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SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549
 FORM 10-Q [X]
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004
 OR [ ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM  TO
 Commission file number 0-21518 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 [X]. No [  ]. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  ]. No [X].




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IEA INCOME FUND XII, L.P. Report on Form 10-Q for the Quarterly Period
Ended September 30, 2004 TABLE OF CONTENTS PAGEPART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Balance Sheets  September 30, 2004 and December 31, 2003 (unaudited)
    
    
    4Condensed Statements of Operations for the three and nine months ended September 30, 2004 and 2003 (unaudited)
    
    
    5Condensed Statements of Cash Flows for the nine months ended September 30, 2004 and 2003 (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 and Reports on Form 8-K
    
    
    16EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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PART I  FINANCIAL INFORMATION 
 Item 1. Financial Statements  Presented herein are the Registrants condensed balance sheets as of
September 30, 2004 and December 31, 2003, condensed statements of
operations for the three and nine months ended September 30, 2004 and
2003, and condensed statements of cash flows for the nine months ended
September 30, 2004 and 2003, (collectively the Financial Statements)
prepared by the Registrant 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 Registrant 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
Registrants December 31, 2003 Annual Report on Form 10-K. These
Financial Statements reflect, in the opinion of the Registrant and Cronos
Capital Corp., 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
Registrant with respect to future events and financial performance and
are subject to a number of risks and uncertainties, many of which are
beyond the Registrant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 Registrants strategy, future
operations, financial position, estimated revenues, projected costs,
prospects, plans and objectives of the Registrant 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
Registrant 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 Registrant believes that its
plans, intentions and expectations reflected in or suggested by the
forward-looking statements made in this report are reasonable, the
Registrant 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




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IEA INCOME FUND XII, L.P. 
 Condensed Balance Sheets (Unaudited) September 30,
    
    December 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents, includes $1,703,814 at September 30, 2004 and
$1,276,827 at December 31, 2003 in interest-bearing accounts
    
    $
    1,812,447
    
    
    $
    1,476,987Net lease receivables due from Leasing Company (notes 1 and 2)
    
    
    418,238
    
    
    
    264,402Total current assets
    
    
    2,230,685
    
    
    
    1,741,389Container rental equipment, at cost
    
    
    33,648,414
    
    
    
    39,287,266Less accumulated depreciation
    
    
    (23,678,820
    )
    
    
    (25,998,066
    )Net container rental equipment
    
    
    9,969,594
    
    
    
    13,289,200Total assets
    
    $
    12,200,279
    
    
    $
    15,030,589Partners CapitalPartners capital (deficit):General partner
    
    $
    (578,543
    )
    
    $
    (502,160
    )Limited partners
    
    
    12,778,822
    
    
    
    15,532,749Total partners capital
    
    $
    12,200,279
    
    
    $
    15,030,589
 The accompanying notes are an integral part of these financial statements. 4




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IEA INCOME FUND XII, L.P. 
 Condensed Statements of Operations (Unaudited) Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Net lease revenue (notes 1 and 3)
    
    $
    569,689
    
    
    $
    520,622
    
    
    $
    1,606,530
    
    
    $
    1,593,162Other operating expenses:Depreciation
    
    
    537,255
    
    
    
    629,513
    
    
    
    1,677,761
    
    
    
    1,948,055Other general and administrative expenses
    
    
    30,373
    
    
    
    30,970
    
    
    
    99,576
    
    
    
    96,010Net loss on disposal of equipment
    
    
    200,223
    
    
    
    213,564
    
    
    
    456,399
    
    
    
    496,836Loss from operations
    
    
    (198,162
    )
    
    
    (353,425
    )
    
    
    (627,206
    )
    
    
    (947,739
    )Other income:Interest income
    
    
    2,643
    
    
    
    1,733
    
    
    
    4,490
    
    
    
    6,064Net loss
    
    $
    (195,519
    )
    
    $
    (351,692
    )
    
    $
    (622,716
    )
    
    $
    (941,675
    )Allocation of net loss:General partner
    
    $
    (1,955
    )
    
    $
    (3,517
    )
    
    $
    (6,227
    )
    
    $
    (9,417
    )Limited partners
    
    
    (193,564
    )
    
    
    (348,175
    )
    
