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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 .
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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 Identification No.)
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 XII, L.P., dated December 2,1991 included as part of
Registration Statement on Form S-1 (No. 33-42697)
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PART I - FINANCIAL INFORMATION
Item 1. Business
(a) General Development of Business
The Registrant 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, special purpose containers and container related
equipment. The Registrant was initially capitalized with $100, and commenced
offering its limited partnership interests to the public subsequent to December
2, 1991, pursuant to its Registration Statement on Form S-1 (File No. 33-42697).
The Registrant had no securities holders as defined by the Securities and
Exchange Act of 1934 as of December 31, 1991. The offering broke initial impound
on January 31, 1992. The offering terminated on November 30, 1992.
The Registrant raised $70,271,880 in subscription proceeds. The following
table sets forth the use of said subscription proceeds:
Percentage of
Amount Gross Proceeds
-------------- --------------
Gross Subscription Proceeds $ 70,271,880 100.0%
Public Offering Expenses:
Underwriting Commissions $ 7,027,188 10.0%
Offering and Organization Expenses $ 1,205,691 1.7%
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Total Public Offering Expenses $ 8,232,879 11.7%
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Net Proceeds $ 62,039,001 88.3%
Acquisition Fees $ 606,788 0.9%
Working Capital Reserve $ 753,431 1.1%
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Gross Proceeds Invested in Equipment $ 60,678,782 86.3%
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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 behalf or managed on behalf of other third-party container owners,
including all other programs organized by CCC.
On January 1, 1992, the Leasing Company entered into a Leasing Agent
Agreement with the Registrant assuming the responsibility for all container
leasing activities.
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.
The Registrant derives revenues from dry cargo containers and refrigerated
containers. As of December 31, 2000, the Registrant operated 8,888 twenty-foot,
5,045 forty-foot and 203 forty-foot high-cube marine dry cargo containers, as
well as 223 twenty-foot and 266 forty-foot marine refrigerated cargo containers.
A summary of gross lease revenue earned by the Leasing Company, on behalf of the
Registrant, by product, for the years ended December 31, 2000, 1999 and 1998
follows:
2000 1999 1998
---------- ---------- ----------
Dry cargo containers $5,526,593 $5,528,632 $6,879,785
Refrigerated containers 1,265,724 1,200,055 1,564,724
---------- ---------- ----------
Total $6,792,317 $6,728,687 $8,444,509
========== ========== ==========
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-top 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.
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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.
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. The Registrant's specialized
containers are generally leased on longer-term leases because the higher cost,
value and complexity of this equipment makes it more expensive to redeliver and
lease out.
- 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.
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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.
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 customers of the
Leasing Company 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 steel (i.e., Corten roofs, walls, doors and undercarriage), which is
a high-tensile steel yielding greater damage and corrosion resistance than mild
steel.
Refrigerated containers are used to transport temperature-sensitive
products, such as meat, fruit, vegetables and photographic film. All of the
Registrant's refrigerated containers have high-grade stainless steel interiors.
The majority of the Registrant's 20-foot refrigerated containers have high-grade
stainless steel walls, while most of the Registrant's 40-foot refrigerated
containers are steel framed with aluminum outer walls to reduce weight. As with
the dry cargo containers, all refrigerated containers are designed to minimize
repair and maintenance and maximize damage resistance.
The Registrant purchased its dry cargo containers from manufacturers in
China, Korea, Indonesia, India and Japan as part of a policy of sourcing
container production in locations where it can meet customer demands most
effectively.
The Registrant's refrigerated containers were purchased mainly from Korean
manufacturers. The majority of its refrigeration units were purchased from
Carrier Transicold, the primary container refrigeration unit supplier in the
United States.
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As of December 31, 2000, the Registrant owned 8,888 twenty-foot, 5,045
forty-foot and 203 forty-foot high-cube marine dry cargo containers as well as
223 twenty-foot and 266 forty-foot refrigerated 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 1,258
Master Leases 5,259
-----
Total on lease 6,517
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40-Foot Dry Cargo Containers:
Term Leases 958
Master Leases 2,628
-----
Total on lease 3,586
=====
40-Foot High-Cube Dry Cargo Containers:
Term Leases 28
Master Leases 105
-----
Total on lease 133
=====
20-Foot Refrigerated Cargo Containers
Term Leases 34
Master Leases 135
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Total on lease 169
=====
40-Foot Refrigerated Cargo Containers
Term Leases 116
Master Leases 72
-----
Total on lease 188
=====
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 CCL,
certain expense reimbursements payable to CCC and CCL, 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 or
refrigerated 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.
