<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 0-19770
IEA INCOME FUND XI, L.P.
(Exact name of registrant as specified in its charter)
California 94-3122430
(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 XI, L.P.
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 5. Other Materially Important Events 12
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 XI, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash, includes $320,764 at September 30, 1996 and $295,315
at December 31, 1995 in interest-bearing accounts $ 321,211 $ 299,445
Short-term investments 1,278,085 1,725,139
Net lease receivables due from Leasing Company
(notes 1 and 2) 811,339 969,993
----------- -----------
Total current assets 2,410,635 2,994,577
----------- -----------
Container rental equipment, at cost 35,954,273 36,036,469
Less accumulated depreciation 10,661,804 9,156,748
----------- -----------
Net container rental equipment 25,292,469 26,879,721
----------- -----------
Organization costs, net 60,785 166,270
----------- -----------
$27,763,889 $30,040,568
=========== ===========
Liabilities and Partners' Capital
Current liabilities:
Accrued expenses $ 75,000 $ 75,000
Due to general partner (notes 1 and 3) -- 5,100
Due to manufacturer -- 102,000
----------- -----------
Total current liabilities 75,000 182,100
----------- -----------
Partners' capital (deficit):
General partner (22,924) (24,831)
Limited partners 27,711,813 29,883,299
----------- -----------
Total partners' capital 27,688,889 29,858,468
----------- -----------
$27,763,889 $30,040,568
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
IEA INCOME FUND XI, L.P.
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) $933,405 $1,247,731 $2,956,602 $3,739,047
Other operating expenses:
Depreciation and amortization 559,167 786,311 1,678,189 1,901,154
Other general and administrative expenses 18,826 9,286 52,681 61,418
-------- ---------- ---------- ----------
577,993 795,597 1,730,870 1,962,572
-------- ---------- ---------- ----------
Earnings from operations 355,412 452,134 1,225,732 1,776,475
Other income:
Interest income 22,806 25,605 71,746 80,817
Net gain on disposal of equipment 20,718 19,845 23,841 38,811
-------- ---------- ---------- ----------
43,524 45,450 95,587 119,628
-------- ---------- ---------- ----------
Net earnings $398,936 $ 497,584 $1,321,319 $1,896,103
======== ========== ========== ==========
Allocation of net earnings:
General partner $ 65,900 $ 72,338 $ 176,453 $ 194,916
Limited partners 333,036 425,246 1,144,866 1,701,187
-------- ---------- ---------- ----------
$398,936 $ 497,584 $1,321,319 $1,896,103
======== ========== ========== ==========
Limited partners' per unit share of net earnings $ .16 $ .21 $ .57 $ .85
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
IEA INCOME FUND XI, L.P.
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 $ 3,059,883 $ 4,039,904
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 224,085 145,514
Purchase of container rental equipment (207,960) --
Acquisition fees paid to general partner (10,398) (259,227)
----------- -----------
Net cash provided by (used in) investing activities 5,727 (113,713)
----------- -----------
Cash flows used in financing activities:
Distribution to partners (3,490,898) (3,438,272)
----------- -----------
Net increase (decrease) in cash and cash equivalents (425,288) 487,919
Cash and cash equivalents at January 1 2,024,584 1,570,857
----------- -----------
Cash and cash equivalents at September 30 $ 1,599,296 $ 2,058,776
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
IEA INCOME FUND XI, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund XI, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of California on July 30, 1990
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
The Partnership 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 and the Leasing Company. 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 XI, L.P.
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 $167,983 at September 30, 1996 and $192,455 at
December 31, 1995 $1,414,035 $1,619,922
Less:
Direct operating payables and accrued expenses 326,907 291,464
Damage protection reserve 125,864 165,172
Base management fees 123,408 163,004
Reimbursed administrative expenses 26,517 30,289
---------- ----------
$ 811,339 $ 969,993
========== ==========
</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 XI, L.P.
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, the Leasing
Company, and its affiliates 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 $1,486,188 $1,829,564 $4,595,991 $5,364,711
Rental equipment operating expenses 364,799 350,787 1,064,257 958,877
Base management fees 101,258 120,640 314,071 365,398
Reimbursed administrative expenses 86,726 110,406 261,061 301,389
---------- ---------- ---------- ----------
$ 933,405 $1,247,731 $2,956,602 $3,739,047
========== ========== ========== ==========
</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.
At September 30, 1996, the Registrant had $1,599,296 in cash and cash
equivalents, a decrease of $425,288 from the December 31, 1995 cash
balances. During the first nine months of 1996, the Registrant expended
$207,960 of cash generated from sales proceeds to pay for additional
containers. At September 30, 1996, the Registrant committed to purchase an
additional 33 twenty-foot, 15 forty-foot, and 14 forty-foot high-cube dry
cargo containers, replacing containers which have been lost or damaged
beyond repair, at an aggregate manufacturer's invoice cost of $183,295.
