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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 $ 250.00
For the fiscal year ended December 31, 1996
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 of (I.R.S. Employer Identification No.)
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)
PART II
Item 9 - Changes in and Dis- Current Report on Form 8-K of IEA Income Fund XII, L.P., filed February 7, 1997 and
agreements with April 14, 1997, respectively, and Amendment No. 1 to Current Report on Form 8-K
Accountants on filed February 26, 1997.
Accounting and
Financial Disclosure
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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
Amount Gross 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%
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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, which is in turn a wholly-owned subsidiary of The Cronos Group, a
Luxembourg company. These and other affiliated companies are ultimately
wholly-owned by The Cronos Group, a holding company registered in Luxembourg
("the Holding 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 or managed by the Group on its own behalf or 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 information concerning the containers acquired by the Registrant, see
Item 2, "Properties."
(b) Financial Information About Industry Segments
Inapplicable.
(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 effectively 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. 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
constitute approximately 87% of the worldwide container fleet. Refrigerated and
tank containers constitute approximately 6% of the worldwide container fleet,
with open-tops and 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.
The logistical advantages and reduced freight rates brought about by
containerization have been a major catalyst for world trade growth during the
last twenty-five years, which in turn has generated increased demand for
containerization. The world container fleet has grown from an estimated 270
thousand TEU in 1969 to 10 million TEU in 1996, and according to industry data,
growth of containerized shipping since 1987 has generally averaged two to three
times that of average GDP growth in industrialized countries.
The rapid growth of containerization began with the standardization of
equipment sizes by international agreement in the late 1960's. Initially
confined to the highly competitive trade routes among the industrialized
nations, containerization expanded into substantially all free-world trade
routes by the early 1970's.
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Throughout the decade of the 1970's, conversion from break bulk shipping
methods to containers gained momentum in an environment of generally robust
growth in world trade (except during the 1975-76 world-wide recession). Both
shipping lines and container leasing companies responded to this growing market
demand with major container purchases, while container manufacturers
substantially boosted production capacity.
During the early and mid-1980's, the container industry encountered
alternating periods of slow trade growth, creating excess container capacity,
followed by periods of economic recovery. From the late 1980s to 1991, the
container industry generally experienced a balance in supply and demand for
equipment. In 1992, companies embarked on ambitious container production
programs encouraged by positive economic forecasts and the profitability of the
industry in previous years. This produced an oversupply of containers as some of
the major world economies slipped into recession and ocean carriers and leasing
companies built up large container inventories. During 1993, container
purchasing declined, generally helping to reduce the oversupply of containers.
During 1994 and 1995, the world's major industrialized nations emerged from
a global economic recession. Consequently, excess equipment inventories that had
resulted from the sluggish growth in world trade during 1992 and 1993, as well
as increased production capacity, were absorbed. Since 1995, the container
industry's fleet grew from a size of approximately nine million TEU to
approximately ten million TEU, equivalent to a growth of almost 11%,
representing one of the industry's largest fleet expansions to date. The primary
factor driving demand during 1995 and 1996 has been the steady introduction of
new containership tonnage, which grew at a rate comparable to the container
industry's fleet. However, the growth in the container industry's fleet, as well
as containership tonnage, outpaced increases in worldwide containerized trade,
estimated to be approximately 8%-10% during 1995 and 6-7% during 1996. As a
result, a general surplus capacity arose, in both containership tonnage and
containers, contributing to the current recession that has impacted the
container leasing industry. Additionally, during 1995 and 1996, container prices
steadily declined to levels not seen in a decade, resulting in ocean carriers
purchasing boxes for their own account, further reducing the demand for leased
containers and since mid-1995, contributing to a decline in container
utilization and per-diem rental rates throughout the container leasing industry.
The Registrant believes that growth of containerization will continue in
subsequent years for the following reasons:
o Lower freight rates resulting from containerization are generating new
cargos that previously were not economical to export. Containerization
provides inexpensive, timely and secure transport to manufacturers
allowing them to take advantage of regional opportunities in technology
or labor, and to move products to different locations at various stages
of production;
o Intermodal traffic is expected to continue to grow, and industrialized
countries are continuing to improve intermodal infrastructure (i.e.,
railways, roads and ports);
o Shippers continue to demand transportation of cargo by containers rather
than break-bulk;
o Countries with rapidly-growing economies in emerging markets are
continuing to build new container port facilities that accommodate an
increased flow of containerized trade; and
o Recent trade agreements, such as the North American Free Trade Agreement
("NAFTA") and the General Agreement on Tariffs and Trade ("GATT"), should
further stimulate world trade, and, therefore containerized trade.
The container leasing industry has been a significant contributor to the
growth of containerization, and, in 1996, had an approximately 46% share of the
total world container fleet with ocean carriers holding most of the remainder.
To an ocean carrier, the primary benefits of leasing rather than owning
containers are the following:
o Reduced Capital Expenditures. Leasing is an attractive option to ocean
carriers because ownership of containers requires significant capital
expenditures. Carriers constantly evaluate their investment strategy,
with container purchasing competing directly with other expenditure
requirements, such as ship purchases, ship conversions and terminal
improvements. Container leasing allows ocean carriers to invest capital
in assets that are more central to their business.
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o Improved Asset Management. Trade flow imbalances and seasonal demands
frequently leave ocean carriers with regional surpluses or shortages of
containers, requiring costly repositioning of empty containers. Leasing
companies help ocean carriers manage these trade imbalances by providing
the inventory to service demand, reducing the costs of maintaining local
inventories and minimizing repositioning expenses. By matching different
carriers' container needs, leasing companies can reduce their own risks
of container inventory imbalances and seasonality through a portfolio of
lessees as well as variations in lease terms.
o Increased Container Fleet Flexibility. Ocean carriers benefit from the
variety of lease types offered by leasing companies such as the master
lease, long-term and short-term lease and direct financing lease. These
various leases give ocean carriers flexibility in sizing their fleets
while minimizing capital costs. For example, master lease agreements give
ocean carriers the option of adjusting the size of their fleets, with the
flexibility to pick-up and drop-off containers at various locations
around the world.
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 (Corten(R)roofs, walls, doors and undercarriage), 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
Registrant's 20-foot refrigerated containers have high-grade stainless steel
walls, while 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's refrigerated containers are
designed and manufactured to include the latest generation refrigeration
equipment, with modular microprocessors controlling and monitoring the
container.
