<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 JUNE 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 .
--- ---
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IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1995 (unaudited) and December 31, 1994 2
Statements of Operations for the three and six months ended June 30, 1995 and 1994 3
(unaudited)
Statements of Cash Flows for the six months ended June 30, 1995 and 1994 4
(unaudited)
Notes to Financial Statements (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
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
June 30, 1995 and December 31, 1994, statements of operations for the
three and six months ended June 30, 1995 and 1994, and statements of
cash flows for the six months ended June 30, 1995 and 1994.
<PAGE> 4
IEA MARINE CONTAINER FUND II
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ----------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $95,760 at June 30, 1995 and $90,037
at December 31, 1994 in interest-bearing accounts $ 114,133 $ 102,780
Short-term investments 210,420 300,631
Net lease receivables due from Leasing Company
(notes 1 and 2) 741,382 176,348
---------- ----------
Total current assets 1,065,935 579,759
---------- ----------
Container rental equipment, at cost 369,726 3,022,318
Less accumulated depreciation 258,808 2,111,831
---------- ----------
Net container rental equipment 110,918 910,487
---------- ----------
$1,176,853 $1,490,246
========== ==========
Partners' Capital
-----------------
Partners' capital (deficit):
General partners $ (3,192) $ (5,833)
Limited partners 1,180,045 1,496,079
---------- ----------
Total partners' capital 1,176,853 1,490,246
---------- ----------
$1,176,853 $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 Six Months Ended
--------------------- --------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $57,931 $132,256 $198,136 $326,362
Other operating expenses:
Other general and administrative expenses 11,474 10,304 18,279 17,140
------- -------- -------- --------
Earnings from operations 46,457 121,952 179,857 309,222
Other income:
Interest income 4,862 4,799 9,849 9,099
Net gain on disposal of equipment 19,862 31,861 52,464 69,899
------- -------- -------- --------
24,724 36,660 62,313 78,998
------- -------- -------- --------
Net earnings $71,181 $158,612 $242,170 $388,220
======= ======== ======== ========
Allocation of net earnings:
General partners $ 711 $ 3,832 $ 8,196 $ 6,432
Limited partners 70,470 154,780 233,974 381,788
------- -------- -------- --------
$71,181 $158,612 $242,170 $388,220
======= ======== ======== ========
Limited partners' per unit share of net earnings $ 4 $ 8 $ 12 $ 19
======= ======== ======== ========
</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>
Six Months Ended
---------------------------
June 30, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 213,852 $ 318,693
Cash flows provided by investing activities:
Proceeds from disposal of equipment 262,853 288,196
Cash flows used in financing activities:
Distribution to partners (555,563) (707,080)
--------- ---------
Net decrease in cash and cash equivalents (78,858) (100,191)
Cash and cash equivalents at January 1 403,411 649,488
--------- ---------
Cash and cash equivalents at June 30 $ 324,553 $ 549,297
========= =========
</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
JUNE 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 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 June 30, 1995 and December 31, 1994 were as follows;
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- --------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $87,252 at June 30, 1995 and $77,495
at December 31, 1994 $853,745 $334,722
Less:
Direct operating payables and accrued expenses 112,363 97,214
Damage protection reserve - 61,160
-------- --------
$741,382 $176,348
======== ========
</TABLE>
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses and
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 and six-month periods
ended June 30, 1995 and 1994, were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental revenue $114,455 $227,400 $314,014 $488,619
Rental equipment
operating expenses 42,598 52,339 71,748 74,452
Base management fees 13,926 42,805 44,130 87,805
-------- -------- -------- --------
$ 57,931 $132,256 $198,136 $326,362
======== ======== ======== ========
</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 June 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
six months of 1995, the Registrant disposed of 1,192 containers, equal to
approximately 21% of its original fleet. Of this amount, 895 containers
were sold during the second quarter of 1995, pursuant to an agreement with
a non-related party. The purchase price of these 895 containers totaled
$632,577, which equaled approximately 105% of the containers' net book
value. The proceeds related to this sale were received during the third
quarter of 1995, and contributed to the increase in net lease receivables
due from the Leasing Company at June 30, 1995. The proceeds from this sale
will be retained as part of working capital, ensuring the availability of
sufficient cash balances during the third and fourth quarters of 1995, as
cash expenditures for investor processing, tax, legal and audit services,
should be in excess of cash generated from operations. At June 30, 1995
the Registrant's remaining fleet consisted of 151 containers. These
remaining containers have been targeted for disposal during the third
quarter of 1995.
The diminishing fleet size contributed to declines in the Registrant's
cash balances and reserve for container repairs covered under the damage
protection plan. During the next two quarters, 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
six-month periods ended June 30, 1995 and the three and six-month periods
ended June 30, 1994.
During the three and six-month periods ended June 30, 1995, approximately
28% and 22%, respectively, of the Registrant's earnings were from gain on
disposal of equipment, as compared to 20% and 18% 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 lease
revenues, a component of net lease revenue, resulting in a decline of 50%
and 36% for the three and six-month periods ended June 30, 1995,
respectively, when compared to the same periods in 1994. Rental equipment
operating expenses declined 19% and 4% over the same three and six-month
periods in the prior year. These declines were partially offset by
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 six-month periods ended June 30, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalents (TEU)) 806 1,885 1,088 1,935
Average Utilization 64% 82% 75% 81%
</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
27 - Financial Data Schedule
(b) There were no reports on Form 8-K during the three-month period
ended June 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: August 10, 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 JUNE 30, 1995 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 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 ENDED JUNE 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 324,553
<SECURITIES> 0
<RECEIVABLES> 741,382
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,065,935
<PP&E> 369,726
<DEPRECIATION> 258,808
<TOTAL-ASSETS> 1,176,853
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,176,853
<TOTAL-LIABILITY-AND-EQUITY> 1,176,853
<SALES> 0
<TOTAL-REVENUES> 260,449
<CGS> 0
<TOTAL-COSTS> 18,279
<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> 242,170
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
