1
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________ .
Commission file number 0-18982
IEA INCOME FUND X, L.P.
(Exact name of registrant as specified in its charter)
California 94-3098648
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
444 Market 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 X, L.P. dated November 7, 1989
included as part of Registration Statement on Form
S-1 (No. 33-30245)
Certificate of Limited Partnership of IEA Income Fund X, L.P.,
filed as Exhibit 3.2 to the Registration Statement on Form S-1
(No. 33-30245)
PART II
Item 9 - Changes in and Disagreements with Accountants on Current Report on Form 8-K of IEA Income Fund X, L.P., filed
Accounting and Financial Disclosure February 7, 1997 and April 14, 1997, respectively, and Amendment
No. 1 to Current Report on Form 8-K filed February 26, 1997.
2
PART I
Item 1. Business
(a) General Development of Business
The Registrant is a limited partnership organized under the laws of the
State of California on July 18, 1989, for the purpose of owning and leasing
marine cargo containers, special purpose containers and container related
equipment, to unaffiliated third-party lessees. The Registrant was initially
capitalized with $100, and commenced offering its limited partnership interests
to the public during the week of November 7, 1989, pursuant to its Registration
Statement on Form S-1 (File No.
33-30245). The offering terminated on October 30, 1990.
The Registrant raised $19,603,100 in subscription proceeds. The following
table sets forth the use of the total subscription proceeds:
Percentage of
Amount Gross Proceeds
----------- --------------
Gross Subscription Proceeds $19,603,100 100.0%
Public Offering Expenses:
Underwriting Commissions $ 1,960,300 10.0%
Offering and Organization Expenses $ 518,760 2.6%
----------- -----
Total Public Offering Expenses $ 2,479,060 12.6%
----------- -----
Net Proceeds $17,124,040 87.4%
Acquisition Fees $ 166,581 0.9%
Working Capital Reserve $ 299,509 1.5%
----------- -----
Gross Proceeds Invested in Equipment $16,657,950 85.0%
=========== =====
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. Cronos Holdings/Investments (U.S.), Inc. is a wholly-owned
subsidiary of The Cronos Group, a Luxembourg company. 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 or managed by the Group on its own behalf or
on behalf of other third-party container owners, including all other programs
organized by CCC.
Pursuant to the Limited Partnership Agreement of the Registrant, all
authority to administer the business of the Registrant is vested in CCC. CCC has
entered into a Leasing Agent Agreement, whereby the Leasing Company has assumed
the responsibility for the container leasing activities of CCC's managed
programs.
For a discussion of recent developments in the Registrant's business, see
Item 7, "Management's Discussion and Analysis of Financial Condition and Result
of Operations."
For information concerning the containers acquired by the Registrant, see
Item 2, "Properties."
2
3
(b) Financial Information About Industry 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 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 Registrant's container fleet
as a homogenous unit and has determined, after considering the requirements of
SFAS No. 131, that as such it has a single reportable operating segment.
Due to the Registrant's lack of information regarding the physical location
of its fleet of containers when on lease in the global shipping trade, it is
impracticable to provide the geographic area information required by SFAS No.
131. Any attempt to separate "foreign" operations from "domestic" operations
would be dependent on definitions and assumptions that are so subjective as to
render the information meaningless and potentially misleading.
No single lessee contributed more than 10% of the rental revenue earned
during 1998, 1997 and 1996.
(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 83% (in TEU) of the worldwide container
fleet. Refrigerated and tank containers currently constitute approximately 7%
(in TEU) of the worldwide container fleet, with other specialized containers
constituting the remainder.
One of the primary benefits of containerization has been the ability of the
shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, railway and ship. Containers require loading
and unloading only once and remain sealed until arrival at the final
destination, significantly reducing transport time, labor and handling costs and
losses due to damage and theft. Efficient movement of containerized cargo
between ship and shore reduces the amount of time that a ship must spend in port
and reduces the transit time of freight moves.
The logistical advantages and reduced freight rates brought about by
containerization have been major catalysts for world trade growth during the
last twenty-five years, resulting in increased demand for containerization. The
world's container fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 12.2 million TEU by mid-1998.
3
4
BENEFITS OF LEASING
Leasing companies own approximately 47% of the world's container fleet with
the balance owned predominantly by shipping lines. Shipping lines, which
traditionally operate on tight profit margins, often supplement their owned
fleet of containers by leasing a portion of their equipment from container
leasing companies and, in doing so, achieve the following financial and
operational benefits:
- Leasing allows the shipping lines to utilize the equipment they need
without having to make large capital expenditures;
- Leasing offers a shipping line an alternative source of financing in a
traditionally capital-intensive industry;
- Leasing enables shipping lines to expand their routes and market
shares at a relatively inexpensive cost without making a permanent
commitment to support their new structure;
- Leasing allows shipping lines to respond to changing seasonal and
trade route demands, thereby optimizing their capital investment and
storage costs.
TYPES OF LEASES
The Registrant's containers are leased primarily to shipping lines
operating in major trade routes (see Item 1(d)). Most if not all of the
Registrant's marine dry cargo containers are leased pursuant to operating
leases, primarily master leases, where the containers are leased to the ocean
carrier on a daily basis for any desired length of time, with the flexibility of
picking up and dropping off containers at various agreed upon locations around
the world. Some of the Registrant's containers may be leased pursuant to term
leases, which may have durations of less than one year to five years.
- Master lease. Most short-term leases are "master 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, as specified in each
lease. 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.
- 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 and the term
of the containers to be leased. Ocean carriers generally use one-way
leases to manage trade imbalances (where more containerized cargo
moves in one direction than another) by picking up a container in one
port and dropping it off at another location after one or more legs of
a voyage.
The terms and conditions of the Registrant'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.
4
5
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 Leasing Company, on behalf of the Registrant, leases the Registrant's
containers primarily to shipping lines operating in major trade routes. The
Leasing Company currently serves over 400 customers including the 20 largest
ocean carriers worldwide on behalf of the Group, the Registrant, and other third
party container owners. The Registrant is not dependent upon any particular
customer or group of customers and none of its customers accounts for more than
10% of its revenue. The Registrant's customers are billed and pay in United
States dollars. The Leasing Company sets maximum credit limits for the
Registrant's customers, limiting the number of containers leased to each
according to established credit criteria. The Leasing Company continually tracks
its credit exposure to each customer. The Leasing Company's credit committee
meets quarterly to analyze the performance of the Registrant's customers and to
recommend actions to be taken in order to minimize credit risks. The Leasing
Company uses specialist third party credit information services and reports
prepared by local staff to assess credit applications.
FLEET PROFILE
The Registrant acquired high-quality dry cargo containers manufactured to
specifications that exceed International Standards Organization (ISO) standards
and designed to minimize repair and operating costs.
