<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 $ 250.00
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
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 Identification No.)
incorporation or organization)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 677-8990
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Not Applicable
------------------- -------------------
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTERESTS
--------------------------------------------------
(Title of Class)
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is not applicable.
<TABLE>
<CAPTION>
Documents incorporated by Reference
PART I
<S> <C>
Item1 - Business Prospectus of IEA Marine Container Income Fund III,
dated February 12, 1981 included as part of
Registration Statement on Form S-1 (No. 2-70401)
Certificate of Limited Partnership of IEA Marine
Container Income Fund III, filed as Exhibit 3.4 to
the Registration Statement on Form S-1 (No. 2-70401)
PART II
Item 9 - Changes in and Dis- Current Report on Form 8-K of IEA Marine Container Income Fund
agreements with III, filed February 7, 1997 and April 14, 1997, respectively,
Accountants on and Amendment No. 1 to Current Report on Form 8-K filed
Accounting and February 26, 1997.
Financial Disclosure
</TABLE>
<PAGE> 2
PART I
Item 1. Business
(a) General Development of Business
The Registrant is a California limited partnership formed on January
3, 1980 to engage in the business of leasing marine dry cargo containers to
unaffiliated third-party lessees. The Registrant was initially capitalized with
$100, and commenced offering its limited partnership interests to the public
during the week of March 2, 1981, pursuant to its Registration Statement on Form
S-1 (File No. 2-70401). The offering terminated on June 26, 1981.
The Registrant raised $15,000,100 in subscription proceeds. The following
table sets forth the use of said subscription proceeds:
<TABLE>
<CAPTION>
Percentage of
Amount Gross Proceeds
------ --------------
<S> <C> <C>
Gross Subscription Proceeds $15,000,100 100.0%
Public Offering Expenses:
Underwriting Commissions $ 1,466,350 9.8%
Offering and Organization Expenses $ 195,370 1.3%
----------- -----
Total Public Offering Expenses $ 1,661,720 11.1%
----------- -----
Net Proceeds $13,338,380 88.9%
Acquisition Fees $ 533,404 3.6%
Working Capital Reserve $ 202,692 1.3%
----------- -----
Gross Proceeds Invested in Equipment $12,602,284 84.0%
=========== =====
</TABLE>
On November 16, 1981, the Registrant borrowed $6,797,010 to finance the
purchase of additional containers. The loan was repaid in full on April 1, 1990.
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<PAGE> 3
The managing general partner of the Registrant is Cronos Capital Corp.
("CCC"), a wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc.,
a Delaware corporation. Cronos Holdings/Investments (U.S.), Inc. is a
wholly-owned subsidiary of The Cronos Group, a holding company registered in
Luxembourg ("the Holding Company"). CCC and other affiliated companies
wholly-owned by The Cronos Group are collectively referred to as the "Group".
The activities of the container division of the Group are managed through the
Group's subsidiary in the United Kingdom, Cronos Containers Limited ("the
Leasing Company"). The Leasing Company manages the leasing operations of all
equipment owned or managed by the Group on its own behalf or on behalf of other
third-party container owners, including all other programs organized by CCC. The
associate general partner is Smith Barney Shearson, Inc., a successor to The F&M
Corporation.
Pursuant to the Limited Partnership Agreement of the Registrant, all
authority to administer the business of the Registrant is vested in CCC. CCC has
entered into a Leasing Agent Agreement, whereby the Leasing Company has the
responsibility for the container leasing activities of CCC's managed programs.
For information concerning the containers acquired by the Registrant,
see Item 2, "Properties."
(b) Financial Information About Industry Segments
Inapplicable.
(c) Narrative Description of Business
(c)(1)(i) A marine cargo container is a reusable metal container designed
for the efficient carriage of cargo with a minimum of exposure to loss from
damage or theft. Containers are manufactured to conform to worldwide standards
of container dimensions and container ship fittings adopted by the International
Standards Organization ("ISO") in 1968. The standard container is either 20'
long x 8' wide x 8'6" high (one twenty-foot equivalent unit ("TEU"), the
standard unit of physical measurement in the container industry) or 40' long x
8' wide x 8'6" high (two TEU). Standardization of the construction, maintenance
and handling of containers allows containers to be picked up, dropped off,
stored and repaired effectively throughout the world. This standardization is
the foundation on which the container industry has developed.
Standard dry cargo containers are rectangular boxes with no moving parts,
other than doors, and are typically made of steel. They are constructed to carry
a wide variety of cargos ranging from heavy industrial raw materials to
light-weight finished goods. Specialized containers include, among others,
refrigerated containers for the transport of temperature- sensitive goods and
tank containers for the carriage of liquid cargo. Dry cargo containers
constitute approximately 87% of the worldwide container fleet. Refrigerated and
tank containers constitute approximately 6% of the worldwide container fleet,
with open-tops and other specialized containers constituting the remainder.
One of the primary benefits of containerization has been the ability of the
shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, railway and ship. Containers require loading
and unloading only once and remain sealed until arrival at the final
destination, significantly reducing transport time, labor and handling costs and
losses due to damage and theft. Efficient movement of containerized cargo
between ship and shore reduces the amount of time that a ship must spend in port
and reduces the transit time of freight moves.
The logistical advantages and reduced freight rates brought about by
containerization have been a major catalyst for world trade growth during the
last twenty-five years, which in turn has generated increased demand for
containerization. The world container fleet has grown from an estimated 270
thousand TEU in 1969 to approximately 10 million TEU in 1996, and according to
industry data, growth of containerized shipping since 1987 has generally
averaged two to three times that of average GDP growth in industrialized
countries.
The rapid growth of containerization began with the standardization of
equipment sizes by international agreement in the late 1960's. Initially
confined to the highly competitive trade routes among the industrialized
nations, containerization expanded into substantially all free-world trade
routes by the early 1970's.
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<PAGE> 4
Throughout the decade of the 1970's, conversion from break bulk shipping
methods to containers gained momentum in an environment of generally robust
growth in world trade (except during the 1975-76 world-wide recession). Both
shipping lines and container leasing companies responded to this growing market
demand with major container purchases, while container manufacturers
substantially boosted production capacity.
During the early and mid-1980's, the container industry encountered
alternating periods of slow trade growth, creating excess container capacity,
followed by periods of economic recovery. From the late 1980s to 1991, the
container industry generally experienced a balance in supply and demand for
equipment. In 1992, companies embarked on ambitious container production
programs encouraged by positive economic forecasts and the profitability of the
industry in previous years. This produced an oversupply of containers as some of
the major world economies slipped into recession and ocean carriers and leasing
companies built up large container inventories. During 1993, container
purchasing declined, generally helping to reduce the oversupply of containers.
During 1994 and 1995, the world's major industrialized nations emerged from
a global economic recession. Consequently, excess equipment inventories that had
resulted from the sluggish growth in world trade during 1992 and 1993, as well
as increased production capacity, were absorbed. Since 1995, the container
industry's fleet grew from a size of approximately nine million TEU to
approximately ten million TEU, equivalent to a growth of almost 11%,
representing one of the industry's largest fleet expansions to date. The primary
factor driving demand during 1995 and 1996 has been the steady introduction of
new containership tonnage, which grew at a rate comparable to the container
industry's fleet. However, the growth in the container industry's fleet, as well
as containership tonnage, outpaced increases in worldwide containerized trade,
estimated to be approximately 8%-10% during 1995 and 6-7% during 1996. As a
result, a general surplus capacity arose, in both containership tonnage and
containers, contributing to the current recession that has impacted the
container leasing industry. Additionally, during 1995 and 1996, container prices
steadily declined to levels not seen in a decade, resulting in ocean carriers
purchasing boxes for their own account, further reducing the demand for leased
containers and since mid-1995, contributing to a decline in container
utilization and per-diem rental rates throughout the container leasing industry.
The Registrant believes that growth of containerization will continue in
subsequent years for the following reasons:
- Lower freight rates resulting from containerization are generating new
cargos that previously were not economical to export. Containerization
provides inexpensive, timely and secure transport to manufacturers
allowing them to take advantage of regional opportunities in technology
or labor, and to move products to different locations at various stages
of production;
- Intermodal traffic is expected to continue to grow, and industrialized
countries are continuing to improve intermodal infrastructure (i.e.,
railways, roads and ports);
- Shippers continue to demand transportation of cargo by containers rather
than break-bulk;
- Rapidly-growing countries in emerging markets are continuing to build
new container port facilities that accommodate an increased flow of
containerized trade; and
- Recent trade agreements, such as the North American Free Trade Agreement
("NAFTA") and the General Agreement on Tariffs and Trade ("GATT"),
should further stimulate world trade and therefore containerized trade.
