-----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, QRU+lvjiYB+CQK1n8ovzypLvM4JCem4iRcabWjxtebCyVKqyomiLaHjKLAzGbig2 cFcqDouMEHzk2N+OFp/lMQ== 0000950149-97-001238.txt : 19970617 0000950149-97-001238.hdr.sgml : 19970617 ACCESSION NUMBER: 0000950149-97-001238 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970616 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IEA MARINE CONTAINER INCOME FUND III CENTRAL INDEX KEY: 0000350202 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] 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: 97624465 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 FORM 10-Q 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 MARCH 31, 1997 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 MARCH 31, 1997 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996 4 Statements of Operations for the three months ended March 31, 1997 and 1996 (unaudited) 5 Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (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 13
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presented herein are the Registrant's balance sheets as of March 31, 1997 and December 31, 1996, statements of operations for the three months ended March 31, 1997 and 1996, and statements of cash flows for the three months ended March 31, 1997 and 1996. 3 4 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) BALANCE SHEETS (UNAUDITED)
March 31, December 31, 1997 1996 ---------- ------------ Assets ------ Current assets: Cash and cash equivalents, includes $477,490 at March 31, 1997 and $656,038 at December 31, 1996 in interest-bearing accounts $ 507,946 $ 656,333 Net lease receivables due from Leasing Company (notes 1 and 2) 207,617 252,850 ---------- ---------- Total current assets 715,563 909,183 ---------- ---------- Container rental equipment, at cost 2,794,369 3,173,384 Less accumulated depreciation 1,939,647 2,201,024 ---------- ---------- Net container rental equipment 854,722 972,360 ---------- ---------- $1,570,285 $1,881,543 ========== ========== Partners' Capital ----------------- Partners' capital: General partners $ 382 $ 3,103 Limited partners 1,569,903 1,878,440 ---------- ---------- Total partners' capital 1,570,285 1,881,543 ---------- ---------- $1,570,285 $1,881,543 ========== ==========
The accompanying notes are an integral part of these financial statements. 4 5 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended ----------------------- March 31, March 31, 1997 1996 --------- --------- Net lease revenue (notes 1 and 3) $107,741 $206,817 Other operating expenses: Other general and administrative expenses 10,092 9,493 -------- -------- Earnings from operations 97,649 197,324 Other income: Interest income 7,100 10,308 Net gain on disposal of equipment 39,917 70,023 -------- -------- 47,017 80,331 -------- -------- Net earnings $144,666 $277,655 ======== ======== Allocation of net earnings: General partners $ 3,199 $ 2,776 Limited partners 141,467 274,879 -------- -------- $144,666 $277,655 ======== ======== Limited partners' per unit share of net earnings $ 4.72 $ 9.16 ======== ========
The accompanying notes are an integral part of these financial statements. 5 6 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended ------------------------ March 31, March 31, 1997 1996 --------- -------- Net cash provided by operating activities $ 124,965 $ 229,518 Cash flows provided by investing activities: Proceeds from disposal of equipment 182,572 245,939 Cash flows used in financing activities: Distribution to partners (455,924) (625,054) --------- --------- Net decrease in cash and cash equivalents (148,387) (149,597) Cash and cash equivalents at January 1 656,333 837,918 --------- --------- Cash and cash equivalents at March 31 $ 507,946 $ 688,321 ========= =========
The accompanying notes are an integral part of these financial 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 dry 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 the business of the partnership. The Partnership commenced operations on April 3, 1981, when the minimum subscription proceeds of $500,000 were obtained. The Partnership offered 30,000 units of limited partnership interest at $500 per unit, or $15,000,000. The offering terminated on June 26, 1981, at which time 30,000 limited partnership units had been purchased. As of March 31, 1997, 14% of the original equipment remained in the Partnership's fleet and was comprised of 1,003 twenty-foot and 137 forty-foot marine dry cargo containers. Commencing in 1991, the Partnership's 11th year of operations, the Partnership began focusing its attention on the disposition of its fleet in accordance with another of its original investment objectives, realizing the residual value of its containers after the expiration of their economic useful lives, estimated to be between 10 to 15 years after placement in leased service. During this phase, the Partnership has actively disposed of containers within its fleet, while cash proceeds from equipment disposals, in addition to cash from operations, provided the cash flow for distributions to the limited partners. The Partnership, having just completed its 16th year of operations, will focus its attention during 1997 on disposing its remaining fleet. (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. 7 8 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS (b) Leasing Company and Leasing Agent Agreement - (Continued) 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. Net lease revenue is recorded by the Partnership in each period based upon its leasing agent agreement with the Leasing Company. Net lease revenue is generally dependent upon operating lease rentals from operating lease agreements between the Leasing Company and its various lessees, less direct operating expenses and management fees due in respect of the containers specified in each operating lease agreement. (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. Actual results could differ from those estimates. 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. 8 9 IEA MARINE CONTAINER INCOME FUND III (A CALIFORNIA LIMITED PARTNERSHIP) NOTES TO UNAUDITED FINANCIAL STATEMENTS (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 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 March 31, 1997 and December 31, 1996 were as follows:
March 31, December 31, 1997 1996 --------- ------------ Lease receivables, net of doubtful accounts of $194,910 at March 31, 1997 and $199,540 at December 31, 1996 $318,081 $368,092 Less: Direct operating payables and accrued expenses 70,562 71,137 Damage protection reserve 39,902 44,105 -------- -------- $207,617 $252,850 ======== ========
(3) Net Lease Revenue Net lease revenue is determined by deducting direct operating expenses and base management fees to CCC 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-month periods ended March 31, 1997 and 1996, was as follows:
Three Months Ended ----------------------- March 31, March 31, 1997 1996 -------- --------- Rental revenue $146,144 $349,557 Less: Rental equipment operating expenses 9,175 79,550 Base management fees 29,228 63,190 -------- -------- $107,741 $206,817 ======== ========
9 10 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 March 31, 1997 and December 31, 1996. As discussed in the Registrant's report for the year ended December 31, 1996, the Registrant entered 1997 with a view towards disposing its remaining container fleet. During the first quarter of 1997, the Registrant continued disposing of containers as part of its ongoing container operations. Accordingly, 152 containers were disposed during the first quarter of 1997, contributing to a decline in the Registrant's operating results and related cash balances. At March 31, 1997, 14% of the original equipment remained in the Registrant's fleet, as compared to 16% at December 31, 1996, and was comprised of the following:
20-Foot 40-Foot ------- ------- Containers on lease: Term leases 70 11 Master lease 827 106 ----- ----- Subtotal 897 117 Containers off lease 106 20 ----- ----- Total container fleet 1,003 137 ===== =====
20-Foot 40-Foot ------------ ----------- Units % Units % ----- --- ----- --- Total purchases 7,257 100% 890 100% Less disposals 6,254 86% 753 85% ----- --- --- --- Remaining fleet at March 31, 1997 1,003 14% 137 15% ===== === === ===
The Registrant's diminishing fleet size and its related operating performance contributed to an 18% decline in net lease receivables at March 31, 1997, when compared to December 31, 1996. During the first quarter of 1997, distributions from operations and sales proceeds amounted to $455,924, reflecting distributions to the general and limited partners for the fourth quarter of 1996. This represents a decline from the $559,997 distributed during the fourth quarter of 1996, reflecting distributions for the third quarter of 1996. The Registrant's efforts to dispose of the remaining fleet should produce lower operating results and, consequently, lower distributions to its partners in subsequent quarters. Additionally, the Registrant may refrain from distributing cash generated from operations and sales proceeds to its partners, reserving all excess cash as part of its working capital in order to maintain sufficient cash reserves for expenses relating to its final liquidation and subsequent dissolution. 10 11 During 1996, ocean carriers and other transport companies moved away from leasing containers outright, as declining container prices, favorable interest rates and the abundance of available capital resulted in ocean carriers and transport companies purchasing a larger share of equipment for their own account, reducing the demand for leased containers. Once the demand for leased containers began to fall, per-diem rental rates were also adversely affected. These conditions continued to exist throughout the first quarter of 1997. However, the Registrant's average utilization rate at March 31, 1997 was 90%, unchanged from December 31, 1996, a direct result of the Registrant's policy to dispose of its off-hire containers. The Leasing Company continues to implement various marketing strategies, including but not limited to, offering incentives to shipping companies, repositioning containers to high demand locations and focusing towards term leases and other leasing opportunities including the leasing of containers for local storage, in order to counter current leasing market conditions. Although these conditions are expected to continue throughout 1997, the Registrant's liquidity and capital resources will be primarily impacted by its decision to liquidate its remaining fleet. 2) Material changes in the results of operations between the three-month period ended March 31, 1997 and the three-month period ended March 31, 1996. Net lease revenue for the first quarter of 1997 was $107,741, a decline of approximately 48% from the first quarter of 1996. Approximately 28% of the Registrant's net earnings for the three-month period ended March 31, 1997 were from gain on disposal of equipment, as compared to 25% for the same three-month period in the prior year. As the Registrant disposes of its remaining containers, net gain on disposal should contribute significantly to the Registrant's net earnings and may fluctuate dependent on the level of container disposals. Gross rental revenue (a component of net lease revenue) for the quarter ended March 31, 1997 was $146,144 reflecting a decline of 58% from the same three-month period in 1996. During 1997, gross rental revenue was primarily impacted by the Registrant's diminishing fleet size. However, the sluggish container leasing market conditions that existed during 1996 and throughout the first quarter of 1997 also contributed to lower average per-diem rental rates, which declined approximately 14% when compared to the same period in the prior year. The Registrant's average fleet size and utilization rates for the three-month periods ended March 31, 1997 and March 31, 1996 were as follows:
Three Months Ended ----------------------- March 31, March 31, 1997 1996 --------- --------- Average Fleet Size (measured in twenty-foot equivalent units (TEU)) 1,325 2,813 Average Utilization 90% 84%
Rental equipment operating expenses were 6% of the Registrant's gross lease revenue during the three-month period ended March 31, 1997, as compared to 23% during the three-month period ended March 31, 1996. Contributing to the decline were reductions in costs associated with higher utilization levels, including storage, handling and repositioning, and the reduction of certain expenses such as repair and maintenance, no longer incurred at levels comparable to prior periods. As reported in the Registrant's Current Report on Form 8-K and Amendment No. 1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997 and February 26, 1997, respectively, Arthur Andersen, London, England, resigned as auditors of The Cronos Group, a Luxembourg Corporation headquartered in Orchard Lea, England (the "Parent Company"), on February 3, 1997. 11 12 The Parent Company is the indirect corporate parent of Cronos Capital Corp., the Managing General Partner of the Registrant. In its letter of resignation to the Parent Company, Arthur Andersen states that it resigned as auditors of the Parent Company and all other entities affiliated with the Parent Company. While its letter of resignation was not addressed to the Managing General Partner or the Registrant, Arthur Andersen confirmed to the Managing General Partner that its resignation as auditors of the entities referred to in its letter of resignation included its resignation as auditors of Cronos Capital Corp. and the Registrant. The Registrant does not, at this time, have sufficient information to determine the impact, if any, that the concerns expressed by Arthur Andersen in its letter of resignation may have on the future operating results and financial condition of the Registrant or the Leasing Company's ability to manage the Registrant's fleet in subsequent periods. However, the Managing General Partner of the Registrant does not believe, based upon the information currently available to it, that Arthur Andersen's resignation was triggered by any concern over the accounting policies and procedures followed by the Registrant. Arthur Andersen's report on the financial statements of Cronos Capital Corp. and the Registrant, for either of the past two years, has not contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified as to uncertainty, audit scope, or accounting principles. During the Registrant's two most recent fiscal years and the subsequent interim period preceding Arthur Andersen's resignation, there have been no disagreements between Cronos Capital Corp. or the Registrant and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. Due to the nature and timing of Arthur Andersen's resignation, the Parent Company and Managing General Partner were unable to name a successor auditor on behalf of the Registrant until it retained Moore Stephens, P.C. ("Moore Stephens") on April 10, 1997, as reported in the Registrant's Current Report on Form 8-K, filed April 14, 1997. Cautionary Statement This Quarterly Report on Form 10-Q contains statements relating to future results of the Registrant, including certain projections and business trends, that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected as a result of certain risks and uncertainties, including but not limited to changes in: economic conditions; trade policies; demand for and market acceptance of leased marine cargo containers; competitive utilization and per-diem rental rate pressures; as well as other risks and uncertainties, including but not limited to those described in the above discussion of the marine container leasing business under Item 2., Management's Discussion and Analysis of Financial Condition and Results of Operations; and those detailed from time to time in the filings of Registrant with the Securities and Exchange Commission. 12 13 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 The Registrant filed a Report on Form 8-K, dated February 7, 1997 and Amendment No. 1 to Report on Form 8-K dated February 26, 1997, reporting the resignation of the Registrant's certifying accountant. The Registrant filed a Report on Form 8-K, April 14, 1997, reporting the appointment of the Registrant's successor certifying accountant. - --------------------- * 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) 13 14 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 Finance & Accounting Officer Date: June 16, 1997 14 15 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 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 (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 MARCH 31, 1997 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 507,946 0 207,617 0 0 715,563 2,794,369 1,939,647 1,570,285 0 0 0 0 0 1,570,285 1,570,285 0 107,741 0 10,092 0 0 0 144,666 0 0 0 0 0 144,666 0 0
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