The Registrant's containers are leased primarily to ocean-going steamship
companies 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 and, secondarily, term leases (1-5 years) and one-way or round-trip
leases. Special purpose containers acquired by the Registrant, including
refrigerated containers, are generally committed to term leases, where the high
cost of interchanging the higher value specialized container makes master lease
agreements less attractive to customers.
Master lease agreements. A master lease is designed to provide greater
flexibility by allowing customers to pick-up and drop-off containers where and
when needed, subject to restrictions and availability, on pre-agreed terms. The
commercial terms of master leases are generally negotiated annually. Master
leases also define the number of containers that may be returned within each
calendar month and the return locations and applicable drop-off charges. Because
of 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 agreements. Term lease agreements include short-term and
long-term leases. Long-term lease agreements define the number of containers to
be leased, the pick-up and drop-off locations, the applicable per-diem rate for
the duration of the lease and the early termination penalties that may apply in
the event of early redelivery. Ocean carriers use long-term leases when they
have a need for identified containers for a specified term. Long-term leases
usually are not terminated early by the customer and provide stable and
relatively predictable sources of revenue, although per-diem rates and ancillary
charges are lower under long-term leases than under master lease agreements.
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 containers to be leased. Ocean
carriers 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 after one or more legs of a voyage. Except for
direct financing leases, lease rates typically are highest for short-term
leases.
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Under these leases, 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 upon
redelivery, other than ordinary wear and tear. 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.
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 which 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.
The non-cancelable terms of the operating leases of the Registrant's
containers are not sufficient to return to the Registrant as lessor the purchase
price of the equipment. In order to recover the original investment in the
equipment and achieve an adequate return thereon, it is necessary to renew the
lease, lease the equipment to another lessee at the end of the initial lease
term, or sell the equipment.
The Registrant estimates that a dry cargo or refrigerated container may be
used as a leased marine cargo container for a period ranging from 10 to 15
years. The Registrant disposes of used containers in a worldwide market for used
containers in which buyers include wholesalers, mini-storage operators,
construction companies and others. The market for used refrigerated containers
is not as developed as the market for used dry cargo containers. Although a used
refrigerated container will command a higher price than a dry cargo container, a
dry cargo container will bring a higher percentage of its original price. As the
Registrant's fleet ages, a larger proportion of its revenues will be derived
from selling its containers.
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Of the 9,183 twenty-foot, 5,324 forty-foot and 209 forty-foot high-cube
marine dry cargo containers, as well as the 199 twenty-foot and 306 forty-foot
refrigerated cargo containers owned by the Registrant as of December 31, 1996,
7,139 twenty-foot (or 78% thereof), 4,037 forty-foot (or 76% thereof) and 181
forty-foot high-cube marine dry cargo containers (or 87% thereof), and 157
twenty-foot (or 79% thereof) and 276 forty-foot refrigerated cargo containers
(or 90% thereof) were on lease. The following table sets forth the information
on the lease terms with respect to the containers on lease:
Number of
Containers
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20-Foot Dry Cargo Containers:
Term Leases 1,096
Master Leases 6,043
40-Foot Dry Cargo Containers:
Term Leases 417
Master Leases 3,620
40-Foot High-Cube Dry Cargo Containers:
Term Leases 7
Master Leases 174
20-Foot Refrigerated Cargo Containers:
Term Leases 141
Master Leases 16
40-Foot Refrigerated Cargo Containers:
Term Leases 249
Master Leases 27
The Leasing Company will make 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 the
Leasing Company, certain expense reimbursements to CCC, the Leasing Company, and
its affiliates, 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.
The Registrant's sales 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;
Windsor, England; Hamburg; Antwerp; Auckland; Genoa; Singapore; Hong Kong;
Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; and Shanghai. Each of the Leasing
Company's area offices and dedicated agents is staffed with local people
familiar with the customers and language of the region. The Leasing Company's
marketing directors have been employed in the container industry in their
respective regions for an average of 16 years, building direct personal
relationships with the local ocean carriers and locally based representatives of
other ocean carriers.
The Leasing Company also maintains agency relationships with over 40
independent agents around the world, who are generally paid a commission 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. They 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.
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In addition, the Leasing Company relies on the services of over 350
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, and the point when the
Leasing Company's area offices report the container's movements onto the Leasing
Company's equipment tracking system. The Leasing Company's computer system has
the capability to accommodate future developments, such as allowing depots
access to record directly on the system the on-hire and off-hire activity of
containers delivered into the depot. It also has the capability of verifying the
terms of redelivery authorized by the area offices. These functions are
currently being performed by the Leasing Company's area offices.
(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 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.
(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. 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, 1996, no single lessee accounted
for 10% or more 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. The
Leasing Company believes that it, on behalf of the Registrant, competes
favorably on all of these factors.
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The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Genstar Container Corp., Transamerica Leasing, Triton Container
International Ltd., Textainer Corp. and others. In a series of recent
consolidations, one of the major leasing companies, as well as some smaller
ones, have been acquired by competitors. It is estimated that at the end of
1996, the ten largest leasing companies (including the Leasing Company)
represented 93% of the global leased fleet. Genstar Container Corp. and
Transamerica Leasing, the two largest container leasing companies, had
approximately 47% of the worldwide leased container fleet at the end of 1996.
Some of the Leasing Company's competitors have greater financial resources than
the Leasing Company and may be more capable of offering lower per-diem rates on
a larger fleet. 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. In addition, 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 leasing.
(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.
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
27 employees, consisting of 4 officers, 5 other managers and 18 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-going steamship companies. To this extent, the Registrant's operations are
subject to the fluctuations of worldwide economic and political conditions that
may affect the pattern and levels of world trade.
Rental income from leases to foreign customers exceeded 90% of the
Registrant's total rental income for the years 1996, 1995 and 1994. 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.
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Item 2. Properties
As of December 31, 1996, the Registrant owned 9,183 twenty-foot, 5,324
forty-foot and 209 forty-foot high-cube marine dry cargo containers, as well as
199 twenty-foot and 306 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, 1996 was as follows:
Estimated
Useful Life Average Age Average Cost
----------- ----------- ------------
20-Foot Dry Cargo Containers 10-15 years 5 years $ 2,874
40-Foot Dry Cargo Containers 10-15 years 5 years $ 4,672
40-Foot High-Cube Dry Cargo Containers 10-15 years 4 years $ 5,034
20-Foot Refrigerated Cargo Containers 10-15 years 5 years $ 18,813
40-Foot Refrigerated Cargo Containers 10-15 years 5 years $ 23,149
During 1996, the Registrant invested a portion of its cash generated from
sales proceeds to replace containers which had been lost or damaged beyond
repair by purchasing 87 new twenty-foot and 22 new forty-foot marine dry cargo
containers at an aggregate cost of $306,330. At December 31, 1996, the
Registrant committed to purchase an additional 180 twenty-foot marine dry cargo
containers, at an aggregate cost of approximately $389,000.
