1
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 MARCH 31, 1996
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 0-13432
IEA MARINE CONTAINER INCOME FUND V(B)
(Exact name of registrant as specified in its charter)
California 94-2911066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
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IEA MARINE CONTAINER INCOME FUND V(B)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED MARCH 31, 1996
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
1996 and December 31, 1995, statements of operations for the three
months ended March 31, 1996, and 1995, and statements of cash flows
for the three months ended March 31, 1996, and 1995.
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IEA MARINE CONTAINER INCOME FUND V(B)
BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
---- ----
Assets
------
Current assets:
Cash, includes $154,429 at March 31, 1996 and $175,244
at December 31, 1995 in interest-bearing accounts $ 160,616 $ 175,530
Short-term investments 326,230 350,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 415,211 277,071
---------- ----------
Total current assets 902,057 802,601
---------- ----------
Container rental equipment, at cost 4,791,086 5,425,149
Less accumulated depreciation 3,076,314 3,410,328
---------- ----------
Net container rental equipment 1,714,772 2,014,821
---------- ----------
$2,616,829 $2,817,422
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 584 $ 1,408
Limited partners 2,616,245 2,816,014
---------- ----------
Total partners' capital 2,616,829 2,817,422
---------- ----------
$2,616,829 $2,817,422
========== ==========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(B)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
Net lease revenue (notes 1 and 3) $163,397 $250,841
Other operating expenses:
Depreciation 64,567 81,228
Other general and administrative expenses 6,870 7,371
-------- --------
71,437 88,599
-------- --------
Earnings from operations 91,960 162,242
Other income:
Interest income 6,319 7,644
Net gain on disposal of equipment 59,615 63,612
-------- --------
65,934 71,256
-------- --------
Net earnings $157,894 $233,498
======== ========
Allocation of net earnings:
General partners $ 31,042 $ 32,006
Limited partners 126,852 201,492
-------- --------
$157,894 $233,498
======== ========
Limited partners' per unit share of net earnings $ 7.40 $ 11.76
======== ========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(B)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
Net cash provided by operating activities $ 176,826 $ 286,820
Cash flows provided by investing activities:
Proceeds from disposal of equipment 142,977 143,981
Cash flows used in financing activities:
Distribution to partners (358,487) (376,116)
--------- ---------
Net increase (decrease) in cash and cash equivalents (38,684) 54,685
Cash and cash equivalents at January 1 525,530 563,369
--------- ---------
Cash and cash equivalents at March 31 $ 486,846 $ 618,054
========= =========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(B)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Income Fund V(B) (the "Partnership") is a limited
partnership organized under the laws of the State of California on
August 8, 1983 for the purpose of owning and leasing marine cargo
containers. The managing general partner is Cronos Capital Corp.
("CCC"); the associate general partners include four individuals. CCC,
with its affiliate Cronos Containers Limited (the "Leasing Company"),
manages and controls the business of the Partnership.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership, all
authority to administer the business of the Partnership is vested in
CCC. CCC has entered into a Leasing Agent Agreement whereby the
Leasing Company has the responsibility to manage the leasing
operations of all equipment owned by the Partnership. Pursuant to the
Agreement, the Leasing Company is responsible for leasing, managing
and re-leasing the Partnership's containers to ocean carriers and has
full discretion over which ocean carriers and suppliers of goods and
services it may deal with. The Leasing Agent Agreement permits the
Leasing Company to use the containers owned by the Partnership,
together with other containers owned or managed by the Leasing Company
and its affiliates, as part of a single fleet operated without regard
to ownership. Since the Leasing Agent Agreement meets the definition
of an operating lease in Statement of Financial Accounting Standards
(SFAS) No. 13, it is accounted for as a lease under which the
Partnership is lessor and the Leasing Company is lessee.
The Leasing Agent Agreement generally provides that the Leasing
Company will make payments to the Partnership based upon rentals
collected from ocean carriers after deducting direct operating
expenses and management fees to CCC. The Leasing Company leases
containers to ocean carriers, generally under operating leases which
are either master leases or term leases (mostly two to five years).
Master leases do not specify the exact number of containers to be
leased or the term that each container will remain on hire but allow
the ocean carrier to pick up and drop off containers at various
locations; rentals are based upon the number of containers used and
the applicable per-diem rate. Accordingly, rentals under master leases
are all variable and contingent upon the number of containers used.
Most containers are leased to ocean carriers under master leases;
leasing agreements with fixed payment terms are not material to the
financial statements. Since there are no material minimum lease
rentals, no disclosure of minimum lease rentals is provided in these
financial statements.
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recognized when earned.
The Partnership has determined that for accounting purposes the
Leasing Agent Agreement is a lease, and the receivables, payables,
gross revenues and operating expenses attributable to the containers
managed by the Leasing Company are, for accounting purposes, those of
the Leasing Company and not of the Partnership. Consequently, the
Partnership's balance sheets and statements of operations display the
payments to be received by the Partnership from the Leasing Company as
the Partnership's receivables and revenues.
