master Leases 975
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Total on lease 1,125
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40-Foot Dry Cargo Containers:
Term Leases 116
Master Leases 289
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Total on lease 405
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40-Foot High-Cube Dry Cargo Containers:
Term Leases 197
Master Leases 555
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Total on lease 752
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The Leasing Company makes payments to the Registrant based upon rentals
collected from ocean carriers after deducting certain operating expenses
associated with the containers, such as the base management fee payable to CCC,
certain expense reimbursements and incentive fees payable to CCC, the costs of
maintenance and repairs not performed by lessees, independent agent fees and
expenses, depot expenses for handling, inspection and storage, and additional
insurance.
REPAIR AND MAINTENANCE
All containers are inspected and repaired when redelivered by a
customer, and customers are obligated to pay for all damage repair, excluding
wear and tear, according to standardized industry guidelines. Depots in major
port areas perform repair and maintenance that is verified by independent
surveyors or the Leasing Company's technical and operations staff. Before any
repair or refurbishment is authorized on older containers in the Registrant's
fleet, the Leasing Company's technical and operations staff reviews the age,
condition and type of container, and its suitability for continued leasing. The
Leasing Company compares the cost of such repair or refurbishment with the
prevailing market resale price that might be obtained for that container and
makes the appropriate decision whether to repair or sell the container. The
Leasing Company is authorized to make this decision on behalf of the Registrant
and makes these decisions by applying the same standards to the Registrant's
containers as to its own containers.
MARKET FOR USED CONTAINERS
The Registrant estimates that the period for which a dry cargo container
may be used as a leased marine cargo container ranges from 10 to 15 years. The
Leasing Company, on behalf of the Registrant, disposes of used containers in a
worldwide market in which buyers include wholesalers, mini-storage operations,
construction companies and others. As the Registrant's fleet ages, a larger
proportion of its revenue will be derived from selling its containers.
OPERATIONS
The Registrant's container leasing and marketing operations are
conducted through the Leasing Company in the United Kingdom, with support
provided by area offices and dedicated agents located in San Francisco,
California; Iselin, New Jersey; Hamburg; Antwerp; Genoa; Gothenburg, Sweden;
Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; Shanghai;
and Madras, India.
The Leasing Company also maintains agency relationships with over 25
independent agents around the world, who are generally paid commissions based
upon the amount of revenues they generate in the region or the number of
containers that are leased from their area on behalf of the Registrant. The
agents are located in jurisdictions where the volume of the Leasing Company's
business necessitates a presence in the area but is not sufficient to justify a
fully-functioning Leasing Company office or dedicated agent. Agents provide
marketing support to the area offices covering the region, together with limited
operational support.
In addition, the Leasing Company relies on the services of over 300
independently-owned and operated depots around the world to inspect, repair,
maintain and store containers while off-hire. The Leasing Company's area offices
authorize all container movements into and out of the depot and supervise all
repair and maintenance performed by the depot. The Leasing Company's technical
staff sets the standards for repair of its owned and managed fleet throughout
the world and monitors the quality of depot repair work. The depots provide a
vital link to the Leasing Company's operations, as the redelivery of a container
into a depot is the point at which the container is off-hired from one customer
and repaired in preparation for re-leasing to the next.
The Leasing Company's global network is integrated with its computer
system and provides 24-hour communication between offices, agents and depots.
The system allows the Leasing Company to manage and control the Registrant's
fleet on a global basis, providing it with the responsiveness and flexibility
necessary to service the master lease market effectively. This system is an
integral part of the Leasing Company's service, as it processes information
received from the various offices, generates billings to the Leasing Company's
lessees and generates a wide range of reports on all aspects of the Leasing
Company's leasing activities. The system records the life history of each
container, including the length of time on and off lease and repair costs, as
well as port activity trends, leasing activity and equipment data per customer.
The operations and marketing data is fully interfaced with the finance and
accounting system to provide revenue, cost and asset information to management
and staff around the world. The Leasing Company intends to continue to enhance
its computer system as needs arise in the future.
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INSURANCE
The Registrant's lease agreements typically require lessees to obtain
insurance to cover all risks of physical damage and loss of the equipment under
lease, as well as public liability and property damage insurance. However, the
precise nature and amount of the insurance carried by each ocean carrier varies
from lessee to lessee. In addition, the Registrant has purchased secondary
insurance effective in the event that a lessee fails to have adequate primary
coverage. This insurance covers liability arising out of bodily injury and/or
property damage as a result of the ownership and operation of the containers, as
well as insurance against loss or damage to the containers, loss of lease
revenues in certain cases and costs of container recovery and repair in the
event that a customer goes into bankruptcy. The Registrant believes that the
nature and the amounts of its insurance are customary in the container leasing
industry and subject to standard industry deductions and exclusions.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) The Registrant's containers are leased globally; therefore,
seasonal fluctuations are minimal. Other economic and business factors to which
the transportation industry in general and the container leasing industry in
particular are subject, include fluctuations in general business conditions and
fluctuations in supply and demand for equipment resulting from, among other
things, obsolescence, changes in the methods or economics of a particular mode
of transportation or changes in governmental regulations or safety standards.
(c)(1)(vi) The Registrant established an initial working capital reserve
of approximately $163,000 (approximately 1% of subscription proceeds raised). In
addition, the Registrant may reserve additional amounts from anticipated cash
distributions to the partners to meet working capital requirements.
Amounts due under master leases are calculated at the end of each month
and billed approximately six to eight days thereafter. Amounts due under
short-term and long-term leases are set forth in the respective lease agreements
and are generally payable monthly. However, payment is normally received within
45-100 days of billing. Past due penalties are not customarily collected from
lessees and, accordingly, are not generally levied by the Leasing Company
against lessees of the Registrant's containers.