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 1996, utilization of the dry cargo and refrigerated
container fleet averaged 82% and 89%, respectively.
During 1996, the Registrant disposed of 155 twenty-foot, 40 forty-foot and
one forty-foot high-cube marine dry cargo container, and one forty-foot
refrigerated cargo container at an average book gain of $373 per container.
Item 3. Legal Proceedings
As reported by the Registrant in its Current Report on Form 8-K, filed with
the SEC on February 7, 1997, as amended February 26, 1997, on February 3, 1997,
Arthur Andersen, London, England, resigned as auditors of the Holding Company
(The Cronos Group). In its letter of resignation, Arthur Andersen states that it
was unable to obtain adequate information in response to inquiries it had made
in connection with its audit of the Holding Company for the year ended December
31, 1996. In connection with its resignation, Arthur Andersen also prepared a
report pursuant to the provisions of Section 10A(b)(2) of the Securities
Exchange Act of 1934, as amended, for filing by the Holding Company with the
SEC.
Following the report of Arthur Andersen, the SEC, on February 10, 1997,
commenced a private investigation of the Holding Company for the purpose of
investigating the matters discussed in such report and related matters. CCC does
not believe that the focus of the SEC's investigation is upon the Registrant or
CCC. CCC is unable at this time to predict the outcome of the SEC's private
investigation of the Holding Company.
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 Holders
(b)(1) Title of Class as of December 31, 1996
-------------- -----------------------
Units of limited partnership
interests 5,053
(c) Dividends.
Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6 below, "Selected Financial Data."
11
12
Item 6. Selected Financial Data
Year Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992 (1)
----------- ----------- ----------- ----------- -----------
Net lease revenue $ 6,979,978 $ 8,625,810 $ 8,549,385 $ 8,265,514 $ 3,092,588
Net earnings $ 3,156,373 $ 4,762,818 $ 4,625,586 $ 4,266,697 $ 1,541,613
Net earnings per unit of
limited partnership interest $ 0.79 $ 1.25 $ 1.21 $ 1.12 $ .98
Cash distributions per unit of
limited partnership interest $ 1.92 $ 2.00 $ 2.00 $ 2.12 $ 1.13
At year-end:
Total assets $50,805,865 $55,578,817 $59,093,096 $62,127,102 $68,576,548
Partners' capital $50,104,535 $54,036,992 $56,671,214 $59,442,668 $63,006,464
(1) For the period January 31, 1992 (commencement of operations) through
December 31, 1992.
- ----------
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 current
operating needs. No credit lines are maintained to finance working capital.
At December 31, 1996, the Registrant had $2,262,639 in cash and cash
equivalents, a decrease of $564,863 and an increase of $101,850 from the
December 31, 1995 and 1994 cash balances, respectively. During 1996, the
Registrant expended $321,647 of cash generated from sales proceeds to pay for
additional containers. At December 31, 1996, the Registrant committed to
purchase an additional 180 dry cargo containers, replacing containers which have
been lost or damaged beyond repair, at an aggregate manufacturers invoice cost
of approximately $389,000. Approximately $367,000 in cash generated from
equipment sales, reserved as part of the Registrant's December 31, 1996 cash
balances, will be used to finance these purchases, in addition to cash generated
from equipment sales during the first quarter of 1997. Throughout the remainder
of 1997, the Registrant may use cash generated from equipment sales to purchase
and replace containers which have been lost or damaged beyond repair. Amounts
not used to purchase and replace containers may be distributed to its partners.
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 distribution 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.
12
13
From inception through February 28, 1997, the Registrant has distributed
$30,944,327 in cash from operations to its limited partners, or 44% of the
Registrant's original limited partners' investment. 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.
Indicative of the cyclical nature of the container leasing business, the
container lease market has followed a general downward trend since mid-1995.
This downturn can be attributed to a fall in growth of containerized export
trade from key markets in Asia and the impact resulting from a build-up of
surplus containers at former high-demand locations. Leasing companies purchased
record amounts of containers in 1994 and 1995, while purchasing a smaller number
than ocean carriers and transport companies in 1996. During 1996, ocean carriers
and other transport companies moved away from leasing containers outright, as
declining container prices, favorable interest rates and the abundance of
available capital resulted in ocean carriers and transport companies purchasing
a larger share of equipment for their own account. This situation has
characterized the latest industry downturn. These leasing market conditions are
expected to continue throughout 1997, impacting the Registrant's liquidity and
capital resources.
Results of Operations
1996 - 1995
A fall in growth of containerized export trade from key Asian markets
contributed to the container leasing market's downward trend during 1996. Also
contributing to the sluggish container leasing market conditions were declining
container prices, favorable interest rates and an abundance of available capital
which resulted in ocean carriers and transport companies purchasing a larger
share of containers for their own account, reducing the demand for leased
containers. Once the demand for leased containers began to fall, per-diem rental
rates were also adversely affected. In order to counter these market conditions,
the Leasing Company implemented various marketing strategies during 1996,
including but not limited to, offering incentives to shipping companies,
repositioning containers to high demand locations and focusing towards term
leases and other leasing opportunities, including the leasing of containers for
local storage.
As the leasing industry's equipment moved into surplus, ocean carriers and
transport companies became increasingly selective about the age and condition of
containers taken on-hire. Many have adopted a policy of only leasing containers
of a certain age or less. It has been the Registrant's experience that in
periods of weak demand, many lessees insist on equipment three to five years of
age. Such criteria currently serves as a barrier to older equipment being taken
on-hire, and did not materially impact the leasing opportunities of the
Registrant's fleet, which averaged five years of age at December 31, 1996, or
its results of operations. 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 and is directly related to the size, utilization and
per-diem rental rates of the Registrant's fleet. Net lease revenue declined by
approximately 19%, when compared to 1995 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
$12,200,962 in 1995 to $10,808,070 in 1996. The Registrant's average fleet size
(as measured in twenty-foot equivalent units ("TEU")) was 21,101 TEU in 1996, as
compared to 21,183 TEU in 1995. The Registrant's dry and refrigerated cargo
container utilization rates decreased from averages of 89% and 99% during 1995,
to averages of 82% and 89% during 1996, respectively. Dry cargo container
per-diem rental rates declined 4% from 1995 levels, while refrigerated container
per-diem rental rates remained unchanged. Rental equipment operating expenses,
when measured as a percentage of rental revenue, increased due to higher storage
and handling costs associated with the lower equipment utilization and increased
repositioning costs.
