<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, 1996
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 0-17942
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
California 94-3046886
(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 VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and nine months ended September 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (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 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September
30, 1996 and December 31, 1995, statements of operations for the three
and nine months ended September 30, 1996 and 1995, and statements of
cash flows for the nine months ended September 30, 1996 and 1995.
3
<PAGE> 4
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash, includes $202,814 at September 30, 1996 and $151,831
at December 31, 1995 in interest-bearing accounts $ 203,220 $ 152,012
Short-term investments 601,741 655,627
Net lease receivables due from Leasing Company
(notes 1 and 2) 354,926 425,492
----------- -----------
Total current assets 1,159,887 1,233,131
----------- -----------
Container rental equipment, at cost 11,639,919 12,088,535
Less accumulated depreciation 5,111,441 4,792,590
----------- -----------
Net container rental equipment 6,528,478 7,295,945
----------- -----------
$ 7,688,365 $ 8,529,076
=========== ===========
Liabilities and Partners' Capital
Current liabilities:
Due to general partner
(notes 1 and 3) $ -- $ 7,111
----------- -----------
Partners' capital:
General partner 3,660 3,171
Limited partners 7,684,705 8,518,794
----------- -----------
Total partners' capital 7,688,365 8,521,965
----------- -----------
$ 7,688,365 $ 8,529,076
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 4) $365,037 $514,655 $1,206,121 $1,686,314
Other operating expenses:
Depreciation 168,894 175,579 515,246 531,366
Other general and administrative expenses 8,988 1,894 22,564 29,268
-------- -------- ---------- ----------
177,882 177,473 537,810 560,634
-------- -------- ---------- ----------
Earnings from operations 187,155 337,182 668,311 1,125,680
Other income:
Interest income 10,541 11,509 30,185 36,012
Net gain on disposal of equipment 35,248 8,415 79,146 38,005
-------- -------- ---------- ----------
45,789 19,924 109,331 74,017
-------- -------- ---------- ----------
Net earnings $232,944 $357,106 $ 777,642 $1,199,697
======== ======== ========== ==========
Allocation of net earnings:
General partner $ 41,172 $ 65,220 $ 140,790 $ 176,776
Limited partners 191,772 291,886 636,852 1,022,921
-------- -------- ---------- ----------
$232,944 $357,106 $ 777,642 $1,199,697
======== ======== ========== ==========
Limited partners' per unit share of net earnings $ 8.92 $ 13.58 $ 29.63 $ 47.59
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,273,569 $ 1,783,584
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 342,108 190,590
Acquisition fees paid to general partner (7,112) (11,314)
----------- -----------
Net cash provided by investing activities 334,996 179,276
----------- -----------
Cash flows used in financing activities:
Distribution to partners (1,611,243) (1,874,685)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,678) 88,175
Cash and cash equivalents at January 1 807,639 746,017
----------- -----------
Cash and cash equivalents at September 30 $ 804,961 $ 834,192
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund VIII, A California Limited Partnership (the
"Partnership") was organized under the laws of the State of
California on August 31, 1987 for the purpose of owning and
leasing marine cargo containers. Cronos Capital Corp. ("CCC")
is the general partner and, 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.
The Partnership has determined that for accounting purposes
the Leasing Agent Agreement is a lease, and the receivables,
payables, gross revenues and operating expenses attributable
to the containers managed by the Leasing Company are, for
accounting purposes, those of the Leasing Company and not of
the Partnership. Consequently, the Partnership's balance
sheets and statements of operations display the payments to be
received by the Partnership from the Leasing Company as the
Partnership's receivables and revenues.
(Continued)
7
<PAGE> 8
IEA INCOME FUND VIII,
(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 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.
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, and reimbursed administrative expenses
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, 1996
and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $157,795 at September 30, 1996 and $136,750 at
December 31, 1995 $624,651 $773,483
Less:
Direct operating payables and accrued expenses 164,438 166,803
Damage protection reserve 40,389 92,138
Base management fees 53,561 75,211
Reimbursed administrative expenses 11,337 13,839
-------- --------
$354,926 $425,492
======== ========
</TABLE>
(3) Due to General Partner
The amount due to CCC at December 31, 1995 consists of acquisition fees.
(Continued)
8
<PAGE> 9
IEA INCOME FUND VIII,
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(4) 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, 1996 and 1995,
was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Rental revenue $633,244 $ 836,443 $2,047,309 $2,525,657
Rental equipment operating expenses 185,615 215,497 584,406 526,996
Base management fees 43,667 55,495 137,592 170,621
Reimbursed administrative expenses 38,925 50,796 119,190 141,726
-------- ---------- ---------- ----------
$365,037 $ 514,655 $1,206,121 $1,686,314
======== ========== ========== ==========
</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 September 30, 1996 and
December 31, 1995.
During the first nine months of 1996, the Registrant disposed of 181
containers as part of its ongoing operations, contributing to the change
in the Registrant's financial condition. At September 30, 1996, 90% of the
original equipment remained in the Registrant's fleet, as compared to 94%
at December 31, 1995, comprised as follows:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 130 212 11
Master lease 1,332 1,377 107
----- ----- ---
Subtotal 1,462 1,589 118
Containers off lease 574 540 18
----- ----- ---
Total container fleet 2,036 2,129 136
===== ===== ===
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
---------------- ----------------- -----------------
Units % Units % Units %
<S> <C> <C> <C> <C> <C> <C>
Total purchases 2,244 100% 2,396 100% 150 100%
Less disposals 208 9% 267 11% 14 9%
----- --- ----- --- --- ---
Remaining fleet at September 30, 1996 2,036 91% 2,129 89% 136 91%
===== === ===== === === ===
</TABLE>
Net lease receivables at September 30, 1996, declined when compared to
December 31, 1995. Contributing to this decline were favorable collections
of the Registrant's lease receivables, a reduction in the Registrant's
average fleet size, and its related operating performance. The reduction
in fleet size and its related operating performance also contributed to a
decline in direct operating payables, damage protection reserve,
reimbursed administrative expenses payable, and base management fees
payable.