Approximately $184,000 in cash generated from equipment sales, reserved as
part of the Registrant's September 30, 1996 cash balances, will be used to
finance these purchases. Throughout the remainder of 1996, the Registrant
may use cash generated from equipment sales to purchase and replace
containers which have been lost or damaged beyond repair. Amounts not used
to purchase and replace containers may be distributed to its partners.
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 and the Registrant's declining
operating results during the first nine months of 1996. The Registrant's
cash distribution from operations for the third quarter of 1996, payable
in the fourth quarter of 1996, was 9.25% (annualized) of the limited
partners' original capital contribution, consistent with the cash
distribution from operations for the second quarter of 1996.
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 dry cargo container utilization rate has
declined from 85% at December 31, 1995 to 78% at September 30, 1996. The
Registrant's refrigerated container utilization rate declined from 97% at
December 31, 1995 to 94% at September 30, 1996. 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
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 $933,405 and $2,956,602, respectively, a decline of approximately
25% and 21% from the same periods in the prior year, respectively. Gross
rental revenue (a component of net lease revenue) for the three and
nine-month periods ended September 30, 1996 was $1,486,188 and $4,595,991,
respectively, a decline of 19% and 14% from the same periods in the prior
year, respectively. During 1996, gross rental revenue was primarily
impacted by the Registrant's lower per-diem rental rates and utilization
levels for both the dry cargo and refrigerated container fleets. Average
dry cargo container per-diem rental rates for the three and nine-month
periods ended September 30, 1996 declined approximately 5% and 3%,
respectively, when compared to the same periods in the prior year. Average
refrigerated container per-diem rental rates for the three and nine-month
periods ended September 30, 1996, declined approximately 3% and 1%,
respectively, when compared to the same periods in the prior year.
10
<PAGE> 11
The Registrant's average fleet size and utilization rates for the three and
nine-month periods ended September 30, 1996 and 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))
Dry cargo containers 13,028 13,063 13,029 13,090
Refrigerated containers 200 200 200 200
Average Utilization
Dry cargo containers 79% 89% 81% 90%
Refrigerated containers 94% 99% 95% 99%
</TABLE>
Rental equipment operating expenses were 25% and 23% of the Registrant's gross
lease revenue during the three and nine-month periods ended September 30, 1996,
respectively, as compared to 19% and 18% 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. The Registrant's 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 5. Other Materially Important Events
Equipment Acquisitions
During the three-month period ended September 30, 1996, the Registrant
purchased 27 forty-foot dry cargo containers at an average cost of
$3,924 per container.
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 14, 1990
3(b) Certificate of Limited Partnership of the Registrant **
10(a) Form of Leasing Agent Agreement with LPI Leasing Partners ***
International N.V.
10(b) Assignment of Leasing Agent Agreement dated January 1, 1992 ****
between the Registrant, CCC (formerly Intermodal Equipment
Associates), Cronos Containers N.V. (formerly LPI Leasing
Partners International N.V.) and Cronos Containers Limited
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Report on Form 8-K
In lieu of filing a current report on Form 8-K, the Registrant has
provided in Part II, Item 5 hereof, a description of its purchase of
marine cargo containers during the three-month period ended September 30,
1996.
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 14, 1990, included as part of Registration
Statement on Form S-1 (No. 33-36701)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 33-36701)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-36701)
**** Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K
for the fiscal year ended December 31, 1995.
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 XI, L.P.
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
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 14, 1990
3(b) Certificate of Limited Partnership of the Registrant **
10(a) Form of Leasing Agent Agreement with LPI Leasing Partners ***
International N.V.
10(b) Assignment of Leasing Agent Agreement dated January 1, 1992 between ****
the Registrant, CCC (formerly Intermodal Equipment Associates),
Cronos Containers N.V. (formerly LPI Leasing Partners International
N.V.) and Cronos Containers Limited
27 Financial Data Schedule Filed with this document
</TABLE>
- ----------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 14, 1990, included as part of Registration
Statement on Form S-1 (No. 33-36701)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 33-36701)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-36701)
**** Incorporated by reference to Exhibit 10(b) to the Report on Form 10-K
for the fiscal year ended December 31, 1995.
<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
QUATERLY 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> 1,599,296
<SECURITIES> 0
<RECEIVABLES> 811,339
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,410,635
<PP&E> 35,954,273
<DEPRECIATION> 10,661,804
<TOTAL-ASSETS> 27,763,889
<CURRENT-LIABILITIES> 75,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,688,889
<TOTAL-LIABILITY-AND-EQUITY> 27,763,889
<SALES> 0
<TOTAL-REVENUES> 2,956,602
<CGS> 0
<TOTAL-COSTS> 1,730,870
<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> 1,321,319
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