Dry cargo containers are the most commonly used type of container in the
shipping industry. The Registrant's dry cargo container fleet is constructed of
all Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage),
which is a high-tensile steel yielding greater damage and corrosion resistance
than mild steel.
The Registrant purchased its dry cargo containers from manufacturers in
Korea as part of a policy of sourcing container production in a location where
it can meet customer demands most effectively.
As of December 31, 1998, the Registrant owned 3,834 twenty-foot, 1,080
forty-foot and 87 forty-foot high-cube marine dry cargo containers. The
following table sets forth the number of containers on lease, by container type
and lease term:
Number of
Containers on Lease
-------------------
20-Foot Dry Cargo Containers:
Term Leases 372
Master Leases 2,369
-----
Total on lease 2,741
=====
40-Foot Dry Cargo Containers:
Term Leases 218
Master Leases 548
-----
Total on lease 766
=====
40-Foot High-Cube Dry Cargo Containers:
Term Leases 19
Master Leases 57
-----
Total on lease 76
=====
The Leasing Company makes payments to the Registrant based upon rentals
collected from ocean carriers after deducting certain operating expenses
associated with the containers, such as the base management fee payable to CCC,
certain expense reimbursements and incentive fees payable to CCC, the costs of
maintenance and repairs not performed by lessees, independent agent fees and
expenses, depot expenses for handling, inspection and storage, and additional
insurance.
5
6
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.
MARKET FOR USED CONTAINERS
The Registrant estimates that the period for which a dry cargo container
may be used as a leased marine cargo container ranges from 10 to 15 years. The
Leasing Company, on behalf of the Registrant, disposes of used containers in a
worldwide market in which buyers include wholesalers, mini-storage operations,
construction companies and others. As the Registrant's fleet ages, a larger
proportion of its revenue will be derived from selling its containers.
OPERATIONS
The Registrant's container leasing and marketing operations are conducted
through the Leasing Company in the United Kingdom, with support provided by area
offices and dedicated agents located in San Francisco, California; Iselin, New
Jersey; Windsor, England; Hamburg; Antwerp; Auckland; Genoa; Gothenburg, Sweden;
Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; and
Shanghai.
The Leasing Company also maintains agency relationships with over 20
independent agents around the world, to whom it pays commissions based upon the
amount of revenues they generate in the region or the number of containers that
are leased from their area on behalf of the Registrant. The agents are located
in jurisdictions where the volume of the Leasing Company's business necessitates
a presence in the area but is not sufficient to justify a fully-functioning
Leasing Company office or dedicated agent. These 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 and agents. 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 Registrant's lessees and produces a wide
range of reports on all aspects of the Registrant's leasing activities. The
system records the life history of each container, including the length of time
on and off lease and repair costs. It also traces 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.
6
7
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 inflation, fluctuations in general business
conditions and fluctuations in supply and demand for equipment resulting from,
among other things, obsolescence, changes in the methods or economics of a
particular mode of transportation or changes in governmental regulations or
safety standards.
(c)(1)(vi) The Registrant established an initial working capital reserve of
approximately $300,000 (approximately 1.5% 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, 1998, no single lessee
accounted for 10% or more 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.
7
8
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 Group, Triton Container
International Ltd. and others. In a series of recent consolidations, 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, making economies
of scale, worldwide operations, diversity, size of fleet and financial strength
increasingly important to the successful operation of a container leasing
business. Additionally, as containerization grows, customers may demand more
flexibility from leasing companies regarding per-diem rates, pick-up and
drop-off locations, availability of containers and other terms. Some of the
Leasing Company's competitors may 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.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC,
the general partner, and accordingly does not itself have any employees. CCC has
15 employees, consisting of 3 officers, 5 other managers and 7 clerical and
staff personnel.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
The Registrant's business is not divided between foreign or domestic
operations. The Registrant's business is the leasing of containers worldwide to
ocean carriers. To this extent the Registrant's operations are subject to the
fluctuations of world economic and political conditions. Such factors may affect
the pattern and levels of world trade.
The Registrant believes that the profitability of, and risks associated
with, leases to foreign customers is generally the same as those of leases to
domestic customers. The Registrant's leases generally require all payments to be
made in United States currency.
Item 2. Properties
As of December 31, 1998, the Registrant owned 3,834 twenty-foot, 1,080
forty-foot and 87 forty-foot high-cube marine dry cargo containers suitable for
transporting cargo by rail, sea or highway. The Registrant's containers were
originally acquired from various manufacturers in Korea. The average useful life
and manufacturers' invoice cost of the containers in the Registrant's fleet as
of December 31, 1998 were as follows:
Estimated
Useful Life Average Age Average Cost
----------- ----------- ------------
20-Foot Dry Cargo Containers 10-15 years 8 years $2,887
40-Foot Dry Cargo Containers 10-15 years 8 years $4,679
40-Foot High-Cube Dry Cargo Containers 10-15 years 8 years $4,951
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 1998, utilization of the Registrant's containers
averaged 78%.
During 1998, the Registrant disposed of 131 twenty-foot, 60 forty-foot, and
eight forty-foot high-cube marine dry cargo containers at an average book loss
of $501 per container.
8
9
Item 3. Legal Proceedings
As reported in the Registrant's Current Report on Form 8-K and Amendment
No. 1 to Current Report on Form 8-K, filed with the Commission on February 7,
1997 and February 26, 1997, respectively, Arthur Andersen, London, England,
resigned as auditors of The Cronos Group, the Parent Company, on February 3,
1997. See Item 9, "Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure."
In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange Act
of 1934, as amended, for filing by the Parent Company with the Securities and
Exchange Commission (the "SEC"). Following the report of Arthur Andersen, the
SEC, on February 10, 1997, commenced a private investigation of the Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
9
10
PART II
Item 5. Market for the 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, 1998
-------------- -----------------------
Units of limited partnership interests 1,842
(c) Dividends
Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6 below, "Selected Financial Data."
10
11
Item 6. Selected Financial Data
Year Ended December 31,
-------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
Net lease revenue $ 1,327,862 $ 1,338,664 $ 1,648,740 $ 2,308,180 $ 2,262,297
Net earnings $ 217,407 $ 287,731 $ 647,151 $ 1,218,520 $ 1,127,539
Net earnings per unit of
limited partnership interest $ 4.13 $ 5.82 $ 13.91 $ 27.68 $ 25.59
Cash distributions per unit of
limited partnership interest $ 41.25 $ 38.13 $ 48.75 $ 53.75 $ 52.50
At year-end:
Total assets $ 9,350,634 $10,820,769 $12,099,994 $13,526,521 $14,475,359
Partners' capital $ 9,350,634 $10,820,769 $12,099,994 $13,459,583 $14,459,309
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Registrant's primary objective is to generate cash from operations for
distribution to its limited partners. Aside from the initial working capital
reserve retained from gross subscription proceeds (equal to approximately 1.5%
of such proceeds), the Registrant relies primarily on container rental receipts
to meet this objective as well as to finance operating needs. No credit lines
are maintained to finance working capital.