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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. 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.
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.
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(c)(1)(vi) The Registrant established a working capital reserve of
approximately 1.1% 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.
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.
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(c)(1)(xii) Environmental Matters
A portion of the Registrant's equipment portfolio consists of special
purpose containers, primarily refrigerated containers. Historically,
refrigerated containers have utilized a refrigerant gas which is a
chlorofluorocarbon ("CFC") compound. Countries that are signatories to the
Montreal Protocol in the environment agreed in November 1992 to restrict the use
of environmentally destructive refrigerants, banning production (but not use) of
CFCs beginning in January 1996. CFCs are used in the operation, insulation and
manufacture of refrigerated containers. All of the Leasing Company's
refrigerated containers purchased since June 1993 use none-CFC refrigerant gas
in the operation and insulation of the containers, although a reduced quantity
of CFCs is still used in the container manufacturing process. The replacement
refrigerant used in the Leasing Company's new refrigerated containers may also
become subject to similar governmental regulations. Depending on market
pressures and future governmental regulations, the Registrant's refrigerated
containers may have to be retrofitted with non-CFC refrigerants, the cost of
which will be borne by the Registrant. The Leasing Company's technical staff has
cooperated with refrigeration manufacturers in conducting investigations into
the most effective and economical retrofit plan. CCC and the Leasing Company
believe that this expense, should it be required, would not be material to the
Registrant's financial position or results of operations. In addition,
refrigerated containers that are not retrofitted may command lower prices in the
used container market.
(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 Leasing Company'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 8,888 twenty-foot, 5,045
forty-foot and 203 forty-foot high-cube marine dry cargo containers, as well as
223 twenty-foot and 266 forty-foot refrigerated containers, suitable for
transporting cargo by rail, sea or highway. The average useful life and invoice
cost of the Registrant's fleet at December 31, 2000 were as follows:
Estimated
Useful Life Average Age Average Cost
----------- ----------- -----------
20-Foot Dry Cargo Containers 10-15 years 8 years $ 2,838
40-Foot Dry Cargo Containers 10-15 years 9 years $ 4,671
40-Foot High-Cube Dry Cargo Containers 10-15 years 8 years $ 5,033
20-Foot Refrigerated Cargo Containers 10-15 years 8 years $ 18,096
40-Foot Refrigerated Cargo Containers 10-15 years 9 years $ 23,240
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 dry cargo and refrigerated
container fleet averaged 75% and 80%, respectively.
During 2000, the Registrant disposed of 343 twenty-foot, 125 forty-foot and
two forty-foot high-cube marine dry cargo container, as well as 13 forty-foot
refrigerated cargo containers at an average book loss of $539 per container.
Additionally, the Registrant, embarked on a refrigerated reshell program
during 2000, whereby certain forty-foot refrigerated cargo containers considered
to no longer be suitable for leasing were converted to twenty-foot refrigerated
containers. The reshelling involved the removal of the existing machinery from
the forty-foot refrigerated containers and reassembling the machinery with new
twenty-foot refrigerated container shells. During 2000, approximately $137,000
was paid to Cronos Equipment (Bermuda) Ltd., an affiliate of CCC and the Leasing
Company, in association with the reshelling of 29 forty-foot refrigerated
containers. This amount included the cost of the new twenty-foot refrigerated
container shells, as well as miscellaneous transportation costs.
10
11
Item 3. Legal Proceedings
Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
11
12
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 Holders
(b)(1) Title of Class as of December 31, 2000
-------------- -----------------------
Units of limited partnership interests 4,999
(c) Dividends
Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6, "Selected Financial Data."
12
13
Item 6. Selected Financial Data
Year Ended December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ------------ ----------- ----------- -----------
Net lease revenue $ 4,385,405 $ 3,777,357 $ 5,116,640 $ 5,664,267 $ 6,979,978
Net income $ 477,029 $ 27,190 $ 1,412,913 $ 1,843,048 $ 3,156,373
Net income (loss) per unit of
limited partnership interest $ 0.09 $ (0.05) $ 0.34 $ 0.44 $ 0.79
Cash distributions per unit of
limited partnership interest $ 1.17 $ 1.40 $ 1.44 $ 1.57 $ 1.92
At year-end:
Total assets $33,264,138 $ 37,361,840 $42,699,854 $46,616,186 $50,805,865
Partners' capital $33,264,138 $ 37,107,340 $42,236,906 $46,153,238 $50,104,535
- ----------
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 $1,512,512 in cash and cash
equivalents, an increase of $401,087 and a decrease of $895,102, 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 2000, 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. During 2001, the Registrant will continue actively
disposing of its fleet, while cash proceeds from equipment disposals, in
addition to cash from operations, will provide 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 sales 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 have received
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
$48,907,562 in cash from operations and $1,320,528 in cash from container sales
proceeds to its limited partners. This represents total distributions of
$50,228,090 or approximately 72% of the limited partners' original invested
capital. Distributions are paid monthly, based primarily on each quarter's cash
flow from operations. Distributions are also affected by periodic increases or
decreases to working capital reserves, as deemed appropriate by the general
partner. The Registrant's disposal activity should produce lower operating
results and, consequently, lower distributions from operations to its partners
in subsequent periods. Sales proceeds distributed to its partners may fluctuate
in subsequent periods, reflecting the level of container disposals.
