<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 0-10474
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 .
-------- --------
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IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED JUNE 30, 1995
TABLE OF CONTENTS
<TABLE>
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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 Form 8-K 9
</TABLE>
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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 INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $173,814 at June 30, 1995 and $182,194
at December 31, 1994 in interest-bearing accounts $ 187,428 $ 191,858
Short-term investments 752,205 925,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 439,200 447,404
---------- ----------
Total current assets 1,378,833 1,564,262
---------- ----------
Container rental equipment, at cost 8,167,830 9,670,148
Less accumulated depreciation 5,707,982 6,759,982
---------- ----------
Net container rental equipment 2,459,848 2,910,166
---------- ----------
$3,838,681 $4,474,428
========== ==========
Partners' Capital
-----------------
Partners' capital (deficit):
General partners $ (5,735) $ (6,730)
Limited partners 3,844,416 4,481,158
---------- ----------
Total partners' capital 3,838,681 4,474,428
---------- ----------
$3,838,681 $4,474,428
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
IEA MARINE CONTAINER INCOME FUND III
(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) $300,715 $362,987 $618,064 $715,314
Other operating expenses:
Depreciation - 86,140 - 187,076
Other general and administrative expenses 15,935 17,987 26,556 29,758
-------- -------- -------- --------
15,935 104,127 26,556 216,834
-------- -------- -------- --------
Earnings from operations 284,780 258,860 591,508 498,480
Other income:
Interest income 16,066 9,897 31,121 19,155
Net gain on disposal of equipment 129,060 70,121 218,210 134,861
-------- -------- -------- --------
145,126 80,018 249,331 154,016
-------- -------- -------- --------
Net earnings $429,906 $338,878 $840,839 $652,496
======== ======== ======== ========
Allocation of net earnings:
General partners $ 4,299 $ 5,398 $ 15,071 $ 9,375
Limited partners 425,607 333,480 825,768 643,121
-------- -------- -------- --------
$429,906 $338,878 $840,839 $652,496
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 15 $ 11 $ 28 $ 21
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
IEA MARINE CONTAINER INCOME FUND III
(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 $ 644,342 $ 623,949
Cash flows provided by investing activities:
Proceeds from disposal of equipment 655,019 469,420
Cash flows used in financing activities:
Distribution to partners (1,476,586) (1,247,424)
----------- -----------
Net decrease in cash and cash equivalents (177,225) (154,055)
Cash and cash equivalents at January 1 1,116,858 1,340,939
----------- -----------
Cash and cash equivalents at June 30 $ 939,633 $ 1,186,884
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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IEA MARINE CONTAINER INCOME FUND III
(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 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.
(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 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.
(Continued)
5
<PAGE> 8
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 June 30, 1995 and December 31, 1994 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
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<S> <C> <C>
Lease receivables, net of doubtful accounts
of $193,146 at June 30, 1995 and $162,142 at
December 31, 1994 $834,525 $916,605
Less:
Direct operating payables and accrued expenses 265,418 280,020
Damage protection reserve 97,282 141,556
Incentive fees 32,625 47,625
-------- --------
$439,200 $447,404
======== ========
</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 $533,443 $662,224 $1,082,492 $1,388,581
Rental equipment
operating expenses 116,846 145,751 229,112 299,655
Base management fees 83,257 124,986 181,316 253,986
Incentive fees 32,625 28,500 54,000 119,626
-------- -------- ---------- ----------
$300,715 $362,987 $ 618,064 $ 715,314
======== ======== ========== ==========
</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.
The Registrant disposed of 699 containers during the six-month period
ended June 30, 1995, in accordance with one of its original investment
objectives - to realize the residual value of its containers after the
expiration of their economic useful lives. While the Managing General
Partner begins to study various alternatives for selling the remaining
containers within the Registrant's fleet, the Registrant will continue
disposing its containers as opportunities arise. The continuing efforts
to dispose of the remaining fleet should produce lower operating results
and related distributions to its partners in subsequent periods.
The diminishing fleet size and the results from operations contributed to
the reduction in cash, short term investments and net lease receivables
due from the Leasing Company.
The Registrant's cash balances at June 30, 1995 included sales proceeds
from equipment disposals in the amount of $300,002. The Registrant will
distribute these sales proceeds and $337,502 of cash from operations
during the third quarter of 1995, representing distributions to its
limited partners for the second quarter of 1995.
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-month period ended June 30, 1995, the container leasing
market remained consistent with market conditions that existed during the
three-month period ended March 31, 1995. The Registrant continued to
experience the ability to charge higher ancillary revenues, such as
pick-up fees, and reduce incentives offered to ocean carriers. However,
the Registrant remains cautious about any further improvement in market
conditions during the remainder of 1995.
The benefits of the improved market conditions experienced during the
three and six-month periods ended June 30, 1995, as compared to the same
periods in 1994, were partially offset by the effect of the Leasing
Company's efforts to improve the credit quality of its customer portfolio.
In many cases, lessees who maintain a strong credit history may command
favorable lease terms including lower per-diem rental rates. Accordingly,
average per-diem rental rates remained steady as compared to the same
three and six-month periods in 1994, while an increasing proportion of the
lessees within its portfolio shifted to larger, high credit quality
lessees. The Registrant expects to gain long term benefits from the
improvement in the credit quality of its customers, as the allowance for
doubtful accounts and related expenses should decline.
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)) 3,853 5,626 4,139 5,734
Average Utilization 87% 82% 86% 82%
</TABLE>
7
<PAGE> 10
The Registrant's fleet became fully depreciated during 1994, and
accordingly, the Registrant did not recognize depreciation expense during
the three and six-month periods ended June 30, 1995. The reduction in
depreciation expense contributed to a $91,028 and $188,343 increase in net
earnings over the same three and six-month periods in the prior year,
respectively. The declining fleet size and higher utilization rates
contributed to a $28,905 and $70,543 decline in rental equipment operating
expenses during the three and six-month periods ended June 30, 1995,
respectively. Accordingly, base management fees and incentive fees also
declined.
Approximately 30% and 26% of the Registrant's net earnings for the three
and six-month periods ended June 30, 1995, respectively, were from gain on
disposal of equipment, as compared to 21% for the same three and six-month
periods in the prior year. As the Registrant accelerates the disposal of
its containers in subsequent periods, net gain on disposal will contribute
significantly to the Registrant's net earnings.
8
<PAGE> 11
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.
9
<PAGE> 12
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, Chief Financial Officer
Principal Accounting Officer
Date: August 10, 1995
10
<PAGE> 13
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> 939,633
<SECURITIES> 0
<RECEIVABLES> 439,200
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,378,833
<PP&E> 8,167,830
<DEPRECIATION> 5,707,982
<TOTAL-ASSETS> 3,838,681
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,838,681
<TOTAL-LIABILITY-AND-EQUITY> 3,838,681
<SALES> 0
<TOTAL-REVENUES> 867,395
<CGS> 0
<TOTAL-COSTS> 26,556
<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> 840,839
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
