-----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, T9bgNWX2tZl6ZT9VVN7qu99uI6b6eRUNxPMnFXo+PkHGCgzosXzOnhPnzorZ3KhD 4eYuLvY9POeOlTRKfS7uKA== 0000950149-01-501794.txt : 20020410 0000950149-01-501794.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950149-01-501794 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21518 FILM NUMBER: 1785992 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FL CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 10-Q 1 f76849ee10-q.htm QUARTER REPORT QUARTER REPORT
Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001
     
OR
     
(BOX)   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________

Commission file number 0-21518

IEA INCOME FUND XII, L.P.
(Exact name of registrant as specified in its charter)

     
California   94-3143940
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
     
One Front 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       ü      . No               .

 


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Statements of Operations
Statements of Cash Flows
Notes to Unaudited Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II — OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K


Table of Contents

IEA INCOME FUND XII, L.P.

Report on Form 10-Q for the Quarterly Period
Ended September 30, 2001

TABLE OF CONTENTS

         
        PAGE
PART I — FINANCIAL INFORMATION    
         
Item 1.   Financial Statements    
         
    Balance Sheets — September 30, 2001 and December 31, 2000 (unaudited)     4
         
    Statements of Operations for the three and nine months ended September 30, 2001 and 2000 (unaudited)     5
         
    Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 (unaudited)     6
         
    Notes to Financial Statements (unaudited)     7
         
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   12
         
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   15
         
PART II — OTHER INFORMATION    
         
Item 6.   Exhibits and Reports on Form 8-K   16

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PART I — FINANCIAL INFORMATION

     
Item 1.   Financial Statements
    Presented herein are the Registrant’s balance sheets as of September 30, 2001 and December 31, 2000, statements of operations for the three and nine months ended September 30, 2001 and 2000, and statements of cash flows for the nine months ended September 30, 2001 and 2000.

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IEA INCOME FUND XII, L.P.

Balance Sheets

(Unaudited)

                         
            September 30,   December 31,
            2001   2000
           
 
       
Assets
               
Current assets:
               
 
Cash and cash equivalents, includes $1,406,687 at September 30, 2001 and $1,287,792 at December 31, 2000 in interest-bearing accounts
  $ 1,421,687     $ 1,512,512  
 
Net lease receivables due from Leasing Company (notes 1 and 2)
    214,646       517,461  
 
   
     
 
     
Total current assets
    1,636,333       2,029,973  
 
   
     
 
 
               
Container rental equipment, at cost
    55,820,246       59,984,866  
 
Less accumulated depreciation
    29,650,380       28,750,701  
 
   
     
 
   
Net container rental equipment
    26,169,866       31,234,165  
 
   
     
 
     
Total assets
  $ 27,806,199     $ 33,264,138  
 
   
     
 
 
               
       
Partners’ Capital
               
 
               
Partners’ capital (deficit):
               
 
General partner
    (209,204 )     (154,625 )
 
Limited partners
    28,015,403       33,418,763  
 
   
     
 
     
Total partners’ capital
  $ 27,806,199     $ 33,264,138  
 
   
     
 

The accompanying notes are an integral part of these financial statements.

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IEA INCOME FUND XII, L.P.

Statements of Operations

(Unaudited)

                                     
        Three Months Ended   Nine Months Ended
       
 
        September 30,   September 30,   September 30,   September 30,
        2001   2000   2001   2000
       
 
 
 
Net lease revenue (notes 1 and 3)
  $ 614,245     $ 1,108,294     $ 2,268,423     $ 3,173,258  
 
                               
Other operating expenses:
                               
 
Depreciation
    859,974       894,484       2,611,487       2,703,653  
 
Other general and administrative expenses
    38,954       29,317       141,655       88,786  
 
   
     
     
     
 
 
    898,928       923,801       2,753,142       2,792,439  
 
   
     
     
     
 
   
Income (loss) from operations
    (284,683 )     184,493       (484,719 )     380,819  
 
                               
Other income (loss):
                               
 
Interest income
    10,062       15,587       42,277       43,797  
 
Net loss on disposal of equipment
    (101,090 )     (13,682 )     (349,348 )     (180,703 )
 
Impairment losses
                (1,617,363 )      
 
   
     
     
     
 
 
    (91,028 )     1,905       (1,924,434 )     (136,906 )
 
   
     
     
     
 
   
