<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 JUNE 30, 1998
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 JUNE 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1998 (unaudited) and December 31, 1997 4
Statements of Operations for the three and six months ended June 30, 1998 and 1997 (unaudited) 5
Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 3. Defaults Upon Senior Securities 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of June 30,
1998 and December 31, 1997, statements of operations for the three and
six months ended June 30, 1998 and 1997, and statements of cash flows
for the six months ended June 30, 1998 and 1997.
3
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IEA MARINE CONTAINER INCOME FUND V(A)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, includes $90,158 at June 30, 1998 and
$145,789 at December 31, 1997 in interest-bearing accounts $ 90,258 $ 145,989
Net lease receivables due from Leasing Company
(notes 1 and 2) 16,590 27,890
------------- -------------
Total current assets 106,848 173,879
------------- -------------
Container rental equipment, at cost 824,940 954,360
Less accumulated depreciation 577,458 668,052
------------- -------------
Net container rental equipment 247,482 286,308
------------- -------------
$ 354,330 $ 460,187
============= =============
Partners' Capital
Partners' capital:
General partners $ 160 $ 709
Limited partners 354,170 459,478
------------- -------------
Total partners' capital 354,330 460,187
------------- -------------
$ 354,330 $ 460,187
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net lease revenue (notes 1 and 3) $ 29,488 $ 26,124 $ 58,792 $ 70,320
Other operating expenses:
Depreciation -- -- -- 16,915
Other general and administrative expenses 14,723 6,716 23,003 12,807
------------- ------------- ------------- -------------
14,723 6,716 23,003 29,722
------------- ------------- ------------- -------------
Earnings from operations 14,765 19,408 35,789 40,598
Other income:
Interest income 838 1,679 2,045 3,850
Net gain on disposal of equipment 11,418 18,764 16,601 37,615
------------- ------------- ------------- -------------
12,256 20,443 18,646 41,465
------------- ------------- ------------- -------------
Net earnings $ 27,021 $ 39,851 $ 54,435 $ 82,063
============= ============= ============= =============
Allocation of net earnings:
General partners $ 5,897 $ 11,308 $ 13,700 $ 24,452
Limited partners 21,124 28,543 40,735 57,611
------------- ------------- ------------- -------------
$ 27,021 $ 39,851 $ 54,435 $ 82,063
============= ============= ============= =============
Limited partners' per unit share of net earnings $ 2.89 $ 3.91 $ 5.58 $ 7.89
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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IEA MARINE CONTAINER INCOME FUND V(A)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------------
June 30, June 30,
1998 1997
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 25,652 $ 90,377
Cash flows provided by investing activities:
Proceeds from disposal of equipment 78,909 129,776
Cash flows used in financing activities:
Distribution to partners (160,292) (283,016)
------------- -------------
Net decrease in cash and cash equivalents (55,731) (62,863)
Cash and cash equivalents at January 1 145,989 219,151
------------- -------------
Cash and cash equivalents at June 30 $ 90,258 $ 156,288
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
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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 June 30,
1984, at which time 7,302 limited partnership units had been
purchased.
As of June 30, 1998, 19% of the original equipment remained in the
Partnership's fleet and was comprised of 198 twenty-foot, 58
forty-foot and 57 forty-foot high-cube marine dry cargo containers.
Commencing in 1994, 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, in its 15th year of operations, will
continue to focus its attention during the remainder of 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.
(Continued)
7
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IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(b) Leasing Company and Leasing Agent Agreement - (Continued)
The Leasing Agent Agreement generally provides that the Leasing
Company will make payments to the Partnership based upon rentals
collected from ocean carriers after deducting direct operating
expenses and management fees to CCC. The Leasing Company leases
containers to ocean carriers, generally under operating leases which
are either master leases or term leases (mostly two to five years).
Master leases do not specify the exact number of containers to be
leased or the term that each container will remain on hire but allow
the ocean carrier to pick up and drop off containers at various
locations; rentals are based upon the number of containers used and
the applicable per-diem rate. Accordingly, rentals under master leases
are all variable and contingent upon the number of containers used.
