<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission file number 0-11163
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
(Exact name of registrant as specified in its charter)
California 93-0798850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 Market Street, 15th Floor, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
--- ---
<PAGE> 2
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Balance Sheets - September 30, 1996 (unaudited) and December 31, 1995 4
Statements of Operations for the three and nine months ended September 30, 1996 and 1995 (unaudited) 5
Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September
30, 1996 and December 31, 1995, statements of operations for the three
and nine months ended September 30, 1996 and 1995, and statements of
cash flows for the nine months ended September 30, 1996 and 1995.
3
<PAGE> 4
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
Assets
------
Current assets:
<S> <C> <C>
Cash, includes $247,154 at September 30, 1996 and $236,559
at December 31, 1995 in interest-bearing accounts $ 247,365 $ 236,819
Short-term investments 1,628,282 1,250,000
Net lease receivables due from Leasing Company
(notes 1 and 2) 589,691 747,402
---------- -----------
Total current assets 2,465,338 2,234,221
---------- -----------
Container rental equipment, at cost 9,088,646 14,203,296
Less accumulated depreciation 6,362,052 9,642,888
---------- -----------
Net container rental equipment 2,726,594 4,560,408
---------- -----------
$5,191,932 $ 6,794,629
========== ===========
Liabilities and Partners' Capital
---------------------------------
Partners' capital:
General partners $ 25,210 $ 35,782
Limited partners 5,166,722 6,758,847
---------- -----------
Total partners' capital 5,191,932 6,794,629
---------- -----------
$5,191,932 $ 6,794,629
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ---------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $260,417 $ 391,050 $ 847,385 $1,375,823
Other operating expenses:
Depreciation 113,674 180,342 406,363 569,329
Other general and administrative expenses 11,269 4,643 31,420 39,528
-------- ---------- ---------- ----------
124,943 184,985 437,783 608,857
-------- ---------- ---------- ----------
Earnings from operations 135,474 206,065 409,602 766,966
Other income (expenses):
Interest income 29,211 23,304 71,485 76,689
Interest expense -- -- -- (5,156)
Net gain on disposal of equipment 402,133 158,327 1,191,388 455,248
-------- ---------- ---------- ----------
431,344 181,631 1,262,873 526,781
-------- ---------- ---------- ----------
Net earnings $566,818 $ 387,696 $1,672,475 $1,293,747
======== ========== ========== ==========
Allocation of net earnings:
General partners $ 5,668 $ 3,877 $ 16,725 $ 12,938
Limited partners 561,150 383,819 1,655,750 1,280,809
-------- ---------- ---------- ----------
$566,818 $ 387,696 $1,672,475 $1,293,747
======== ========== ========== ==========
Limited partners' per unit share of net earnings $ 20.25 $ 13.85 $ 59.74 $ 46.21
======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
September 30, September 30,
1996 1995
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 1,122,743 $ 1,758,512
Cash flows provided by investing activities:
Proceeds from disposal of equipment 2,541,256 1,272,507
Cash flows used in financing activities:
Principal payment of long-term debt -- (283,270)
Distribution to partners (3,275,171) (3,019,050)
----------- -----------
Net cash used in financing activities (3,275,171) (3,302,320)
----------- -----------
Net increase (decrease) in cash and cash equivalents 388,828 (271,301)
Cash and cash equivalents at January 1 1,486,819 1,908,196
----------- -----------
Cash and cash equivalents at September 30 $ 1,875,647 $ 1,636,895
=========== ===========
Cash paid during the period for:
Interest $ -- $ 7,734
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Income Fund IV (A California Limited Partnership)
(the "Partnership") was organized under the laws of the State of
California on November 25, 1981 for the purpose of owning and leasing
marine cargo containers. The managing general partner is Cronos Capital
Corp. ("CCC"); the associate general partner is Smith Barney Shearson,
Inc. CCC, with its affiliate Cronos Containers Limited (the "Leasing
Company"), manages and controls the business of the Partnership.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership, all
authority to administer the business of the Partnership is vested in
CCC. CCC has entered into a Leasing Agent Agreement whereby the Leasing
Company has the responsibility to manage the leasing operations of all
equipment owned by the Partnership. Pursuant to the Agreement, the
Leasing Company is responsible for leasing, managing and re-leasing the
Partnership's containers to ocean carriers and has full discretion over
which ocean carriers and suppliers of goods and services it may deal
with. The Leasing Agent Agreement permits the Leasing Company to use
the containers owned by the Partnership, together with other containers
owned or managed by the Leasing Company and its affiliates, as part of
a single fleet operated without regard to ownership. Since the Leasing
Agent Agreement meets the definition of an operating lease in Statement
of Financial Accounting Standards (SFAS) No. 13, it is accounted for as
a lease under which the Partnership is lessor and the Leasing Company
is lessee.