The container leasing industry has been a significant contributor to the
growth of containerization, and, in 1996, had an approximately 46% share of the
total world container fleet with ocean carriers holding most of the remainder.
To an ocean carrier, the primary benefits of leasing rather than owning
containers are the following:
- Reduced Capital Expenditures. Leasing is an attractive option to ocean
carriers because ownership of containers requires significant capital
expenditures. Carriers constantly evaluate their investment strategy,
with container purchasing competing directly with other expenditure
requirements, such as ship purchases, ship conversions and terminal
improvements. Container leasing allows ocean carriers to invest capital
in assets that are more central to their business.
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<PAGE> 5
- Improved Asset Management. Trade flow imbalances and seasonal demands
frequently leave ocean carriers with regional surpluses or shortages of
containers, requiring costly repositioning of empty containers. Leasing
companies help ocean carriers manage these trade imbalances by providing
the inventory to service demand, reducing the costs of maintaining local
inventories and minimizing repositioning expenses. By matching different
carriers' container needs, leasing companies can reduce their own risks
of container inventory imbalances and seasonality through a portfolio of
lessees as well as variations in lease terms.
- Increased Container Fleet Flexibility. Ocean carriers benefit from the
variety of lease types offered by leasing companies such as the master
lease, long-term and short-term lease and direct financing lease. These
various leases give ocean carriers flexibility in sizing their fleets
while minimizing capital costs. For example, master lease agreements
give ocean carriers the option of adjusting the size of their fleets,
with the flexibility to pick-up and drop-off containers at various
locations around the world.
Dry cargo containers are the most-commonly used type of container in the
shipping industry. Over 90% of the Registrant's dry cargo container fleet are
constructed of all Corten(R) steel (Corten(R) roofs, walls, doors and
undercarriage), a high-tensile steel yielding greater damage and corrosion
resistance than mild steel.
The Registrant's containers are leased primarily to ocean-going steamship
companies operating in major trade routes (see Item 1(d)). Most if not all of
the Registrant's marine dry cargo containers are leased pursuant to operating
leases, primarily master leases, where the containers are leased to the ocean
carrier on a daily basis for any desired length of time, with the flexibility of
picking up and dropping off containers at various agreed upon locations around
the world and, secondarily, term leases (1-5 years) and one-way or round-trip
leases.
Master lease agreements. A master lease is designed to provide greater
flexibility by allowing customers to pick-up and drop-off containers where and
when needed, subject to restrictions and availability, on pre-agreed terms. The
commercial terms of master leases are generally negotiated annually. Master
leases also define the number of containers that may be returned within each
calendar month and the return locations and applicable drop-off charges. Because
of the increased flexibility they offer, master leases usually command higher
per-diem rates and generate more ancillary fees (including pick-up, drop-off,
handling and off-hire fees) than term leases.
Term lease agreements. Term lease agreements include short-term and
long-term leases. Long-term lease agreements define the number of containers to
be leased, the pick-up and drop-off locations, the applicable per-diem rental
rate for the duration of the lease and the early termination penalties that may
apply in the event of early redelivery. Ocean carriers use long-term leases when
they have a need for identified containers for a specified term. Long-term
leases usually are not terminated early by the customer and provide the
Registrant with stable and relatively predictable sources of revenue, although
per-diem rates and ancillary charges are lower under long-term leases than under
master lease agreements. Short-term lease agreements have a duration of less
than one year and include one-way, repositioning and round-trip leases. They
differ from master leases in that they define the number and the term of
containers to be leased. Ocean carriers use one-way leases to manage trade
imbalances (where more containerized cargo moves in one direction than another)
by picking up a container in one port and dropping it off at another after one
or more legs of a voyage. Except for direct financing leases, lease rates
typically are highest for short-term leases.
Under these leases, customers are responsible for paying all taxes and
service charges arising from container use, maintaining the containers in good
and safe operating condition while on lease and paying for repairs upon
redelivery, other than ordinary wear and tear. Some leases provide for a "damage
protection plan" whereby lessees, for an additional payment (which may be in the
form of a higher per-diem rate), are relieved of the responsibility of paying
some of the repair costs upon redelivery of the containers. The Leasing Company
has historically provided this service on a limited basis to selected customers.
Repairs provided under such plans are carried out by the same depots, under the
same procedures, as are repairs to containers not covered by such plans.
Customers also are required to insure leased containers against physical damage
and loss, and against third party liability for loss, damage, bodily injury or
death.
All containers are inspected and repaired when redelivered by a customer,
and customers are obligated to pay for all damage repair, excluding wear and
tear, according to standardized industry guidelines. Depots in major port areas
perform repair and maintenance which is verified by independent surveyors or the
Leasing Company's technical and operations staff.
5
<PAGE> 6
Before any repair or refurbishment is authorized on older containers in the
Registrant's fleet, the Leasing Company's technical and operations staff reviews
the age, condition and type of container and its suitability for continued
leasing. The Leasing Company compares the cost of such repair or refurbishment
with the prevailing market resale price that might be obtained for that
container and makes the appropriate decision whether to repair or sell the
container.
The non-cancelable terms of the operating leases of the Registrant's
containers will not be sufficient to return to the Registrant, as lessor, the
purchase price of the equipment. In order to recover the original investment in
the equipment and achieve an adequate return thereon, it is necessary to renew
the lease, lease the equipment to another lessee at the end of the initial lease
term, or sell the equipment.
The Registrant estimates that a dry cargo container may be used as a leased
marine cargo container for a period ranging from 10 to 15 years. The Registrant
disposes of used containers in a worldwide market for used containers in which
buyers include wholesalers, mini-storage operators, construction companies and
others. As the Registrant's fleet ages, a larger proportion of its revenues will
be derived from selling its containers.
Of the 1,132 twenty-foot and 160 forty-foot marine dry cargo containers
owned by the Registrant as of December 31, 1996, 1,028 twenty-foot (or 91%
thereof) and 137 forty-foot marine dry cargo containers (or 86% thereof) were on
lease. The following table sets forth the information on the lease terms with
respect to the containers on lease:
<TABLE>
<CAPTION>
Number of
Containers
<S> <C>
20-Foot Dry Cargo Containers:
Term Leases 134
Master Lease 894
40-Foot Dry Cargo Containers:
Term Leases 9
Master Lease 128
</TABLE>
The Leasing Company will make payments to the Registrant based upon rentals
collected from ocean carriers after deducting certain operating expenses
associated with the containers, such as the base management fee payable to CCC,
certain expense reimbursements to CCC, the costs of maintenance and repairs not
performed by lessees, independent agent fees and expenses, depot expenses for
handling, inspection and storage, and additional insurance.
The Registrant's sales and marketing operations are conducted through the
Leasing Company, in the United Kingdom, with support provided by area offices
and dedicated agents located in San Francisco, California; Iselin, New Jersey;
Windsor, England; Hamburg; Antwerp; Auckland; Genoa; Singapore; Hong Kong;
Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; and Shanghai. Each of the Leasing
Company's area offices and dedicated agents is staffed with local people
familiar with the customers and language of the region. The Leasing Company's
marketing directors have been employed in the container industry in their
respective regions for an average of 16 years, building direct personal
relationships with the local ocean carriers and locally based representatives of
other ocean carriers.
The Leasing Company also maintains agency relationships with over 40
independent agents around the world, who are generally paid a commission based
upon the amount of revenues they generate in the region or the number of
containers that are leased from their area on behalf of the Registrant. They are
located in jurisdictions where the volume of the Leasing Company's business
necessitates a presence in the area but is not sufficient to justify a
fully-functioning Leasing Company office or dedicated agent. These agents
provide marketing support to the area offices covering the region, together with
limited operational support.
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<PAGE> 7
In addition, the Leasing Company relies on the services of over 350
independently-owned and operated depots around the world to inspect, repair,
maintain and store containers while off-hire. The Leasing Company's area offices
authorize all container movements into and out of the depot and supervise all
repair and maintenance performed by the depot. The Leasing Company's technical
staff sets the standards for repair of its owned and managed fleet throughout
the world and monitors the quality of depot repair work. The depots provide a
vital link to the Leasing Company's operations, as the redelivery of a container
into a depot is the point at which the container is off-hired from one customer
and repaired in preparation for re-leasing to the next, and the point when the
Leasing Company's area offices report the container's movements onto the Leasing
Company's equipment tracking system. The Leasing Company's computer system has
the capability to accommodate future developments, such as allowing depots
access to record directly on the system the on-hire and off-hire activity of
containers delivered into the depot. It also has the capability of verifying the
terms of redelivery authorized by the area offices. These functions are
currently being performed by the Leasing Company's area offices.