(c)(1)(vii) For the year ended December 31, 2000, no single sub-lessee
of the Leasing Company accounted for more than 10% of the Registrant's rental
income. The Registrant does not believe that its ongoing business is dependent
upon a single customer, although the loss of one or more of its largest
customers could have an adverse effect upon its business.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) Competition among container leasing companies is based upon
several factors, including the location and availability of inventory, lease
rates, the type, quality and condition of the containers, the quality and
flexibility of the service offered and the confidence in and professional
relationship with the lessor. Other factors include the speed with which a
leasing company can prepare its containers for lease and the ease with which a
lessee believes it can do business with a lessor or its local area office. Not
all container leasing companies compete in the same market, as some supply only
dry cargo containers and not specialized containers, while others offer only
long-term leases.
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The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Transamerica Leasing, GE-Seaco, Textainer Corp., Triton Container
International Ltd. and others. Mergers and acquisitions have been a feature of
the container leasing industry for over a decade and the leasing market is
essentially comprised of three distinct groups: the very large (in TEU terms)
market leaders Transamerica Leasing and GE Seaco, who between them, with fleets
of around 1.1 million TEU each in mid-2000, control in excess of one third of
the total leased fleet; a substantial middle tier of companies possessing fleets
in the 250,000 to 900,000 TEU range, and the smaller more specialized fleet
operators. In recent years, several major leasing companies, as well as numerous
smaller ones, have been acquired by competitors. The Leasing Company believes
that the current trend toward consolidation in the container leasing industry
will continue, up to a point. There appears to be an upper limit to the size of
the optimum fleet, beyond which dis-economies of scale and/or barriers against
further market share development become apparent. Furthermore, ocean carriers
have a tendency to support a number of lessors simultaneously, in order to
maximize competition and increase the number of available locations for
redelivery of containers. Economies of scale, worldwide operations, diversity,
size of fleet and financial strength are increasingly important to the
successful operation of a container leasing business. Additionally, as
containerization grows, and as regions such as South America and the Indian
sub-continent become ever bigger generators of containerized cargo, customers
may demand more flexibility from leasing companies regarding per-diem rates,
pick-up and drop-off locations, and the availability of containers.
In recent years, the Leasing Company and other lessors have developed
certain internet based applications. For the Leasing Company, these applications
will allow customers access to make on-line product inquiries. The Leasing
Company is continuing to develop this side of business and will introduce other
internet options in the future, including on-line bookings for all products.
Some of the Leasing Company's competitors with larger fleets have
greater financial resources than the Leasing Company and may be more capable of
offering lower per diem rates. In the Leasing Company's experience, however,
ocean carriers will generally lease containers from more than one leasing
company in order to minimize dependence on a single supplier. Furthermore, by
having as many suppliers as possible, the carrier is able to maximize the number
of off-hires and off-hire locations available, as typically each supplier may
limit the number of containers which can be off-hired by location. The advantage
to the carrier is that this prevents the carrier from being burdened with an
excess number of off-hired containers, which incur both storage and per diem
charges, in a low demand market.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant, as a limited partnership, is managed by
CCC, the general partner, and accordingly does not itself have any employees. At
February 28, 2001, CCC had 14 employees, consisting of 3 officers, 4 other
managers and 7 clerical and staff personnel.
(d) Financial Information About Geographic Areas
The Registrant's business is not divided between foreign or domestic
operations. The Registrant's business is the leasing of containers worldwide to
ocean carriers. To this extent, the Registrant'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 Registrant 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 Registrant's leases generally require all payments to be
made in United States currency.
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Item 2. Properties
As of December 31, 2000, the Registrant owned 1,396 twenty-foot, 523
forty-foot and 918 forty-foot high-cube marine dry cargo containers suitable for
transporting cargo by rail, sea or highway. All but 200 twenty-foot and 400
forty-foot high-cube dry cargo containers were originally acquired from
container manufacturers located in Korea, India and Taiwan. Pursuant to
undertakings made in its Registration Statement No. 33-23321, Section 4.3 and
7.2(j) of the Partnership Agreement in the Registration Statement No. 33-23321,
the Registrant purchased 200 used twenty-foot and 400 used forty-foot high-cube
marine dry cargo containers from the general partner in 1989. These containers
were originally purchased by the general partner during the fourth quarter of
1988 from a Korean manufacturer.
The average useful life and manufacturers' invoice cost of the
Registrant's fleet as of December 31, 2000 were as follows:
Estimated
Useful Life Average Age Average Cost
----------- ----------- ------------
20-Foot Dry Cargo Containers 10-15 years 11 years $2,888
40-Foot Dry Cargo Containers 10-15 years 11 years $4,363
40-Foot High-Cube Dry Cargo Containers 10-15 years 12 years $4,706
Utilization by lessees of the Registrant's containers fluctuates over
time depending on the supply of and demand for containers in the Registrant's
inventory locations. During 2000, utilization of the Registrant's containers
averaged 81%.
During 2000, the Registrant disposed of 340 twenty-foot, 80 forty-foot
and 206 forty-foot high-cube marine dry cargo containers at an average book loss
of $251 per container.
Item 3. Legal Proceedings
On March 20, 2000, KM Investments, LLC, a California limited liability
company ("KM") filed a complaint in the Superior Court for the County of Los
Angeles against CCC, as general partner of the Registrant, alleging violation of
the California Revised Limited Partnership Act, breach of fiduciary duty, and
unfair competition. KM is assignee of units of limited partnership interests in
the Registrant 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
limited partnership interests in limited partnerships, claimed that CCC had
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 asked for declaratory relief,
damages according to proof, attorneys' fees, costs, interest, and 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.
