<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________
Commission file number 2-86324
IEA MARINE CONTAINER INCOME FUND V(A)
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2911062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
444 MARKET STREET, 15TH FLOOR, SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices) (Zip Code)
(415) 677-8990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
----- -----
<PAGE> 2
IEA MARINE CONTAINER INCOME FUND V(A)
REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (unaudited) and December 31, 1996 4
Statements of Operations for the three months ended March 31, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for the three months ended March 31, 1997 and 1996 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of March 31,
1997 and December 31, 1996, statements of operations for the three
months ended March 31, 1997, and 1996, and statements of cash flows for
the three months ended March 31, 1997, and 1996.
3
<PAGE> 4
IEA MARINE CONTAINER INCOME FUND V(A)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents, includes $145,411 at March 31, 1997
and $218,930 at December 31, 1996 in interest-bearing accounts $ 184,259 $ 219,151
Net lease receivables due from Leasing Company
(notes 1 and 2) 65,490 81,880
---------- ----------
Total current assets 249,749 301,031
---------- ----------
Container rental equipment, at cost 1,288,513 1,414,770
Less accumulated depreciation 900,423 962,385
---------- ----------
Net container rental equipment 388,090 452,385
---------- ----------
$ 637,839 $ 753,416
========== ==========
Partners' Capital
-----------------
Partners' capital:
General partners $ 185 $ 1,068
Limited partners 637,654 752,348
---------- ----------
Total partners' capital 637,839 753,416
---------- ----------
$ 637,839 $ 753,416
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
-----------------------------
<S> <C> <C>
Net lease revenue (notes 1 and 3) $44,196 $ 74,763
Other operating expenses:
Depreciation 16,915 28,633
Other general and administrative expenses 6,091 4,105
------- -------
23,006 32,738
------ ------
Earnings from operations 21,190 42,025
Other income:
Interest income 2,171 2,892
Net gain on disposal of equipment 18,851 27,024
------ ------
21,022 29,916
------ ------
Net earnings $42,212 $ 71,941
====== ======
Allocation of net earnings:
General partners $13,144 $ 16,782
Limited partners 29,068 55,159
------ ------
$42,212 $ 71,941
====== ======
Limited partners' per unit share of net earnings $ 3.98 $ 7.55
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
------------------------------
<S> <C> <C>
Net cash provided by operating activities $ 46,358 $ 73,682
Cash flows provided by investing activities:
Proceeds from disposal of equipment 76,538 72,286
Cash flows used in financing activities:
Distribution to partners (157,788) (195,355)
------- -------
Net decrease in cash and cash equivalents (34,892) (49,387)
Cash and cash equivalents at January 1 219,151 269,720
------- -------
Cash and cash equivalents at March 31 $184,259 $220,333
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Income Fund V(A) (the "Partnership") is a limited
partnership organized under the laws of the State of California on August
8, 1983 for the purpose of owning and leasing marine cargo containers. The
managing general partner is Cronos Capital Corp. ("CCC"); the associate
general partners include four individuals. CCC, with its affiliate Cronos
Containers Limited (the "Leasing Company"), manages the business of the
Partnership. The Partnership shall continue until December 31, 2005, unless
sooner terminated upon the occurrence of certain events.
The Partnership commenced operations on March 5, 1984, when the minimum
subscription proceeds of $1,000,000 were obtained. The Partnership offered
10,000 units of limited partnership interest at $500 per unit, or
$5,000,000. The offering terminated on March 31, 1984, at which time 7,302
limited partnership units had been purchased.
As of March 31, 1997, the Partnership owned and operated 330 twenty-foot,
118 forty-foot and 66 forty-foot high-cube marine dry cargo containers.
(b) Leasing Company and Leasing Agent Agreement
Pursuant to the Limited Partnership Agreement of the Partnership, all
authority to administer the business of the Partnership is vested in CCC.