Most containers are leased to ocean carriers under master leases;
leasing agreements with fixed payment terms are not material to the
financial statements. Since there are no material minimum lease
rentals, no disclosure of minimum lease rentals is provided in these
financial statements.
(c) Basis of Accounting
The Partnership utilizes the accrual method of accounting. 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.
(Continued)
8
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IEA MARINE CONTAINER INCOME FUND V(A)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(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 June 30, 1998 and December 31, 1997 were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
<S> <C> <C>
Lease receivables, net of doubtful accounts of $2,449
at June 30, 1998 and $6,346 at December 31, 1997 $ 63,717 $ 73,685
Less:
Direct operating payables and accrued expenses 36,333 25,137
Damage protection reserve 479 4,590
Base management fees 3,213 4,551
Reimbursed administrative expenses 702 942
Incentive fees 6,400 10,575
------------- -------------
$ 16,590 $ 27,890
============= =============
</TABLE>
(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 and six-month periods ended
June 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- -------------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Rental revenue $ 41,703 $ 67,507 $ 89,028 $ 141,519
Less:
Rental equipment operating expenses 939 23,318 5,298 30,179
Base management fees 2,885 3,756 6,161 9,100
Reimbursed administrative expenses 1,991 3,178 5,142 6,875
Incentive fees 6,400 11,131 13,635 25,045
------------- ------------- ------------- -------------
$ 29,488 $ 26,124 $ 58,792 $ 70,320
============= ============= ============= =============
</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 June 30, 1998 and December
31, 1997.
December 31, 1997 marked the completion of the Registrant's 14th year of
operations. As discussed in the Registrant's report for the year ended
December 31, 1997, the Registrant entered 1998 with a view towards
accelerating the disposal of its fleet. During the first six months of
1998, the Registrant disposed of 57 containers as part of its ongoing
container operations, contributing to a decline in the Registrant's
operating results. At June 30, 1998, 19% of the original equipment
remained in the Registrant's fleet, as compared to 22% at December 31,
1997. Due to the declining cash flows from operations and sales proceeds
from a rapidly diminishing fleet, the managing general partner has
determined that it is in the best interest of the limited partners to
dispose of the remaining equipment in the fleet and dissolve the
Partnership before such time that fixed operating costs exceed operating
revenues. It is, therefore, the intent of the managing general partner to
liquidate the remaining containers and wind up the Registrant's operations
as soon as it is feasible. The managing general is currently in the final
stages of negotiations with an unaffiliated qualified buyer for the
purchase of the remaining containers in the Registrant's fleet. When all
of the equipment has been disposed and the Registrant's debt receivables
and liabilities have been collected and discharged, the Partnership will
then be dissolved. The managing general partner will then undertake a
final distribution of the Registrant's assets to the limited partners and
proceed to cancel the Certificate of Limited Partnership, thus terminating
the Partnership.
At June 30, 1998, the Registrant's fleet was comprised of the following:
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
--------- --------- ---------
<S> <C> <C> <C>
Containers on lease:
Term leases 18 3 8
Master leases 166 45 35
--------- --------- ---------
Subtotal 184 48 43
Containers off lease 14 10 14
--------- --------- ---------
Total container fleet 198 58 57
========= ========= =========
</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 1,032 84% 300 84% 18 24%
------------- ------------- ------------- ------------- ------------- -------------
Remaining fleet at June 30, 1998 198 16% 58 16% 57 76%
============= ============= ============= ============= ============= =============
</TABLE>
10
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The Registrant's diminishing fleet size and its related operating
performance contributed to a 41% decline in net lease receivables at June
30, 1998, when compared to December 31, 1997. During the second quarter of
1998, distributions from operations and sales proceeds amounted to
$65,118, reflecting distributions to the general and limited partners for
the first quarter of 1998. This represents a decline from the $95,174
distributed during the first quarter of 1998, reflecting distributions for
the fourth quarter of 1997. The Registrant's efforts to dispose of the
remaining fleet should produce lower operating results and, consequently,
lower distributions to its partners in subsequent quarters.
