-----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, QBUbGrzt3KIEo+E6cVYp8t+BE9KA3awXTUy0IuJSePWyvsk6FcCCJqCYPv0jOrBZ xGg+grPLVpShvR1rrRcNBw== 0000950149-00-000706.txt : 20000331 0000950149-00-000706.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950149-00-000706 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEA INCOME FUND XII LP CENTRAL INDEX KEY: 0000879045 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943143940 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21518 FILM NUMBER: 586511 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 10-K 1 CRONOS-IEA INCOME FUND XII FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]. For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 (I.R.S. Employer Identification No.) of incorporation or organization) 444 Market Street, 15th Floor, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 677-8990 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- Not Applicable Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTERESTS -------------------------------------- (Title of Class) 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 [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is not applicable.
Documents incorporated by Reference ----------------------------------- PART I Item 1 - Business Prospectus of IEA Income Fund XII, L.P., dated December 2,1991 included as part of Registration Statement on Form S-1 (No. 33-42697) Certificate of Limited Partnership of IEA Income Fund XII, L.P., filed as Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-42697) Form of Leasing Agent Agreement with Cronos Containers Limited, filed as Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-42697)
2 PART I - FINANCIAL INFORMATION Item 1. Business (a) General Development of Business The Registrant 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, special purpose containers and container related equipment. The Registrant was initially capitalized with $100, and commenced offering its limited partnership interests to the public subsequent to December 2, 1991, pursuant to its Registration Statement on Form S-1 (File No. 33-42697). The Registrant had no securities holders as defined by the Securities and Exchange Act of 1934 as of December 31, 1991. The offering broke initial impound on January 31, 1992. The offering terminated on November 30, 1992. The Registrant raised $70,271,880 in subscription proceeds. The following table sets forth the use of said subscription proceeds:
Percentage of Gross Amount Proceeds ----------- ----- Gross Subscription Proceeds $70,271,880 100.0% Public Offering Expenses: Underwriting Commissions $ 7,027,188 10.0% Offering and Organization Expenses $ 1,205,691 1.7% ----------- ----- Total Public Offering Expenses $ 8,232,879 11.7% ----------- ----- Net Proceeds $62,039,001 88.3% Acquisition Fees $ 606,788 0.9% Working Capital Reserve $ 753,431 1.1% ----------- ----- Gross Proceeds Invested in Equipment $60,678,782 86.3% =========== =====
The general partner of the Registrant is Cronos Capital Corp. ("CCC"), a wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc., a Delaware corporation. These and other affiliated companies are ultimately wholly-owned by The Cronos Group, a holding company registered in Luxembourg ("the Parent Company") and are collectively referred to as the "Group". The activities of the container division of the Group are managed through the Group's subsidiary in the United Kingdom, Cronos Containers Limited ("the Leasing Company"). The Leasing Company manages the leasing operations of all equipment owned by the Group on its behalf or managed on behalf of other third-party container owners, including all other programs organized by CCC. On January 1, 1992, the Leasing Company entered into a Leasing Agent Agreement with the Registrant assuming the responsibility for all container leasing activities. For a discussion of recent developments in the Registrant's business, see Item 7, "Management's Discussion and Analysis of Financial Condition and Result of Operations." For information concerning the containers acquired by the Registrant, see Item 2, "Properties." 2 3 (b) Financial Information About Industry Segments The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires that public business enterprises report financial and descriptive information about reportable operating segments. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. The Leasing Company's management operates the Registrant's container fleet as a homogenous unit and has determined, after considering the requirements of SFAS No. 131, that as such it has a single reportable operating segment. The Registrant derives revenues from dry cargo containers and refrigerated containers. As of December 31, 1999, the Registrant operated 9,231 twenty-foot, 5,170 forty-foot and 205 forty-foot high-cube marine dry cargo containers, as well as 195 twenty-foot and 290 forty-foot marine refrigerated cargo containers. A summary of gross lease revenue, by product, for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997 ---------- ---------- ---------- Dry cargo containers $5,528,632 $6,879,785 $7,491,452 Refrigerated containers 1,200,055 1,564,724 1,760,577 ---------- ---------- ---------- Total $6,728,687 $8,444,509 $9,252,029 ========== ========== ==========
Due to the Registrant's lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, it is impracticable to provide the geographic area information required by SFAS No. 131. Any attempt to separate "foreign" operations from "domestic" operations would be dependent on definitions and assumptions that are so subjective as to render the information meaningless and potentially misleading. No single sub-lessee of the Leasing Company contributed more than 10% of the Registrant's rental revenue earned during 1999, 1998 and 1997. (c) Narrative Description of Business (c)(1)(i) A marine cargo container is a reusable metal container designed for the efficient carriage of cargo with a minimum of exposure to loss from damage or theft. Containers are manufactured to conform to worldwide standards of container dimensions and container ship fittings adopted by the International Standards Organization ("ISO") in 1968. The standard container is either 20' long x 8' wide x 8'6" high (one twenty-foot equivalent unit ("TEU"), the standard unit of physical measurement in the container industry) or 40' long x 8' wide x 8'6" high (two TEU). Standardization of the construction, maintenance and handling of containers allows containers to be picked up, dropped off, stored and repaired efficiently throughout the world. This standardization is the foundation on which the container industry has developed. Standard dry cargo containers are rectangular boxes with no moving parts, other than doors, and are typically made of steel or aluminum. They are constructed to carry a wide variety of cargos ranging from heavy industrial raw materials to light-weight finished goods. Specialized containers include, among others, refrigerated containers for the transport of temperature-sensitive goods and tank containers for the carriage of liquid cargo. Dry cargo containers currently constitute approximately 87% (in TEU) of the worldwide container fleet. Refrigerated and tank containers currently constitute approximately 8% (in TEU) of the worldwide container fleet, with other specialized containers constituting the remainder. One of the primary benefits of containerization has been the ability of the shipping industry to effectively lower freight rates due to the efficiencies created by standardized intermodal containers. Containers can be handled much more efficiently than loose cargo and are typically shipped via several modes of transportation, including truck, railway and ship. Containers require loading and unloading only once and remain sealed until arrival at the final destination, significantly reducing transport time, labor and handling costs and losses due to damage and theft. Efficient movement of containerized cargo between ship and shore reduces the amount of time that a ship must spend in port and reduces the transit time of freight moves. 