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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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
For the fiscal year ended December 31, 1997
-----------------
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 0-11163
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 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 (Section229.405 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.
Documents incorporated by Reference
PART I
Item 1 - Business Prospectus of IEA Marine Container Income Fund
IV, dated January 18, 1982 included as part of
Registration Statement on Form S-1 (No. 2-75378)
Certificate of Limited Partnership of IEA Marine
Container Income Fund IV, filed as Exhibit 3.4 to
the Registration Statement on Form S-1 (No.
2-75378)
PART II
Item 9 - Changes in and Dis- Current Report on Form 8-K of IEA Marine
agreements with Container Income Fund IV, filed February 7, 1997
Accountants on and April 14, 1997, respectively, and Amendment
Accounting and No. 1 to Current Report on Form 8-K filed
Financial Disclosure February 26, 1997.
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PART I
Item 1. Business
(a) General Development of Business
The Registrant is a California limited partnership formed on November
25, 1981 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 January 25, 1982, pursuant to its Registration Statement on
Form S-1 (File No. 2-75378). The offering terminated on December 31, 1982.
The Registrant raised $13,857,600 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 $13,857,600 100.0%
Public Offering Expenses:
Underwriting Commissions $ 1,385,750 10.0%
Offering and Organization Expenses $ 297,480 2.1%
----------- -----
Total Public Offering Expenses $ 1,683,230 12.1%
----------- -----
Net Proceeds $12,174,370 87.9%
Acquisition Fees $ 632,170 4.6%
Working Capital Reserve $ 47,910 0.3%
----------- -----
Gross Proceeds Invested in Equipment $11,494,290 83.0%
=========== =====
</TABLE>
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On October 14, 1983, the Registrant borrowed $6,000,000 to finance the
purchase of additional containers. Additionally, on June 23, 1986, the
Registrant entered into a second agreement, whereby the Registrant borrowed
$5,494,000 to finance the purchase of additional containers. On August 31, 1990,
the Registrant borrowed $4,100,000 to refinance the remaining balances of the
aforementioned loans. The loan was repaid in full on February 28, 1995.
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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 Luxembourg company. These and
other affiliated companies are ultimately wholly-owned by The Cronos Group, a
holding company registered in Luxembourg ("the Holding Company") and 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 third-party container owners, including all other
programs organized by CCC. The associate general partner is Lehman Brothers,
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."
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 CCC, the Managing
General Partner of the Partnership. In its letter of resignation to the Parent
Company, Arthur Andersen stated 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 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 Registrant.
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 Registrant.
Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, 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 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
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.
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 Parent 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 Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.
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In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.
The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.
The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.
The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.
The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.
(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.
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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.
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 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.
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. However, since 1995, the growth
of the industry's fleet, as well as containership tonnage, outpaced increases in
world containerized trade and resulted in a steady decline in container prices
to levels not seen in a decade. Consequently, ocean carriers reduced their
holding of leased container equipment and increased the number of containers
purchased for their own account. Additionally, ocean carriers, through the
efforts of strategic shipping alliances, were able to increase the efficiency of
utilizing owned containers, further reducing their reliance on leased
containers. As a result, the container leasing industry has, since mid - 1995,
experienced a decline in container utilization and per-diem rental rates.
The Registrant believes that the favorable growth of containerization has
been and will be impacted in subsequent years for the following reasons:
o 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;
o Intermodal traffic is expected to continue to grow, and industrialized
countries are continuing to improve intermodal infrastructure (i.e.,
railways, roads and ports);
o Shippers continue to demand transportation of cargo by containers rather
than break-bulk;
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o Countries with rapidly-growing economies in emerging markets are
continuing to build new container port facilities that accommodate an
increased flow of containerized trade; and
o 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. To an ocean carrier, the primary benefits of leasing
rather than owning containers are as follows:
o 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.
o 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.
o 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.
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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.
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 or refrigerated 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 revenue will be derived from selling containers.
Of the 1,076 twenty-foot and 1,216 forty-foot marine dry cargo containers
owned by the Registrant as of December 31, 1997, 987 twenty-foot (or 92%
thereof) and 1,046 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 81
Master Leases 906
40-Foot Dry Cargo Containers:
Term Leases 113
Master Leases 933
</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,
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 12 years, building direct personal
relationships with the local ocean carriers and locally-based representatives of
other ocean carriers.
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The Leasing Company also maintains agency relationships with over 45
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.
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.
The Registrant relies upon the financial and operational systems provided by
the Leasing Company and its affiliates, as well as the systems provided by other
independent third parties. The Registrant has received assurances from the
Leasing Company and independent third parties, indicating that plans have been
developed and implemented to address issues related to the impact year 2000 will
have on these systems. The financial impact of making these required system
changes is not expected to be material to the Registrant's financial position,
results of operations or cash flows.
(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 $48,000 (0.3% 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, 1997, 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.
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(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.
