<PAGE> 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, 1995
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 0-9736
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
California 94-2671761
(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 .
--- ---
<PAGE> 2
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995 (unaudited) and December 31, 1994 2
Statements of Operations for the three and nine months ended September 3
30, 1995 and 1994 (unaudited)
Statements of Cash Flows for the nine months ended September 30, 1995 4
and 1994 (unaudited)
Notes to Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and 7
Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Forms 8-K during the period 8
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September
30, 1995 and December 31, 1994, statements of operations for the three
and nine months ended September 30, 1995 and 1994, and statements of
cash flows for the nine months ended September 30, 1995 and 1994.
<PAGE> 4
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $80,327 at September 30, 1995 and $90,037
at December 31, 1994 in interest-bearing accounts $ 80,663 $ 102,780
Short-term investments 800,000 300,631
Net lease receivables due from Leasing Company
(notes 1 and 2) 98,857 176,348
----------- ----------
Total current assets 979,520 579,759
----------- ----------
Container rental equipment, at cost 65,960 3,022,318
Less accumulated depreciation 47,776 2,111,831
----------- ----------
Net container rental equipment 18,184 910,487
----------- ----------
$ 997,704 $1,490,246
=========== ==========
Partners' Capital
-----------------
Partners' capital (deficit):
General partners $ 1,124 $ (5,833)
Limited partners 996,580 1,496,079
----------- ----------
Total partners' capital 997,704 1,490,246
----------- ----------
$ 997,704 $1,490,246
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $ (4,351) $ 118,444 $ 193,784 $ 444,806
Other operating expenses:
Other general and administrative expenses 4,816 7,108 23,095 24,248
---------- ----------- ---------- -----------
Earnings (loss) from operations (9,167) 111,336 170,689 420,558
Other income:
Interest income 10,700 4,778 20,549 13,877
Net gain on disposal of equipment 71,847 55,412 124,311 125,311
---------- ----------- ---------- -----------
82,547 60,190 144,860 139,188
---------- ----------- ---------- -----------
Net earnings $ 73,380 $ 171,526 $ 315,549 $ 559,746
========== =========== ========== ===========
Allocation of net earnings:
General partners $ 6,842 $ 4,316 $ 15,038 $ 10,748
Limited partners 66,538 167,210 300,511 548,998
---------- ----------- ---------- -----------
$ 73,380 $ 171,526 $ 315,549 $ 559,746
========== =========== ========== ===========
Limited partners' per unit share of net earnings $ 3.33 $ 8.36 $ 15.03 $ 27.45
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 276,609 $ 421,943
Cash flows provided by investing activities:
Proceeds from disposal of equipment 1,008,734 493,095
Cash flows used in financing activities:
Distribution to partners (808,091) (1,085,872)
----------- -----------
Net increase (decrease) in cash and cash equivalents 477,252 (170,834)
Cash and cash equivalents at January 1 403,411 649,488
----------- -----------
Cash and cash equivalents at September 30 $ 880,663 $ 478,654
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Fund II (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.
(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.
5
<PAGE> 8
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(d) Financial Statement Presentation - (Continued)
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, and base
management 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, 1995 and December 31,
1994 were as follows;
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $85,873 at September 30, 1995 and $77,495
at December 31, 1994 $ 144,659 $ 334,722
Less:
Direct operating payables and accrued expenses 45,802 97,214
Damage protection reserve - 61,160
---------- ----------
$ 98,857 $ 176,348
========== ==========
</TABLE>
(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, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rental revenue $ 10,865 $ 212,065 $ 324,878 $ 700,684
Rental equipment
operating expenses 13,017 55,484 84,765 129,936
Base management fees 2,199 38,137 46,329 125,942
---------- ---------- ---------- -----------
$ (4,351) $ 118,444 $ 193,784 $ 444,806
========== ========== ========== ===========
</TABLE>
6
<PAGE> 9
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, 1995 and
December 31, 1994.
As discussed in prior quarterly reports, the Managing General Partner has
focused its efforts on liquidating the remaining equipment in the fleet and
winding up the Registrant's operations. Accordingly, during the first nine
months of 1995, the Registrant disposed of 1,290 containers, equal to
approximately 23% of its original fleet. Of this amount, 895 containers
were sold during the second quarter of 1995, pursuant to an agreement with
an unrelated party. The purchase price of these 895 containers totaled
$632,577, which equaled approximately 105% of the containers' net book
value. The proceeds from this and other container sales have been retained
as part of working capital, ensuring the availability of sufficient cash
balances during the period preceding the wind up of operations, as cash
expenditures for investor processing, tax, legal and audit services, should
be in excess of cash generated from operations. At September 30, 1995, the
Registrant's remaining fleet consisted of 53 containers. These remaining
containers have been targeted for disposal during the fourth quarter of
1995.
The diminishing fleet size contributed to declines in the Registrant's
lease receivables, direct operating payables and accrued expenses, and the
reserve for container repairs covered under the damage protection plan.
During the fourth quarter of 1995, a concentrated effort will be made to
collect the Registrant's remaining lease receivables and extinguish its
remaining payables, with the intent to wind up the Registrant's operations
by December 31, 1995 or early 1996.
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1995 and the three and nine-month
periods ended September 30, 1994.
During the three and nine-month periods ended September 30, 1995,
approximately 98% and 39%, respectively, of the Registrant's earnings were
from gain on disposal of equipment, as compared to 32% and 22% for the same
periods in the prior year. Net lease revenues were lower as a direct result
of these disposals.
The diminishing fleet size has had its greatest impact on gross rental
revenue, a component of net lease revenue, resulting in a decline of 95%
and 54% for the three and nine-month periods ended September 30, 1995,
respectively, when compared to the same periods in 1994. Rental equipment
operating expenses declined 77% and 35% over the same three and nine-month
periods in the prior year. These amounts consisted of, but were not limited
to, expenses associated with the recovery actions against the doubtful
accounts of certain lessees, including legal and container recovery
expenses, as well as the related provision for doubtful accounts.
The Registrant's average fleet size and utilization rates for the three and
nine-month periods ended September 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalents (TEU)) 87 1,686 788 1,853
Average Utilization 45% 80% 65% 80%
</TABLE>
During the remaining period in the wind up phase of operations, the
Registrant expects to incur net losses, as certain costs including investor
processing, tax, legal and audit expenses, should be in excess of net lease
revenues generated from operations. The Registrant has increased its cash
reserves in anticipation of these expected losses.
7
<PAGE> 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
27 Financial Data Schedule Filed with this Document
</TABLE>
(b) There were no reports on Form 8-K during the three-month period
ended September 30, 1995.
8
<PAGE> 11
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 FUND II
(A California Limited Partnership)
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
---------------------------------------
John Kallas
Vice President, Chief Financial Officer
Principal Accounting Officer
Date: November 13, 1995
9
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1995 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1995 (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, 1995
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 880,663
<SECURITIES> 0
<RECEIVABLES> 98,857
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 979,520
<PP&E> 65,960
<DEPRECIATION> 47,776
<TOTAL-ASSETS> 997,704
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 997,704
<TOTAL-LIABILITY-AND-EQUITY> 997,704
<SALES> 0
<TOTAL-REVENUES> 338,644
<CGS> 0
<TOTAL-COSTS> 23,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,549
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