(c)(1)(ii) Inapplicable.
(c)(1)(iii) Inapplicable.
(c)(1)(iv) Inapplicable.
(c)(1)(v) The Registrant's containers are leased globally, therefore,
seasonal fluctuations are minimal. Other economic and business factors to which
the transportation industry in general and the container leasing industry in
particular are subject, include inflation and fluctuations in general business
conditions and fluctuations in supply and demand for equipment resulting from,
among other things, obsolescence, changes in the methods or economics of a
particular mode of transportation or changes in governmental regulations or
safety standards.
(c)(1)(vi) The Registrant established an initial working capital reserve of
approximately $203,000 (1.3% of subscription proceeds raised). In addition, the
Registrant may reserve additional amounts from anticipated cash distributions to
the partners to meet working capital requirements.
Amounts due under master leases are calculated at the end of each month and
billed approximately six to eight days thereafter. Amounts due under short-term
and long-term leases are set forth in the respective lease agreements and are
generally payable monthly. However, payment is normally received within 45-100
days of receipt. Past due penalties are not customarily collected from lessees,
and accordingly are not generally levied by the Leasing Company against lessees
of the Registrant's containers.
(c)(1)(vii) For the fiscal year ended December 31, 1996, no single lessee
accounted for 10% or more of the Registrant's rental income. The Registrant does
not believe that its ongoing business is dependent upon a single customer,
although the loss of one or more of its largest customers could have an adverse
effect upon its business.
(c)(1)(viii) Inapplicable.
(c)(1)(ix) Inapplicable.
(c)(1)(x) Competition among container leasing companies is based upon
several factors, including the location and availability of inventory, lease
rates, the type, quality and condition of the containers, the quality and
flexibility of the service offered and the confidence in and professional
relationship with the lessor. Other factors include the speed with which a
leasing company can prepare its containers for lease and the ease with which a
lessee believes it can do business with a lessor or its local area office. The
Leasing Company believes that it, on behalf of the Registrant, competes
favorably on all of these factors.
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<PAGE> 8
The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Genstar Container Corp., Transamerica Leasing, Triton Container
International Ltd., Textainer Corp. and others. In a series of recent
consolidations, one of the major leasing companies, as well as some smaller
ones, have been acquired by competitors. It is estimated that at the end of
1996, the ten largest leasing companies (including the Leasing Company)
represented 93% of the global leased fleet. Genstar Container Corp. and
Transamerica Leasing, the two largest container leasing companies, had
approximately 47% of the worldwide leased container fleet at the end of 1996.
Some of the Leasing Company's competitors have greater financial resources than
the Leasing Company and may be more capable of offering lower per-diem rates on
a larger fleet. In the Leasing Company's experience, however, ocean carriers
will generally lease containers from more than one leasing company in order to
minimize dependence on a single supplier. In addition, not all container leasing
companies compete in the same market, as some supply only dry cargo containers
and not specialized containers, while others offer only long-term leasing.
(c)(1)(xi) Inapplicable.
(c)(1)(xii) Inapplicable.
(c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC,
the managing general partner, and accordingly does not itself have any
employees. CCC has 27 employees, consisting of 4 officers, 5 other managers and
18 clerical and staff personnel.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
The Registrant's business is not divided between foreign or domestic
operations. The Registrant's business is the leasing of containers worldwide to
ocean-going steamship companies. To this extent, the Registrant's operations are
subject to the fluctuations of worldwide economic and political conditions that
may affect the pattern and levels of world trade.
Rental income from leases to foreign customers exceeded 90% of the
Registrant's total rental income for the years 1996, 1995 and 1994. The
Registrant believes that the profitability of, and risks associated with, leases
to foreign customers is generally the same as those of leases to domestic
customers. The Registrant's leases generally require all payments to be made in
United States currency.
Item 2. Properties
As of December 31, 1996, the Registrant owned 1,132 twenty-foot and 160
forty-foot marine dry cargo containers suitable for transporting of cargo by
rail, sea or highway. The Registrant's containers were originally acquired from
five container manufacturers located in Japan, Korea and Taiwan. The average age
and manufacturers' invoice cost of the Registrant's fleet as of December 31,
1996 was as follows:
<TABLE>
<CAPTION>
Estimated
Useful Life Average Age Average Cost
----------- ----------- ------------
<S> <C> <C> <C>
20-Foot Dry Cargo Containers 10-15 years 15 years $2,312
40-Foot Dry Cargo Containers 10-15 years 15 years $3,465
</TABLE>
Utilization by lessees of the Registrant's containers fluctuates over time
depending on the supply of and demand for containers in the Registrant's
inventory locations. During 1996, utilization averaged 88%.
During 1996, the Registrant disposed of 1,225 twenty-foot and 196 forty-foot
marine dry cargo containers at an average book gain of $229 per container.
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<PAGE> 9
Item 3. Legal Proceedings
As reported by the Registrant in its Current Report on Form 8-K, filed with
the SEC on February 7, 1997, as amended February 26, 1997, on February 3, 1997,
Arthur Andersen, London, England, resigned as auditors of the Holding Company
(The Cronos Group). In its letter of resignation, Arthur Andersen states that it
was unable to obtain adequate information in response to inquiries it had made
in connection with its audit of the Holding Company for the year ended December
31, 1996. In connection with its resignation, Arthur Andersen also prepared a
report pursuant to the provisions of Section 10A(b)(2) of the Securities
Exchange Act of 1934, as amended, for filing by the Holding Company with the
SEC.
Following the report of Arthur Andersen, the SEC, on February 10, 1997,
commenced a private investigation of the Holding Company for the purpose of
investigating the matters discussed in such report and related matters. CCC does
not believe that the focus of the SEC's investigation is upon the Registrant or
CCC. CCC is unable at this time to predict the outcome of the SEC's private
investigation of the Holding Company.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
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<PAGE> 10
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
(a)(1)(i) The Registrant's outstanding units of limited partnership
interests are not traded on any market nor does an established public trading
market exist for such purposes.
(a)(1)(ii) Inapplicable.
(a)(1)(iii) Inapplicable.
(a)(1)(iv) Inapplicable.
(a)(1)(v) Inapplicable.
(a)(2) Inapplicable.
(b) Holders
<TABLE>
<CAPTION>
Number of Unit Holders
(b)(1) Title of Class as of December 31, 1996
-------------- ------------------------
<S> <C>
Units of limited partnership
interests 1,752
</TABLE>
(c) Dividends
Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6 below, "Selected Financial Data."
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<PAGE> 11
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net lease revenue $ 682,115 $1,068,493 $1,369,959 $1,762,234 $1,826,903
Net earnings $1,015,386 $1,573,088 $1,585,499 $1,484,327 $1,444,557
Net earnings per unit of
limited partnership interest $ 33.01 $ 51.17 $ 52.32 $ 48.72 $ 47.39
Cash distributions per unit of
limited partnership interest $ 79.06 $ 91.88 $ 90.00 $ 85.00 $ 106.25
At year-end:
Total assets $1,881,543 $3,264,762 $4,474,428 $5,613,393 $6,701,519
Partners' capital $1,881,543 $3,264,762 $4,474,428 $5,613,393 $6,701,519
</TABLE>
- -----------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
At December 31, 1996, the Registrant had $656,333 in cash and cash
equivalents, a decrease of $181,585 and $460,525 from the December 31, 1995 and
1994 balances, respectively. Contributing to the decline in cash was the
Registrant's declining fleet size, as well as a decline in operating results.
During the Registrant's first 10 years of operations, its primary objective
was to generate cash flow from operations for distribution to its limited
partners. Aside from the initial working capital reserve retained from the gross
subscription proceeds (equal to approximately 1.3% of such proceeds), the
Registrant relied primarily on container rental receipts to meet this objective,
as well as to finance current operating needs. No credit lines are maintained to
finance working capital. Commencing in 1991, the Registrant's 11th year of
operations, the Registrant began focusing its attention on the disposition of
its fleet in accordance with another of its original investment objectives,
realizing the residual value of its containers after the expiration of their
economic useful lives, estimated to be between 10 to 15 years after placement in
leased service. During this phase, the Registrant has actively disposed of
containers within its fleet, while cash proceeds from equipment disposals, in
addition to cash from operations, provided the cash flow for distributions to
the limited partners. The decision to dispose of containers is influenced by
various factors including age, condition, suitability for continued leasing as
well as the geographical location when disposed. The Registrant, having just
completed its 16th year of operations, will focus its attention during 1997 on
disposing its remaining fleet.
Distributions from operations are allocated 1% to the general partners and
99% to the limited partners, until the limited partners have received a
cumulative return of 12% per annum on their adjusted capital contributions.