    
    (616,489
    )
    
    
    (932,258
    )$
    (195,519
    )
    
    $
    (351,692
    )
    
    $
    (622,716
    )
    
    $
    (941,675
    )Limited partners per unit share of net loss
    
    $
    (0.06
    )
    
    $
    (0.10
    )
    
    $
    (0.18
    )
    
    $
    (0.27
    )
 The accompanying notes are an integral part of these financial statements. 5




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IEA INCOME FUND XII, L.P. 
 Condensed Statements of Cash Flows (Unaudited) Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003Net cash provided by operating activities
    
    $
    1,439,844
    
    
    $
    1,467,431Cash provided by investing activities:Proceeds from disposal of equipment
    
    
    1,103,209
    
    
    
    903,082Cash used in financing activities:Distribution to general partners
    
    
    (70,156
    )
    
    
    (83,637
    )Distribution to limited partners
    
    
    (2,137,438
    )
    
    
    (2,547,355
    )(2,207,594
    )
    
    
    (2,630,992
    )Net increase (decrease) in cash and cash equivalents
    
    
    335,459
    
    
    
    (260,479
    )Cash and cash equivalents at the beginning of the period
    
    
    1,476,987
    
    
    
    1,843,633Cash and cash equivalents at the end of the period
    
    $
    1,812,446
    
    
    $
    1,583,154
 The accompanying notes are an integral part of these financial statements. 6




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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. To this extent, the Partnerships operations are
subject to the fluctuations of world economic and political conditions.
Such factors may affect the pattern and levels of world trade. The
Partnership believes that the profitability of, and risks associated
with, leases to foreign customers is generally the same as those of
leases to domestic customers. The Partnerships leases generally require
all payments to be made in United States currency.Cronos Capital Corp. (CCC) is the general partner and, with its
affiliate Cronos Containers Limited (the Leasing Company), manages the
business of the Partnership. CCC and the Leasing Company also manage the
container leasing business for other partnerships affiliated with CCC.
The Partnership shall continue until December 31, 2011, unless sooner
terminated upon the occurrence of certain events.The Partnership commenced operations on January 31, 1992, when the
minimum subscription proceeds of $2,000,000 were obtained. The
Partnership offered 3,750,000 units of limited partnership interest at
$20 per unit, or $75,000,000. The offering terminated on November 30,
1992, at which time 3,513,594 limited partnership units had been sold.(b)
    
    Leasing Company and Leasing Agent 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, generally under operating leases
which are either master leases or term leases (mostly one to five years).
Master leases do not specify the exact number of containers to be leased
or the term that each container will remain on hire but allow the ocean
carrier to pick up and drop off containers at various locations, and
rentals are based upon the number of containers used and the applicable
per-diem rate. Accordingly, rentals under master leases are all variable
and contingent upon the number of containers used. Most containers are
leased to ocean carriers under master leases; leasing agreements with
fixed payment terms are not material to the financial statements. Since
there are no material minimum lease rentals, no disclosure of minimum
lease rentals is provided in these financial statements. (Continued) 7




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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)
    
    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 and nine-month periods ended September 30, 2004 and 2003.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.(e)
    
    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 adequacy of 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 for an impairment of the container rental equipment carrying
values may be necessary based upon changes in market and economic
conditions.These 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
Registrant 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, 2003 Annual
Report on Form 10-K. (Continued) 8




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IEA INCOME FUND XII, L.P. Notes to Unaudited Condensed Financial Statements  (f)
    
    Financial Statement Presentation (continued)The interim financial statements presented herewith reflect in the
opinion of management, all adjustments of a normal recurring nature
necessary to present fairly the results for the interim periods
presented. The results of operations for such interim periods are not
necessarily indicative of the results to be expected for the full year.  (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 to ocean carriers for the containers owned by the
Partnership, as well as proceeds earned from container disposals. Net lease
receivables at September 30, 2004 and December 31, 2003 were as follows: September 30,
    
    December 31,2004
    
    2003Gross lease receivables
    
    $
    944,557
    
    
    $
    800,917Less:Direct operating payables and accrued expenses
    
    
    264,552
    
    
    
    318,474Damage protection reserve
    
    
    94,484
    
    
    
