<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 0-21518
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 SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
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 XII, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash, includes $492,808 at September 30, 1996 and $459,603
at December 31, 1995 in interest-bearing accounts $ 493,229 459,786
Short-term investments 1,838,400 2,367,716
Net lease receivables due from Leasing Company
(notes 1 and 2) 1,152,907 1,300,391
----------- ----------
Total current assets 3,484,536 4,127,893
----------- ----------
Container rental equipment, at cost 63,202,036 63,426,137
Less accumulated depreciation 15,058,876 12,361,962
----------- ----------
Net container rental equipment 48,143,160 51,064,175
----------- ----------
Organizational costs, net 205,896 386,749
----------- -----------
$51,833,592 $55,578,817
=========== ===========
Liabilities and Partners' Capital
Current liabilities:
Accrued expenses $ 453,246 $ 430,500
Due to general partner (notes 1 and 3) 338,382 889,475
Due to manufacturer -- 221,850
----------- -----------
Total current liabilities 791,628 1,541,825
----------- -----------
Partners' capital (deficit):
General partner (31,888) (58,767)
Limited partners 51,073,852 54,095,759
----------- -----------
Total partners' capital 51,041,964 54,036,992
----------- -----------
$51,833,592 $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 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) $1,674,886 $2,249,891 $5,297,219 $6,599,072
Other operating expenses:
Depreciation and amortization 982,278 1,382,410 2,949,465 3,350,393
Other general and administrative expenses 26,974 11,864 75,166 82,698
---------- ---------- ---------- ----------
1,009,252 1,394,274 3,024,631 3,433,091
---------- ---------- ---------- ----------
Earnings from operations 665,634 855,617 2,272,588 3,165,981
Other income:
Interest income 33,503 34,582 99,477 107,577
Net gain on disposal of equipment 23,421 32,049 57,403 44,792
---------- ---------- ---------- ----------
56,924 66,631 156,880 152,369
---------- ---------- ---------- ----------
Net earnings $ 722,558 $ 922,248 $2,429,468 $3,318,350
========== ========== ========== ==========
Allocation of net earnings:
General partner $ 99,452 $ 114,922 $ 298,104 $ 299,439
Limited partners 623,106 807,326 2,131,364 3,018,911
---------- ---------- ---------- ----------
$ 722,558 $ 922,248 $2,429,468 $3,318,350
========== ========== ========== ==========
Limited partners' per unit share of net earnings $ .18 $ .23 $ .61 $ .86
========== ========== ========== ==========
</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>
Nine Months Ended
------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 5,438,544 $ 6,718,473
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 351,726 246,338
Purchase of container rental equipment (306,330) (59,771)
Acquisition fees paid to general partner (555,317) (722,000)
----------- -----------
Net cash used in investing activities (509,921) (535,433)
----------- -----------
Cash flows used in financing activities:
Distribution to partners (5,424,496) (5,547,780)
----------- -----------
Net increase (decrease) in cash and cash equivalents (495,873) 635,260
Cash and cash equivalents at January 1 2,827,502 2,160,789
----------- -----------
Cash and cash equivalents at September 30 $ 2,331,629 $ 2,796,049
=========== ===========
</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 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 $333,771 at September 30, 1996 and $343,373 at
December 31, 1995 $2,344,091 $2,675,630
Less:
Direct operating payables and accrued expenses 680,742 746,823
Damage protection reserve 185,018 241,172
Base management fees 278,540 334,219
Reimbursed administrative expenses 46,884 53,025
---------- ----------
$1,152,907 $1,300,391
========== ==========
</TABLE>
(3) Due to General Partner
The amounts due to CCC at September 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 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 $2,656,463 $3,138,632 $8,199,612 $9,200,276
Rental equipment operating expenses 653,221 486,440 1,895,608 1,454,049
Base management fees 179,780 212,659 558,407 629,980
Reimbursed administrative expenses 148,576 189,642 448,378 517,175
---------- ---------- ---------- ----------
$1,674,886 $2,249,891 $5,297,219 $6,599,072
========== ========== ========== ==========
</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 $2,331,629 in cash and cash
equivalents, a decrease of $495,873 from the December 31, 1995 cash
balances. During the first nine months of 1996, the Registrant expended
$306,330 of cash generated from sales proceeds to pay for additional dry
cargo containers. At September 30, 1996, the Registrant committed to
purchase an additional 68 twenty-foot, 23 forty-foot, and 22 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
$323,975. Approximately $324,000 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% (annualized) of the limited
partners' original capital contribution, consistent with the 1996 second
quarter distribution.
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 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 average dry cargo container utilization rate
declined from 85% at December 31, 1995, to 83% at September 30, 1996. The
refrigerated container utilization rate declined from 93% at December 31,
1995, to 89% 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 $1,674,886 and $5,297,219, respectively, a decline of
approximately 26% and 20% 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 $2,656,463
and $8,199,612, respectively, a decline of 15% and 11% 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 6% and 3%, when compared to the three and nine-month periods
ended September 30, 1996, respectively, when compared to the same periods
in the prior year. Average refrigerated container per-diem rental rates
declined approximately 2% in each of the three and nine-month periods
ended September 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
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 20,295 20,340 20,299 20,379
Refrigerated containers 811 815 812 815
Average Utilization
Dry cargo containers 82% 89% 83% 90%
Refrigerated containers 88% 95% 89% 98%
</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 15% and 16% 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 22 forty-foot dry cargo containers at an average cost of
$3,840 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 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
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 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, 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 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 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> 2,331,629
<SECURITIES> 0
<RECEIVABLES> 1,152,907
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,484,536
<PP&E> 63,202,036
<DEPRECIATION> 15,058,876
<TOTAL-ASSETS> 51,833,592
<CURRENT-LIABILITIES> 791,628
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 51,041,964
<TOTAL-LIABILITY-AND-EQUITY> 51,833,592
<SALES> 0
<TOTAL-REVENUES> 5,297,219
<CGS> 0
<TOTAL-COSTS> 3,024,631
<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> 2,429,468
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
