##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2005
 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO ______
 Commission file number 0-21518 IEA INCOME FUND XII, L.P.  California
(State or other jurisdiction of
incorporation or organization)
    
    94-3143940
(I.R.S. Employer
Identification No.)
 One Front Street, Suite 925, San Francisco, California 94111
(Address of principal executive offices)                    (Zip Code) (415) 677-8990
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ. No o. Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange Act). Yes o. No þ.




---



##### Table of Contents



IEA INCOME FUND XII, L.P. Report on Form 10-Q for the Quarterly Period
Ended March 31, 2005 TABLE OF CONTENTS PAGEPART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Balance Sheets  March 31, 2005 and December 31, 2004 (unaudited)
    
    
    4Condensed Statements of Operations for the three months ended March 31, 2005 and 2004 (unaudited)
    
    
    5Condensed Statements of Cash Flows for the three months ended March 31, 2005 and 2004 (unaudited)
    
    
    6Notes to Condensed Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II  OTHER INFORMATION
    
    
    16Item 1. Legal Proceedings
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults Upon Senior Securities
    
    
    16Item 4. Submissions of Matters to a Vote of Securities Holders
    
    
    16Item 5. Other Information
    
    
    16Item 6. Exhibits
    
    
    16EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION 
  Item 1.
    Financial StatementsPresented herein are IEA Income Fund XII, L.P.s (the Partnership) condensed balance
sheets as of March 31, 2005 and December 31, 2004, condensed statements of operations for
the three months ended March 31, 2005 and 2004, and condensed statements of cash flows for
the three months ended March 31, 2005 and 2004, (collectively the Financial Statements)
prepared by the Partnership without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC). Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to such
rules and regulations, although the Partnership believes that the disclosures are adequate
to make the information present not misleading. It is suggested that these Financial
Statements be read in conjunction with the financial statements and the notes thereto
included in the Partnerships December 31, 2004 Annual Report on Form 10-K. These
Financial Statements reflect, in the opinion of the Partnership and Cronos Capital Corp.
(CCC), the general partner, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the results for the interim periods. The
statements of operations for such interim periods are not necessarily indicative of the
results for the full year.The information in this Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of the securities laws. These forward-looking statements
reflect the current view of the Partnership with respect to future events and financial
performance and are subject to a number of risks and uncertainties, many of which are beyond
the Partnerships control. All statements, other than statements of historical facts included
in this report, including the statements under Managements Discussion and Analysis of
Financial Condition and Results of Operations, regarding the Partnerships strategy, future
operations, financial position, estimated revenues, projected costs, prospects, plans and
objectives of the Partnership are forward-looking statements. When used in this report, the
words will, believe, anticipate, intend, estimate, expect, project, and similar
expressions are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. All forward-looking statements
speak only as of the date of this report. The Partnership does not undertake any obligation to
update or revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. Although the Partnership believes that its plans,
intentions and expectations reflected in or suggested by the forward-looking statements made in
this report are reasonable, the Partnership can give no assurance that these plans, intentions
or expectations will be achieved. Future economic and industry trends that could potentially
impact revenues and profitability are difficult to predict. 3




---



##### Table of Contents



IEA INCOME FUND XII, L.P. 
 Condensed Balance Sheets (Unaudited) March 31,
    
    
    December 31,2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents, includes $1,968,103 at March 31, 2005 and
$2,107,593 at December 31, 2004 in interest-bearing accounts
    
    $
    1,983,090
    
    
    $
    2,122,594Net lease receivables due from Leasing Company (notes 1 and 2)
    
    
    525,650
    
    
    
    498,682Total current assets
    
    
    2,508,740
    
    
    
    2,621,276Container rental equipment, at cost
    
    
    26,873,371
    
    
    
    29,464,593Less accumulated depreciation
    
    
    (19,505,644
    )
    
    
    (21,035,331
    )Net container rental equipment (note 1)
    
    
    7,367,727
    
    
    
    8,429,262Total assets
    
    $
    9,876,467
    
    
    $
    11,050,538Partners CapitalPartners capital (deficit):General partner
    
    $
    (620,540
    )
    
    $
    (608,534
    )Limited partners
    
    
    10,497,007
    
    
    
    11,659,072Total partners capital
    
    $
    9,876,467
    
    
    $
    11,050,538
 The accompanying notes are an integral part of these financial statements. 4




---



##### Table of Contents



IEA INCOME FUND XII, L.P. 
 Condensed Statements of Operations (Unaudited) Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004Net lease revenue (notes 1 and 3)
    
    $
    482,659
    
    
    $
    467,730Other operating expenses:Depreciation
    
    
    (428,724
    )
    
    
    (580,573
    )Other general and administrative expenses
    
    
    (33,656
    )
    