13
14
The Registrant disposed of 155 twenty-foot, 40 forty-foot and one forty-foot
high-cube marine dry cargo containers, as well as one forty-foot refrigerated
cargo container during 1996, as compared to 111 twenty-foot and 26 forty-foot
and one forty-foot high-cube marine dry cargo containers during 1995. 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.
As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, a Luxembourg Corporation headquartered in
Orchard Lea, England (the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital Corp.,
the General Partner of the Registrant. In its letter of resignation to the
Parent Company, Arthur Andersen states that it resigned as auditors of the
Parent Company and all other entities affiliated with the Parent Company. While
its letter of resignation was not addressed to the General Partner of the
Registrant, Arthur Andersen confirmed to the General Partner that its
resignation as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of Cronos Capital Corp. and the Registrant.
The Registrant retained a new auditor, Moore Stephens, P.C., on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.
The Registrant does not, at this time, have sufficient information to
respond to the concerns raised by Arthur Andersen with respect to its 1996 audit
of the Parent Company or the impact, if any, these concerns may have on the
future operating results and financial condition of the Registrant or the
General Partner's and Leasing Company's ability to manage the Registrant's
business and fleet in subsequent periods. However, the General Partner of the
Registrant does not believe, based upon the information currently available to
it, that Arthur Andersen's resignation was triggered by any concern over the
accounting policies and procedures followed by the Registrant.
Arthur Andersen's report on the financial statements of Cronos Capital Corp.
and the Registrant, for either of the past two years, has not contained an
adverse opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope, or accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been no
disagreements between Cronos Capital Corp. or the Registrant and Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
1995 - 1994
In 1995, the Registrant's operations were impacted by its declining fleet
size, increasingly competitive market conditions, including, but not limited to,
the container leasing market's resistance to higher per-diem rental rates, an
expanding supply of containers within the container industry, as well as
increased efficiencies in the shipping industry.
The Registrant's average fleet size (as measured in twenty-foot equivalent
units ("TEU")) was 21,183 TEU, as compared to 21,198 TEU in 1994. The
Registrant's dry cargo container utilization rates decreased slightly from an
average of 90% during 1994 to an average of 89% during 1995. Refrigerated
container utilization rates averaged 99% in 1995, unchanged from 1994. Dry cargo
container per-diem rental rates decreased by less than 1% from 1994 levels.
Refrigerated container per-diem rental rates declined approximately 2% from 1994
levels. Despite the fluctuations and declines in the Registrant's average fleet
size, utilization and per-diem rental rates, gross rental revenue, a component
of net lease revenue, increased slightly from $12,099,832 in 1994, to
$12,200,962 in 1995. This increase can be partially attributed to an 18%
increase in ancillary revenue. Ancillary revenue, comprised of pick-up,
drop-off, handling and off-hire charges, as well as lease incentives such as
drop-off and pick-up credits, contributed to approximately 12% and 10% of the
Registrant's total gross rental revenue in 1995 and 1994, respectively.
14
15
Rental equipment operating expenses, when measured as a percentage of rental
revenue, increased slightly during 1995. This slight increase was largely
attributed to an increase in repair and maintenance, as well as an increase in
the costs associated with the recovery actions against the doubtful accounts of
certain lessees, including legal and container recovery expenses. Base
management fees declined by $77,310, or approximately 9%, during 1995.
The Registrant disposed of 111 twenty-foot, 26 forty-foot and one forty-foot
high-cube marine dry cargo containers during 1995, as compared to 18
twenty-foot, 16 forty-foot and one forty-foot high-cube marine dry cargo
containers during 1994.
Cautionary Statement
This Annual Report on Form 10-K contains statements relating to future
results of the Registrant, including certain projections and business trends,
that are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to changes in: economic conditions; trade policies; demand for and
market acceptance of leased marine cargo containers; competitive utilization and
per-diem rental rate pressures; as well as other risks and uncertainties,
including but not limited to those described in the above discussion of the
marine container leasing business under Item 7., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those detailed
from time to time in the filings of the Registrant with the Securities and
Exchange Commission.
Item 8. Financial Statements and Supplementary Data
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, 1996, 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 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 audit provides 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, 1996, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1, for the year ended December 31, 1996, is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York,
June 6, 1997
16
17
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, 1995, and the related statements of operations, partners'
capital and cash flows for each of the two years in the period ended December
31, 1995. 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, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
San Francisco, California,
March 15, 1996
17
18
IEA INCOME FUND XII, L.P.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
Assets 1996 1995
------ ------------ ------------
Current assets:
Cash and cash equivalents, includes $2,262,357 in 1996
and $2,827,319 in 1995 in interest-bearing accounts (note 2) $ 2,262,639 $ 2,827,502
Net lease receivables due from Leasing Company
(notes 1 and 4) 1,217,996 1,300,391
------------ ------------
Total current assets 3,480,635 4,127,893
------------ ------------
Container rental equipment, at cost 63,140,873 63,426,137
Less accumulated depreciation 15,961,254 12,361,962
------------ ------------
Net container rental equipment 47,179,619 51,064,175
------------ ------------
Organizational costs, net (notes 1 and 3) 145,611 386,749
------------ ------------
$ 50,805,865 $ 55,578,817
============ ============
Liabilities and Partners' Capital
---------------------------------
Current liabilities:
Accrued expenses (note 5) $ 462,948 $ 430,500
Due to general partner (notes 1 and 6) 238,382 889,475
Container rental equipment purchases payable -- 221,850
------------ ------------
Total current liabilities 701,330 1,541,825
------------ ------------
Commitments (note 13) -- --
Partners' capital (deficit):
General partner (25,428) (58,767)
Limited partners (note 10) 50,129,963 54,095,759
------------ ------------
Total partners' capital 50,104,535 54,036,992
------------ ------------
$ 50,805,865 $ 55,578,817
============ ============
The accompanying notes are an integral part of these financial statements.