3 4 The logistical advantages and reduced freight rates brought about by containerization have been major catalysts for world trade growth during the last twenty-five years, resulting in increased demand for containerization. The world's container fleet has grown from an estimated 270,000 TEU in 1969 to approximately 13 million TEU by mid-1999. BENEFITS OF LEASING Leasing companies own approximately 46% of the world's container fleet with the balance owned predominantly by shipping lines. Shipping lines, which traditionally operate on tight profit margins, often supplement their owned fleet of containers by leasing a portion of their equipment from container leasing companies and, in doing so, achieve the following financial and operational benefits: - Leasing allows the shipping lines to utilize the equipment they need without having to make large capital expenditures; - Leasing offers a shipping line an alternative source of financing in a traditionally capital-intensive industry; - Leasing enables shipping lines to expand their routes and market shares at a relatively inexpensive cost without making a permanent commitment to support their new structure; - Leasing allows shipping lines to respond to changing seasonal and trade route demands, thereby optimizing their capital investment and storage costs. TYPES OF LEASES The Registrant's containers are leased primarily to shipping lines operating in major trade routes (see Item 1(d)). Most if not all of the Registrant's marine dry cargo containers are leased pursuant to operating leases, primarily master leases, where the containers are leased to the ocean carrier on a daily basis for any desired length of time, with the flexibility of picking up and dropping off containers at various agreed upon locations around the world. Some of the Registrant's containers may be leased pursuant to term leases, which may have durations of less than one year to five years. The Registrant's specialized containers are generally leased on longer-term leases because the higher cost, value and complexity of this equipment makes it more expensive to redeliver and lease out. - Master lease. Most short-term leases are "master leases," under which a customer reserves the right to lease a certain number of containers, as needed, under a general agreement between the lessor and the lessee. Such leases provide customers with greater flexibility by allowing them to pick up and drop off containers where and when needed, subject to restrictions and availability, as specified in each lease. The commercial terms of master leases are negotiated annually. Master leases also define the number of containers that may be returned within each calendar month, the return locations and applicable drop-off charges. Due to the increased flexibility they offer, master leases usually command higher per-diem rates and generate more ancillary fees (including pick-up, drop-off, handling and off-hire fees) than term leases. - Term lease. Term leases are for a fixed period of time and include both long and short-term commitments, with most extending from three to five years. Term lease agreements may contain early termination penalties that apply in the event of early redelivery. In most cases, however, equipment is not returned prior to the expiration of the lease. Term leases provide greater revenue stability to the lessor, but at lower rates than master leases. Ocean carriers use long-term leases when they have a need for an identified number of containers for a specified term. Short-term lease agreements have a duration of less than one year and include one-way, repositioning and round-trip leases. They differ from master leases in that they define the number and the term of the containers to be leased. Ocean carriers generally use one-way leases to manage trade imbalances (where more containerized cargo moves in one direction than another) by picking up a container in one port and dropping it off at another location after one or more legs of a voyage. 4 5 The terms and conditions of the Registrant's leases provide that customers are responsible for paying all taxes and service charges arising from container use, maintaining the containers in good and safe operating condition while on lease and paying for repairs, excluding ordinary wear and tear, upon redelivery. Some leases provide for a "damage protection plan" whereby lessees, for an additional payment (which may be in the form of a higher per-diem rate), are relieved of the responsibility of paying some of the repair costs upon redelivery of the containers. The Leasing Company has historically provided this service on a limited basis to selected customers. Repairs provided under such plans are carried out by the same depots, under the same procedures, as are repairs to containers not covered by such plans. Customers also are required to insure leased containers against physical damage and loss, and against third party liability for loss, damage, bodily injury or death. Lease rates depend on several factors including the type of lease, length of term, maintenance provided, type and age of the equipment, location and availability, and market conditions. CUSTOMERS The Registrant is not dependent upon any particular customer or group of customers of the Leasing Company and none of those customers account for more than 10% of the Registrant's revenue. The Registrant's customers are billed and pay in United States dollars. The Leasing Company sets maximum credit limits for the Registrant's customers, limiting the number of containers leased to each according to established credit criteria. The Leasing Company continually tracks its credit exposure to each customer. The Leasing Company's credit committee meets quarterly to analyze the performance of the Registrant's customers and to recommend actions to be taken in order to minimize credit risks. The Leasing Company uses specialist third party credit information services and reports prepared by local staff to assess credit applications. FLEET PROFILE The Registrant acquired high-quality dry cargo containers manufactured to specifications that exceed ISO standards and designed to minimize repair and operating costs. Dry cargo containers are the most commonly used type of container in the shipping industry. The Registrant's dry cargo container fleet is constructed of all Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage), which is a high-tensile steel yielding greater damage and corrosion resistance than mild steel. Refrigerated containers are used to transport temperature-sensitive products, such as meat, fruit, vegetables and photographic film. All of the Registrant's refrigerated containers have high-grade stainless steel interiors. The majority of the Registrant's 20-foot refrigerated containers have high-grade stainless steel walls, while most of the Registrant's 40-foot refrigerated containers are steel framed with aluminum outer walls to reduce weight. As with the dry cargo containers, all refrigerated containers are designed to minimize repair and maintenance and maximize damage resistance. The Registrant purchased its dry cargo containers from manufacturers in China, Korea, Indonesia, India and Japan as part of a policy of sourcing container production in locations where it can meet customer demands most effectively. The Registrant's refrigerated containers were purchased mainly from Korean manufacturers. The majority of its refrigeration units were purchased from Carrier Transicold, the primary container refrigeration unit supplier in the United States. 5 6 As of December 31, 1999, the Registrant owned 9,231 twenty-foot, 5,170 forty-foot and 205 forty-foot high-cube marine dry cargo containers as well as 195 twenty-foot and 290 forty-foot refrigerated cargo containers. The following table sets forth the number of containers on lease, by container type and lease type as of December 31, 1999:
Number of Containers on Lease ------------- 20-Foot Dry Cargo Containers: Term Leases 939 Master Leases 6,247 ----- Total on lease 7,186 ===== 40-Foot Dry Cargo Containers: Term Leases 682 Master Leases 3,041 ----- Total on lease 3,723 ===== 40-Foot High-Cube Dry Cargo Containers: Term Leases 26 Master Leases 119 ----- Total on lease 145 ===== 20-Foot Refrigerated Cargo Containers Term Leases 50 Master Leases 115 ----- Total on lease 165 ===== 40-Foot Refrigerated Cargo Containers Term Leases 113 Master Leases 123 ----- Total on lease 236 =====
The Leasing Company makes payments to the Registrant based upon rentals collected from ocean carriers after deducting certain operating expenses associated with the containers, such as the base management fee payable to CCC, certain expense reimbursements and incentive fees payable to CCC, the costs of maintenance and repairs not performed by lessees, independent agent fees and expenses, depot expenses for handling, inspection and storage, and additional insurance. REPAIR AND MAINTENANCE All containers are inspected and repaired when redelivered by a customer, and customers are obligated to pay for all damage repair, excluding wear and tear, according to standardized industry guidelines. Depots in major port areas perform repair and maintenance that is verified by independent surveyors or the Leasing Company's technical and operations staff. Before any repair or refurbishment is authorized on older containers in the Registrant's fleet, the Leasing Company's technical and operations staff reviews the age, condition and type of container, and its suitability for continued leasing. The Leasing Company compares the cost of such repair or refurbishment with the prevailing market resale price that might be obtained for that container and makes the appropriate decision whether to repair or sell the container. MARKET FOR USED CONTAINERS The Registrant estimates that the period for which a dry cargo or refrigerated container may be used as a leased marine cargo container ranges from 10 to 15 years. The Leasing Company, on behalf of the Registrant, disposes of used containers in a worldwide market in which buyers include wholesalers, mini-storage operations, construction companies and others. As the Registrant's fleet ages, a larger proportion of its revenue will be derived from selling its containers. 