<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, 1997
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 MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996 4
Statements of Operations for the three months ended March 31, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
1997 and December 31, 1996, statements of operations for the three
months ended March 31, 1997 and 1996, and statements of cash flows for
the three months ended March 31, 1997 and 1996.
3
<PAGE> 4
IEA INCOME FUND XI, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, includes $1,242,682 at March 31, 1997
and $1,605,226 at December 31, 1996 in interest-bearing accounts $ 1,256,479 $ 1,605,557
Net lease receivables due from Leasing Company
(notes 1 and 2) 693,117 738,235
----------- -----------
Total current assets 1,949,596 2,343,792
----------- -----------
Container rental equipment, at cost 36,096,229 35,888,165
Less accumulated depreciation 11,668,197 11,163,236
----------- -----------
Net container rental equipment 24,428,032 24,724,929
----------- -----------
Organizational costs, net 4,062 25,624
----------- -----------
$26,381,690 $27,094,345
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accrued expenses $ 75,000 $ 75,000
----------- -----------
Total current liabilities 75,000 75,000
----------- -----------
Partners' capital (deficit):
General partner 16 24
Limited partners 26,306,674 27,019,321
----------- -----------
Total partners' capital 26,306,690 27,019,345
----------- -----------
$26,381,690 $27,094,345
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA INCOME FUND XI, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
March 31, March 31,
1997 1996
---------- ----------
<S> <C> <C>
Net lease revenue (notes 1 and 3) $ 742,271 $1,061,220
Other operating expenses:
Depreciation 548,440 559,975
Other general and administrative expenses 12,653 16,727
---------- ----------
561,093 576,702
---------- ----------
Earnings from operations 181,178 484,518
Other income:
Interest income 18,331 24,555
Net gain on disposal of equipment 8,804 9,593
---------- ----------
27,135 34,148
---------- ----------
Net earnings $ 208,313 $ 518,666
========== ==========
Allocation of net earnings:
General partner $ 46,041 $ 65,506
Limited partners 162,272 453,160
---------- ----------
$ 208,313 $ 518,666
========== ==========
Limited partners' per unit share of net earnings $ .08 $ .23
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA INCOME FUND XI, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 802,928 $ 1,068,256
Cash flows provided by (used in) investing activities:
Proceeds from disposal of equipment 42,223 77,535
Purchase of container rental equipment (260,247) (102,000)
Acquisition fees paid to general partner (13,012) (5,100)
----------- -----------
Net cash used in investing activities (231,036) (29,565)
----------- -----------
Cash flows used in financing activities:
Distribution to partners (920,970) (1,263,039)
----------- -----------
Net decrease in cash and cash equivalents (349,078) (224,348)
Cash and cash equivalents at January 1 1,605,557 2,024,584
----------- -----------
Cash and cash equivalents at March 31 $ 1,256,479 $ 1,800,236
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial 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 the business
of the Partnership. The Partnership shall continue until December 31,
2010, unless sooner terminated upon the occurrence of certain events.
The Partnership commenced operations on January 31, 1991, when the
minimum subscription proceeds of $1,000,000 were obtained. As of March
31, 1997, the Partnership operated 6,164 twenty-foot, 3,276 forty-foot
and 198 forty-foot high-cube marine dry cargo containers, as well as
100 twenty-foot and 50 forty-foot marine refrigerated cargo containers.
The Partnership offered 2,000,000 units of limited partnership interest
at $20 per unit, or $40,000,000. The offering terminated on November
30, 1991, at which time 1,999,812 limited partnership units had been
purchased.
(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.
(Continued)
7
<PAGE> 8
IEA INCOME FUND XI, L.P.
NOTES TO UNAUDITED 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 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. 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.