CCC has entered into a Leasing Agent Agreement whereby the Leasing Company
has the responsibility to manage the leasing operations of all equipment
owned by the Partnership. Pursuant to the Agreement, the Leasing Company is
responsible for leasing, managing and re-leasing the Partnership's
containers to ocean carriers and has full discretion over which ocean
carriers and suppliers of goods and services it may deal with. The Leasing
Agent Agreement permits the Leasing Company to use the containers owned by
the Partnership, together with other containers owned or managed by the
Leasing Company and its affiliates, as part of a single fleet operated
without regard to ownership. Since the Leasing Agent Agreement meets the
definition of an operating lease in Statement of Financial Accounting
Standards (SFAS) No. 13, it is accounted for as a lease under which the
Partnership is lessor and the Leasing Company is lessee.
The Leasing Agent Agreement generally provides that the Leasing Company
will make payments to the Partnership based upon rentals collected from
ocean carriers after deducting direct operating expenses and management
fees to CCC. The Leasing Company leases containers to ocean carriers,
generally under operating leases which are either master leases or term
leases (mostly two to five years). Master leases do not specify the exact
number of containers to be leased or the term that each container will
remain on hire but allow the ocean carrier to pick up and drop off
containers at various locations; rentals are based upon the number of
containers used and the applicable per-diem rate. Accordingly, rentals
under master leases are all variable and contingent upon the number of
containers used. Most containers are leased to ocean carriers under master
leases; leasing agreements with fixed payment terms are not material to the
financial statements. Since there are no material minimum lease rentals, no
disclosure of minimum lease rentals is provided in these financial
statements.
(continued)
7
<PAGE> 8
IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. Net lease
revenue is recorded by the Partnership in each period based upon its
leasing agent agreement with the Leasing Company. Net lease revenue is
generally dependent upon operating lease rentals from operating lease
agreements between the Leasing Company and its various lessees, less direct
operating expenses and management fees due in respect of the containers
specified in each operating lease agreement.
(d) Financial Statement Presentation
These financial statements have been prepared without audit. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
procedures have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
accompanying notes in the Partnership's latest annual report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires the Partnership to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates.
The interim financial statements presented herewith reflect all adjustments
of a normal recurring nature which are, in the opinion of management,
necessary to a fair statement of the financial condition and results of
operations for the interim periods presented.
(2) Net Lease Receivables Due from Leasing Company
Net lease receivables due from the Leasing Company are determined by
deducting direct operating payables and accrued expenses, base management
fees payable, reimbursed administrative 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 March 31,
1997 and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Lease receivables, net of doubtful accounts
of $55,673 at March 31, 1997 and $118,930
at December 31, 1996 $124,939 $147,872
Less:
Direct operating payables and accrued expenses 32,441 32,709
Damage protection reserve 3,741 5,271
Base management fees 8,030 8,822
Reimbursed administrative expenses 1,323 1,658
Incentive fees 13,914 17,532
-------- --------
$ 65,490 $ 81,880
======== ========
</TABLE>
(continued)
8
<PAGE> 9
IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management and incentive fees and reimbursed administrative expenses
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 three-month periods ended March 31,
1997 and 1996, was as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
--------- ---------
1997 1996
----------- ----------
<S> <C> <C>
Rental revenue $ 74,012 $ 147,966
Less:
Rental equipment operating expenses 6,861 36,810
Base management fees 5,344 10,180
Incentive fees 13,914 17,532
Reimbursed administrative expenses 3,697 8,681
------- ---------
$ 44,196 $ 74,763
====== ========
</TABLE>
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
It is suggested that the following discussion be read in conjunction with the
Registrant's most recent annual report on Form 10-K.
1) Material changes in financial condition between March 31, 1997 and December
31, 1996.