6 7 OPERATIONS The Registrant's container leasing and marketing operations are conducted through the Leasing Company in the United Kingdom, with support provided by area offices and dedicated agents located in San Francisco, California; Iselin, New Jersey; Hamburg; Antwerp; Genoa; Gothenburg, Sweden; Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; Shanghai and Madras, India. The Leasing Company also maintains agency relationships with over 25 independent agents around the world, to whom it pays commissions based upon the amount of revenues they generate in the region or the number of containers that are leased from their area on behalf of the Registrant. The agents are located in jurisdictions where the volume of the Leasing Company's business necessitates a presence in the area but is not sufficient to justify a fully-functioning Leasing Company office or dedicated agent. These agents provide marketing support to the area offices covering the region, together with limited operational support. In addition, the Leasing Company relies on the services of over 300 independently-owned and operated depots around the world to inspect, repair, maintain and store containers while off-hire. The Leasing Company's area offices authorize all container movements into and out of the depot and supervise all repair and maintenance performed by the depot. The Leasing Company's technical staff sets the standards for repair of its owned and managed fleet throughout the world and monitors the quality of depot repair work. The depots provide a vital link to the Leasing Company's operations, as the redelivery of a container into a depot is the point at which the container is off-hired from one customer and repaired in preparation for re-leasing to the next. The Leasing Company's global network is integrated with its computer system and provides 24-hour communication between offices, agents and depots. The system allows the Leasing Company to manage and control the Registrant's fleet on a global basis, providing it with the responsiveness and flexibility necessary to service the master lease market effectively. This system is an integral part of the Leasing Company's service, as it processes information received from the various offices, generates billings to the Registrant's lessees and produces a wide range of reports on all aspects of the Registrant's leasing activities. The system records the life history of each container, including the length of time on and off lease and repair costs. It also traces port activity trends, leasing activity and equipment data per customer. The operations and marketing data is fully interfaced with the finance and accounting system to provide revenue, cost and asset information to management and staff around the world. INSURANCE The Registrant's lease agreements typically require lessees to obtain insurance to cover all risks of physical damage and loss of the equipment under lease, as well as public liability and property damage insurance. However, the precise nature and amount of the insurance carried by each ocean carrier varies from lessee to lessee. In addition, the Registrant has purchased secondary insurance effective in the event that a lessee fails to have adequate primary coverage. This insurance covers liability arising out of bodily injury and/or property damage as a result of the ownership and operation of the containers, as well as insurance against loss or damage to the containers, loss of lease revenues in certain cases and costs of container recovery and repair in the event that a customer goes into bankruptcy. The Registrant believes that the nature and the amounts of its insurance are customary in the container leasing industry and subject to standard industry deductions and exclusions. (c)(1)(ii) Inapplicable. (c)(1)(iii) Inapplicable. (c)(1)(iv) Inapplicable. (c)(1)(v) The Registrant's containers are leased globally; therefore, seasonal fluctuations are minimal. Other economic and business factors to which the transportation industry in general and the container leasing industry in particular are subject, include fluctuations in general business conditions and fluctuations in supply and demand for equipment resulting from, among other things, obsolescence, changes in the methods or economics of a particular mode of transportation or changes in governmental regulations or safety standards. 7 8 (c)(1)(vi) The Registrant established a working capital reserve of approximately 1.1% of subscription proceeds raised. In addition, the Registrant may reserve additional amounts from anticipated cash distributions to the partners to meet working capital requirements. Amounts due under master leases are calculated at the end of each month and billed approximately six to eight days thereafter. Amounts due under short-term and long-term leases are set forth in the respective lease agreements and are generally payable monthly. However, payment is normally received within 45-100 days of billing. Past due penalties are not customarily collected from lessees and, accordingly, are not generally levied by the Leasing Company against lessees of the Registrant's containers. (c)(1)(vii) For the year ended December 31, 1999, no single sub-lessee of the Leasing Company accounted for more than 10% of the Registrant's rental income. The Registrant does not believe that its ongoing business is dependent upon a single customer, although the loss of one or more of its largest customers could have an adverse effect upon its business. (c)(1)(viii) Inapplicable. (c)(1)(ix) Inapplicable. (c)(1)(x) Competition among container leasing companies is based upon several factors, including the location and availability of inventory, lease rates, the type, quality and condition of the containers, the quality and flexibility of the service offered and the confidence in and professional relationship with the lessor. Other factors include the speed with which a leasing company can prepare its containers for lease and the ease with which a lessee believes it can do business with a lessor or its local area office. Not all container leasing companies compete in the same market, as some supply only dry cargo containers and not specialized containers, while others offer only long-term leases. The Leasing Company, on behalf of the Registrant, competes with various container leasing companies in the markets in which it conducts business, including Transamerica Leasing, GE-Seaco, Textainer Corp., Triton Container International Ltd. and others. In a series of recent consolidations, several major leasing companies, as well as numerous smaller ones, have been acquired by competitors. The Leasing Company believes that the current trend toward consolidation in the container leasing industry will continue, making economies of scale, worldwide operations, diversity, size of fleet and financial strength increasingly important to the successful operation of a container leasing business. Additionally, as containerization grows, customers may demand more flexibility from leasing companies regarding per-diem rates, pick-up and drop-off locations, availability of containers and other terms. Some of the Leasing Company's competitors may have greater financial resources than the Leasing Company and may be more capable of offering lower per-diem rates. In the Leasing Company's experience, however, ocean carriers will generally lease containers from more than one leasing company in order to minimize dependence on a single supplier. (c)(1)(xi) Inapplicable. (c)(1)(xii) Environmental Matters A portion of the Registrant's equipment portfolio consists of special purpose containers, primarily refrigerated containers. Historically, refrigerated containers have utilized a refrigerant gas which is a chlorofluorocarbon ("CFC") compound. It is generally assumed that CFCs are harmful to the Earth's ozone layer when released into the atmosphere. Many nations, including the United States, have taken action, both collectively and individually, to regulate CFCs. These nations set various targets for the reduction in production and use of CFCs starting as early as 1993, and their eventual elimination. There has been substantial progress recently to determine a viable substitute for the refrigerant used in containers, such that both the Leasing Company and the container leasing industry association have selected a replacement refrigerant. Production of new container refrigeration units operating with the replacement refrigerant became generally available in 1993. All of the Registrant's refrigerated containers use CFC refrigerated gas in the operation and insulation of the containers. Depending on market pressures and future governmental regulations, the Registrant's refrigerated containers may have to be retrofitted with non-CFC refrigerants, the cost of which will be borne by the Registrant. The Leasing Company's technical staff has cooperated with refrigeration manufacturers in conducting investigations into the most effective and economical retrofit plan. CCC and the Leasing Company believe that this expense, should it be required, would not be material to the Registrant's financial position or results of operations. In addition, refrigerated containers that are not retrofitted may command lower prices in the used container market. Most of the independent depot operators utilized by the Registrant currently have the facilities to provide CFC recycling and disposal services to container owners and lessors such as the Registrant. 