Thereafter, the distributions are allocated 50% to the general partners and 50%
to the limited partners. Distributions from operations to the managing general
partner in excess of 1% of distributable cash are considered to be incentive
fees and are compensation to the managing general partner. Incentive fees did
not reach this threshold in 1996 due to the decline in operating results.
11
<PAGE> 12
From inception through February 28, 1997, the Registrant has distributed
$26,045,437 in cash from operations and $7,162,548 in cash from sales proceeds
to its limited partners. This represents total distributions of $33,207,985, or
221% of the Registrant's original limited partners' investment. Distributions to
the partners are determined and paid quarterly, based primarily on each
quarter's cash flow from operations and cash generated from container sales.
Quarterly distributions are also affected by periodic increases or decreases to
working capital reserves, as deemed appropriate by the managing general partner.
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. Cash generated from sales proceeds totaled
$1,407,367, $1,296,770 and $1,294,315 for the years ended December 31, 1996,
1995 and 1994, respectively, and should fluctuate in subsequent periods,
dependent on the level of container disposals. In subsequent quarters, the
Registrant may refrain from distributing cash generated from operations and
sales proceeds to its partners, reserving all excess cash as part of its working
capital in order to maintain sufficient cash reserves for expenses relating to
its final liquidation and subsequent dissolution.
Indicative of the cyclical nature of the container leasing business, the
container lease market has followed a general downward trend since mid-1995.
This downturn can be attributed to a fall in growth of containerized export
trade from key markets in Asia and the impact resulting from a build-up of
surplus containers at former high-demand locations. Leasing companies purchased
record amounts of containers in 1994 and 1995, while purchasing a smaller number
than ocean carriers and transport companies in 1996. During 1996, ocean carriers
and other transport companies moved away from leasing containers outright, as
declining container prices, favorable interest rates and the abundance of
available capital resulted in ocean carriers and transport companies purchasing
a larger share of equipment for their own account. This situation has
characterized the latest industry downturn. Although these leasing market
conditions are expected to continue throughout 1997, the Registrant's liquidity
and capital resources will be primarily impacted by its diminishing fleet size
and its decision to liquidate its remaining fleet.
Results of Operations
1996 - 1995
A fall in growth of containerized export trade from key Asian markets
contributed to the container leasing market's downward trend during 1996. Also
contributing to the sluggish container leasing market conditions were declining
container prices, favorable interest rates and an abundance of available capital
which resulted in ocean carriers and transport companies purchasing a larger
share of containers for their own account, reducing the demand for leased
containers. Once the demand for leased containers began to fall, per-diem rental
rates were also adversely affected. In order to counter these market conditions,
the Leasing Company implemented various marketing strategies during 1996,
including but not limited to, offering incentives to shipping companies,
repositioning containers to high demand locations and focusing towards term
leases and other leasing opportunities, including the leasing of containers for
local storage.
As the leasing industry's equipment moved into surplus, ocean carriers and
transport companies became increasingly selective about the age and condition of
containers taken on-hire. Many have adopted a policy of only leasing containers
of a certain age or less. It has been the Registrant's experience that in
periods of weak demand, many lessees insist on equipment three to five years of
age. Such criteria currently serves as a barrier to older equipment being taken
on-hire, including those within the Registrant's fleet and contributed to the
decline in the Registrant's results of operations. The primary component of the
Registrant's results of operations is net lease revenue. Net lease revenue is
determined by deducting direct operating expenses, management fees and
reimbursed administrative expenses, from rental revenues billed by the Leasing
Company from the leasing of the Registrant's containers and is directly related
to the size, utilization and per-diem rental rates of the Registrant's fleet.
Accordingly, net lease revenue declined by approximately 36%, when compared to
1995. The Registrant expects net lease revenue to decline in subsequent periods
as it disposes its remaining fleet.
12
<PAGE> 13
Despite the aforementioned market conditions, the Registrant's utilization
rates increased from an average of 86% during 1995 to an average of 88% during
1996, a direct result of the Registrant's policy to dispose of its off-hire
containers. During 1996, the Registrant's average fleet size (as measured in
twenty-foot equivalent units ("TEU")) was 2,113 TEU, as compared to 3,773 TEU in
1995. This decline, combined with a 3% reduction in average per-diem rental
rates, contributed to a 46% decline in gross rental revenue. Rental equipment
operating expenses, when measured as a percentage of rental revenue, decreased
due to a decline in the provision for doubtful accounts and the costs associated
with the recovery actions against the doubtful accounts of certain lessees.
Costs associated with utilization levels, including storage, handling and
repositioning, also declined, contributing to the decline in rental equipment
operating expenses, as a percentage of gross lease revenue.
At December 31, 1996, 16% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
<S> <C> <C>
Containers on lease:
Term leases 134 9
Master lease 894 128
----- ---
Subtotal 1,028 137
Containers off lease 104 23
----- ---
Total container fleet 1,132 160
===== ===
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
---------------- ------------
Units % Units %
----- --- ----- ---
<S> <C> <C> <C> <C>
Total purchases 7,257 100% 890 100%
Less disposals 6,125 84% 730 82%
----- --- ----- ---
Remaining fleet at December 31, 1996 1,132 16% 160 18%
===== ======= === ==
</TABLE>
The Registrant disposed of 1,225 twenty-foot and 196 forty-foot marine dry
cargo containers during 1996, as compared to 1,157 twenty-foot and 153
forty-foot marine dry cargo containers during 1995. As a result, approximately
32% of the Registrant's net earnings for 1996 were from gain on disposal of
equipment, as compared to 31% for 1995. The decision to repair or dispose of a
container is made when it is returned by a lessee. This decision is influenced
by various factors including the age, condition, suitability for continued
leasing, as well as the geographical location of the container when disposed.
These factors also influence the amount of sales proceeds received and the
related gain on container disposals.
The Registrant's fleet became fully depreciated during 1994 and accordingly,
the Registrant did not recognize depreciation expense during 1996. The
Registrant's base management fee, a fixed fee based on the size of the
Registrant's fleet, declined by $141,184, or approximately 43%, during 1996.
Base management fees are expected to decline in subsequent periods.
As reported in the Registrant's Current Report on Form 8-K and Amendment No.
1 to Current Report on Form 8-K, filed with the Commission on February 7, 1997
and February 26, 1997, respectively, Arthur Andersen, London, England, resigned
as auditors of The Cronos Group, a Luxembourg Corporation headquartered in
Orchard Lea, England (the "Parent Company"), on February 3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital Corp.,
the Managing General Partner of the Registrant. In its letter of resignation to
the Parent Company, Arthur Andersen states that it resigned as auditors of the
Parent Company and all other entities affiliated with the Parent Company. While
its letter of resignation was not addressed to the Managing General Partner of
the Registrant, Arthur Andersen confirmed to the Managing General Partner that
its resignation as auditors of the entities referred to in its letter of
resignation included its resignation as auditors of Cronos Capital Corp. and the
Registrant.
13
<PAGE> 14
The Registrant retained a new auditor, Moore Stephens, P.C. on April 10,
1997, as reported in its Current Report on Form 8-K, filed April 14, 1997.
The Registrant does not, at this time, have sufficient information to
respond to the concerns raised by Arthur Andersen with respect to its 1996 audit
of the Parent Company or the impact, if any, these concerns may have on the
future operating results and financial condition of the Registrant or the
Managing General Partner's and Leasing Company's ability to manage the
Registrant's business and fleet in subsequent periods. However, the Managing
General Partner of the Registrant does not believe, based upon the information
currently available to it, that Arthur Andersen's resignation was triggered by
any concern over the accounting policies and procedures followed by the
Registrant.
Arthur Andersen's report on the financial statements of Cronos Capital Corp.
and the Registrant, for either of the past two years, has not contained an
adverse opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope, or accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been no
disagreements between Cronos Capital Corp. or the Registrant and Arthur Andersen
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
1995 - 1994
In 1995, the Registrant's operations were impacted by its declining fleet
size, increasingly competitive market conditions, including, but not limited to,
the container leasing market's resistance to higher per-diem rental rates, an
expanding supply of containers within the container industry, as well as
increased efficiencies in the shipping industry. Net lease revenue declined by
approximately 22%, when compared to 1994.
Utilization rates increased slightly from an average of 84% during 1994 to
an average of 86% during 1995. However, a 1% decline in average per-diem rental
rates and a declining fleet size, contributed to a 25% and 23% decline in gross
rental revenue and rental equipment operating expenses in 1995 and 1994,
respectively. During 1995, the Registrant's average fleet size (as measured in
twenty-foot equivalent units ("TEU")) was 3,773 TEU, as compared to 5,279 TEU in
1994.