    60,333Base management fees payable
    
    
    26,428
    
    
    
    25,800Reimbursed administrative expenses
    
    
    16,836
    
    
    
    18,176Allowance for doubtful accounts
    
    
    124,019
    
    
    
    113,732Net lease receivables
    
    $
    418,238
    
    
    $
    264,402
  (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 and nine-month periods ended
September 30, 2004 and 2003 were as follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Rental revenue (note 4)
    
    $
    808,330
    
    
    $
    869,077
    
    
    $
    2,468,681
    
    
    $
    2,691,133Less:Rental equipment operating
expenses
    
    
    128,383
    
    
    
    241,334
    
    
    
    535,392
    
    
    
    782,831Base management fees
    
    
    58,857
    
    
    
    53,439
    
    
    
    169,552
    
    
    
    144,683Reimbursed administrative expenses
    
    
    51,401
    
    
    
    53,682
    
    
    
    157,207
    
    
    
    170,457Net lease revenue
    
    $
    569,689
    
    
    $
    520,622
    
    
    $
    1,606,530
    
    
    $
    1,593,162
 (Continued) 9




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IEA INCOME FUND XII, L.P. Notes to Unaudited Condensed Financial Statements  (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. The Leasing Company operates the
Partnerships container fleet as a homogenous unit and has determined that
as such it has a single reportable operating segment.The Partnership derives its revenues from dry cargo and refrigerated
containers used by its customers in global trade routes. As of September
30, 2004, the Partnership operated 5,125 twenty-foot, 3,051 forty-foot and
128 forty-foot high-cube marine dry cargo containers, as well as 170
twenty-foot and 101 forty-foot marine refrigerated cargo containers. A
summary of gross lease revenue, by product, for the three and nine-month
periods ended September 30, 2004 and 2003 follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Dry cargo containers
    
    $
    662,547
    
    
    $
    686,562
    
    
    $
    2,004,072
    
    
    $
    2,102,448Refrigerated containers
    
    
    145,783
    
    
    
    182,515
    
    
    
    464,609
    
    
    
    588,685Total
    
    $
    808,330
    
    
    $
    869,077
    
    
    $
    2,468,681
    
    
    $
    2,691,133
  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




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations The following discussion of the Registrants historical financial condition and
results of operations should be read in conjunction with the Registrants
December 31, 2003 Annual Report on Form 10-K and the financial statements and
the notes thereto appearing elsewhere in this report. General A Leasing Agent Agreement exists between the Registrant and the Leasing
Company, whereby the Leasing Company has the responsibility to manage the
leasing operations of all equipment owned by the Registrant. Pursuant to the
Agreement, the Leasing Company is responsible for leasing, managing and
re-leasing the Registrants containers to ocean carriers, and has full
discretion over which ocean carriers and suppliers of goods and services it may
deal with. The Leasing Agent Agreement permits the Leasing Company to use the
containers owned by the Registrant, together with other containers owned or
managed by the Leasing Company and its affiliates, as part of a single fleet
operated without regard to ownership. At September 30, 2004, 54% of the
original equipment remained in the Registrants fleet, as compared to 61% at
December 31, 2003. The following chart summarizes the composition of the
Registrants fleet (based on container type) at September 30, 2004. Dry Cargo
    
    RefrigeratedContainers
    
    Containers40-Foot20-Foot
    
    40-Foot
    
    High-Cube
    
    20-Foot
    
    40-FootContainers on lease:Master lease
    
    
    2,751
    
    
    
    1,321
    
    
    
    93
    
    
    
    116
    
    
    
    1Term lease (1-5 years)
    
    
    2,156
    
    
    
    1,388
    
    
    
    29
    
    
    
    22
    
    
    
    71Subtotal
    
    
    4,907
    
    
    
    2,709
    
    
    
    122
    
    
    
    138
    
    
    
    72Containers off lease
    
    
    218
    
    
    
    342
    
    
    
    6
    
    
    
    32
    
    
    
    29Total container fleet
    
    
    5,125
    
    
    
    3,051
    
    
    
    128
    
    
    
    170
    
    
    
    101
 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
    
    
    4,618
    
    
    
    47
    %
    
    
    2,375
    
    
    
    44
    %
    
    
    85
    
    
    