Imbalances and reductions in trade volumes, fueled by the economic crisis
in Asia, continue to affect the container leasing market and Partnership
operations. Containerships leaving Asia are operating at full capacity.
Yet, on the return eastbound trip they are going back to Asia with only a
fraction of their holds utilized. This results in a shortage of containers
available for exporting cargo from Asia and a surplus of containers in
locations of low demand. As a consequence of this imbalance, container
leasing companies are repositioning empty containers from low-demand
locations back to Asian ports in order to keep equipment at the source of
cargo and, at the same time, reduce the effects of additional depot
charges for idle equipment and lost revenue. While there is a cost
incurred when repositioning an empty container, revenue is lost while it
is in transit. In spite of these market pressures, strong trade with other
parts of the world is compensating for the imbalances with Asia. There is
renewed demand for leased containers in locations such as Mexico, Canada,
China, and areas of Europe where trade volumes of containerized goods are
prospering. In light of the current market conditions, the Registrant's
focus remains centered on strategic planning in order to reduce equipment
imbalances and on improving collections to maximize returns.
2) Material changes in the results of operations between the three and
six-month periods ended June 30, 1998 and the three and six-month periods
ended June 30, 1997.
Net lease revenue for the three and six-month periods ended June 30, 1998
was $29,488 and $58,792, respectively, an increase of 13% from the same
three-month period in the prior year and a decline of 16% from the same
six-month period in the prior year. Approximately 42% and 30%,
respectively, of the Registrant's net earnings for the three and six-month
periods ended June 30, 1998 were from gain on disposal of equipment, as
compared to 47% and 46%, respectively, for the same three and six-month
periods in the prior year. As the Registrant continues to dispose of its
containers in subsequent periods, net gain on disposal may fluctuate and
should contribute significantly to the Registrant's net earnings.
Gross rental revenue (a component of net lease revenue) for the three and
six-month periods ended June 30, 1998 was $41,703 and $89,028,
respectively, reflecting a decline of 38% and 37%, respectively, from the
same three and six-month periods in 1997. Gross rental revenue was
primarily impacted by the Registrant's diminishing fleet size and lower
utilization levels. Average per-diem rental rates decreased approximately
6% and 9%, respectively, when compared to the same three and six-month
periods in the prior year. The Registrant's average fleet size and
utilization rates for the three and six-month periods ended June 30, 1998
and June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average fleet size (measured in twenty-foot
equivalent units (TEU)) 444 649 467 698
Average Utilization 88% 89% 89% 88%
</TABLE>
11
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Rental equipment operating expenses were 2% and 6%, respectively, of the
Registrant's gross lease revenue during the three and six-month periods
ended June 30, 1998, as compared to 35% and 21%, respectively, of the
Registrant's gross lease revenue during the three and six-month periods
ended June 30, 1997. 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. The
Registrant's fleet became fully depreciated during the first quarter of
1997, contributing to the decline in depreciation expense.
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. CCC and the Leasing
Company have initiated 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
12
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PART II - OTHER INFORMATION
Item 1. 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 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 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 ("SEC") citing its inability to obtain what it
considered to be adequate responses to its inquiries primarily
regarding the payment of $1.5 million purportedly in respect of
professional fees relating to a proposed strategic alliance. This sum
was returned to the Parent Company in January 1997.
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 SEC's investigation can result in several types of civil
or administrative sanctions against the Parent Company and individuals
associated with the Parent Company, including the assessment of
monetary penalties. Actions taken by the SEC do not preclude additional
actions by any other federal, civil or criminal authorities or by other
regulatory organizations or by third parties.
The SEC's investigation is continuing, and some of the Parent Company's
present and former officers and directors and others associated with
the Parent Company have given testimony. However, no conclusion of any
alleged wrongdoing by the Parent Company or any individual has been
communicated to the Parent Company by the SEC.
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.
As reported in the Registrant's Current Report on Form 8-K, filed with
the SEC on May 21, 1998, the Parent Company reported that its Chairman
and CEO, Stefan M. Palatin, was suspended from his duties pending the
investigation of fraud charges against him by Austrian government
authorities. On June 8, 1998, the Parent Company's Board of Directors
removed Mr. Palatin as Managing Director and Chief Executive Officer.