At December 31, 1995, 33% of the original equipment remained in the
Registrant's fleet, and was comprised of the following:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
<S> <C> <C>
Containers on lease:
Term leases 220 9
Master lease 1,710 289
----- ---
Subtotal 1,930 298
Containers off lease 427 58
----- ---
Total container fleet 2,357 356
===== ===
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
---------------- -------------
Units % Units %
----- --- --- ---
<S> <C> <C> <C> <C>
Total purchases 7,257 100% 890 100%
Less disposals 4,900 68% 534 60%
----- --- --- ---
Remaining fleet at December 31, 1995 2,357 32% 356 40%
===== ======= === ==
</TABLE>
The Registrant disposed of 1,157 twenty-foot and 153 forty-foot marine dry
cargo containers during 1995, as compared to 1,183 twenty-foot and 161
forty-foot marine dry cargo containers during 1994. As a result, approximately
31% of the Registrant's net earnings for 1995 were from gain on disposal of
equipment, as compared to 26% for 1994.
14
<PAGE> 15
The Registrant's fleet became fully depreciated during 1994, and
accordingly, the Registrant did not recognize depreciation expense during 1995.
The Registrant's base management fee declined by $140,482, or approximately 30%,
during 1995. The incentive fee, a performance-based fee subject to the operating
results of the fleet and cash generated from operations, also declined.
Cautionary Statement
This Annual Report on Form 10-K contains statements relating to future
results of the Registrant, including certain projections and business trends,
that are "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to changes in: economic conditions; trade policies; demand for and
market acceptance of leased marine cargo containers; competitive utilization and
per-diem rental rate pressures; as well as other risks and uncertainties,
including but not limited to those described in the above discussion of the
marine container leasing business under Item 7., Management's Discussion and
Analysis of Financial Condition and Results of Operations; and those detailed
from time to time in the filings of the Registrant with the Securities and
Exchange Commission.
Item 8. Financial Statements and Supplementary Data
15
<PAGE> 16
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Marine Container Income Fund III
(A California Limited Partnership):
We have audited the accompanying balance sheet of IEA Marine Container Income
Fund III (A California Limited Partnership) as of December 31, 1996, and the
related statements of operations, partners' capital, and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEA Marine Container Income
Fund III (A California Limited Partnership) as of December 31, 1996, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York,
June 6, 1997
16
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Marine Container Income Fund III
(A California Limited Partnership):
We have audited the accompanying balance sheet of IEA Marine Container Income
Fund III (A California Limited Partnership) as of December 31, 1995, and the
related statements of operations, partners' capital and cash flows for each of
the two years in the period ended December 31, 1995. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEA Marine Container Income
Fund III (A California Limited Partnership) as of December 31, 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
San Francisco, California,
March 15, 1996
17
<PAGE> 18
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets 1996 1995
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes $656,038 in 1996 and
$837,798 in 1995 in interest-bearing accounts (note 2) $ 656,333 $ 837,918
Net lease receivables due from Leasing Company
(notes 1 and 3) 252,850 408,952
---------- ----------
Total current assets 909,183 1,246,870
---------- ----------
Container rental equipment, at cost 3,173,384 6,678,748
Less accumulated depreciation 2,201,024 4,660,856
---------- ----------
Net container rental equipment 972,360 2,017,892
---------- ----------
$1,881,543 $3,264,762
========== ==========
Partners' Capital
Partners' capital:
General partners $ 3,103 $ 4,657
Limited partners (note 7) 1,878,440 3,260,105
---------- ----------
Total partners' capital 1,881,543 3,264,762
---------- ----------
$1,881,543 $3,264,762
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE> 19
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net lease revenue (notes 1 and 5) $ 682,115 $1,068,493 $1,369,959
Other operating expenses:
Depreciation (note 1) - - 187,076
Other general and administrative expenses 34,534 40,078 50,334
---------- ---------- ----------
34,534 40,078 237,410
---------- ---------- ----------
Earnings from operations 647,581 1,028,415 1,132,549
Other income:
Interest income 42,359 56,526 44,696
Net gain on disposal of equipment 325,446 488,147 408,254
---------- ---------- ----------
367,805 544,673 452,950
---------- ---------- ----------
Net earnings $1,015,386 $1,573,088 $1,585,499
========== ========== ==========
Allocation of net earnings:
General partners $ 25,160 $ 37,873 $ 15,855
Limited partners 990,226 1,535,215 1,569,644
---------- ---------- ----------
$1,015,386 $1,573,088 $1,585,499
========== ========== ==========
Limited partners' per unit share of net earnings $ 33.01 $ 51.17 $ 52.32
========== ========== ==========
</TABLE>
The accompanying notes are an integral part ofthese financial statements.
19
<PAGE> 20
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Limited
Partners General
(note 7) Partners Total
----------- -------- -----------
<S> <C> <C> <C>
Balances at December 31, 1993 5,611,533 1,860 5,613,393
Net earnings 1,569,644 15,855 1,585,499
Cash distributions (2,700,019) (24,445) (2,724,464)
----------- -------- -----------
Balances at December 31, 1994 4,481,158 (6,730) 4,474,428
Net earnings 1,535,215 37,873 1,573,088
Cash distributions (2,756,268) (26,486) (2,782,754)
----------- -------- -----------
Balances at December 31, 1995 $ 3,260,105 $ 4,657 $ 3,264,762
Net earnings 990,226 25,160 1,015,386
Cash distributions (2,371,891) (26,714) (2,398,605)
----------- -------- -----------
Balances at December 31, 1996 $ 1,878,440 $ 3,103 $ 1,881,543
=========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE> 21
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,015,386 $ 1,573,088 $ 1,585,499
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation - - 187,076
Net gain on disposal of equipment (325,446) (488,147) (408,254)
Decrease (increase) in net lease receivables due
from Leasing Company 119,714 122,103 (158,253)
----------- ----------- -----------
Total adjustments (205,732) (366,044) (379,431)
----------- ----------- -----------
Net cash provided by operating activities 809,654 1,207,044 1,206,068
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of equipment 1,407,367 1,296,770 1,294,315
----------- ----------- -----------
Cash flows used in financing activities:
Distributions to partners (2,398,605) (2,782,754) (2,724,464)
----------- ----------- -----------
Net decrease in cash and cash equivalents (181,584) (278,940) (224,081)
Cash and cash equivalents at beginning at year 837,918 1,116,858 1,340,939
----------- ----------- -----------
Cash and cash equivalents at end of year $ 656,334 $ 837,918 $ 1,116,858
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 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 dry 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 the business of the partnership.
The Partnership commenced operations on April 3, 1981, when the
minimum subscription proceeds of $500,000 were obtained. The
Partnership offered 30,000 units of limited partnership interest at
$500 per unit, or $15,000,000. The offering terminated on June 26,
1981, at which time 30,000 limited partnership units had been
purchased.
As of December 31, 1996 16% of the original equipment remained in
the Partnership's fleet and was comprised of 1,132 twenty-foot and
160 forty-foot marine dry cargo containers. Commencing in 1991, the
Partnership's 11th year of operations, the Partnership began
focusing its attention on the disposition of its fleet in
accordance with another of its original investment objectives,
realizing the residual value of its containers after the expiration
of their economic useful lives, estimated to be between 10 to 15
years after placement in leased service. During this phase, the
Partnership has actively disposed of containers within its fleet,
while cash proceeds from equipment disposals, in addition to cash
from operations, provided the cash flow for distributions to the
limited partners. The Partnership, having just completed its 16th
year of operations, will focus its attention during 1997 on
disposing its remaining fleet.
(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 the lessor
and the Leasing Company is the 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.
22
<PAGE> 23
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net
lease revenue is recorded by the Partnership in each period based
upon its leasing agent agreement with the Leasing Company. Net
lease revenue is generally dependent upon operating lease rentals
from operating lease agreements between the Leasing Company and its
various lessees, less direct operating expenses and management fees
due in respect of the containers specified in each operating lease
agreement.
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 reporting period. Actual results could differ from those
estimates.
(d) Allocation of Net Earnings and Partnership Distributions
Net earnings have been allocated between general and limited
partners in accordance with the Partnership Agreement.
Actual cash distributions differ from the allocations of net
earnings between the general and limited partners as presented in
these financial statements. Partnership distributions are based on
"distributable cash" and are paid to the general and limited
partners on a quarterly basis, in accordance with the provisions of
the Partnership Agreement. Distributions from operations are
allocated 1% to the general partners and 99% to the limited
partners until the limited partners have received a cumulative
return of 12% per annum on their adjusted capital contributions and
thereafter 50% to the limited partners and 50% to the general
partners. In addition, proceeds from container sales are also made
quarterly; first to the limited partners until they have received
distributions equal to their capital contributions; thereafter 99%
to the limited partners and 1% to the general partners until the
limited partners have received cumulative distributions equal to 8%
per annum on their adjusted capital contributions and thereafter
75% to the limited partners and 25% to the general partners.
