<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 MARCH 31, 1997
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 MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996 4
Statements of Operations for the three months ended March 31, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (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 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
1997 and December 31, 1996, statements of operations for the three
months ended March 31, 1997 and 1996, and statements of cash flows for
the three months ended March 31, 1997 and 1996.
3
<PAGE> 4
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, includes $1,374,935 at March 31, 1997
and $1,443,332 at December 31, 1996 in interest-bearing accounts $ 1,403,584 $ 1,443,622
Net lease receivables due from Leasing Company
(notes 1 and 2) 558,803 484,449
----------- -----------
Total current assets 1,962,387 1,928,071
----------- -----------
Container rental equipment, at cost 13,023,641 14,523,765
Less accumulated depreciation 8,253,040 9,033,806
----------- -----------
Net container rental equipment 4,770,601 5,489,959
----------- -----------
$ 6,732,988 $ 7,418,030
=========== ===========
Partners' Capital
-----------------
Partners' capital:
General partners $ 8,873 $ 15,724
Limited partners 6,724,115 7,402,306
----------- -----------
Total partners' capital 6,732,988 7,418,030
----------- -----------
$ 6,732,988 $ 7,418,030
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Net lease revenue (notes 1 and 3) $333,453 $598,363
Other operating expenses:
Depreciation 182,573 235,397
Other general and administrative expenses 14,253 10,625
-------- --------
196,826 246,022
-------- --------
Earnings from operations 136,627 352,341
Other income:
Interest income 16,573 21,412
Net gain on disposal of equipment 125,861 161,245
-------- --------
142,434 182,657
-------- --------
Net earnings $279,061 $534,998
======== ========
Allocation of net earnings:
General partners $ 78,848 $ 99,233
Limited partners 200,213 435,765
-------- --------
$279,061 $534,998
======== ========
Limited partners' per unit share of net earnings $ 4.56 $ 9.92
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 392,955 $ 634,392
Cash flows provided by investing activities:
Proceeds from disposal of equipment 531,109 333,352
Cash flows used in financing activities:
Distribution to partners (964,102) (1,190,064)
----------- -----------
Net decrease in cash and cash equivalents (40,038) (222,320)
Cash and cash equivalents at January 1 1,443,622 1,728,584
----------- -----------
Cash and cash equivalents at March 31 $ 1,403,584 $ 1,506,264
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial 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 are four
individuals. CCC, with its affiliate Cronos Containers Limited (the
"Leasing Company"), manages the business of the Partnership. The
Partnership shall continue until December 31, 2006, unless sooner
terminated upon the occurrence of certain events.
The Partnership commenced operations on December 4, 1984, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 60,000 units of limited partnership interest at
$500 per unit, or $30,000,000. The offering terminated on October 11,
1985, at which time 43,920 limited partnership units had been
purchased.
As of March 31, 1997, the Partnership owned and operated 3,411
twenty-foot, 1,848 forty-foot and 65 forty-foot high-cube marine dry
cargo containers.
(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.
(Continued)
7
<PAGE> 8
IEA INCOME FUND VI,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue is
generally dependent upon operating lease rentals from operating lease
agreements between the Leasing Company and its various lessees, less
direct operating expenses and management fees due in respect of the
containers specified in each operating lease agreement.
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The 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. Actual results could
differ from those estimates.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented.
(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 and its affiliates from the rental
billings payable by the Leasing Company to the Partnership under
operating leases to ocean carriers for the containers owned by the
Partnership. Net lease receivables at March 31, 1997 and December 31,
1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $343,136 at March 31, 1997 and $351,237
at December 31, 1996 $1,197,338 $1,039,362
Less:
Direct operating payables and accrued expenses 346,342 230,512
Damage protection reserve 109,971 131,971
Base management fees 65,643 70,694
Reimbursed administrative expenses 12,803 14,614
Incentive fees 103,776 107,122
---------- ----------
$ 558,803 $ 484,449
========== ==========
</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,
base management and incentive 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 three-month periods ended
March 31, 1997 and 1996, was as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
1997 1996
-------- ----------
<S> <C> <C>
Rental revenue $695,391 $1,128,787
Less:
Rental equipment operating expenses 169,831 276,957
Base management fees 48,901 77,114
Incentive fees 103,776 64,209
Reimbursed administrative expenses 39,430 112,144
-------- ----------
$333,453 $ 598,363
======== ==========
</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 March 31, 1997 and
December 31, 1996.
During the first quarter of 1997, the Registrant continued disposing of
containers as part of its ongoing container operations. Accordingly,
666 containers were disposed during the first quarter of 1997,
contributing to a decline in the Registrant's operating results. At
March 31, 1997, 54% of the original equipment remained in the
Registrant's fleet, as compared to 60% at December 31, 1996, and was
comprised of the following:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 195 121 7
Master lease 2,440 1,330 50
----- ----- -----
Subtotal 2,635 1,451 57
Containers off lease 776 397 8
----- ----- -----
Total container fleet 3,411 1,848 65
===== ===== =====
</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 2,691 44% 1,905 51% 10 13%
----- ---- ----- --- -- ---
Remaining fleet at March 31, 1997 3,411 56% 1,848 49% 65 87%
===== ==== ===== ==== == ===
</TABLE>
Net lease receivables at March 31, 1997 increased slightly when
compared to December 31, 1996, as cash collections of outstanding
receivables slowed. The diminishing fleet size and related operating
results also contributed to the increase in net lease receivables, as
the damage protection reserve, reimbursed administrative expenses
payable, base management and incentive fees payable declined. Direct
operating payables and accrued expenses increased $115,851 from
December 31, 1996, due to an increase in deferred revenue from advance
billings to containers lessees.
