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 SEPTEMBER 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 SEPTEMBER 30, 1996
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1996 (unaudited) and December 31,
1995 4
Statements of Operations for the three and nine months ended
September 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the nine months ended September 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 September
30, 1996 and December 31, 1995, statements of operations for the three
and nine months ended September 30, 1996 and 1995, and statements of
cash flows for the nine months ended September 30, 1996 and 1995.
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IEA MARINE CONTAINER INCOME FUND V(B)
BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
Assets
Current assets:
Cash, includes $112,953 at September 30, 1996 and $175,244
at December 31, 1995 in interest-bearing accounts $ 113,151 $ 175,530
Short-term investments 450,796 350,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 218,603 277,071
---------- ----------
Total current assets 782,550 802,601
---------- ----------
Container rental equipment, at cost 3,453,083 5,425,149
Less accumulated depreciation 2,311,136 3,410,328
---------- ----------
Net container rental equipment 1,141,947 2,014,821
---------- ----------
$1,924,497 $2,817,422
========== ==========
Partners' Capital
Partners' capital:
General partners $ 1,713 $ 1,408
Limited partners 1,922,784 2,816,014
---------- ----------
Total partners' capital 1,924,497 2,817,422
---------- ----------
$1,924,497 $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 Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Net lease revenue (notes 1 and 3) $119,370 $202,867 $365,105 $694,691
Other operating expenses:
Depreciation 46,926 74,123 166,875 232,936
Other general and administrative
expenses 7,762 4,309 21,299 26,636
-------- -------- -------- --------
54,688 78,432 188,174 259,572
-------- -------- -------- --------
Earnings from operations 64,682 124,435 176,931 435,119
Other income:
Interest income 9,978 7,543 24,803 24,467
Net gain on disposal of equipment 53,839 27,469 180,611 125,998
-------- -------- -------- --------
63,817 35,012 205,414 150,465
-------- -------- -------- --------
Net earnings $128,499 $159,447 $382,345 $585,584
======== ======== ======== ========
Allocation of net earnings:
General partners $ 52,725 $ 35,888 $113,662 $103,201
Limited partners 75,774 123,559 268,683 482,383
-------- -------- -------- --------
$128,499 $159,447 $382,345 $585,584
======== ======== ======== ========
Limited partners' per unit share of
net earnings $ 4.42 $ 7.21 $ 15.68 $ 28.15
======== ======== ======== ========
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)
Nine Months Ended
--------------------------------
September 30, September 30,
1996 1995
------------- -------------
Net cash provided by operating activities $ 452,259 $ 779,998
Cash flows provided by investing activities:
Proceeds from disposal of equipment 861,429 386,486
Cash flows used in financing activities:
Distribution to partners (1,275,271) (1,175,365)
----------- -----------
Net increase (decrease) in cash and cash equivalents 38,417 (8,881)
Cash and cash equivalents at January 1 525,530 563,369
----------- -----------
Cash and cash equivalents at September 30 $ 563,947 $ 554,488
=========== ===========
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 September 30, 1996 and December 31, 1995 were as follows:
September 30, December 31,
1996 1995
------------- ------------
Lease receivables, net of doubtful accounts
of $115,680 at September 30, 1996 and $106,894
at December 31, 1995 $ 375,624 $ 499,036
Less:
Direct operating payables and accrued expenses 57,026 114,433
Damage protection reserve 36,426 31,523
Base management fees 15,349 30,150
Reimbursed administrative expenses 3,817 6,028
Incentive fees 44,403 39,831
---------- -----------
$ 218,603 $ 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 nine-month periods ended September 30, 1996 and 1995, was as follows:
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Rental revenue $ 224,568 $ 397,564 $ 797,305 $ 1,249,950
Rental equipment operating expenses 33,385 106,954 189,820 274,807
Base management fees 15,744 24,945 52,852 83,006
Incentive fees 44,403 38,526 146,269 127,331
Reimbursed administrative expenses 11,666 24,272 43,259 70,115
---------- ---------- ---------- ------------
$ 119,370 $ 202,867 $ 365,105 $ 694,691
========== ========== ========== ============
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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 September 30, 1996 and
December 31, 1995.
