<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 JUNE 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 JUNE 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1995 (unaudited) and December 31, 1994 2
Statements of Operations for the three and six months ended June 30, 1995 and 1994 3
(unaudited)
Statements of Cash Flows for the six months ended June 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
June 30, 1995 and December 31, 1994, statements of operations for the
three and six months ended June 30, 1995 and 1994, and statements of
cash flows for the six months ended June 30, 1995 and 1994.
<PAGE> 4
IEA INCOME FUND VII,
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $156,258 at June 30, 1995 and $82,301
at December 31, 1994 in interest-bearing accounts $ 158,027 $ 95,145
Short-term investments 200,424 200,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 207,791 198,083
---------- ----------
Total current assets 566,242 493,228
---------- ----------
Container rental equipment, at cost 4,967,594 5,040,541
Less accumulated depreciation 2,164,878 2,055,533
---------- ----------
Net container rental equipment 2,802,716 2,985,008
---------- ----------
$3,368,958 $3,478,236
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 2,133 $ 1,528
Limited partners 3,366,825 3,476,708
---------- ----------
Total partners' capital 3,368,958 3,478,236
---------- ----------
$3,368,958 $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 Six Months Ended
-------------------- ---------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $241,269 $230,911 $470,246 $481,483
Other operating expenses:
Depreciation 70,548 71,737 141,634 143,903
Other general and administrative expenses 12,279 8,415 19,267 12,739
-------- -------- -------- --------
82,827 80,152 160,901 156,642
-------- -------- -------- --------
Earnings from operations 158,442 150,759 309,345 324,841
Other income:
Interest income 4,816 3,218 9,087 5,800
Net gain on disposal of equipment 4,283 10,004 12,129 28,530
-------- -------- -------- --------
9,099 13,222 21,216 34,330
-------- -------- -------- --------
Net earnings $167,541 $163,981 $330,561 $359,171
======== ======== ======== ========
Allocation of net earnings:
General partners $ 23,233 $ 22,257 44,591 $ 51,388
Limited partners 144,308 141,724 285,970 307,783
-------- -------- -------- --------
$167,541 $163,981 $330,561 $359,171
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 15 $ 15 $ 31 $ 33
======== ======== ======== ========
</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>
Six Months Ended
----------------------------
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 469,020 $ 476,786
Cash flows provided by (used in) investing activities:
Proceeds from disposal of equipment 34,125 29,862
Acquisition fees paid to managing general partner - (5,696)
--------- ---------
Net cash provided by investing activities 34,125 24,166
--------- ---------
Cash flows used in financing activities:
Distribution to partners (439,839) (497,823)
--------- ---------
Net increase in cash and cash equivalents 63,306 3,129
Cash and cash equivalents at January 1 295,145 389,916
--------- ---------
Cash and cash equivalents at June 30 $ 358,451 $ 393,045
========= =========
</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
JUNE 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 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 June 30, 1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
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<S> <C> <C>
Lease receivables, net of doubtful accounts
of $88,999 at June 30, 1995 and $74,821 at
December 31, 1994 $423,049 $402,001
Less:
Direct operating payables and accrued expenses 96,304 59,495
Damage protection reserve 49,620 75,199
Base management fees 39,710 39,446
Reimbursed administrative expenses 3,751 6,780
Incentive fees 25,873 22,998
-------- --------
$207,791 $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 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 six-month periods ended June 30, 1995 and 1994,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental revenue $381,036 $365,588 $747,186 $718,379
Rental equipment
operating expenses 66,621 71,853 135,198 128,952
Base management fees 24,614 26,522 50,614 47,312
Reimbursed administrative expenses 19,785 18,612 39,383 42,942
Incentive fees 28,747 17,690 51,745 17,690
-------- -------- -------- --------
$241,269 $230,911 $470,246 $481,483
======== ======== ======== ========
</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 June 30, 1995 and December
31, 1994.
The Registrant's cash balances at June 30, 1995 included sales proceeds
from equipment disposals in the amount of $11,463. The Registrant will
distribute these sales proceeds and $197,927 of cash from operations
during the third quarter of 1995, representing distributions to its
limited partners for the second quarter of 1995.
Net lease receivables due from the Leasing Company increased approximately
$9,708 from December 31, 1994. Direct operating payables and accrued
expense, a component of net lease receivables, increased $36,809,
primarily as a result of a $27,175 increase in deferred revenue from
advance billings to container lessees. This increase was partially offset
by a $25,579 reduction in the reserve for container repairs covered by the
damage protection plan. During the first six months of 1995, this reserve
was impacted by the Registrant's declining fleet size and the number of
containers covered under the plan.
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 1995 and the three and six-month periods
ended June 30, 1994.
During the three-month period ended June 30, 1995, the container leasing
market remained consistent with market conditions that existed during the
three-month period ended March 31, 1995. The Registrant continued to
experience the ability to charge higher ancillary revenues, such as
pick-up fees, and reduce incentives offered to ocean carriers, which
contributed to an increase in the Registrant's gross lease revenues, a
component of net lease revenues. However, the Registrant remains cautious
about any further improvement in market conditions during the remainder of
1995.
The benefits of the improved market conditions experienced during the
three and six-month periods ended June 30, 1995, as compared to the same
periods in 1994, were partially offset by the effect of the Leasing
Company's efforts to improve the credit quality of its customer portfolio.
In many cases, lessees who maintain a strong credit history may command
favorable lease terms including lower per-diem rental rates. Accordingly,
average per-diem rental rates remained steady as compared to the same
three and six-month periods in 1994, while an increasing proportion of the
lessees within its portfolio shifted to larger, high credit quality
lessees. The Registrant expects to gain long term benefits from the
improvement in the credit quality of its customers, as the allowance for
doubtful accounts and related expenses should decline.
The Registrant's average fleet size and utilization rates for the three
and six-month periods ended June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalents (TEU)) 3,045 3,107 3,063 3,114
Average Utilization 88% 88% 88% 87%
</TABLE>
8
<PAGE> 11
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 $11,057 and $34,055
increases during the three and six-month periods ended June 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
27 - Financial Data Schedule
(b) There were no reports on Form 8-K during the three-month period
ended June 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: August 10, 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 JUNE 30, 1995 (UNAUDITED) AND THE STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 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 ENDED JUNE 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 358,451
<SECURITIES> 0
<RECEIVABLES> 207,791
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 566,242
<PP&E> 4,967,594
<DEPRECIATION> 2,164,878
<TOTAL-ASSETS> 3,368,958
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,368,958
<TOTAL-LIABILITY-AND-EQUITY> 3,368,958
<SALES> 0
<TOTAL-REVENUES> 491,462
<CGS> 0
<TOTAL-COSTS> 160,901
<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> 330,561
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