8 9 Under the state and Federal laws of the United States, and possibly under the laws of other nations, the owner of a container may be liable for environmental damage and/or cleanup and/or other sums in the event of actual or threatened discharge or other contamination by material in a container. This liability may be imposed on a container owner, such as the Registrant, even if the owner is not at fault. (c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC, the general partner, and accordingly does not itself have any employees. CCC has 16 employees, consisting of 4 officers, 4 other managers and 8 clerical and staff personnel. (d) Financial Information about Foreign and Domestic Operations and Export Sales The Registrant's business is not divided between foreign or domestic operations. The Registrant's business is the leasing of containers worldwide to ocean carriers. To this extent, the Registrant's operations are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Registrant believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of leases to domestic customers. The Leasing Company's leases generally require all payments to be made in United States currency. Item 2. Properties As of December 31, 1999, the Registrant owned 9,231 twenty-foot, 5,170 forty-foot and 205 forty-foot high-cube marine dry cargo containers, as well as 195 twenty-foot and 290 forty-foot refrigerated containers, suitable for transporting cargo by rail, sea or highway. The average useful life and invoice cost of the Registrant's fleet at December 31, 1999 were as follows:
Estimated Useful Life Average Age Average Cost ----------- ----------- ------------ 20-Foot Dry Cargo Containers 10-15 years 7 years $ 2,838 40-Foot Dry Cargo Containers 10-15 years 8 years $ 4,672 40-Foot High-Cube Dry Cargo Containers 10-15 years 7 years $ 5,033 20-Foot Refrigerated Cargo Containers 10-15 years 8 years $18,808 40-Foot Refrigerated Cargo Containers 10-15 years 8 years $23,169
Utilization by lessees of the Registrant's containers fluctuates over time depending on the supply of and demand for containers in the Registrant's inventory locations. During 1999, utilization of the dry cargo and refrigerated container fleet averaged 69% and 67%, respectively. During 1999, the Registrant disposed of 143 twenty-foot, 71 forty-foot and one forty-foot high-cube marine dry cargo container, as well as two twenty-foot and 15 forty-foot refrigerated cargo containers at an average book loss of $44 per container. 9 10 Item 3. Legal Proceedings On November 15, 1999, the Parent Company consented to the entry by the Securities and Exchange Commission ( the "SEC") of an administrative cease and desist order (the "Order"). The Parent Company is the indirect corporate parent of CCC, the general partner of the Partnership. Without admitting or denying the findings made by the SEC in the Order, the Parent Company agreed to cease and desist from committing or causing any future violation of certain anti-fraud, reporting, and recordkeeping provisions of the federal securities laws. The SEC's investigation of the Parent Company began in February, 1997 and was triggered by the actions of a former chairman, Stefan M. Palatin. The Parent Company's Board removed Mr. Palatin as CEO in May, 1998 and, in July 1998, Mr. Palatin resigned from the Board. While Mr. Palatin is no longer an officer or director of the Parent Company, he continues to control approximately 20% of the outstanding common shares of the Parent Company. The Partnership does not believe that the focus of the SEC's investigation was upon the Partnership or CCC. The SEC made certain findings by its Order. Among them, the SEC found that the Parent Company, under the domination and control of Mr. Palatin, misrepresented, through affirmative misstatements and omissions in its public statements and filings with the SEC, transactions it had with Mr. Palatin for the period from December, 1995 through 1997. The Parent Company neither admitted nor denied the findings made by the SEC. While the Order did not impose any fine or penalty against the Parent Company, the Parent Company is unable to predict what impact, if any, it will have on future business or whether it will lead to future litigation involving the Parent Company. Under the Order, the Parent Company has designated an agent for service of process with respect to any proceedings instituted by the SEC to enforce the Order or with respect to any future investigation of the Parent Company by the SEC. In addition, the entry of the Order precludes the Parent Company and persons acting on its behalf from relying upon certain protections according to forward-looking statements by the Securities Act of 1933 and the Securities Exchange Act of 1934 through November 14, 2002. Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. 10 11 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters (a) Market Information (a)(1)(i) The Registrant's outstanding units of limited partnership interests are not traded on any market nor does an established public trading market exist for such purposes. (a)(1)(ii) Inapplicable. (a)(1)(iii) Inapplicable. (a)(1)(iv) Inapplicable. (a)(1)(v) Inapplicable. (a)(2) Inapplicable. (b) Holders
Number of Unit (b)(1) Title of Class Holders as of December 31, 1999 -------------- ------------------------------- Units of limited partnership interests 5,031
(c) Dividends Inapplicable. For the distributions made by the Registrant to its limited partners, see Item 6, "Selected Financial Data." 11 12 Item 6. Selected Financial Data
Year Ended December 31, ------------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ----------- ----------- ----------- ----------- Net lease revenue $ 3,777,357 $ 5,116,640 $ 5,664,267 $ 6,979,978 $ 8,625,810 Net income $ 27,190 $ 1,412,913 $ 1,843,048 $ 3,156,373 $ 4,762,818 Net income (loss) per unit of limited partnership interest $ (0.05) $ 0.34 $ 0.44 $ 0.79 $ 1.25 Cash distributions per unit of limited partnership interest $ 1.40 $ 1.44 $ 1.57 $ 1.92 $ 2.00 At year-end: Total assets $ 37,361,840 $42,699,854 $46,616,186 $50,805,865 $55,578,817 Partners' capital $ 37,107,340 $42,236,906 $46,153,238 $50,104,535 $54,036,992
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES The Registrant's primary objective is to generate cash flow from operations for distribution to its limited partners and, during the initial years of operations, reinvest excess cash flow in additional equipment. Aside from the initial working capital reserve retained from gross subscription proceeds (equal to approximately 1.1% of such proceeds), the Registrant relies primarily on container rental receipts to meet this objective as well as to finance operating needs. No credit lines are maintained to finance working capital. At December 31, 1999, the Registrant had $1,111,425 in cash and cash equivalents, a decrease of $1,296,189 and $771,964 respectively, from the cash balances at December 31, 1998 and December 31, 1997. Cash distributions from operations are allocated 5% to the general partner and 95% to the limited partners. Distributions of sales proceeds are allocated 1% to the general partner and 99% to the limited partners. This sharing arrangement will remain in place until the limited partners have received aggregate distributions in an amount equal to their capital contributions, plus a 10% cumulative, compounded (daily) annual return on their adjusted capital contributions. Thereafter, all distributions will be allocated 15% to the general partner and 85% to the limited partners, pursuant to Section 6.1(b) of the Partnership Agreement. Cash distributions from operations to the general partner in excess of 5% of distributable cash will be considered an incentive fee and compensation to the general partner. From inception through February 29, 2000, the Registrant has distributed $45,452,531 in cash from operations and $746,640 in cash from container sales proceeds to its limited partners. This represents total distributions of $46,199,171 or approximately 66% of the limited partners' original invested capital. Distributions are paid monthly, based primarily on each quarter's cash flow from operations. Distributions are also affected by periodic increases or decreases to working capital reserves, as deemed appropriate by the general partner. The Registrant's disposal activity should produce lower operating results and, consequently, lower distributions from operations to its partners in subsequent periods. Sales proceeds distributed to its partners may fluctuate in subsequent periods, reflecting the level of container disposals. 12 13 RESULTS OF OPERATIONS 1999-1998 During the year, economic reforms in Asia, as well as in Latin America, have begun to produce gradual improvement in terms of world trade, and there are preliminary indications that containerized trade volumes from North America and Europe to Asia, in particular, may be increasing. Intra-Asia trade, which also had stagnated since the Asia financial crisis began nearly two years ago, has shown increased activity in recent months. These favorable signs, however, have yet to produce any significant positive impact on the Registrant's operating performance. The primary component of the Registrant's results of operations is net lease revenue. Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses, from rental revenues billed by the Leasing Company from the leasing of the Registrant's containers. Net lease revenue is directly related to the size, utilization and per-diem rental rates of the Registrant's fleet. Net lease revenue for 1999 declined by approximately 26%, when compared to 1998 and is expected to decline in subsequent periods as current container leasing market conditions continue. Gross rental revenue, a component of net lease revenue, decreased from $8,444,509 in 1998 to $6,728,687 in 1999. This decline was primarily the result of lower per-diem rates and utilization levels. The Registrant's dry and refrigerated cargo container average utilization rates decreased from 75% and 81%, respectively, during 1998, to 69% and 67%, respectively, during 1999. Dry and refrigerated cargo container per-diem rental rates declined 9% and 11%, respectively, from 1998 levels. The Registrant's average fleet size (as measured in twenty-foot equivalent units ("TEU")) was 20,863 TEU compared to 21,022 TEU in 1998. Rental operating expenses were approximately 31% of rental revenue during 1999 as compared to 26% during 1998. Base management fees, dependent on the operating performance of the fleet, declined $112,016, or approximately 19% during 1999 when compared to 1998. The Registrant disposed of 143 twenty-foot, 71 forty-foot and one forty-foot high-cube marine dry cargo containers, as well as two twenty-foot and 15 forty-foot refrigerated cargo containers during 1999, as compared to 91 twenty-foot, 48 forty-foot and three forty-foot high-cube marine dry cargo containers as well as two twenty-foot refrigerated containers during 1998. The decision to repair or dispose of a container is made when it is returned by a lessee. This decision is influenced by various factors including the age, condition, suitability for continued leasing, as well as the geographical location of the container when disposed. These factors also influence the amount of sales proceeds received and the related gain on container disposals. 1998 - 1997 The primary component of the Registrant's results of operations is net lease revenue. Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses, from rental revenues billed by the Leasing Company from the leasing of the Registrant's containers. Net lease revenue is directly related to the size, utilization and per-diem rental rates of the Registrant's fleet. Gross rental revenue, a component of net lease revenue, decreased from $9,252,029 in 1997 to $8,444,509 in 1998. This decline was primarily the result of lower per-diem rates and utilization levels. The Registrant's dry and refrigerated cargo container average utilization rates decreased from 79% and 84%, respectively, during 1997, to 75% and 81%, respectively, during 1998. Dry and refrigerated cargo container per-diem rental rates declined 6% and 1%, respectively, from 1997 levels. The Registrant's average fleet size (as measured in twenty-foot equivalent units ("TEU")) was 21,022 TEU compared to 21,147 TEU in 1997. Rental operating expenses were approximately 26% of rental revenue during 1998 as compared to 27% during 1997. Base management fees, dependent on the operating performance of the fleet, declined $62,118, or approximately 10% during 1998 when compared to 1997. 13 14 The Registrant disposed of 91 twenty-foot, 48 forty-foot and three forty-foot high-cube marine dry cargo containers, as well as two twenty-foot refrigerated cargo containers during 1998, as compared to 70 twenty-foot, 35 forty-foot and one forty-foot refrigerated container during 1997. The decision to repair or dispose of a container is made when it is returned by a lessee. This decision is influenced by various factors including the age, condition, suitability for continued leasing, as well as the geographical location of the container when disposed. These factors also influence the amount of sales proceeds received and the related gain on container disposals. THE CRONOS GROUP'S CREDIT FACILITY In March 1999, the Parent Company agreed to a fourth amendment to a credit facility (the "Credit Facility"), under which the final maturity date was extended to September 30, 1999. The balance outstanding on the Credit Facility was $33,110,000 at December 31, 1998. Under the third amendment to this Credit Facility, the Parent Company had failed to make principal payments totaling $33,110,000, when due, on repayment dates in September 1998 and January 1999. This Credit Facility was refinanced in August 1999, as discussed below. On August 2, 1999, the Parent Company refinanced approximately $47,800,000 of its short-term and other indebtedness by establishing a loan facility (the "Loan Facility") with MeesPierson N.V., a Dutch financial institution, as agent for itself and First Union National Bank (collectively, the "Lenders"). The borrower under the Loan Facility was Cronos Finance (Bermuda) Limited ("Cronos Finance"), a newly-organized, wholly-owned, special purpose subsidiary of the Parent Company. Cronos Finance borrowed $50,000,000 under the Loan Facility for the purpose of acquiring containers from three other direct or indirect wholly-owned subsidiaries (the "Sellers") of the Parent Company and paying certain fees associated with the establishment of the Loan Facility and the fees of certain former lenders. The Sellers utilized the cash proceeds from the sale of the containers to Cronos Finance to repay $47,800,000 in principal due by the Sellers to eight different creditors or groups of creditors of the Parent Company, including all indebtedness owed to the Credit Facility. The Registrant was not a borrower under the Credit Facility or the Loan Facility, and neither the containers nor the other assets of the Registrant have been pledged as collateral under the Credit Facility or the Loan Facility. YEAR 2000 The Registrant relies upon the financial and operational systems provided by the Leasing Company and its affiliates, as well as the systems provided by other independent third parties to service the three primary areas of its business: investor processing/maintenance; container leasing/asset tracking; and accounting/finance. Neither the Registrant nor the Leasing Company experienced nor do they currently anticipate any material adverse effects on the Registrant's business, results of operations or financial condition as a result of Year 2000 issues involving internal use systems, third party products or any of their software products. Costs incurred in preparing for Year 2000 issues were expensed as incurred. Neither the Registrant nor the Leasing Company anticipate any additional material costs in connection with Year 2000 uncertainties. Pursuant to the Limited Partnership Agreement, CCC or the Leasing Company, may not seek reimbursement of data processing costs associated with the Year 2000 program. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Inapplicable Item 8. Financial Statements and Supplementary Data 14 15 INDEPENDENT AUDITORS' REPORT The Partners IEA Income Fund XII, L.P. We have audited the accompanying balance sheet of IEA Income Fund XII, L.P. (the "Partnership") as of December 31, 1999, and the related statements of operations, partners' capital, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 1999, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP San Francisco, CA February 25, 2000 15 16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Partners IEA Income Fund XII, L.P. We have audited the accompanying balance sheet of IEA Income Fund XII, L.P., as of December 31, 1998, and the related statements of operations, partners' capital, and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IEA Income Fund XII, L.P., as of December 31, 1998, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Moore Stephens, P.C. Certified Public Accountants New York, New York March 5, 1999 16 17 IEA INCOME FUND XII, L.P. BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ------------ ------------ Assets Current assets: Cash and cash equivalents, includes $1,111,325 in 1999 and $2,407,514 in 1998 in interest-bearing accounts (note 3) $ 1,111,425 $ 2,407,614 Net lease receivables due from Leasing Company (notes 1 and 5) 585,156 656,520 ------------ ------------ Total current assets 1,696,581 3,064,134 ------------ ------------ Container rental equipment, at cost 61,857,061 62,646,590 Less accumulated depreciation (note 1) 26,191,802 23,010,870 ------------ ------------ Net container rental equipment 35,665,259 39,635,720 ------------ ------------ Total assets $ 37,361,840 $ 42,699,854 ============ ============ Liabilities and Partners' Capital Current liabilities Accrued expenses $ 254,500 $ 462,948 ------------ ------------ Partners' capital (deficit): General partner (116,193) (64,897) Limited partners (note 9) 37,223,533 42,301,803 ------------ ------------ Total partners' capital 37,107,340 42,236,906 ------------ ------------ Total liabilities and partners' capital $ 37,361,840 $ 42,699,854 ============ ============