The Leasing Company, on behalf of the Registrant, competes with various
container leasing companies in the markets in which it conducts business,
including Transamerica Leasing, GE-Seaco, Florens Container Corp., Textainer
Group, Triton Container International, Interpool Inc., Xtra Group, Container
Applications Inc. and others. During 1996 and 1997, two of the container leasing
industry's largest mergers transpired. The acquisition of Trans Ocean Ltd by
Transamerica Leasing in 1996, and the 1997 merger between the fleets of Genstar
Container Corp. and Sea Containers to form GE-Seaco, resulted in the creation of
the two largest leasing organizations in the container leasing industry. It is
estimated that, at the end of 1997, these two organizations controlled
approximately 45% of the worldwide leased container fleet. These and other
competitors of the Leasing Company may have greater financial resources and may
be capable of offering lower per-diem rates. Since 1996, the container leasing
industry has also experienced the formation of new leasing companies, which have
been able to compete at lower per-diem rates as a result of the decline in
container prices and cost of capital. 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 19 employees, consisting of 4 officers, 4 other managers and 11 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 1997, 1996 and 1995. 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, 1997, the Registrant owned 1,076 twenty-foot and 1,216
forty-foot marine dry cargo containers suitable for transporting cargo by rail,
sea or highway. The Registrant's containers were originally acquired from four
container manufacturers located in Japan and Korea. The average age and
manufacturers' invoice cost of the containers in the Registrant's fleet as of
December 31, 1997 were 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 $1,880
40-Foot Dry Cargo Containers 10-15 years 12 years $2,695
</TABLE>
9
<PAGE> 10
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 1997, utilization of the Registrant's containers
averaged 84%.
During 1997, the Registrant disposed of 699 twenty-foot and 491 forty-foot
marine dry cargo containers at an average book gain of $461 per container.
Item 3. Legal Proceedings
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 CCC, the Managing
General Partner of the Partnership. In its letter of resignation to the Parent
Company, Arthur Andersen stated 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 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 Registrant.
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 Registrant.
Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, 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 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
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.
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 Parent 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 Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.
In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.
10
<PAGE> 11
The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.
The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.
The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.
The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.
Item 4. Submission of Matters to a Vote of Security Holders
Inapplicable.
11
<PAGE> 12
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, 1997
-------------- -----------------------
<S> <C>
Units of limited partnership
interests 1,188
</TABLE>
(c) Dividends
Inapplicable. For the distributions made by the Registrant to its limited
partners, see Item 6 below, "Selected Financial Data."
12
<PAGE> 13
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net lease revenue $ 716,187 $ 1,099,469 $ 1,811,397 $ 2,560,605 $ 3,253,735
Net earnings $ 1,256,041 $ 2,193,964 $ 1,855,842 $ 2,064,766 $ 2,319,944
Net earnings per unit of
limited partnership interest $ 44.87 $ 78.37 $ 66.29 $ 73.75 $ 82.87
Cash distributions per unit of
limited partnership interest $ 96.88 $ 170.31 $ 145.31 $ 113.75 $ 105.00
At year-end:
Total assets $ 2,770,277 $ 4,226,879 $ 6,794,629 $ 9,282,439 $11,466,757
Long-term obligations $ -- $ -- $ -- $ -- $ 283,547
Partners' capital $ 2,770,277 $ 4,226,879 $ 6,794,629 $ 8,996,314 $10,110,113
</TABLE>
- ----------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Result
of Operations
Liquidity and Capital Resources
At December 31, 1997, the Registrant had $846,486 in cash and cash
equivalents, a decrease of $491,932 and $640,333 from the December 31, 1996 and
1995 balances, respectively. Contributing to the decline in cash was the
Registrant's diminishing fleet size, as well as its related operating
performance.
The Registrant's allowance for doubtful accounts declined from $308,477 at
December 31, 1996 to $60,171 at December 31, 1997. This decrease was a direct
result of the Leasing Company's decision, after exhausting all other
alternatives, to write-off $230,434 of outstanding receivable balances that were
specifically reserved for in prior years and considered to be uncollectable.
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 0.3% 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 1992, 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. During 1998, the Registrant
expects to enter the final phase of its liquidation and wind up stage of
operations by disposing of its remaining fleet and focusing on the collection of
its lease receivables, a component of net lease receivables. The Registrant
anticipates that after the remaining net lease receivables and liabilities are
collected and discharged during 1998, or as soon as practicable, the Registrant
will undertake a final distribution to its partners and proceed to cancel the
Certificate of Limited Partnership, thus terminating the Partnership. The
Partnership will then be dissolved.
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. This sharing arrangement has been in place since this
threshold was reached during 1989. Distributions from operations to the general
partners in excess of 1% of distributable cash are considered to be incentive
fees and are compensation to the general partners.
13
<PAGE> 14
From inception through February 28, 1998, the Registrant has distributed
$30,733,369 in cash from operations and $9,639,405 in cash from sales proceeds
to its limited partners. This represents total distributions of $40,372,774, or
291% 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
$1,382,159, $3,193,335 and $1,738,290 for the years ended December 31, 1997,
1996 and 1995, respectively. Beginning in 1998, 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 related to its final liquidation and
subsequent dissolution.
Market conditions that existed during 1996 persisted throughout 1997. Low
container prices, favorable interest rates and the abundance of available
capital continued to discourage ocean carriers and other transport companies
from leasing containers at levels comparable to previous years. During the first
half of 1997, increasing cargo volumes and continuing equipment imbalances
within the container fleets of shipping lines and transport companies
contributed to a modest recovery in utilization rates. However, by the end of
1997, the volatility of the Hong Kong and other Asian financial markets began to
negatively impact trade, shipping and container leasing. Per-diem rental rates
continued to remain under pressure as a result of the following factors:
start-up leasing companies offering new containers and low rental rates in an
effort to break into the leasing market; established leasing companies reducing
rates to very low levels; and a continuing oversupply of containers. These
leasing market conditions may impact the Registrant's financial condition and
operating performance during 1998. Additionally, see the discussion regarding
The Cronos Group under Item 7., Management Discussion and Analysis of Financial
Condition and Results of Operations hereof.