The Leasing Agent Agreement generally provides that the Leasing Company
will make payments to the Partnership based upon rentals collected from
ocean carriers after deducting direct operating expenses and management
fees to CCC. The Leasing Company leases containers to ocean carriers,
generally under operating leases which are either master leases or term
leases (mostly two to five years). Master leases do not specify the
exact number of containers to be leased or the term that each container
will remain on hire but allow the ocean carrier to pick up and drop off
containers at various locations; rentals are based upon the number of
containers used and the applicable per-diem rate. Accordingly, rentals
under master leases are all variable and contingent upon the number of
containers used. Most containers are leased to ocean carriers under
master leases; leasing agreements with fixed payment terms are not
material to the financial statements. Since there are no material
minimum lease rentals, no disclosure of minimum lease rentals is
provided in these financial statements.
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Revenue is
recognized when earned.
The Partnership has determined that for accounting purposes the Leasing
Agent Agreement is a lease, and the receivables, payables, gross
revenues and operating expenses attributable to the containers managed
by the Leasing Company are, for accounting purposes, those of the
Leasing Company and not of the Partnership. Consequently, the
Partnership's balance sheets and statements of operations display the
payments to be received by the Partnership from the Leasing Company as
the Partnership's receivables and revenues.
(Continued)
7
<PAGE> 8
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form
10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reported period.
The interim financial statements presented herewith reflect all
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to a fair statement of the financial condition
and results of operations for the interim periods presented.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, and incentive
fees payable to CCC, the Leasing Company, and its affiliates from the
rental billings payable by the Leasing Company to the Partnership under
operating leases to ocean carriers for the containers owned by the
Partnership. Net lease receivables at September 30, 1996 and December
31, 1995 were as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $333,751 at September 30, 1996 and $302,643 at
December 31, 1995 $ $1,086,746 $1,332,907
Less:
Direct operating payables and accrued expenses 253,471 288,975
Damage protection reserve 113,556 120,737
Incentive fees 130,028 175,793
---------- ----------
$ 589,691 $ 747,402
========== ==========
</TABLE>
(Continued)
8
<PAGE> 9
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses
and management fees to CCC and the Leasing Company, from the rental
revenue billed by the Leasing Company under operating leases to ocean
carriers for the containers owned by the Partnership. Net lease revenue
for the three and nine-month periods ended September 30, 1996 and 1995,
was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rental revenue $658,421 $1,171,953 $2,418,673 $3,678,672
Rental equipment operating expenses 143,853 278,375 584,128 768,544
Base management fees 124,123 206,330 461,184 642,594
Incentive fees 130,028 296,198 525,976 891,711
-------- ---------- ---------- ----------
$260,417 $ 391,050 $ 847,385 $1,375,823
======== ========== ========== ==========
</TABLE>
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between September 30, 1996 and
December 31, 1995.
As discussed in the Registrant's report for the year ended December 31,
1995, the Registrant entered 1996 with a view towards accelerating the
disposition of its container fleet. A lack of viable options during the
first nine months of 1996 resulted in the Registrant's continued
disposal of containers as part of its ongoing operations. Accordingly,
2,318 containers were disposed during the first nine months of 1996,
contributing to an increase in cash generated from sales proceeds and,
accordingly, the related cash balances. At September 30, 1996, 37% of
the original equipment remained in the Registrant's fleet, as compared
to 59% at December 31, 1995, comprised as follows:
<TABLE>
<CAPTION>
20-Foot 40-Foot
------- -------
Containers on lease:
<S> <C> <C>
Term leases 170 173
Master lease 1,710 1,244
----- -----
Subtotal 1,880 1,417
Containers off lease 261 452
----- -----
Total container fleet 2,141 1,869
===== =====
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
---------------- --------------
Units % Units %
----- --- ----- ---
<S> <C> <C> <C> <C>
Total purchases 7,097 100% 3,647 100%
Less disposals 4,956 70% 1,778 49%
----- --- ----- ---
Remaining fleet at September 30, 1996 2,141 30% 1,869 51%
===== === ===== ===
</TABLE>
Net lease receivables at September 30, 1996 decreased when compared to
December 31, 1995, primarily as a result of favorable collections of
the Registrant's lease receivables. The diminishing fleet size, and its
related operating performance, also contributed to the decline in lease
receivables.
During the third quarter of 1996, distributions from operations and
sales proceeds amounted to $1,459,510, reflecting distributions to the
general and limited partners for the second quarter of 1996. This
represents an increase from the $864,088 distributed during the second
quarter of 1996, due to an increase in distributions from sales
proceeds. The Registrant's efforts to dispose of the remaining fleet
should produce lower operating results and, consequently, lower
distributions from operations to its partners in subsequent periods.
