-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NGQvmRm5Rmjxoanar/in7YwcA8lwXUyk5IKhOmL40nNrUKOsTOL9UhZOUCMwpPzO kFW0lkAEiYwOSGuy4cYycQ== 0000950149-96-000604.txt : 19960517 0000950149-96-000604.hdr.sgml : 19960517 ACCESSION NUMBER: 0000950149-96-000604 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEA INCOME FUND VII CENTRAL INDEX KEY: 0000803511 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 942966976 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16834 FILM NUMBER: 96564928 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 10-Q 1 IEA INCOME FUND VII 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, 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 0-16834 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) (Exact name of registrant as specified in its charter) California 94-2966976 (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 . --- --- 2 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995 4 Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) 5 Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (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 12
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presented herein are the Registrant's balance sheets as of March 31, 1996 and December 31, 1995, statements of operations for the three months ended March 31, 1996 and 1995, and statements of cash flows for the three months ended March 31, 1996 and 1995. 3 4 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1996 1995 ---- ---- Assets ------ Current assets: Cash, includes $121,801 at March 31, 1996 and $132,105 at December 31, 1995 in interest-bearing accounts $ 128,895 $ 132,486 Short-term investments 200,403 251,219 Net lease receivables due from Leasing Company (notes 1 and 2) 165,510 153,232 ---------- ---------- Total current assets 494,808 536,937 ---------- ---------- Container rental equipment, at cost 4,868,137 4,916,860 Less accumulated depreciation 2,327,157 2,282,549 ---------- ---------- Net container rental equipment 2,540,980 2,634,311 ---------- ---------- $3,035,788 $3,171,248 ========== ========== Partners' Capital ----------------- Partners' capital: General partners $ 4,880 $ 5,025 Limited partners 3,030,908 3,166,223 ---------- ---------- Total partners' capital 3,035,788 3,171,248 ---------- ---------- $3,035,788 $3,171,248 ========== ==========
The accompanying notes are an integral part of these statements. 4 5 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Net lease revenue (notes 1 and 3) $178,095 $228,977 Other operating expenses: Depreciation 69,744 71,086 Other general and administrative expenses 4,458 6,988 -------- -------- 74,202 78,074 -------- -------- Earnings from operations 103,893 150,903 Other income: Interest income 4,265 4,271 Net gain on disposal of equipment 8,642 7,846 -------- -------- 12,907 12,117 -------- -------- Net earnings $116,800 $163,020 ======== ======== Allocation of net earnings: General partners $ 25,081 $ 21,358 Limited partners 91,719 141,662 -------- -------- $116,800 $163,020 ======== ======== Limited partners' per unit share of net earnings $ 9.85 $ 15.21 ======== ========
The accompanying notes are an integral part of these statements. 5 6 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Net cash provided by (used in) operating activities $(185,851) $ 253,038 Cash flows provided by investing activities: Proceeds from disposal of equipment 383,704 15,050 Cash flows used in financing activities: Distribution to partners (252,260) (206,983) --------- --------- Net increase (decrease) in cash and cash equivalents (54,407) 61,105 Cash and cash equivalents at January 1 383,705 295,145 --------- --------- Cash and cash equivalents at March 31 $ 329,298 $ 356,250 ========= =========
The accompanying notes are an integral part of these statements. 6 7 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Nature of Operations IEA Income Fund VII, A California Limited Partnership (the "Partnership") was organized under the laws of the State of California on June 27, 1985 for the purpose of owning and leasing marine cargo containers. The managing general partner is Cronos Capital Corp. ("CCC"); the associate general partners include seven individuals, one is an officer of CCC. CCC, with its affiliate Cronos Containers Limited (the "Leasing Company"), manages and controls the business of the Partnership. (b) Leasing Company and Leasing Agent Agreement Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer the business of the Partnership is vested in CCC. CCC 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. 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 8 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) 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, reimbursed administrative expenses, and incentive fees 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 March 31, 1996 and December 31, 1995 were as follows:
March 31, December 31, 1996 1995 Lease receivables, net of doubtful accounts of $96,039 at March 31, 1996 and $89,590 at December 31, 1995 $346,118 $348,445 Less: Direct operating payables and accrued expenses 73,841 81,993 Damage protection reserve 46,685 42,177 Base management fees 31,272 35,812 Reimbursed administrative expenses 5,453 6,124 Incentive fees 23,357 29,107 -------- -------- $165,510 $153,232 ======== ========
(Continued) 8 9 IEA INCOME FUND VII, (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS (3) Net Lease Revenue Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses to CCC and the Leasing Company, 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, 1996 and 1995, was as follows:
Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Rental revenue $326,136 $366,150 Rental equipment operating expenses 86,169 68,577 Base management fees 21,562 26,000 Reimbursed administrative expenses 18,031 19,598 Incentive fees 22,279 22,998 -------- -------- $178,095 $228,977 ======== ========
9 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, 1996 and December 31, 1995. During the first quarter of 1996, the Registrant disposed of 18 containers as part of its ongoing operations, contributing to the change in the Registrant's financial condition. At March 31, 1996, 93% of the original equipment remained in the Registrant's fleet, as compared to 94% at December 31, 1995, and was comprised of the following:
20-Foot 40-Foot ------- ------- Containers on lease: Term leases 74 120 Master lease 657 680 --- ----- Subtotal 731 800 Containers off lease 210 217 --- ----- Total container fleet 941 1,017 === =====
20-Foot 40-Foot ------- ------- Units % Units % ----- - ----- - Total purchases 1,001 100% 1,104 100% Less disposals 60 6% 87 8% ----- --- ----- --- Remaining fleet at March 31, 1996 941 94% 1,017 92% ===== === ===== ===
Net lease receivables at March 31, 1996 increased when compared to December 31, 1995, as cash collections of outstanding receivables slowed. The decline in fleet size and related operating results also contributed to the increase in net lease receivables, as direct operating payables, reimbursed administrative expenses payable, base management and incentive fees payable declined. 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 quarter of 1996. At March 31, 1996, container inventories remained at larger-than-usual levels, resulting in a decline in the Registrant's utilization rate from 87% at December 31, 1995 to 80% at March 31, 1996. During the first quarter 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. The Leasing Company expects the Registrant to recognize the benefits of these efforts during the next few quarters of 1996. However, base per-diem rental rates have recently become subject to downward pressures within the container leasing market. A reduction in per-diem rental rates, combined with current utilization levels, could impact the Registrant's results from operations during the remainder of 1996. 10 11 2) Material changes in the results of operations between the three-month period ended March 31, 1996 and the three-month period ended March 31, 1995. Net lease revenue for the first quarter of 1996 was $178,095, a decline of approximately 22% from the first quarter of 1995. Approximately 7% of the Registrant's net earnings for the three-month period ended March 31, 1996 were from gain on disposal of equipment, as compared to 5% for the same three-month period in the prior year. As the Registrant's container disposals increase in subsequent periods, net gain on disposal will contribute significantly to the Registrant's net earnings. Gross rental revenue (a component of net lease revenue) for the quarter ended March 31, 1996 was $326,136, reflecting a decline of 11% from the same three-month period in 1995. During 1996, gross rental revenue was primarily impacted by the Registrant's diminishing fleet size and utilization levels. Average per-diem rental rates remained relatively stable when compared to the same period in the prior year. The Registrant's average fleet size and utilization rates for the three-month periods ended March 31, 1996 and March 31, 1995 were as follows:
Three Months Ended ------------------ March 31, March 31, 1996 1995 ---- ---- Average Fleet Size (measured in twenty-foot equivalent units (TEU)) 2,991 3,074 Average Utilization 80% 87%
The Registrant's declining fleet size contributed to a 2% decline in depreciation expense when compared to the same period in the prior year. Rental equipment operating expenses were 26% of the Registrant's gross lease revenue during the three-month period ended March 31, 1996, as compared to 19% during the three-month period ended March 31, 1995. This increase was largely attributable to an increase in costs associated with lower utilization levels, including handling, storage and repositioning. 11 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Description Method of Filing --- ----------- ---------------- 3(a) Limited Partnership Agreement of the Registrant, amended and * restated as of December 1, 1986 3(b) Certificate of Limited Partnership of the Registrant ** 27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended March 31, 1996 - ------------------------ * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 3, 1986, included as part of Registration Statement on Form S-1 (No. 33-9351) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-9351) 12 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 VII, A California Limited Partnership By Cronos Capital Corp. The Managing General Partner By /s/ JOHN KALLAS ------------------- John Kallas Vice President, Chief Financial Officer Principal Accounting Officer Date: May 14, 1996 13 14 EXHIBIT INDEX
Exhibit No. Description Method of Filing --- ----------- ---------------- 3(a) Limited Partnership Agreement of the Registrant, amended and * restated as of December 1, 1986 3(b) Certificate of Limited Partnership of the Registrant ** 27 Financial Data Schedule Filed with this document
- ------------------------ * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 3, 1986, included as part of Registration Statement on Form S-1 (No. 33-9351) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-9351) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 MARCH 31, 1996 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 329298 0 165510 0 0 494808 4868137 2327157 3035788 0 0 0 0 0 3035788 3035788 0 178095 0 74202 0 0 0 0 0 0 0 0 0 116800 0 0
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