At December 31, 1998, the Registrant had $653,851 in cash and cash
equivalents, a decrease of $60,677 and an increase of $10,965, respectively,
from the cash balances at December 31, 1997 and December 31, 1996.
Cash distributions from operations are allocated 5% to the general partner
and 95% to the limited partners. Distributions of sale proceeds are allocated 1%
to the general partner and 99% to the limited partners. This sharing arrangement
will remain in place until the limited partners receive aggregate distributions
in an amount equal to their capital contributions, plus a 10% cumulative,
compounded (daily), annual return on their adjusted capital contributions.
Thereafter, all distributions will be allocated 15% to the general partner and
85% to the limited partners, pursuant to Section 6.1(b) of the 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, 1999, the Registrant has distributed
$16,349,941 in cash from operations and $588,095 in cash from container sales
proceeds to its limited partners. This represents total distributions of
$16,938,036 or approximately 86% of the limited partners' original invested
capital. Distributions to partners are determined and paid quarterly, based
primarily on each quarter's cash flow from operations and cash generated from
container sales. Quarterly distributions are also affected by periodic increases
or decreases to working capital reserves, as deemed appropriate by the general
partner. Sales proceeds distributed to its partners may fluctuate in subsequent
periods, reflecting the level of container disposals.
11
12
The year ended December 31, 1998 was a volatile period for the container
leasing market. Opinions on the outlook for the market ranged from optimism that
the fallout from the Asian crisis could be contained to concern that it would
more seriously affect the global economy. As worries about the global economy
intensified, expectations for world economic growth shifted downward. The
effects of global financial concerns also slowed the growth of world
containerized trade to 5%-6% during 1998 compared to 7%-8% in recent past years,
and limited the demand for leased containers by the ocean carriers. At the same
time, significant trade imbalances developed between Asia and the rest of the
world. The devalued currencies of many Asian countries gave rise to booming
exports while, together with restricted credit, curtailing the demand for
imports from the West. These trade imbalances prompted renewed requirements for
leased containers in many parts of Asia where equipment shortages developed amid
declining inventories. But, the increased demand resulting from the shortage of
containers in many areas of Asia must be viewed against the continuing large
surplus of off-hire units in Europe and the Americas resulting from the shifting
trade patterns. These leasing market conditions may impact the Registrant's
financial condition and operating performance during 1999. Additionally, see the
discussion regarding The Cronos Group under Item 7., Management Discussion and
Analysis of Financial Condition and Results of Operations hereof.
RESULTS OF OPERATIONS
1998 - 1997
Amid this environment of global economic uncertainty, other key trends that
have been in evidence over the past few years continued to affect the container
leasing industry and the Registrant's operations during 1998. They include
consolidation both within the shipping industry and the container leasing
industry; greater efficiencies achieved by our customers through the use of
mega-size containerships and the pooling of owned equipment; and, the erosion of
per-diem rental rates.
As the leasing industry's equipment remained in surplus, ocean carriers and
transport companies continued to be selective about the age and condition of
containers taken on-hire. Many have adopted a policy of only leasing containers
of a certain age or less. It has been the Registrant's experience that in
periods of weak demand, many lessees insist on equipment between three to five
years of age. Such criteria currently serves as a barrier to leasing older
containers including those within the Registrant's fleet and contributed to the
decline in the Registrant's results of operations. 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 1998 declined by approximately 1% when
compared to 1997. The Registrant expects net lease revenue to decline in
subsequent periods as current container leasing market conditions continue.
During 1998, utilization averaged 78%, as compared to 76% in the prior
year, while the Registrant's average fleet size (as measured in twenty-foot
equivalent units ("TEU")) declined from 6,503 TEU in 1997 to 6,321 TEU in 1998.
The decline in Registrant's fleet size, combined with a 8% reduction in average
per-diem rental rates, contributed to a 6% decline in gross rental revenue (a
component of net lease revenue) for 1998 when compared to the previous year.
Rental equipment operating expenses, when measured as a percentage of
rental revenue, were approximately 27% during 1998, as compared to 30% during
1997. Base management fees, dependent on the operating performance of the fleet,
declined $11,672, or approximately 7% during 1998. Base management fees are
expected to decline in subsequent periods as the Registrant's fleet size
declines.
The Registrant disposed of 131 twenty-foot, 60 forty-foot, and eight
forty-foot high-cube marine dry cargo containers during 1998, as compared to 86
twenty-foot, 15 forty-foot marine dry cargo containers and two forty-foot
high-cube marine dry cargo containers during 1997. These disposals resulted in a
loss of $99,700 for 1998, as compared to a loss of $15,132 for 1997. 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 1998 loss on container disposals was a result of
various factors including the age, condition, suitability for continued leasing,
as well as the geographical location of the containers when disposed. These
factors will continue to influence the amount of sales proceeds received and the
related gain on container disposals, which may fluctuate in subsequent periods.
12
13
1997 - 1996
The primary component of the Registrant's results of operations is net
lease revenue. Net lease revenue is directly related to the size, utilization
and per-diem rental rates of the Registrant's fleet. Net lease revenue declined
by approximately 19% during 1997 when compared to 1996.
During 1997, utilization averaged 76%, as compared to 78% in the prior
year, while the Registrant's average fleet size (as measured in twenty-foot
equivalent units ("TEU")) declined from 6,563 TEU in 1996 to 6,503 TEU in 1997.
These declines, combined with a 13% reduction in average per-diem rental rates,
contributed to an 16% decline in gross rental revenue. Rental equipment
operating expenses were approximately 30% of rental revenue during 1997, as
compared to 28% during 1996. This increase was due to higher storage and
handling costs associated with lower equipment utilization. Also contributing to
higher direct operating expenses was a charge of approximately $58,000 to
further provide for and replenish the reserve for doubtful accounts. In 1996,
approximately $35,000 was provided for doubtful accounts. Base management fees,
dependent on the operating performance of the fleet, declined $26,734, or
approximately 14% during 1997 when compared to 1996. Base management fees are
expected to decline in subsequent periods as the Registrant's fleet size
declines.
Other general and administrative expenses increased $13,996 or
approximately 40% during 1997 when compared to 1996. This was due to an increase
of approximately $6,182 in the cost of the Registrant's annual audit, as well as
an increase of approximately $12,000 in the cost of preparing and processing the
Registrant's regulatory filings.