After the Court heard challenges by CCC to KM's complaint and its first amended
complaint, which challenges were granted in part and denied in part, CCC filed
its answer to KM's first amended complaint on October 20, 2000, denying the
allegations thereof, denying that KM was entitled to any damages, and asserting
various affirmative defenses. Before conducting expensive discovery, the parties
engaged in settlement discussions, which were consummated subsequent to December
31, 2000, when the parties agreed to the terms of a settlement. Under the terms
of the settlement, CCC will provide copies of the limited partner lists of the
Cronos Partnerships to KM, in return for a payment by KM and KM's covenant to
provide copies of any mini-tender offer materials to CCC concurrently with their
transmission by KM to the limited partners of the Cronos Partnerships. KM has
also agreed to pay for tendered limited partner units within three (3) business
days of confirmation of the transfer from CCC. The parties have agreed to broad
reciprocal releases as part of the settlement. The settlement entails no
payments by CCC or by the Cronos Partnerships to KM.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
(a)(1)(i) The Registrant's outstanding units of limited partnership
interests are not traded on any market nor does an established public trading
market exist for such purposes.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v) Inapplicable.
(a)(2) Inapplicable.
(b) Holders
Number of Unit
(b)(1) Title of Class Holders as of December 31, 2000
-------------- -------------------------------
Units of limited partnership interests 1,730
(c) Dividends
Inapplicable. For the distributions made by the Registrant to its
limited partners, see Item 6, "Selected Financial Data."
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11
Item 6. Selected Financial Data
Year Ended December 31,
---------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Net lease revenue $ 983,849 $ 1,132,399 $ 1,570,553 $ 1,765,903 $ 2,036,698
Net income $ 116,132 $ 155,193 $ 500,224 $ 715,508 $ 1,084,193
Net income per unit of
limited partnership interest $ 2.24 $ 2.82 $ 12.46 $ 18.58 $ 28.61
Cash distributions per unit of
limited partnership interest $ 41.56 $ 54.06 $ 66.88 $ 61.88 $ 72.19
At year-end:
Total assets $ 4,724,527 $ 6,074,771 $ 7,834,124 $ 9,702,375 $11,189,085
Partners' capital $ 4,724,527 $ 6,074,771 $ 7,834,124 $ 9,702,375 $11,189,085
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, the Registrant had $741,214 in cash and cash
equivalents, an increase of $248,534 and a decrease of $39,215, respectively,
from the cash balances at December 31, 1999 and December 31, 1998.
During the Registrant's first 10 years of operations, the Registrant's
primary objective was to generate cash flow from operations for distribution to
its limited partners. Aside from the initial working capital reserve retained
from the gross subscription proceeds (equal to approximately 1% of such
proceeds), the Registrant relied primarily on container rental receipts to meet
this objective as well as to finance current operating needs. No credit lines
are maintained to finance working capital. Commencing in 1999, the Registrant's
11th year of operations, the Registrant began focusing its attention on the
disposition of its fleet in accordance with another of its original investment
objectives, realizing the residual value of its containers after the expiration
of their economic useful lives, estimated to be between 10 to 15 years after
placement in leased service. Since that time, the Registrant has been actively
disposing of its fleet, while cash proceeds from equipment disposals, in
addition to cash from operations, have provided the cash flow for distributions
to the limited partners. The decision to dispose of containers is influenced by
various factors including age, condition, suitability for continued leasing as
well as the geographical location when disposed. At that time whereby the
Registrant's fleet size is reduced to approximately 20% of its original fleet
size, the Registrant expects to enter the final phase of its liquidation and
wind-up stage of operations.
Cash distributions from operations are allocated 5% to the general
partner and 95% to the limited partners. Distributions of sale proceeds are
allocated 1% to the general partner and 99% to the limited partners. This
sharing arrangement will remain in place until the limited partners receive
aggregate distributions in an amount equal to their capital contributions, plus
a 10% cumulative, compounded (daily), annual return on their adjusted capital
contributions. Thereafter, all distributions will be allocated 15% to the
general partner and 85% to the limited partners, pursuant to Section 6.1(b) of
the Registrant's Partnership Agreement. Cash distributions from operations to
the general partner in excess of 5% of distributable cash will be considered an
incentive fee and compensation to the general partner.
From inception through February 28, 2001, the Registrant has distributed
$21,983,976 in cash from operations and $2,581,281 in cash from container sales
proceeds to its limited partners. This represents total distributions of
$24,565,257, or approximately 145% of the limited partners' original invested
capital. Distributions to partners are determined and paid quarterly, based
primarily on each quarter's cash flow from operations and cash generated from
container sales. Quarterly distributions are also affected by periodic increases
or decreases to working capital reserves, as deemed appropriate by the general
partner. Additional container disposals, combined with current leasing market
conditions, may contribute to lower operating results and consequently, lower
distributions from operations to its partners
11
12
in subsequent periods. However, sales proceeds distributed to its partners may
fluctuate in subsequent periods, reflecting the level of container disposals.
RESULTS OF OPERATIONS
2000 - 1999
During the first three quarters of 2000, growth in the volume of
containerized trade improved, resulting in increased demand for containers in
many locations, most significantly throughout Asia. Over the course of the final
quarter, the economic slowdown that was reported in the United States and other
worldwide locations began to affect the import and export markets of many
countries, as well as the container leasing markets worldwide. Late in the
fourth quarter of 2000, off-hire container inventories grew as redeliveries of
leased equipment increased significantly and demand declined due to reduced
export volumes, particularly within Asia. The soft market conditions at the end
of 2000 were further impacted by the shipping lines' continued purchase of new
containers for their own accounts, thereby reducing the need to supplement their
own container fleet with leased containers. Furthermore, the shipping lines
focused their efforts on repositioning their own idle containers to demand
locations in order to fulfill customer requirements. The Registrant expects
these market conditions to continue through the first half of 2001.
The primary component of the Registrant's results of operations is net
lease revenue. Net lease revenue is determined by deducting direct operating
expenses, management fees and reimbursed administrative expenses, from rental
revenues billed by the Leasing Company from the leasing of the Registrant's
containers. Net lease revenue is directly related to the size, utilization and
per-diem rental rates of the Registrant's fleet. Net lease revenue for 2000
declined by approximately 13% when compared to 1999.