Net (loss) income
  $ (375,711 )   $ 186,398     $ (2,409,153 )   $ 243,913  
 
   
     
     
     
 
 
                               
Allocation of net income (loss):
                               
 
General partner
  $ 23,365     $ 38,850     $ 72,070     $ 115,243  
 
Limited partners
    (399,076 )     147,548       (2,481,223 )     128,670  
 
   
     
     
     
 
 
  $ (375,711 )   $ 186,398     $ (2,409,153 )   $ 243,913  
 
   
     
     
     
 
 
                               
Limited partners’ per unit share of net (loss) income
  $ (0.11 )   $ 0.05     $ (0.71 )   $ 0.04  
 
   
     
     
     
 

The accompanying notes are an integral part of these financial statements.

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IEA INCOME FUND XII, L.P.

Statements of Cash Flows

(Unaudited)

                   
      Nine Months Ended
     
      September 30,   September 30,
      2001   2000
     
 
Net cash provided by operating activities
  $ 2,330,210     $ 3,307,528  
 
               
Cash provided by investing activities:
               
 
Proceeds from disposal of equipment
    627,751       323,736  
 
               
Cash used in financing activities:
               
 
Distribution to partners
    (3,048,786 )     (3,293,330 )
 
   
     
 
 
               
Net increase (decrease) in cash and cash equivalents
    (90,825 )     337,934  
 
               
Cash and cash equivalents at January 1
    1,512,512       1,111,425  
 
   
     
 
 
               
Cash and cash equivalents at September 30
  $ 1,421,687     $ 1,449,359  
 
   
     
 

The accompanying notes are an integral part of these financial statements.

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IEA INCOME FUND XII, L.P.

Notes to Unaudited Financial Statements

(1)   Summary of Significant Accounting Policies

  (a)   Nature of Operations
 
      IEA Income Fund XII, L.P. (the “Partnership”) is a limited partnership organized under the laws of the State of California on August 28, 1991 for the purpose of owning and leasing marine cargo containers 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.

(Continued)

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IEA INCOME FUND XII, L.P.

Notes to Unaudited Financial Statements

  (c)   Basis of Accounting
 
      The Partnership utilizes the accrual method of accounting. Net lease revenue is recorded by the Partnership in each period based upon its leasing agent agreement with the Leasing Company. Net lease revenue is generally dependent upon operating lease rentals from operating lease agreements between the Leasing Company and its various lessees, less direct operating expenses and management fees due in respect of the containers specified in each operating lease agreement.
 
  (d)   Depreciation of Rental Equipment
 
      Effective June 1, 2001, the estimated depreciable life has been changed from a twelve-year life to a fifteen-year life and the estimated salvage value has been changed from 30% to 10% of the original equipment cost. The effect of these changes is an increase to depreciation expense of approximately $54,800 from June 1 to September 30, 2001.
 
  (e)   Container Equipment
 
      In June 2001, the Partnership recorded impairment charges relating to refrigerated container equipment which reduced net income by $1,617,363 or $0.46 per limited partnership unit.
 
      In the second quarter of 2001, the Leasing Company undertook a review of the Partnership’s refrigerated container equipment. The purpose of the review was to consider recent changes in the marketplace and economic environment and to identify the consequences, if any, from an accounting perspective. The Leasing Company identified a number of issues that have had an impact on the carrying value of certain equipment at June 30, 2001.

  i.   In 1992, the Montreal Protocol outlawed the production of the R12 refrigerant gas by developed countries. Since that date, shipping lines and leasing companies have operated fleets including refrigerated container equipment with the R12 refrigerant gas (the “R12 Containers”). However, the environmental impact of refrigerant gases has become increasingly prominent. On January 1, 2001, it became illegal for R12 to be handled, other than for disposal, in almost all countries that are members of the European Union.
 
  ii.   Several of the major shipping lines that lease from the Leasing Company, as well as other leasing companies, have committed to eliminating R12 Containers from their fleets in 2001. Inventories consisting of R12 Containers will continue to increase as shipping lines redeliver the containers from existing leases.
 
  iii.   During 2000, the Leasing Company completed a number of term leases for R12 Containers. However, over the course of 2001, the factors outlined above, together with the deteriorating economic environment, have resulted in a very slow leasing market for R12 Containers. In addition, it is probable that residual prices for R12 Containers will decrease as R12 containers are redelivered from existing leases.