The Registrant disposed of 86 twenty-foot, 15 forty-foot, and two
forty-foot high-cube marine dry cargo containers during 1997, compared to 74
twenty-foot and seven forty-foot marine dry cargo containers during 1996. These
disposals resulted in a loss of $15,132 for 1997, as compared to a gain of
$22,455 for 1996. 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 1997 loss on container
disposals was a result of various factors including the age, condition,
suitability for continued leasing, as well as the geographical location of the
containers when disposed. These factors will continue to influence the amount of
sales proceeds received and the related gain on container disposals, which may
fluctuate in subsequent periods.
THE CRONOS GROUP'S CREDIT FACILITY
In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use by the Parent Company and its
subsidiaries, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit
Facility, an Amended and Restated Credit Agreement was executed in June 1997,
subject to various actions being taken by the Parent Company and its
subsidiaries, primarily relating to the provision of additional collateral. This
Agreement was further amended in July 1997 and the provisions of the Agreement
and its Amendment converted the facility to a term loan, payable in
installments, with a final maturity date of May 31, 1998. The terms of the
Agreement and its Amendment also provided for additional security over shares in
the subsidiary of the Parent Company that owns the head office of the Parent
Company's container leasing operations. They also provided for the loans to the
former Chairman of $5,900,000 and $3,700,000 to be restructured as obligations
of the former Chairman to another subsidiary of the Parent Company (not CCC),
together with the pledge to this subsidiary company of 2,030,303 Common Shares
beneficially owned by him in the Parent Company as security for these loans.
They further provided for the assignment of these loans to the lending banks,
together with the pledge of 1,000,000 shares and the assignment of the rights of
the Parent Company in respect of the other 1,030,303 shares. Additionally, CCC
granted the lending banks a security interest in the fees to which it is
entitled for the services it renders to the container leasing partnerships of
which it acts as general partner, including its fee income payable by the
Registrant. The Parent Company did not repay the Credit Facility at the amended
maturity date of May 31, 1998.
13
14
On June 30, 1998, the Parent Company entered into a third amendment (the
"Third Amendment") to the Credit Facility. Under the Third Amendment, the
remaining principal amount of $36,800,000 was to be amortized in varying monthly
amounts commencing on July 31, 1998 with $26,950,000 due on September 30, 1998
and a final maturity date of January 8, 1999. The Parent Company did not repay
the amounts due on September 30, 1998 and January 8, 1999. The balance
outstanding on the Credit Facility at December 31, 1998 was $33,110,000.
In March 1999, the Parent Company agreed to a proposal to extend the Credit
Facility until September 30, 1999 and expects that a fourth amendment (the
"Fourth Amendment"), with a final maturity date of September 30, 1999, will be
signed in April 1999.
The directors of the Parent Company also are pursuing alternative sources
of financing to meet the amended repayment obligations anticipated under the
Fourth Amendment. Failure to meet revised lending terms would constitute an
event of default with the lenders. The declaration of an event of default would
result in further defaults with other lenders under loan agreement cross-default
provisions. Should a default of the term loans be enforced, the Parent Company
and CCC may be unable to continue as going concerns.
The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.
CCC is unable to determine the impact, if any, these issues may have on the
future operating results, financial condition and cash flows of the Registrant
or CCC and on the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.
YEAR 2000
The Registrant relies upon the financial and operational systems provided
by the Leasing Company and its affiliates, as well as the systems provided by
other independent third parties to service the three primary areas of its
business: investor processing/maintenance; container leasing/asset tracking; and
accounting finance. The Registrant has received confirmation from its
third-party investor processing/maintenance vendor that their system is Year
2000 compliant. The Registrant does not expect a material increase in its vendor
servicing fee to reimburse Year 2000 costs. Container leasing/asset tracking and
accounting/finance services are provided to the Registrant by CCC and its
affiliate, the Leasing Company, pursuant to the respective Limited Partnership
Agreement and Leasing Agent Agreement. CCC and the Leasing Company have
initiated a program to prepare their systems and applications for the Year 2000.
Preliminary studies indicate that testing, conversion and upgrading of system
applications is expected to cost CCC and the Leasing Company less than $500,000.
Pursuant to the Limited Partnership Agreement, CCC or the Leasing Company, may
not seek reimbursement of data processing costs associated with the Year 2000
program. The financial impact of making these required system changes is not
expected to be material to the Registrant's financial position, results of
operations or cash flows.
CAUTIONARY STATEMENT
This Annual Report on Form 10-K contains statements relating to future
results of the Registrant, including certain projections and business trends,
that are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to changes in: economic conditions; trade policies; demand for and
market acceptance of leased marine cargo containers; competitive utilization and
per-diem rental rate pressures; as well as other risks and uncertainties,
including but not limited to those described above in the discussion of the
marine container leasing business under Item 7., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those detailed
from time to time in the filings of the Registrant with the Securities and
Exchange Commission.
14
15
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Inapplicable
Item 8. Financial Statements and Supplementary Data
15
16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Income Fund X, L.P.
We have audited the accompanying balance sheets of IEA Income Fund X, L.P., as
of December 31, 1998 and 1997, and the related statements of operations,
partners' capital, and cash flows for each of the three years in the period
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEA Income Fund X, L.P., as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
As further discussed in Note 10 to the financial statements, The Cronos Group,
which is the indirect corporate parent of Cronos Capital Corp., the general
partner of the Partnership, is subject to an investigation, commenced on
February 10, 1997, by the United States Securities and Exchange Commission.
Furthermore, Cronos Capital Corp. and five other subsidiaries of The Cronos
Group are borrowers under a credit facility with several banks. The credit
facility is guaranteed by The Cronos Group. A substantial payment was due on
September 30, 1998, and the entire loan balance was due on January 8, 1999. The
Cronos Group did not repay the amount due on September 30, 1998 and January 8,
1999. As of the date of our report, The Cronos Group had not yet secured an
extension of the credit facility or obtained a source for repayment of the
balance due.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York
March 5, 1999
16
17
IEA INCOME FUND X, L.P.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
1998 1997
------------ ------------
Assets
Current assets:
Cash and cash equivalents, includes $653,751 in 1998
and $714,328 in 1997 in interest-bearing accounts (note 3) $ 653,851 $ 714,528
Net lease receivables due from Leasing Company
(notes 1 and 4) 199,488 247,992
------------ ------------
Total current assets 853,339 962,520
------------ ------------
Container rental equipment, at cost 16,545,596 17,249,260
Less accumulated depreciation 8,048,301 7,391,011
------------ ------------
Net container rental equipment 8,497,295 9,858,249
------------ ------------
$ 9,350,634 $ 10,820,769
============ ============
Partners' Capital
Partners' capital (deficit):
General partner $ (27,494) $ (12,792)
Limited partners (note 8) 9,378,128 10,833,561
------------ ------------
Total partners' capital 9,350,634 10,820,769
------------ ------------
$ 9,350,634 $ 10,820,769
============ ============
The accompanying notes are an integral part of these financial statements.