The Registrant's utilization rate averaged 81% during 2000, as compared
to 78% in the prior year. The Registrant's average fleet size (as measured in
twenty-foot equivalent units ("TEU")) declined from 5,467 TEU in 1999, to 4,762
TEU in 2000. The decline in the Registrant's fleet size, combined with a 9%
reduction in average per-diem rental rates, contributed to a 15% decline in
gross rental revenue (a component of net lease revenue) for 2000 when compared
to the previous year.
At December 31, 2000, 59% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 150 116 197
Master leases 975 289 555
----- ----- -----
Subtotal 1,125 405 752
Containers off lease 271 118 166
----- ----- -----
Total container fleet 1,396 523 918
===== ===== =====
40-Foot
20-Foot 40-Foot High-Cube
----------------- ----------------- -----------------
Units % Units % Units %
----- ----- ----- ----- ----- -----
Total purchases 2,327 100% 799 100% 1,653 100%
Less disposals 931 40% 276 35% 735 44%
----- ----- ----- ----- ----- -----
Remaining fleet at December 31, 2000 1,396 60% 523 65% 918 56%
===== ===== ===== ===== ===== =====
Rental equipment operating expenses were approximately 21% of rental
revenue during 2000, as compared to 22% during 1999. The decline was
attributable to the Registrant's higher utilization rate in 2000, and its impact
on activity based expenses such as storage and handling.
The age and declining size of the Registrant's fleet both contributed to
a 15% decline in depreciation expense during 2000 when compared to 1999. Base
management fees, based on the operating performance of the fleet, declined
$29,598, or approximately 23% during 2000 when compared to 1999. These
management fees are expected to decline in subsequent periods as a result of the
registrant's declining fleet size.
12
13
The Registrant disposed of 340 twenty-foot, 80 forty-foot and 206
forty-foot high-cube marine dry cargo containers during 2000, as compared to 257
twenty-foot, 66 forty-foot and 106 forty-foot high-cube marine dry cargo
containers during 1999. These disposals resulted in a loss of $157,260 for 2000,
as compared to a loss of $164,348 for 1999. 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
2000 net 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 decision to repair or dispose of a container when it
is returned by a lessee, as well as the amount of sales proceeds received and
the related gain or loss on container disposals. The Registrant's continued
efforts to dispose of its containers in subsequent periods will also contribute
to fluctuations in the net gain or loss on disposals.
1999 - 1998
Net lease revenue for 1999 declined by approximately 28% when compared
to 1998. The Registrant's utilization rate decreased to an average of 78% during
1999, from an average of 81% during 1998. The Registrant's average fleet size
(as measured in twenty-foot equivalent units ("TEU")) declined from 6,058 TEU in
1998 to 5,467 TEU in 1999. The decline in the Registrant's fleet size, combined
with an 11% reduction in average per-diem rental rates, contributed to a 26%
decline in gross rental revenue (a component of net lease revenue) for 1999 when
compared to the previous year.
At December 31, 1999, 72% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 135 94 205
Master leases 1,254 359 693
----- ----- -----
Subtotal 1,389 453 898
Containers off lease 347 150 226
----- ----- -----
Total container fleet 1,736 603 1,124
===== ===== =====
40-Foot
20-Foot 40-Foot High-Cube
---------------- ---------------- ----------------
Units % Units % Units %
----- ----- ----- ----- ----- -----
Total purchases 2,327 100% 799 100% 1,653 100%
Less disposals 591 25% 196 25% 529 32%
----- ----- ----- ----- ----- -----
Remaining fleet at December 31, 1999 1,736 75% 603 75% 1,124 68%
===== ===== ===== ===== ===== =====
Rental equipment operating expenses were approximately 22% of rental
revenue during 1999 as compared to 20% during 1998. The increase was
attributable to the Registrant's lower utilization rate in 1999 and its impact
on activity based expenses, such as storage and handling.
The Registrant's declining fleet size contributed to a 9% decline in
depreciation expense during 1999 when compared to 1998. Base management fees,
based on the operating performance of the fleet, declined $34,694 or
approximately 21% during 1999 when compared to 1998.
The Registrant disposed of 257 twenty-foot, 66 forty-foot and 106
forty-foot high-cube marine dry cargo containers during 1999, as compared to 123
twenty-foot, 48 forty-foot and 156 forty-foot high-cube marine dry cargo
containers during 1998. These disposals resulted in a loss of $164,348 for 1999,
as compared to a loss of $182,770 for 1998. The Registrant believes that the
1999 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.
13
14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Inapplicable.
Item 8. Financial Statements and Supplementary Data
14
15
INDEPENDENT AUDITORS' REPORT
The Partners
IEA Income Fund IX, L.P.
We have audited the accompanying balance sheets of IEA Income Fund IX, L.P. (the
"Partnership") as of December 31, 2000 and 1999, and the related statements of
operations, partners' capital, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 2000 and
1999, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
San Francisco, CA
February 16, 2001
15
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Income Fund IX, L.P.
We have audited the accompanying statement of operations, partners' capital, and
cash flows of IEA Income Fund IX, L.P. (the "Partnership"), for the year ended
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of the Partnership and its cash
flows for the year ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Moore Stephens, P.C.
Certified Public Accountants
New York, New York
March 5, 1999
16
17
IEA INCOME FUND IX, L.P.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
Assets
Current assets:
Cash and cash equivalents, includes $640,874 in 2000
and $492,580 in 1999 in interest-bearing accounts (note 3) $ 741,214 $ 492,680
Net lease receivables due from Leasing Company
(notes 1 and 4) 98,958 184,713
------------ ------------
Total current assets 840,172 677,393
------------ ------------
Container rental equipment, at cost 10,630,601 12,927,344
Less accumulated depreciation (note 1) 6,746,246 7,529,966
------------ ------------
Net container rental equipment 3,884,355 5,397,378
------------ ------------
Total assets $ 4,724,527 $ 6,074,771
============ ============
Partners' Capital
Partners' capital (deficit):
General partner $ (69,608) $ (56,106)
Limited partners (note 8) 4,794,135 6,130,877
------------ ------------
Total partners' capital $ 4,724,527 $ 6,074,771
============ ============
The accompanying notes are an integral part of these financial statements.
