<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, 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)
<TABLE>
<S> <C>
California 94-2966976
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
One Front 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, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (unaudited) - September 30, 2000 and December 31, 1999 4
Condensed Statements of Operations (unaudited) for the three and nine months ended
September 30, 2000 and 1999 5
Condensed Statements of Cash Flows (unaudited) for the nine months ended September
30, 2000 and 1999 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
September 30, 2000 and December 31, 1999, condensed statements of
operations for the three and nine months ended September 30, 2000 and
1999, and condensed statements of cash flows for the nine months ended
September 30, 2000 and 1999.
3
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IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, includes $151,642 at September 30, 2000
and $182,946 at December 31, 1999 in interest-bearing accounts $ 172,487 $ 183,046
Net lease receivables due from Leasing Company
(Notes 1 and 2) 34,034 47,207
---------- ----------
Total current assets 206,521 230,253
---------- ----------
Container rental equipment, at cost 2,041,100 2,606,588
Less accumulated depreciation 1,365,931 1,708,194
---------- ----------
Net container rental equipment 675,169 898,394
---------- ----------
Total assets $ 881,690 $1,128,647
========== ==========
Partners' Capital
Partners' capital:
General partners $ 33,654 $ 35,249
Limited partners 848,036 1,093,398
---------- ----------
Total partners' capital $ 881,690 $1,128,647
========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE> 5
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (Notes 1 and 3) $ 73,883 $ 62,493 $160,183 $187,986
Other operating expenses:
Depreciation 11,966 29,740 38,170 114,103
Other general and administrative expenses 7,515 3,877 30,843 17,258
-------- -------- -------- --------
19,481 33,617 69,013 131,361
-------- -------- -------- --------
Income from operations 54,402 28,876 91,170 56,625
Other income (loss):
Interest income 1,956 2,790 5,751 9,526
Net gain (loss) on disposal of equipment (12,783) 12,000 6,243 92,940
-------- -------- -------- --------
(10,827) 14,790 11,994 102,466
-------- -------- -------- --------
Net income $ 43,575 $ 43,666 $103,164 $159,091
======== ======== ======== ========
Allocation of net income:
General partners $ 9,707 $ 23,074 $ 34,172 $ 75,728
Limited partners 33,868 20,592 68,992 83,363
-------- -------- -------- --------
$ 43,575 $ 43,666 $103,164 $159,091
======== ======== ======== ========
Limited partners' per unit share of net income $ 3.64 $ 2.21 $ 7.41 $ 8.95
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
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IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 160,670 $ 227,414
Cash provided by investing activities:
Proceeds from disposal of equipment 178,893 435,349
Cash used in financing activities:
Distribution to Partners
(350,122) (679,162)
--------- ---------
Net decrease in cash and cash equivalents
(10,559) (16,399)
Cash and cash equivalents, beginning of period 183,046 278,140
--------- ---------
Cash and cash equivalents, end of period $ 172,487 $ 261,741
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
6
<PAGE> 7
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(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 nine 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.
(Continued)
7
<PAGE> 8
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(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 accounting principles
generally accepted in The United States of America ("GAAP") 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 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
September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Gross lease receivables $144,235 $154,580
Less:
Direct operating payables and accrued expenses 28,627 25,448
Damage protection reserve 9,702 14,388
Base management fees payable 28,458 31,194
Reimbursed administrative expenses 4,775 1,809
Allowance for doubtful accounts 29,655 21,598
Incentive fees 8,984 12,936
-------- --------
Net lease receivables $ 34,034 $ 47,207
======== ========
</TABLE>
(Continued)
8
<PAGE> 9
IEA INCOME FUND VII,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
(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 and nine-month periods ended
September 30, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- ----------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Rental revenue $ 83,011 $ 120,137 $ 280,171 $ 412,142
Less:
Rental equipment operating expenses (8,396) 24,129 50,804 96,576
Base management fees 7,254 8,756 18,698 31,625
Reimbursed administrative expenses 1,286 4,996 15,627 20,493
Incentive fees 8,984 19,763 34,859 75,462
-------- ----------- ----------- ----------
$ 73,883 $ 62,493 $ 160,183 $ 187,986
======== =========== =========== ==========
</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 dry cargo marine containers. As
of September 30, 2000, the Partnership operated 430 twenty-foot and 354
forty-foot dry cargo marine 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 September 30, 2000 and
December 31, 1999.
