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, 1996 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 0-19770 IEA INCOME FUND XI, L.P. (Exact name of registrant as specified in its charter) California 94-3122430 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 444 Market Street, 15th Floor, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) (415) 677-8990 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- --- 2 IEA INCOME FUND XI, L.P. REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 TABLE OF CONTENTS PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995 4 Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) 5 Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) 6 Notes to Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10 Operations PART II - OTHER INFORMATION Item 6. Exhibit 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, 1996 and December 31, 1995, statements of operations for the three months ended March 31, 1996 and 1995, and statements of cash flows for the three months ended March 31, 1996 and 1995. 3 4 IEA INCOME FUND XI, L.P. BALANCE SHEETS (UNAUDITED) March 31, December 31, 1996 1995 Assets ------ Current assets: Cash, includes $442,217 at March 31, 1996 and $295,315 at December 31, 1995 in interest-bearing accounts $ 448,413 $ 299,445 Short-term investments 1,351,823 1,725,139 Net lease receivables due from Leasing Company (notes 1 and 2) 974,764 969,993 ------------ ------------ Total current assets 2,775,000 2,994,577 ------------ ------------ Container rental equipment, at cost 35,937,914 36,036,469 Less accumulated depreciation 9,654,928 9,156,748 ------------ ------------ Net container rental equipment 26,282,986 26,879,721 ------------ ------------ Organizational costs, net 131,109 166,270 ------------ ------------ $ 29,189,095 $ 30,040,568 ============ ============ Liabilities and Partners' Capital --------------------------------- Current liabilities: Accrued expenses $ 75,000 $ 75,000 Due to general partner (notes 1 and 3) -- 5,100 Due to manufacturer -- 102,000 ------------ ------------ Total current liabilities 75,000 182,100 ------------ ------------ Partners' capital (deficit): General partner (22,478) (24,831) Limited partners 29,136,573 29,883,299 ------------ ------------ Total partners' capital 29,114,095 29,858,468 ------------ ------------ $ 29,189,095 $ 30,040,568 ============ ============ The accompanying notes are an integral part of these statements. 4 5 IEA INCOME FUND XI, L.P. STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Net lease revenue (notes 1 and 4) $1,061,220 $1,230,459 Other operating expenses: Depreciation 559,975 553,021 Other general and administrative expenses 16,727 22,318 ---------- ---------- 576,702 575,339 ---------- ---------- Earnings from operations 484,518 655,120 Other income: Interest income 24,555 27,309 Net gain on disposal of equipment 9,593 8,321 ---------- ---------- 34,148 35,630 ---------- ---------- Net earnings $ 518,666 $ 690,750 ========== ========== Allocation of net earnings: General partner $ 65,506 $ 59,351 Limited partners 453,160 631,399 ---------- ---------- $ 518,666 $ 690,750 ========== ========== Limited partners' per unit share of net earnings $ .23 $ .32 ========== ========== The accompanying notes are an integral part of these statements. 5 6 IEA INCOME FUND XI, L.P. STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Net cash provided by operating activities $ 1,068,256 $ 1,393,925 Cash flows provided by (used in) investing activities: Proceeds from disposal of equipment 77,535 41,291 Purchase of container rental equipment (102,000) -- Acquisition fees paid to general partner (5,100) (86,409) ----------- ----------- Net cash used in investing activities (29,565) (45,118) ----------- ----------- Cash flows used in financing activities: Distribution to partners (1,263,039) (1,105,159) ----------- ----------- Net increase (decrease) in cash and cash equivalents (224,348) 243,648 Cash and cash equivalents at January 1 2,024,584 1,570,857 ----------- ----------- Cash and cash equivalents at March 31 $ 1,800,236 $ 1,814,505 =========== =========== The accompanying notes are an integral part of these statements. 