17
18
IEA INCOME FUND IX, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Net lease revenue (notes 1 and 6) $ 983,849 $ 1,132,399 $ 1,570,553
Other operating expenses:
Depreciation (note 1) 676,048 797,868 879,087
Other general and administrative expenses 60,912 43,607 51,936
----------- ----------- -----------
736,960 841,475 931,023
----------- ----------- -----------
Income from operations 246,889 290,924 639,530
Other income (expenses):
Interest income 26,503 28,617 43,464
Net loss on disposal of equipment (157,260) (164,348) (182,770)
----------- ----------- -----------
(130,757) (135,731) (139,306)
----------- ----------- -----------
Net income $ 116,132 $ 155,193 $ 500,224
=========== =========== ===========
Allocation of net income:
General partner $ 40,074 $ 59,249 $ 76,564
Limited partners 76,058 95,944 423,660
----------- ----------- -----------
$ 116,132 $ 155,193 $ 500,224
=========== =========== ===========
Limited partners' per unit share of net income $ 2.24 $ 2.82 $ 12.46
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
18
19
IEA INCOME FUND IX, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Limited General
Partners Partner Total
----------- ----------- -----------
Balances at December 31, 1997 $ 9,722,205 $ (19,830) $ 9,702,375
Net income 423,660 76,564 500,224
Cash distributions (2,273,229) (95,246) (2,368,475)
----------- ----------- -----------
Balances at December 31, 1998 7,872,636 (38,512) 7,834,124
Net income 95,945 59,248 155,193
Cash distributions (1,837,704) (76,842) (1,914,546)
----------- ----------- -----------
Balances at December 31, 1999 6,130,877 (56,106) 6,074,771
Net income 76,058 40,074 116,132
Cash distributions (1,412,800) (53,576) (1,466,376)
----------- ----------- -----------
Balances at December 31, 2000 $ 4,794,135 $ (69,608) $ 4,724,527
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
19
20
IEA INCOME FUND IX, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 116,132 $ 155,193 $ 500,224
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 676,048 797,868 879,087
Net loss on disposal of equipment 157,260 164,348 182,770
Decrease in net lease receivables due from
Leasing Company 117,726 41,483 84,270
----------- ----------- -----------
Total adjustments 951,034 1,003,699 1,146,127
----------- ----------- -----------
Net cash provided by operating activities 1,067,166 1,158,892 1,646,351
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of container rental equipment 647,744 467,905 502,653
----------- ----------- -----------
Cash flows from financing activities
Distributions to partners (1,466,376) (1,914,546) (2,368,475)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 248,534 (287,749) (219,471)
Cash and cash equivalents at beginning of year 492,680 780,429 999,900
----------- ----------- -----------
Cash and cash equivalents at end of year $ 741,214 $ 492,680 $ 780,429
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
20
21
IEA INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund IX, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of California
on June 8, 1988 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, 2009, unless
sooner terminated upon the occurrence of certain events.
The Partnership commenced operations on December 5, 1988, when
the minimum subscription proceeds of $1,000,000 were obtained.
The Partnership offered 40,000 units of limited partnership
interest at $500 per unit, or $20,000,000. The offering
terminated on September 11, 1989, at which time 33,992 limited
partnership units had been sold.
(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, and 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.
21
22
IEA INCOME FUND IX, L.P.
NOTES TO FINANCIAL STATEMENTS
(c) Concentrations of Credit Risk
The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash, cash
equivalents and net lease receivables due from the Leasing
Company. See note 3 for further discussion regarding the credit
risk associated with cash and cash equivalents.
Net lease receivables due from the Leasing Company (see notes
1(b) and 4 for discussion regarding net lease receivables)
subject the Partnership to a significant concentration of credit
risk. These net lease receivables, representing rentals earned
by the Leasing Company, on behalf of the Partnership, from ocean
carriers after deducting direct operating expenses and
management fees to CCC and the Leasing Company, are remitted by
the Leasing Company to the Partnership three to four times per
month. The Partnership has historically never incurred a loss
associated with the collectability of unremitted net lease
receivables due from the Leasing Company.
(d) 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.
The financial statements are prepared in conformity with
accounting principles generally accepted in the United States of
America (GAAP), which 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 reporting period. Actual
results could differ from those estimates.
(e) Allocation of Net Income and Partnership Distributions
Net income has been allocated between general and limited
partners in accordance with the Partnership Agreement.
Actual cash distributions differ from the allocations of net
income between the general and limited partners as presented in
these financial statements. Partnership distributions are based
on "distributable cash" and are paid to the general and limited
partners on a quarterly basis, in accordance with the provisions
of the Partnership Agreement. Partnership distributions from
operations are allocated 95% to the limited partners and 5% to
the general partner. Distributions of sales proceeds are
allocated 99% to the limited partners and 1% to the general
partner. These allocations remain in effect until such time as
the limited partners have received from the Partnership
aggregate distributions in an amount equal to their capital
contributions plus a 10% cumulative, compounded (daily) annual
return on their adjusted capital contributions. Thereafter, all
Partnership distributions will be allocated 85% to the limited
partners and 15% to the general partner. Cash distributions for
the first 10% are charged to partners' capital. Cash
distributions from operations to the general partner in excess
of 5% of distributable cash will be considered an incentive fee
and will be recorded as compensation to the general partner.
(f) Acquisition Fees
Pursuant to the Partnership Agreement, acquisition fees paid to
the general partner are based on 5% of the equipment purchase
price. These fees are capitalized and included in the cost of
the rental equipment.