The accompanying notes are an integral part of these financial statements. 17 18 IEA INCOME FUND XII, L.P. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ----------- ----------- ---------- Net lease revenue (notes 1 and 7) $ 3,777,357 $ 5,116,640 $5,664,267 Other operating expenses: Depreciation and amortization (notes 1 and 4) 3,646,478 3,673,310 3,839,322 Other general and administrative expenses 126,510 125,755 113,212 ----------- ----------- ---------- 3,772,988 3,799,065 3,952,534 ----------- ----------- ---------- Income from operations 4,369 1,317,575 1,711,733 Other income (expenses): Interest income 87,391 117,237 91,714 Net gain (loss) on disposal of equipment (64,570) (21,899) 39,601 ----------- ----------- ---------- 22,821 95,338 131,315 ----------- ----------- ---------- Net income $ 27,190 $ 1,412,913 $1,843,048 =========== =========== ========== Allocation of net income (loss): General partner $ 186,432 $ 224,656 $ 289,409 Limited partners (159,242) 1,188,257 1,553,639 ----------- ----------- ---------- $ 27,190 $ 1,412,913 $1,843,048 =========== =========== ========== Limited partners' per unit share of net income (loss) $ (0.05) $ 0.34 $ 0.44 =========== =========== ==========
The accompanying notes are an integral part of these financial statements. 18 19 IEA INCOME FUND XII, L.P. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Limited General Partners Partner Total ------------ --------- ------------ Balances at December 31, 1996 $ 50,129,963 $ (25,428) $ 50,104,535 Net income 1,553,639 289,409 1,843,048 Cash distributions (5,504,628) (289,717) (5,794,345) ------------ --------- ------------ Balances at December 31, 1997 46,178,974 (25,736) 46,153,238 Net income 1,188,257 224,656 1,412,913 Cash distributions (5,065,428) (263,817) (5,329,245) ------------ --------- ------------ Balances at December 31, 1998 42,301,803 (64,897) 42,236,906 Net income (loss) (159,242) 186,432 27,190 Cash distributions (4,919,028) (237,728) (5,156,756) ------------ --------- ------------ Balances at December 31, 1999 $ 37,223,533 $(116,193) $ 37,107,340 ============ ========= ============
The accompanying notes are an integral part of these financial statements. 19 20 IEA INCOME FUND XII, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 27,190 $ 1,412,913 $ 1,843,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,646,478 3,673,310 3,839,322 Net loss (gain) on disposal of equipment 64,570 21,899 (39,601) Decrease (increase) in net lease receivables due from Leasing Company (219,778) 280,760 241,277 ----------- ----------- ----------- Total adjustments 3,491,270 3,975,969 4,040,998 ----------- ----------- ----------- Net cash provided by operating activities 3,518,460 5,388,882 5,884,046 ----------- ----------- ----------- Cash flows provided by (used in) investing activities: Proceeds from sale of container rental equipment 551,416 464,588 218,256 Purchases of container rental equipment (199,342) -- (427,452) Acquisition fees paid to general partner (9,967) -- (259,755) ----------- ----------- ----------- Net cash provided by (used in) investing activities 342,107 464,588 (468,951) ----------- ----------- ----------- Cash flows used in financing activities Distributions to partners (5,156,756) (5,329,245) (5,794,345) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,296,189) 524,225 (379,250) Cash and cash equivalents at beginning of year 2,407,614 1,883,389 2,262,639 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,111,425 $ 2,407,614 $ 1,883,389 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 20 21 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999, 1998 AND 1997 (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 worldwide to ocean carriers. To this extent, the Partnership's operations are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of leases to domestic customers. The Partnership's leases generally require all payments to be made in United States currency. Cronos Capital Corp. ("CCC") is the general partner and, with its affiliate Cronos Containers Limited (the "Leasing Company"), manages the business of the partnership. CCC and the Leasing Company also manage the container leasing business for other partnerships affiliated with the general partner. 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. 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 sold. (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 one 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, and 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. 21 22 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS (c) Concentrations of Credit Risk The Partnership's financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and net lease receivables due from the Leasing Company. See note 3 for further discussion regarding the credit risk associated with cash and cash equivalents. Net lease receivables due from the Leasing Company (see notes 1(b) and 5 for discussion regarding net lease receivables) subject the Partnership to a significant concentration of credit risk. These net lease receivables, representing rentals collected from ocean carriers after deducting direct operating expenses and management fees to CCC and the Leasing Company, are remitted by the Leasing Company to the Partnership three to four times per month. The Partnership has historically never incurred a loss associated with the collectability of unremitted net lease receivables due from the Leasing Company. (d) 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. The financial statements are prepared in conformity with accounting principles generally accepted in the United States (GAAP), which 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 reporting period. Actual results could differ from those estimates. (e) Allocation of Net Income and Partnership Distributions Net income have been allocated between general and limited partners in accordance with the Partnership Agreement. Actual cash distributions differ from the allocations of net income between the general and limited partners as presented in these financial statements. Partnership distributions are paid to its partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to the general partner. Distributions of sales proceeds are allocated 99% to the limited partners and 1% to the general partner. The allocations remain in effect until such time as the limited partners have received from the Partnership aggregate distributions in an amount equal to their capital contributions plus a 10% cumulative, compounded (daily), annual return on their adjusted capital contributions. Thereafter, all Partnership distributions will be allocated 85% to the limited partners and 15% to the general partner. Cash distributions for the first 10% are charged to partners' capital. Cash distributions from operations to the general partner in excess of 5% of distributable cash will be considered an incentive fee and will be recorded as compensation to the general partner. (f) Acquisition Fees Pursuant to the Partnership Agreement, acquisition fees paid to CCC are based on 5% of the equipment purchase price. These fees are capitalized and included in the cost of the rental equipment. The fees are payable in two or more installments commencing in the year of purchase. 22 23 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS (g) Container Rental Equipment In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", container rental equipment is considered to be impaired if the carrying value of the asset exceeds the expected future cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets are written down to fair value. Depreciation policies are also evaluated to determine whether subsequent events and circumstances warrant revised estimates of useful lives. There were no reductions to the carrying value of container rental equipment during 1999, 1998, and 1997. Container rental equipment is depreciated over a twelve-year life on a straight line basis to its salvage value, estimated to be 30%. (h) Income Taxes The Partnership is not subject to income taxes, consequently no provision for income taxes has been made. The Partnership files federal and state annual information tax returns, prepared on the accrual basis of accounting. Taxable income or loss is reportable by the partners individually. (i) Financial Statement Presentation 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. (2) Operating Segment The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which changes the way public business enterprises report financial and descriptive information about reportable operating segments. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. Management operates the Partnership's container fleet as a homogenous unit and has determined, after considering the requirements of SFAS No. 131, that as such it has a single reportable operating segment. The Partnership derives revenues from dry cargo containers and refrigerated containers. As of December 31, 1999, the Partnership owned 9,231 twenty-foot, 5,170 forty-foot and 205 forty-foot high-cube marine dry cargo containers, as well as 195 twenty-foot and 290 forty-foot marine refrigerated cargo containers. A summary of gross lease revenue, by product, for the years ended December 31, 1999, 1998 and 1997 follows:
1999 1998 1997 ---------- ---------- ---------- Dry cargo containers $5,528,632 $6,879,785 $7,491,452 Refrigerated containers 1,200,055 1,564,724 1,760,577 ---------- ---------- ---------- Total $6,728,687 $8,444,509 $9,252,029 ========== ========== ==========