      The Leasing Company has considered the impact of these factors in June 2001 and decided to change the current marketing strategy for R12 Containers. The Leasing Company concluded that effective July 1, 2001, inventories of R12 Containers would be targeted for immediate sale. The Leasing Company also conducted a review of R12 Containers that were on lease at June 30, 2001.

(Continued)

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IEA INCOME FUND XII, L.P.

Notes to Unaudited Financial Statements

  (e)   Container Equipment (continued)
 
      Assets to be disposed of: In June 2001 the Leasing Company committed to a plan to dispose of 60 R12 Containers with a carrying value of $633,513. It was concluded that the carrying value of these R12 containers exceeded fair value and accordingly, an impairment charge of $472,513 was recorded to operations under impairment losses. It is expected that these R12 Containers will be will be disposed of over the next several quarters. During the three-month period ended September 30, 2001, the Partnership sold five refrigerated containers which were targeted for sale as of June 30, 2001. The Partnership recognized a gain of $8,606 on these containers.
 
      Assets to be held and used: The Leasing Company conducted a review of 186 R12 Containers with a carrying value of $2,010,716 that were on lease at June 30, 2001. It was concluded that the carrying value of these R12 Containers exceeded the future cash flows expected to result from the use of these containers and their eventual disposition, and therefore was not recoverable. Accordingly, a charge of $1,144,850 was recorded to operations under impairment losses. Fair value was determined by discounting future expected cash flows.
 
  (f)   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 financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (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 reported period. Actual results could differ from those estimates.
 
      The interim financial statements presented herewith reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the financial condition and results of operations for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

(Continued)

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IEA INCOME FUND XII, L.P.

Notes to Unaudited Financial Statements

(2)   Net Lease Receivables Due from Leasing Company
 
    Net lease receivables due from the Leasing Company are determined by deducting direct operating payables and accrued expenses, base management fees payable, and reimbursed administrative expenses payable to CCC and its affiliates from the rental billings earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease receivables at September 30, 2001 and December 31, 2000 were as follows:

                 
    September 30,   December 31,
    2001   2000
   
 
Gross lease receivables
  $ 1,179,599     $ 1,601,580  
Less:
               
Direct operating payables and accrued expenses
    555,994       428,702  
Damage protection reserve
    48,277       138,819  
Base management fees payable
    214,400       268,241  
Reimbursed administrative expenses
    35,503       76,784  
Allowance for doubtful accounts
    110,779       171,573  
 
   
     
 
Net lease receivables
  $ 214,646     $ 517,461  
 
   
     
 

(3)   Net Lease Revenue
 
    Net lease revenue is determined by deducting direct operating expenses, base management fees and reimbursed administrative expenses to CCC and its affiliates from the rental revenue earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease revenue for the three and nine-month periods ended September 30, 2001 and 2000 were as follows:

                                 
    Three Months Ended   Nine Months Ended
   
 
    September 30,   September 30,   September 30,   September 30,
    2001   2000   2001   2000
   
 
 
 
Rental revenue (note 4)
  $ 1,286,313     $ 1,660,004     $ 4,082,835     $ 5,133,532  
Less:
                               
Rental equipment operating expenses
    510,252       370,231       1,307,759       1,318,177  
Base management fees
    88,697       114,444       281,458       347,428  
Reimbursed administrative expenses
    73,119       67,035       225,195       294,669  
 
   
     
     
     
 
 
  $ 614,245     $ 1,108,294     $ 2,268,423     $ 3,173,258  
 
   
     
     
     
 

(Continued)

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IEA INCOME FUND XII, L.P.

Notes to Unaudited Financial Statements

(4)   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 its revenues from leasing marine cargo containers. As of September 30, 2001, the Partnership operated 8,467 twenty-foot, 4,914 forty-foot and 199 forty-foot high-cube marine dry cargo containers, as well as 240 twenty-foot and 256 forty-foot marine refrigerated cargo containers. A summary of gross lease revenue, by product, for the three and nine-month periods ended September 30, 2001 and 2000 follows:

                                 
    Three Months Ended   Nine Months Ended
   
 
    September 30,   September 30,   September 30,   September 30,
    2001   2000   2001   2000
   
 
 
 
Dry cargo containers
  $ 1,022,993     $ 1,358,437     $ 3,284,308     $ 4,161,338  
Refrigerated containers
    263,320       301,567       798,527       972,194  
 
   
     
     
     
 
Total
  $ 1,286,313     $ 1,660,004     $ 4,082,835     $ 5,133,532  
 
   
     
     
     
 

    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.
 