Distributions from operations to the general partners in excess of
1% of distributable cash are considered to be incentive fees (as
defined by the Partnership Agreement) and are compensation to the
general partners. Incentive fees are charged to expense in the
period incurred.
(e) Container Rental Equipment
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long -Lived Assets to Be Disposed Of." The Statement requires
that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The Partnership
adopted SFAS No. 121 during 1996. In accordance with SFAS 121,
container rental equipment is carried at the lower of the container
rental equipment's original equipment cost, including capitalized
acquisition fees, or the estimated recoverable value of such
equipment. There were no reductions to the carrying value of
container rental equipment during 1996.
Container rental equipment is depreciated over a twelve-year life
on a straight line basis to its salvage value, estimated to be 30%.
(f) Income Taxes
The Partnership is not subject to income taxes, consequently no
provision for income taxes has been made. The Partnership files an
annual information tax return, prepared on the accrual basis of
accounting.
23
<PAGE> 24
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(g) Foreign Operations
The Partnership's business is not divided between foreign or
domestic operations. The Partnership's business is the leasing of
containers worldwide to ocean-going steamship companies and does
not fit the definition of reportable foreign operations within
Financial Accounting Standards Board Statement No. 14 "Financial
Reporting for Segments of a Business Enterprise." Any attempt to
separate "foreign" operations from "domestic" operations would be
dependent on definitions and assumptions that are so subjective as
to render the information meaningless and potentially misleading.
(h) Financial Statement Presentation
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.
(2) Cash and Cash Equivalents
Cash equivalents include highly liquid investments with a maturity of
three months or less on their acquisition date. Accordingly, cash
equivalents are carried at cost which approximates fair value. The
Partnership maintains its cash and cash equivalents in accounts which, at
times, may exceed federally insured limits. The Partnership has not
experienced any losses in such accounts and believes it is not exposed to
any significant credit risk. The Partnership places its cash equivalents
in investment grade, short term debt instruments and limits the amount of
credit exposure to any one commercial issuer.
(3) 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 December 31, 1996 and December 31,
1995 were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-------- --------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $199,540 in 1996 and $198,828 in 1995 $368,092 $634,228
Less:
Direct operating payables and accrued expenses 71,137 141,780
Damage protection reserve (note 4) 44,105 69,808
Incentive fees - 13,688
-------- --------
$252,850 $408,952
======== ========
</TABLE>
24
<PAGE> 25
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(4) Damage Protection Plan
The Leasing Company offers a repair service to several lessees of the
Partnership's containers, whereby the lessee pays an additional rental
fee for the convenience of having the Partnership incur the repair
expense for containers damaged while on lease. This fee is recorded as
revenue when earned according to the terms of the rental contract. A
reserve has been established to provide for the estimated costs incurred
by this service. This reserve is a component of net lease receivables due
from the Leasing Company (see note 3). The Partnership is not responsible
in the event repair costs exceed predetermined limits, or for repairs
that are required for damages not defined by the damage protection plan
agreement.
(5) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management and incentive 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 years
ended December 31, 1996, 1995 and 1994, was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Rental revenue (note 9) $1,067,285 $1,965,690 $2,603,881
Less:
Rental equipment operating expenses 197,224 458,754 597,059
Base management fees (note 6) 187,946 329,130 469,612
Incentive fees (note 6) - 109,313 167,251
---------- ---------- ----------
$ 682,115 $1,068,493 $1,369,959
========== ========== ==========
</TABLE>
(6) Compensation to Managing General Partner
Base management fees are equal to $0.25 per day per twenty-foot and $0.43
per day per forty-foot container owned by the Partnership pursuant to
Section 4.3 of the Partnership Agreement. Incentive management fees are
equal to 50% of the remaining distributable cash from operations after a
cumulative return to the limited partners of 12% per annum of their
adjusted capital contributions pursuant to Section 4.4 of the Partnership
Agreement.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Base management fees $187,946 $329,130 $469,612
Incentive fees - 109,313 167,251
-------- -------- --------
$187,946 $438,443 $636,863
======== ======== ========
</TABLE>
(7) Limited Partners' Capital
Cash distributions made to the limited partners during 1996, 1995 and
1994 included distributions of proceeds from equipment sales in the
amount of $1,425,009, $1,368,759, and $1,050,007, respectively. These
distributions are treated as a reduction of "Adjusted Capital
Contributions" as defined by the Partnership Agreement.
The limited partners' per unit share of capital at December 31, 1996,
1995 and 1994 was $63, $109 and $149, respectively. This is calculated by
dividing the limited partners' capital at the end of the year by 30,000,
the total number of limited partnership units.
25
<PAGE> 26
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(8) Income Taxes
The reconciliation of net earnings as reported in the statement of
operations and as would be reported for federal tax purposes for the
years ended December 31, 1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net earnings per statement of operations $1,015,386 $1,573,088 $1,585,499
Depreciation for income tax purposes less than
depreciation for financial statement purposes - - 187,076
Gain on disposition of assets for tax purposes in excess
of gain on disposition for financial statement purposes 1,045,532 892,275 869,246
Bad debt expense for tax purposes less than
of bad debt expense for financial statement purposes 711 36,687 40,142
---------- ---------- ----------
Net earnings for federal tax purposes $2,061,629 $2,502,050 $2,681,963
========== ========== ==========
</TABLE>
At December 31, 1996, the tax basis of total partners' capital was
$2,957,005.
(9) Major Lessees
No single lessee contributed more than 10% of the rental revenue earned
during 1996, 1995 and 1994. The Partnership believes that the
profitability of, and risks associated with, leases to foreign customers
is generally the same as those of leases to domestic customers. The
operating lease agreements generally require all payments to be made in
United States currency. The Partnership's operations are subject to the
fluctuations of worldwide economic and political conditions that may
affect the pattern and levels of world trade.
(10) Subsequent Events
As reported in the Partnership's Current Report on Form 8-K and Amendment
No. 1 to Current Report on Form 8-K, filed with the Commission on
February 7, 1997 and February 26, 1997, respectively, Arthur Andersen,
London, England, resigned as auditors of The Cronos Group (the "Holding
Company") on February 3, 1997.
The Cronos Group is the indirect corporate parent of CCC. In its letter
of resignation to The Cronos Group, Arthur Andersen states that it
resigned as auditors of The Cronos Group and all other entities
affiliated with The Cronos Group. While its letter of resignation was not
addressed to CCC, Arthur Andersen confirmed to CCC that its resignation
as auditors of the entities referred to in its letter of resignation
included its resignation as auditors of CCC and the Partnership. In its
letter of resignation, Arthur Andersen states that it was unable to
obtain adequate information in response to inquiries it had made in
connection with its audit of the Holding Company for the year ended
December 31, 1996.
The Partnership does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Partnership or the Leasing
Company's ability to manage the Partnership's fleet in subsequent
periods. However, CCC does not believe, based upon the information
currently available to it, that Arthur Andersen's resignation was
triggered by any concern over the accounting policies and procedures
followed by the Partnership.
26
<PAGE> 27
IEA MARINE CONTAINER INCOME FUND III
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(10) Subsequent Events - (Continued)
Arthur Andersen's report on the financial statements of CCC and the
Partnership, for the previous two years, has not contained an adverse
opinion or a disclaimer of opinion, nor was any such report qualified or
modified as to uncertainty, audit scope, or accounting principles.
During the Partnership's previous two fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been
no disagreements between CCC or the Partnership and Arthur Andersen on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
The Partnership retained a new auditor, Moore Stephens, P.C., on April
10, 1997, as reported in its current report on Form 8-K, filed April 14,
1997.
In connection with its resignation, Arthur Andersen also prepared a
report pursuant to the provisions of Section 10A(b)(2) of the Securities
Exchange Act of 1934, as amended, for filing by the Holding Company with
the Securities and Exchange Commission (the "SEC"). Following the report
of Arthur Andersen, the SEC, on February 10, 1997, commenced a private
investigation of the Holding Company for the purpose of investigating the
matters discussed in such report and related matters. The Partnership
does not believe that the focus of the SEC's investigation is upon the
Partnership or CCC. CCC is unable to predict the outcome of the SEC's
private investigation of the Holding Company.
27
<PAGE> 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Registrant's discussion regarding the resignation of its certifying
accountant is included in the Registrant's Report on Form 8-K, dated February 3,
1997 and filed February 7, 1997 and Amendment No. 1 to the Registrant's Report
on Form 8-K, dated February 3, 1997 and filed February 26, 1997, incorporated
herein by reference.