Due to the Partnership's lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, it is impracticable to provide the geographic area information required by SFAS No. 131. No single sub-lessee of the Leasing Company contributed more than 10% of the Partnership's rental revenue earned during 1999, 1998 and 1997. 23 24 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS (3) Cash and Cash Equivalents Cash equivalents include highly-liquid investments with a maturity of three months or less on their acquisition date. Cash equivalents are carried at cost which approximates fair value. The Partnership maintains its cash and cash equivalents in accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. The Partnership places its cash equivalents in investment grade, short-term debt instruments and limits the amount of credit exposure with any one commercial issuer. (4) Organization Costs The Partnership incurred $1,205,690 in offering and organizational costs during its offering period. Such costs were fully amortized in 1997. (5) 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 December 31, 1999 and 1998 were as follows:
December 31, December 31, 1999 1998 ---------- ---------- Gross lease receivables $1,676,207 $1,900,462 Less: Direct operating payables and accrued expenses 432,023 491,270 Damage protection reserve (note 6) 189,163 237,855 Base management fees payable 271,648 271,288 Reimbursed administrative expenses 33,911 33,894 Allowance for doubtful accounts 164,306 209,635 ---------- ---------- Net lease receivables $ 585,156 $ 656,520 ========== ==========
(6) Damage Protection Plan The Leasing Company offers a repair service to several lessees of the Partnership's containers, whereby the lessee pays an additional rental fee for the convenience of having the Partnership incur the repair expense for containers damaged while on lease. This fee is recorded as revenue when earned according to the terms of the rental contract. An accrual has been recorded to provide for the estimated costs incurred by this service. This accrual is a component of net lease receivables due from the Leasing Company (see note 5). The Partnership is not responsible in the event repair costs exceed predetermined limits, or for repairs that are required for damages not defined by the damage protection plan agreement. 24 25 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS (7) 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 years ended December 31, 1999, 1998 and 1997, was as follows:
1999 1998 1997 ---------- ---------- ---------- Rental revenue $6,728,687 $8,444,509 $9,252,029 Less: Rental equipment operating expenses 2,091,307 2,232,145 2,474,661 Base management fees (note 8) 463,879 575,895 638,013 Reimbursed administrative expenses (note 8): Salaries 207,397 247,609 219,121 Other payroll related expenses 35,387 42,791 40,374 General and administrative expenses 153,360 229,429 215,593 ---------- ---------- ---------- $3,777,357 $5,116,640 $5,664,267 ========== ========== ==========
(8) Compensation to General Partner and its Affiliates Base management fees are equal to 7% of gross lease revenues attributable to operating leases pursuant to the Partnership Agreement. Reimbursed administrative expenses are equal to the costs expended by CCC and its affiliates for services necessary for the prudent operation of the Partnership pursuant to the Partnership Agreement. The following compensation was paid or will be paid by the Partnership to CCC or its affiliates:
1999 1998 1997 ---------- ---------- ---------- Base management fees $ 463,879 $ 575,895 $ 638,013 Reimbursed administrative expenses 396,144 519,829 475,088 Acquisition fees -- -- 21,373 ---------- ---------- ---------- $ 860,023 $1,095,724 $1,134,474 ========== ========== ==========
(9) Limited Partners' Capital The limited partners' per unit share of capital at December 31, 1999, 1998 and 1997 was $11, $12 and $13, respectively. This is calculated by dividing the limited partners' capital at the end of the year by 3,513,594, the total number of limited partnership units. 25 26 IEA INCOME FUND XII, L.P. NOTES TO FINANCIAL STATEMENTS (10) The Cronos Group In March 1999, the Parent Company agreed to a fourth amendment to a credit facility (the "Credit Facility"), under which the final maturity date was extended to September 30, 1999. The balance outstanding on the Credit Facility was $33,110,000 at December 31, 1998. Under the third amendment to this Credit Facility, the Parent Company had failed to make principal payments totaling $33,110,000, when due, on repayment dates in September 1998 and January 1999. This Credit Facility was refinanced in August 1999, as discussed below. On August 2, 1999, the Parent Company refinanced approximately $47,800,000 of its short-term and other indebtedness by establishing a loan facility (the "Loan Facility") with MeesPierson N.V., a Dutch financial institution, as agent for itself and First Union National Bank (collectively, the "Lenders"). The borrower under the Loan Facility was Cronos Finance (Bermuda) Limited ("Cronos Finance"), a newly-organized, wholly-owned, special purpose subsidiary of the Parent Company. Cronos Finance borrowed $50,000,000 under the Loan Facility for the purpose of acquiring containers from three other direct or indirect wholly-owned subsidiaries (the "Sellers") of the Parent Company and paying certain fees associated with the establishment of the Loan Facility and the fees of certain former lenders. The Sellers utilized the cash proceeds from the sale of the containers to Cronos Finance to repay $47,800,000 in principal due by the Sellers to eight different creditors or groups of creditors of the Parent Company, including all indebtedness owed to the Credit Facility. The Registrant was not a borrower under the Credit Facility or the Loan Facility, and neither the containers nor the other assets of the Registrant have been pledged as collateral under Credit Facility or the Loan Facility. ************************ 26 27 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Inapplicable. 27 28 PART III Item 10. Directors and Executive Officers of the Registrant The Registrant, as such, has no officers or directors, but is managed by CCC, the general partner. The officers and directors of CCC at March 30, 2000, are as follows:
Name Office ---- ------ Dennis J. Tietz President, Chief Executive Officer, and Director Peter J. Younger Treasurer, Principal Accounting Officer, and Director Elinor A. Wexler Vice President/Administration and Secretary, and Director John P. McDonald Vice President/Sales, and Director John M. Foy Director
DENNIS J. TIETZ Mr. Tietz, 47, as President and Chief Executive Officer, is responsible for the general management of CCC. Mr. Tietz was appointed Chief Executive Officer of The Cronos Group, indirect corporate parent of CCC, in December 1998 and elected Chairman of the Board in March 1999. Mr. Tietz is also President and a director of Cronos Securities Corp. From 1986 until August 1992, Mr. Tietz was responsible for the organization, marketing and after-market support of CCC's investment programs. Mr. Tietz was a regional manager for CCC, responsible for various container leasing activities in the U.S. and Europe from 1981 to 1986. Prior to joining CCC in December 1981, Mr. Tietz was employed by Trans Ocean Leasing Corporation as Regional Manager based in Houston, with responsibility for all leasing and operational activities in the U.S. Gulf. Mr. Tietz holds a B.S. degree in Business Administration from San Jose State University and is a Registered Securities Principal with the NASD. PETER J. YOUNGER Mr. Younger, 43, was elected Treasurer and Principal Accounting Officer in 1998. Mr. Younger joined the Board of Directors of CCC in June 1997. See key management personnel of the Leasing Company for further information. ELINOR A. WEXLER Ms. Wexler, 51, was elected Vice President - Administration and Secretary of CCC in August 1992. Ms. Wexler joined the Board of Directors of CCC in June 1997. Ms. Wexler has been employed by the General Partner since 1987, and is responsible for investor services, compliance and securities registration. From 1983 to 1987, Ms. Wexler was Manager of Investor Services for The Robert A. McNeil Corporation, a real estate syndication company, in San Mateo, California. From 1971 to 1983, Ms. Wexler held various positions, including securities trader and international research editor, with Nikko Securities Co., International, based in San Francisco. Ms. Wexler attended the University of Oregon, Portland State University and the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice President and Secretary of Cronos Securities Corp. and a Registered Principal with the NASD. JOHN P. MCDONALD Mr. McDonald, 39, was elected Vice President - National Sales Manager of CCC in August 1992, with responsibility for marketing CCC's investment programs. Mr. McDonald joined the Board of Directors of CCC in October 1997. Since 1988, Mr. McDonald had been Regional Marketing Manager for the Southwestern U.S. From 1983 to 1988, Mr. McDonald held a number of container leasing positions with CCC, the most recent of which was as Area Manager for Belgium and the Netherlands, based in Antwerp. Mr. McDonald holds a B.S. degree in Business Administration from Bryant College, Rhode Island. Mr. McDonald is also a Vice President of Cronos Securities Corp. JOHN M. FOY Mr. Foy, 54, was elected to the Board of Directors of CCC in April 1999. See key management personnel of the Leasing Company for further information. 28 29 PART III The key management personnel of the Leasing Company at March 30, 2000, were as follows:
