<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 MARCH 31, 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 MARCH 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three months ended March 31, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1996 and 1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
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 March 31,
1996 and December 31, 1995, statements of operations for the three
months ended March 31, 1996 and 1995, and statements of cash flows for
the three months ended March 31, 1996 and 1995.
3
<PAGE> 4
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Assets
------
Current assets:
Cash, includes $187,772 at March 31, 1996 and $212,798
at December 31, 1995 in interest-bearing accounts $ 188,321 $ 212,918
Short-term investments 500,000 625,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 496,480 408,952
---------- ----------
Total current assets 1,184,801 1,246,870
---------- ----------
Container rental equipment, at cost 5,734,378 6,678,748
Less accumulated depreciation 4,001,814 4,660,856
---------- ----------
Net container rental equipment 1,732,564 2,017,892
---------- ----------
$2,917,365 $3,264,762
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 1,135 $ 4,657
Limited partners 2,916,230 3,260,105
---------- ----------
Total partners' capital 2,917,365 3,264,762
---------- ----------
$2,917,365 $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
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Net lease revenue (notes 1 and 3) $206,817 $317,349
Other operating expenses:
Other general and administrative expenses 9,493 10,621
-------- --------
Earnings from operations 197,324 306,728
Other income:
Interest income 10,308 15,055
Net gain on disposal of equipment 70,023 89,150
-------- --------
80,331 104,205
-------- --------
Net earnings $277,655 $410,933
======== ========
Allocation of net earnings:
General partners $ 2,776 $ 10,772
Limited partners 274,879 400,161
-------- --------
$277,655 $410,933
======== ========
Limited partners' per unit share of net earnings $ 9.16 $ 13.34
======== ========
</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>
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities $ 229,518 $ 311,502
Cash flows provided by investing activities:
Proceeds from disposal of equipment 245,939 373,850
Cash flows used in financing activities:
Distribution to partners (625,054) (757,100)
--------- -----------
Net decrease in cash and cash equivalents (149,597) (71,748)
Cash and cash equivalents at January 1 837,918 1,116,858
--------- -----------
Cash and cash equivalents at March 31 $ 688,321 $ 1,045,110
========= ===========
</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 March 31, 1996 and December 31, 1995 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $209,212 at March 31, 1996 and $198,828
at December 31, 1995 $733,715 $634,228
Less:
Direct operating payables and accrued expenses 166,754 141,780
Damage protection reserve 70,481 69,808
Incentive fees -- 13,688
-------- --------
$496,480 $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-month periods ended March 31, 1996 and 1995, was as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Rental revenue $349,557 $549,049
Rental equipment operating expenses 79,550 112,266
Base management fees 63,190 98,059
Incentive fees -- 21,375
-------- --------
$206,817 $317,349
======== ========
</TABLE>
9
<PAGE> 10
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 March 31, 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 process of its container fleet. A lack of viable options
during the first quarter of 1996 resulted in the Registrant's continued
disposal of containers as part of its ongoing container operations.
Accordingly, 379 containers were disposed during the first quarter of
1996, contributing to a decline in the Registrant's operating results and
the related cash balances. At March 31, 1996, 29% of the original
equipment remained in the Registrant's fleet, as compared to 33% at
December 31, 1995, and was comprised of the following:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
<S> <C> <C>
Containers on lease:
Term leases 219 9
Master lease 1,465 238
----- ---
Subtotal 1,684 247
Containers off lease 349 54
----- ---
Total container fleet 2,033 301
===== ===
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
Units % Units %
----- - ----- -
<S> <C> <C> <C> <C>
Total purchases 7,257 100% 890 100%
Less disposals 5,224 72% 589 66%
Remaining fleet at March 31, 1996 2,033 28% 301 34%
===== === === ===
</TABLE>
Net lease receivables at March 31, 1996 increased when compared to
December 31, 1995, as cash collections of outstanding receivables slowed.
The diminishing fleet size, and its related operating performance, also
contributed to the increase in net lease receivables, as direct operating
payables, base management and incentive fees payable declined.
During the first quarter of 1996, distributions from operations and sales
proceeds amounted to $625,054, reflecting distributions to the general and
limited partners for the fourth quarter of 1995. This represents a decline
from the $662,554 distributed during the fourth quarter of 1995,
reflecting distributions for the third quarter of 1995. The Registrant's
efforts to dispose of the remaining fleet should produce lower operating
results and, consequently, lower distributions to its partners in
subsequent periods.
10
<PAGE> 11
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 quarter of
1996. At March 31, 1996, container inventories remained at
larger-than-usual levels, resulting in a decline in the Registrant's
average utilization rate from 86% at December 31, 1995 to 84% at March 31,
1996. During the first quarter 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. The Leasing
Company expects the Registrant to recognize the benefits of these efforts
during the next few quarters of 1996. However, base per-diem rental rates
have recently become subject to downward pressures within the container
leasing market. A reduction in per-diem rental rates, combined with
current utilization levels, could impact the Registrant's results from
operations during the remainder of 1996.
2) Material changes in the results of operations between the three-month
period ended March 31, 1996 and the three-month period ended March 31,
1995.
Net lease revenue for the first quarter of 1996 was $206,817, a decline of
35% from the first quarter of 1995. Approximately 25% of the Registrant's
net earnings for the three-month period ended March 31, 1996 were from
gain on disposal of equipment, as compared to 22% for the same three-month
period 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.
Gross rental revenue (a component of net lease revenue) for the quarter
ended March 31, 1996 was $349,557, reflecting a decline of 36% from the
same three-month period in 1995. During 1996, gross rental revenue was
primarily impacted by the Registrant's diminishing fleet size. Average
per-diem rental rates remained relatively stable when compared to the same
period in the prior year. The Registrant's average fleet size and
utilization rates for the three-month periods ended March 31, 1996 and
March 31, 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1996 1995
---- ----
<S> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 2,813 4,295
Average Utilization 84% 85%
</TABLE>
Rental equipment operating expenses were 23% of the Registrant's gross
lease revenue during the three-month period ended March 31, 1996, as
compared to 20% during the three-month period ended March 31, 1995. This
increase was largely attributable to an increase in costs associated with
slightly lower utilization levels, including handling, storage and
repositioning. The Registrant's declining fleet size also contributed to a
reduction in its operating performance. Accordingly, base management and
incentive fees declined when compared to the same period 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 March 31, 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: May 14, 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 MARCH 31, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 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 MARCH 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 688321
<SECURITIES> 0
<RECEIVABLES> 496480
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1184801
<PP&E> 5734378
<DEPRECIATION> 4001814
<TOTAL-ASSETS> 2917365
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2917365
<TOTAL-LIABILITY-AND-EQUITY> 2917365
<SALES> 0
<TOTAL-REVENUES> 206817
<CGS> 0
<TOTAL-COSTS> 9493
<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> 277655
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
