-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K011wywFgArK7eUhp8O074PFGo0TKI7PwNrsh5gw6GnBRQLCKAVNDNR4Kkv3ZM3F 7Frf2PETbsiIYjK7D8HIOA== 0000950149-96-001821.txt : 19961113 0000950149-96-001821.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950149-96-001821 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEA MARINE CONTAINER INCOME FUND III CENTRAL INDEX KEY: 0000350202 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 942717330 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-10474 FILM NUMBER: 96658958 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 MAIL ADDRESS: STREET 1: 444 MARKET ST 15TH FLOOR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 IEA MARINE CONTAINER INCOME FUND III 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 0-10474 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) (Exact name of registrant as specified in its charter) California 94-2717330 (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 --- --- 2 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) 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
2 3 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. 3 4 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS (UNAUDITED)
September 30, December 31, 1996 1995 ------------- ------------ Assets Current assets: Cash, includes $136,054 at September 30, 1996 and $212,798 at December 31, 1995 in interest-bearing accounts $ 136,405 $ 212,918 Short-term investments 626,096 625,000 Net lease receivables due from Leasing Company (notes 1 and 2) 325,951 408,952 ---------- ---------- Total current assets 1,088,452 1,246,870 ---------- ---------- Container rental equipment, at cost 3,747,258 6,678,748 Less accumulated depreciation 2,604,347 4,660,856 ---------- ---------- Net container rental equipment 1,142,911 2,017,892 ---------- ---------- $2,231,363 $3,264,762 ========== ========== Partners' Capital Partners' capital: General partners $ 2,664 $ 4,657 Limited partners 2,228,699 3,260,105 ---------- ---------- Total partners' capital 2,231,363 3,264,762 ---------- ---------- $2,231,363 $3,264,762 ========== ==========
The accompanying notes are an integral part of these statements. 4 5 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) 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) $157,011 $220,910 $ 522,541 $ 838,974 Other operating expenses: Other general and administrative expenses 9,475 7,110 27,911 33,666 -------- -------- ---------- ---------- Earnings from operations 147,536 213,800 494,630 805,308 Other income: Interest income 12,706 12,424 34,310 43,545 Net gain on disposal of equipment 73,368 122,814 276,268 341,024 -------- -------- ---------- ---------- 86,074 135,238 310,578 384,569 -------- -------- ---------- ---------- Net earnings $233,610 $349,038 $ 805,208 $1,189,877 ======== ======== ========== ========== Allocation of net earnings: General partners $ 8,674 $ 15,071 $ 17,853 $ 30,142 Limited partners 224,936 333,967 787,355 1,159,735 -------- -------- ---------- ---------- $233,610 $349,038 $ 805,208 $1,189,877 ======== ======== ========== ========== Limited partners' per unit share of net earnings $ 7.50 $ 11.30 $ 26.25 $ 39.04 ======== ======== ========== ==========
The accompanying notes are an integral part of these statements. 5 6 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ---------------------------------- September 30, September 30, 1996 1995 --------------- -------------- Net cash provided by operating activities $ 640,752 $ 947,375 Cash flows provided by investing activities: Proceeds from disposal of equipment 1,122,439 973,527 Cash flows used in financing activities: Distribution to partners (1,838,608) (2,120,200) ----------- ----------- Net decrease in cash and cash equivalents (75,417) (199,298) Cash and cash equivalents at January 1 837,918 1,116,858 ----------- ----------- Cash and cash equivalents at September 30 $ 762,501 $ 917,560 =========== ===========
The accompanying notes are an integral part of these statements. 6 7 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Nature of Operations IEA Marine Container Income Fund III (A California Limited Partnership) (the "Partnership") was organized under the laws of the State of California on January 3, 1980 for the purpose of owning and leasing marine cargo containers. The managing general partner is Cronos Capital Corp. ("CCC"); the associate general partner is Smith Barney Shearson, Inc. 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) 7 8 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) 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 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 $213,164 at September 30, 1996 and $198,828 at December 31, 1995 $470,051 $634,228 Less: Direct operating payables and accrued expenses 70,852 141,780 Damage protection reserve 73,248 69,808 Incentive fees -- 13,688 -------- -------- $325,951 $408,952 ======== ========
(Continued) 8 9 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) 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 $235,248 $472,996 $873,641 $1,555,488 Rental equipment operating expenses 36,788 130,906 196,082 360,018 Base management fees 41,449 79,555 155,018 260,871 Incentive fees -- 41,625 -- 95,625 -------- -------- -------- ---------- $157,011 $220,910 $522,541 $ 838,974 ======== ======== ======== ==========