22
23
(g) Container Rental Equipment
In accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", container rental equipment is considered to be impaired if
the carrying value of the asset exceeds the expected future cash
flows from related operations (undiscounted and without interest
charges). If impairment is deemed to exist, the assets are
written down to fair value. Depreciation policies are also
evaluated to determine whether subsequent events and
circumstances warrant revised estimates of useful lives. There
were no reductions to the carrying value of container rental
equipment during 2000, 1999, and 1998.
Container rental equipment is depreciated over a twelve-year
life on a straight line basis to its salvage value, estimated to
be 30%.
(h) Income Taxes
The Partnership is not subject to income taxes, consequently no
provision for income taxes has been made. The Partnership files
federal and state annual information tax returns, prepared on
the accrual basis of accounting. Taxable income or loss is
reportable by the partners individually.
(i) Financial Statement Presentation
The Partnership has determined that, for accounting purposes,
the Leasing Agent Agreement is a lease, and the receivables,
payables, gross revenues and operating expenses attributable to
the containers managed by the Leasing Company are, for
accounting purposes, those of the Leasing Company and not of the
Partnership. Consequently, the Partnership's balance sheets and
statements of operations display the payments to be received by
the Partnership from the Leasing Company as the Partnership's
receivables and revenues.
(2) 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 containers. As of
December 31, 2000, the Partnership owned 1,396 twenty-foot, 523
forty-foot and 918 forty-foot high-cube marine dry cargo 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.
No single sub-lessee of the Leasing Company contributed more than 10% of
the Leasing Company's rental revenue earned during 2000, 1999 and 1998
on behalf of the Registrant.
23
24
(3) Cash and Cash Equivalents
Cash equivalents include highly-liquid investments with a maturity of
three months or less on their acquisition date. Cash equivalents are
carried at cost which approximates fair value. The Partnership maintains
its cash and cash equivalents in accounts which, at times, may exceed
federally insured limits. The Partnership has not experienced any losses
in such accounts and believes it is not exposed to any significant
credit risk. The Partnership places its cash equivalents in investment
grade, short-term debt instruments and limits the amount of credit
exposure with any one commercial issuer.
(4) 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 earned by the Leasing
Company under operating leases to ocean carriers for the containers
owned by the Partnership. Net lease receivables at December 31, 2000 and
December 31, 1999 were as follows:
December 31, December 31,
2000 1999
------------ ------------
Gross lease receivables $423,070 $526,631
Less:
Direct operating payables and accrued expenses 165,794 164,098
Damage protection reserve (note 5) 29,287 44,497
Base management fees payable 51,032 58,250
Reimbursed administrative expenses 15,014 6,673
Allowance for doubtful accounts 62,985 68,400
-------- --------
Net lease receivables $ 98,958 $184,713
======== ========
(5) Damage Protection Plan
The Leasing Company offers a repair service to several lessees of the
Partnership's containers, whereby the lessee pays an additional rental
fee for the convenience of having the Partnership incur the repair
expense for containers damaged while on lease. This fee is recorded as
revenue when earned according to the terms of the rental contract. An
accrual has been recorded to provide for the estimated costs incurred by
this service. This accrual is a component of net lease receivables due
from the Leasing Company (see note 4). The Partnership is not
responsible in the event repair costs exceed predetermined limits, or
for repairs that are required for damages not defined by the damage
protection plan agreement.
24
25
(6) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC from
the rental revenue earned by the Leasing Company under operating leases
to ocean carriers for the containers owned by the Partnership. Net lease
revenue for the years ended December 31, 2000, 1999 and 1998, was as
follows:
2000 1999 1998
---------- ---------- ----------
Rental revenue $1,465,941 $1,721,546 $2,316,683
Less:
Rental equipment operating expenses 309,755 374,146 452,150
Base management fees (note 7) 97,712 127,310 162,004
Reimbursed administrative expenses (note 7):
Salaries 50,247 46,001 62,819
Other payroll related expenses 4,535 7,853 10,864
General and administrative expenses 19,843 33,837 58,293
---------- ---------- ----------
$ 983,849 $1,132,399 $1,570,553
========== ========== ==========
(7) Compensation to General Partner
Base management fees are equal to 7% of gross lease revenues
attributable to operating leases pursuant to the Partnership Agreement.
Reimbursed administrative expenses are equal to the costs expended by
CCC and its affiliates for services necessary for the prudent operation
of the Partnership pursuant to the Partnership Agreement. The following
compensation was paid or will be paid by the Partnership to CCC:
2000 1999 1998
-------- -------- --------
Base management fees $ 97,712 $127,310 $162,004
Reimbursed administrative expenses 74,625 87,691 131,976
-------- -------- --------
$172,337 $215,001 $293,980
======== ======== ========
(8) Limited Partners' Capital
Cash distributions made to the limited partners during 2000, 1999 and
1998 included distributions of proceeds from equipment sales in the
amount of $637,354, $467,394, and $573,618, respectively. These
distributions, as well as cash distributions from operations, are used
in determining "Adjusted Capital Contributions" as defined by the
Partnership Agreement.
The limited partners' per unit share of capital at December 31, 2000,
1999 and 1998 was $141, $180, and $232, respectively. This is calculated
by dividing the limited partners' capital at the end of the year by
33,992, the total number of limited partnership units.
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(9) Legal
On March 20, 2000, KM Investments, LLC, a California limited liability
company ("KM") filed a complaint in the Superior Court for the County of
Los Angeles against CCC, as general partner of the Registrant, alleging
violation of the California Revised Limited Partnership Act, breach of
fiduciary duty, and unfair competition. KM is assignee of units of
limited partnership interests in the Registrant 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 limited
partnership interests in limited partnerships, claimed that CCC had
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 asked for
declaratory relief, damages according to proof, attorneys' fees, costs,
interest, and 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.
