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 JUNE 30, 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 2-86324
IEA MARINE CONTAINER INCOME FUND V(A)
(Exact name of registrant as specified in its charter)
California 94-2911062
(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(A)
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and six months ended June 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
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 June 30,
1996 and December 31, 1995, statements of operations for the three and
six months ended June 30, 1996, and 1995, and statements of cash flows
for the six months ended June 30, 1996 and 1995.
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IEA MARINE CONTAINER INCOME FUND V(A)
BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
---------- ------------
Assets
------
Current assets:
Cash, includes $79,691 at June 30, 1996 and $119,489
at December 31, 1995 in interest-bearing accounts $ 79,828 $ 119,720
Short-term investments 250,197 150,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 100,221 118,505
---------- ----------
Total current assets 430,246 388,225
---------- ----------
Container rental equipment, at cost 1,845,746 2,420,622
Less accumulated depreciation 1,206,312 1,524,631
---------- ----------
Net container rental equipment 639,434 895,991
---------- ----------
$1,069,680 $1,284,216
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 590 $ 846
Limited partners 1,069,090 1,283,370
---------- ----------
Total partners' capital 1,069,680 1,284,216
---------- ----------
$1,069,680 $1,284,216
========== ==========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net lease revenue (notes 1 and 3) $ 58,623 $118,464 $133,386 $248,612
Other operating expenses:
Depreciation 25,036 35,013 53,669 71,749
Other general and administrative expenses 4,313 9,671 8,418 15,439
-------- -------- -------- --------
29,349 44,684 62,087 87,188
-------- -------- -------- --------
Earnings from operations 29,274 73,780 71,299 161,424
Other income:
Interest income 3,472 3,633 6,364 6,775
Net gain on disposal of equipment 33,921 26,250 60,945 60,812
-------- -------- -------- --------
37,393 29,883 67,309 67,587
-------- -------- -------- --------
Net earnings $ 66,667 $103,663 $138,608 $229,011
======== ======== ======== ========
Allocation of net earnings:
General partners $ 14,353 $ 16,051 $ 31,135 $ 29,950
Limited partners 52,314 87,612 107,473 199,061
-------- -------- -------- --------
$ 66,667 $103,663 $138,608 $229,011
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 7.17 $ 12.00 $ 14.72 $ 27.26
======== ======== ======== ========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
--------------------------
June 30, June 30,
1996 1995
--------- ---------
Net cash provided by operating activities $ 154,267 $ 259,075
Cash flows provided by investing activities:
Proceeds from disposal of equipment 259,181 130,967
Cash flows used in financing activities:
Distribution to partners (353,143) (350,638)
--------- ---------
Net increase in cash and cash equivalents 60,305 39,404
Cash and cash equivalents at January 1 269,720 247,755
--------- ---------
Cash and cash equivalents at June 30 $ 330,025 $ 287,159
========= =========
The accompanying notes are an integral part of these statements.
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IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Income Fund V(A) (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(A)
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 June 30, 1996 and December 31, 1995 were as follows:
June 30, December 31,
1996 1995
-------- -----------
Lease receivables, net of doubtful accounts
of $74,957 at June 30, 1996 and $64,982
at December 31, 1995 $207,572 $232,028
Less:
Direct operating payables and accrued expenses 52,489 59,356
Damage protection reserve 12,822 13,747
Base management fees 11,683 15,812
Reimbursed administrative expenses 2,250 2,902
Incentive fees 28,107 21,706
-------- --------
$100,221 $118,505
======== ========
(Continued)
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IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
management fees and reimbursed administrative expenses 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 and six-month periods ended
June 30, 1996 and 1995, was as follows:
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- --------- --------- ---------
Rental revenue $128,887 $208,065 $276,853 $421,078
Rental equipment operating expenses 27,181 40,831 63,991 79,502
Base management fees 8,464 13,517 18,644 28,517
Incentive fees 6,513 24,490 15,194 42,300
Reimbursed administrative expenses 28,106 10,763 45,638 22,147
-------- -------- -------- --------
$ 58,623 $118,464 $133,386 $248,612
======== ======== ======== ========
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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 June 30, 1996 and December
31, 1995.