17
18
IEA INCOME FUND X, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
Net lease revenue (notes 1 and 6) $ 1,327,862 $ 1,338,664 $ 1,648,740
Other operating expenses:
Depreciation (note 1) 989,645 1,017,698 1,027,997
Other general and administrative expenses 52,794 48,824 34,828
----------- ----------- -----------
1,042,439 1,066,522 1,062,825
----------- ----------- -----------
Earnings from operations 285,423 272,142 585,915
Other income (expenses):
Interest income 31,684 30,721 38,781
Net gain (loss) on disposal of equipment (99,700) (15,132) 22,455
----------- ----------- -----------
(68,016) 15,589 61,236
----------- ----------- -----------
Net earnings $ 217,407 $ 287,731 $ 647,151
=========== =========== ===========
Allocation of net earnings:
General partner $ 55,585 $ 59,428 $ 101,826
Limited partners 161,822 228,303 545,325
----------- ----------- -----------
$ 217,407 $ 287,731 $ 647,151
=========== =========== ===========
Limited partners' per unit share of net earnings $ 4.13 $ 5.82 $ 13.91
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
18
19
IEA INCOME FUND X, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
Limited
Partners General
(Note 8) Partner Total
------------ ------------ ------------
Balances at December 31, 1995 $ 13,465,972 $ (6,389) $ 13,459,583
Net earnings 545,325 101,826 647,151
Cash distributions (1,911,303) (95,437) (2,006,740)
------------ ------------ ------------
Balances at December 31, 1996 12,099,994 - 12,099,994
Net earnings 228,303 59,428 287,731
Cash distributions (1,494,736) (72,220) (1,566,956)
------------ ------------ ------------
Balances at December 31, 1997 10,833,561 (12,792) 10,820,769
Net earnings 161,822 55,585 217,407
Cash distributions (1,617,255) (70,287) (1,687,542)
------------ ------------ ------------
Balances at December 31, 1998 $ 9,378,128 $ (27,494) $ 9,350,634
============ ============ ============
The accompanying notes are an integral part of these financial statements.
19
20
IEA INCOME FUND X, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
----------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 217,407 $ 287,731 $ 647,151
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation 989,645 1,017,698 1,027,997
Net loss (gain) on disposal of equipment 99,700 15,132 (22,455)
Decrease (increase) in net lease receivables due from Leasing Company (11,152) 179,567 76,181
----------- ----------- -----------
Total adjustments 1,078,193 1,212,397 1,081,723
----------- ----------- -----------
Net cash provided by operating activities 1,295,600 1,500,128 1,728,874
----------- ----------- -----------
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 331,265 138,470 164,073
Purchases of container rental equipment - - (127,622)
Acquisition fees paid to general partner - - (6,382)
----------- ----------- -----------
Net cash from investing activities 331,265 138,470 30,069
----------- ----------- -----------
Cash flows used in financing activities:
Distributions to partners (1,687,542) (1,566,956) (2,006,740)
----------- ----------- -----------
Net cash used in financing activities (1,687,542) (1,566,956) (2,006,740)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (60,677) 71,642 (247,797)
Cash and cash equivalents at beginning of year 714,528 642,886 890,683
----------- ----------- -----------
Cash and cash equivalents at end of year $ 653,851 $ 714,528 $ 642,886
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
20
21
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund X, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of California
on July 18, 1989 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. The Partnership shall
continue until December 31, 2010, unless sooner terminated upon
the occurrence of certain events.
The Partnership commenced operations on January 17, 1990, 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 October 30, 1990, at which time 39,206 limited
partnership units had been purchased.
(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.
See note 10 for further discussion regarding CCC and the Leasing
Company.
21
22
IEA INCOME FUND X, 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 collected
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. However, CCC and the
Partnership are unable to predict the outcome of the events
discussed in note 10 and their potential impact on the credit
risk associated with these net lease receivables.
(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 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 reporting period. Actual results could differ from
those estimates.
(e) Allocation of Net Earnings and Partnership Distributions
Net earnings have been allocated between general and limited
partners in accordance with the Partnership Agreement.
Actual cash distributions differ from the allocations of net
earnings between the general and limited partners as presented in
these financial statements. Partnership distributions are based
on "distributable cash" and are paid to the general and limited
partners on a quarterly basis, in accordance with the provisions
of the Partnership Agreement. Partnership distributions from
operations are allocated 95% to the limited partners and 5% to
the general partner. Distributions from sales proceeds are
allocated 99% to the limited partners and 1% to the general
partner.
These allocations remain in effect until such time as the limited
partners have received from the Partnership aggregate
distributions in an amount equal to their capital contributions
plus a 10% cumulative, compounded (daily), annual return on their
adjusted capital contributions. Thereafter, all Partnership
distributions will be allocated 85% to the limited partners and
15% to the general partner. Cash distributions 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.
(f) Acquisition Fees
Pursuant to Article IV Section 4.2 of 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.
22
23
IEA INCOME FUND X, 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 1998, 1997 and 1996.
Container rental equipment is depreciated over a twelve-year life
on a straight line basis to its salvage value, estimated to be
30%.
(h) Income Taxes
The Partnership is not subject to income taxes, consequently no
provision for income taxes has been made. The Partnership files
federal and state annual information tax returns, prepared on the
accrual basis of accounting. Taxable income or loss is reportable
by the partners individually.
(i) Financial Statement Presentation
The Partnership has determined that, for accounting purposes, the
Leasing Agent Agreement is a lease, and the receivables,
payables, gross revenues and operating expenses attributable to
the containers managed by the Leasing Company are, for accounting
purposes, those of the Leasing Company and not of the
Partnership. Consequently, the Partnership's balance sheets and
statements of operations display the payments to be received by
the Partnership from the Leasing Company as the Partnership's
receivables and revenues.
(2) Operating Segment
The Financial Accounting Standards Board has issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information",
which changes the way public business enterprises report financial and
descriptive information about reportable operating segments. An
operating segment is a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the enterprise's chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance, and about which
separate financial information is available. Management operates the
Partnership's container fleet as a homogenous unit and has determined,
after considering the requirements of SFAS No. 131, that as such it has
a single reportable operating segment.
The Partnership derives revenues from dry cargo containers. As of
December 31, 1998, the Partnership operated 3,834 twenty-foot, 1,080
forty-foot and 87 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. 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 lessee contributed more than 10% of the rental revenue earned
during 1998, 1997 and 1996.