(Continued)
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IEA MARINE CONTAINER INCOME FUND V(B)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, reimbursed administrative expenses and incentive fees payable
to CCC, the Leasing Company, and its affiliates from the rental billings
payable by the Leasing Company to the Partnership under operating leases to
ocean carriers for the containers owned by the Partnership. Net lease
receivables at March 31, 1996 and December 31, 1995 were as follows:
March 31, December 31,
1996 1995
---- ----
Lease receivables, net of doubtful accounts
of 112,728 at March 31, 1996 and $106,894
at December 31, 1995 $640,665 $499,036
Less:
Direct operating payables and accrued expenses 131,870 114,433
Damage protection reserve 26,642 31,523
Base management fees 24,837 30,150
Reimbursed administrative expenses 5,538 6,028
Incentive fees 36,567 39,831
-------- --------
$415,211 $277,071
======== ========
(Continued)
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IEA MARINE CONTAINER INCOME FUND V(B)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses and
management fees to CCC and the Leasing Company, from the rental revenue
billed by the Leasing Company under operating leases to ocean carriers for
the containers owned by the Partnership. Net lease revenue for the
three-month periods ended March 31, 1996 and 1995, was as follows:
Three Months Ended
March 31, March 31,
1996 1995
---- ----
Rental revenue $312,202 $425,050
Rental equipment operating expenses 72,474 79,101
Base management fees 21,506 30,000
Incentive fees 36,569 41,791
Reimbursed administrative expenses 18,256 23,317
-------- --------
$163,397 $250,841
======== ========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between March 31, 1996 and
December 31, 1995.
During the first quarter of 1996, the Registrant continued disposing of
containers as part of its ongoing container operations. Accordingly, 288
containers were disposed during the first quarter of 1996, contributing to
a decline in the Registrant's operating results. At March 31, 1996, 54% of
the original equipment remained in the Registrant's fleet, as compared to
62% at December 31, 1995, and was comprised of the following:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 116 15 9
Master lease 1,070 287 102
----- --- ---
Subtotal 1,186 302 111
Containers off lease 287 61 31
----- --- ---
Total container fleet 1,473 363 142
===== === ===
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Units % Units % Units %
----- - ----- - ----- -
Total purchases 2,761 100% 719 100% 150 100%
Less disposals 1,288 47% 356 50% 8 5%
----- --- --- --- --- ---
Remaining fleet at March 31, 1996 1,473 53% 363 50% 142 95%
===== === === === === ===
Net lease receivables at March 31, 1995 increased when compared to
December 31, 1995, as cash collections of outstanding receivables slowed.
During the first quarter of 1996, distributions from operations and sales
proceeds amounted to $358,487, reflecting distributions to the general and
limited partners for the fourth quarter of 1995. This represents a decline
from the $381,993 distributed during the fourth quarter of 1995,
reflecting distributions for the third quarter of 1995. The Registrant's
efforts to dispose of the remaining fleet should produce lower operating
results and, consequently, lower distributions to its partners in
subsequent periods.
The statements contained in the following discussion are based on current
expectations. These statements are forward looking and actual results may
differ materially. The container leasing market generally softened during
the fourth quarter of 1995 and has remained so during the first quarter of
1996. At March 31, 1996, container inventories remained at
larger-than-usual levels, resulting in a decline in the Registrant's
utilization rate from 87% at December 31, 1995 to 82% at March 31, 1996.
During the first quarter of 1996, the Leasing Company implemented various
marketing strategies, including but not limited to, offering incentives to
shipping companies and repositioning containers to high demand locations
in order to counter these market conditions. The Leasing Company expects
the Registrant to recognize the benefits of these efforts during the next
few quarters of 1996. However, downward pressures on base per-diem rental
rates have begun to emerge within the container leasing market. A
reduction in per-diem rental rates, combined with current utilization
levels, could impact the Registrant's results from operations during the
remainder of 1996.
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2) Material changes in the results of operations between the three-month
period ended March 31, 1996 and the three-month period ended March 31,
1995.
Net lease revenue for the first quarter of 1996 was $163,397, a decline of
35% from the first quarter of 1995. Approximately 38% of the Registrant's
net earnings for the three-month period ended March 31, 1996 were from
gain on disposal of equipment, as compared to 27% for the same three-month
period in the prior year. As the Registrant's container disposals increase
in subsequent periods, net gain on disposal will contribute significantly
to the Registrant's net earnings.
Gross rental revenue (a component of net lease revenue) for the quarter
was $312,202, a decline of 27% from the same period last year. During
1996, gross rental revenue was primarily impacted by the Registrant's
diminishing fleet size and lower utilization levels. Average per-diem
rental rates remained relatively stable when compared to the same period
in the prior year. The Registrant's average fleet size and utilization
rates for the three-month periods ended March 31, 1996 and 1995 were as
follows:
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 2,652 3,397
Average Utilization 82% 87%
The Registrant's aging and declining fleet size contributed to a 21%
decline in depreciation expense when compared to the same period in the
prior year. Rental equipment operating expenses were 23% of the
Registrant's gross lease revenue during the three-month period ended March
31, 1996, as compared to 19% during the three-month period ended March 31,
1995. This increase was largely attributable to an increase in costs
associated with lower utilization levels, including handling, storage and
repositioning. The Registrant's declining fleet size and related operating
results also contributed to a decline in base management and incentive
fees, when compared to the same period in the prior year.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
--- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of October 27, 1983
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended March 31, 1996
- ---------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 28, 1983, included as part of Registration
Statement on Form S-1 (No. 2-86324)
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13
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA MARINE CONTAINER INCOME FUND V(B)
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
----------------------------------
John Kallas
Vice President, Chief Financial Officer
Principal Accounting Officer
Date: May 14, 1996
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EXHIBIT INDEX
Exhibit
No. Description Method of Filing
--- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of October 27, 1983
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
- ----------------------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 28, 1983, included as part of Registration
Statement on Form S-1 (No. 2-86324)
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** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)