<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, 2000
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 MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 2000 and December 31, 1999 (unaudited) 4
Condensed Statements of Operations for the three months ended March 31, 2000 and 1999 (unaudited) 5
Condensed Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 6
Notes to Condensed Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II - OTHER INFORMATION
Item 6. Exhibits 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 condensed balance sheets as of
March 31, 2000 and December 31, 1999, condensed statements of
operations for the three months ended March 31, 2000 and 1999, and
condensed statements of cash flows for the three months ended March 31,
2000 and 1999.
3
<PAGE> 4
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, includes $179,359 at March 31, 2000 and
$182,946 at December 31, 1999 in interest-bearing accounts $ 179,464 $ 183,046
Net lease receivables due from Leasing Company
(notes 1 and 2) 71,356 47,207
---------- ----------
Total current assets 250,820 230,253
---------- ----------
Container rental equipment, at cost 2,387,327 2,606,588
Less accumulated depreciation 1,574,004 1,708,194
---------- ----------
Net container rental equipment 813,323 898,394
---------- ----------
Total assets $1,064,143 $1,128,647
========== ==========
Partners' Capital
Partners' capital:
General partners $ 37,360 $ 35,249
Limited partners 1,026,783 1,093,398
---------- ----------
Total partners' capital $1,064,143 $1,128,647
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
condensed statements.
4
<PAGE> 5
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net lease revenue (notes 1 and 3) $ 51,361 $ 77,050
Other operating expenses:
Depreciation 13,435 50,386
Other general and administrative expenses 7,477 9,515
--------- ---------
20,912 59,901
--------- ---------
Income from operations 30,449 17,149
Other income:
Interest income 1,792 3,161
Net gain on disposal of equipment 19,682 36,199
--------- ---------
21,474 39,360
--------- ---------
Net income $ 51,923 $ 56,509
========= =========
Allocation of net income:
General partners $ 13,753 $ 21,642
Limited partners 38,170 34,867
--------- ---------
$ 51,923 $ 56,509
========= =========
Limited partners' per unit share of net income $ 4.10 $ 3.74
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
5
<PAGE> 6
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 57,736 $ 85,826
Cash flows provided by investing activities:
Proceeds from disposal of equipment 55,110 177,650
Cash flows used in financing activities:
Distribution to partners (116,428) (177,876)
--------- ---------
Net increase (decrease) in cash and cash equivalents (3,582) 85,600
Cash and cash equivalents at January 1 183,046 278,140
--------- ---------
Cash and cash equivalents at March 31 $ 179,464 $ 363,740
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
condensed statements.
6
<PAGE> 7
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(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 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.
The managing general partner is Cronos Capital Corp. ("CCC"); the
associate general partners include six individuals. CCC, with its
affiliate Cronos Containers Limited (the "Leasing Company"), manages
the business of the Partnership. CCC and the Leasing Company also
manage the container leasing business for other partnerships affiliated
with the managing general partner. The Partnership shall continue until
December 31, 2007, unless sooner terminated upon the occurrence of
certain events.
The Partnership commenced operations on February 2, 1987, 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 August 31,
1987, at which time 9,314 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; 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 condensed financial statements.
7
<PAGE> 8
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED 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 condensed 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
condensed 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 accounting
principles generally accepted in the United States (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. The
results of operations for such interim periods are not necessarily
indicative of the results to be expected for the full year.
(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, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Gross lease receivables $ 194,098 $ 154,580
Less:
Direct operating payables and accrued expenses 32,139 25,448
Damage protection reserve 9,714 14,388
Base management fees payable 28,760 31,194
Reimbursed administrative expenses 3,806 1,809
Allowance for doubtful accounts 36,105 21,598
Incentive fees 12,218 12,936
------------- -------------
Net lease receivables $ 71,356 $ 47,207
============= =============
</TABLE>
8
<PAGE> 9
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED 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 revenues for the three-month periods ended March 31,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Rental revenue (note 4) $ 106,861 $ 165,670
Less:
Rental equipment operating expenses 29,800 38,511
Base management fees 6,365 12,256
Reimbursed administrative expenses 7,116 8,028
Incentive fees 12,219 29,825
--------- ---------
$ 51,361 $ 77,050
========= =========
</TABLE>
(4) 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, of which 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 its revenues from marine dry cargo containers. As
of March 31, 2000, the Partnership operated 498 twenty-foot and 423
forty-foot 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.
******
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, 2000 and
December 31, 1999.