6 7 IEA INCOME FUND XI, L.P. NOTES TO UNAUDITED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Nature of Operations IEA Income Fund XI, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of California on July 30, 1990 for the purpose of owning and leasing marine cargo containers. Cronos Capital Corp. ("CCC") is the general partner and, with its affiliate Cronos Containers Limited (the "Leasing Company"), manages and controls the business of the Partnership. (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 two to five years). Master leases do not specify the exact number of containers to be leased or the term that each container will remain on hire but allow the ocean carrier to pick up and drop off containers at various locations; rentals are based upon the number of containers used and the applicable per-diem rate. Accordingly, rentals under master leases are all variable and contingent upon the number of containers used. Most containers are leased to ocean carriers under master leases; leasing agreements with fixed payment terms are not material to the financial statements. Since there are no material minimum lease rentals, no disclosure of minimum lease rentals is provided in these financial statements. (c) Basis of Accounting The Partnership utilizes the accrual method of accounting. Revenue is recognized when earned. 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. (Continued) 7 8 IEA INCOME FUND XI, L.P. NOTES TO UNAUDITED FINANCIAL STATEMENTS (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 preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. 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. (2) Net Lease Receivables Due from Leasing Company Net lease receivables due from the Leasing Company are determined by deducting direct operating payables and accrued expenses, base management fees payable, and reimbursed administrative expenses payable to CCC, the Leasing Company, and its affiliates from the rental billings payable by the Leasing Company to the Partnership under operating leases to ocean carriers for the containers owned by the Partnership. Net lease receivables at March 31, 1996 and December 31, 1995 were as follows: March 31, December 31, 1996 1995 ---- ---- Lease receivables, net of doubtful accounts of $210,600 at March 31, 1996 and $192,455 at December 31, 1995 $1,572,645 $1,619,922 Less: Direct operating payables and accrued expenses 264,149 291,464 Damage protection reserve 163,914 165,172 Base management fees 141,502 163,004 Reimbursed administrative expenses 28,316 30,289 ---------- ---------- $ 974,764 $ 969,993 ========== ========== (3) Due to General Partner The amounts due to CCC at December 31, 1995 consisted of acquisition fees. (Continued) 8 9 IEA INCOME FUND XI, L.P. NOTES TO UNAUDITED FINANCIAL STATEMENTS (4) Net Lease Revenue Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses to CCC, the Leasing Company, and its affiliates from the rental revenue billed by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease revenue for the three-month periods ended March 31, 1996 and 1995 was as follows: Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Rental revenue $1,597,425 $1,728,852 Rental equipment operating expenses 337,442 280,671 Base management fees 108,720 123,000 Reimbursed administrative expenses 90,043 94,722 ---------- ---------- $1,061,220 $1,230,459 ========== ========== 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, 1996 and December 31, 1995. At March 31, 1996, the Registrant had $1,800,236 in cash and cash equivalents, a decrease of $224,348 from the December 31, 1995 cash balances. During the first quarter of 1996, the Registrant expended $102,000 of cash generated from sales proceeds to pay for new dry cargo containers accepted during the fourth quarter of 1995. At March 31, 1996, the Registrant had approximately $143,000 in cash generated from equipment sales reserved as part of its cash balances. Throughout the remainder of 1996, the Registrant will continue using cash generated from equipment sales to purchase and replace containers which have been lost or damaged beyond repair. Net lease receivables at March 31, 1996 increased slightly when compared to December 31, 1995, as two components of net lease receivables, direct operating payables and base management fees, declined by $27,315 and $21,502, respectively. The Registrant's cash distribution from operations for the first quarter of 1996 was 11% (annualized) of the limited partners' original capital contribution, a decline from the fourth quarter 1995 distribution of 12% (annualized). These distributions are directly related to the Registrant's results from operations. The statements contained in the following discussion are based on current expectations. These statements are forward looking and actual results may differ materially. The container leasing market generally softened during the fourth quarter of 1995 and has remained so during the first quarter of 1996. At March 31, 1996, container inventories remained at larger than usual levels, resulting in a decline in the Registrant's average dry cargo container utilization rate from 89% at December 31, 1995 to 82% at March 31, 1996. The average refrigerated container utilization