<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 0-14440
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
California 94-2942941
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
<PAGE> 2
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and nine months ended September 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September
30, 1996 and December 31, 1995, statements of operations for the three
and nine months ended September 30, 1996 and 1995, and statements of
cash flows for the nine months ended September 30, 1996 and 1995.
3
<PAGE> 4
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Assets
Current assets:
Cash, includes $311,146 at September 30, 1996 and $248,436
at December 31, 1995 in interest-bearing accounts $ 311,355 $ 248,584
Short-term investments 1,252,387 1,480,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 559,669 738,452
----------- -----------
Total current assets 2,123,411 2,467,036
----------- -----------
Container rental equipment, at cost 15,454,149 18,110,826
Less accumulated depreciation 9,427,805 10,368,490
----------- -----------
Net container rental equipment 6,026,344 7,742,336
----------- -----------
$ 8,149,755 $10,209,372
=========== ===========
Partners' Capital
Partners' capital:
General partners $ 12,453 $ 23,938
Limited partners 8,137,302 10,185,434
----------- -----------
Total partners' capital 8,149,755 10,209,372
----------- -----------
$ 8,149,755 $10,209,372
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $456,480 $ 744,483 $1,496,572 $2,448,629
Other operating expenses:
Depreciation 210,537 250,629 669,413 771,644
Other general and administrative expenses 13,072 1,143 35,431 45,493
-------- ---------- ---------- ----------
223,609 251,772 704,844 817,137
-------- ---------- ---------- ----------
Earnings from operations 232,871 492,711 791,728 1,631,492
Other income:
Interest income 23,514 26,816 67,254 85,641
Net gain on disposal of equipment 141,768 45,179 395,502 265,070
-------- ---------- ---------- ----------
165,282 71,995 462,756 350,711
-------- ---------- ---------- ----------
Net earnings $398,153 $ 564,706 $1,254,484 $1,982,203
======== ========== ========== ==========
Allocation of net earnings:
General partners $101,033 $ 117,722 $ 283,102 $ 326,998
Limited partners 297,120 446,984 971,382 1,655,205
-------- ---------- ---------- ----------
$398,153 $ 564,706 $1,254,484 $1,982,203
======== ========== ========== ==========
Limited partners' per unit share of net earnings $ 6.77 $ 10.18 $ 22.12 $ 37.69
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 1,718,999 $ 2,723,245
Cash flows provided by investing activities:
Proceeds from disposal of equipment 1,430,260 867,205
Cash flows used in financing activities:
Distribution to partners (3,314,101) (3,434,613)
----------- -----------
Net increase (decrease) in cash and cash equivalents (164,842) 155,837
Cash and cash equivalents at January 1 1,728,584 1,769,503
----------- -----------
Cash and cash equivalents at September 30 $ 1,563,742 $ 1,925,340
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VI, A California Limited Partnership (the
"Partnership") is a limited partnership organized under the laws of
the State of California on August 1, 1984 for the purpose of owning
and leasing marine cargo containers. The managing general partner is
Cronos Capital Corp. ("CCC"); the associate general partners include
four individuals. CCC, with its affiliate Cronos Containers Limited
(the "Leasing Company"), manages and controls the business of the
Partnership.
(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 two to five years).
Master leases do not specify the exact number of containers to be
leased or the term that each container will remain on hire but allow
the ocean carrier to pick up and drop off containers at various
locations; rentals are based upon the number of containers used and
the applicable per-diem rate. Accordingly, rentals under master
leases are all variable and contingent upon the number of containers
used. Most containers are leased to ocean carriers under master
leases; leasing agreements with fixed payment terms are not material
to the financial statements. Since there are no material minimum
lease rentals, no disclosure of minimum lease rentals is provided in
these financial statements.
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recognized when earned.
The Partnership has determined that for accounting purposes the
Leasing Agent Agreement is a lease, and the receivables, payables,
gross revenues and operating expenses attributable to the containers
managed by the Leasing Company are, for accounting purposes, those of
the Leasing Company and not of the Partnership. Consequently, the
Partnership's balance sheets and statements of operations display the
payments to be received by the Partnership from the Leasing Company
as the Partnership's receivables and revenues.