Name Title ---- ----- Peter J. Younger Vice President/Chief Financial Officer John M. Foy Vice President/Americas Nico Sciacovelli Vice President/Europe, Middle East and Africa John C. Kirby Vice President/Operations
PETER J. YOUNGER Mr. Younger, 43, was elected to the Board of Directors of The Cronos Group on January 13, 2000. Mr. Younger will serve as a director until the annual meeting in 2001 and his successor is elected. Mr. Younger was appointed as Executive Vice President of The Cronos Group in April 1999 and its Chief Financial Officer in March 1997. From 1991 to 1997, Mr. Younger served as Vice President of Finance for the Leasing Company, located in the UK. From 1987 to 1991 Mr. Younger served as Vice President and Controller for CCC in San Francisco. Prior to 1987, Mr. Younger was a certified public accountant and a principal with the accounting firm of Johnson, Glaze and Co. in Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration from Western Baptist College, Salem, Oregon. JOHN M. FOY Mr. Foy, 54, is directly responsible for the Leasing Company's lease marketing and operations in North America, Central America, and South America, and is based in San Francisco. From 1985 to 1993, Mr. Foy was Vice President/Pacific with responsibility for dry cargo container lease marketing and operations in the Pacific Basin. From 1977 to 1985 Mr. Foy was Vice President of Marketing for Nautilus Leasing Services in San Francisco with responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy was Regional Manager for Flexi-Van Leasing, a container lessor, with responsibility for container leasing activities in the Western United States. Mr. Foy holds a B.A. degree in Political Science from University of the Pacific, and a Bachelor of Foreign Trade from Thunderbird Graduate School of International Management. NICO SCIACOVELLI Mr. Sciacovelli, 50, was elected Vice President - Europe, Middle East and Africa in June 1997. Mr. Sciacovelli is directly responsible for the Leasing Company's lease marketing and operations in Europe, the Middle East and Africa and is based in Italy. Since joining Cronos in 1983, Mr. Sciacovelli served as Area Director and Area Manager for Southern Europe. Prior to joining Cronos, Mr. Sciacovelli was a Sales Manager at Interpool Ltd. JOHN C. KIRBY Mr. Kirby, 46, is responsible for container purchasing, contract and billing administration, container repairs and leasing-related systems, and is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as European Technical Manager and advanced to Director of European Operations in 1986, a position he held with CCC, and later the Leasing Company, until his promotion to Vice President/Operations of the Leasing Company in 1992. From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container leasing company, as Technical Manager based in Hamburg, Germany. Mr. Kirby acquired a professional engineering qualification from the Mid-Essex Technical College in England. 29 30 Item 11. Executive Compensation Beginning with the second quarter of 1992, the Registrant commenced monthly distributions to its partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to the general partner. Sales proceeds are allocated 99% to the limited partners and 1% to the general partner. The allocations will remain in effect until such time as the limited partners have received from the Registrant aggregate distributions in an amount equal to their capital contributions plus a 10% cumulative, compounded (daily) annual return on their adjusted capital contributions. Thereafter, all Partnership distributions will be allocated 85% to the limited partners and 15% to the general partner. The Registrant will not pay or reimburse CCC or the Leasing Company for any remuneration payable by them to their executive officers, directors or any other controlling persons. However, the Registrant will reimburse the general partner and the Leasing Company for certain services pursuant to the Partnership Agreement. These services include but are not limited to (i) salaries and related salary expenses for services which could be performed directly for the Registrant by independent parties, such as legal, accounting, transfer agent, data processing, operations, communications, duplicating and other such services; and (ii) performing administrative services necessary to the prudent operations of the Registrant. The following table sets forth the fees the Registrant paid (on a cash basis) to CCC or the Leasing Company ("CCL") for the year ended December 31, 1999.
Cash Fees and Name Description Distributions ---- ----------- ------------- 1) Base management fees - equal to 7% of gross lease revenues attributable to operating leases pursuant to Section 4.3 of the Limited CCL Partnership Agreement $ 493,464 2) Reimbursed administrative expenses - equal to the costs expended by CCC and its affiliates for services necessary to the prudent operation of the Registrant pursuant to Section 4.4 of CCC the Limited Partnership Agreement $ 22,188 CCL $ 373,939 3) Interest in Fund - percentage of distributable cash for any quarter prior to receipt of the incentive management fee, pursuant to Section 4.5 of the Limited Partnership Agreement CCC $ 237,728
30 31 Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners There is no person or "group" of persons known to the management of CCC to be the beneficial owner of more than five percent of the outstanding units of limited partnership interests of the Registrant. (b) Security Ownership of Management The Registrant has no directors or officers. It is managed by CCC. CCC owns 1,455 units, representing 0.04% of the total amount of units outstanding. (c) Changes in Control Inapplicable. Item 13. Certain Relationships and Related Transactions (a) Transactions with Management and Others The Registrant's only transactions with management and other related parties during 1999 were limited to those fees paid or amounts committed to be paid (on an annual basis) to CCC, the general partner, and its affiliates. See Item 11, "Executive Compensation," herein. (b) Certain Business Relationships Inapplicable. (c) Indebtedness of Management Inapplicable. (d) Transactions with Promoters Inapplicable. 31 32 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page ---- (a)1. Financial Statements Independent Auditors' Report............................................................15 Report of Independent Public Accountants................................................16 The following financial statements of the Registrant are included in Part II, Item 8: Balance Sheets -as of December 31, 1999 and 1998........................................17 Statements of Operations - for the years ended December 31, 1999, 1998 and 1997.........18 Statements of Partners' Capital - for the years ended December 31, 1999, 1998 and 1997..19 Statements of Cash Flows - for the years ended December 31, 1999, 1998 and 1997.........20 Notes to Financial Statements...........................................................21
All schedules are omitted as the information is not required or the information is included in the financial statements or notes thereto. 32 33 (a)3. Exhibits
Exhibit No. Description Method of Filing --- ----------- ---------------- 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
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 1999. - ---------- * 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) 33 34 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/ Dennis J. Tietz --------------------------------- Dennis J. Tietz President and Director of Cronos Capital Corp. ("CCC") Principal Executive Officer of CCC Date: March 30, 2000 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Cronos Capital Corp., the managing general partner of the Registrant, in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Dennis J. Tietz President and Director of - ------------------------------- Cronos Capital Corp. March 30, 2000 Dennis J. Tietz ("CCC") (Principal Executive Officer of CCC) /s/ Peter J. Younger Treasurer and Director of - ------------------------------- Cronos Capital Corp. ("CCC") Peter J. Younger (Principal Financial and Accounting March 30, 2000 Officer of CCC) /s/ John P. McDonald National Sales Manager - ------------------------------- and Director of March 30, 2000 John P. McDonald Cronos Capital Corp.
SUPPLEMENTAL INFORMATION The Registrant's annual report will be furnished to its limited partners on or about April 30, 2000. Copies of the annual report will be concurrently furnished to the Commission for information purposes only, and shall not be deemed to be filed with the Commission. 35 EXHIBIT INDEX
Exhibit No. Description Method of Filing --- ----------- ---------------- 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
- ------------ * 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) EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT DECEMBER 31, 1999 AND THE STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS ANNUAL REPORT ON FORM 10-K FOR THE PERIOD DECEMBER 31, 1999 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1,111,425 0 585,156 0 0 1,696,581 61,857,061 26,191,802 37,361,840 254,500 0 0 0 0 37,107,340 37,361,840 0 3,777,357 0 3,772,988 0 0 0 0 0 0 0 0 0 27,190 0 0
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