<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, 1995
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 0-16834
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
California 94-2966976
(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 VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995 (unaudited) and December 31, 1994 2
Statements of Operations for the three and nine months ended September 30, 1995 and 1994 3
(unaudited)
Statements of Cash Flows for the nine months ended September 30, 1995 and 1994 4
(unaudited)
Notes to Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 8
Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September
30, 1995 and December 31, 1994, statements of operations for the three
and nine months ended September 30, 1995 and 1994, and statements of
cash flows for the nine months ended September 30, 1995 and 1994.
<PAGE> 4
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $136,399 at September 30, 1995 and $82,301
at December 31, 1994 in interest-bearing accounts $ 136,622 $ 95,145
Short-term investments 250,000 200,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 171,893 198,083
---------- ----------
Total current assets 558,515 493,228
---------- ----------
Container rental equipment, at cost 4,936,696 5,040,541
Less accumulated depreciation 2,220,806 2,055,533
---------- ----------
Net container rental equipment 2,715,890 2,985,008
---------- ----------
$3,274,405 $3,478,236
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 2,053 $ 1,528
Limited partners 3,272,352 3,476,708
---------- ----------
Total partners' capital 3,274,405 3,478,236
---------- ----------
$3,274,405 $3,478,236
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $203,822 $179,673 $674,067 $661,156
Other operating expenses:
Depreciation 70,074 71,542 211,708 215,445
Other general and administrative expenses 1,969 6,332 21,236 19,071
-------- -------- -------- --------
72,043 77,874 232,944 234,516
-------- -------- -------- --------
Earnings from operations 131,779 101,799 441,123 426,640
Other income:
Interest income 4,305 3,583 13,392 9,383
Net gain on disposal of equipment 2,221 2,356 14,350 30,886
-------- -------- -------- --------
6,526 5,939 27,742 40,269
-------- -------- -------- --------
Net earnings $138,305 $107,738 $468,865 $466,909
======== ======== ======== ========
Allocation of net earnings:
General partners $ 23,208 $ 24,768 $ 67,798 $ 76,156
Limited partners 115,097 82,970 401,067 390,753
-------- -------- -------- --------
$138,305 $107,738 $468,865 $466,909
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 12 $ 9 $ 43 $ 42
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 704,615 $ 675,901
Cash flows provided by (used in) investing activities:
Proceeds from disposal of equipment 59,557 55,381
Acquisition fees paid to managing general partner - (5,696)
----------- ----------
Net cash provided by investing activities 59,557 49,685
----------- ----------
Cash flows used in financing activities:
Distribution to partners (672,695) (755,458)
----------- ----------
Net increase (decrease) in cash and cash equivalents 91,477 (29,872)
Cash and cash equivalents at January 1 295,145 389,916
----------- ----------
Cash and cash equivalents at September 30 $ 386,622 $ 360,044
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VII, A California Limited Partnership (the
"Partnership") was organized under the laws of the State of California
on June 27, 1985 for the purpose of owning and leasing marine cargo
containers. The managing general partner is Cronos Capital Corp.
("CCC"); the associate general partners include seven individuals, one
is an officer of CCC. 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.
(Continued)
5
<PAGE> 8
IEA INCOME FUND VII,
(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 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, 1995 and December 31, 1994 were as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $81,671 at September 30, 1995 and $74,821
at December 31, 1994 $ 383,036 $ 402,001
Less:
Direct operating payables and accrued expenses 99,196 59,495
Damage protection reserve 39,674 75,199
Base management fees 38,608 39,446
Reimbursed administrative expenses 4,917 6,780
Incentive fees 28,748 22,998
---------- ----------
$ 171,893 $ 198,083
========== ==========
</TABLE>
(Continued)
6
<PAGE> 9
IEA INCOME FUND VII,
(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, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rental revenue $ 360,169 $ 360,893 $ 1,107,354 $ 1,079,272
Rental equipment
operating expenses 81,464 103,842 216,662 232,794
Base management fees 24,222 28,218 74,836 75,530
Reimbursed administrative expenses 21,914 21,717 61,297 64,659
Incentive fees 28,747 27,443 80,492 45,133
----------- ----------- ------------ ------------
$ 203,822 $ 179,673 $ 674,067 $ 661,156
=========== =========== ============ ============
</TABLE>
7
<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, 1995 and
December 31, 1994.