After the Court heard challenges by CCC to KM's complaint and its first
amended complaint, which challenges were granted in part and denied in
part, CCC filed its answer to KM's first amended complaint on October
20, 2000, denying the allegations thereof, denying that KM was entitled
to any damages, and asserting various affirmative defenses. Before
conducting expensive discovery, the parties engaged in settlement
discussions, which were consummated subsequent to December 31, 2000,
when the parties agreed to the terms of a settlement. Under the terms of
the settlement, CCC will provide copies of the limited partner lists of
the Cronos Partnerships to KM, in return for a payment by KM and KM's
covenant to provide copies of any mini-tender offer materials to CCC
concurrently with their transmission by KM to the limited partners of
the Cronos Partnerships. KM has also agreed to pay for tendered limited
partner units within three (3) business days of confirmation of the
transfer from CCC. The parties have agreed to broad reciprocal releases
as part of the settlement. The settlement entails no payments by CCC or
by the Cronos Partnerships to KM.
************************
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Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Inapplicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant, as such, has no officers or directors, but is managed by
CCC, the general partner. The officers and directors of CCC at February 28,
2001, are as follows:
Name Office
---------------------------- -----------------------------------------------------
Dennis J. Tietz President, Chief Executive Officer and Director
John Kallas Vice President, Chief Financial Officer and Director
Elinor A. Wexler Vice President/Administration, Secretary and Director
Peter J. Younger Director
John M. Foy Director
DENNIS J. TIETZ Mr. Tietz, 48, as President and Chief Executive Officer,
is responsible for the general management of CCC. Mr. Tietz was appointed Chief
Executive Officer of The Cronos Group, indirect corporate parent of CCC, in
December 1998 and elected Chairman of the Board in March 1999. Mr. Tietz is also
President and a director of Cronos Securities Corp. From 1986 until August 1992,
Mr. Tietz was responsible for the organization, marketing and after-market
support of CCC's investment programs. Mr. Tietz was a regional manager for CCC,
responsible for various container leasing activities in the U.S. and Europe from
1981 to 1986. Prior to joining CCC in December 1981, Mr. Tietz was employed by
Trans Ocean Leasing Corporation as Regional Manager based in Houston, with
responsibility for all leasing and operational activities in the U.S. Gulf.
Mr. Tietz holds a B.S. degree in Business Administration from San Jose
State University and is a Registered Securities Principal with the NASD.
JOHN KALLAS Mr. Kallas, 38, was elected Vice President, Chief Financial
Officer of CCC in November, 2000. Mr. Kallas also joined the Board of Directors
of CCC in November, 2000. Mr. Kallas has been employed by CCC since 1989, and is
responsible for managed container investment programs, treasury, and CCC's
financial operations. Mr. Kallas has held various accounting positions since
joining Cronos including Controller, Director of Accounting and Corporate
Accounting Manager. From 1985 to 1989, Mr. Kallas was an accountant with KPMG
Peat Marwick, San Francisco.
Mr. Kallas holds a Masters degree in Finance and Business Administration
from St. Mary's College, a B.S. degree in Business Administration/Accounting
from the University of San Francisco and is a certified public accountant.
ELINOR A. WEXLER Ms. Wexler, 52, was elected Vice President -
Administration and Secretary of CCC in August 1992. Ms. Wexler joined the Board
of Directors of CCC in June 1997. Ms. Wexler has been employed by CCC since
1987, and is responsible for investor services, compliance and securities
registration. From 1983 to 1987, Ms. Wexler was Manager of Investor Services for
The Robert A. McNeil Corporation, a real estate syndication company, in San
Mateo, California. From 1971 to 1983, Ms. Wexler held various positions,
including securities trader and international research editor, with Nikko
Securities Co., International, based in San Francisco.
Ms. Wexler attended the University of Oregon, Portland State University
and the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice
President and Secretary of Cronos Securities Corp. and a Registered Principal
with the NASD.
PETER J. YOUNGER Mr. Younger, 44, was elected to the Board of Directors
of CCC in June 1997. See key management personnel of the Leasing Company for
further information.
JOHN M. FOY Mr. Foy, 55, was elected to the Board of Directors of CCC in
April 1999. See key management personnel of the Leasing Company for further
information.
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The key management personnel of the Leasing Company and its affiliates
at February 28, 2001, were as follows:
Name Title
------------------------- ----------------------------------------------------
Peter J. Younger Chief Operating Officer/Chief Financial Officer
John M. Foy Senior Vice President/Americas
Nico Sciacovelli Senior Vice President/Europe, Middle East and Africa
John C. Kirby Senior Vice President/Operations
PETER J. YOUNGER Mr. Younger, 44, was elected to the Board of Directors
of The Cronos Group on January 13, 2000. Mr. Younger will serve as a director
until the 2001 annual meeting and his successor is elected and takes office. Mr.
Younger was appointed as Chief Operating Officer of The Cronos Group on August
4, 2000, and its Chief Financial Officer in March 1997. From 1991 to 1997, Mr.
Younger served as Vice President of Finance for the Leasing Company, located in
the UK. From 1987 to 1991 Mr. Younger served as Vice President and Controller
for CCC in San Francisco. Prior to 1987, Mr. Younger was a certified public
accountant and a principal with the accounting firm of Johnson, Glaze and Co. in
Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration from
Western Baptist College, Salem, Oregon.
JOHN M. FOY Mr. Foy, 55, is directly responsible for the Leasing
Company's lease marketing and operations in North America, Central America, and
South America, and is based in San Francisco. From 1985 to 1993, Mr. Foy was
Vice President/Pacific with responsibility for dry cargo container lease
marketing and operations in the Pacific Basin. From 1977 to 1985 Mr. Foy was
Vice President of Marketing for Nautilus Leasing Services in San Francisco with
responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy was
Regional Manager for Flexi-Van Leasing, a container lessor, with responsibility
for container leasing activities in the Western United States. Mr. Foy holds a
B.A. degree in Political Science from University of the Pacific, and a Bachelor
of Foreign Trade from Thunderbird Graduate School of International Management.
