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 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 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(B)
BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
-------- ------------
Assets
------
Current assets:
Cash, includes $124,038 at June 30, 1996 and $175,244
at December 31, 1995 in interest-bearing accounts $ 124,235 $ 175,530
Short-term investments 650,870 350,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 241,110 277,071
---------- ----------
Total current assets 1,016,215 802,601
---------- ----------
Container rental equipment, at cost 3,971,801 5,425,149
Less accumulated depreciation 2,604,337 3,410,328
---------- ----------
Net container rental equipment 1,367,464 2,014,821
---------- ----------
$2,383,679 $2,817,422
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 1,226 $ 1,408
Limited partners 2,382,453 2,816,014
---------- ----------
Total partners' capital 2,383,679 2,817,422
---------- ----------
$2,383,679 $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 Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net lease revenue (notes 1 and 3) $ 82,338 $240,982 $245,735 $491,823
Other operating expenses:
Depreciation 55,382 77,585 119,949 158,813
Other general and administrative expenses 6,667 14,956 13,537 22,327
-------- -------- -------- --------
62,049 92,541 133,486 181,140
-------- -------- -------- --------
Earnings from operations 20,289 148,441 112,249 310,683
Other income:
Interest income 8,506 9,280 14,825 16,924
Net gain on disposal of equipment 67,157 34,917 126,772 98,529
-------- -------- -------- --------
75,663 44,197 141,597 115,453
-------- -------- -------- --------
Net earnings $ 95,952 $192,638 $253,846 $426,136
======== ======== ======== ========
Allocation of net earnings:
General partners $ 29,895 $ 35,306 $ 60,937 $ 67,312
Limited partners 66,057 157,332 192,909 358,824
-------- -------- -------- --------
$ 95,952 $192,638 $253,846 $426,136
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 3.86 $ 9.18 $ 11.26 $ 20.94
======== ======== ======== ========
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)
Six Months Ended
--------------------------
June 30, June 30,
1996 1995
-------- --------
Net cash provided by operating activities $ 486,776 $ 540,845
Cash flows provided by investing activities:
Proceeds from disposal of equipment 450,386 269,449
Cash flows used in financing activities:
Distribution to partners (687,587) (799,248)
--------- ---------
Net increase in cash and cash equivalents 249,575 11,046
Cash and cash equivalents at January 1 525,530 563,369
--------- ---------
Cash and cash equivalents at June 30 $ 775,105 $ 574,415
========= =========
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 June 30, 1996 and December 31, 1995 were as follows:
June 30, December 31,
1996 1995
---------- ------------
Lease receivables, net of doubtful accounts
of $146,797 at June 30, 1996 and $106,894
at December 31, 1995 $ 445,570 $ 499,036
Less:
Direct operating payables and accrued expenses 82,489 114,433
Damage protection reserve 32,632 31,523
Base management fees 19,517 30,150
Reimbursed administrative expenses 4,524 6,028
Incentive fees 65,298 39,831
----------- -----------
$ 241,110 $ 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
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 $260,535 $427,335 $572,737 $852,385
Rental equipment operating expenses 83,961 88,752 156,435 167,853
Base management fees 15,602 28,061 37,108 58,061
Incentive fees 65,297 47,014 101,866 88,805
Reimbursed administrative expenses 13,337 22,526 31,593 45,843
-------- -------- -------- --------
$ 82,338 $240,982 $245,735 $491,823
======== ======== ======== ========
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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, 660 containers
were disposed, contributing to an increase in cash generated from sales
proceeds, and accordingly, the related cash balances. At June 30, 1996,
44% of the original equipment remained in the Registrant's fleet, as
compared to 62% at December 31, 1995, comprised as follows:
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Containers on lease:
Term leases 103 14 10
Master lease 918 251 99
----- --- ---
Subtotal 1,021 265 109
Containers off lease 140 45 26
----- --- ---
Total container fleet 1,161 310 135
===== === ===
40-Foot
20-Foot 40-Foot High-Cube
--------------- -------------- --------------
Units % Units % Units %
----- ---- ----- ---- ----- ----
Total purchases 2,761 100% 719 100% 150 100%
Less disposals 1,600 58% 409 57% 15 10%
----- --- --- --- --- ---
Remaining fleet at June 30, 1996 1,161 42% 310 43% 135 90%
===== === === === === ===
Net lease receivables at June 30, 1996 declined when compared to December
31, 1995, as the Registrant's diminishing fleet size and related operating
performance contributed to declines in gross lease receivables. During the
second quarter of 1996, distributions from operations and sales proceeds
amount to $329,102, reflecting distributions to the general and limited
partners for the first quarter of 1996. This represents a decline from the
$358,487 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 its 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 87% 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.
(Continued)
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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 $82,338 and $245,735, respectively, a decline of 66% and 50% from the
same three and six-month periods in the prior year, respectively.
Approximately 70% and 50% 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 18% and 23% 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 $260,535, and $572,737,
respectively, reflecting a decline of 39% and 33% 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 4% and 3%, when compared to the same three and six-month
periods in the prior year, respectively, 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)) 2,186 3,204 2,419 3,331
Average Utilization 86% 88% 84% 88%
The Registrant's aging and declining fleet size contributed to a 29% and
24% decline in depreciation expense when compared to the same three and
six-month periods in the prior year, respectively. Rental equipment
operating expenses were 32% and 27% of the Registrant's gross lease
revenue during the three and six-month periods ended June 30, 1996,
respectively, as compared to 21% and 20% during the same 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.
(Continued)
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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 June 30, 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)
** 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: 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, 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)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)