23
24
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
(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 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 December 31, 1998 and December 31, 1997 were as follows:
December 31, December 31,
1998 1997
------------ ------------
Lease receivables, net of doubtful accounts of $61,113
in 1998 and $44,032 in 1997 $534,261 $544,082
Less:
Direct operating payables and accrued expenses 185,539 165,210
Damage protection reserve (note 5) 86,231 68,241
Base management fees 54,020 52,816
Reimbursed administrative expenses 8,983 9,823
-------- --------
$199,488 $247,992
======== ========
(5) Damage Protection Plan
The Leasing Company offers a repair service to several lessees of the
Partnership's containers, whereby the lessee pays an additional rental
fee for the convenience of having the Partnership incur the repair
expense for containers damaged while on lease. This fee is recorded as
revenue when earned according to the terms of the rental contract. A
reserve has been established to provide for the estimated costs incurred
by this service. This reserve is a component of net lease receivables
due from the Leasing Company (see note 4). The Partnership is not
responsible in the event repair costs exceed predetermined limits, or
for repairs that are required for damages not defined by the damage
protection plan agreement.
24
25
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
(6) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC from
the rental revenue billed 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, 1998, 1997 and 1996, was as
follows:
1998 1997 1996
---------- ---------- ----------
Rental revenue (note 2) $2,206,585 $2,344,575 $2,788,693
Less:
Rental equipment operating expenses 587,125 713,128 793,362
Base management fees (note 7) 150,721 162,393 189,127
Reimbursed administrative expenses (note 7) 140,877 130,390 157,464
---------- ---------- ----------
$1,327,862 $1,338,664 $1,648,740
========== ========== ==========
(7) Compensation to General Partner
Base management fees are equal to 7% of gross lease revenues
attributable to operating leases pursuant to Section 4.4 of the
Partnership Agreement. Reimbursed administrative expenses are equal to
the costs expended by CCC and its affiliates for services necessary to
the prudent operation of the Partnership pursuant to Section 4.5 of the
Partnership Agreement. The following compensation was paid or will be
paid by the Partnership to CCC:
1998 1997 1996
-------- -------- --------
Base management fees $150,721 $162,393 $189,127
Reimbursed administrative expenses 140,877 130,390 157,464
Acquisition fees - - 3,194
-------- -------- --------
$291,598 $292,783 $349,785
======== ======== ========
(8) Limited Partners' Capital
The limited partners' per unit share of capital at December 31, 1998,
1997 and 1996 was $239, $276 and $309, respectively. This is calculated
by dividing the limited partners' capital at the end of the year by
39,206, the total number of limited partnership units.
25
26
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
(9) Income Taxes
The reconciliation of net earnings as reported in the statement of
operations and as would be reported for federal tax purposes for the
years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
----------- ----------- -----------
Net earnings per statement of operations $ 217,407 $ 287,731 $ 647,151
Depreciation for income tax purposes less than
(in excess of) depreciation for financial statement purposes 881,940 897,555 (488,442)
Gain on disposition of assets for tax purposes in excess of gain on
disposition for financial statement purposes 369,625 191,175 40,726
Bad debt expense for tax purposes less than (in excess of) bad debt
expense for financial statement purposes 17,081 (74,529) (11,801)
----------- ----------- -----------
Net earnings for federal tax purposes $ 1,486,053 $ 1,301,932 $ 187,634
=========== =========== ===========
At December 31, 1998, the tax basis of total partners' capital was
$3,540,114.
(10) The Cronos Group
As reported in the Partnership's Current Report on Form 8-K and
Amendment No. 1 to Current Report on Form 8-K, filed with the Commission
on February 7, 1997 and February 26, 1997, respectively, Arthur
Andersen, London, England, resigned as auditors of The Cronos Group,
(the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of CCC, the general
partner of the Partnership. In its letter of resignation to the Parent
Company, Arthur Andersen stated that it resigned as auditors of the
Parent Company and all other entities affiliated with the Parent
Company. While its letter of resignation was not addressed to CCC,
Arthur Andersen confirmed to CCC that its resignation as auditors of the
entities referred to in its letter of resignation included its
resignation as auditors of CCC and the Partnership.
CCC does not believe, based upon the information currently available to
it, that Arthur Andersen's resignation was triggered by any concern over
the accounting policies and procedures followed by the Partnership.
Arthur Andersen's reports on the financial statements of CCC and the
Partnership, for years preceding 1996, had not contained an adverse
opinion or a disclaimer of opinion, nor were any such reports qualified
or modified as to uncertainty, audit scope, or accounting principles.
During the Partnership's fiscal year ended December 31, 1995 and the
subsequent interim period preceding Arthur Andersen's resignation, there
were no disagreements between CCC or the Partnership and Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
26
27
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
(10) The Cronos Group - (continued)
In connection with its resignation, Arthur Andersen also prepared a
report pursuant to the provisions of Section 10A(b)(2) of the Securities
Exchange Act of 1934, as amended, for filing by the Parent Company with
the Securities and Exchange Commission (the "SEC"). Following the report
of Arthur Andersen, the SEC, on February 10, 1997, commenced a private
investigation of the Parent Company for the purpose of investigating the
matters discussed in such report and related matters. The Partnership
does not believe that the focus of the SEC's investigation is upon the
Partnership or CCC. CCC is unable to predict the outcome of the SEC's
ongoing private investigation of the Parent Company.
In 1993, the Parent Company negotiated a credit facility (hereinafter,
the "Credit Facility") with several banks for the use by the Parent
Company and its subsidiaries, including CCC. At December 31, 1996,
approximately $73,500,000 in principal indebtedness was outstanding
under the Credit Facility. As a party to the Credit Facility, CCC is
jointly and severally liable for the repayment of all principal and
interest owed under the Credit Facility. The obligations of CCC, and the
five other subsidiaries of the Parent Company that are borrowers under
the Credit Facility, are guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit
Facility, an Amended and Restated Credit Agreement was executed in June
1997, subject to various actions being taken by the Parent Company and
its subsidiaries, primarily relating to the provision of additional
collateral. This Agreement was further amended in July 1997 and the
provisions of the Agreement and its Amendment converted the facility to
a term loan, payable in installments, with a final maturity date of May
31, 1998. The terms of the Agreement and its Amendment also provided for
additional security over shares in the subsidiary of the Parent Company
that owns the head office of the Parent Company's container leasing
operations. They also provided for the loans to the former Chairman of
$5,900,000 and $3,700,000 to be restructured as obligations of the
former Chairman to another subsidiary of the Parent Company (not CCC),
together with the pledge to this subsidiary company of 2,030,303 Common
Shares beneficially owned by him in the Parent Company as security for
these loans. They further provided for the assignment of these loans to
the lending banks, together with the pledge of 1,000,000 shares and the
assignment of the rights of the Parent Company in respect of the other
1,030,303 shares. Additionally, CCC granted the lending banks a security
interest in the fees to which it is entitled for the services it renders
to the container leasing partnerships of which it acts as general
partner, including its fee income payable by the Registrant. The Parent
Company did not repay the Credit Facility at the amended maturity date
of May 31, 1998.