(5)   New Accounting Pronouncements
 
    In August 2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting for Asset Retirement Obligations”, which is effective for all fiscal years beginning after June 15, 2002. This standard requires a company to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred, and a corresponding increase in the carrying value of the related long-lived asset. During October 2001, the Financial Accounting Standards Board issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for all fiscal years beginning after December 15, 2001. SFAS No. 144 supersedes SFAS No. 121, but retains its fundamental provisions relating to the recognition and measurement of the impairment of long-lived assets to be held and used, and the measurement of long lived assets to be disposed of by sale. The Registrant has not yet determined the effect of adoption of either SFAS 143 or SFAS 144 on its financial position and results of operations.

******

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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.

General

The Registrant 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 Registrant. Pursuant to the Agreement, the Leasing Company is responsible for leasing, managing and re-leasing the Registrant’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 Registrant, 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.

The demand for dry cargo containers has continued to be adversely affected by the slowdown in the global economy and the resulting excess supply of containers. The terrorist attacks of September 11, 2001 resulted in further disruptions of global business activities and raised further questions as to the short-term direction of the global economy. Transpacific trade, a large proportion of which consists of technology-related goods, has been largely affected by the slowdown of the US economy. For the first time in many years, the aggregate GDP growth rates of the United States, Europe, and Japan have decelerated, contributing to lower utilization rates and higher container inventories throughout the world. Container imbalances for all trade routes involving Asia are expected to continue throughout the remainder of the year and through the first half of 2002. As a result of the increasing container inventories worldwide, the production of new containers has declined. Although a slowdown in new container production could have positive short and long-term effects for the container leasing industry, a reduction in new containers will not have a significant impact without an easing of current market constraints and a strengthening of the world’s economies. In response to the foregoing, the Leasing Company continues to implement a number of marketing initiatives which are designed to target identified leasing opportunities and enhance inventory management of the Registrant’s fleet.

The Registrant’s average fleet size and utilization rates for the three and nine-month periods ended September 30, 2001 and September 30, 2000 were as follows:

                                   
      Three Months Ended   Nine Months Ended
     
 
      September 30,   September 30,   September 30,   September 30,
      2001   2000   2001   2000
     
 
 
 
Average fleet size (measured in twenty-foot equivalent units (TEU))
                               
 
Dry cargo containers
    18,804       19,620       19,050       19,797  
 
Refrigerated containers
    678       761       727       771  
Average Utilization
                               
 
Dry cargo containers
    65 %     76 %     67 %     75 %
 
Refrigerated containers
    83 %     79 %     76 %     83 %

Average dry cargo container per-diem rental rates for the three and nine-month periods ended September 30, 2001 declined approximately 11% and 6%, respectively, when compared to the same periods in the prior year. Average refrigerated container per-diem rental rates for the three and nine-month periods ended September 30, 2001 declined approximately 9% and 5%, respectively, when compared to the same periods in the prior year.

(Continued)

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Three Months Ended September 30, 2001 Compared to the Three Months Ended September 30, 2000

Income (loss) from operations for the three months ended September 30, 2001 was a loss of $284,683, as compared to income of $184,493 during the corresponding period of 2000. The loss was primarily due to the impact of current market constraints on utilization and per-diem rental rates, as well as the Registrant’s smaller fleet size, and their cumulative effect on net lease revenue.

Net lease revenue of $614,245 for the three months ended September 30, 2001 was $494,049 lower than in the corresponding period of 2000. The decrease was due to a $373,691 decline in gross rental revenue (a component of net lease revenue) from the same period in 2000. Gross rental revenue was impacted by the Registrant’s smaller fleet size, lower per-diem rental rates, and lower utilization rates. Other components of net lease revenue, including management fees, were lower by $25,747 when compared to the corresponding period in 2000, and partially offset the decline in gross lease revenue. Direct operating expenses increased by $151,206 when compared to the corresponding period in 2000. Contributing to the increase in direct operating expenses were increases in storage and repositioning expenses.