    40
    %
    
    
    78
    
    
    
    31
    %
    
    
    208
    
    
    
    67
    %Remaining fleet at
September 30, 2004
    
    
    5,125
    
    
    
    53
    %
    
    
    3,051
    
    
    
    56
    %
    
    
    128
    
    
    
    60
    %
    
    
    170
    
    
    
    69
    %
    
    
    101
    
    
    
    33
    %
 The general increase in trade volumes that emerged during the nine-month period
ending September 30, 2004, contributed to stronger container leasing market
conditions and higher levels of demand for new and existing containers. The
Registrants dry cargo container utilization measured 93% at September 30,
2004, compared to 85% at December 31, 2003. The nine-month period ending September 30, 2004 experienced substantial growth
in container trade volumes, especially within Asia-Europe and intra-Asian trade
routes. Chinas import and export markets were a catalyst to this growth, in
addition to low global interest rates and improved investor and consumer
confidence. These increases in trade volumes placed additional burdens on the
worlds ports and railroads, contributing to congestion and additional demand
in some locations. Although container manufacturers stepped up production in the first half of
2004 in order to meet the increased container demand by shipping lines,
production of new containers was hampered somewhat by steel shortages earlier
in the year, contributing to stronger market conditions for leased containers.
As steel prices increased during 2004, along with the price of other materials
including wood flooring, the cost of a new twenty-foot dry cargo container also
increased, from $1,350 during the latter part of 2003, to as high as $2,000
during the middle of 2004, an amount higher than at any time since 1995, the
last time container prices peaked. As a result of the current level of demand
for new container equipment, a significant reduction in the price of new
containers is unlikely in the near future, and potentially may contribute to
further price increases. The major container manufacturers report full order
books through the first calendar quarter of 2005. 11




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Off-hire inventories of older containers throughout the world declined, as
shipping lines employed more leased containers to meet their increasing
container requirements arising from the robust growth in containerized trade
and the acceptance of new, larger containerships. This decline in inventories
has resulted in substantial decreases in storage expenses and expenditures to
reposition containers from low demand locations to locations of higher demand.
Declining inventories have also contributed to an increase in proceeds per
container realized on the sale of used containers, as fewer containers were
available to meet the demand of buyers of existing containers. The
Registrants dry cargo inventory of off-hire containers at September 30, 2004
decreased approximately 65% in comparison to September 30, 2003. Per-diem rates for new containers increased in line with the increase in new
container costs, while per-diem rates for older containers experienced modest
increases, as the lease market for older containers remains competitive, and
therefore, subject to significant pricing pressures. Slight increases in the
per-diem rates for older containers may be expected over the next 12 months.
The Registrants average dry cargo container per-diem rate for the three-month
period ended September 30, 2004 remained unchanged in comparison to the same
period in the prior year, while the Registrants average dry cargo container
per-diem rate for the nine-month period ended September 30, 2004 increased
approximately 1% in comparison to the same period in the prior year Although favorable market conditions currently exist for container lessors,
current market conditions may negatively impact the shipping lines. Sharply
rising oil prices, combined with the increase in charter rates for ships, 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 the last 12 months, 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, most 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 some routes in
an attempt to reduce rising costs. The Registrant, CCC and the Leasing Company
remain cautious, and continue to monitor the aging of lease receivables,
collections and the credit exposure to various existing and new customers. The
financial impact of losses from these shipping lines may eventually influence
the demand for leased containers, as some shipping lines may experience
additional financial difficulties, consolidate, or become insolvent. Industry analysts are expressing concern that the current program of new ship
building may create over capacity within the shipping industry once the new
container ships are delivered. Any over capacity could result in a reduction
in profitability for shipping lines which in turn could have adverse
implications for container lessors. Lastly, wide-ranging concerns remain regarding the worlds major economies,
including the price of oil and its impact on economic growth and the related
growth of containerized trade volumes, inflation concerns and its impact on
interest rates, US trade and budget deficits, Chinas efforts to cool its
economy, performance of global stock markets, geopolitical concerns arising
from uncertainties within the Middle East and Asia, threats of another major
terrorist attack, as well as new container production levels, all of which may
have an impact on the current demand for leased containers. The Registrants average fleet size and utilization rates for the three and
nine-month periods ended September 30, 2004 and 2003 were as follows: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,
    