(Continued)
7
<PAGE> 8
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, reimbursed administrative expenses and incentive fees
payable to CCC, the Leasing Company, and its affiliates from the rental
billings payable by the Leasing Company to the Partnership under operating
leases to ocean carriers for the containers owned by the Partnership. Net
lease receivables at September 30, 1996 and December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $369,939 at September 30, 1996 and $355,354 at
December 31, 1995 $1,168,868 $1,534,063
Less:
Direct operating payables and accrued expenses 264,121 351,094
Damage protection reserve 133,975 172,605
Base management fees 76,245 118,275
Reimbursed administrative expenses 16,019 21,408
Incentive fees 118,839 132,229
---------- ----------
$ 559,669 $ 738,452
========== ==========
</TABLE>
(Continued)
8
<PAGE> 9
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
management fees and reimbursed administrative expenses to CCC and the
Leasing Company, from the rental revenue billed by the Leasing Company
under operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for the three and nine-month periods ended
September 30, 1996 and 1995, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Rental revenue $919,334 $1,351,909 $3,021,859 $4,210,557
Rental equipment operating expenses 226,207 287,969 792,541 831,965
Base management fees 63,855 91,148 203,910 282,632
Incentive fees 118,839 145,619 354,843 413,424
Reimbursed administrative expenses 53,953 82,690 173,993 233,907
-------- ---------- ---------- ----------
$456,480 $ 744,483 $1,496,572 $2,448,629
======== ========== ========== ==========
</TABLE>
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between September 30, 1996 and
December 31, 1995.
During the first nine months of 1996, the Registrant continued disposing
of containers as part of its ongoing operations. Accordingly, 1,150
containers were disposed, contributing to a decline in the Registrant's
operating results. At September 30, 1996, 64% of the original equipment
remained in the Registrant's fleet, as compared to 76% at December 31,
1995, comprised as follows:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 205 127 4
Master lease 2,848 1,616 56
----- ----- --
Subtotal 3,053 1,743 60
Containers off lease 1,074 456 9
----- ----- --
Total container fleet 4,127 2,199 69
===== ===== ==
</TABLE>
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Units % Units % Units %
----- - ----- - ----- -
<S> <C> <C> <C> <C> <C> <C>
Total purchases 6,102 100% 3,753 100% 75 100%
Less disposals 1,975 32% 1,554 41% 6 8%
----- --- ----- --- -- ---
Remaining fleet at September 30, 1996 4,127 68% 2,199 59% 69 92%
===== === ===== === == ===
</TABLE>
Net lease receivables at September 30, 1996, declined when compared to
December 31, 1995. Contributing to this decline were favorable collections
of the Registrant's lease receivables, a diminishing fleet size, and its
related operating performance. During the third quarter of 1996,
distributions from operations and sales proceeds amounted to $1,114,743,
reflecting distributions to the general and limited partners for the
second quarter of 1996. This represents an increase from $1,009,294 during
the second quarter of 1996, reflecting increased distributions of sales
proceeds for the second quarter of 1996. The Registrant's disposal
activity should produce lower operating results and, consequently, lower
distributions from operations to its partners in subsequent periods.
However, sales proceeds distributed to its partners may fluctuate in
subsequent periods, reflecting the level of container disposals.
10
<PAGE> 11
The statements contained in the following discussion are based on current
expectations. These statements are forward looking and actual results may
differ materially. Indicative of the cyclical nature of the container
leasing business, containerized trade slowed in the last quarter of 1995,
and excess inventories began to develop. This slowdown has resulted in
reduced equipment utilization and lower per-diem rental rates in the
container leasing industry during the first nine months of 1996.