    
    (33,082
    )Net loss on disposal of equipment
    
    
    (8,089
    )
    
    
    (170,828
    )(470,469
    )
    
    
    (784,483
    )Income (loss) from operations
    
    
    12,190
    
    
    
    (316,753
    )Other income:Interest income
    
    
    8,751
    
    
    
    898Net income (loss)
    
    $
    20,941
    
    
    $
    (315,855
    )Allocation of net income (loss):General partner
    
    $
    26,449
    
    
    $
    (3,159
    )Limited partners
    
    
    (5,508
    )
    
    
    (312,696
    )$
    20,941
    
    
    $
    (315,855
    )Limited partners per unit share of net income (loss)
    
    $
    
    
    
    $
    (0.09
    )
 The accompanying notes are an integral part of these financial statements. 5




---



##### Table of Contents



IEA INCOME FUND XII, L.P. 
 Condensed Statements of Cash Flows (Unaudited) Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004Net cash provided by operating activities
    
    $
    392,712
    
    
    $
    494,709Cash provided by investing activities:Proceeds from disposal of equipment
    
    
    643,245
    
    
    
    235,579Payment received from sales-type lease for sale of rental equipment
    
    
    19,551
    
    
    
    662,796
    
    
    
    235,579Cash used in financing activities:Distribution to general partner
    
    
    (38,455
    )
    
    
    (22,813
    )Distribution to limited partners
    
    
    (1,156,557
    )
    
    
    (717,360
    )(1,195,012
    )
    
    
    740,173Net decrease in cash and cash equivalents
    
    
    (139,504
    )
    
    
    (9,885
    )Cash and cash equivalents at the beginning of the period
    
    
    2,122,594
    
    
    
    1,476,987Cash and cash equivalents at the end of the period
    
    $
    1,983,080
    
    
    $
    1,467,102
 The accompanying notes are an integral part of these financial statements. 6




---



##### Table of Contents



IEA INCOME FUND XII, L.P. 
 Notes to Unaudited Condensed Financial Statements (1) Summary of Significant Accounting Policies  (a)
    Nature of OperationsIEA Income Fund XII, L.P. (the Partnership) is a limited partnership organized under the
laws of the State of California on November 28, 1991 for the purpose of owning and leasing
marine cargo containers worldwide to ocean carriers. The Partnerships operations are
subject to the fluctuations of world economic and political conditions. The Partnership
believes that the profitability of, and risks associated with, leases to foreign customers
is generally the same as those of leases to domestic customers. The Partnerships leases
generally require all payments to be made in United States currency.Cronos Capital Corp. (CCC) is the general partner and, with its affiliate Cronos
Containers Limited (the Leasing Company), manages the business of the Partnership. CCC
and the Leasing Company also manage the container leasing business for other partnerships
affiliated with CCC.The Partnership commenced operations on January 31, 1992, when the minimum subscription
proceeds of $2,000,000 were obtained. The Partnership offered 3,750,000 units of limited
partnership interest at $20 per unit, or $75,000,000. The offering terminated on November
30, 1992, at which time 3,513,594 limited partnership units had been sold.The decision to dispose of containers is influenced by various factors including
age, condition, suitability for continued leasing as well as the geographical location
when disposed. At that time whereby the Partnerships fleet size is reduced to
approximately 20% of its original fleet size, the Partnership expects to enter the
final phase of its liquidation and wind-up stage of operations, unless terminated
sooner upon the occurrence of certain events. At March 31, 2005, the Partnerships
fleet size was approximately 48% of its original fleet size.(b)
    Leasing Company and Leasing Agent AgreementA Leasing Agent Agreement exists between the Partnership and the Leasing Company,
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, under operating leases which are
either master leases or term leases (mostly one to five years) and sales-type leases.
Master leases do not specify the exact number of containers to be leased or the term that
each container will remain on hire but allow the ocean carrier to pick up and drop off
containers at various locations, and rentals are based upon the number of containers used
and the applicable per-diem rate. Accordingly, rentals under master leases are all
variable and contingent upon the number of containers used. Sales-type leases have fixed
payment terms and provide the lessee with a purchase option. The net investment in
sales-type leases represents a receivable due from the Leasing Company, net of unearned
income. Unearned income, when recognized, is reflected in the Partnerships statements of
operations, providing a constant return on capital over the lease term. Unearned income is
recorded as part of the net lease receivable due from the Leasing Company. (Continued) 7