During the first nine months of 2000, the Registrant disposed of 228
containers as part of its ongoing operations. At September 30, 2000, 37%
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 47 69
Master leases 314 256
--- ---
Subtotal 361 325
Containers off lease 69 29
--- ---
Total container fleet 430 354
=== ===
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
---------------- ---------------
Units % Units %
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total purchases 1,001 100% 1,104 100%
Less disposals 571 57% 750 68%
----- ---- ----- ---
Remaining fleet at September 30, 2000 430 43% 354 32%
===== ==== ===== ===
</TABLE>
The Registrant's allowance for doubtful accounts increased from $21,598 at
December 31, 1999 to $29,655 at September 30, 2000. This increase was
attributable to the delinquent account receivable balances of approximately
12 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
recorded appropriate allowance.
During the third quarter of 2000, distributions made from operations and
sales proceeds amounted to $122,896, reflecting distributions due to the
general and limited partners for the second quarter of 2000. This
represents an increase from the $110,798 issued during the second quarter
of 2000, reflecting distributions due for the first quarter of 2000. 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. The $12,098 increase in distributions issued during
the current quarter was in fact due to a rise in sales proceeds from
container disposals for the second quarter of 2000.
During the third quarter of 2000, growth in the volume of containerized
trade continued to improve. As a result, demand for leased equipment
strengthened in many locations, but most significantly throughout Asia.
With the growth in the volume of world trade, ocean carriers are committing
their capital to the purchase of additional containerships and turning to
leasing companies to supply them with the containers they need to meet
their growing freight requirements. The container leasing market has
rebounded and prospects have somewhat improved, but lease rates have
remained at generally the same low level as at the beginning of this year.
At the same time, inventories of idle equipment have been reduced in
Europe, but there has been no appreciable reduction in the U.S. The strong
U.S. economy continued to import more than it exported. This imbalance has
had the effect of further increasing idle container inventories,
particularly on the U.S. East Coast.
(continued)
10
<PAGE> 11
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 2000 and the three and nine-month
periods ended September 30, 1999.
Net lease revenue for the three and nine-month periods ended September 30,
2000 was $73,883 and $160,183, respectively, an increase of approximately
18% and a decrease of approximately 15% from the respective three and
nine-month periods in the prior year. Net income from the gain on disposal
of equipment was 0% for the three-month period ended September 30, 2000,
compared with 27% for the same period ended September 30, 1999.
Approximately 6% of the Registrant's net income for the nine-month period
ended September 30, 2000 was from gain on disposal of equipment, as
compared to 58% for the same nine-month period in the prior year.
Gross rental revenue (a component of net lease revenue) for the three and
nine-month periods ended September 30, 2000 was $83,011 and $280,171,
respectively, reflecting a decline of 31% and 32% from the respective three
and nine-month periods 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 10% and
16%, respectively, when compared to the same three and nine-month periods
in the prior year. The Registrant's average fleet size and utilization
rates for the three and nine-month periods ended September 30, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Average fleet size (measured in
twenty-foot equivalent units
(TEU)) 1,168 1,653 1,297 1,858
Average utilization 89% 83% 86% 81%
</TABLE>
The Registrant's declining fleet size contributed to reductions in
depreciation expense of 60% and 67%, respectively, for the three and
nine-month periods ended September 30, 2000, when compared to the same
three and nine-month periods in the prior year. Rental equipment operating
expenses as a percent of the Registrant's gross lease revenue were (10%)
and 18%, respectively, during the three and nine-month periods ended
September 30, 2000, as compared to 20% and 23%, respectively, during the
three and nine-month periods ended September 30, 1999. The large decrease
for the three-month period ended September 30, 2000 was attributable to the
recovery of doubtful accounts.
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
<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 September 30, 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: November 14, 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)