However, sales proceeds distributed to its partners may fluctuate in
subsequent periods, reflecting the level of container disposals.
10
<PAGE> 11
The statements contained in the following discussion are based on
current expectations. These statements are forward looking and actual
results may differ materially. Indicative of the cyclical nature of the
container leasing business, containerized trade slowed in the last
quarter of 1995, and excess inventories began to develop. This slowdown
has resulted in reduced equipment utilization and lower per-diem rental
rates in the container leasing industry during the first nine months of
1996. The Registrant's utilization rate declined from 87% at December
31, 1995, to 81% at September 30, 1996. During the first nine months of
1996, the Leasing Company implemented various marketing strategies,
including but not limited to, offering incentives to shipping companies
and repositioning containers to high demand locations in order to
counter the market conditions. Ancillary revenues have fallen, and
free-day incentives offered to the shipping lines have increased. In
addition, the operating expenses of the Registrant, when measured as a
percentage of rental revenue, have increased due to higher storage and
handling costs associated with lower equipment utilization, and
increased repositioning costs. As a result, these leasing market
conditions, combined with the Registrant's disposal of containers, are
expected to adversely impact the results from operations through the
remainder of 1996 and into 1997.
2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1996 and the three and
nine-month periods ended September 30, 1995.
Net lease revenue for the three and nine-month periods ended September
30, 1996 was $260,417 and $847,385, respectively, a decline of 33% and
38% from the same three and nine-month periods in the prior year,
respectively. Approximately 71% of the Registrant's net earnings for
both the three and nine-month periods ended September 30, 1996, were
from gain on disposal of equipment, as compared to 41% and 35% for the
same three and nine-month periods in the prior year, respectively. As
the Registrant continues the disposal of its containers in subsequent
periods, net gain on disposal should contribute significantly to the
Registrant's net earnings.
Gross rental revenue (a component of net lease revenue) for the three
and nine-month periods ended September 30, 1996 was $658,421, and
$2,418,673, respectively, reflecting a decline of 44% and 34% from the
same three and nine-month periods in 1995, respectively. During 1996,
gross rental revenue was primarily impacted by the Registrant's
diminishing fleet size. Average per-diem rental rates decreased
approximately 3% and 2%, when compared to the same three and nine-month
periods in the prior year, respectively, as they became subject to the
downward pressures of an increasingly soft container leasing market.
The Registrant's average fleet size and utilization rates for the three
and nine-month periods ended September 30, 1996 and September 30, 1995
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 6,112 9,625 7,306 10,197
Average Utilization 83% 88% 83% 88%
</TABLE>
Rental equipment operating expenses were 22% and 24% of the
Registrant's gross lease revenue for the three-month periods ended
September 30, 1996 and 1995, respectively. This decline was primarily
attributable to a reduction in the provision for doubtful accounts.
However, rental equipment operating expenses were 24% and 21% of the
Registrant's gross lease revenue for the nine-month periods ended
September 30, 1996 and 1995, respectively. This increase was largely
attributable to a decline in gross lease revenue resulting from lower
per-diem rates, a downward trend in ancillary revenue, and an increase
in free-day incentives offered to shipping companies. Costs associated
with lower utilization levels, including storage, handling and
repositioning, also contributed to the increase in the rental equipment
operating expenses, as a percentage of gross lease revenue. The
Registrant's declining fleet size and related operating performance
contributed to the decline in base management and incentive fees, when
compared to the same periods in the prior year.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and
restated as of January 15, 1982 *
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended September 30, 1996
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated January 18, 1982, included as part of Registration
Statement on Form S-1 (No. 2-75378)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 2-75378)
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA MARINE CONTAINER INCOME FUND IV
(A California Limited Partnership)
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
--------------------------------
John Kallas
Vice President, Treasurer
Principal Financial & Accounting Officer
Date: November 11, 1996
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ------- ----------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of January 15, 1982
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 January 18, 1982, included as part of Registration
Statement on Form S-1 (No. 2-75378)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 2-75378)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1996 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD SEPTEMBER 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,875,647
<SECURITIES> 0
<RECEIVABLES> 589,691
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,465,338
<PP&E> 9,088,646
<DEPRECIATION> 6,362,052
<TOTAL-ASSETS> 5,191,932
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,191,932
<TOTAL-LIABILITY-AND-EQUITY> 5,191,932
<SALES> 0
<TOTAL-REVENUES> 847,385
<CGS> 0
<TOTAL-COSTS> 437,783
<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> 1,672,475
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