Results of Operations
1997 - 1996
During 1997, the container leasing industry continued to experience a decline
in the demand for its containers, as conditions existing since 1996 continued to
adversely impact world trade, shipping and container leasing. These conditions
include, but are not limited to, declining container prices, favorable interest
rates and an abundance of capital which resulted in ocean carriers and transport
companies purchasing a larger share of containers for their own account. The
addition of new, larger container ships also contributed to the growth in
container ship capacity. As capacity exceeded the growth rate of world
containerized trade, ocean carriers attempted to reduce operating costs, further
reducing the demand for leased containers.
As the leasing industry's equipment remained in surplus, ocean carriers and
transport companies continued to be 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. Net lease revenue is
directly related to the size, utilization and per-diem rental rates of the
Registrant's fleet. Accordingly, net lease revenue declined by approximately 35%
when compared to 1996. The Registrant expects net lease revenue to decline in
subsequent periods as it continues to dispose of its remaining fleet.
Despite the aforementioned market conditions, the Registrant's utilization
rates increased from an average of 83% during 1996 to an average of 84% during
1997, a direct result of the Registrant's policy to dispose of its off-hire
containers. During 1997, the Registrant's average fleet size (as measured in
twenty-foot equivalent units ("TEU")) was 4,386 TEU as compared to 6,827 TEU in
1996. These declines, combined with an 11% reduction in average per-diem rental
rates, contributed to a 46% decline in gross rental revenue (a component of net
lease revenue).
14
<PAGE> 15
At December 31, 1997, 21% 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 81 113
Master lease 906 933
----- -----
Subtotal 987 1,046
Containers off lease 89 170
----- -----
Total container fleet 1,076 1,216
===== =====
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
Units % Units %
----- --- ----- ---
<S> <C> <C> <C> <C>
Total purchases 7,097 100% 3,647 100%
Less disposals 6,021 85% 2,431 67%
----- --- ----- ---
Remaining fleet at December 31, 1997 1,076 15% 1,216 33%
===== === ===== ===
</TABLE>
Rental equipment operating expenses, when measured as a percentage of rental
revenue, were approximately 16% during 1997 as compared to 22% during 1996. This
decrease was due to a decline in the provision for doubtful accounts. A
reduction in costs associated with utilization levels, including storage,
handling and repositioning, as well as a reduction in repair and maintenance,
also contributed to the decline in rental equipment operating expenses, as a
percentage of gross lease revenue.
Other general and administrative expenses increased $15,062, or approximately
38% during 1997. Contributing to this change was an increase of approximately
$4,596 associated with the cost of the Registrant's annual audit, as well as an
increase of approximately $12,000 associated with the cost of preparing and
processing the Registrant's regulatory filings.
The Registrant's base management fee, a fixed fee based on the size of the
Registrant's fleet declined by $215,447 , or approximately 38%, during 1997.
Incentive fees, performance-based fees subject to the operating results of the
fleet, declined by $359,864, or approximately 56%, during 1997.
The Registrant's fleet became fully depreciated during 1996 and accordingly,
the Registrant did not recognize depreciation expense during 1997.
The Registrant disposed of 699 twenty-foot and 491 forty-foot marine dry
cargo containers during 1997, as compared to 1,885 twenty-foot and 961
forty-foot marine dry cargo containers during 1996. As a result, approximately
44% of the Registrant's net earnings for 1997 were from gain on disposal of
equipment, as compared to 71% for 1996. 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. As the Registrant continues the disposal of
its containers in 1998, net gain on disposal may fluctuate and should contribute
significantly to the Registrant's net earnings.
1996 - 1995
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
39%, when compared to 1995.
15
<PAGE> 16
The Registrant's utilization rates decreased from an average of 87% during
1995 to an average of 83% during 1996, while the Registrant's average fleet size
(as measured in twenty-foot equivalent units ("TEU")) declined from an average
of 9,951 TEU in 1995 to 6,827 TEU in 1996. These declines, combined with a 3%
reduction in average per-diem rental rates, contributed to a 37% decline in
gross rental revenue.
At December 31, 1996, 32% 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 160 164
Master lease 1,445 1,109
----- -----
Subtotal 1,605 1,273
Containers off lease 170 434
----- ------
Total container fleet 1,775 1,707
===== =====
</TABLE>
<TABLE>
<CAPTION>
20-Foot 40-Foot
------------ ------------
Units % Units %
----- --- ----- ---
<S> <C> <C> <C> <C>
Total purchases 7,097 100% 3,647 100%
Less disposals 5,322 75% 1,940 53%
----- --- ----- ---
Remaining fleet at December 31, 1996 1,775 25% 1,707 47%
===== === ===== ===
</TABLE>
Rental equipment operating expenses, when measured as a percentage of rental
revenue, were approximately 22% during 1996 as compared to 21% during 1995. This
decrease was due to higher storage and handling costs associated with lower
equipment utilization and increased repositioning costs.
The Registrant's base management fee declined by $259,466 , or approximately
31%, during 1996. Incentive fees declined $420,992, or approximately 39% when
compared to 1995. Incentive fees were greater during 1995 due to the
extinguishment of the Registrant's debt during the first quarter of the year.
The Registrant's aging and declining fleet size contributed to a 32% decline
in depreciation expense during 1996.
The Registrant disposed of 1,885 twenty-foot and 961 forty-foot marine dry
cargo containers during 1996, as compared to 1,257 twenty-foot and 343
forty-foot marine dry cargo containers during 1995. As a result, approximately
71% of the Registrant's net earnings for 1996 were from gain on disposal of
equipment, as compared to 40% 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 Cronos Group
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 CCC, the General
Partner of the Partnership. In its letter of resignation to the Parent Company,
Arthur Andersen stated 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 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 Registrant.