Depreciation expense of $859,974 for the three months ended September 30, 2001 was $34,510 lower than the same period in 2000 due to a declining fleet size. Effective June 1, 2001, the Registrant changed the estimated life of its rental container equipment from an estimated 12 year life to a 15 year life, and its estimated salvage value from 30% to 10% of original equipment cost. The effect of these changes was an increase in depreciation expense of approximately $36,100 for the three months ended September 30, 2001.

Other general and administrative expenses increased to $38,954 in the third quarter of 2001, from $29,317 in the corresponding period of 2000, representing an increase of $9,637 from the same period in 2000. Contributing to this increase were professional fees, costs related to investor communications and exchange rate losses.

Net loss on disposal of equipment was a result of the Registrant disposing of 186 containers during the three-month period ended September 30, 2001, as compared to 155 containers during the same period in 2000. These disposals resulted in a loss of $101,090 for the three-month period ended September 30, 2001, as compared to a loss of $13,682 for the three-month period ended September 30, 2000. The Registrant believes that the net loss on container disposals in the three-month period ended September 30, 2001 was a result of various factors including the age, condition, suitability for continued leasing, as well as the geographical location of the containers when disposed. These factors will continue to influence the decision to repair or dispose of a container when it is returned by a lessee, as well as the amount of sales proceeds received and the related gain or loss on container disposals. The level of the Registrant’s container disposals in subsequent periods will also contribute to fluctuations in the net gain or loss on disposals. As a result of current world events and market conditions, the Registrant is re-evaluating its asset impairment criteria.

Impairment charges were incurred by the Registrant relating to refrigerated container equipment with R12 refrigerant gas (the “R12 Containers”). In the second quarter of 2001, the Leasing Company undertook a review of the Registrant’s refrigerated container equipment. Due to the environmental impact of the R12 refrigerant gas and other R12 Container marketing considerations, the Leasing Company concluded that effective July 1, 2001, inventories of the Registrant’s R12 Containers would be targeted for immediate sale. The Leasing Company also conducted a review of the Registrant’s R12 Containers that were on lease at June 30, 2001.

  Assets to be disposed of: In June 2001 the Leasing Company committed to a plan to dispose of 60 R12 Containers with a carrying value of $633,513. It was concluded that the carrying value of these R12 containers exceeded fair value and accordingly, an impairment charge of $472,513 was recorded to operations under impairment losses. It is expected that these R12 Containers will be will be disposed of over the next several quarters. Included in the net loss on the disposal of equipment for the three-month period ended September 30, 2001 is a gain of $8,606 on the sale of five refrigerated containers which were targeted for sale as of June 30, 2001.
 
  Assets to be held and used: The Leasing Company conducted a review of 186 R12 Containers with a carrying value of $2,010,716 that were on lease at June 30, 2001. It was concluded that the carrying value of these R12 Containers exceeded the future cash flows expected to result from the use of these containers and their eventual disposition, and therefore was not recoverable. Accordingly, a charge of $1,144,850 was recorded to operations under impairment losses. Fair value was determined by discounting future expected cash flows.

(Continued)

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Nine Months Ended September 30, 2001 Compared to the Nine Months Ended September 30, 2000

Income (loss) from operations for the nine-month period ended September 30, 2001 was a loss of $484,719, as compared to income of $380,819 during the corresponding period of 2000. The decrease was primarily due to the impact of current market constraints on utilization and per-diem rental rates, as well as the Registrant’s smaller fleet size, and their cumulative effect on net lease revenue.

Net lease revenue of $2,268,423 for the nine-month period ended September 30, 2001 was $904,835 lower than in the corresponding period of 2000. The decrease was due to a $1,050,697 decline in gross rental revenue (a component of net lease revenue) from the same period in 2000. Gross rental revenue was impacted by the Registrant’s smaller fleet size, lower per-diem rental rates, and lower utilization rates. Other components of net lease revenue, including rental equipment operating expenses, management fees, and reimbursed administrative expenses, were lower by a combined $145,862 when compared to the corresponding period in 2000, and partially offset the decline in gross lease revenue. Contributing to the decline in direct operating expenses was a decline in the provision for doubtful accounts.

Depreciation expense of $2,611,487 for the nine-month period ended September 30, 2001 was $92,166 lower than the same period in 2000 due to a declining fleet size. Effective June 1, 2001, the Registrant changed the estimated life of its rental container equipment from an estimated 12 year life to a 15 year life and its estimated salvage value from 30% to 10% of original equipment cost. The effect of these depreciation changes is an increase in depreciation expense of approximately $54,800 from June 1 to September 30, 2001.

