1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ________
Commission file number 0-17942
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-3046886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Front Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X]. No [ ].
2
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 2001
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 2001 (unaudited) and December 31, 2000 4
Statements of Operations for the three months ended March 31, 2001 and 2000
(unaudited) 5
Statements of Cash Flows for the three months ended March 31, 2001 and 2000
(unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
2
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
2001 and December 31, 2000, statements of operations for the three
months ended March 31, 2001 and 2000, and statements of cash flows for
the three months ended March 31, 2001 and 2000.
3
4
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents, includes $387,659 at March 31, 2001 and
$463,158 at December 31, 2000 in interest-bearing accounts $ 456,624 $ 598,531
Net lease receivables due from Leasing Company
(notes 1 and 2) 103,280 83,433
----------- -----------
Total current assets 559,904 681,964
----------- -----------
Container rental equipment, at cost 5,446,693 5,929,323
Less accumulated depreciation 3,498,995 3,761,161
----------- -----------
Net container rental equipment 1,947,698 2,168,162
----------- -----------
Total assets $ 2,507,602 $ 2,850,126
=========== ===========
Partners' Capital
Partners' capital (deficit):
General partner $ (135,617) $ (132,192)
Limited partners 2,643,219 2,982,318
----------- -----------
Total partners' capital $ 2,507,602 $ 2,850,126
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
5
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------------------
March 31, March 31,
2001 2000
--------- --------
Net lease revenue (notes 1 and 3) $ 131,228 $143,621
Other operating expenses:
Depreciation 56,790 97,502
Other general and administrative expenses 20,408 10,722
--------- --------
77,198 108,224
--------- --------
Income from operations 54,030 35,397
Other income:
Interest income 5,807 4,837
Net (loss) gain on disposal of equipment (9,438) 44,681
--------- --------
(3,631) 49,518
--------- --------
Net income $ 50,399 $ 84,915
========= ========
Allocation of net income:
General partner $ 40,233 $ 71,824
Limited partners 10,166 13,091
--------- --------
$ 50,399 $ 84,915
========= ========
Limited partners' per unit share of net income $ 0.47 $ 0.61
========= ========
The accompanying notes are an integral part of these financial statements.
5
6
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
-------------------------------
March 31, March 31,
2001 2000
--------- ---------
Net cash provided by operating activities $ 119,036 $ 181,028
Cash flows provided by investing activities:
Proceeds from sale of rental equipment 131,980 137,093
Cash flows used in financing activities:
Distribution to partners (392,923) (264,467)
--------- ---------
Net (decrease) increase in cash and cash equivalents (141,907) 53,654
Cash and cash equivalents at January 1 598,531 416,688
--------- ---------
Cash and cash equivalents at March 31 $ 456,624 $ 470,342
========= =========
The accompanying notes are an integral part of these financial statements.
6
7
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VIII, A California Limited Partnership (the
"Partnership") was organized under the laws of the State of
California on August 31, 1987 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, 2008, unless
sooner terminated upon the occurrence of certain events.
The Partnership commenced operations on January 6, 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 August 31, 1988, at which time 21,493 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.
(Continued)
7
8
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net
lease revenue is recorded by the Partnership in each period
based upon its leasing agent agreement with the Leasing Company.
Net lease revenue is generally dependent upon operating lease
rentals from operating lease agreements between the Leasing
Company and its various lessees, less direct operating expenses
and management fees due in respect of the containers specified
in each operating lease agreement.
(d) Financial Statement Presentation
These financial statements have been prepared without audit.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting procedures have been omitted. It is
suggested that these financial statements be read in conjunction
with the financial statements and accompanying notes in the
Partnership's latest annual report on Form 10-K.
The financial statements are prepared in conformity with
accounting principles generally accepted in the United States
(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 reported period. Actual
results could differ from those estimates.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the
opinion of management, necessary to a fair statement of the
financial condition and results of operations for the interim
periods presented. The results of operations for such interim
periods are not necessarily indicative of the results to be
expected for the full year.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base
management fees earned, reimbursed administrative expenses, and
incentive fees 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 March 31, 2001 and December 31, 2000 were as follows:
March 31, December 31,
2001 2000
-------- ------------
Gross lease receivables $307,719 $329,461
Less:
Direct operating payables and accrued expenses 53,427 60,107
Damage protection reserve 24,169 25,089
Base management fees payable 49,976 52,631
Reimbursed administrative expenses 9,026 11,647
Allowance for doubtful accounts 36,777 36,554
Incentive fees 31,064 60,000
-------- --------
Net lease receivables $103,280 $ 83,433
======== ========
(Continued)
8
9
IEA INCOME FUND VIII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management and incentive fees and reimbursed administrative
expenses to CCC from the rental revenue earned by the Leasing Company
under operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for each of the three-month periods ended
March 31, 2001 and 2000 was as follows:
Three Months Ended
----------------------------
March 31, March 31,
2001 2000
-------- --------
Rental revenue $201,217 $297,738
Less:
Rental equipment operating expenses 31,137 82,684
Base management fees 14,045 19,057
Reimbursed administrative expenses 10,085 20,472
Incentive fees 14,722 31,904
-------- --------
$131,228 $143,621
======== ========
(4) Operating Segment
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which changes the way public business enterprises report financial and
descriptive information about reportable operating segments. An
operating segment is a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the enterprise's chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance, and about which
separate financial information is available. Management operates the
Partnership's container fleet as a homogenous unit and has determined,
after considering the requirements of SFAS No. 131, that as such it has
a single reportable operating segment.