9 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 1) Material changes in financial condition between September 30, 1996 and December 31, 1995. As discussed in the Registrant's report for the year ended December 31, 1995, the Registrant entered 1996 with a view towards accelerating the disposition of its container fleet. During the first nine months of 1996, the Registrant increased the quantity of container disposals in response to the slower growth in containerized trade and its impact on the container leasing industry. Accordingly, 1,186 containers were disposed during the first nine months of 1996, contributing to an increase in cash generated from sales proceeds. At September 30, 1996, 19% of the original equipment remained in the Registrant's fleet, as compared to 33% at December 31, 1995, comprised as follows:
20-Foot 40-Foot ------- ------- Containers on lease: Term leases 137 10 Master lease 1,045 164 ----- --- Subtotal 1,182 174 Containers off lease 146 25 ----- --- Total container fleet 1,328 199 ===== === 20-Foot 40-Foot ---------------- ----------------- Units % Units % ----- ---- ----- ---- Total purchases 7,257 100% 890 100% Less disposals 5,929 82% 691 78% ----- --- --- --- Remaining fleet at September 30, 1996 1,328 18% 199 22% ===== === === ===
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 $729,884, reflecting distributions to the general and limited partners for the second quarter of 1996. This represents an increase from the $483,670 distributed during the second quarter of 1996 due to an increase in distributions from sales proceeds. The Registrant's efforts to dispose of the remaining fleet should produce lower operating results and, consequently, lower distributions from operations to its partners in subsequent periods. However, sales proceeds distributed to its partners will continue to fluctuate in subsequent periods, dependent on the level of container disposals. 10 11 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 growth 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 87%, an increase from the average utilization rate of 86% 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. 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. 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 $157,011 and $522,541, respectively, a decline of 29% and 38% from the same three and nine-month periods in the prior year, respectively. Approximately 31% and 34% 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 35% and 29% 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 $235,248, and $873,641, respectively, reflecting a decline of 50% and 44% 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 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. Utilization rates increased slightly when compared to the same three-month period in the prior year, and remained unchanged when compared to the same nine-month period in the prior year, as the Registrant's continued disposal of containers significantly reduced the number of off-hire containers unavailable for lease. 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)) 1,838 3,519 2,303 3,953 Average Utilization 90% 87% 87% 87%
Rental equipment operating expenses were 16% and 22% of the Registrant's gross lease revenue for the three and nine-month periods ended September 30, 1996, respectively, as compared to 28% and 23% during the three and nine-month periods ended September 30, 1995, respectively. These declines were 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. Costs associated with utilization levels, including storage, handling and repositioning, also declined, contributing to the decline 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 and incentive fees, when compared to the same periods in the prior year. 11 12 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 February 11, 1981 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 February 12, 1981, included as part of Registration Statement on Form S-1 (No. 2-70401) ** Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (No. 2-70401) 12 13 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 III (A California Limited Partnership) 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 13 14 EXHIBIT INDEX
Exhibit No. Description Method of Filing - --------- ------------- ---------------- 3(a) Limited Partnership Agreement of the Registrant, amended and * restated as of February 11, 1981 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 February 12, 1981, included as part of Registration Statement on Form S-1 (No. 2-70401) ** Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (No. 2-70401) EX-27 2 FDS FOR IEA MARINE CONTAINER FUND III
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD SEPTEMBER 30, 1996 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 762,501 0 325,951 0 0 1,088,452 3,747,258 2,604,347 2,231,363 0 0 0 0 0 2,231,363 2,231,363 0 522,541 0 27,911 0 0 0 0 0 0 0 0 0 805,208 0 0
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