The Registrant retained a new auditor, Moore Stephens, P.C. on April 10,
1997 as reported in its Current Report on Form 8-K, filed April 14, 1997.
28
<PAGE> 29
PART III
Item 10. Directors and Executive Officers of the Registrant
The Registrant, as such, has no officers or directors, but is managed by
CCC, the managing general partner. The officers and directors of CCC at June 4,
1997, are as follows:
Name Office
--------------------- ------------------------------------------------
Dennis J. Tietz President, Chief Executive Officer, and Director
John P. McDonald Vice President/Sales
Elinor Wexler Vice President/Administration and Secretary
John Kallas Vice President/Treasurer, Principal Finance and
Accounting Officer
Laurence P. Sargent Director
Stefan M. Palatin Director
DENNIS J. TIETZ Mr. Tietz, 44, as President and Chief Executive Officer, is
responsible for the general management of CCC. From 1986 until August 1992, Mr.
Tietz was responsible for the organization, marketing and after-market support
of CCC's investment programs. Mr. Tietz is also President and a director of
Cronos Securities Corp. Mr. Tietz was a regional manager for CCC, responsible
for various container leasing activities in the U.S. and Europe from 1981 to
1986. Prior to joining CCC in December 1981, Mr. Tietz was employed by Trans
Ocean Leasing Corporation as Regional Manager based in Houston, with
responsibility for all leasing and operational activities in the U.S. Gulf.
Mr. Tietz holds a B.S. degree in Business Administration from San Jose State
University and is a Registered Securities Principal with the NASD.
JOHN P. MCDONALD Mr. McDonald, 35, was elected Vice President - National
Sales Manager of CCC in August 1992, with responsibility for marketing CCC's
investment programs. Since 1988, Mr. McDonald had been Regional Marketing
Manager for the Southwestern U.S. From 1983 to 1988, Mr. McDonald held a number
of container leasing positions with CCC, the most recent of which was as Area
Manager for Belgium and the Netherlands, based in Antwerp.
Mr. McDonald holds a B.S. degree in Business Administration from Bryant
College, Rhode Island. Mr. McDonald is also a Vice President of Cronos
Securities Corp.
ELINOR A. WEXLER Ms. Wexler, 48, was elected Vice President - Administration
and Secretary of CCC in August 1992. Ms. Wexler has been employed by the General
Partner since 1987, and is responsible for investor services, compliance and
securities registration. From 1983 to 1987, Ms. Wexler was Manager of Investor
Services for The Robert A. McNeil Corporation, a real estate syndication
company, in San Mateo, California. From 1971 to 1983, Ms. Wexler held various
positions, including securities trader and international research editor, with
Nikko Securities Co., International, based in San Francisco.
Ms. Wexler attended the University of Oregon, Portland State University and
the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice President
and Secretary of Cronos Securities Corp. and a Registered Principal with the
NASD.
JOHN KALLAS Mr. Kallas, 34, was elected Vice President/Treasurer, Principal
Finance and Accounting Officer of CCC in December 1993 and is directly
responsible for CCC's accounting operations and reporting activities. Mr. Kallas
has held various accounting positions since joining CCC in 1989, including
Controller, Director of Accounting and Corporate Accounting Manager. From 1985
to 1989, Mr. Kallas was an accountant with KPMG Peat Marwick, San Francisco,
California.
Mr. Kallas holds a B.S. degree in Business Administration from the
University of San Francisco and is a certified public accountant. Mr. Kallas is
also Treasurer of Cronos Securities Corp.
29
<PAGE> 30
LAURENCE P. SARGENT Mr. Sargent, 67, joined the Board of Directors of CCC in
1991. Mr. Sargent was a founder of Leasing Partners International ("LPI") and
served as its Managing Director from 1983 until 1991. From 1977 to 1983, Mr.
Sargent held a number of positions with Trans Ocean Leasing Corporation, the
last of which was as a director of its refrigerated container leasing
activities. From 1971 to 1977, Mr. Sargent was employed by SSI Container
Corporation (later Itel Container International), ultimately serving as Vice
President / Far East. Prior to that, Mr. Sargent was a Vice President of Pacific
Intermountain Express, a major U.S. motor carrier, responsible for its bulk
container division. Mr. Sargent holds a B.A. degree from Stanford University.
Mr. Sargent also serves as a director of the Institute of International
Container Lessors ("IICL"), an industry trade association. Mr. Sargent is also a
director of Cronos Securities Corp.
Mr. Sargent retired as Deputy Chairman of the Group as of January 1, 1996.
He will remain a director of CCC, The Cronos Group, as well as other various
subsidiaries of The Cronos Group.
STEFAN M. PALATIN Mr. Palatin, 43, joined the Board of Directors of CCC in
January 1993. Mr. Palatin is Chairman and CEO of The Cronos Group, and was a
founder of LPI in 1983. From 1980 to 1991, Mr. Palatin was an executive director
of the Contrin Group, which has provided financing to the container leasing
industry, as well as other business ventures, and has sponsored limited
partnerships organized in Austria. From 1977 to 1980, Mr. Palatin was a
consultant to a number of companies in Austria, including Contrin. From 1973 to
1977, Mr. Palatin was a sales manager for Generali AG, the largest insurance
group in Austria.
Mr. Palatin, who is based in Austria, holds a Doctorate in Business
Administration from the University of Economics and World Trade in Vienna. Mr.
Palatin is also a director of The Cronos Group.
The key management personnel of the Leasing Company at June 4, 1997, were as
follows:
Name Title
------------------- ---------------------------------------------
Steve Brocato President
Peter J. Younger Vice President/Chief Financial Officer
John M. Foy Vice President/Americas
Nico Sciacovelli Vice President/Europe, Middle East and Africa
Harris H. T. Ho Vice President/Asia Pacific
David Heather Vice President/Technical Services
John C. Kirby Vice President/Operations
J. Gordon Steel Vice President/Tank Container Division
STEVE BROCATO Mr. Brocato, 44, was elected President of the Leasing
Company's container division in June 1997, replacing Mr. Nigel J. Stribley, and
is based in the United Kingdom. Mr. Brocato has held various positions since
joining Cronos including, Vice president - Corporate Affairs and Director of
Marketing - Refrigerated Containers for Cronos in North and South America. Prior
to joining Cronos, Mr. Brocato was a Vice President for ICCU Containers from
1983 to 1985 and was responsible for dry cargo container marketing and
operations for the Americas. From 1981 to 1983, he was regional manager for
Trans Ocean leasing Ltd.
PETER J. YOUNGER Mr. Younger, 40, was elected Chief Financial Officer of The
Cronos Group in March, 1997, replacing Mr. A. Darrell Ponniah, and is based in
the United Kingdom. Mr. Younger was appointed Vice President and Controller of
Cronos in 1991. He joined IEA in 1987 and served as Director of Accounting and
the Vice President and Controller, based in San Francisco. Prior to 1987, Mr.
Younger was a certified public accountant and a principal with the accounting
firm of Johnson, Glaze and Co. in Salem, Oregon. Mr. Younger holds a B.S. degree
in Business Administration from Western Baptist College.
30
<PAGE> 31
JOHN M. FOY Mr. Foy, 51, is directly responsible for the Leasing Company's
lease marketing and operations in North America, Central America, and South
America, and is based in San Francisco. From 1985 to 1993, Mr. Foy was Vice
President/Pacific with responsibility for dry cargo container lease marketing
and operations in the Pacific Basin. From 1977 to 1985 Mr. Foy was Vice
President of Marketing for Nautilus Leasing Services in San Francisco with
responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy was
Regional Manager for Flexi-Van Leasing, a container lessor, with responsibility
for container leasing activities in the Western United States. Mr. Foy holds a
B.A. degree in Political Science from University of the Pacific, and a Bachelor
of Foreign Trade from Thunderbird Graduate School of International Management.
NICO SCIACOVELLI Mr. Sciacovelli, 47, was elected Vice President - Europe,
Middle East and Africa in June 1997, replacing Mr. Geoffrey Mornard. Mr.
Sciacovelli is directly responsible for the Leasing Company's lease marketing
and operations in Europe, the Middle East and Africa and is based in Italy.
Since joining Cronos in 1983, Mr. Sciacovelli served as Area Director and Area
Manager for Southern Europe. Prior to joining Cronos, Mr. Sciacovelli was a
Sales Manager at Interpool Ltd.