18
19
IEA INCOME FUND XII, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Net lease revenue (notes 1 and 8) $ 6,979,978 $ 8,625,810 $ 8,549,385
Other operating expenses:
Depreciation and amortization (notes 1 and 3) 3,931,000 3,938,509 3,901,656
Other general and administrative expenses 92,918 95,140 148,534
----------- ----------- -----------
4,023,918 4,033,649 4,050,190
----------- ----------- -----------
Earnings from operations 2,956,060 4,592,161 4,499,195
Other income:
Interest income 126,916 147,801 87,410
Net gain on disposal of equipment 73,397 22,856 38,981
----------- ----------- -----------
200,313 170,657 126,391
----------- ----------- -----------
Net earnings $ 3,156,373 $ 4,762,818 $ 4,625,586
=========== =========== ===========
Allocation of net earnings:
General partner $ 387,781 $ 366,137 $ 380,729
Limited partners 2,768,592 4,396,681 4,244,857
----------- ----------- -----------
$ 3,156,373 $ 4,762,818 $ 4,625,586
=========== =========== ===========
Limited partners' per unit share of net earnings $ 0.79 $ 1.25 $ 1.21
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
19
20
IEA INCOME FUND XII, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited
Partners General
(note 10) Partner Total
------------ ------------ ------------
Balances at December 31, 1993 $ 59,508,597 $ (65,929) $ 59,442,668
Net earnings 4,244,857 380,729 4,625,586
Cash distributions (7,027,188) (369,852) (7,397,040)
------------ ------------ ------------
Balances at December 31, 1994 56,726,266 (55,052) 56,671,214
Net earnings 4,396,681 366,137 4,762,818
Cash distributions (7,027,188) (369,852) (7,397,040)
------------ ------------ ------------
Balances at December 31, 1995 54,095,759 (58,767) 54,036,992
Net earnings 2,768,592 387,781 3,156,373
Cash distributions (6,734,388) (354,442) (7,088,830)
------------ ------------ ------------
Balances at December 31, 1996 $ 50,129,963 $ (25,428) $ 50,104,535
============ ============ ============
The accompanying notes are an integral part of these financial statements.
20
21
IEA INCOME FUND XII, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 3,156,373 $ 4,762,818 $ 4,625,586
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,931,000 3,938,509 3,901,656
Net gain on disposal of equipment (73,397) (22,856) (38,981)
Decrease (increase) in net lease receivables due from
Leasing Company 171,627 234,246 (859,219)
Increase (decrease) in accrued expenses (94,754) (16,000) 192,000
----------- ----------- -----------
Total adjustments 3,934,476 4,133,899 3,195,456
----------- ----------- -----------
Net cash provided by operating activities 7,090,849 8,896,717 7,821,042
----------- ----------- -----------
Cash flows from (used in) investing activities:
Proceeds from sale of container rental equipment 394,765 320,961 160,285
Purchases of container rental equipment (306,330) (56,925) (162,100)
Acquisition fees paid to general partner (655,317) (1,097,000) (461,677)
----------- ----------- -----------
Net cash used in investing activities (566,882) (832,964) (463,492)
----------- ----------- -----------
Cash flows used in financing activities:
Distributions to partners (7,088,830) (7,397,040) (7,397,040)
----------- ----------- -----------
Net cash used in financing activities (7,088,830) (7,397,040) (7,397,040)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (564,863) 666,713 (39,490)
Cash and cash equivalents at beginning at year 2,827,502 2,160,789 2,200,279
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,262,639 $ 2,827,502 $ 2,160,789
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
21
22
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Income Fund XII, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of California on
August 28, 1991 for the purpose of owning and leasing marine cargo
containers. Cronos Capital Corp. ("CCC") is the general partner and,
with its affiliate Cronos Containers Limited (the "Leasing
Company"), manages the business of the Partnership. The Partnership
shall continue until December 31, 2011, unless sooner terminated
upon the occurrence of certain events.
The Partnership commenced operations on January 31, 1992, when the
minimum subscription proceeds of $2,000,000 were obtained. As of
December 31, 1996, the Partnership operated 9,183 twenty-foot, 5,324
forty-foot and 209 forty-foot high-cube marine dry cargo containers,
as well as 199 twenty-foot and 306 forty-foot marine refrigerated
cargo containers.
The Partnership offered 3,750,000 units of limited partnership
interest at $20 per unit, or $75,000,000. The offering terminated on
November 30, 1992, at which time 3,513,594 limited partnership units
had been purchased.
(b) Leasing Company and Leasing Agent Agreement
The Partnership has entered into a Leasing Agent Agreement whereby
the Leasing Company has the responsibility to manage the leasing
operations of all equipment owned by the Partnership. Pursuant to
the Agreement, the Leasing Company is responsible for leasing,
managing and re-leasing the Partnership's containers to ocean
carriers and has full discretion over which ocean carriers and
suppliers of goods and services it may deal with. The Leasing Agent
Agreement permits the Leasing Company to use the containers owned by
the Partnership, together with other containers owned or managed by
the Leasing Company and its affiliates, as part of a single fleet
operated without regard to ownership. Since the Leasing Agent
Agreement meets the definition of an operating lease in Statement of
Financial Accounting Standards (SFAS) No. 13, it is accounted for as
a lease under which the Partnership is lessor and the Leasing
Company is lessee.
The Leasing Agent Agreement generally provides that the Leasing
Company will make payments to the Partnership based upon rentals
collected from ocean carriers after deducting direct operating
expenses and management fees to CCC and the Leasing Company. The
Leasing Company leases containers to ocean carriers, generally under
operating leases which are either master leases or term leases
(mostly 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; 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.
22
23
IEA INCOME FUND XII, L.P.
NOTES TO 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.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(d) Allocation of Net Earnings and Partnership Distributions
Net earnings have been allocated between general and limited
partners in accordance with the Partnership Agreement.
Actual cash distributions differ from the allocations of net
earnings 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. 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 distribution 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.
(e) Acquisition Fees
Pursuant to Article IV Section 4.2 of 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.
(f) Container Rental Equipment
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Statement requires that
long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be fully recoverable. The Partnership adopted SFAS No.