16
<PAGE> 17
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 Registrant.
Arthur Andersen's report on the financial statements of CCC and the
Registrant, for years preceding 1996, 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 1995 fiscal year and the subsequent interim period
preceding Arthur Andersen's resignation, there have been no disagreements
between CCC or the Registrant and Arthur Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
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.
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 Parent 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 Parent
Company for the purpose of investigating the matters discussed in such report
and related matters. The Registrant does not believe that the focus of the SEC's
investigation is upon the Registrant or CCC. CCC is unable to predict the
outcome of the SEC's ongoing private investigation of the Parent Company.
In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and its
affiliates, including CCC. At December 31, 1996, approximately $73,500,000 in
principal indebtedness was outstanding under the Credit Facility. As a party to
the Credit Facility, CCC is jointly and severally liable for the repayment of
all principal and interest owed under the Credit Facility. The obligations of
CCC, and the five other subsidiaries of the Parent Company that are borrowers
under the Credit Facility, are guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit Facility,
an Amended and Restated Credit Agreement was executed in June 1997, subject to
various actions being taken by the Parent Company and its subsidiaries,
primarily relating to the provision of additional collateral. This Agreement was
further amended in July 1997 and the provisions of the Agreement and its
Amendment converted the facility to a term loan, payable in installments, with a
final maturity date of May 31, 1998. At December 31, 1997, approximately
$37,600,000 was outstanding under the Credit Facility.
The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the head
office of the Parent Company's container leasing operations. They also provided
for the loans to Stefan M. Palatin, the Chairman of the Parent Company (the
"Chairman") and its Chief Executive Officer (and a Director of CCC), of
approximately $5,990,000 and $3,700,000 (totaling approximately $9,690,000) to
be restructured as obligations of the Chairman to another subsidiary of the
Parent Company. These obligations have been collaterally assigned to the lending
banks, together with the pledge of 1,000,000 shares of the Parent Company's
Common Stock owned by the Chairman. These 1,000,000 shares represent 11% of the
issued and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997. The shares of the Parent Company are traded on NASDAQ
(CRNSF). (The Chairman, including the 1,000,000 shares pledged to the banks,
owns approximately 55% of the issued and outstanding shares of Common Stock of
the Parent Company as of December 31, 1997). Additionally, CCC granted the
lending banks a security interest in the fees to which it is entitled for the
services it renders to the container leasing partnerships of which it acts as
general partner, including its fee income payable by the Partnership.
17
<PAGE> 18
The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment of the
balance due under the Credit Facility at May 31, 1998. CCC is currently in
discussions with the management of the Parent Company to provide assurance that
the management of the container leasing partnerships managed by CCC, including
the Registrant, is not disrupted pending a refinancing or reorganization of the
indebtedness of the Parent Company and its affiliates.
The Registrant is not a borrower under the Credit Facility, and neither the
containers nor the other assets of the Registrant have been pledged as
collateral under the Credit Facility.
The Registrant is unable to determine the impact, if any, these concerns may
have on the future operating results and financial condition of the Registrant
or CCC and the Leasing Company's ability to manage the Registrant's fleet in
subsequent periods.
Year 2000
The Registrant relies upon the financial and operational systems provided by
the Leasing Company and its affiliates, as well as the systems provided by other
independent third parties to service the three primary areas of its business:
investor processing/maintenance; container leasing/asset tracking; and
accounting finance. The Registrant has received confirmation from its
third-party investor processing/maintenance vendor that their system is Year
2000 compliant. The Registrant does not expect a material increase in its vendor
servicing fee to reimburse Year 2000 costs. Container leasing/asset tracking and
accounting/finance services are provided to the Registrant by CCC and its
affiliate, Cronos Containers Limited (the "Leasing Company"), pursuant to the
respective Limited Partnership Agreement and Leasing Agent Agreement. In 1998,
CCC and the Leasing Company will initiate a program to prepare their systems and
applications for the Year 2000. Preliminary studies indicate that testing,
conversion and upgrading of system applications is expected to cost CCC and the
Leasing Company less than $500,000. Pursuant to the Limited Partnership
Agreement, CCC or the Leasing Company, may not seek reimbursement of data
processing costs associated with the Year 2000 program. The financial impact of
making these required system changes is not expected to be material to the
Registrant's financial position, results of operations or cash flows.
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 above in the 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
18
<PAGE> 19
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Marine Container Income Fund IV
(A California Limited Partnership):
We have audited the accompanying balance sheets of IEA Marine Container Income
Fund IV (A California Limited Partnership) as of December 31, 1997 and 1996, and
the related statements of operations, partners' capital, and cash flows for the
years 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 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 IV (A California Limited Partnership) as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
As further discussed in Note 12 to the financial statements, The Cronos Group,
which is the indirect corporate parent of Cronos Capital Corp., the general
partner of the Partnership, is subject to an investigation, commenced on
February 10, 1997, by the United States Securities and Exchange Commission.