---



##### Table of Contents



IEA INCOME FUND XII, L.P. Notes to Unaudited Condensed Financial Statements  (c)
    Basis of AccountingThe Partnership utilizes the accrual method of accounting. Net lease revenue is recorded by
the Partnership in each period based upon its leasing agent agreement with the Leasing
Company. Net lease revenue is generally dependent upon operating lease rentals from
operating lease agreements between the Leasing Company and its various lessees, less direct
operating expenses and management fees due in respect of the containers specified in each
operating lease agreement.(d)
    Use of EstimatesThe financial statements are prepared in conformity with accounting principles
generally accepted in the United States of America (GAAP), which requires the Partnership
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.The most significant estimates included within the financial statements are the
container rental equipment estimated useful lives and residual values, and the estimate of
future cash flows from container rental equipment operations, used to determine the
carrying value of container rental equipment in accordance with SFAS No. 144. Considerable
judgment is required in estimating future cash flows from container rental equipment
operations. Accordingly, the estimates may not be indicative of the amounts that may be
realized in future periods. As additional information becomes available in subsequent
periods, recognition of an impairment of the container rental equipment carrying values may
be necessary based upon changes in market and economic conditions.(e)
    Container Rental EquipmentIn accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, container rental equipment is considered to be impaired if the carrying value of the
asset exceeds the expected future cash flows from related operations (undiscounted and without
interest charges). If impairment is deemed to exist, the assets are written down to fair
value. An analysis is prepared each quarter projecting future cash flows from container
rental equipment operations. Current and projected utilization rates, per-diem rental rates,
direct operating expenses, fleet size and container disposals are the primary variables
utilized by the analysis. Additionally, the Partnership evaluates future cash flows and
potential impairment by container type rather than for each individual container, and as a
result, future losses could result for individual container dispositions due to various
factors, including age, condition, suitability for continued leasing, as well as the
geographical location of containers when disposed. There were no impairment charges to the
carrying value of container rental equipment for the three-month periods ended March 31, 2005
and 2004.Depreciation policies are also evaluated to determine whether subsequent events and
circumstances warrant revised estimates of useful lives. Container rental equipment is
depreciated using the straight-line basis.(f)
    Partners Capital AccountsUpon dissolution , the assets of the Partnership will be sold and the proceeds thereof
distributed as follows: (i) all of the Partnerships debts and liabilities to persons
other than CCC or the limited partners shall be paid and discharged; (ii) all of the
Partnerships debts and liabilities to CCC and the limited partners shall be paid and
discharged; and (iii) the balance of such proceeds shall be distributed to CCC and the
limited partners in accordance with the positive balances of CCC and the limited partners
capital accounts. CCC shall contribute to the Partnership an amount equal to the deficit
balance in its capital account at the time of such liquidation, after giving effect to the
allocation of income or loss arising from the liquidation of the Partnerships assets. (Continued) 8




---



##### Table of Contents



IEA INCOME FUND XII, L.P. Notes to Unaudited Condensed Financial Statements  (g)
    Financial Statement PresentationThese financial statements have been prepared without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) have been
condensed or omitted pursuant to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the information presented not
misleading. It is suggested that these financial statements be read in conjunction with
the financial statements and accompanying notes in the Partnerships December 31, 2004
Annual Report on Form 10-K.  (2)
    Net Lease Receivables Due from Leasing CompanyNet lease receivables due from the Leasing Company are determined by deducting direct operating
payables and accrued expenses, base management fees payable, and reimbursed administrative
expenses payable to CCC and its affiliates from the rental billings earned by the Leasing
Company under operating leases and sales-type leases to ocean carriers for the containers owned
by the Partnership as well as proceeds earned from container disposals. Net lease receivables
at March 31, 2005 and December 31, 2004 were as follows: March 31,
    
    
    December 31,2005
    
    
    2004Gross lease receivables
    
    $
    895,832
    
    
    $
    1,009,139Sales-type lease receivable (net of unearned income)
    
    
    75,524
    
    
    
    95,075971,356
    
    
    
    1,104,214Less:Direct operating payables and accrued expenses
    
    
    191,629
    
    
    
    337,537Damage protection reserve
    
    
    82,161
    
    
    
    88,462Base management fees payable
    
    
    8,104
    
    
    
    26,003Reimbursed administrative expenses
    
    
    13,281
    
    
    
    16,041Allowance for doubtful accounts
    
    
    150,531
    
    
    
    137,489445,706
    
    
    
    605,532Net lease receivables
    
    $
    525,650
    
    
    $
    498,682
  On December 1, 2004, the Leasing Company, on behalf of the Partnership, amended a term lease
agreement with one lessee to include a bargain purchase option. As a result of the amendment,
the Partnership reclassified the term lease agreement as a sales-type lease, recorded a
sales-type lease receivable and recognized the sale of 532 on-hire containers that were subject
to the amended term lease agreement. At March 31, 2005, the minimum future lease rentals under
this sales-type lease, net of unearned income are: Gross Sales-Type
    