121 during 1996. In accordance with SFAS 121, container rental
equipment is carried at the lower of the container rental
equipment's original equipment cost, including capitalized
acquisition fees, or the estimated recoverable value of such
equipment. There were no reductions to the carrying value of
container rental equipment during 1996.
Container rental equipment is depreciated over a twelve-year life on
a straight line basis to its salvage value, estimated to be 30%.
23
24
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(g) Amortization
The Partnership's organization costs are being amortized over 60
months on a straight-line basis.
(h) Income Taxes
The Partnership is not subject to income taxes, consequently no
provision for income taxes has been made. The Partnership files an
annual information tax return, prepared on the accrual basis of
accounting.
(i) Foreign Operations
The Partnership's business is not divided between foreign or
domestic operations. The Partnership's business is the leasing of
containers worldwide to ocean-going steamship companies and does not
fit the definition of reportable foreign operations within Financial
Accounting Standards Board Statement No. 14 "Financial Reporting for
Segments of a Business Enterprise." 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.
(j) 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) Cash and Cash Equivalents
Cash equivalents include highly liquid investments with a maturity of
three months or less on their acquisition date. Accordingly, 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 to any one commercial issuer.
(3) Organization Costs
The Partnership incurred $1,205,690 in offering and organizational costs
during its offering period. Amortization of these costs was $241,138 in
1996, 1995 and 1994.
24
25
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(4) 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,
1996 and December 31, 1995 were as follows:
December 31, December 31,
1996 1995
------------ ------------
Lease receivables, net of doubtful accounts
of $318,136 in 1996 and $343,373 in 1995 $ 2,377,329 $ 2,675,630
Less:
Direct operating payables and accrued expenses 634,032 746,823
Damage protection reserve (note 7) 196,373 241,172
Base management fees 282,898 334,219
Reimbursed administrative expenses 46,030 53,025
------------ ------------
$ 1,217,996 $ 1,300,391
============ ============
(5) Accrued Expenses
Accrued expenses consist of amounts reserved for the expected repairs on
approximately 90 refrigerated containers that contain manufacturer's
defects and the expected costs of retrofitting the Registrant's
refrigerated containers with non-CFC refrigerants.
(6) Due to General Partner
The amounts due to CCC at December 31, 1996 and December 31, 1995 consist
of acquisition fees.
(7) 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. A reserve has been
established to provide for the estimated costs incurred by this service.
This reserve is a component of net lease receivables due from the Leasing
Company (see note 4). 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.
25
26
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(8) 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, 1996, 1995
and 1994, was as follows:
1996 1995 1994
----------- ----------- -----------
Rental revenue (note 12) $10,808,070 $12,200,962 $12,099,832
Less:
Rental equipment operating expenses 2,522,158 2,042,239 1,960,959
Base management fees (note 9) 737,561 835,575 912,885
Reimbursed administrative expenses (note 9) 568,373 697,338 676,603
----------- ----------- -----------
$ 6,979,978 $ 8,625,810 $ 8,549,385
=========== =========== ===========
(9) Compensation to General Partner and its Affiliates
Base management fees are equal to 7% of gross lease revenues attributable
to operating leases pursuant to Section 4.3 of the Partnership Agreement.
Reimbursed administrative expenses are equal to the costs expended by CCC
and its affiliates for services necessary to the prudent operation of the
Partnership pursuant to Section 4.4 of the Partnership Agreement. The
following compensation was paid or will be paid by the Partnership to CCC
or its affiliates:
1996 1995 1994
---------- ---------- ----------
Base management fees $ 737,561 $ 835,575 $ 912,885
Reimbursed administrative expenses 568,373 697,338 676,603
Acquisition fees 4,224 13,939 8,105
---------- ---------- ----------
$1,310,158 $1,546,852 $1,597,593
========== ========== ==========
(10) Limited Partners' Capital
The limited partners' per unit share of capital at December 31, 1996, 1995
and 1994 was $14, $15 and $16, 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.
26
27
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(11) Income Taxes
The reconciliation of net earnings as reported in the statement of
operations and as would be reported for federal tax purposes for the years
ended December 31, 1996, 1995 and 1994 are as follows:
1996 1995 1994
------------ ------------ ------------
Net earnings per statement of operations $ 3,156,373 $ 4,762,818 $ 4,625,586
Depreciation for income tax purposes in excess
of depreciation for financial statement purposes (6,828,680) (6,833,152) (6,927,460)
Gain on disposition of assets for tax purposes in excess
of (less than) gain on disposition
for financial statement purposes (109,841) 281,909 25,302
Amortization expense for tax purposes less than
amortization for financial statement purposes 215,832 215,832 215,832
Rental income for tax purposes less than
rental income for financial statement purposes -- -- (427,771)
Bad debt expense for tax purposes (in excess of) less than
bad debt expense for financial statement purposes (25,237) 81,546 181,827
------------ ------------ ------------
Net loss for federal tax purposes $ (3,591,553) $ (1,491,047) $ (2,306,684)
============ ============ ============
At December 31, 1996, the tax basis of total partners' capital was
$27,367,278.
(12) Major Lessees
No single lessee contributed more than 10% of the rental revenue earned
during 1996, 1995 and 1994. 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
operating lease agreements generally require all payments to be made in
United States currency. The Partnership's operations are subject to the
fluctuations of worldwide economic and political conditions that may
affect the pattern and levels of world trade.
(13) Commitments
At December 31, 1996, the Partnership committed to purchase an additional
180 twenty-foot marine dry cargo containers, at an aggregate manufacturers
invoice cost of approximately $389,000.
27
28
IEA INCOME FUND XII, L.P.
NOTES TO FINANCIAL STATEMENTS
(14) Subsequent Events
As reported in the Partnership's Current Report on Form 8-K and Amendment
No. 1 to Current Report on Form 8-K, filed with the Commission on February
7, 1997 and February 26, 1997, respectively, Arthur Andersen, London,
England, resigned as auditors of The Cronos Group (the "Holding Company")
on February 3, 1997.
The Cronos Group is the indirect corporate parent of CCC. In its letter of
resignation to The Cronos Group, Arthur Andersen states that it resigned
as auditors of The Cronos Group and all other entities affiliated with The
Cronos Group. While its letter of resignation was not addressed to CCC,
Arthur Andersen confirmed to CCC that its resignation as auditors of the
entities referred to in its letter of resignation included its resignation
as auditors of CCC and the Partnership. In its letter of resignation,
Arthur Andersen states that it was unable to obtain adequate information
in response to inquiries it had made in connection with its audit of the
Holding Company for the year ended December 31, 1996.