Furthermore, Cronos Capital Corp. and five other subsidiaries of The Cronos
Group are borrowers under a credit facility with several banks. The credit
facility is guaranteed by The Cronos Group and the entire loan balance is due on
May 31, 1998. The lending banks have indicated that they will not renew the
credit facility, and as of the date of our report, The Cronos Group has yet to
secure a source for repayment of the balance due.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York,
February 20, 1998
19
<PAGE> 20
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Partners
IEA Marine Container Income Fund IV
(A California Limited Partnership):
We have audited the accompanying statement of operations of IEA Marine Container
Income Fund IV (A California Limited Partnership) for the year ended December
31, 1995, and the related statements of partners' capital and cash flows for the
year 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 results of operations of IEA Marine Container Income
Fund IV (A California Limited Partnership) for the year ended December 31, 1995,
and its cash flow for the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
San Francisco, California,
March 15, 1996
20
<PAGE> 21
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents, includes $846,286 in 1997
and $1,338,087 in 1996 in interest-bearing accounts (note 2) $ 846,486 $1,338,418
Net lease receivables due from Leasing Company
(notes 1 and 4) 334,362 498,339
---------- ----------
Total current assets 1,180,848 1,836,757
---------- ----------
Container rental equipment, at cost 5,298,097 7,967,073
Less accumulated depreciation 3,708,668 5,576,951
---------- ----------
Net container rental equipment 1,589,429 2,390,122
---------- ----------
$2,770,277 $4,226,879
Partners' Capital
Partners' capital:
General partners $ 1,079 $ 16,252
Limited partners (note 9) 2,769,198 4,210,627
---------- ----------
Total partners' capital 2,770,277 4,226,879
---------- ----------
$2,770,277 $4,226,879
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE> 22
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net lease revenue (notes 1 and 7) $ 716,187 $ 1,099,469 $ 1,811,397
Other operating expenses:
Depreciation and amortization (notes 1 and 3) -- 506,232 740,116
Other general and administrative expenses 54,647 39,585 45,371
----------- ----------- -----------
54,647 545,817 785,487
----------- ----------- -----------
Earnings from operations 661,540 553,652 1,025,910
Other income (expense):
Interest income 46,372 90,469 100,313
Interest expense -- -- (5,156)
Net gain on disposal of equipment 548,129 1,549,843 734,775
----------- ----------- -----------
594,501 1,640,312 829,932
----------- ----------- -----------
Net earnings $ 1,256,041 $ 2,193,964 $ 1,855,842
=========== =========== ===========
Allocation of net earnings:
General partners $ 12,560 $ 21,939 $ 18,558
Limited partners 1,243,481 2,172,025 1,837,284
----------- ----------- -----------
$ 1,256,041 $ 2,193,964 $ 1,855,842
=========== =========== ===========
Limited partners' per unit share of net earnings $ 44.87 $ 78.37 $ 66.29
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE> 23
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Limited
Partners General
(note 9) Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balances at December 31, 1994 $ 8,948,928 $ 47,386 $ 8,996,314
Net earnings 1,837,284 18,558 1,855,842
Cash distributions (4,027,365) (30,162) (4,057,527)
----------- ----------- -----------
Balances at December 31, 1995 6,758,847 35,782 6,794,629
Net earnings 2,172,025 21,939 2,193,964
Cash distributions (4,720,245) (41,469) (4,761,714)
----------- ----------- -----------
Balances at December 31, 1996 4,210,627 16,252 4,226,879
Net earnings 1,243,481 12,560 1,256,041
Cash distributions (2,684,910) (27,733) (2,712,643)
----------- ----------- -----------
Balances at December 31, 1997 $ 2,769,198 $ 1,079 $ 2,770,277
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE> 24
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,256,041 $ 2,193,964 $ 1,855,842
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 506,232 740,116
Net gain on disposal of equipment (548,129) (1,549,843) (734,775)
Decrease in net lease receivables due from
Leasing Company 130,534 269,624 322,525
Decrease in interest payable -- -- (2,578)
----------- ----------- -----------
Total adjustments (417,595) (773,987) 325,288
----------- ----------- -----------
Net cash provided by operating activities 838,446 1,419,977 2,181,130
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from disposal of equipment 1,382,265 3,193,335 1,738,290
----------- ----------- -----------
Cash flows used in financing activities:
Principal payment of long-term debt -- -- (283,270)
Distributions to partners (2,712,643) (4,761,714) (4,057,527)
----------- ----------- -----------
Net cash used in financing activities (2,712,643) (4,761,714) (4,340,797)
----------- ----------- -----------
Net decrease in cash and cash equivalents (491,932) (148,402) (421,377)
Cash and cash equivalents at beginning of year 1,338,418 1,486,820 1,908,196
----------- ----------- -----------
Cash and cash equivalents at end of year $ 846,486 $ 1,338,418 $ 1,486,819
=========== =========== ===========
Supplemental disclosures for cash flow information:
Cash paid during the year for:
Interest $ -- $ -- $ 7,734
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE> 25
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(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 Lehman Brothers, Inc.
CCC, with its affiliate Cronos Containers Limited (the "Leasing
Company"), manages the business of the Partnership.
The Partnership commenced operations on March 19, 1982, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 40,000 units of limited partnership interest at
$500 per unit, or $20,000,000. The offering terminated on December 31,
1982, at which time 27,715 limited partnership units had been
purchased.
As of December 31, 1997, 21% of the original equipment remained in the
Partnership's fleet and was comprised of 1,076 twenty-foot and 1,216
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 17th year of operations, will continue to focus its
attention during 1998 on disposing of 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 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 one 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.
See footnote 12 for further discussion regarding CCC and the Leasing
Company.
25
<PAGE> 26
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(c) Concentrations of Credit Risk
The Partnership's financial instruments that are exposed to
concentrations of credit risk consist primarily of cash, cash
equivalents and net lease receivables due from the Leasing Company. See
note 2 for further discussion regarding the credit risk associated with
cash and cash equivalents.