    
    Unearned Sales-Type
    
    
    Net Minimum FutureLease Receivable
    
    
    Lease Income
    
    
    Sales-Type Lease Rentals2005
    
    $
    58,424
    
    
    $
    2,356
    
    
    $
    56,0682006
    
    
    19,653
    
    
    
    197
    
    
    
    19,456Total
    
    $
    78,077
    
    
    $
    2,553
    
    
    $
    75,524
 (Continued) 9




---



##### Table of Contents



IEA INCOME FUND XII, L.P. Notes to Unaudited Condensed Financial Statements  (3)
    Net Lease RevenueNet lease revenue is determined by deducting direct operating expenses, base management fees
and reimbursed administrative expenses to CCC and its affiliates from the rental revenue
earned by the Leasing Company under operating leases to ocean carriers for the containers
owned by the Partnership. Net lease revenue for the three-month periods ended March 31,
2005 and 2004 were as follows: Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004Rental revenue (note 4)
    
    $
    664,777
    
    
    $
    828,607Interest income from sales-type lease
    
    
    1,360
    
    
    
    666,137
    
    
    
    828,607Less:Rental equipment operating expenses
    
    
    92,010
    
    
    
    249,561Base management fees
    
    
    46,908
    
    
    
    58,145Reimbursed administrative expensesSalaries
    
    
    30,603
    
    
    
    38,115Other payroll related expenses
    
    
    5,982
    
    
    
    3,391General and administrative expenses
    
    
    7,975
    
    
    
    11,665183,478
    
    
    
    360,877Net lease revenue
    
    $
    482,659
    
    
    $
    467,730
  (4)
    Operating SegmentAn operating segment is a component of an enterprise that engages in business activities from
which it may earn revenues and incur expenses, whose operating results are regularly reviewed
by the enterprises chief operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance, and about which separate financial
information is available. CCC and the Leasing Company operate the Partnerships container
fleet as a homogenous unit and have determined that as such it has a single reportable
operating segment.The Partnership derives its revenues from drycargo and refrigerated containers used by its
customers in global trade routes. As of March 31, 2005, the Partnership operated 4,668
twenty-foot, 2,600 forty-foot and 120 forty-foot high-cube marine dry cargo containers, as well
as 139 twenty-foot and 39 forty-foot marine refrigerated cargo containers. A summary of gross
lease revenue, by product, for the three-month periods ended March 31, 2005 and 2004 follows: Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004Dry cargo containers
    
    $
    569,797
    
    
    $
    663,001Refrigerated containers
    
    
    96,340
    
    
    
    165,606Total
    
    $
    666,137
    
    
    $
    828,607
  Due to the Partnerships lack of information regarding the physical location of its fleet of
containers when on lease in the global shipping trade, the Partnership believes that it does
not possess discernible geographic reporting segments as defined in SFAS No. 131 (SFAS 131),
Disclosures about Segments of an Enterprise and Related Information. 10