The Partnership does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Partnership or the Leasing
Company's ability to manage the Partnership's fleet in subsequent periods.
However, CCC does not believe, based upon the information currently
available to it, that Arthur Andersen's resignation was triggered by any
concern over the accounting policies and procedures followed by the
Partnership.
Arthur Andersen's report on the financial statements of CCC and the
Partnership, for the previous two years, has not contained an adverse
opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope, or accounting principles.
During the Partnership's previous two fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been no
disagreements between CCC or the Partnership and Arthur Andersen on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
The Partnership retained a new auditor, Moore Stephens, P.C., on April 10,
1997, as reported in its current report on Form 8-K, filed April 14, 1997.
In connection with its resignation, Arthur Andersen also prepared a report
pursuant to the provisions of Section 10A(b)(2) of the Securities Exchange
Act of 1934, as amended, for filing by the Holding Company with the
Securities and Exchange Commission (the "SEC"). Following the report of
Arthur Andersen, the SEC, on February 10, 1997, commenced a private
investigation of the Holding Company for the purpose of investigating the
matters discussed in such report and related matters. The Partnership does
not believe that the focus of the SEC's investigation is upon the
Partnership or CCC. CCC is unable to predict the outcome of the SEC's
private investigation of the Holding Company.
28
29
Schedule 1
IEA INCOME FUND XII, L.P.
SCHEDULE OF REIMBURSED ADMINISTRATIVE EXPENSES
PURSUANT TO ARTICLE IV SECTION 4.4
OF THE PARTNERSHIP AGREEMENT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1996 1995 1994
-------- -------- --------
Salaries $270,999 $354,153 $316,899
Other payroll related expenses 46,995 55,048 88,963
General and administrative expenses 250,379 288,137 270,741
-------- -------- --------
Total reimbursed administrative expenses $568,373 $697,338 $676,603
======== ======== ========
See report of independent public accountants
29
30
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Registrant's discussion regarding the resignation of its certifying
accountant is included in the Registrant's Report on Form 8-K, dated February 3,
1997 and filed February 7, 1997 and Amendment No. 1 to the Registrant's Report
on Form 8-K, dated February 3, 1997 and filed February 26, 1997, incorporated
herein by reference.
The Registrant retained a new auditor, Moore Stephens, P.C., on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.
30
31
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 June 4, 1997, are
as follows:
Name Office
- ------------------------ ------------------------------------------------------------------
Dennis J. Tietz President, Chief Executive Officer and Director
John P. McDonald Vice President/Sales
Elinor Wexler Vice President/Administration and Secretary
John Kallas Vice President/Treasurer, Principal Finance and Accounting Officer
Laurence P. Sargent Director
Stefan M. Palatin Director
DENNIS J. TIETZ Mr. Tietz, 44, as President and Chief Executive Officer,
is responsible for the general management of CCC. From 1986 until August 1992,
Mr. Tietz was responsible for the organization, marketing and after-market
support of CCC's investment programs. Mr. Tietz is also President and a director
of Cronos Securities Corp. 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.
JOHN P. MCDONALD Mr. McDonald, 35, was elected Vice President - National
Sales Manager of CCC in August 1992, with responsibility for marketing CCC's
investment programs. 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.
ELINOR A. WEXLER Ms. Wexler, 48, was elected Vice President -
Administration and Secretary of CCC in August 1992. 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 KALLAS Mr. Kallas, 34, was elected Vice President/Treasurer,
Principal Finance and Accounting Officer of CCC in December 1993 and is directly
responsible for CCC's accounting operations and reporting activities. Mr. Kallas
has held various accounting positions since joining CCC in 1989, including
Controller, Director of Accounting and Corporate Accounting Manager. From 1985
to 1989, Mr. Kallas was an accountant with KPMG Peat Marwick, San Francisco,
California.
Mr. Kallas holds a B.S. degree in Business Administration from the
University of San Francisco and is a certified public accountant. Mr. Kallas is
also Treasurer of Cronos Securities Corp.
31
32
LAURENCE P. SARGENT Mr. Sargent, 67, joined the Board of Directors of CCC
in 1991. Mr. Sargent was a founder of Leasing Partners International ("LPI") and
served as its Managing Director from 1983 until 1991. From 1977 to 1983, Mr.
Sargent held a number of positions with Trans Ocean Leasing Corporation, the
last of which was as a director of its refrigerated container leasing
activities. From 1971 to 1977, Mr. Sargent was employed by SSI Container
Corporation (later Itel Container International), ultimately serving as Vice
President/Far East. Prior to that, Mr. Sargent was a Vice President of Pacific
Intermountain Express, a major U.S. motor carrier, responsible for its bulk
container division. Mr. Sargent holds a B.A. degree from Stanford University.
Mr. Sargent also serves as a director of the Institute of International
Container Lessors ("IICL"), an industry trade association. Mr. Sargent is also a
director of Cronos Securities Corp.
Mr. Sargent retired as Deputy Chairman of the Group as of January 1, 1996
. He will remain a director of CCC, The Cronos Group, as well as other various
subsidiaries of The Cronos Group.
STEFAN M. PALATIN Mr. Palatin, 43, joined the Board of Directors of CCC
in January 1993. Mr. Palatin is Chairman and CEO of The Cronos Group, and was a
founder of LPI in 1983. From 1980 to 1991, Mr. Palatin was an executive director
of the Contrin Group, which has provided financing to the container leasing
industry, as well as other business ventures, and has sponsored limited
partnerships organized in Austria. From 1977 to 1980, Mr. Palatin was a
consultant to a number of companies in Austria, including Contrin. From 1973 to
1977, Mr. Palatin was a sales manager for Generali AG, the largest insurance
group in Austria.
Mr. Palatin, who is based in Austria, holds a Doctorate in Business
Administration from the University of Economics and World Trade in Vienna. Mr.
Palatin is also a director of The Cronos Group.