    September 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Average fleet size (measured in
twenty-foot equivalent units
(TEU))Dry cargo containers
    
    
    11,743
    
    
    
    13,766
    
    
    
    12,274
    
    
    
    14,166Refrigerated containers
    
    
    419
    
    
    
    602
    
    
    
    459
    
    
    
    638Average UtilizationDry cargo containers
    
    
    92
    %
    
    
    82
    %
    
    
    89
    %
    
    
    80
    %Refrigerated containers
    
    
    77
    %
    
    
    67
    %
    
    
    77
    %
    
    
    70
    %
 The primary component of the Registrants results of operations is net lease
revenue. Net lease revenue is determined by deducting direct operating
expenses, management fees and reimbursed administrative expenses, from rental
revenues billed by the Leasing Company from the leasing of the Registrants
containers. Net lease revenue is directly related to the size, utilization and
per-diem rental rates of the Registrants fleet. 12




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Three Months Ended September 30, 2004 Compared to the Three Months Ended
September 30, 2003 Net lease revenueof $569,689 for the three months ended September 30, 2004 was
$49,067 higher than in the corresponding period of 2003. The increase was
primarily a result of a $109,814 aggregate decline in rental equipment
operating expenses, management fees and reimbursed administrative expenses,
when compared to the corresponding period in 2003. Increases in utilization
levels contributed to a reduction in rental equipment operating expenses during
the three-month period ended September 30, 2004, as storage costs declined
inline with diminishing inventories of idle containers, and the need to move
containers from low demand locations to high demand locations was reduced,
resulting in lower repositioning costs. The provision for doubtful accounts,
as well as, repair and maintenance expenses also declined. These increases to
net lease revenue were partially offset by the $60,747 decline in gross lease
revenue (a component of net lease revenue). The decline was as a result of the
Registrants smaller fleet size. Depreciation expenseof $537,255 for the three months ended September 30, 2004
was $92,258 lower than the same period in 2003, a direct result of the
Registrants declining fleet size. Other general and administrative expenseswere $30,373 in the second quarter of
2004, a decrease of $597 or 2%, which did not materially differ from the same
period of the prior year.Net loss on disposal of equipmentwas a result of the Registrant disposing of
401 containers during the three-month period ended September 30, 2004, as
compared to 429 containers during the same period in 2003. These disposals
resulted in a net loss of $200,223 for the three-month period ended September
30, 2004, as compared to $213,564 for the three-month period ended September
30, 2003. The Registrant believes that the net loss on container disposals in
the three-month period ended September 30, 2004 was a result of various factors
including the volume of disposed containers, age, condition, suitability for
continued leasing, as well as the geographical location of the containers when
disposed. These factors will continue to influence the decision to repair or
dispose of a container when it is returned by a lessee, as well as the amount
of sales proceeds received and the related gain or loss on container disposals.
The level of the Registrants container disposals in subsequent periods, 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 Registrant, 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 September 30, 2004 and 2003. Nine Months Ended September 30, 2004 Compared to the Nine Months Ended
September 30, 2003 Net lease revenueof $1,606,530 for the nine months ended September 30, 2004
was $13,368 higher than in the corresponding period of 2003. The increase was
primarily a result of a $235,819 aggregate decline in rental equipment
operating expenses, management fees and reimbursed administrative expenses,
when compared to the corresponding period in 2003. Increases in utilization
levels contributed to a reduction in rental equipment operating expenses during
the nine-month period ended September 30, 2004, as storage costs declined
inline with diminishing inventories of idle containers, and the need to move
containers from low demand locations to high demand locations was reduced,
resulting in lower repositioning costs. The provision for doubtful accounts,
as well as, repair and maintenance expenses also declined. These increases to
net lease revenue were partially offset by the $222,452 decline in gross lease
revenue (a component of net lease revenue). The decline was as a result of the
Registrants smaller fleet size. Depreciation expenseof $1,677,761 for the nine months ended September 30, 2004
was $270,294 lower than the same period in 2003, a direct result of the
Registrants declining fleet size. Other general and administrative expenseswere $99,576 for the nine months
ended September 30, 2004, an increase of $3,566 or 4%, which did not materially
differ from the same period of the prior year. 13




