<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, 1996
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 JUNE 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and six months ended June 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the six months ended June 30, 1996 and 1995 (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 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of June 30,
1996 and December 31, 1995, statements of operations for the three and
six months ended June 30, 1996 and 1995, and statements of cash flows
for the six months ended June 30, 1996 and 1995.
3
<PAGE> 4
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Assets
Current assets:
Cash, includes $136,319 at June 30, 1996 and $212,798
at December 31, 1995 in interest-bearing accounts $ 136,538 $ 212,918
Short-term investments 801,405 625,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 405,294 408,952
---------- ----------
Total current assets 1,343,237 1,246,870
---------- ----------
Container rental equipment, at cost 4,539,029 6,678,748
Less accumulated depreciation 3,154,629 4,660,856
---------- ----------
Net container rental equipment 1,384,400 2,017,892
---------- ----------
$2,727,637 $3,264,762
========== ==========
Partners' Capital
Partners' capital:
General partners $ 1,995 $ 4,657
Limited partners 2,725,642 3,260,105
---------- ----------
Total partners' capital 2,727,637 3,264,762
---------- ----------
$2,727,637 $3,264,762
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<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,
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $158,713 $300,715 $365,530 $618,064
Other operating expenses:
Other general and administrative expenses 8,943 15,935 18,436 26,556
-------- -------- -------- --------
Earnings from operations 149,770 284,780 347,094 591,508
Other income:
Interest income 11,296 16,066 21,604 31,121
Net gain on disposal of equipment 132,877 129,060 202,900 218,210
-------- -------- -------- --------
144,173 145,126 224,504 249,331
-------- -------- -------- --------
Net earnings $293,943 $429,906 $571,598 $840,839
======== ======== ======== ========
Allocation of net earnings:
General partners $ 6,403 $ 4,299 $ 9,179 $ 15,071
Limited partners 287,540 425,607 562,419 825,768
-------- -------- -------- --------
$293,943 $429,906 $571,598 $840,839
======== ======== ======== ========
Limited partners' per unit share of net earnings $ 9.59 $ 14.19 $ 18.75 $ 27.53
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<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,
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 462,795 $ 644,342
Cash flows provided by investing activities:
Proceeds from disposal of equipment 745,954 655,019
Cash flows used in financing activities:
Distribution to partners (1,108,724) (1,476,586)
----------- -----------
Net increase (decrease) in cash and cash equivalents 100,025 (177,225)
Cash and cash equivalents at January 1 837,918 1,116,858
----------- -----------
Cash and cash equivalents at June 30 $ 937,943 $ 939,633
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 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 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.
The Partnership has determined that for accounting purposes the
Leasing Agent Agreement is a lease, and the receivables, payables,
gross revenues and operating expenses attributable to the containers
managed by the Leasing Company are, for accounting purposes, those of
the Leasing Company and not of the Partnership. Consequently, the
Partnership's balance sheets and statements of operations display the
payments to be received by the Partnership from the Leasing Company as
the Partnership's receivables and revenues.
(Continued)
7
<PAGE> 8
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(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.
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, 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 June 30, 1996 and
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $244,211 at June 30, 1996 and $198,828 at
December 31, 1995 $564,195 $634,228
Less:
Direct operating payables and accrued expenses 86,797 141,780
Damage protection reserve 72,104 69,808
Incentive fees -- 13,688
-------- --------
$405,294 $408,952
======== ========
</TABLE>
(Continued)
8
<PAGE> 9
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(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 six-month periods ended June 30, 1996 and 1995, was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Rental revenue $288,836 $533,443 $638,393 $1,082,492
Rental equipment operating expenses 79,744 116,846 159,294 229,112
Base management fees 50,379 83,257 113,569 181,316
Incentive fees -- 32,625 -- 54,000
-------- -------- -------- --------
$158,713 $300,715 $365,530 $618,064
======== ======== ======== ========
</TABLE>
(Continued)
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1) Material changes in financial condition between June 30, 1996 and December
31, 1995.
As discussed in the Registrant's report for the year ended December 31,
1995, the Registrant entered 1996 with a view towards accelerating the
disposition of its container fleet. During the first six months of 1996,
the Registrant increased the quantity of container disposals in response
to the generally softer container leasing market. Accordingly, 875
containers were disposed during the first six months of 1996, contributing
to an increase in cash generated from sales proceeds and, accordingly, the
related cash balances. At June 30, 1996, 23% of the original equipment
remained in the Registrant's fleet, as compared to 33% at December 31,
1995, comprised as follows:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
<S> <C> <C>
Containers on lease:
Term leases 203 9
Master lease 1,196 198
----- ---
Subtotal 1,399 207
Containers off lease 199 33
----- ---
Total container fleet 1,598 240
===== ===
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
-------------- --------------
Units % Units %
----- --- ----- ---
<S> <C> <C> <C> <C>
Total purchases 7,257 100% 890 100%
Less disposals 5,659 78% 650 73%
----- --- --- ---
Remaining fleet at June 30, 1996 1,598 22% 240 27%
===== === === ===
</TABLE>
The diminishing fleet size and its related operating performance
contributed to the declines in lease receivables, direct operating
payables and incentive fees payable.