As discussed in the Registrant's report for the year ended December 31,
1996, the Registrant entered 1997 with a view towards accelerating the
disposal of its fleet. During the first quarter of 1997, the Registrant
continued disposing of containers as part of its ongoing container
operations. Accordingly, 55 containers were disposed during the first
quarter of 1997, contributing to a decline in the Registrant's operating
results. At March 31, 1997, 31% of the original equipment remained in the
Registrant's fleet, as compared to 34% at December 31, 1996, and was
comprised of the following:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 16 8 8
Master lease 280 91 47
--- ---- --
Subtotal 296 99 55
Containers off lease 34 19 11
---- ---- --
Total container fleet 330 118 66
=== === ==
</TABLE>
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
------- ------- ---------
Units % Units % Units %
----- ------ ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Total purchases 1,230 100% 358 100% 75 100%
Less disposals 900 73% 240 67% 9 12%
------ ---- --- ---- --- ----
Remaining fleet at
March 31, 1997 330 27% 118 33% 66 88%
====== == === ==== == ====
</TABLE>
The Registrant's diminishing fleet size and its related operating
performance contributed to a 20% decline in net lease receivables at March
31, 1997, when compared to December 31, 1996. During the first quarter of
1997, distributions from operations and sales proceeds amounted to
$157,788, reflecting distributions to the general and limited partners for
the fourth quarter of 1996. This represents a decline from the $187,841
distributed during the fourth quarter of 1996, reflecting distributions for
the third quarter of 1996. The Registrant's efforts to accelerate the
disposal of the remaining fleet should produce lower operating results and,
consequently, lower distributions to its partners in subsequent quarters.
During 1996, ocean carriers and other transport companies moved away from
leasing containers outright, as declining container prices, favorable
interest rates and the abundance of available capital resulted in ocean
carriers and transport companies purchasing a larger share of equipment for
their own account, reducing the demand for leased containers. Once the
demand for leased containers began to fall, per-diem rental rates were also
adversely affected. These conditions continued to exist throughout the
first quarter of 1997. However, the Registrant's average utilization rate
at March 31, 1997 was 87%, unchanged from December 31, 1996, a direct
result of the Registrant's policy to dispose of its off-hire containers.
The Leasing Company continues to implement various marketing strategies,
including but not limited to, offering incentives to shipping companies,
repositioning containers to high demand locations and focusing towards term
leases and other leasing opportunities including the leasing of containers
for local storage, in order to counter current leasing market conditions.
Although these conditions are expected to continue throughout 1997, the
Registrant's liquidity and capital resources will be primarily impacted by
its decision to accelerate the disposal of its remaining fleet.
10
<PAGE> 11
2) Material changes in the results of operations between the three-month
period ended March 31, 1997 and the three-month period ended March 31,
1996.
Net lease revenue for the first quarter of 1997 was $44,196, a decline of
41% from the first quarter of 1996. Approximately 45% of the Registrant's
net earnings for the three-month period ended March 31, 1997 were from gain
on disposal of equipment, as compared to 38% for the same three-month
period in the prior year. As the Registrant's container disposals increase
in subsequent periods, net gain on disposal should contribute significantly
to the Registrant's net earnings and may fluctuate dependent on the level
of container disposals.
Gross rental revenue (a component of net lease revenue) for the quarter was
$74,012, a decline of 50% from the same period last year. During 1997,
gross rental revenue was primarily impacted by the Registrant's declining
fleet size. However, the sluggish container leasing market conditions that
existed during 1996 and throughout the first quarter of 1997 also
contributed to lower average per-diem rental rates, which declined 10% when
compared to the same period in the prior year. The Registrant's average
fleet size and utilization rates for the three-month periods ended March
31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Average Fleet Size (measured in
twenty-foot equivalent units (TEU)) 723 1,285
Average Utilization 87% 82%
</TABLE>
The Registrant's aging and declining fleet size contributed to a 41%
decline in depreciation expense when compared to the same period in the
prior year. Rental equipment operating expenses were 9% of the Registrant's
gross lease revenue during the three-month period ended March 31, 1997, as
compared to 25% during the three-month period ended March 31, 1996.
Contributing to the decline were reductions in certain expenses such as
repair and maintenance, no longer incurred at levels comparable to prior
periods. Additionally, direct operating expenses including storage and
handling declined as a result of the Registrant's decision to dispose of
its off-hire containers. The Registrant's declining fleet size and related
operating results also contributed to a decline in base management and
incentive fees, when compared to the same period in the prior year.