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations The following discussion of the Partnerships historical financial condition and results of
operations should be read in conjunction with the Partnerships December 31, 2004 Annual Report on
Form 10-K and the financial statements and the notes thereto appearing elsewhere in this report. Market Overview The Partnerships operating results for the first quarter of 2005 improved over the
corresponding period in 2004, as market conditions were favorable in comparison to those that
existed during the three months ended March 31, 2004, and consistent with those that existed at the
end of 2004. The first quarter 2005 results were contrary to historical trends, whereby
container-leasing companies have traditionally experienced reductions in demand during the first
quarter of the year, as shipping lines reduce their activity during the Lunar New Year holiday. As
a result, the Partnerships dry cargo container utilization remained at a historically high level,
measuring 94% at March 31, 2005, unchanged from December 31, 2004. Also contributing to the
Partnerships high levels of utilization and favorable performance was the continued disposal of
the Partnerships off-hire containers, in accordance with one of its original investment
objectives, realizing the residual value of its containers after the expiration of their economic
useful lives, estimated to be between 12 and 15 years after placement in lease service. Although conditions for the container leasing market were favorable during the first quarter
of 2005, global economic reports for this period indicate that, with the exception of China,
consumer spending and economic growth rates have declined from the robust levels experienced in
Europe, the US and many of the other developed countries during 2004. The decline in these
economic growth rates are a direct result of rising fuel costs, combined with a generally weak US
dollar, a soaring US trade deficit, higher interest rates and Europes languishing economies.
Economists opinions vary as to whether the recent declines in these growth rates during the first
quarter of 2005 are temporary or an indicator of slower global economic growth for the remainder of
2005. CCC and the Leasing Company do not expect a significant decline in the Partnerships
utilization rates in the near future. However, further declines in these economic growth rates
during 2005 may contribute to a weakening in container leasing market conditions and lower levels
of demand for new and existing containers. In the long term, industry experts believe the future
of the container shipping industry is favorable, as the level of outsourcing to China and other
parts of Asia increase, previously restrictive trade agreements expire, new trade agreements are
negotiated, and China enters global markets in which it previously played a small role. The price of a new dry cargo container increased from $2,200 at the end of 2004 to
approximately $2,250 at the end of March 2005, as the demand for new containers remained strong and
the cost of container raw materials such as steel and wood flooring remained at high levels.
Manufacturers indicate that there is unlikely to be a major reduction in the price of new
containers in the near term due to the increase in raw material prices. Although container prices
may fluctuate over the remainder of 2005, the long-term outlook for container prices continues to
show an inflationary bias tied to energy costs, steel prices and interest rates. These higher
prices have forced some shipping lines, as well as leasing companies, to reconsider capital
expenditure levels for new container investment during the 2005 year. A reduction in new container
capital expenditures by the shipping lines could result in the shipping lines leasing more
containers from the leasing companies, including the Partnerships containers. Ports, railroads and inland transportation systems, particularly in the US and Europe,
continue to experience congestion arising from the higher trade volumes experienced in recent
years, thereby, increasing the turnaround time for containerships and reducing the available supply
of containers. Port congestion in many locations has been attributable to underestimating the
growth in containerized cargo activity over the last few years, delays in expanding existing
facilities and in planning new facilities due to environmental concerns, and the implementation of
larger containerships. Expansion of the worlds ports and terminals is considered to be the key to
relieving the congestion currently experienced, as further efficiency gains are not expected to
create significant increases in port and terminal capacity. During the three-month period ending March 31, 2005, inventory levels of off-hire containers
remained at low levels, as shipping lines employed a larger quantity of leased containers to meet
their containerized cargo requirements. The declines in inventory levels have resulted in
substantial decreases in storage and other inventory related operating expenses. A significant
increase in container inventories in future periods may contribute to increases in storage expenses
and expenditures to reposition containers from low demand locations to locations of higher demand.
The Leasing Company has not undertaken any major repositioning of the Partnerships containers
since the first quarter of 2004, due primarily to the shortage of containership capacity. If
suitable carriers can be sourced, the Leasing Company will reposition off-hire containers from the
US East Coast during 2005, 11




---



##### Table of Contents



thereby taking advantage of the strong demand for containers in the
Asian trade routes. This repositioning may include the Partnerships containers. The objective of
each repositioning is to improve future cash flows so that savings in storage expense, combined
with an increase in future lease revenue, exceed the cost of repositioning the containers. Sales proceeds realized on the sale of used containers remained favorable during the first
quarter of 2005, as fewer containers were available to meet the demand of buyers. A significant
increase in inventory levels in future periods could adversely impact sales proceeds realized on
the sale of containers. The Leasing Company, on behalf of the Partnership, may consider the
disposal of the Partnerships off-hire containers in locations whereby container sale prices equal
or exceed targets established by both CCC and the Leasing Company. The Partnerships average dry cargo container per-diem rate for the three-month period ending
March 31, 2005 increased approximately 3% in comparison to the same period in the prior year.
Per-diem rates for older containers are expected to maintain their current level for the remainder
of 2005. Although favorable market conditions currently exist for container lessors, recent declines in
spending and economic growth rates may negatively impact the shipping lines in future periods.
Sharply rising and volatile oil prices, combined with the increase in charter rates for ships,
chronic port congestion, higher steel prices and the related increase in new container prices, have
created a concern for both the shipping lines and, therefore, the leasing companies. Although the
majority of the top 20 shipping lines have experienced strong profit growth during 2004, other
shipping lines are facing increased financial pressures, especially those shipping lines that rely
on operating their containerships via short-term charters. Current conditions appear to favor the
larger more established shipping lines, which have witnessed increases in freight rates due to the
strong demand experienced in their respective trade routes. However, some regional intra-Asian
shipping lines have struggled to remain profitable, due primarily to the rising charter rates for
ships, over capacity and lower freight rates, and have cut back services in certain routes in an
attempt to reduce rising costs. The increased trade volumes of recent years have contributed to shortages of both
containerships and tonnage capacity. As a result, shipping lines have embarked on a major new
shipbuilding program. Industry analysts are expressing concern that the current program of new
shipbuilding may create over capacity within the shipping industry once the new container ships
scheduled for delivery during 2006 and 2007 are placed in service. Based on current orders,
industry analysts predict that the worlds containership fleet will exceed 10 million TEU by the
end of 2007, compared to less than 7 million TEU at the beginning of 2004. Over capacity may
contribute to lower charter and freight rates as shippers take advantage of the capacity surplus
created by the additional container ships. These changes may result in a reduction in
profitability for shipping lines, which in turn could have adverse implications for container
lessors, including a decline in the demand for leased containers and a reduction in container
per-diem rental rates. The financial impact of losses from shipping lines may eventually influence
the demand for leased containers, as some shipping lines may experience additional financial
difficulties, consolidate, or become insolvent. The Partnership, CCC and the Leasing Company
continue to monitor the aging of lease receivables, collections and the credit exposure to various
existing and new customers. Results of Operations Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer
the business of the Partnership is vested in CCC. A Leasing Agent Agreement exists between CCC and
the Leasing Company, 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. The primary component of the Partnership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 gross lease revenues billed by the Leasing Company from the leasing of
the Partnerships containers. Net lease revenue is directly related to the size, utilization and
per-diem rental rates of the Partnerships fleet. Direct operating expenses are direct costs
associated with 12