During the third quarter of 1996, distributions from operations and sales
proceeds amounted to $482,850, reflecting distributions to the general and
limited partners for the second quarter of 1996. This represents a decline
from the $530,613 distributed during the second quarter of 1996,
reflecting distributions for the first quarter of 1996. Additional
container disposals should contribute to lower operating results and,
consequently, lower distributions from operations to its partners in
subsequent periods. However, sales proceeds distributed to its partners
may fluctuate in subsequent periods, reflecting the level of container
disposals.
The statements contained in the following discussion are based on current
expectations. These statements are forward looking and actual results may
differ materially. Indicative of the cyclical nature of the container
leasing business, containerized trade growth slowed in the last quarter of
1995, and excess inventories began to develop. This slowdown has resulted
in reduced equipment utilization and lower per-diem rental rates in the
container leasing industry during the first nine months of 1996.
Accordingly, the Registrant's utilization rate has declined from an
average of 87% at December 31, 1995 to 74% at September 30, 1996.
Additionally, during the first nine months of 1996, the Leasing Company
implemented various marketing strategies, including but not limited to,
offering incentives to shipping companies and repositioning containers to
high demand locations in order to counter the market conditions. Ancillary
revenues have fallen, and free-day incentives offered to the shipping
lines have increased. In addition, rental equipment operating expenses of
the Registrant have increased due to higher storage and handling costs
associated with the off-hire fleet, and increased repositioning costs.
These leasing market
10
<PAGE> 11
conditions are expected to adversely impact the Registrant's results
from operations through the remainder of 1996 and into 1997.
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1996 and the three and nine-month
periods ended September 30, 1995.
Net lease revenue for the three and nine-month periods ended September 30,
1996 was $365,037, and $1,206,121, respectively, a decline of 29% and 28%
from the same three and nine-month periods in the prior year,
respectively. Approximately 15% and 10% of the Registrant's net earnings
for the three and nine-month periods ended September 30, 1996,
respectively, were from gain on disposal of equipment, as compared to 2%
and 3% for the same three and nine-month periods in the prior year,
respectively. As the Registrant's disposals increase in subsequent
periods, net gain on disposal will contribute significantly to the
Registrant's net earnings.
Gross rental revenue (a component of net lease revenue) for the three and
nine-month periods ended September 30, 1996 was $633,244, and $2,047,309,
respectively, reflecting a decline of 24% and 19% from the same three and
nine-month periods in 1995, respectively. During 1996, gross rental
revenue was primarily impacted by the Registrant's lower per-diem rental
rates and utilization levels. Average per-diem rental rates decreased
approximately 7% and 3%, when compared to the same three and nine-month
periods in the prior year, respectively, as they became subject to the
downward pressures of an increasingly soft container leasing market. The
Registrant's average fleet size and utilization rates for the three and
nine-month periods ended September 30, 1996 and September 30, 1995 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------ ------------ -------------- -------------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 6,598 6,933 6,733 6,996
Average Utilization 76% 88% 77% 87%
</TABLE>
The Registrant's declining fleet size contributed to a 4% and 3% decline
in depreciation expense when compared to the same three and nine-month
periods ended September 30, 1996, respectively. Rental equipment operating
expenses were 29% of the Registrant's gross lease revenue in each of the
three and nine-month periods ended September 30, 1996, respectively, as
compared to 26% and 21% during the three and nine-month periods ended
September 30, 1995, respectively. These increases were largely
attributable to a decline in gross lease revenue resulting from lower
utilization rates, lower per-diem rates, a downward trend in ancillary
revenue, and an increase in free-day incentives offered to shipping
companies. Costs associated with lower utilization levels, including
handling, storage and repositioning also contributed to the increase in
the rental equipment operating expenses, as a percentage of gross lease
revenue. A reduction in the Registrant's average fleet size and its
related operating performance contributed to the decline in base
management fees, when compared to the same periods in the prior year.
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 October 13, 1987
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, 1996
- -----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)
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 VIII,
A California Limited Partnership
By Cronos Capital Corp.
The General Partner
By /s/ JOHN KALLAS
--------------------------------------
John Kallas
Vice President, Treasurer
Principal Financial & Accounting Officer
Date: November 11, 1996
13
<PAGE> 14
<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 13, 1987
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 13, 1987, included as part of Registration
Statement on Form S-1 (No. 33-16984)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (No. 33-16984)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 (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, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 804,961
<SECURITIES> 0
<RECEIVABLES> 354,926
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,159,887
<PP&E> 11,639,919
<DEPRECIATION> 5,111,441
<TOTAL-ASSETS> 7,688,365
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,688,365
<TOTAL-LIABILITY-AND-EQUITY> 7,688,365
<SALES> 0
<TOTAL-REVENUES> 1,206,121
<CGS> 0
<TOTAL-COSTS> 537,810
<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> 777,642
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