Mr. Palatin resigned from the Board of Directors of the Parent Company
on July 6, 1998. Mr. Rudolf J. Weissenberger has been appointed to
replace Mr. Palatin as an executive director and Chief Executive
Officer. Also, on June 8, 1998, the Board approved a proposal to add
two independent directors to the Board. The Board engaged legal counsel
to provide legal advice and commence legal action, if appropriate,
against former officers or directors of the Parent Company (including
Mr. Palatin) if it is determined that they engaged in any misfeasance
or improper self-dealing.
Mr. Palatin had been a director of CCC; he resigned from his position
as director on April 23, 1998.
CCC further understands that Austrian authorities have initiated
investigations of persons in addition to Mr. Palatin, including Mr.
Weissenberger and Dr. Axel Friedberg. Dr. Friedberg has been a
non-executive director of the Parent Company since 1997. Such
investigations, which are still pending, have not resulted in any
action being taken against Messrs. Weissenberger or Friedberg, and each
has informed the Parent Company that they do not believe that there is
any basis for any action to be taken against them.
13
<PAGE> 14
Item 3. Defaults Upon Senior Securities
See Item 5. Other Information.
Item 5. Other Information
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. The terms of the Agreement and its Amendment also provided
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 the former
Chairman of $5,900,000 and $3,700,000 to be restructured as obligations
of the former Chairman to another subsidiary of the Parent Company (not
CCC), together with the pledge to this subsidiary company of 2,030,303
Common Shares beneficially owned by him in the Parent Company as
security for these loans. They further provided for the assignment of
these loans to the lending banks, together with the pledge of 1,000,000
shares and the assignment of the rights of the Parent Company in
respect of the other 1,030,303 shares. 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 Registrant. The Parent Company did not repay the Credit Facility at
the amended maturity date of May 31, 1998.
On June 30, 1998, the Parent Company entered into a third amendment
(the "Third Amendment") to the Credit Facility. The Third Amendment
became effective as of that date, subject to the satisfaction
thereafter of various conditions, including: the Parent Company must
deliver its audited financial statements for 1997 by a specified date
and; on or prior to July 30, 1998, the Parent Company must furnish
proof that any defaults under any other indebtedness have been waived
and must also furnish various legal opinions, officers' certificates
and other loan documentation. Under the Third Amendment, the remaining
principal amount of $36,800,000 will be amortized in varying monthly
amounts commencing on July 31, 1998 with $26,950,000 due on September
30 and a final maturity date of January 8, 1999. All of these
conditions will be fulfilled by August 14, 1998.
The directors of the Parent Company are pursuing alternative sources of
financing to meet the amended repayment obligations under the Third
Amendment. Failure to meet revised lending terms would constitute an
event of default with the lenders. The declaration of an event of
default would result in further defaults with other lenders under loan
agreement cross-default provisions. Should a default of the term loans
be enforced, the Parent Company and CCC may be unable to continue as
going concerns.
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.
14
<PAGE> 15
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.
CCC 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.
15
<PAGE> 16
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
On May 21, 1998, the Registrant filed a Report on Form 8-K reporting
changes on the board of directors of the Parent Company.
- ----------------
* 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)
16
<PAGE> 17
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/ Dennis J. Tietz
-----------------------------------------------------
Dennis J. Tietz
President and Director of Cronos Capital Corp. ("CCC")
Principal Executive Officer of CCC
Date: August 14, 1998
17
<PAGE> 18
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 JUNE 30, 1998 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 1998 (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 JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 90,258
<SECURITIES> 0
<RECEIVABLES> 16,590
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 106,848
<PP&E> 824,940
<DEPRECIATION> 577,458
<TOTAL-ASSETS> 354,330
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 354,330
<TOTAL-LIABILITY-AND-EQUITY> 354,330
<SALES> 0
<TOTAL-REVENUES> 58,792
<CGS> 0
<TOTAL-COSTS> 23,003
<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> 54,435
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
