<PAGE> 1
FUND 12
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 JUNE 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 0-21518
IEA INCOME FUND XII, L.P.
(Exact name of registrant as specified in its charter)
California 94-3143940
(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 XII, L.P.
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and six months ended June 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the six months ended June 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. 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 balance sheets as of June 30,
1996 and December 31, 1995, statements of operations for the three and
six months ended June 30, 1996 and 1995, and statements of cash flows
for the six months ended June 30, 1996 and 1995.
3
<PAGE> 4
IEA INCOME FUND XII, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
Assets
------
<S> <C> <C>
Current assets:
Cash, includes $376,883 at June 30, 1996 and $459,603
at December 31, 1995 in interest-bearing accounts $ 377,135 $ 459,786
Short-term investments 1,877,234 2,367,716
Net lease receivables due from Leasing Company
(notes 1 and 2) 1,334,468 1,300,391
----------- -----------
Total current assets 3,588,837 4,127,893
----------- -----------
Container rental equipment, at cost 63,242,866 63,426,137
Less accumulated depreciation 14,168,915 12,361,962
----------- -----------
Net container rental equipment 49,073,951 51,064,175
----------- -----------
Organizational costs, net 266,180 386,749
----------- -----------
$52,928,968 $55,578,817
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accrued expenses $ 445,203 $ 430,500
Due to general partner (notes 1 and 3) 438,382 889,475
Due to manufacturer - 221,850
----------- -----------
Total current liabilities 883,585 1,541,825
----------- -----------
Partners' capital (deficit):
General partner (45,040) (58,767)
Limited partners 52,090,423 54,095,759
----------- -----------
Total partners' capital 52,045,383 54,036,992
----------- -----------
$52,928,968 $55,578,817
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
IEA INCOME FUND XII, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 4) $1,759,415 $2,200,238 $3,622,333 $4,349,181
Other operating expenses:
Depreciation 982,926 987,389 1,967,187 1,967,983
Other general and administrative expenses 24,795 40,796 48,192 70,834
---------- ---------- ---------- ----------
1,007,721 1,028,185 2,015,379 2,038,817
---------- ---------- ---------- ----------
Earnings from operations 751,694 1,172,053 1,606,954 2,310,364
Other income:
Interest income 33,525 36,435 65,974 72,995
Net gain on disposal of equipment 10,872 10,422 33,982 12,743
---------- ---------- ---------- ----------
44,397 46,857 99,956 85,738
---------- ---------- ---------- ----------
Net earnings $ 796,091 $1,218,910 $1,706,910 $2,396,102
========== ========== ========== ==========
Allocation of net earnings:
General partner $ 92,695 $ 96,477 $ 198,652 $ 184,517
Limited partners 703,396 1,122,433 1,508,258 2,211,585
---------- ---------- ---------- ----------
$ 796,091 $1,218,910 $1,706,910 $2,396,102
========== ========== ========== ==========
Limited partners' per unit share of net earnings $ .20 $ .32 $ .43 $ .63
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
IEA INCOME FUND XII, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30, June 30,
1996 1995
----------- -----------
<S> <C> <C>
Net cash provided by operating activities $ 3,554,524 $ 4,452,088
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 243,806 89,905
Purchases of container rental equipment (221,850) (56,925)
Acquisition fees paid to general partner (451,093) (349,846)
----------- -----------
Net cash used in investing activities (429,137) (316,866)
----------- -----------
Cash flows used in financing activities:
Distribution to partners (3,698,520) (3,698,520)
----------- -----------
Net increase (decrease) in cash and cash equivalents (573,133) 436,702
Cash and cash equivalents at January 1 2,827,502 2,160,789
----------- -----------
Cash and cash equivalents at June 30 $ 2,254,369 $ 2,597,491
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
IEA INCOME FUND XII, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund XII, L.P. (the "Partnership") is a limited partnership
organized under the laws of the State of California on August 28, 1991
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 XII, 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 June
30, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $381,119 at June 30, 1996 and $343,373 at
December 31, 1995 $2,597,267 $2,675,630
Less:
Direct operating payables and accrued expenses 708,879 746,823
Damage protection reserve 202,244 241,172
Base management fees 303,121 334,219
Reimbursed administrative expenses 48,555 53,025
---------- ----------
$1,334,468 $1,300,391
========== ==========
</TABLE>
(3) Due to General Partner
The amounts due to CCC at June 30, 1996 and December 31, 1995 consist of
acquisition fees.
(Continued)
8
<PAGE> 9
IEA INCOME FUND XII, 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 six-month periods
ended June 30, 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Rental revenue $2,726,723 $3,117,040 $5,543,149 $6,061,644
Rental equipment operating expenses 635,453 545,283 1,242,387 967,609
Base management fees 186,487 206,321 378,627 417,321
Reimbursed administrative expenses 145,368 165,198 299,802 327,533
---------- ---------- ---------- ----------
$1,759,415 $2,200,238 $3,622,333 $4,349,181
========== ========== ========== ==========
</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 June 30, 1996 and December
31, 1995.