During the first three months of 2000, the Registrant disposed of 91
containers as part of its ongoing operations. At March 31, 2000, 44% of the
original equipment remained in the Registrant's fleet, as compared to 48%
at December 31, 1999, and was comprised of the following:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
<S> <C> <C>
Containers on lease:
Term leases 48 72
Master leases 363 287
------- -------
Subtotal 411 359
Containers off lease 87 64
------- -------
Total container fleet 498 423
======= =======
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
---------------- ----------------
Units % Units %
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total purchases 1,001 100% 1,104 100%
Less disposals 503 50% 681 62%
----- ----- ----- -----
Remaining fleet at March 31, 2000 498 50% 423 38%
===== ===== ===== =====
</TABLE>
The Registrant's allowance for doubtful accounts increased from $21,598 at
December 31, 1999 to $36,105 at March 31, 2000. This increase was
attributable to the delinquent account receivable balances of approximately
10 lessees. The Leasing Company has either negotiated specific payment
terms with these lessees or is pursuing other alternatives to collect the
outstanding balances. In each instance, the Registrant believes it has
provided sufficient reserves for all doubtful accounts.
During the first quarter of 2000, distributions from operations and sales
proceeds amounted to $116,428, reflecting distributions to the general and
limited partners for the fourth quarter of 1999. This represents a decline
from the $177,876 distributed during the fourth quarter of 1999, reflecting
distributions for the third quarter of 1999. The Registrant's continuing
disposal of containers should produce lower operating results and,
consequently, lower distributions from operations to its partners in
subsequent periods. Sales proceeds distributed to its partners may
fluctuate in subsequent periods, reflecting the level of container
disposals.
In order to take advantage of improving market conditions and stronger
demand for leased containers, the Registrant undertook a strategy that was
aimed at significantly reducing its inventory of idle equipment in some
low-demand locations while, at the same time, fulfilling lessee container
requirements. As part of this strategy, the Registrant offered leasing
incentives to several lessees for picking up off-hire equipment from the
Registrant's higher inventory areas. This not only resulted in stronger
utilization of the Registrant's equipment, but it also significantly
lowered Partnership expenses related to storage and handling.
10
<PAGE> 11
2) Material changes in the results of operations between the three-month
period ended March 31, 2000 and the three-month period ended March 31,
1999.
Net lease revenue for the three-month period ended March 31, 2000 was
$51,361, a decrease of approximately 33% from the same three-month period
in the prior year. Approximately 38% of the Registrant's net income for the
three-month period ended March 31, 2000 was from gain on disposal of
equipment, as compared to 64% 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 income and may fluctuate depending on the level of
container disposals.
Gross rental revenue (a component of net lease revenue) for the three-month
period ended March 31, 2000 was $106,861, reflecting a decline of 36% from
the same three-month period in 1999. Gross rental revenue was primarily
impacted by the reduction in the Registrant's fleet size and a decline in
per-diem rental rates. Average per-diem rental rates decreased
approximately 18% when compared to the same three-month period in the prior
year. The Registrant's average fleet size and utilization rates for the
three-month periods ended March 31, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Average fleet size (measured in twenty-foot
equivalent units (TEU)) 1,424 2,066
Average utilization 83% 79%
</TABLE>
The Registrant's declining fleet size contributed to a 73% decline in
depreciation expense when compared to the same three-month period in the
prior year. Rental equipment operating expenses were 28% of the
Registrant's gross lease revenue during the three-month period ended March
31, 2000, as compared to 23% during the three-month period ended March 31,
1999.
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. Neither the Registrant nor the Leasing
Company experienced nor do they currently anticipate any material adverse
effects on the Registrant's business, results of operations or financial
condition as a result of Year 2000 issues involving internal use systems,
third party products or any of their software products. Costs incurred in
preparing for Year 2000 issues were expensed as incurred. Neither the
Registrant nor the Leasing Company anticipate any additional material costs
in connection with Year 2000 uncertainties. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 December 1, 1986
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 March 31, 2000.
- -------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 3, 1986, included as part of Registration
Statement on Form S-1 (No. 33-9351)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-9351)
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 VII,
A California Limited Partnership
By Cronos Capital Corp.
The Managing General Partner
By /s/ Dennis J. Tietz
--------------------------------------
Dennis J. Tietz
President and Director of Cronos
Capital Corp. ("CCC")
Principal Executive Officer of CCC
Date: May 15, 2000
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 December 1, 1986
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 December 3, 1986, included as part of Registration
Statement on Form S-1 (No. 33-9351)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-9351)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 2000 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2000 (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, 2000
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 179,464
<SECURITIES> 0
<RECEIVABLES> 71,356
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 250,820
<PP&E> 2,387,327
<DEPRECIATION> 1,574,004
<TOTAL-ASSETS> 1,064,143
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,064,143
<TOTAL-LIABILITY-AND-EQUITY> 1,064,143
<SALES> 0
<TOTAL-REVENUES> 51,361
<CGS> 0
<TOTAL-COSTS> 20,912
<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> 51,923
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