The Partnership derives its revenues from leasing marine dry cargo
containers. As of March 31, 2001, the Partnership operated 1,044
twenty-foot, 878 forty-foot and 55 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.
******
9
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between March 31, 2001 and
December 31, 2000.
At March 31, 2001, the Registrant had $456,624 in cash and cash
equivalents, a decrease of $141,907 from the cash balances at December
31, 2000. Contributing to this decline was the Registrants' results from
operations, impacted by a declining fleet size and conditions created by
the slowdown in the global economy.
During the first three months of 2001, the Registrant disposed of 176
containers as part of its ongoing operations. At March 31, 2001, 41% of
the original equipment remained in the Registrant's fleet, as compared
to 45% at December 31, 2000, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 136 207 15
Master leases 730 499 27
----- --- --
Subtotal 866 706 42
Containers off lease 178 172 13
----- --- --
Total container fleet 1,044 878 55
===== === ==
40-Foot
20-Foot 40-Foot High-Cube
----------------- ----------------- ----------------
Units % Units % Units %
----- --- ----- --- ----- ---
Total purchases 2,244 100% 2,396 100% 150 100%
Less disposals 1,200 54% 1,518 64% 95 64%
----- --- ----- --- --- ---
Remaining fleet at March 31, 2001 1,044 46% 878 36% 55 36%
===== === ===== === === ===
The Registrant's operating performance contributed to a 24% increase in
net lease receivables at March 31, 2001 when compared to December 31,
2000. The increase is primarily due to the decrease in accrued expenses,
including incentive fees payable and reimbursable administrative
expenses, partially offset by the decrease in gross lease receivables.
During the first quarter of 2001, distributions from operations and
sales proceeds amounted to $349,264, reflecting distributions to the
general and limited partners for the fourth quarter of 2000. This
represents an increase from the $255,232 distributed during the fourth
quarter of 2000, reflecting distributions for the third quarter of 2000.
The increase in distributions was a result of favorable cash collections
of outstanding receivables and an increase in container sales proceeds
generated during the fourth quarter of 2000. The Registrant's continuing
disposal of containers should produce lower operating results and,
consequently, lower distributions to its partners in subsequent periods.
Sales proceeds distributed to its partners may fluctuate in subsequent
periods, reflecting the level of container disposals.
(Continued)
10
11
2) Material changes in the results of operations between the three-month
period ended March 31, 2001 and the three-month period ended March 31,
2000.
In the first quarter of 2001, the worldwide demand for containers was
significantly impacted by the slowdown in the global economy. These
conditions are reflected in the decline of the Registrant's utilization
and per-diem rates from December 31, 2000 levels. The Leasing Company
has implemented a number of marketing initiatives which are designed to
target identified leasing opportunities and enhance inventory
management.
Net lease revenue for the three-month period ended March 31, 2001 was
$131,228, a decrease of 9% from the same three-month period in the prior
year. Gross rental revenue (a component of net lease revenue) for the
three-month period ended March 31, 2001 was $201,217, reflecting a
decline of 32% from the same three-month period in 2000. Gross rental
revenue was impacted by the Registrant's smaller fleet size and lower
per-diem rental rates. Average per-diem rental rates decreased
approximately 8% when compared to the same three-month period in the
prior year. The Registrant's average fleet size and utilization rates
for the three-month periods ended March 31, 2001 and March 31, 2000 were
as follows:
Three Months Ended
----------------------
March 31, March 31,
2001 2000
-------- --------
Average fleet size (measured in twenty-foot
equivalent units (TEU)) 3,043 4,197
Average utilization 83% 78%
Depreciation expense declined 42% when compared to the same three-month
period in the prior year. Rental equipment operating expenses were 15%
of the Registrant's gross lease revenue during the three-month period
ended March 31, 2001, as compared to 28% during the three-month period
ended March 31, 2000, primarily due to the reduction in the provision
for doubtful accounts, in the amount of $22,748.
The Registrant disposed of 176 containers during the first quarter of
2001, as compared to 188 containers during the first quarter of 2000.
These disposals resulted in a loss of $9,438 for the first quarter of
2001, as compared to a gain of $44,681 for the first quarter of 2000.
The Registrant believes that the net loss on container disposals in the
first quarter of 2001 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. As a result of current market conditions, the
Registrant will monitor the carrying value of its containers to
determine if they have been permanently impaired.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
11
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of October 13, 1987
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 March 31, 2001.
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)
12
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA INCOME FUND VIII,
A California Limited Partnership
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
By /s/ John Kallas
-------------------------------------
John Kallas
Chief Financial Officer and Director
of Cronos Capital Corp. ("CCC")
Principal Financial and Accounting
Officer of CCC
Date: May 15, 2001
13
14
EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of October 13, 1987
3(b) Certificate of Limited Partnership of the **
Registrant
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)