During the first nine months of 1996, the Registrant continued disposing of
containers as part of its ongoing operations. Accordingly, 890 containers
were disposed, contributing to an increase in cash generated from sales
proceeds, and accordingly, the related cash balances. At September 30,
1996, 38% 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 70 14 10
Master lease 813 217 113
--- --- ---
Subtotal 883 231 123
Containers off lease 101 26 12
--- --- ---
Total container fleet 984 257 135
=== === ===
40-Foot
20-Foot 40-Foot High-Cube
-------------- ------------ ------------
Units % Units % Units %
----- --- ----- --- ----- ---
Total purchases 2,761 100% 719 100% 150 100%
Less disposals 1,777 64% 462 64% 15 10%
----- --- --- --- --- ---
Remaining fleet at September 30, 1996 984 36% 257 36% 135 90%
===== === === === === ===
Net lease receivables at September 30, 1996 declined when compared to
December 31, 1995. Contributing to this decline were favorable collections
of the Registrant's lease receivables, a diminishing fleet size, and its
related operating performance. During the third quarter of 1996,
distributions from operations and sales proceeds amount to $587,682,
reflecting distributions to the general and limited partners for the second
quarter of 1996. This represents an increase from the $329,102 distributed
during the second quarter of 1996, reflecting increased distributions of
sales proceeds for the second quarter of 1996. The Registrant's 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. Indicative of the cyclical nature of the container
leasing business, containerized trade slowed in the last quarter of 1995,
and excess inventories began to develop. This slowdown has resulted in
reduced equipment utilization and lower per-diem rental rates in the
container leasing industry during the first nine months of 1996. However,
as a result of the Registrant's policy of disposing off-hire containers,
utilization at September 30, 1996 averaged 90%, an increase from the
average utilization rate of 87% at December 31, 1995. Additionally, during
the first nine 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 the market conditions. Ancillary revenues have fallen, and
free-day incentives offered to the shipping lines have increased. As a
result, these leasing market conditions, combined with the Registrant's
disposal of containers, are expected to adversely impact the Registrant's
results from operations through the remainder of 1996 and into 1997.
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2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1996 and the three and nine-month
periods ended September 30, 1995.
Net lease revenue for the three and nine-month periods ended September 30,
1996 was $119,370 and $365,105, respectively, a decline of 41% and 47% from
the same three and nine-month periods in the prior year, respectively.
Approximately 42% and 47% of the Registrant's net earnings for the three
and nine-month periods ended September 30, 1996, respectively, were from
gain on disposal of equipment, as compared to 17% and 22% for the same
three and nine-month periods in the prior year, respectively. As the
Registrant continues the disposal of its containers in subsequent periods,
net gain on disposal should contribute significantly to the Registrant's
net earnings.
Gross rental revenue (a component of net lease revenue) for the three and
nine-month periods ended September 30, 1996 was $224,568, and $797,305,
respectively, reflecting a decline of 44% and 36% from the same three and
nine-month periods in 1995, respectively. During 1996, gross rental revenue
was primarily impacted by the Registrant's diminishing fleet size. Average
per-diem rental rates decreased approximately 4% and 3%, when compared to
the same three and nine-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 nine-month periods ended September 30,
1996 and September 30, 1995 were as follows:
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 1,850 3,055 2,230 3,248
Average Utilization 91% 87% 86% 88%
The Registrant's aging and declining fleet size contributed to a 37% and
28% decline in depreciation expense when compared to the same three and
nine-month periods in the prior year, respectively. Rental equipment
operating expenses were 15% and 27% of the Registrant's gross lease revenue
for the three-month periods ended September 30, 1996 and 1995,
respectively. This decline was primarily attributable to a reduction in the
provision for doubtful accounts and the costs associated with the recovery
actions against the doubtful accounts of certain lessees. However, rental
equipment operating expenses were 24% and 22% of the Registrant's gross
lease revenue for the nine-month periods ended September 30, 1996 and 1995,
respectively. This increase was largely attributable to a decline in gross
lease revenue resulting from lower utilization rates, lower per-diem rates,
a downward trend in ancillary revenue, and an increase in free-day
incentives offered to shipping companies. Costs associated with lower
utilization levels, including storage, handling, and repositioning, also
contributed to the increase in 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 fees, when compared to the same periods in the prior year.
Incentive fees, which are based on both the operating performance of the
fleet and sales proceeds, increased by 15% when compared with each of the
three and nine-month periods in the prior year, respectively.
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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 September 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, Treasurer
Principal Financial & Accounting Officer
Date: November 11, 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)