---



##### Table of Contents



the Partnerships containers. Direct operating expenses may be categorized
as follows:  
    Activity-related expenses including agent and depot costs such as repairs, maintenance
and handling.
    Inventory-related expenses for off-hire containers, comprising storage and
repositioning costs. These costs are sensitive to the quantity of off-hire containers as
well as the frequency at which containers are re-delivered.
    Legal and other expenses including legal costs related to the recovery of containers
and doubtful accounts, insurance and provisions for doubtful accounts. At March 31, 2005, approximately 48% of the original equipment remained in the Partnerships
fleet, as compared to approximately 51% at December 31, 2004. The following table summarizes the
composition of the Partnerships fleet (based on container type) at March 31, 2005. Dry Cargo
    
    
    RefrigeratedContainers
    
    
    Containers40-Foot20-Foot
    
    
    40-Foot
    
    
    High-Cube
    
    
    20-Foot
    
    
    40-FootContainers on lease:Master lease
    
    
    2,459
    
    
    
    1,117
    
    
    
    86
    
    
    
    98
    
    
    
    2Term leaseShort term1
    
    
    797
    
    
    
    552
    
    
    
    15
    
    
    
    10
    
    
    
    36Long term2
    
    
    816
    
    
    
    642
    
    
    
    12
    
    
    
    
    
    
    
    Sales-type lease
    
    
    442
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    Subtotal
    
    
    4,514
    
    
    
    2,382
    
    
    
    113
    
    
    
    108
    
    
    
    38Containers off lease
    
    
    154
    
    
    
    218
    
    
    
    7
    
    
    
    30
    
    
    
    1Total container fleet
    
    
    4,668
    
    
    
    2,600
    
    
    
    120
    
    
    
    138
    
    
    
    39
 Dry Cargo
    
    
    RefrigeratedContainers
    
    
    Containers40-Foot20-Foot
    
    
    40-Foot
    
    
    High-Cube
    
    
    20-Foot
    
    
    40-FootUnits
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %
    
    
    Units
    
    
    %Total purchases
    
    
    9,743
    
    
    
    100
    %
    
    
    5,426
    
    
    
    100
    %
    
    
    213
    
    
    
    100
    %
    
    
    248
    
    
    
    100
    %
    
    
    309
    
    
    
    100
    %Less disposals
    
    
    5,075
    
    
    
    52
    %
    
    
    2,826
    
    
    
    52
    %
    
    
    93
    
    
    
    44
    %
    
    
    110
    
    
    
    44
    %
    
    
    270
    
    
    
    87
    %Remaining fleet at March 31, 2005
    
    
    4,668
    
    
    
    48
    %
    
    
    2,600
    
    
    
    48
    %
    
    
    120
    
    
    
    56
    %
    
    
    138
    
    
    
    56
    %
    
    
    39
    
    
    
    13
    %
   1.
    
    Short term leases represent term leases that are either scheduled for renegotiation or that
may expire on or before March 2006.2.
    
    Long term leases represent term leases, the majority of which will expire between April 2006
and December 2009. Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004 Net lease revenuewas $482,659 for the three months ended March 31, 2005 compared to $467,730
for the same period in the prior year. The increase was primarily due to a $157,551 decrease in
rental equipment operating expenses, partially offset by $163,830 decline in gross rental revenue
(a component of net lease revenue) when compared to the same period in the prior year. Gross
rental revenue was impacted by the Partnerships smaller fleet size, partially offset by a 3%
increase in the average dry cargo per-diem rental rate and an increase in fleet utilization rates,
when compared to the same three-month period in the prior year. The Partnerships average fleet
size and utilization rates for the three-month periods ended March 31, 2005 and 2004 were as
follows: Three Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2004Fleet size (measured inTwenty-foot equivalent units (TEU))Dry cargo containers
    