Net lease receivables due from the Leasing Company (see notes 1(b) and
4 for discussion regarding net lease receivables) subject the
Partnership to a significant concentration of credit risk. These net
lease receivables, representing rentals collected from ocean carriers
after deducting direct operating expenses and management fees to CCC
and the Leasing Company, are remitted by the Leasing Company to the
Partnership three to four times per month. The Partnership has
historically never incurred a loss associated with the collectability
of unremitted net lease receivables due from the Leasing Company.
However, CCC and the Partnership are unable to predict the outcome of
the events discussed in note 12 and their potential impact on the
credit risk associated with these net lease receivables.
(d) 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.
(e) 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.
Cash payments 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.
26
<PAGE> 27
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(f) 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.
Container rental equipment is considered to be impaired if the carrying
value of the asset exceeds the expected future cash flows from related
operations (undiscounted and without interest charges). If impairment
is deemed to exist, the assets are written down to fair value.
Depreciation policies are also evaluated to determine whether
subsequent events and circumstances warrant revised estimates of useful
lives. There were no reductions to the carrying value of container
rental equipment during 1997 and 1996.
Container rental equipment is depreciated over a twelve-year life on a
straight line basis to its salvage value, estimated to be 30%.
(g) Amortization
Loan origination fees were amortized over the term of the loan.
(h) 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.
(i) 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.
27
<PAGE> 28
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(j) New Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in
the financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. Reclassification of financial
statements for earlier periods for comparative purposes is required.
The Partnership is in the process of determining its preferred format.
The adoption of SFAS No. 130 will have no impact on the Partnership's
results of operations, financial position or cash flows.
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. SFAS No. 131
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 15, 1997. Financial statement
disclosures for prior years are required to be restated. The
Partnership is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on the
Partnership's financial position, results of operations or cash flows.
(k) 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. 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) Loan Origination Fees
Loan origination fees of $5,000 were incurred during 1990. Total loan fees
charged to costs and expenses for each of the years ended December 31,
1997, 1996 and 1995 were $-0-, $-0- and $278, respectively.
28
<PAGE> 29
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(4) 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 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, 1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $60,171 in 1997 and $308,477 in 1996 $567,546 $863,002
Less:
Direct operating payables and accrued expenses 111,560 168,062
Damage protection reserve (note 5) 55,167 76,359
Incentive fees 66,457 120,242
-------- --------
$334,362 $498,339
======== ========
</TABLE>
(5) 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 4). 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.
(6) Equipment Debt
On August 31, 1990, the Partnership entered into an agreement with a bank
to borrow $4,100,000 and refinance the outstanding balances of its existing
notes. The note was repaid on February 28, 1995. Interest accrued at a
fixed rate of 10.91% per annum.
(7) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses and
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, 1997, 1996 and 1995, was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Rental revenue (note 11) $1,621,911 $2,977,084 $4,745,194
Less:
Rental equipment operating expenses 263,343 659,923 1,035,647
Base management fees (note 8) 356,027 571,474 830,940
Incentive fees (note 8) 286,354 646,218 1,067,210
--------- ---------- ----------
$ 716,187 $1,099,469 $1,811,397
========== ========== ==========
</TABLE>
29
<PAGE> 30
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(8) 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>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Base management fees $356,027 $ 571,474 $ 830,940
Incentive fees 286,354 646,218 1,067,210
-------- ---------- ----------
$642,381 $1,217,692 $1,898,150
======== ========== ==========
</TABLE>
(9) Limited Partners' Capital
Cash distributions made to the limited partners during 1997, 1996 and 1995
included distributions of proceeds from equipment sales in the amount of
$1,671,573, $2,961,981 and $1,740,861, 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, 1997, 1996
and 1995 was $100 , $152, and $244, respectively. This is calculated by
dividing the limited partners' capital at the end of the year by 27,715,
the total number of limited partnership units.
(10) 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, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings per statement of operations $ 1,256,041 $ 2,193,964 $ 1,855,842
Depreciation for income tax purposes less than
depreciation for financial statement purposes -- 506,232 739,839
Gain on disposition of assets for tax purposes in excess
of gain on disposition for financial statement purposes 800,693 1,664,055 998,284
Bad debt expense for tax purposes (in excess of) less than
bad debt expense for financial statement purposes (248,306) 5,835 72,235
----------- ----------- -----------
Net earnings for federal tax purposes $ 1,808,428 $ 4,370,086 $ 3,666,200
=========== =========== ===========
</TABLE>
At December 31, 1997, the tax basis of total partners' capital was
$2,931,411.
30
<PAGE> 31
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(11) Major Lessees
No single lessee contributed more than 10% of the rental revenue earned
during 1997, 1996 and 1995. 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.
(12) The Cronos Group
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 "Parent Company") on
February 3, 1997.
The Parent Company is the indirect corporate parent of CCC, the General
Partner of the Partnership. In its letter of resignation to The Parent
Company, Arthur Andersen stated 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 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.
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.
Arthur Andersen's report on the financial statements of CCC and the
Partnership, for years preceding 1996, 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 1995 fiscal year 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 Parent 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 Parent 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
ongoing private investigation of the Parent Company.
31
<PAGE> 32
IEA MARINE CONTAINER INCOME FUND IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(12) The Cronos Group - (Continued)
In 1993, the Parent Company negotiated a credit facility (hereinafter, the
"Credit Facility") with several banks for the use of the Parent Company and
its affiliates, including CCC. At December 31, 1996, approximately
$73,500,000 in principal indebtedness was outstanding under the Credit
Facility. As a party to the Credit Facility, CCC is jointly and severally
liable for the repayment of all principal and interest owed under the
Credit Facility. The obligations of CCC, and the five other subsidiaries of
the Parent Company that are borrowers under the Credit Facility, are
guaranteed by the Parent Company.
