<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 0-10474
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 .
--- ---
<PAGE> 2
IEA MARINE CONTAINER INCOME FUND III
(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 30, 1995 and 1994 3
(unaudited)
Statements of Cash Flows for the nine months ended September 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>
<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 INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $187,244 at September 30, 1995 and $182,194
at December 31, 1994 in interest-bearing accounts $ 187,560 $ 191,858
Short-term investments 730,000 925,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 395,190 447,404
----------- -----------
Total current assets 1,312,750 1,564,262
----------- -----------
Container rental equipment, at cost 7,400,816 9,670,148
Less accumulated depreciation 5,169,461 6,759,982
----------- -----------
Net container rental equipment 2,231,355 2,910,166
----------- -----------
$ 3,544,105 $ 4,474,428
=========== ===========
Partners' Capital
-----------------
Partners' capital (deficit):
General partners $ 3,226 $ (6,730)
Limited partners 3,540,879 4,481,158
----------- -----------
Total partners' capital 3,544,105 4,474,428
----------- -----------
$ 3,544,105 $ 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 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) $ 220,910 $ 289,395 $ 838,974 $ 1,004,709
Other operating expenses:
Depreciation - - - 187,076
Other general and administrative expenses 7,110 11,673 33,666 41,431
----------- ----------- ----------- -----------
7,110 11,673 33,666 228,507
----------- ----------- ----------- -----------
Earnings from operations 213,800 277,722 805,308 776,202
Other income:
Interest income 12,424 12,314 43,545 31,469
Net gain on disposal of equipment 122,814 120,489 341,024 255,350
----------- ----------- ----------- -----------
135,238 132,803 384,569 286,819
----------- ----------- ----------- -----------
Net earnings $ 349,038 $ 410,525 $ 1,189,877 $ 1,063,021
=========== =========== =========== ===========
Allocation of net earnings:
General partners $ 15,071 $ 8,118 $ 30,142 $ 17,493
Limited partners 333,967 402,407 1,159,735 1,045,528
----------- ----------- ----------- -----------
$ 349,038 $ 410,525 $ 1,189,877 $ 1,063,021
=========== =========== =========== ===========
Limited partners' per unit share of net earnings $ 11 $ 14 $ 39 $ 35
=========== =========== =========== ===========
</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>
Nine Months Ended
--------------------------------
September 30, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 947,375 $ 927,833
Cash flows provided by investing activities:
Proceeds from disposal of equipment 973,527 891,630
Cash flows used in financing activities:
Distribution to partners (2,120,200) (1,966,883)
----------- -----------
Net decrease in cash and cash equivalents (199,298) (147,420)
Cash and cash equivalents at January 1 1,116,858 1,340,939
----------- -----------
Cash and cash equivalents at September 30 $ 917,560 $ 1,193,519
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
IEA MARINE CONTAINER INCOME FUND III
(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 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.
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, 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 $189,179 at September 30, 1995 and $162,142
at December 31, 1994 $ 750,328 $ 916,605
Less:
Direct operating payables and accrued expenses 229,067 280,020
Damage protection reserve 84,446 141,556
Incentive fees 41,625 47,625
---------- ----------
$ 395,190 $ 447,404
========== ==========
</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 $ 472,996 $ 649,760 $ 1,555,488 $ 2,038,341
Rental equipment
operating expenses 130,906 243,929 360,018 543,584
Base management fees 79,555 116,436 260,871 370,422
Incentive fees 41,625 - 95,625 119,626
----------- ----------- ----------- ------------
$ 220,910 $ 289,395 $ 838,974 $ 1,004,709
=========== =========== =========== ============
</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.
The Registrant disposed of 1,013 containers, an amount approximately equal
to 12% of its original fleet size, during the nine-month period ended
September 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. The diminishing fleet size and
its effect on operations contributed to the reductions in cash, short-term
investments and net lease receivables due from the Leasing Company.