HARRIS H. T. HO Mr. Ho, 39, was elected Vice President - Asia Pacific in
June 1997, replacing Mr. Danny Wong. Mr. Ho is directly responsible for the
Leasing Company's lease marketing and operations in Asia, Australia and the
Indian sub-continent and is based in Hong Kong. Since joining Cronos in 1990,
Mr. Ho served as Area Director, Hong Kong and China. Prior to joining Cronos,
Mr. Ho was a Manager at Sea Containers Pacific Ltd and Sea Containers Hong Kong
Limited from 1981 to 1990, responsible for container marketing within Asia. From
1978 to 1981, Mr. Ho was Senior Equipment Controller for Hong Kong Container
Line. Mr. Ho holds a Diploma of Management Studies in Marketing from The Hong
Kong Polytechnic and The Hong Kong Management Association.
DAVID HEATHER Mr. Heather, 49, is responsible for all technical and
engineering activities of the fleet managed by the Leasing Company. Mr. Heather
was Technical Director for LPI, based in the United Kingdom, from 1986 to 1991.
From 1980 to 1986, Mr. Heather was employed by ABC Containerline NV as Technical
Manager with technical responsibility for the shipping line's fleet of dry
cargo, refrigerated and other specialized container equipment. From 1974 to
1980, Mr. Heather was Technical Supervisor for ACT Services Ltd., a shipping
line, with responsibility for technical activities related to refrigerated
containers. Mr. Heather holds a Marine Engineering Certificate from Riversdale
Marine Technical College in England.
JOHN C. KIRBY Mr. Kirby, 43, is responsible for container purchasing,
contract and billing administration, container repairs and leasing-related
systems, and is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as
European Technical Manager and advanced to Director of European Operations in
1986, a position he held with CCC, and later the Leasing Company, until his
promotion to Vice President/Operations of the Leasing Company in 1992. From 1982
to 1985, Mr. Kirby was employed by CLOU Containers, a container leasing company,
as Technical Manager based in Hamburg, Germany. Mr. Kirby acquired a
professional engineering qualification from the Mid-Essex Technical College in
England.
J. GORDON STEEL Mr. Steel, 64, is directly responsible for the overall lease
marketing activity for the Leasing Company's Tank Container Division. From 1990
to 1992, Mr. Steel held the position of Director/General Manager for Tiphook
Container's Tank Division. From 1977 to 1990, Mr. Steel held various managerial
positions, involving manufacturing and transportation of hazardous materials,
with Laporte Industries and ICI, major chemical distribution companies. Mr.
Steel is a qualified Chemical Engineer and attended the Associate Royal
Technical College in Scotland.
31
<PAGE> 32
Item 11. Executive Compensation
The Registrant pays a base management fee to the general partner as set
forth in the table below.
The Registrant also makes quarterly distributions to its partners (general
and limited) from cash generated from operations which are allocated 1% thereof
to the general partners and 99% thereof to the limited partners until the
limited partners have received a 3% cumulative quarterly return on their
adjusted capital contributions and, thereafter, 50% to the limited partners and
50% to the general partners. In addition, proceeds from container sales are also
made quarterly; first to the limited partners until the limited partners have
received cumulative distributions equal to their capital contributions;
thereafter, 99% to the limited partners and 1% to the general partners until the
limited partners have received cumulative distributions equal to 8% per annum on
their adjusted capital contributions and, thereafter, 75% to the limited
partners and 25% to the general partners. (See the Limited Partnership Agreement
for a complete discussion of the sharing arrangement for the sale proceeds.)
The Registrant does not pay or reimburse CCC or the associate general
partner for any remuneration payable by them to their officers, directors or
employees. All remuneration payable by CCC to its officers, directors and
employees, and all of CCC's corporate overhead incurred in connection with the
operation of the Registrant, is borne by CCC from the fees payable to it by the
Registrant and from other income earned by CCC.
The following table sets forth the fees the Registrant paid (on a cash
basis) to CCC and Smith Barney Shearson, Inc., the associate general partner of
the Registrant, for the fiscal year 1996.
<TABLE>
<CAPTION>
Cash Fees and
Name Description Distributions
<S> <C> <C> <C>
1) CCC Base management fees - equal to $0.25 per $ 187,946
day per 20-foot container and $0.43 per
day per 40-foot container owned by the
Registrant pursuant to Section 4.3 of the
Limited Partnership Agreement
2) CCC Interest in Fund - 1% of distributable cash for $ 12,320
any quarter prior to receipt of the incentive
management fee pursuant to Section 4.4 of
the Limited Partnership Agreement
3) CCC Interest in Fund - 1% of sales proceeds for $ 12,955
any quarter pursuant to Section 4.5 of
Smith Barney the Limited Partnership Agreement
Shearson, Inc. $ 1,439
4) CCC Incentive management fee - 50% of the $ 13,688
------------
remaining distributable cash from operations
after a cumulative return to
the Limited Partners of 12% per
annum of their adjusted capital
contributions pursuant to
Section 4.4 of the Limited
Partnership Agreement (see note
1 to the financial statements)
</TABLE>
32
<PAGE> 33
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
There is no person or "group" of persons known to the management of CCC to
be the beneficial owner of more than five percent of the outstanding units of
limited partnership interests of the Registrant.
(b) Security Ownership of Management
The Registrant has no directors or officers. It is managed by CCC. Ownership
of units of limited partnership interests of the Registrant by CCC, its officers
and/or directors of CCC is as follows:
<TABLE>
<CAPTION>
Number Percent of
Name of Beneficial Owner of Units All Units
<S> <C> <C>
Dennis J. Tietz 38.0 0.127%
Cronos Capital Corp. 773.0 2.576%
----- -----
Officers, Directors and CCC as a Group 811.0 2.703%
===== =====
</TABLE>
(c) Changes in Control
Inapplicable.
Item 13. Certain Relationships and Related Transactions
(a) Transactions with Management and Others
The Registrant's only transactions with management and other related parties
during 1996 were limited to those fees paid or amounts committed to be paid (on
an annual basis) to CCC, the managing general partner, and Smith Barney
Shearson, Inc., the associate general partner. See Item 11, "Executive
Compensation," herein.
(b) Certain Business Relationships
Inapplicable.
(c) Indebtedness of Management
Inapplicable.
(d) Transactions with Promoters
Inapplicable.
33
<PAGE> 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
<TABLE>
<CAPTION>
Page
The following financial statements of the Registrant are included in Part
II, Item 8:
<S> <C>
Reports of Independent Public Accountants .......................... 16, 17
Balance Sheets - December 31, 1996 and 1995 ........................ 18
Statements of operations - for the years ended
December 31, 1996, 1995 and 1994 ............................... 19
Statements of partners' capital - for the years ended
December 31, 1996, 1995 and 1994 ............................... 20
Statements of cash flows - for the years ended
December 31, 1996, 1995 and 1994 ............................... 21
Notes to financial statements ...................................... 22
</TABLE>
All other schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
34
<PAGE> 35
(a)3. 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
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K, February 7, 1997 and
Amendment No. 1 to Report on Form 8-K, February 26, 1997, reporting
the resignation of the Registrant's certifying accountant.
The Registrant filed a Report on Form 8-K, April 14, 1997, reporting
the appointment of the Registrant's successor certifying accountant.
</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)
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/Treasurer
Principal Finance and Accounting
Officer
Date: June 16, 1997
Pursuant to the requirement of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cronos
Capital Corp., the managing general partner of the Registrant, in the capacities
and on the dates indicated:
Signature Title Date
/s/ Dennis J. Tietz President and Director of June 16, 1997
- ----------------------------- Cronos Capital Corp.
Dennis J. Tietz ("CCC") (Principal Executive
Officer of CCC)
/s/ John Kallas Vice President/Treasurer June 16, 1997
- ----------------------------- (Principal Finance and
John Kallas Accounting Officer of CCC)
/s/ Laurence P. Sargent Director of CCC June 16, 1997
- -----------------------------
Laurence P. Sargent
SUPPLEMENTAL INFORMATION
The Registrant's annual report will be furnished to its limited partners on
or about July 18, 1997. Copies of the annual report will be concurrently
furnished to the Commission for information purposes only, and shall not be
deemed to be filed with the Commission.
<PAGE> 37
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 DECEMBER 31, 1996 AND THE STATEMENT OF OPERATIONS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS ANNUAL REPORT ON FORM 10-K
FOR THE PERIOD DECEMBER 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 656,333
<SECURITIES> 0
<RECEIVABLES> 252,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 909,183
<PP&E> 3,173,384
<DEPRECIATION> 2,201,024
<TOTAL-ASSETS> 1,881,543
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,881,543
<TOTAL-LIABILITY-AND-EQUITY> 1,881,543
<SALES> 0
<TOTAL-REVENUES> 682,115
<CGS> 0
<TOTAL-COSTS> 34,534
<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> 1,015,386
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