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Net loss on disposal of equipmentwas a result of the Registrant disposing of
1,113 containers during the nine-month period ended September 30, 2004, as
compared to 1,030 containers during the same period in 2003. These disposals
resulted in a loss of $456,399 for the nine-month period ended September 30,
2004, as compared to a loss of $496,836 for the nine-month period ended
September 30, 2003. The Registrant believes that the net loss on container
disposals in the nine-month period ended September 30, 2004 was a result of
various factors including the volume of disposed containers, age, condition,
suitability for continued leasing, as well as the geographical location of the
containers when disposed. These factors will continue to influence the
decision to repair or dispose of a container when it is returned by a lessee,
as well as the amount of sales proceeds received and the related gain or loss
on container disposals. The level of the Registrants container disposals in
subsequent periods, 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 Registrant, 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
nine-month periods ended September 30, 2004 and 2003. Liquidity and Capital Resources Cash from Operating Activities:Net cash provided by operating activities was
$1,439,844 and $1,467,431 during the first nine months of 2004 and 2003,
respectively, primarily generated from the billing and collection of net lease
revenue. Cash from Investing Activities:Net cash provided by investing activities
during the nine-month periods ending September 30, 2004 and 2003, included
sales proceeds generated from the sale of rental equipment of $1,103,209 and
$903,082, respectively. Cash from Financing Activities:Net cash used in financing activities was
$2,207,594 during the first nine months of 2004 compared to $2,630,992 in the
corresponding period of 2003. These amounts represent distributions to the
Registrants general and limited partners. The Registrants diminishing fleet
size may produce lower operating results and, consequently, lower distributions
to its partners in subsequent periods. Sales proceeds distributed to its
partners may fluctuate in subsequent periods, reflecting the level of container
disposals. Capital Resources Capital Resources:Aside from the initial working capital reserve retained
from the gross subscription proceeds (equal to approximately 1% of such
proceeds), the Registrant relied primarily on container rental receipts and
proceeds from container sales to generate distributions to its general and
limited partners, as well as to finance current operating needs. Quarterly
distributions are also affected by periodic increases or decreases to working
capital reserves, as deemed appropriate by CCC, to ensure cash reserves on hand
are sufficient to meet the Registrants operating requirements. No credit
lines are maintained to finance working capital. Critical Accounting Policies The Registrants accounting policies are fundamental to understanding
managements discussion and analysis of results of operations and financial
condition. The Registrant has identified three policies as being significant
because they require the Registrant 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 Registrant has reviewed and approved these significant accounting policies
which are further described in the Registrants 2003 Annual Report on Form
10-K. Inflation The Registrant believes inflation has not had a material adverse effect on the
results of its operations. 14




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk Exchange rate risk:Substantially all of the Registrants revenues are billed
and paid in US dollars and a significant portion of costs are billed and paid
in US dollars. 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 remaining costs, the majority are
individually small, unpredictable and incurred in various denominations and
thus are not suitable for cost effective hedging. The Leasing Company may hedge a portion of the expenses that are predictable
and are principally in UK pounds sterling. As exchange rates are outside of
the control of the Registrant and Leasing Company, there can be no assurance
that such fluctuations will not adversely affect its 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 Registrant as of the end of the
period covered by this 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 Registrant that are designed to ensure
that information required to be disclosed by the Registrant 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 Registrants disclosure controls and
procedures were effective such that the information required to be disclosed by
the Registrant in this 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 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 Registrants internal controls or
in other factors that could significantly affect the Registrants internal
controls subsequent to the evaluation described above conducted by CCCs
principal executive and financial officers. 15




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##### 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 and Reports on Form 8-K  (a)
    
    Exhibits ExhibitNo
    
    Description
    
    Method of Filing3(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
    
    ***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
****
  (b)
    
    Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended
September 30, 2004.    *
    
    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)****
    
    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




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized. IEA INCOME FUND XII, L.P.By
    
    Cronos Capital Corp.The General 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 CCCDate: November 12, 2004
 17




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##### Table of Contents



EXHIBIT INDEX ExhibitNo.
    
    Description
    
    Method of Filing3(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
    
    ***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
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)****
    
    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.