Since December 31, 1994, the Managing General Partner has monitored the
Registrant's fleet size and results of operations, as well as various
alternatives and opportunities for selling the remaining containers. The
Managing General Partner expects to continue monitoring these factors
throughout the 1996 fiscal year. However, during this period, the
Registrant will continue disposing its containers as opportunities arise.
The Registrant's continuing efforts to dispose of the remaining fleet
should produce lower operating results and, consequently, lower
distributions to its partners in subsequent periods. At September 30, 1995,
the Registrant's fleet consisted of 3,010 containers, an amount
approximately equal to 37% of its original fleet size.
The Registrant's cash balances at September 30, 1995 included sales
proceeds from equipment disposals in the amount of $318,752. The Registrant
will distribute these sales proceeds and $337,502 of cash from operations
during the fourth quarter of 1995, representing distributions to its
limited partners for the third quarter of 1995.
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.
Net lease revenue for the third quarter of 1995 was $220,910, a decrease of
24% over the third quarter of 1994. Gross rental revenue (a component of
net lease revenue) for the quarter was $472,996, a decline of 27% from the
same period last year. For the first nine months of 1995, net lease revenue
was $838,974, a decline of 16% from the first nine months of 1994. Gross
rental revenue declined 24% to $1,555,488, over the same nine-month period.
Gross rental revenue for the third quarter and first nine months of 1995
was primarily affected by the Registrant's diminishing fleet size.
Utilization rates increased from those levels experienced during the same
periods in the prior year. However, competitive pressures within the
container leasing market, as well as the Leasing Company's efforts to
improve the credit quality of its customer portfolio, combined to create a
resistance to higher per-diem rental rates. Accordingly, average per-diem
rental rates remained relatively stable when compared to the same periods
in the prior year. The Registrant expects to gain long-term benefits from
the improvement in the credit quality of this customer portfolio, as the
allowance for doubtful accounts and related expenses should decline.
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)) 3,519 5,228 3,953 5,565
Average Utilization 87% 82% 87% 82%
</TABLE>
7
<PAGE> 10
During the third quarter of 1995, the container leasing market began to
experience the effects of increasingly competitive market conditions,
including, but not limited to, a resistance to higher per-diem rental
rates, slightly lower utilization rates resulting from an expanding supply
of marine cargo containers within the container industry, and the economic
condition of the shipping industry, which has experienced a current trend
toward consolidation. Accordingly, the Registrant expects a stable
container leasing market during the remainder of 1995 and first half of
1996.
The Registrant's fleet became fully depreciated during 1994, and
accordingly, the Registrant did not recognize depreciation expense during
the three and nine-month periods ended September 30, 1995. The declining
fleet size and higher utilization rates contributed to a $113,023 and
$183,566 decline in rental equipment operating expenses during the three
and nine-month periods ended September 30, 1995, respectively. Accordingly,
base management fees also declined. Incentive fees increased $41,625 over
the same three-month period in the prior year, as a result of the
Registrant's favorable collection of outstanding lease receivables and
sales proceeds. Incentive fees are a performance-based incentive fee, and
are subject to the operating results of the Registrant's fleet and cash
generated and distributed from operations.
Approximately 35% and 29% of the Registrant's net earnings for the three
and nine-month periods ended September 30, 1995, respectively, were from
gain on disposal of equipment, as compared to 29% and 24% for the same
three and nine-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
<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.
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: November 13, 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 SEPTEMBER 30, 1995(UNAUDITED) 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> 917,560
<SECURITIES> 0
<RECEIVABLES> 395,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,312,750
<PP&E> 7,400,816
<DEPRECIATION> 5,169,461
<TOTAL-ASSETS> 3,544,105
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,544,105
<TOTAL-LIABILITY-AND-EQUITY> 3,544,105
<SALES> 0
<TOTAL-REVENUES> 1,223,543
<CGS> 0
<TOTAL-COSTS> 33,666
<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> 1,189,877
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