13
14
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 increased by
approximately 16%, when compared to 1999.
Gross rental revenue, a component of net lease revenue, increased from
$6,728,687 in 1999 to $6,792,317 in 2000. This increase was primarily the result
of higher utilization levels partially offset by lower per-diem rates. The
Registrant's dry and refrigerated cargo container average utilization rates
increased from 69% and 67%, respectively, during 1999, to 75% and 80%,
respectively, during 2000. Dry and refrigerated cargo container per-diem rental
rates declined 7% and 6%, respectively, from 1999 levels. The Registrant's
average fleet size (as measured in twenty-foot equivalent units ("TEU")) was
20,485 TEU compared to 20,863 TEU in 1999.
Rental operating expenses were approximately 23% of rental revenue during
2000 as compared to 31% 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.Base management fees, dependent on the
operating performance of the fleet, declined $1,802, or approximately .4% during
2000 when compared to 1999.
The Registrant disposed of 343 twenty-foot, 125 forty-foot and two
forty-foot high-cube marine dry cargo containers, as well as 13 forty-foot
refrigerated cargo containers during 2000, as compared to 143 twenty-foot, 71
forty-foot and one forty-foot high-cube marine dry cargo containers as well as
two twenty-foot refrigerated containers and 15 forty-foot refrigerated cargo
containers during 2000. These disposals resulted in a loss of $260,203 for 2000,
as compared to a loss of $64,570 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 level of the Registrant's
container disposals 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 26%, when compared to
1998. Gross rental revenue, a component of net lease revenue, decreased from
$8,444,509 in 1998 to $6,728,687 in 1999. This decline was primarily the result
of lower per-diem rates and utilization levels. The Registrant's dry and
refrigerated cargo container average utilization rates decreased from 75% and
81%, respectively, during 1998, to 69% and 67%, respectively, during 1999. Dry
and refrigerated cargo container per-diem rental rates declined 9% and 11%,
respectively, from 1998 levels. The Registrant's average fleet size (as measured
in twenty-foot equivalent units ("TEU")) was 20,863 TEU compared to 21,022 TEU
in 1998.
14
15
The Registrant disposed of 143 twenty-foot, 71 forty-foot and one forty-foot
high-cube marine dry cargo containers, as well as two twenty-foot and 15
forty-foot refrigerated cargo containers during 1999, as compared to 91
twenty-foot, 48 forty-foot and three forty-foot high-cube marine dry cargo
containers as well as two twenty-foot refrigerated containers during 1999.
Rental operating expenses were approximately 31% of rental revenue during
1999 as compared to 26% during 1998. Base management fees, dependent on the
operating performance of the fleet, declined $112,016, or approximately 19%
during 1999 when compared to 1998.
15
16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Inapplicable.
Item 8. Financial Statements and Supplementary Data
16
17
INDEPENDENT AUDITORS' REPORT
The Partners
IEA Income Fund XII, L.P.
We have audited the accompanying balance sheets of IEA Income Fund XII, 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
17
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Income Fund XII, L.P.
We have audited the accompanying statement of operations, partners' capital and
cash flows of IEA Income Fund XII, 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
18
19
IEA INCOME FUND XII, L.P.
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
Assets
Current assets:
Cash and cash equivalents, includes $1,287,792 in 2000 and
$1,111,325 in 1999 in interest-bearing accounts (note 3) $ 1,512,512 $ 1,111,425
Net lease receivables due from Leasing Company
(notes 1 and 4) 517,461 585,156
------------ ------------
Total current assets 2,029,973 1,696,581
------------ ------------
Container rental equipment, at cost 59,984,866 61,857,061
Less accumulated depreciation (note 1) 28,750,701 26,191,802
------------ ------------
Net container rental equipment 31,234,165 35,665,259
------------ ------------
Total assets $ 33,264,138 $ 37,361,840
============ ============
Liabilities and Partners' Capital
Current liabilities
Accrued expenses (note 5) $ -- $ 254,500
------------ ------------
Partners' capital (deficit):
General partner (154,625) (116,193)
Limited partners (note 9) 33,418,763 37,223,533
------------ ------------
Total partners' capital 33,264,138 37,107,340
------------ ------------
Total liabilities and partners' capital $ 33,264,138 $ 37,361,840
============ ============
The accompanying notes are an integral part of these financial statements.