On June 30, 1998, the Parent Company entered into a third amendment (the
"Third Amendment") to the Credit Facility. Under the Third Amendment,
the remaining principal amount of $36,800,000 was to be amortized in
varying monthly amounts commencing on July 31, 1998 with $26,950,000 due
on September 30, 1998 and a final maturity date of January 8, 1999. The
Parent Company did not repay the amounts due on September 30, 1998 and
January 8, 1999. The balance outstanding on the Credit Facility at
December 31, 1998 was $33,110,000.
In March 1999, the Parent Company agreed to a proposal to extend the
Credit Facility until September 30, 1999 and expects that a fourth
amendment (the "Fourth Amendment"), with a final maturity date of
September 30, 1999, will be signed in April 1999.
The directors of the Parent Company also are pursuing alternative
sources of financing to meet the amended repayment obligations
anticipated under the Fourth Amendment. Failure to meet revised lending
terms would constitute an event of default with the lenders. The
declaration of an event of default would result in further defaults with
other lenders under loan agreement cross-default provisions. Should a
default of the term loans be enforced, the Parent Company and CCC may be
unable to continue as going concerns.
27
28
IEA INCOME FUND X, L.P.
NOTES TO FINANCIAL STATEMENTS
(10) The Cronos Group - (continued)
The Partnership is not a borrower under the Credit Facility, and neither
the containers nor the other assets of the Partnership have been pledged
as collateral under the Credit Facility.
CCC is unable to determine the impact, if any, these issues may have on
the future operating results, financial condition and cash flows of the
Partnership or CCC and on the Leasing Company's ability to manage the
Partnership's fleet in subsequent periods.
28
29
Schedule 1
IEA INCOME FUND X, L.P.
SCHEDULE OF REIMBURSED ADMINISTRATIVE EXPENSES
PURSUANT TO ARTICLE IV SECTION 4.4
OF THE PARTNERSHIP AGREEMENT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1998 1997 1996
-------- -------- --------
Salaries $ 67,065 $ 60,167 $ 75,078
Other payroll related expenses 11,596 11,079 13,019
General and administrative expenses 62,216 59,144 69,367
-------- -------- --------
Total reimbursed administrative expenses $140,877 $130,390 $157,464
======== ======== ========
See report of independent public accountants
29
30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
As reported in the Registrant's Current Report on Form 8-K and Amendment
No. 1 to Current Report on Form 8-K, filed with the Commission on February 7,
1997 and February 26, 1997, respectively, Arthur Andersen, London, England,
resigned as auditors of The Cronos Group, the Parent Company, on February 3,
1997.
The Parent Company is the indirect corporate parent of CCC, the general
partner of the Registrant. In its letter of resignation to the Parent Company,
Arthur Andersen stated that it resigned as auditors of the Parent Company and
all other entities affiliated with the Parent Company. While its letter of
resignation was not addressed to CCC, Arthur Andersen confirmed to CCC that its
resignation as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of CCC and the Registrant.
CCC does not believe, based upon the information currently available to it,
that Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.
Arthur Andersen's reports on the financial statements of CCC and the
Registrant, for years preceding 1996, had not contained an adverse opinion or a
disclaimer of opinion, nor were any such reports qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the Registrant's fiscal year ended December 31, 1995 and the
subsequent interim period preceding Arthur Andersen's resignation, there were no
disagreements between CCC or the Registrant and Arthur Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
The Registrant retained a new auditor, Moore Stephens, P.C., on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.
In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange Act
of 1934, as amended, for filing by the Parent Company with the Securities and
Exchange Commission (the "SEC"). Following the report of Arthur Andersen, the
SEC, on February 10, 1997, commenced a private investigation of the Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.
30
31
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 March 31, 1999,
are as follows:
Name Office
- ------------------------------- ---------------------------------------------------------
Dennis J. Tietz President, Chief Executive Officer, and Director
Peter J. Younger Treasurer, Principal Accounting Officer, and Director
Elinor A. Wexler Vice President/Administration and Secretary, and Director
John P. McDonald Vice President/Sales, and Director
DENNIS J. TIETZ Mr. Tietz, 46, as President and Chief Executive Officer, is
responsible for the general management of CCC. Mr. Tietz was elected Chief
Executive Officer of The Cronos Group, parent company of CCC, in December 1998.
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.
PETER J. YOUNGER Mr. Younger, 42, was elected Treasurer and Principal
Accounting Officer in 1998. Mr. Younger joined the Board of Directors of CCC in
June 1997. See key management personnel of the Leasing Company for further
information.
ELINOR A. WEXLER Ms. Wexler, 50, 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 the General
Partner 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.
JOHN P. MCDONALD Mr. McDonald, 38, was elected Vice President - National
Sales Manager of CCC in August 1992, with responsibility for marketing CCC's
investment programs. Mr. McDonald joined the Board of Directors of CCC in
October 1997. Since 1988, Mr. McDonald had been Regional Marketing Manager for
the Southwestern U.S. From 1983 to 1988, Mr. McDonald held a number of container
leasing positions with CCC, the most recent of which was as Area Manager for
Belgium and the Netherlands, based in Antwerp.
Mr. McDonald holds a B.S. degree in Business Administration from Bryant
College, Rhode Island. Mr. McDonald is also a Vice President of Cronos
Securities Corp.
31
32
The key management personnel of the Leasing Company at March 31, 1999, were
as follows:
Name Title
- -------------------- ---------------------------------------------
Steve Brocato President
Peter J. Younger Vice President/Chief Financial Officer
John M. Foy Vice President/Americas
Nico Sciacovelli Vice President/Europe, Middle East and Africa
Harris H. T. Ho Vice President/Asia Pacific
David Heather Vice President/Technical Services
John C. Kirby Vice President/Operations
J. Gordon Steel Vice President/Tank Container Division
STEVE BROCATO Mr. Brocato, 46, was elected President of the Leasing
Company's container division in June 1997, and is based in the United Kingdom.
Mr. Brocato has held various positions since joining Cronos including, Vice
President - Corporate Affairs and Director of Marketing - Refrigerated
Containers for Cronos in North and South America. Prior to joining Cronos, Mr.
Brocato was a Vice President for ICCU Containers from 1983 to 1985 and was
responsible for dry cargo container marketing and operations for the Americas.