Accordingly, the Registrant's utilization rate has declined from an
average of 88% at December 31, 1995 to an average of 77% at September 30,
1996. During the first nine months of 1996, the Leasing Company
implemented various marketing strategies, including but not limited to,
offering incentives to shipping companies and repositioning containers to
high demand locations in order to counter the market conditions. Ancillary
revenues have fallen, and free-day incentives offered to the shipping
lines have increased. In addition, rental equipment operating expenses of
the Registrant have increased due to higher storage and handling costs
associated with the off-hire fleet, and increased repositioning costs. As
a result, these leasing market conditions, combined with the Registrant's
disposal of containers, are expected to adversely impact the results from
operations through the remainder of 1996 and into 1997.
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1996 and the three and nine-month
periods ended September 30, 1995.
Net lease revenue for the three and nine-month periods ended September 30,
1996 was $456,480 and $1,496,572, respectively, a decline of 39% from the
same three and nine-month periods in the prior year, respectively.
Approximately 36% and 32% of the Registrant's net earnings for the three
and nine-month periods ended September 30, 1996, respectively, were from
gain on disposal of equipment, as compared to 8% and 13% for the same
three and nine-month periods in the prior year, respectively. As the
Registrant's disposals increase in subsequent periods, net gain on
disposal will contribute significantly to the Registrant's net earnings.
Gross rental revenue (a component of net lease revenue) for the three and
nine-month periods ended September 30, 1996 was $919,334, and $3,021,859,
respectively, reflecting a decline of 32% and 28% from the same three and
nine-month periods in 1995. During 1996, gross rental revenue was
primarily impacted by the Registrant's diminishing fleet size and lower
utilization levels. Average per-diem rental rates decreased approximately
5% and 3% when compared to the same three and nine-month periods in the
prior year, respectively, as they became subject to the downward pressures
of an increasingly soft container leasing market. The Registrant's average
fleet size and utilization rates for the three and nine-month periods
ended September 30, 1996 and September 30, 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 8,846 10,780 9,446 11,177
Average Utilization 78% 87% 79% 89%
</TABLE>
The Registrant's aging and declining fleet size contributed to a 16% and
13% decline in depreciation expense when compared to the same three and
nine-month periods in the prior year, respectively. Rental equipment
operating expenses were 25% and 26% of the Registrant's gross lease
revenue during the three and nine-month periods ended September 30, 1996,
respectively, as compared to 21% and 20% when compared to the same three
and nine-month periods ended September 30, 1995, respectively. These
increases were largely attributable to a decline in gross lease revenue
resulting from lower utilization rates, lower per-diem rates, a downward
trend in ancillary revenue, and an increase in free-day incentives offered
to shipping companies. Costs associated with lower utilization levels,
including handling, storage and repositioning also contributed to the
increase in the rental equipment operating expenses, as a percentage of
gross lease revenue. The Registrant's diminishing fleet size and related
operating performance contributed to the decline in base management and
incentive fees, when compared to the same periods in the prior year.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the
Registrant, amended and restated as of
October 11, 1984 *
3(b) Certificate of Limited Partnership of
the Registrant **
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended September 30, 1996
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 12, 1984, included as part of Registration
Statement on Form S-11 (No. 2-92883)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-11 (No. 2-92883)
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA INCOME FUND VI,
A California Limited Partnership
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
----------------------------------------
John Kallas
Vice President, Treasurer
Principal Financial & Accounting Officer
Date: November 11, 1996
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
--- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the
Registrant, amended and restated as of
October 11, 1984 *
3(b) Certificate of Limited Partnership of
the Registrant **
27 Financial Data Schedule Filed with this document
</TABLE>
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 12, 1984, included as part of Registration
Statement on Form S-11 (No. 2-92883)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-11 (No. 2-92883)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD SEPTEMBER 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,563,742
<SECURITIES> 0
<RECEIVABLES> 559,669
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,123,411
<PP&E> 15,454,149
<DEPRECIATION> 9,427,805
<TOTAL-ASSETS> 8,149,755
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,149,755
<TOTAL-LIABILITY-AND-EQUITY> 8,149,755
<SALES> 0
<TOTAL-REVENUES> 1,496,572
<CGS> 0
<TOTAL-COSTS> 704,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,254,484
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