Other general and administrative expenses increased to $141,655 during the nine-month period ended September 30, 2001, from $88,786 in the corresponding period of 2000, representing an increase of $52,869 from the same period in 2000. Contributing to this increase were costs related to investor communications.

Net loss on disposal of equipment was a result of the Registrant disposing of 549 containers during the first nine months of 2001, as compared to 357 containers during the first nine months of 2000. These disposals resulted in a loss of $349,348 for the nine-month period ended September 30, 2001, as compared to a loss of $180,703 for the nine-month period ended September 30, 2000.

Impairment charges were incurred by the Registrant relating to refrigerated container equipment with R12 refrigerant gas (the “R12 Containers”). In the second quarter of 2001, the Leasing Company undertook a review of the Registrant’s refrigerated container equipment. Due to the environmental impact of the R12 refrigerant gas and other R12 Container marketing considerations, the Leasing Company concluded that effective July 1, 2001, inventories of the Registrant’s R12 Containers would be targeted for immediate sale. It was concluded that the carrying value of the R12 Containers to be disposed of exceeded fair value and accordingly, an impairment charge of $472,513 was recorded to operations under impairment losses. Included in the net loss on the disposal of equipment for the nine-month period ended September 30, 2001 is a gain of $8,606 on the sale of five refrigerated containers which were targeted for sale as of June 30, 2001.

The Leasing Company also conducted a review of the Registrant’s R12 Containers that were on lease at June 30, 2001. It was concluded that the carrying value of the R12 Containers to be held and used exceeded the future cash flows expected to result from the use of these containers and their eventual disposition, and therefore was not recoverable. Accordingly, a charge of $1,144,850 was recorded to operations under impairment losses

The total impairment charge for the Registrant’s R12 Containers was $1,617,363. This charge was recorded during the second quarter of 2001.

Liquidity and Capital Resources

Cash from Operating Activities: Net cash provided by operating activities was $2,330,210 and $3,307,528 during the first nine months of 2001 and 2000, respectively. The net cash generated in 2001 included earnings from operations and $212,844 in net lease receivables due from the Leasing Company. The net cash generated in 2000 primarily reflected earnings from operations and $44,359 in net lease receivables due from the Leasing Company.

(Continued)

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Cash from Investing Activities: Net cash provided by investing activities was $627,751 and $323,736 in the first nine months of 2001 and 2000, respectively. These amounts represent sales proceeds generated from the sale of container equipment.

Cash from Financing Activities: Net cash used in financing activities was $3,048,786 during the first nine months of 2001 compared to $3,293,330 in the corresponding period of 2000. These amounts represent distributions to the Registrant’s general and limited partners. The Registrant’s fleet size, as well as current market conditions, may produce lower operating results and, consequently, lower distributions to its partners in subsequent periods. Sales proceeds distributed to its partners may fluctuate in subsequent periods, reflecting the level of container disposals.

Capital Resources

Aside from the initial working capital reserve retained from the gross subscription proceeds (equal to approximately 1% of such proceeds), the Registrant relied primarily on container rental receipts to generate distributions to its general and limited partners, as well as to finance current operating needs. No credit lines are maintained to finance working capital.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exchange rate risk: Substantially all of the Registrant’s revenues are billed and paid in US dollars and a significant portion of costs are billed and paid in US dollars. Of the remaining costs, the majority are individually small, unpredictable and incurred in various denominations and thus are not suitable for cost effective hedging. From time to time, the Leasing Company hedges a portion of the expenses that are predictable and are principally in UK pounds sterling. As exchange rates are outside of the control of the Company, there can be no assurance that such fluctuations will not adversely effect its results of operations and financial condition.

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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 2, 1991   *
         
3(b)   Certificate of Limited Partnership of the Registrant   **
         
10      Form of Leasing Agent Agreement with Cronos Containers Limited   ***

(b)   Reports on Form 8-K
 
    No reports on Form 8-K were filed by the Registrant during the quarter ended September 30, 2001.


*   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)

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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
         
         
    By   /s/ John Kallas
John Kallas
Chief Financial Officer and
Director of Cronos Capital Corp. (“CCC”)
Principal Financial and Accounting Officer of CCC

Date: November 14, 2001

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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   ***


*   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)
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