During the first quarter of 1997, distributions from operations and
sales proceeds amounted to $964,102, reflecting distributions to the
general and limited partners for the fourth quarter of 1996. This
represents a decline from the $1,069,550 distributed during the fourth
quarter of 1996, reflecting distributions for the third quarter of
1996. The Registrant's continued disposal of containers should produce
lower operating results and, consequently, lower distributions to its
partners in subsequent quarters.
During 1996, ocean carriers and other transport companies moved away
from leasing containers outright, as declining container prices,
favorable interest rates and the abundance of available capital
resulted in ocean carriers and transport companies purchasing a larger
share of equipment for their own account, reducing the demand for
leased containers. Once the demand for leased containers began to fall,
per-diem rental rates were also adversely affected. These conditions
continued to exist throughout the first quarter of 1997. However, the
Registrant's average utilization rate increased from 77% at December
31, 1996 to 78% at March 31, 1997, a direct result of the Registrant's
policy to dispose of its off-hire containers. The Leasing Company
continues to implement various marketing strategies, including but not
limited to, offering incentives to shipping companies, repositioning
containers to high demand locations and focusing towards term leases
and other leasing opportunities including the leasing of containers for
local storage, in order to counter current leasing market conditions.
Although these conditions are expected to continue throughout 1997, the
Registrant's liquidity and capital resources will also be impacted by
its declining fleet size.
10
<PAGE> 11
2) Material changes in the results of operations between the three-month
period ended March 31, 1997 and the three- month period ended
March 31, 1996.
Net lease revenue for the first quarter of 1997 was $333,453, a decline
of approximately 44% from the first quarter of 1996. Approximately 38%
of the Registrant's net earnings for the three-month period ended March
31, 1997 were from gain on disposal of equipment, as compared to 27%
for the same three-month period in the prior year. As the Registrant's
container disposals increase in subsequent periods, net gain on
disposal should contribute significantly to the Registrant's net
earnings and may fluctuate dependent on the level of container
disposals.
Gross rental revenue (a component of net lease revenue) for the quarter
was $695,391, a decline of 38% from the same period last year. During
1997, gross rental revenue was impacted by the Registrant's declining
fleet size. However, the sluggish container leasing market conditions
that existed during 1996 and throughout the first quarter of 1997 also
contributed to lower average per-diem rental rates, which declined 14%
when compared to the same period in the prior year. The Registrant's
average fleet size and utilization rates for the three-month periods
ended March 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 7,626 10,070
Average Utilization 78% 79%
</TABLE>
The Registrant's aging and declining fleet size contributed to a 22%
decline in depreciation expense when compared to the same period in the
prior year. Rental equipment operating expenses were 24% of the
Registrant's gross lease revenue during the three-month period ended
March 31, 1997, consistent with the same period in the prior year. The
Registrant's declining fleet size and related operating results
contributed to a decline in base management fees and reimbursed
administrative expenses. Incentive fees, which are based on the
operating performance of the fleet and sales proceeds, increased 62%
when compared to the same three-month period in the prior year, as the
Registrant's disposal activity increased.
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, a Luxembourg Corporation headquartered in Orchard Lea, England
(the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital
Corp., the Managing General Partner of the Registrant. In its letter of
resignation to the Parent Company, Arthur Andersen states 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 the Managing General Partner or the Registrant, Arthur
Andersen confirmed to the Managing General Partner that its resignation
as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of Cronos Capital Corp. and the
Registrant.
The Registrant does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Registrant or the Leasing
Company's ability to manage the Registrant's fleet in subsequent
periods. However, the Managing General Partner of the Registrant 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.
11
<PAGE> 12
Arthur Andersen's report on the financial statements of Cronos Capital
Corp. and the Registrant, for either of the past two years, has not
contained an adverse opinion or a disclaimer of opinion, nor was any
such report qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been
no disagreements between Cronos Capital Corp. or the Registrant and
Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
Due to the nature and timing of Arthur Andersen's resignation, the
Parent Company and Managing General Partner were unable to name a
successor auditor on behalf of the Registrant until it retained Moore
Stephens, P.C. ("Moore Stephens") on April 10, 1997, as reported in the
Registrant's Current Report on Form 8-K, filed April 14, 1997.
Cautionary Statement
This Quarterly Report on Form 10-Q 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 in the above discussion of the marine
container leasing business under Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those
detailed from time to time in the filings of Registrant with the
Securities and Exchange Commission.
12
<PAGE> 13
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
The Registrant filed a Report on Form 8-K, dated February 7, 1997 and
Amendment No. 1 to Report on Form 8-K dated February 26, 1997,
reporting the resignation of the Registrant's certifying accountant.
The Registrant filed a Report on Form 8-K, April 14, 1997, reporting
the appointment of the Registrant's successor certifying accountant.
- ----------------
* 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)
13
<PAGE> 14
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 Finance & Accounting Officer
Date: June 16, 1997
14
<PAGE> 15
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 MARCH 31, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997 (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 MARCH 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,403,584
<SECURITIES> 0
<RECEIVABLES> 558,803
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,962,387
<PP&E> 13,023,641
<DEPRECIATION> 8,253,040
<TOTAL-ASSETS> 6,732,988
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,732,988
<TOTAL-LIABILITY-AND-EQUITY> 6,732,988
<SALES> 0
<TOTAL-REVENUES> 333,453
<CGS> 0
<TOTAL-COSTS> 196,826
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 279,061
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 279,061
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