    
    10,452
    
    
    
    12,780Refrigerated containers
    
    
    243
    
    
    
    493Average utilization ratesDry cargo containers
    
    
    95
    %
    
    
    85
    %Refrigerated containers
    
    
    83
    %
    
    
    78
    %
 13




---



##### Table of Contents



The decrease in direct operating expenses was attributable to the Partnerships higher
combined utilization rates and its impact on inventory and activity related expenses such as
storage, handling, repair and repositioning expenses. A lower provision for doubtful accounts
during the first quarter of 2005 also contributed to lower direct operating costs. Depreciation expenseof $428,724 for the three months ended March 31, 2005 declined by
$151,849 when compared to the corresponding period in 2004, a direct result of the Partnerships
aging and declining fleet size. Other general and administrative expensesamounted to $33,656 for the three-month period ended
March 31, 2005, consistent when compared to the same period in 2004. Net loss on disposal of equipmentfor the three months ended March 31, 2005 was $8,089, as
compared to a net loss of $170,828 for the corresponding period in 2004. The Partnership disposed
of 516 containers, as compared to 312 containers during the same three-month period in 2004. The
Partnership believes that the net loss on container disposals in the three-month period ended March
31, 2005, was a result of various factors, including the volume of disposed containers, the age,
condition, suitability for continued leasing, as well as the geographical location of the
containers when disposed. These factors will continue to influence the amount of sales proceeds
received and the related gain or loss on container disposals. The level of the Partnerships container disposals in subsequent periods, as well as the price
of steel, new container prices and the current leasing markets impact on sales prices for existing
older containers such as those owned by the Partnership, will also contribute to fluctuations in
the net gain or loss on disposals. There were no reductions to the carrying value of container
rental equipment due to impairment during the three-month periods ended March 31, 2005 and 2004. Liquidity and Capital Resources During the Partnerships first 10 years of operations, the Partnerships primary objective was
to generate cash flow from operations for distribution to its limited partners. Aside from the
initial working capital reserve retained from the gross subscription proceeds (equal to
approximately 1% of such proceeds), the Partnership relied 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. Commencing in 2002, the Partnerships 11th year of
operations, the Partnership began focusing its attention on the disposition of its fleet in
accordance with another of its original investment objectives, realizing the residual value of its
containers after the expiration of their economic useful lives, estimated to be between 12 to 15
years after placement in leased service. Since that time, the Partnership has been actively
disposing of its fleet, with cash proceeds from equipment disposals, in addition to cash from
operations, providing the cash flow for distributions to the limited partners. The decision to
dispose of containers is influenced by various factors including age, condition, suitability for
continued leasing as well as the geographical location when disposed. At that time whereby the
Partnerships fleet size is reduced to approximately 20% of its original fleet size, the
Partnership expects to enter the final phase of its liquidation and wind up of its operations,
unless terminated sooner upon the occurrence of certain events. At March 31, 2005, the
Partnerships fleet size measured approximately 48% of its original fleet size. Upon the
liquidation of CCCs interest in the Partnership, CCC shall contribute to the Partnership an
aggregate amount equal to the deficit balance in its capital account at the time of such
liquidation, after giving effect to the allocation of income or loss arising from the liquidation
of the Partnerships assets. Distributions are paid monthly, based primarily on each quarters cash flow from operations.
Monthly distributions are also affected by periodic increases or decreases to working capital
reserves, as deemed appropriate by the general partner. Sales proceeds distributed to its partners
may fluctuate in subsequent periods, reflecting the level of container disposals. At March 31, 2005, the Partnership had $1,983,090 in cash and cash equivalents, a decrease of
$139,504 from the cash balances at December 31, 2004. The Partnership invests its working capital,
as well as cash flows from operations and the sale of containers that have not yet been distributed
to CCC or its limited partners, in money market funds. Cash from Operating Activities: Net cash provided by operating activities, primarily generated
from the billing and collection of net lease revenue, was $392,712 during the three months ended
March 31, 2005, compared to $494,709 for the same three month period in 2004. Cash from Investing Activities: Net cash provided by investing activities was $662,796 during
the three months ended March 31, 2005, compared to $235,579 in the corresponding period of 2004.
These amounts represent sales proceeds generated from the sale of container equipment and payment
received from the sales-type lease for the sale of rental equipment. 14