Following negotiations in 1997 with the banks providing the Credit
Facility, an Amended and Restated Credit Agreement was executed in June
1997, subject to various actions being taken by the Parent Company and its
subsidiaries, primarily relating to the provision of additional collateral.
This Agreement was further amended in July 1997 and the provisions of the
Agreement and its Amendment converted the facility to a term loan, payable
in installments, with a final maturity date of May 31, 1998. At December
31, 1997, approximately $37,600,000 was outstanding under the Credit
Facility.
The terms of the Agreement and its Amendment also provide for additional
security over shares in the subsidiary of the Parent Company that owns the
head office of the Parent Company's container leasing operations. They also
provided for the loans to Stefan M. Palatin, the Chairman of the Parent
Company (the "Chairman") and its Chief Executive Officer (and a Director of
CCC), of approximately $5,990,000 and $3,700,000 (totaling approximately
$9,690,000) to be restructured as obligations of the Chairman to another
subsidiary of the Parent Company. These obligations have been collaterally
assigned to the lending banks, together with the pledge of 1,000,000 shares
of the Parent Company's Common Stock owned by the Chairman. These 1,000,000
shares represent 11% of the issued and outstanding shares of Common Stock
of the Parent Company as of December 31, 1997. The shares of the Parent
Company are traded on NASDAQ (CRNSF). (The Chairman, including the
1,000,000 shares pledged to the banks, owns approximately 55% of the issued
and outstanding shares of Common Stock of the Parent Company as of
December 31, 1997.) Additionally, CCC granted the lending banks a security
interest in the fees to which it is entitled for the services it renders to
the container leasing partnerships of which it acts as general partner,
including its fee income payable by the Partnership.
The lending banks have indicated that they will not renew the Credit
Facility, and the Parent Company has yet to secure a source for repayment
of the balance due under the Credit Facility at May 31, 1998. CCC is
currently in discussions with the management of the Parent Company to
provide assurance that the management of the container leasing partnerships
managed by CCC, including the Partnership, is not disrupted pending a
refinancing or reorganization of the indebtedness of the Parent Company and
its affiliates.
The Partnership is not a borrower under the Credit Facility, and neither
the containers nor the other assets of the Partnership have been pledged as
collateral under the Credit Facility.
The Partnership is unable to determine the impact, if any, these concerns
may have on the future operating results and financial condition of the
Partnership or CCC and the Leasing Company's ability to manage the
Partnership's fleet in subsequent periods.
32
<PAGE> 33
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.
33
<PAGE> 34
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 general partner. The officers and directors of CCC at March 18, 1998, are as
follows:
<TABLE>
<CAPTION>
Name Office
----------------- ------------------------------------------------
<S> <C>
Dennis J. Tietz President, Chief Executive Officer, and Director
Elinor Wexler Vice President/Administration and Secretary,
and Director
John P. McDonald Vice President/Sales, and Director
Stefan M. Palatin Director
Peter J. Younger Director
</TABLE>
DENNIS J. TIETZ Mr. Tietz, 45, 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.
ELINOR A. WEXLER Ms. Wexler, 49, 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 P. MCDONALD Mr. McDonald, 36, 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.
STEFAN M. PALATIN Mr. Palatin, 44, 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.
34
<PAGE> 35
PETER J. YOUNGER Mr. Younger, 41, joined the Board of Directors of CCC in
June 1997. See key management personnel of the Leasing Company for further
information.
JOHN KALLAS Mr. Kallas, 35, was elected Vice President/Treasurer and Chief
Financial Officer of CCC in December 1993 and was directly responsible for CCC's
accounting operations and reporting activities. Mr. Kallas resigned from Cronos
Capital Corp. on March 18, 1998.
The key management personnel of the Leasing Company at March 18, 1998, were
as follows:
<TABLE>
<CAPTION>
Name Title
---------------- ---------------------------------------------
<S> <C>
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
</TABLE>
STEVE BROCATO Mr. Brocato, 45, was elected President of the Leasing Company's
container division in June 1997, 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, 41, was elected Chief Financial Officer of The
Cronos Group in March, 1997, 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.
JOHN M. FOY Mr. Foy, 52, 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, 48, was elected Vice President - Europe,
Middle East and Africa in June 1997. 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. 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.
35
<PAGE> 36
DAVID HEATHER Mr. Heather, 50, 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, 44, 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, 65, 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.
36
<PAGE> 37
Item 11. Executive Compensation
The Registrant pays a base management fee to the managing 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, 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 Lehman Brothers, Inc., the associate general partner of the
Registrant, for the fiscal year 1997.
<TABLE>
<CAPTION>
Cash Fees and
Name Description Distributions
---- ----------- -------------
<S> <C> <C>
1) CCC Base management fees - equal to $0.25 per $356,026
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 $ 10,848
any quarter prior to receipt of the incentive
management fee pursuant to Section 4.6 of
the Limited Partnership Agreement
3) CCC Interest in Fund - 1% of sales proceeds for $ 15,197
any quarter pursuant to Section 4.5 of
the Limited Partnership Agreement
Lehman Brothers, Inc. $ 1,688
4) CCC Incentive management fee - 50% of the $340,139
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
</TABLE>
37
<PAGE> 38
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>
Laurence P. Sargent 22.0 .079%
Dennis J. Tietz 40.0 .144%
Elinor Wexler 5.0 .018%
John P. McDonald 46.0 .166%
Cronos Capital Corp. 160.0 .577%
----- -----
Officers, Directors and CCC as a Group 273.0 .984%
===== =====
</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 1997 were limited to those fees paid or amounts committed to be paid (on
an annual basis) to CCC, the managing general partner, and Lehman Brothers,
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.