The key management personnel of the Leasing Company at June 4, 1997, were as
follows:
Name Title
- ----------------- -------------------------------------------------
Steve Brocato President
Peter J. Younger Vice President/Chief Financial Officer
John M. Foy Vice President/Americas
Nico Sciacovelli Vice President/Europe, Middle East and Africa
Harris H. T. Ho Vice President/Asia Pacific
David Heather Vice President/Technical Services
John C. Kirby Vice President/Operations
J. Gordon Steel Vice President/Tank Container Division
STEVE BROCATO Mr. Brocato, 44, was elected President of the Leasing
Company's container division in June 1997, replacing Mr. Nigel J. Stribley, and
is based in the United Kingdom. Mr. Brocato has held various positions since
joining Cronos including, Vice president - Corporate Affairs and Director of
Marketing - Refrigerated Containers for Cronos in North and South America. Prior
to joining Cronos, Mr. Brocato was a Vice President for ICCU Containers from
1983 to 1985 and was responsible for dry cargo container marketing and
operations for the Americas. From 1981 to 1983, he was regional manager for
Trans Ocean leasing Ltd.
PETER J. YOUNGER Mr. Younger, 40, was elected Chief Financial Officer of
The Cronos Group in March, 1997, replacing Mr. A. Darrell Ponniah, and is based
in the United Kingdom. Mr. Younger was appointed Vice President and Controller
of Cronos in 1991. He joined IEA in 1987 and served as Director of Accounting
and the Vice President and Controller, based 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.
32
33
JOHN M. FOY Mr. Foy, 51, 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, 47, was elected Vice President -
Europe, Middle East and Africa in June 1997, replacing Mr. Geoffrey Mornard. 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.
HARRIS H. T. HO Mr. Ho, 39, was elected Vice President - Asia Pacific in
June 1997, replacing Mr. Danny Wong. Mr. Ho is directly responsible for the
Leasing Company's lease marketing and operations in Asia, Australia and the
Indian sub-continent and is based in Hong Kong. Since joining Cronos in 1990,
Mr. Ho served as Area Director, Hong Kong and China. Prior to joining Cronos,
Mr. Ho was a Manager at Sea Containers Pacific Ltd and Sea Containers Hong Kong
Limited from 1981 to 1990, responsible for container marketing within Asia. From
1978 to 1981, Mr. Ho was Senior Equipment Controller for Hong Kong Container
Line. Mr. Ho holds a Diploma of Management Studies in Marketing from The Hong
Kong Polytechnic and The Hong Kong Management Association.
DAVID HEATHER Mr. Heather, 49, is responsible for all technical and
engineering activities of the fleet managed by the Leasing Company. Mr. Heather
was Technical Director for LPI, based in the United Kingdom, from 1986 to 1991.
From 1980 to 1986, Mr. Heather was employed by ABC Containerline NV as Technical
Manager with technical responsibility for the shipping line's fleet of dry
cargo, refrigerated and other specialized container equipment. From 1974 to
1980, Mr. Heather was Technical Supervisor for ACT Services Ltd., a shipping
line, with responsibility for technical activities related to refrigerated
containers. Mr. Heather holds a Marine Engineering Certificate from Riversdale
Marine Technical College in England.
JOHN C. KIRBY Mr. Kirby, 43, 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.
J. GORDON STEEL Mr. Steel, 64, is directly responsible for the overall
lease marketing activity for the Leasing Company's Tank Container Division. From
1990 to 1992, Mr. Steel held the position of Director/General Manager for
Tiphook Container's Tank Division. From 1977 to 1990, Mr. Steel held various
managerial positions, involving manufacturing and transportation of hazardous
materials, with Laporte Industries and ICI, major chemical distribution
companies. Mr. Steel is a qualified Chemical Engineer and attended the Associate
Royal Technical College in Scotland.
33
34
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 Section 4.4 of
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,
1996.
Cash Fees and
Name Description Distributions
---- ----------- -------------
1) CCC Acquisition fee - equal to 5% of the price $ 655,317
of containers acquired by the Registrant
pursuant to Section 4.2 of the Limited
Partnership Agreement
2) CCL Base management fees - equal to 7% of gross $ 788,882
lease revenues attributable to operating
leases pursuant to Section 4.3 of the
Limited Partnership Agreement
3) CCC Reimbursed administrative expenses - equal to $ 78,522
the costs expended by CCC and its affiliates
CCL for services necessary to the prudent operation $ 496,845
of the Registrant pursuant to Section 4.4 of the
Limited Partnership Agreement
4) CCC Interest in Fund - percentage of distributable cash $ 117,120
for any quarter prior to receipt of the incentive
management fee, pursuant to Section 4.5 of the
Limited Partnership Agreement
34
35
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 1996 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.
35
36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
Page
----
The following financial statements of the Registrant are
included in Part II, Item 8:
Reports of Independent Public Accountants...................... 16, 17
Balance sheets - December 31, 1996 and 1995.................... 18
Statements of operations - for the years ended
December 31, 1996, 1995 and 1994........................... 19
Statements of partners' capital - for the years ended
December 31, 1996, 1995 and 1994........................... 20
Statements of cash flows - for the years ended
December 31, 1996, 1995 and 1994........................... 21
Notes to financial statements.................................. 22
Schedule of Reimbursed Administrative Expenses................. 29
All other schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
36
37
(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
The Registrant filed a Report on Form 8-K, February 7, 1997 and Amendment
No. 1 to Report on Form 8-K, February 26, 1997, reporting the resignation
of the Registrant's certifying accountant.
The Registrant filed a Report on Form 8-K, April 14, 1997, reporting the
appointment of the Registrant's successor certifying accountant.
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 2, 1991, included as part of Registration
Statement on Form S-1 (No. 33-42697)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement on
Form S-1 (No. 33-42697)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement on
Form S-1 (No. 33-42697)
37
38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IEA INCOME FUND XII, L.P.
By Cronos Capital Corp.
The General Partner
By /s/ John Kallas
----------------------------------------
John Kallas
Vice President/Treasurer
Principal Finance and Accounting Officer
Date: June 16, 1997
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 general partner of the Registrant, in the capacities and on
the dates indicated:
Signature Title Date
/s/ Dennis J. Tietz President and Director of June 16, 1997
- ----------------------------------- Cronos Capital Corp.
Dennis J. Tietz ("CCC") (Principal Executive
Officer of CCC)
/s/ John Kallas Vice President/Treasurer June 16, 1997
- ----------------------------------- (Principal Finance and
John Kallas Accounting Officer of CCC)
/s/ Laurence P. Sargent Director of CCC June 16, 1997
- ----------------------------------
Laurence P. Sargent
SUPPLEMENTAL INFORMATION
The Registrant's annual report will be furnished to its limited partners
on or about July 18, 1997. 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.
39
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)