rate declined from 99% at December 31, 1995, to 95% at March 31, 1996. During the first quarter of 1996, the Leasing Company implemented various marketing strategies, including but not limited to, offering incentives to shipping companies and repositioning containers to high demand locations in order to counter these market conditions. The Leasing Company expects the Registrant to recognize the benefits of these efforts during the next few quarters of 1996. However, base per-diem rental rates have recently become subject to downward pressures within the container leasing market. A reduction in per-diem rental rates, combined with current utilization levels, could impact the Registrant's results from operations during the remainder of 1996. 2) Material changes in the results of operations between the three-month period ended March 31, 1996 and the three- month period ended March 31, 1995. Net lease revenue for the first quarter of 1996 was $1,061,220, a decline of approximately 14% from the first quarter of 1995. Gross rental revenue (a component of net lease revenue) for the quarter ended March 31, 1996 was $1,597,425, reflecting a decline of 8% from the same three-month period in 1995. During 1996, gross rental revenue was primarily impacted by the Registrant's lower average dry cargo and refrigerated utilization rates. Average dry cargo and refrigerated container per-diem rental rates remained relatively stable when compared to the same period in the prior year. 10 11 The Registrant's average fleet size and utilization rates for the three-month periods ended March 31, 1996 and March 31, 1995 were as follows: Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Average Fleet Size (measured in twenty-foot equivalent units (TEU)) Dry cargo containers 13,043 13,106 Refrigerated containers 200 200 Average Utilization Dry cargo containers 82% 90% Refrigerated containers 95% 99% Rental equipment operating expenses were 21% of the Registrant's gross lease revenue during the three-month period ended March 31, 1996, as compared to 16% during the three-month period ended March 31, 1995. This increase was largely attributable to an increase in costs associated with lower utilization levels, including handling, storage and repositioning. The Registrant disposed of 20 twenty-foot and six forty-foot dry cargo containers during the first quarter of 1996, as compared to 17 twenty-foot and two forty-foot dry cargo containers during the same period in the prior year. 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 December 14, 1990 3(b) Certificate of Limited Partnership of the Registrant ** 10(a) Form of Leasing Agent Agreement with LPI Leasing Partners *** International N.V. 10(b) Assignment of Leasing Agent Agreement dated January 1, 1992 **** between the Registrant, CCC (formerly Intermodal Equipment Associates), Cronos Containers N.V. (formerly LPI Leasing Partners International N.V.) and Cronos Containers Limited 27 Financial Data Schedule Filed with this document (b) Report on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended March 31, 1996 - ----------------- * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 14, 1990, included as part of Registration Statement on Form S-1 (No. 33-36701) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-36701) *** Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-36701) **** Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K for the fiscal year ended December 31, 1995. 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 XI, L.P. By Cronos Capital Corp. The General Partner By /s/ JOHN KALLAS --------------- John Kallas Vice President, Chief Financial Officer Principal Accounting Officer Date: May 14, 1996 13 14 EXHIBIT INDEX Exhibit No. Description Method of Filing --- ----------- ---------------- 3(a) Limited Partnership Agreement of the Registrant, amended and * restated as of December 14, 1990 3(b) Certificate of Limited Partnership of the Registrant ** 10(a) Form of Leasing Agent Agreement with LPI Leasing Partners *** International N.V. 10(b) Assignment of Leasing Agent Agreement dated January 1, 1992 **** between the Registrant, CCC (formerly Intermodal Equipment Associates), Cronos Containers N.V. (formerly LPI Leasing Partners International N.V.) and Cronos Containers Limited 27 Financial Data Schedule Filed with this document - ----------------------- * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 14, 1990, included as part of Registration Statement on Form S-1 (No. 33-36701) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-36701) *** Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-36701) **** Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K for the fiscal year ended December 31, 1995.