19
20
IEA INCOME FUND XII, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- -----------
Net lease revenue (notes 1 and 7) $ 4,385,405 $ 3,777,357 $ 5,116,640
Other operating expenses:
Depreciation and amortization (note 1) 3,597,565 3,646,478 3,673,310
Other general and administrative expenses 109,479 126,510 125,755
----------- ----------- -----------
3,707,044 3,772,988 3,799,065
----------- ----------- -----------
Income from operations 678,361 4,369 1,317,575
Other income (expenses):
Interest income 58,871 87,391 117,237
Net loss on disposal of equipment (260,203) (64,570) (21,899)
----------- ----------- -----------
(201,332) 22,821 95,338
----------- ----------- -----------
Net income $ 477,029 $ 27,190 $ 1,412,913
=========== =========== ===========
Allocation of net income:
General partner $ 153,327 $ 186,432 $ 224,656
Limited partners 323,702 (159,242) 1,188,257
----------- ----------- -----------
$ 477,029 $ 27,190 $ 1,412,913
=========== =========== ===========
Limited partners' per unit share of net income (loss) $ 0.09 $ (0.05) $ 0.34
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
20
21
IEA INCOME FUND XII, 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 $ 46,178,974 $ (25,736) $ 46,153,238
Net income 1,188,257 224,656 1,412,913
Cash distributions (5,065,428) (263,817) (5,329,245)
------------ ------------ ------------
Balances at December 31, 1998 42,301,803 (64,897) 42,236,906
Net income (loss) (159,242) 186,432 27,190
Cash distributions (4,919,028) (237,728) (5,156,756)
------------ ------------ ------------
Balances at December 31, 1999 37,223,533 (116,193) 37,107,340
Net income 323,702 153,327 477,029
Cash distributions (4,128,472) (191,759) (4,320,231)
------------ ------------ ------------
Balances at December 31, 2000 $ 33,418,763 $ (154,625) $ 33,264,138
============ ============ ============
The accompanying notes are an integral part of these financial statements.
21
22
IEA INCOME FUND XII, 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 $ 477,029 $ 27,190 $ 1,412,913
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 3,597,565 3,646,478 3,673,310
Net loss on disposal of equipment 260,203 64,570 21,899
Decrease (increase) in net lease receivables due
from Leasing Company 322,078 (11,330) 280,760
Decrease in accrued expenses (note 5) (254,500) (208,448) --
----------- ----------- -----------
Total adjustments 3,925,346 3,491,270 3,975,969
----------- ----------- -----------
Net cash provided by operating activities 4,402,375 3,518,460 5,388,882
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of container rental equipment 455,702 551,416 464,588
Purchases of container rental equipment (136,759) (199,342) --
Acquisition fees paid to general partner -- (9,967) --
----------- ----------- -----------
Net cash provided by investing activities 318,943 342,107 464,588
----------- ----------- -----------
Cash flows from financing activities
Distributions to partners (4,320,231) (5,156,756) (5,329,245)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 401,087 (1,296,189) 524,225
Cash and cash equivalents at beginning of year 1,111,425 2,407,614 1,883,389
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,512,512 $ 1,111,425 $ 2,407,614
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
22
23
IEA INCOME FUND XII, 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 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
sold.
(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, 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.
23
24
IEA INCOME FUND XII, 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 paid to its
partners (general and limited) from distributable cash from
operations, 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. The 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 CCC
are based on 5% of the equipment purchase price. These fees are
capitalized and included in the cost of the rental equipment. The
fees are payable in two or more installments commencing in the year
of purchase.
24
25
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(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.
(j) Reclassifications
Certain amounts in the 1999 financial statements have been
reclassified to conform with the 2000 presentation.
(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 and
refrigerated containers. As of December 31, 2000, the Partnership owned
8,888 twenty-foot, 5,045 forty-foot and 203 forty-foot high-cube marine
dry cargo containers, as well as 223 twenty-foot and 266 forty-foot marine
refrigerated cargo containers. A summary of gross lease revenue earned by
the Leasing Company, on behalf of the Partnership, by product, for the
years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998
---------- ---------- ----------
Dry cargo containers $5,526,593 $5,528,632 $6,879,785
Refrigerated containers 1,265,724 1,200,055 1,564,724
---------- ---------- ----------
Total $6,792,317 $6,728,687 $8,444,509
========== ========== ==========
25
26
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 Partnership.
