<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 0-21518
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 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 of 10
Operations
PART II - OTHER INFORMATION
Item 6. Exhibits 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 XII, L.P.
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, includes $1,721,474 at March 31, 1997
and $2,262,357 at December 31, 1996 in interest-bearing accounts $ 1,750,995 $ 2,262,639
Net lease receivables due from Leasing Company
(notes 1 and 2) 1,097,401 1,217,996
------------ ------------
Total current assets 2,848,396 3,480,635
------------ ------------
Container rental equipment, at cost 63,500,454 63,140,873
Less accumulated depreciation 16,876,941 15,961,254
------------ ------------
Net container rental equipment 46,623,513 47,179,619
------------ ------------
Organizational costs, net 85,327 145,611
------------ ------------
$ 49,557,236 $ 50,805,865
============ ============
Liabilities and Partners' Capital
---------------------------------
Current liabilities
Accrued expenses $ 462,948 $ 462,948
Due to general partner (notes 1 and 3) 163,382 238,382
------------ ------------
Total current liabilities 626,330 701,330
------------ ------------
Partners' capital (deficit):
General partner (27,930) (25,428)
Limited partners 48,958,836 50,129,963
------------ ------------
Total partners' capital 48,930,906 50,104,535
------------ ------------
$ 49,557,236 $ 50,805,865
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA INCOME FUND XII, 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 4) $ 1,396,464 $1,862,918
Other operating expenses:
Depreciation 986,575 984,261
Other general and administrative expenses 17,259 23,397
----------- ----------
1,003,834 1,007,658
----------- ----------
Earnings from operations 392,630 855,260
Other income:
Interest income 27,105 32,449
Net gain on disposal of equipment 9,328 23,110
----------- ----------
36,433 55,559
----------- ----------
Net earnings $ 429,063 $ 910,819
=========== ==========
Allocation of net earnings:
General partner $ 77,633 $ 105,957
Limited partners 351,430 804,862
----------- ----------
$ 429,063 $ 910,819
=========== ==========
Limited partners' per unit share of net earnings $ .10 $ .23
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA INCOME FUND XII, 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 $ 1,508,214 $ 1,804,482
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 50,651 155,314
Purchase of container rental equipment (374,111) (221,850)
Acquisition fees paid to general partner (93,706) (231,093)
----------- -----------
Net cash used in investing activities (417,166) (297,629)
----------- -----------
Cash flows used in financing activities:
Distribution to partners (1,602,692) (1,849,260)
----------- -----------
Net decrease in cash and cash equivalents (511,644) (342,407)
Cash and cash equivalents at January 1 2,262,639 2,827,502
----------- -----------
Cash and cash equivalents at March 31 $ 1,750,995 $ 2,485,095
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial 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. The Partnership shall
continue until December 31, 2011, unless sooner terminated upon the
occurrence of certain events.
The Partnership commenced operations on January 31, 1992, when the
minimum subscription proceeds of $2,000,000 were obtained. As of March
31, 1997, the Partnership operated 9,359 twenty-foot, 5,319 forty-foot
and 209 forty-foot high-cube marine dry cargo containers, as well as
199 twenty-foot and 306 forty-foot marine refrigerated cargo
containers.
The Partnership offered 3,750,000 units of limited partnership
interest at $20 per unit, or $75,000,000. The offering terminated on
November 30, 1992, at which time 3,513,594 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 XII, 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 $308,148 at March 31, 1997 and $318,136
at December 31, 1996 $2,335,123 $2,377,329
Less:
Direct operating payables and accrued expenses 746,126 634,032
Damage protection reserve 169,256 196,373
Base management fees 282,488 282,898
Reimbursed administrative expenses 39,852 46,030
---------- ----------
$1,097,401 $1,217,996
========= =========
</TABLE>
(Continued)
8
<PAGE> 9
IEA INCOME FUND XII, 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 $2,336,805 $2,816,426
Less:
Rental equipment operating expenses 659,668 606,934
Base management fees 161,762 192,140
Reimbursed administrative expenses 118,911 154,434
---------- ----------
$1,396,464 $1,862,918
========== ==========
</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 $1,750,995 in cash and cash
equivalents, a decrease of $511,644 from the December 31, 1996 cash
balances. During the first quarter of 1997, the Registrant expended
$374,111 of cash generated from sales proceeds to pay for containers
purchased from the general partner during the first quarter of 1997. At
March 31, 1997, the Registrant had approximately $25,000 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 10% 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 17%
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 9.0% (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, contributing to a decline in the Registrant's
average dry cargo container utilization rate of 77% at December 31, 1996 to
76% at March 31, 1997. The Registrant's refrigerated container utilization
rate was 86% at March 31, 1997, unchanged from December 31, 1996. 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 $1,396,464, a decline
of approximately 25% from the first quarter of 1996. Gross rental revenue
(a component of net lease revenue) for the quarter ended March 31, 1997 was
$2,336,805, reflecting a decline of 17% 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 9% and 6%, 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 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 20,299 20,317
Refrigerated containers 811 813
Average Utilization
Dry cargo containers 76% 83%
Refrigerated containers 85% 91%
</TABLE>
Rental equipment operating expenses were 28% of the Registrant's gross
lease revenue during the three-month period ended March 31, 1997, as
compared to 22% 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 disposed of four twenty-foot and five forty-foot dry cargo
containers during the first quarter of 1997, as compared to 24 twenty-foot,
15 forty-foot and two high-cube 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.
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.
11
<PAGE> 12
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 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) Reports 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 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> 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 XII, 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
13
<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 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 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> 1,750,995
<SECURITIES> 0
<RECEIVABLES> 1,097,401
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,848,396
<PP&E> 63,500,454
<DEPRECIATION> 16,876,941
<TOTAL-ASSETS> 49,557,236
<CURRENT-LIABILITIES> 626,330
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 48,930,906
<TOTAL-LIABILITY-AND-EQUITY> 49,557,236
<SALES> 0
<TOTAL-REVENUES> 1,396,464
<CGS> 0
<TOTAL-COSTS> 1,003,834
<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> 429,063
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