At June 30, 1996, the Registrant had $2,254,369 in cash and cash
equivalents, a decrease of $573,133 from the December 31, 1995 cash
balances. During the first six months of 1996, the Registrant expended
$221,850 of cash generated from sales proceeds to pay for containers
accepted during the fourth quarter of 1995. The Registrant has committed
to purchase an additional 40 forty-foot marine dry cargo containers during
the third quarter of 1996, at an aggregate manufacturer's invoice cost of
$153,600. These containers will be paid for using cash generated from
equipment sales and reserved as part of its June 30, 1996 cash balances.
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 June 30, 1996 declined when compared to December
31, 1995, primarily as a result of the Registrant's declining operating
results during the first six months of 1996. The Registrant's cash
distribution from operations for the second quarter of 1996 was 9%
(annualized) of the limited partners' original capital contribution, a
decline from the first quarter 1996 distribution of 10% (annualized).
The statements contained in the following discussion are based on current
expectations. These statements are forward looking and actual results may
differ materially. The container leasing market generally softened during
the fourth quarter of 1995 and has remained so during the first six months
of 1996. At June 30, 1996, container inventories remained at
larger-than-usual levels, resulting in a decline in the average utilization
rate for the Registrant's dry cargo containers from 85% at December 31,
1995, to 83% at June 30, 1996. The average utilization rate for the
Registrant's refrigerated container fleet declined from 93% at December 31,
1995, to 89% at June 30, 1996. Base per-diem rates have become subject to
downward pressures arising from a soft container leasing market. During
the first six 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 these market conditions. Accordingly, ancillary per-diems
have fluctuated, favoring a downward trend, while free-day incentives
offered to shipping companies have risen. Currently, there are no visible
signs of improvements in the leasing market and hence further downward
pressure on rental rates can be expected in the ensuing quarters. As a
result, these leasing markets conditions will continue to impact the
Registrant's results from operations during the remainder of 1996.
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 1996 and the three and six-month periods
ended June 30, 1995.
Net lease revenue for the three and six-month periods ended June 30, 1996
was $1,759,415 and $3,622,333, respectively, a decline of approximately 20%
and 17% from the same periods in the prior year, respectively. Gross
rental revenue (a component of net lease revenue) for the three and
six-month periods ended June 30, 1996 was $2,726,723 and $5,543,149,
respectively, a decline of 13% and 9% 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 declined approximately 3% in each
of the three and six- month periods ended June 30, 1996, respectively, when
compared to the same periods in the prior year. Average refrigerated
container per-diem rental rates declined approximately 1% in each of the
three and six-month periods ended June 30, 1996, 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
six-month periods ended June 30, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU))
Dry cargo containers 20,285 20,391 20,301 20,396
Refrigerated cargo containers 813 815 813 815
Average Utilization
Dry cargo containers 83% 91% 83% 90%
Refrigerated cargo containers 89% 99% 90% 99%
</TABLE>
Rental equipment operating expenses were 23% and 22% of the Registrant's gross
lease revenue during the three and six-month periods ended June 30, 1996,
respectively, as compared to 17% and 16% during the three and six-month periods
ended June 30, 1995, respectively. This increase was largely attributable to a
decline in gross lease revenue resulting from lower per-diem rates, a downward
trend in ancillary per-diems, 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 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
Exhibit
No. Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of December 2, 1991
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with Cronos Containers Limited ***
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Report on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended June 30, 1996.
- -------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 2, 1991, included as part of Registration
Statement on Form S-1 (No. 33-42697)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-42697)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form S-1 (No. 33-42697)
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 XII, L.P.
By Cronos Capital Corp.
The General Partner
By /s/ JOHN KALLAS
---------------------------------------
John Kallas
Vice President, Chief Financial Officer
Principal Accounting Officer
Date: August 13, 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 2, 1991
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with 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 2, 1991, included as part of Registration
Statement on Form S-1 (No. 33-42697)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-42697)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form S-1 (No. 33-42697)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED JUNE 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 JUNE 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,254,369
<SECURITIES> 0
<RECEIVABLES> 1,334,468
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,588,837
<PP&E> 63,242,866
<DEPRECIATION> 14,168,915
<TOTAL-ASSETS> 52,928,968
<CURRENT-LIABILITIES> 883,585
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 52,045,383
<TOTAL-LIABILITY-AND-EQUITY> 52,928,968
<SALES> 0
<TOTAL-REVENUES> 3,622,333
<CGS> 0
<TOTAL-COSTS> 2,015,379
<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> 1,706,910
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