During the first six months of 1996, the Registrant continued disposing of
containers as part of its ongoing operations. Accordingly, 275 containers
were disposed, contributing to a decline in the Registrant's operating
results. At June 30, 1996, 46% of the original equipment remained in the
Registrant's fleet, as compared to 63% at December 31, 1995, comprised as
follows:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 39 3 2
Master lease 406 139 58
--- --- --
Subtotal 445 142 60
Containers off lease 73 39 10
--- --- --
Total container fleet 518 181 70
=== === ==
40-Foot
20-Foot 40-Foot High-Cube
---------------- -------------- --------------
Units % Units % Units %
----- ----- ----- ----- ----- -----
Total purchases 1,230 100% 358 100% 75 100%
Less disposals 712 58% 177 49% 5 7%
----- --- --- --- -- ---
Remaining fleet at June 30, 1996 518 42% 181 51% 70 93%
===== === === === == ===
Net lease receivables at June 30, 1996 declined when compared to December
31, 1995, as the Registrant's diminishing fleet size and its related
operating performance contributed to declines in gross lease receivables.
During the second quarter of 1996, distributions from operations and sales
proceeds amounted to $157,788, reflecting distributions to the general and
limited partners for the first quarter of 1996. This represents a decline
from the $195,355 distributed during the first quarter of 1996, reflecting
distributions for the fourth quarter of 1995. The Registrant's continuing
disposal activity should produce lower operating results and,
consequently, lower distributions from operations to its partners in
subsequent periods. However, sales proceeds distributed to partners may
fluctuate in subsequent periods, reflecting the level of container
disposals.
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 six months
of 1996. At June 30, 1996, container inventories remained at
larger-than-usual levels, resulting in a decline in the Registrant's
utilization rate from 86% at December 31, 1995 to 84% at June 30, 1996.
Base per-diem rates have become subject to downward pressures arising from
a soft container leasing market. During the first six months 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. Accordingly, ancillary per-diems have fluctuated,
favoring a downward trend, while free-day incentives offered to shipping
companies have risen. Currently, there are no visible signs of
improvements in the leasing market and hence further downward pressure on
rental rates can be expected in the ensuing quarters. As a result, these
leasing markets conditions, combined with the Registrant's disposal of
containers, will continue to 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 and
six-month periods ended June 30, 1996 and the three and six-month periods
ended June 30, 1995.
Net lease revenue for the three and six-month periods ended June 30, 1996
was $58,623 and $133,386, respectively, a decline of 51% and 46% from the
same three and six-month periods in the prior year, respectively.
Approximately 51% and 44% of the Registrant's net earnings for the three
and six-month periods ended June 30, 1996, respectively, were from gain on
disposal of equipment, as compared to 25% and 27% for the same three and
six-month periods in the prior year, respectively. As the Registrant
accelerates the disposal of its containers 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 three and
six-month periods ended June 30, 1996 was $128,887, and $276,853,
respectively, reflecting a decline of 38% and 34% from the same three and
six-month periods in 1995, respectively. During 1996, gross rental revenue
was primarily impacted by the Registrant's diminishing fleet size and
lower utilization levels. Average per-diem rental rates decreased
approximately 2%, when compared to both the three and six-month periods in
the prior year, as they became subject to the downward pressures of an
increasingly soft container leasing market. The Registrant's average fleet
size and utilization rates for the three and six-month periods ended June
30, 1996 and June 30, 1995 were as follows:
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------- ------- ------- -------
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 1,079 1,566 1,182 1,635
Average Utilization 87% 87% 84% 87%
The Registrant's aging and declining fleet size contributed to a 28% and
25% decline in depreciation expense when compared to the same three and
six-month periods in the prior year, respectively. Rental equipment
operating expenses were 21% and 23% of the Registrant's gross lease
revenue during the three and six-month periods ended June 30, 1996,
respectively, as compared to 20% and 19% during the three and six-month
periods ended June 30, 1995, respectively. This increase was largely
attributable to a decline in gross lease revenue resulting from lower
per-diem rates, a downward trend in ancillary per-diems, and an increase
in free-day incentives offered to shipping companies. Costs associated
with lower utilization levels, including handling, storage and
repositioning, also contributed to the increase in the rental equipment
operating expenses, as a percentage of gross lease revenue. The
Registrant's declining fleet size and related operating performance
contributed to the decline in base management and incentive fees, when
compared to the same periods 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, 1984
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 June 30, 1996
__________
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 28, 1984, included as part of Registration
Statement on Form S-1 (No. 2-86324)
** 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(A)
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
---------------------------
John Kallas
Vice President, Chief Financial Officer
Principal Accounting Officer
Date: August 13, 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, 1984
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, 1984, included as part of Registration
Statement on Form S-1 (No. 2-86324)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)