The Registrant's cash balances at September 30, 1995 included sales
proceeds from equipment disposals in the amount of $23,285. The Registrant
will distribute these sales proceeds and $197,927 of cash from operations
during the fourth quarter of 1995, representing distributions to its
limited partners for the third quarter of 1995.
Net lease receivables due from the Leasing Company declined 13% from
December 31, 1994. Contributing to this decline was a 67% increase in
direct operating payables and accrued expenses, arising from an increase in
deferred revenue from advance billings to container lessees. During the
first nine months of 1995, the reserve for container repairs covered by the
damage protection plan was impacted by a reduction in the number of
containers covered under the plan, resulting in a 47% decline, partially
offsetting the increase in direct operating payables and accrued expenses.
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1995 and the three and nine-month
periods ended September 30, 1994.
Net lease revenue for the third quarter of 1995 was $203,822, an increase
of 13% over the third quarter of 1994. Gross rental revenue (a component of
net lease revenue) for the quarter was $360,169, as compared to $360,893
for the same period last year. For the first nine months of 1995, net lease
revenue was $674,067, an increase of 2% over the first nine months of 1994.
Gross rental revenue increased 3% to $1,107,354 over the same nine-month
period.
Gross rental revenue experienced little change when compared with the same
three and nine-month periods in the prior year, as the Registrant continued
to recognize higher ancillary revenues, such as pick-up and drop-off
charges. These ancillary revenues helped to offset the effects of a
slightly smaller fleet size, as well as level utilization rates.
Competitive pressures within the container leasing market, as well as the
Leasing Company's efforts to improve the credit quality of its customer
portfolio, combined to create a resistance to higher per-diem rental rates.
Accordingly, average per-diem rental rates remained relatively stable when
compared to the same periods in the prior year. The Registrant expects to
gain long-term benefits from the improvement in the credit quality of this
customer portfolio, as the allowance for doubtful accounts and related
expenses should decline.
The Registrant's average fleet size and utilization rates for the three and
nine-month periods ended September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalents (TEU)) 3,027 3,094 3,052 3,107
Average Utilization 88% 88% 88% 87%
</TABLE>
8
<PAGE> 11
During the third quarter of 1995, the container leasing market began to
experience the effects of increasingly competitive market conditions,
including, but not limited to, a resistance to higher per-diem rental
rates, slightly lower utilization rates resulting from an expanding supply
of marine cargo containers within the container industry, and the economic
condition of the shipping industry, which has experienced a current trend
toward consolidation. Accordingly, the Registrant expects a stable
container leasing market during the remainder of 1995 and first half of
1996.
A slightly smaller fleet size, combined with a decline in the provision for
repairs covered by the damage protection plan, contributed to a decline in
rental equipment operating expenses of 22% and 7%, respectively, when
compared to the same three and nine-month periods ended September 30, 1994.
Incentive fees, which are based on the operating performance of the fleet
and sales proceeds, are incurred only after the limited partners receive an
8% cumulative, compounded (daily), annual return on their Adjusted Capital
Contribution. This threshold was not reached until the second quarter of
1994, and accordingly, contributed to the $1,304 and $35,359 increases in
incentive fees during the three and nine-month periods ended September 30,
1995, respectively, as compared to the same periods in the prior year.
9
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed with this Document
</TABLE>
(b) There were no reports on Form 8-K during the three-month period
ended September 30, 1995.
10
<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 VII,
A California Limited Partnership
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
---------------------------------------
John Kallas
Vice President, Chief Financial Officer
Principal Accounting Officer
Date: November 13, 1995
11
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1995 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (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, 1995
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 386,622
<SECURITIES> 0
<RECEIVABLES> 171,893
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 558,515
<PP&E> 4,936,696
<DEPRECIATION> 2,220,806
<TOTAL-ASSETS> 3,274,405
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,274,405
<TOTAL-LIABILITY-AND-EQUITY> 3,274,405
<SALES> 0
<TOTAL-REVENUES> 701,809
<CGS> 0
<TOTAL-COSTS> 232,944
<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> 468,865
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