(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 1999 were as
follows:
December 31, December 31,
2000 1999
------------- -------------
Gross lease receivables $ 1,601,580 $ 1,676,207
Less:
Direct operating payables and accrued expenses 428,702 432,023
Damage protection reserve (note 6) 138,819 189,163
Base management fees payable 268,241 271,648
Reimbursed administrative expenses 76,784 33,911
Allowance for doubtful accounts 171,573 164,306
------------- -------------
Net lease receivables $ 517,461 $ 585,156
============= =============
(5) Accrued Expenses
Accrued expenses consisted of amounts reserved for the expected repairs
on the Partnership's refrigerated containers that contained manufacturer's
defects, as well as the costs of retrofitting its refrigerated containers
with non-CFC refrigerants. At December 31, 2000, this reserve was no
longer considered necessary.
(6) 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.
26
27
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(7) 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 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 $6,792,317 $6,728,687 $8,444,509
Less:
Rental equipment operating expenses 1,579,775 2,091,307 2,232,145
Base management fees (note 8) 462,077 463,879 575,895
Reimbursed administrative expenses (note 8):
Salaries 245,608 207,397 247,609
Other payroll related expenses 22,361 35,387 42,791
General and administrative expenses 97,091 153,360 229,429
---------- ---------- ----------
$4,385,405 $3,777,357 $5,116,640
========== ========== ==========
(8) Compensation to General Partner and its Affiliates
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 or its
affiliates:
2000 1999 1998
-------- ---------- ----------
Base management fees $462,077 $ 463,879 $ 575,895
Reimbursed administrative expenses 365,060 396,144 519,829
-------- ---------- ----------
$827,137 $ 860,023 $1,095,724
======== ========== ==========
(9) 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
$573,888, $629,520 and $117,120, respectively. These distributions, as
well as cash distributed 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 $10, $11 and $12, respectively. This is calculated by
dividing the limited partners' capital at the end of the year by
3,513,594, the total number of limited partnership units.
27
28
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Inapplicable.
28
29
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.
29
30
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.
30
31
Item 11. Executive Compensation
Beginning with the second quarter of 1992, the Registrant commenced monthly
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. The allocations will 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 will not pay or reimburse CCC or the Leasing Company for any
remuneration payable by them to their executive officers, directors or any other
controlling persons. However, the Registrant will reimburse the general partner
and the Leasing Company 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 or the Leasing Company ("CCL") 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 4.3
of the Limited Partnership Agreement
CCL $435,539
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 4.4 of the Limited
Partnership Agreement
CCC $ 29,418
CCL $292,769
3) Interest in Fund - percentage of
distributable cash for any quarter prior
to receipt of the incentive management
fee, pursuant to Section 4.5 of the
Limited Partnership Agreement
CCC $191,759
31
32
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
1,455 units, representing 0.04% 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, and its affiliates. See Item 11,
"Executive Compensation," herein. Additionally, see Part I, Item 2, herein, for
a description of its payment of refrigerated container reshell costs to Cronos
Equipment (Bermuda) Ltd., an affiliate of CCC and the Leasing Company.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
32
33
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page
(a) 1.Financial Statements
Independent Auditors' Report................................................................................17
Report of Independent Public Accountants....................................................................18
(b) 2.The following financial statements of the Registrant are included in Part II, Item 8:
Balance Sheets - as of December 31, 2000 and 1999...........................................................19
Statements of Operations - for the years ended December 31, 2000, 1999 and 1998.............................20
Statements of Partners' Capital - for the years ended December 31, 2000, 1999 and 1998......................21
Statements of Cash Flows - for the years ended December 31, 2000, 1999 and 1998.............................22
Notes to Financial Statements...............................................................................23
All schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
33
34
(a) 3.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
(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 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)
34
35
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 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: 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.
Dennis J. Tietz ("CCC") (Principal Executive March 26, 2001
Officer of CCC)
/s/John Kallas Chief Financial Officer and
- ------------------------------- Director of
John Kallas Cronos Capital Corp. ("CCC") March 26, 2001
(Principal Financial and
Accounting Officer of CCC)
/s/Elinor A. Wexler Vice President-Administration,
- ------------------------------- Secretary and Director of
Elinor A. Wexler Cronos Capital Corp. March 26, 2001
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.
35
36
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
- ---------------
* 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)