As reported in the Registrant's Current Report on Form 8-K and Amendment
No. 1 to Current Report on Form 8-K, filed with the Commission on February
7, 1997 and February 26, 1997, respectively, Arthur Andersen, London,
England, resigned as auditors of The Cronos Group, a Luxembourg Corporation
headquartered in Orchard Lea, England (the "Parent Company"), on February
3, 1997.
The Parent Company is the indirect corporate parent of Cronos Capital
Corp., the Managing General Partner of the Registrant. In its letter of
resignation to the Parent Company, Arthur Andersen states that it resigned
as auditors of the Parent Company and all other entities affiliated with
the Parent Company. While its letter of resignation was not addressed to
the Managing General Partner or the Registrant, Arthur Andersen confirmed
to the Managing General Partner that its resignation as auditors of the
entities referred to in its letter of resignation included its resignation
as auditors of Cronos Capital Corp. and the Registrant.
The Registrant does not, at this time, have sufficient information to
determine the impact, if any, that the concerns expressed by Arthur
Andersen in its letter of resignation may have on the future operating
results and financial condition of the Registrant or the Leasing Company's
ability to manage the Registrant's fleet in subsequent periods. However,
the Managing General Partner of the Registrant does not believe, based upon
the information currently available to it, that Arthur Andersen's
resignation was triggered by any concern over the accounting policies and
procedures followed by the Registrant.
11
<PAGE> 12
Arthur Andersen's report on the financial statements of Cronos Capital
Corp. and the Registrant, for either of the past two years, has not
contained an adverse opinion or a disclaimer of opinion, nor was any such
report qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding Arthur Andersen's resignation, there have been no
disagreements between Cronos Capital Corp. or the Registrant and Arthur
Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure.
Due to the nature and timing of Arthur Andersen's resignation, the Parent
Company and Managing General Partner were unable to name a successor
auditor on behalf of the Registrant until it retained Moore Stephens, P.C.
("Moore Stephens") on April 10, 1997, as reported in the Registrant's
Current Report on Form 8-K, filed April 14, 1997.
Cautionary Statement
This Quarterly Report on Form 10-Q contains statements relating to future
results of the Registrant, including certain projections and business
trends, that are "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of certain risks and
uncertainties, including but not limited to changes in: economic
conditions; trade policies; demand for and market acceptance of leased
marine cargo containers; competitive utilization and per-diem rental rate
pressures; as well as other risks and uncertainties, including but not
limited to those described in the above discussion of the marine container
leasing business under Item 2., Management's Discussion and Analysis of
Financial Condition and Results of Operations; and those detailed from time
to time in the filings of Registrant with the Securities and Exchange
Commission.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Method of Filing
- ----- ------------- ----------------
<S> <C> <C>
3(a) Limited Partnership Agreement of the Registrant, amended and *
restated as of October 27, 1984
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, dated February 7, 1997 and
Amendment No. 1 to Report on Form 8-K dated 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 October 28, 1984, included as part of Registration
Statement on Form S-1 (No. 2-86324)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEA MARINE CONTAINER INCOME FUND V(A)
By Cronos Capital Corp.
The Managing General Partner
By /s/ JOHN KALLAS
--------------------------------------
John Kallas
Vice President, Treasurer
Principal Finance & Accounting Officer
Date: June 16, 1997
14
<PAGE> 15
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 October 27, 1984
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 October 28, 1984, included as part of Registration
Statement on Form S-1 (No. 2-86324)
** Incorporated by reference to Exhibit 3.4 to the Registration Statement on
Form S-1 (No. 2-86324)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD MARCH 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 184,259
<SECURITIES> 0
<RECEIVABLES> 65,490
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 249,749
<PP&E> 1,288,513
<DEPRECIATION> 900,423
<TOTAL-ASSETS> 637,839
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 637,839
<TOTAL-LIABILITY-AND-EQUITY> 637,839
<SALES> 0
<TOTAL-REVENUES> 44,196
<CGS> 0
<TOTAL-COSTS> 23,006
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,212
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,212
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