(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 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, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $166,722 at March 31, 1997 and $166,016
at December 31, 1996 $1,373,600 $1,375,901
Less:
Direct operating payables and accrued expenses 351,460 296,859
Damage protection reserve 184,277 193,112
Base management fees 121,902 122,447
Reimbursed administrative expenses 22,844 25,248
---------- ----------
$ 693,117 $ 738,235
========== ==========
</TABLE>
(Continued)
8
<PAGE> 9
IEA INCOME FUND XI, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC 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-month periods ended
March 31, 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, March 31,
1997 1996
---------- ----------
<S> <C> <C>
Rental revenue $1,298,866 $ 1,597,425
Less:
Rental equipment operating expenses 396,404 337,442
Base management fees 89,703 108,720
Reimbursed administrative expenses 70,488 90,043
---------- ----------
$ 742,271 $1,061,220
========== ==========
</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 March 31, 1997 and
December 31, 1996.
At March 31, 1997, the Registrant had $1,256,479 in cash and cash
equivalents, a decrease of $349,078 from the December 31, 1996 cash
balances. During the first quarter of 1997, the Registrant expended
$260,247 of cash generated from sales proceeds to pay for new dry cargo
containers purchased from the general partner during the first quarter
of 1997. At March 31, 1997, the Registrant had approximately $16,000 in
cash generated from equipment sales reserved as part of its cash
balances. Throughout the remainder of 1997, the Registrant expects to
continue using cash generated from equipment sales to purchase and
replace containers which have been lost or damaged beyond repair.
Net lease receivables at March 31, 1997 declined 6% when compared to
December 31, 1996. Contributing to this change was an increase in
direct operating payables and accrued expenses, a component of net
lease receivables. Direct operating payables and accrued expenses
increased 18% from December 31, 1996 due to the increase in costs
associated with lower utilization levels, including handling, storage
and repositioning.
The Registrant's cash distribution from operations for the first
quarter of 1997 was 8.5% (annualized) of the limited partners' original
capital contribution, a decline from 9.25% (annualized) for the fourth
quarter of 1996. These distributions are directly related to the
Registrant's results from operations and may fluctuate accordingly.
During 1996, ocean carriers and other transport companies moved away
from leasing containers outright, as declining container prices,
favorable interest rates and the abundance of available capital
resulted in ocean carriers and transport companies purchasing a larger
share of equipment for their own account, reducing the demand for
leased containers. Once the demand for leased containers began to fall,
per-diem rental rates were also adversely affected. These conditions
continued to exist throughout the first quarter of 1997, resulting in
declines in the Registrant's average dry and refrigerated cargo
container utilization rates from 79% and 84% at December 31, 1996 to
73% and 87% at March 31, 1997, respectively. The Leasing Company
continues to implement various marketing strategies, including but not
limited to, offering incentives to shipping companies, repositioning
containers to high demand locations and focusing towards term leases
and other leasing opportunities including the leasing of containers for
local storage, in order to counter current leasing market conditions.
These conditions are expected to continue throughout 1997, impacting
the Registrant's liquidity and capital resources.
2) Material changes in the results of operations between the three-month
period ended March 31, 1997 and the three- month period ended
March 31, 1996.
Net lease revenue for the first quarter of 1997 was $742,271, a decline
of approximately 30% from the first quarter of 1996. Gross rental
revenue (a component of net lease revenue) for the quarter ended March
31, 1997 was $1,298,866, reflecting a decline of 19% from the same
three-month period in 1996. Gross rental revenue was primarily impacted
by the sluggish market conditions that existed during 1996 and
throughout the first quarter of 1997. These conditions contributed to
lower average dry cargo and refrigerated utilization rates. Average dry
cargo and refrigerated container per-diem rental rates for the
three-month period ended March 31, 1997 declined 10% and 7%,
respectively, when compared to the same period in the prior year.