From 1981 to 1983, he was Regional Manager for Trans Ocean Leasing Ltd.
PETER J. YOUNGER Mr. Younger, 42, was elected Chief Financial Officer of
The Cronos Group in March, 1997, and is based in the United Kingdom. Mr. Younger
was appointed Vice President and Controller of Cronos in 1991. He joined IEA in
1987 and served as Director of Accounting and the Vice President and Controller,
based 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.
JOHN M. FOY Mr. Foy, 53, 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, 49, was elected 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.
HARRIS H. T. HO Mr. Ho, 41, was elected Vice President - Asia Pacific in
June 1997. Mr. Ho is directly responsible for the Leasing Company's lease
marketing and operations in Asia, Australia and the Indian sub-continent and is
based in Hong Kong. Since joining Cronos in 1990, Mr. Ho served as Area
Director, Hong Kong and China. Prior to joining Cronos, Mr. Ho was a Manager at
Sea Containers Pacific Ltd and Sea Containers Hong Kong Limited from 1981 to
1990, responsible for container marketing within Asia. From 1978 to 1981, Mr. Ho
was Senior Equipment Controller for Hong Kong Container Line. Mr. Ho holds a
Diploma of Management Studies in Marketing from The Hong Kong Polytechnic and
The Hong Kong Management Association.
32
33
DAVID HEATHER Mr. Heather, 51, is responsible for all technical and
engineering activities of the fleet managed by the Leasing Company. Mr. Heather
was Technical Director for LPI, based in the United Kingdom, from 1986 to 1991.
From 1980 to 1986, Mr. Heather was employed by ABC Containerline NV as Technical
Manager with technical responsibility for the shipping line's fleet of dry
cargo, refrigerated and other specialized container equipment. From 1974 to
1980, Mr. Heather was Technical Supervisor for ACT Services Ltd., a shipping
line, with responsibility for technical activities related to refrigerated
containers. Mr. Heather holds a Marine Engineering Certificate from Riversdale
Marine Technical College in England.
JOHN C. KIRBY Mr. Kirby, 45, 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 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.
J. GORDON STEEL Mr. Steel, 66, is directly responsible for the overall
lease marketing activity for the Leasing Company's Tank Container Division. From
1990 to 1992, Mr. Steel held the position of Director/General Manager for
Tiphook Container's Tank Division. From 1977 to 1990, Mr. Steel held various
managerial positions, involving manufacturing and transportation of hazardous
materials, with Laporte Industries and ICI, major chemical distribution
companies. Mr. Steel is a qualified Chemical Engineer and attended the Associate
Royal Technical College in Scotland.
33
34
Item 11. Executive Compensation
The Registrant pays a management fee and will reimburse the general partner
for various administrative expenses.
The Registrant also makes quarterly distributions to its partners (general
and limited) from distributable cash from operations (allocated 95% to the
limited partners and 5% to the general partner). Sales proceeds are allocated
99% to the limited partners and 1% to the general partner. These allocations
will remain in effect until such time as the limited partners have received from
the Registrant aggregate distributions in an amount equal to their adjusted
capital contributions plus a 10% cumulative, compounded (daily), annual return
on their adjusted capital contributions. Thereafter, all Partnership
distributions will be allocated 85% to the limited partners and 15% to the
general partner.
The Registrant does not pay or reimburse CCC and its affiliates for any
remuneration payable by them to their executive officers, directors or any other
controlling persons. However, the Registrant does reimburse the general partner
for certain services pursuant to Section 4.5 of the Partnership Agreement. These
services include but are not limited to (i) salaries and related salary expenses
for services which could be performed directly for the Registrant by independent
parties, such as legal, accounting, transfer agent, data processing, operations,
communications, duplicating and other such services; and, (ii) performing
administrative services necessary to the prudent operations of the Registrant.
The following table sets forth the fees the Registrant paid (on a cash
basis) to CCC for the fiscal year 1998.
Cash Fees and
Name Description Distributions
------------ ----------------------------------------------------------------------------------- ---------------
1) Base management fees - equal to 7% of gross lease revenues attributable to
operating leases pursuant to Section 4.4 of the Limited Partnership Agreement
CCC $ 149,517
2) Reimbursed administrative expenses - equal to the costs expended by CCC and its
affiliates for services necessary to the prudent operation of the Registrant
pursuant to Section 4.5 of the Limited Partnership Agreement
CCC $ 141,718
3) Interest in Fund - 5% of distributions of distributable cash for any quarter
pursuant to Section 6.1 of the Limited Partnership Agreement
CCC $ 70,287
34
35
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, the
General Partner, owns 155.2 units, representing 0.40% 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 1998 were limited to those fees paid or amounts committed to be
paid (on an annual basis) to CCC, the general partner. See Item 11, "Executive
Compensation," herein.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
35
36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
Page
----
The following financial statements of the Registrant are included in Part II, Item 8:
Report of Independent Public Accountants..................................................................16
Balance Sheets - December 31, 1998 and 1997...............................................................17
Statements of Operations - for the years ended December 31, 1998, 1997 and 1996...........................18
Statements of Partners' Capital - for the years ended December 31, 1998, 1997 and 1996....................19
Statements of Cash Flows - for the years ended December 31, 1998, 1997 and 1996...........................20
Notes to Financial Statements.............................................................................21
Schedule of Reimbursed Administrative Expenses - for the years ended December 31, 1998, 1997 and 1996.....29
All other schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
36
37
(a)3. Exhibits
Exhibit
No. Description Method of Filing
-------- ----------------------------------------------------------------------------- ------------------------
3(a) Limited Partnership Agreement of the Registrant, amended and restated as of *
November 7, 1989
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the
quarter ended December 31, 1998.
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated November 7, 1989, included as part of Registration
Statement on Form S-1 (No. 33-30245)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-30245)
37
38
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 X, 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 31, 1999
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 31, 1999
Officer of CCC)
/s/ Peter Younger Treasurer and Director of
- ------------------------- Cronos Capital Corp. ("CCC") (Principal
Peter Younger Financial and Accounting Officer of CCC) March 31, 1999
/s/ John McDonald National Sales Manager
- ------------------------- and Director of
John McDonald Cronos Capital Corp. March 31, 1999
SUPPLEMENTAL INFORMATION
The Registrant's annual report will be furnished to its limited partners on
or about April 30, 1999. 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.
39
Exhibit
No. Description Method of Filing
-------- ----------------------------------------------------------------------------- ------------------------
3(a) Limited Partnership Agreement of the Registrant, amended and restated as of *
November 7, 1989
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated November 7, 1989, included as part of Registration
Statement on Form S-1 (No. 33-30245)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-30245)