NICO SCIACOVELLI Mr. Sciacovelli, 51, was elected Senior Vice President
- - Europe, Middle East and Africa in June 1997. Mr. Sciacovelli is directly
responsible for the Leasing Company's lease marketing and operations in Europe,
the Middle East and Africa and is based in Italy. Since joining Cronos in 1983,
Mr. Sciacovelli served as Area Director and Area Manager for Southern Europe.
Prior to joining Cronos, Mr. Sciacovelli was a Sales Manager at Interpool Ltd.
JOHN C. KIRBY Mr. Kirby, 47, is responsible for container purchasing,
contract and billing administration, container repairs and leasing-related
systems, and is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as
European Technical Manager and advanced to Director of European Operations in
1986, a position he held with CCC, and later the Leasing Company, until his
promotion to Senior Vice President/Operations of the Leasing Company in 1992.
From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container
leasing company, as Technical Manager based in Hamburg, Germany. Mr. Kirby
acquired a professional engineering qualification from the Mid-Essex Technical
College in England.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Registrant has followed the practice of reporting acquisitions and
dispositions of the Registrant's units of limited partnership interests by CCC,
its general partner. As CCC did not acquire or dispose of any of the
Registrant's units of limited partnership interests during the fiscal year ended
December 31, 2000, no reports of beneficial ownership under Section 16(a) of the
Securities Exchange Act of 1934, as amended, were filed with the SEC.
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Item 11. Executive Compensation
The Registrant pays a management fee and will reimburse the general
partner for various administrative expenses.
The Registrant also makes quarterly distributions to its partners
(general and limited) from distributable cash from operations (allocated 95% to
the limited partners and 5% to the general partner). Sales proceeds are
allocated 99% to the limited partners and 1% to the general partner. These
allocations remain in effect until such time as the limited partners have
received from the Registrant aggregate distributions in an amount equal to their
capital contributions plus a 10% cumulative, compounded (daily) annual return on
their adjusted capital contributions. Thereafter, all Partnership distributions
will be allocated 85% to the limited partners and 15% to the general partner.
The Registrant does not pay or reimburse CCC or its affiliates for any
remuneration payable by them to their executive officers, directors or any other
controlling persons. However, the Registrant does reimburse the general partner
for certain services pursuant to the Partnership Agreement. These services
include but are not limited to (i) salaries and related salary expenses for
services which could be performed directly for the Registrant by independent
parties, such as legal, accounting, transfer agent, data processing, operations,
communications, duplicating and other such services; and, (ii) performing
administrative services necessary to the prudent operations of the Registrant.
The following table sets forth the fees the Registrant paid (on a cash
basis) to CCC for the year ended December 31, 2000.
Cash Fees and
Name Description Distributions
------------------- ------------------------------------------------- ----------------
1) Base management fees - equal to 7% of gross
lease revenues attributable to operating leases
pursuant to Section 4.4 of the Limited
Partnership Agreement
CCC $107,613
2) Reimbursed administrative expenses - equal to
the costs expended by CCC and its affiliates for
services necessary to the prudent operation of
the Registrant pursuant to Section 4.5 of
the Limited Partnership Agreement
CCC $60,984
3) Interest in Fund - 5% of distributions of
distributable cash for any quarter pursuant to
Section 6.1 of the Limited Partnership Agreement
CCC $53,576
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Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
There is no person or "group" of persons known to the management of CCC
to be the beneficial owner of more than five percent of the outstanding units of
limited partnership interests of the Registrant.
(b) Security Ownership of Management
The Registrant has no directors or officers. It is managed by CCC. CCC
owns 163.2 units, representing 0.48% of the total amount of units outstanding.
(c) Changes in Control
Inapplicable.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
The Registrant's only transactions with management and other related
parties during 2000 were limited to those fees paid or amounts committed to be
paid (on an annual basis) to CCC, the general partner. See Item 11, "Executive
Compensation," herein.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page
(a)1. Financial Statements
Independent Auditors' Report............................................................ 15
Report of Independent Public Accountants................................................ 16
(a)2. The following financial statements of the Registrant are included in Part II, Item 8:
Balance Sheets - December 31, 2000 and 1999............................................. 17
Statements of Operations - for the years ended December 31, 2000, 1999 and 1998......... 18
Statements of Partners' Capital - for the years ended December 31, 2000, 1999 and 1998.. 19
Statements of Cash Flows - for the years ended December 31, 2000, 1999 and 1998......... 20
Notes to Financial Statements........................................................... 21
All schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
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(a)3. Exhibits
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of September 12, 1988
3(b) Certificate of Limited Partnership of the Registrant **
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended December 31, 2000.
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated September 12, 1988, included as part of Registration
Statement on Form S-1 (No. 33-23321)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-23321)
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 IX, 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: March 26, 2001
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cronos
Capital Corp., the managing general partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Dennis J. Tietz President and Director of
- -------------------------- Cronos Capital Corp. ("CCC") March 26, 2001
Dennis J. Tietz (Principal Executive Officer of CCC)
/s/John Kallas Chief Financial Officer and
- -------------------------- Director of Cronos Capital Corp.
John Kallas ("CCC") (Principal March 26, 2001
Financial and Accounting
Officer of CCC)
/s/ Elinor A. Wexler Vice President-Administration,
- -------------------------- Secretary and Director of March 26, 2001
Elinor A. Wexler Cronos Capital Corp.
SUPPLEMENTAL INFORMATION
The Registrant's annual report will be furnished to its limited partners
on or about April 30, 2001. Copies of the annual report will be concurrently
furnished to the Commission for information purposes only, and shall not be
deemed to be filed with the Commission.
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Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of September 12, 1988
3(b) Certificate of Limited Partnership of the Registrant **
- -------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated September 12, 1988, included as part of Registration
Statement on Form S-1 (No. 33-23321)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-23321)