10
<PAGE> 11
The Registrant's average fleet size and utilization rates for the
three-month periods ended March 31, 1997 and March 31, 1996 were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
----------------------
March 31, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU))
Dry cargo containers 13,029 13,043
Refrigerated containers 200 200
Average Utilization
Dry cargo containers 73% 82%
Refrigerated containers 89% 95%
</TABLE>
Rental equipment operating expenses were 31% of the Registrant's gross
lease revenue during the three-month period ended March 31, 1997, as
compared to 21% during the three-month period ended March 31, 1996.
This increase was largely attributable to an increase in costs
associated with lower utilization levels, including handling, storage
and repositioning. The Registrant's operating results contributed to a
17% and 22% decline in base management fees and reimbursed
administrative expenses, respectively.
The Registrant disposed of 16 twenty-foot and seven forty-foot dry
cargo containers during the first quarter of 1997, as compared to 20
twenty-foot and six forty-foot dry cargo containers during the same
period in the prior year.
As reported in the Registrant's Current Report on Form 8-K and
Amendment No. 1 to Current Report on Form 8-K, filed with the
Commission on February 7, 1997 and February 26, 1997, respectively,
Arthur Andersen, London, England, resigned as auditors of The Cronos
Group, a Luxembourg Corporation headquartered in Orchard Lea, England
(the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital
Corp., the General Partner of the Registrant. In its letter of
resignation to the Parent Company, Arthur Andersen states that it
resigned as auditors of the Parent Company and all other entities
affiliated with the Parent Company. While its letter of resignation was
not addressed to the General Partner or the Registrant, Arthur Andersen
confirmed to the General Partner that its resignation as auditors of
the entities referred to in its letter of resignation included its
resignation as auditors of Cronos Capital Corp. and the Registrant.
The Registrant does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Registrant or the Leasing
Company's ability to manage the Registrant's fleet in subsequent
periods. However, the General Partner of the Registrant does not
believe, based upon the information currently available to it, that
Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.
Arthur Andersen's report on the financial statements of Cronos Capital
Corp. and the Registrant, for either of the past two years, has not
contained an adverse opinion or a disclaimer of opinion, nor was any
such report qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been
no disagreements between Cronos Capital Corp. or the Registrant and
Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
11
<PAGE> 12
Due to the nature and timing of Arthur Andersen's resignation, the
Parent Company and General Partner were unable to name a successor
auditor on behalf of the Registrant until it retained Moore Stephens,
P.C. ("Moore Stephens") on April 10, 1997, as reported in the
Registrant's Current Report on Form 8-K, filed April 14, 1997.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to
future results of the Registrant, including certain projections and
business trends, that are "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Actual results
may differ materially from those projected as a result of certain risks
and uncertainties, including but not limited to changes in: economic
conditions; trade policies; demand for and market acceptance of leased
marine cargo containers; competitive utilization and per-diem rental
rate pressures; as well as other risks and uncertainties, including but
not limited to those described in the above discussion of the marine
container leasing business under Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those
detailed from time to time in the filings of Registrant with the
Securities and Exchange Commission.
12
<PAGE> 13
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 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
The Registrant filed a Report on Form 8-K, dated February 7, 1997 and
Amendment No. 1 to Report on Form 8-K dated February 26, 1997,
reporting the resignation of the Registrant's certifying accountant.
The Registrant filed a Report on Form 8-K, April 14, 1997, reporting
the appointment of the Registrant's successor certifying accountant.
- ----------------
* 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, 1996.
13
<PAGE> 14
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 Finance & Accounting Officer
Date: June 16, 1997
14
<PAGE> 15
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, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997 (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, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,256,479
<SECURITIES> 0
<RECEIVABLES> 693,117
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,949,596
<PP&E> 36,096,229
<DEPRECIATION> 11,668,197
<TOTAL-ASSETS> 26,381,690
<CURRENT-LIABILITIES> 75,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,306,690
<TOTAL-LIABILITY-AND-EQUITY> 26,381,690
<SALES> 0
<TOTAL-REVENUES> 742,271
<CGS> 0
<TOTAL-COSTS> 561,093
<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> 208,313
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
