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 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 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(A)
BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1996 1995
------------ ------------
Assets
------
Current assets:
Cash, includes $83,079 at September 30, 1996 and $119,489
at December 31, 1995 in interest-bearing accounts $ 83,190 $ 119,720
Short-term investments 175,000 150,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 85,714 118,505
----------- ----------
Total current assets 343,904 388,225
---------- ----------
Container rental equipment, at cost 1,606,686 2,420,622
Less accumulated depreciation 1,071,673 1,524,631
--------- ---------
Net container rental equipment 535,013 895,991
---------- ----------
$ 878,917 $ 1,284,216
========== =========
Partners' Capital
Partners' capital:
General partners $ 860 $ 846
Limited partners 878,057 1,283,370
---------- ---------
Total partners' capital 878,917 1,284,216
---------- ---------
$ 878,917 $ 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 Nine Months Ended
-------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
-------- -------- -------- --------
Net lease revenue (notes 1 and 3) $ 55,892 $ 96,059 $189,278 $344,672
Other operating expenses:
Depreciation 21,602 33,108 75,271 104,857
Other general and administrative expenses 5,347 3,045 13,765 18,484
-------- -------- -------- --------
26,949 36,153 89,036 123,341
-------- -------- -------- --------
Earnings from operations 28,943 59,906 100,242 221,331
Other income:
Interest income 4,004 3,456 10,368 10,231
Net gain on disposal of equipment 29,251 16,340 90,196 77,152
-------- -------- -------- --------
33,255 19,796 100,564 87,383
-------- -------- -------- --------
Net earnings $ 62,198 $ 79,702 $200,806 $308,714
======== ======== ======== ========
Allocation of net earnings:
General partners $ 22,755 $ 15,812 $ 53,890 $ 45,763
Limited partners 39,443 63,890 146,916 262,951
-------- -------- -------- --------
$ 62,198 $ 79,702 $200,806 $308,714
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 5.40 $ 8.75 $ 20.12 $ 36.01
======== ======== ======== ========
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)
Nine Months Ended
------------------------------
September 30, September 30,
1996 1995
--------- ---------
Net cash provided by operating activities $ 213,156 $ 363,806
Cash flows provided by investing activities:
Proceeds from disposal of equipment 381,418 214,396
Cash flows used in financing activities:
Distribution to partners (606,104) (540,984)
--------- ---------
Net increase (decrease) in cash and cash equivalents (11,530) 37,218
Cash and cash equivalents at January 1 269,720 247,755
--------- ---------
Cash and cash equivalents at September 30 $ 258,190 $ 284,973
========= =========
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.
7
(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 September 30, 1996 and December 31, 1995 were as
follows:
September 30, December 31,
1996 1995
------------ ------------
Lease receivables, net of doubtful accounts
of $62,717 at September 30, 1996 and $64,982
at December 31, 1995 $167,447 $232,028
Less:
Direct operating payables and accrued expenses 34,699 59,356
Damage protection reserve 14,656 13,747
Base management fees 9,675 15,812
Reimbursed administrative expenses 1,832 2,902
Incentive fees 20,871 21,706
-------- --------
$ 85,714 $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 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 $108,770 $192,071 $385,623 $613,150
Rental equipment operating expenses 18,690 49,949 82,681 129,451
Base management fees 7,669 12,190 26,313 40,707
Incentive fees 20,870 22,263 66,508 64,563
Reimbursed administrative expenses 5,649 11,610 20,843 33,757
-------- -------- -------- --------
$ 55,892 $ 96,059 $189,278 $344,672
======== ======== ======== ========
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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, 383
containers were disposed, contributing to a decline in the Registrant's
operating results. At September 30, 1996, 40% 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 27 3 3
Master lease 355 129 56
--- --- --
Subtotal 382 132 59
Containers off lease 55 23 10
---- ---- --
Total container fleet 437 155 69
=== === ==
40-Foot
20-Foot 40-Foot High-Cube
--------------- ------------ -------------
Units % Units % Units %
------ ---- ----- --- ----- ---
Total purchases 1,230 100% 358 100% 75 100%
Less disposals 793 64% 203 57% 6 8%
------ ---- --- --- --- -----
Remaining fleet at September 30, 1996 437 36% 155 43% 69 92%
====== ==== === === === =====
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 amounted to $252,961,
reflecting distributions to the general and limited partners for the
second quarter of 1996. This represents an increase from the $157,788
distributed during the second quarter of 1996, reflecting higher
distributions from 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 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 86%, unchanged from the average
rate 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 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 $55,892 and $189,278 respectively, a decline of 42% and 45% from
the same three and nine-month periods in the prior year, respectively.
Approximately 47% and 45% 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 21% and 25% 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 $108,770 and $385,623,
respectively, reflecting a decline of 43% and 37% 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 3% and 2%, when
compared to the three and nine-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 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)) 920 1,476 1,095 1,587
Average Utilization 87% 86% 85% 87%
The Registrant's aging and declining fleet size contributed to a 35% 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 17% and 26% 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. Rental
equipment operating expenses were approximately 21% during each of the
nine-month periods ended September 30, 1996 and 1995. 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.
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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 September 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, 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, 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)