---



##### Table of Contents



Cash from Financing Activities: Net cash used in financing activities was $1,195,012 during
the three months ended March 31, 2005 compared to $740,173 during the three months ended March 31,
2004. These amounts represent distributions to the Partnerships general and limited partners.
The Partnerships continuing container disposals should produce lower operating results, and
consequently, lower distributions to its partners in subsequent periods. Critical Accounting Policies The Partnerships accounting policies are fundamental to understanding managements discussion and
analysis of results of operations and financial condition. The Partnership has identified three
policies as being significant because they require the Partnership to make subjective and/or
complex judgments about matters that are inherently uncertain. These policies include the
following:  
    Container equipment  depreciable lives
    Container equipment  valuation
    Allowance for doubtful accounts The Partnership, in consultation with its audit committee, has reviewed and approved these
significant accounting policies which are further described in the Partnerships 2004 Annual Report
on Form 10-K. Inflation The Partnership believes inflation has not had a material adverse effect on the results of its
operations. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk Exchange rate risk:Substantially all of the Partnerships revenues are billed and paid in US
dollars and a significant portion of costs are billed and paid in US dollars. The Leasing Company
believes that the proportion of US dollar revenues may decrease in future years, reflecting a more
diversified customer base and lease portfolio. Of the non-US dollar direct operating expenses, the
majority are individually small, unpredictable and incurred in various denominations. Thus, the
Leasing Company determined such amounts are not suitable for cost effective hedging. As exchange
rates are outside of the control of the Partnership and Leasing Company, there can be no assurance
that such fluctuations will not adversely affect the Partnerships results of operations and
financial condition. 
 Item 4. Controls and Procedures The principal executive and principal financial officers of CCC have evaluated the disclosure
controls and procedures of the Partnership as of the end of the period covered by this quarterly
report. As used herein, the term disclosure controls and procedures has the meaning given to the
term by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), and
includes the controls and other procedures of the Partnership that are designed to ensure that
information required to be disclosed by the Partnership in the reports that it files with the SEC
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Based upon their evaluation, the principal executive and
principal financial officers of CCC have concluded that the Partnerships disclosure controls and
procedures were effective such that the information required to be disclosed by the Partnership in
this quarterly report is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms applicable to the preparation of this quarterly report and
is accumulated and communicated to CCCs management, including CCCs principal executive officer
and principal financial officer, as appropriate to allow timely decisions regarding required
disclosures. There have been no significant changes in the Partnerships internal controls or in other factors
that could significantly affect the Partnerships internal controls subsequent to the evaluation
described above conducted by CCCs principal executive and financial officers. 15




---



##### Table of Contents



PART II  OTHER INFORMATION 
 Item 1. Legal Proceedings Not applicable. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. 
 Item 3. Defaults Upon Senior Securities Not applicable. 
 Item 4. Submissions of Matters to a Vote of Securities Holders Not applicable. 
 Item 5. Other Information Not applicable. 
 Item 6. Exhibits (a) Exhibits ExhibitNo.

    
    Description
    
    Method of Filing3(a)
    
    Limited Partnership Agreement, amended and
restated as of December 2, 1991
    
    *3(b)
    
    Certificate of Limited Partnership
    
    **10
    
    Form of Leasing Agent Agreement with Cronos
Containers Limited
    
    ***31.1
    
    Rule 13a-14 Certification
    
    Filed with this document31.2
    
    Rule 13a-14 Certification
    
    Filed with this document32
    
    Section 1350 Certification
    
    Filed with this document
****
   *
    
    Incorporated by reference to Exhibit A to the Prospectus of the Partnership 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)****
    
    This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as
required by Section 906, is not to be deemed filed with the Commission or subject to the
rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934,
as amended, or to the liabilities of Section 18 of said Act. 16




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership 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 PartnerBy
    
    /s/ Dennis J. TietzDennis J. TietzPresident and Director of Cronos Capital Corp. (CCC)Principal Executive Officer of CCCBy
    
    /s/ John KallasJohn KallasChief Financial Officer andDirector of Cronos Capital Corp. (CCC)Principal Financial and Accounting Officer of CCC
 Date: May 13, 2005 17




---



##### Table of Contents



EXHIBIT INDEX ExhibitNo.
    
    Description
    
    Method of Filing3(a)
    
    Limited Partnership Agreement, amended and
restated as of December 2, 1991
    
    *3(b)
    
    Certificate of Limited Partnership
    
    **10
    
    Form of Leasing Agent Agreement with Cronos
Containers Limited
    
    ***31.1
    
    Rule 13a-14 Certification
    
    Filed with this document31.2
    
    Rule 13a-14 Certification
    
    Filed with this document32
    
    Section 1350 Certification
    
    Filed with this document
****
   *
    
    Incorporated by reference to Exhibit A to the Prospectus of the Partnership 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)****
    
    This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as
required by Section 906, is not deemed to be filed with the Commission or subject to the
rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934,
as amended, or to the liabilities of Section 18 of said Act.