During the second quarter of 1996, distributions from operations and sales
proceeds amounted to $483,670, reflecting distributions to the general and
limited partners for the first quarter of 1996. This represents a decline
from the $625,054 distributed during the first quarter of 1996, reflecting
distributions for the fourth quarter of 1995. The Registrant's efforts to
dispose of the remaining fleet should produce lower operating results and,
consequently, lower distributions from operations to its partners in
subsequent periods. However, sales proceeds distributed to its partners
may fluctuate in subsequent periods, reflecting the level of container
disposals.
The statements contained in the following discussion are based on current
expectations. These statements are forward looking and actual results may
differ materially. The container leasing market generally softened during
the fourth quarter of 1995 and has remained so during the first six months
of 1996. At June 30, 1996, container inventories remained at
larger-than-usual levels. Base per-diem rates have become subject to
downward pressures arising from a soft container leasing market. During
the first six months of 1996, the Leasing Company implemented various
marketing strategies, including but not limited to, offering incentives to
shipping companies and repositioning containers to high demand locations
in order to counter these market conditions. Accordingly, ancillary
per-diems have fluctuated, favoring a downward trend, while free-day
incentives offered to shipping companies have risen. The Registrant's
continued disposal of containers contributed to a slight increase in
utilization rates, from 86% at December 31, 1995 to 87% at June 30, 1996,
as the number of off-hire containers unavailable for lease were
significantly reduced. Currently, there are no visible signs of
improvement in the leasing market and hence further
10
<PAGE> 11
downward pressure on rental rates can be expected in the ensuing quarters.
As a result, these leasing markets conditions, combined with the
Registrant's disposal of containers, will continue to impact the
Registrant's results from operations during the remainder of 1996.
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 1996 and the three and six-month periods
ended June 30, 1995.
Net lease revenue for the three and six-month periods ended June 30, 1996
was $158,713 and $365,530, respectively, a decline of 47% and 41% from the
same three and six-month periods in the prior year, respectively.
Approximately 45% and 35% of the Registrant's net earnings for the three
and six-month periods ended June 30, 1996, respectively, were from gain on
disposal of equipment, as compared to 30% and 26% for the same three and
six-month periods in the prior year, respectively. 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.
Gross rental revenue (a component of net lease revenue) for the three and
six-month periods ended June 30, 1996 was $288,836, and $638,393,
respectively, reflecting a decline of 46% and 41% from the same three and
six-month periods in 1995, respectively. During 1996, gross rental revenue
was primarily impacted by the Registrant's diminishing fleet size. Average
per-diem rental rates decreased approximately 3% and 2%, when compared to
the same three and six-month periods in the prior year, respectively, as
they became subject to the downward pressures of an increasingly soft
container leasing market. Utilization rates increased slightly when
compared to the same three and six-month periods in the prior year, as the
Registrant's continued disposal of containers significantly reduced the
number of off-hire containers unavailable for lease. The Registrant's
average fleet size and utilization rates for the three and six-month
periods ended June 30, 1996 and June 30, 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ -----------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 2,258 3,853 2,536 4,139
Average Utilization 88% 87% 87% 86%
</TABLE>
Rental equipment operating expenses were 26% and 24% of the Registrant's
gross lease revenue during the three and six-month periods ended June 30,
1996, respectively, as compared to 22% and 21% during the three and
six-month periods ended June 30, 1995, respectively. This increase was
largely attributable to a decline in gross lease revenue resulting from
lower per-diem rates, a downward trend in ancillary per-diems, and an
increase in free-day incentives offered to shipping companies. Costs
associated with fluctuating utilization levels and higher redeliveries of
containers, including handling, storage and repositioning, also
contributed to the increase in rental equipment operating expenses, as a
percentage of gross lease revenue. The Registrant's declining fleet size
and related operating performance contributed to the decline in base
management and incentive fees, when compared to the same periods in the
prior year.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
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
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended June 30, 1996
- --------------
* 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)
12
<PAGE> 13
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 13, 1996
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No Description Method of Filing
------- ----------- ----------------
<S> <C> <C>
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
</TABLE>
- ---------------
* 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1996 (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 JUNE 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 937,943
<SECURITIES> 0
<RECEIVABLES> 405,294
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,343,237
<PP&E> 4,539,029
<DEPRECIATION> 3,154,629
<TOTAL-ASSETS> 2,727,637
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,727,637
<TOTAL-LIABILITY-AND-EQUITY> 2,727,637
<SALES> 0
<TOTAL-REVENUES> 365,530
<CGS> 0
<TOTAL-COSTS> 18,436
<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> 571,598
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