38
<PAGE> 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)1. Financial Statements
The following financial statements of the Registrant are included in Part II,
Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Public Accountants............................ 19, 20
Balance Sheets - December 31, 1997 and 1996.......................... 21
Statements of operations - for the years ended
December 31, 1997, 1996 and 1995.................................. 22
Statements of partners' capital - for the years ended
December 31, 1997, 1996 and 1995.................................. 23
Statements of cash flows - for the years ended
December 31, 1997, 1996 and 1995.................................. 24
Notes to financial statements........................................ 25
</TABLE>
All other schedules are omitted as the information is not required or the
information is included in the financial statements or notes thereto.
39
<PAGE> 40
(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 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
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.
- -------------
* 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)
40
<PAGE> 41
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 IV
(A California Limited Partnership)
By Cronos Capital Corp.
The Managing General Partner
By /s/ Dennis J. Tietz
-----------------------------------
Dennis J. Tietz
President and Director of
Cronos Capital Corp. ("CCC")
Principal Executive Officer of CCC
Date: March 31, 1998
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dennis J. Tietz President and Director of
- -------------------------- Cronos Capital Corp. March 31, 1998
Dennies J. Tietz ("CCC") (Principal
Executive
Officer of CCC)
/s/ John McDonald National Sales Manager
- -------------------------- and Director of March 31, 1998
John McDonald Cronos Capital Corp.
/s/ Peter Younger Director of
- -------------------------- Cronos Capital Corp. March 31, 1998
Peter Youndger
</TABLE>
SUPPLEMENTAL INFORMATION
The Registrant's annual report will be furnished to its limited partners on
or about April 30, 1998. 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> 42
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 3.4 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 DECEMBER 31, 1997 AND THE STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 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, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 846,486
<SECURITIES> 0
<RECEIVABLES> 334,362
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,180,848
<PP&E> 5,298,097
<DEPRECIATION> 3,708,668
<TOTAL-ASSETS> 2,770,277
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,770,277
<TOTAL-LIABILITY-AND-EQUITY> 2,770,277
<SALES> 0
<TOTAL-REVENUES> 716,187
<CGS> 0
<TOTAL-COSTS> 54,647
<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> 1,256,041
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<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> 1,338,418
<SECURITIES> 0
<RECEIVABLES> 498,339
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,836,757
<PP&E> 7,967,073
<DEPRECIATION> (5,576,951)
<TOTAL-ASSETS> 4,226,879
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,226,879
<TOTAL-LIABILITY-AND-EQUITY> 4,226,879
<SALES> 0
<TOTAL-REVENUES> 1,099,469
<CGS> 0
<TOTAL-COSTS> 545,816
<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> 2,193,965
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1995 AND THE STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1995 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, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,486,819
<SECURITIES> 0
<RECEIVABLES> 747,402
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,234,221
<PP&E> 14,203,296
<DEPRECIATION> 9,642,888
<TOTAL-ASSETS> 6,794,629
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,794,629
<TOTAL-LIABILITY-AND-EQUITY> 6,794,629
<SALES> 0
<TOTAL-REVENUES> 2,646,485
<CGS> 0
<TOTAL-COSTS> 785,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,156
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,855,842
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AT MARCH 31, 1997, JUNE 30, 1997 AND SEPTEMBER 30, 1997 (UNAUDITED) AND
THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997, JUNE
30, 1997 AND SEPTEMBER 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE SO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS QUARTERLY REPORT
ON FORM 10-Q FOR THE RESPECTIVE PERIODS THEN ENDED
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 964,175 884,414 782,882
<SECURITIES> 0 0 0
<RECEIVABLES> 441,986 301,161 315,313
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 1,406,161 1,185,575 1,098,195
<PP&E> 7,360,503 6,647,502 6,049,004
<DEPRECIATION> 5,152,352 4,653,251 4,345,348
<TOTAL-ASSETS> 3,614,312 3,179,826 2,801,851
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 3,614,312 3,179,826 2,801,851
<TOTAL-LIABILITY-AND-EQUITY> 3,614,312 3,179,826 2,801,851
<SALES> 0 0 0
<TOTAL-REVENUES> 218,956 311,128 476,199
<CGS> 0 0 0
<TOTAL-COSTS> 101,346 114,762 125,942
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> 358,252 0 0
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 358,252 579,929 788,539
<EPS-PRIMARY> 0 0 0
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AT MARCH 31, 1996, JUNE 30, 1996 AND SEPTEMBER 30, 1996 (UNAUDITED) AND
THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996, JUNE
30, 1996 AND SEPTEMBER 30, 1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF THIS QUARTERLY
REPORT ON FORM 10-Q FOR THE RESPECTIVE PERIODS THEN ENDED
</LEGEND>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
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<PP&E> 12,728,498 10,324,603 9,088,646
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0 0 0
0 0 0
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<OTHER-SE> 6,279,035 6,084,624 5,191,932
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<SALES> 0 0 0
<TOTAL-REVENUES> 603,025 586,968 847,385
<CGS> 0 0 0
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<CHANGES> 0 0 0
<NET-INCOME> 435,980 1,105,657 1,672,475
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</TABLE>
