<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 0-13432
IEA MARINE CONTAINER INCOME FUND V(B)
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2911066
(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 .
--- ---
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IEA MARINE CONTAINER INCOME FUND V(B)
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 Operations 10
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(B)
BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents, includes $367,871 at March 31, 1997
and $492,800 at December 31, 1996 in interest-bearing accounts $ 402,601 $ 493,149
Net lease receivables due from Leasing Company
(notes 1 and 2) 173,817 202,959
---------- ----------
Total current assets 576,418 696,108
---------- ----------
Container rental equipment, at cost 2,772,703 3,051,757
Less accumulated depreciation 1,923,401 2,078,170
---------- ----------
Net container rental equipment 849,302 973,587
---------- ----------
$1,425,720 $1,669,695
========== ==========
Partners' Capital
Partners' capital:
General partners $ 495 $ 2,207
Limited partners 1,425,225 1,667,488
---------- ----------
Total partners' capital 1,425,720 1,669,695
---------- ----------
$1,425,720 $1,669,695
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
IEA MARINE CONTAINER INCOME FUND V(B)
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) $ 92,676 $163,397
Other operating expenses:
Depreciation 36,811 64,567
Other general and administrative expenses 8,597 6,870
-------- --------
45,408 71,437
-------- --------
Earnings from operations 47,268 91,960
Other income:
Interest income 5,329 6,319
Net gain on disposal of equipment 50,160 59,615
-------- --------
55,489 65,934
-------- --------
Net earnings $102,757 $157,894
======== ========
Allocation of net earnings:
General partners $ 29,108 $ 31,042
Limited partners 73,649 126,852
-------- --------
$102,757 $157,894
======== ========
Limited partners' per unit share of net earnings $ 4.30 $ 7.40
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
IEA MARINE CONTAINER INCOME FUND V(B)
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 $ 96,995 $ 176,826
Cash flows provided by investing activities:
Proceeds from disposal of equipment 159,190 142,977
Cash flows used in financing activities:
Distribution to partners (346,733) (358,487)
--------- ---------
Net decrease in cash and cash equivalents (90,548) (38,684)
Cash and cash equivalents at January 1 493,149 525,530
--------- ---------
Cash and cash equivalents at March 31 $ 402,601 $ 486,846
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
IEA MARINE CONTAINER INCOME FUND V(B)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
IEA Marine Container Income Fund V(B) (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 May 22, 1984, when the
minimum subscription proceeds of $1,000,000 were obtained. The
Partnership offered 20,000 units of limited partnership interest
at $500 per unit, or $10,000,000. The offering terminated on
October 5, 1984, at which time 17,134 limited partnership units
had been purchased.
As of March 31, 1997, the Partnership owned and operated 754
twenty-foot, 188 forty-foot and 134 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(B)
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 $100,798 at March 31, 1997 and $102,500
at December 31, 1996 $285,362 $329,620
Less:
Direct operating payables and accrued expenses 52,988 55,994
Damage protection reserve 13,926 15,045
Base management fees 12,469 13,743
Reimbursed administrative expenses 2,778 3,353
Incentive fees 29,384 38,526
-------- --------
$173,817 $202,959
======== ========
</TABLE>
(Continued)
8
<PAGE> 9
IEA MARINE CONTAINER INCOME FUND V(B)
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 $159,002 $312,202
Less:
Rental equipment operating expenses 18,152 72,474
Base management fees 11,217 21,506
Incentive fees 29,383 36,569
Reimbursed administrative expenses 7,574 18,256
-------- --------
$ 92,676 $163,397
======== ========
</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, 116 containers were disposed during the first
quarter of 1997, contributing to a decline in the Registrant's operating
results. At March 31, 1997, 30% of the original equipment remained in
the Registrant's fleet, as compared to 33% 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 44 16 19
Master lease 629 144 95
--- --- ---
Subtotal 673 160 114
Containers off lease 81 28 20
--- --- ---
Total container fleet 754 188 134
=== === ===
</TABLE>
<TABLE>
<CAPTION>
40-Foot
20-Foot 40-Foot High-Cube
-------------- ------------- -------------
Units % Units % Units %
----- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Total purchases 2,761 100% 719 100% 150 100%
Less disposals 2,007 73% 531 74% 16 11%
----- --- --- --- --- ---
Remaining fleet at March 31, 1997 754 27% 188 26% 134 89%
===== === === === === ===
</TABLE>
The Registrant's diminishing fleet size and its related operating
performance contributed to a 14% 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 $346,733, reflecting distributions to the general and
limited partners for the fourth quarter of 1996. This represents a
decline from the $399,625 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, resulting in a
decline in the Registrant's average utilization rate from 90% at
December 31, 1996 to 89% at March 31, 1997. Despite the aforementioned
conditions, the Registrant's utilization rates have been favorable, 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 $92,676, a decline
of 43% from the first quarter of 1996. Approximately 49% 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 $157,002, a decline of 49% 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 8% 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)) 1,479 2,652
Average Utilization 89% 82%
</TABLE>
The Registrant's aging and declining fleet size contributed to a 43%
decline in depreciation expense when compared to the same period in the
prior year. Rental equipment operating expenses were 11% of the
Registrant's gross lease revenue during the three-month period ended
March 31, 1997, as compared to 23% 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
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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, 1983 *
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, 1983, 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
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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(B)
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT INDEX
<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, 1983 *
3(b) Certificate of Limited Partnership of the Registrant **
27 Financial Data Schedule Filed with this document
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated October 28, 1983, 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>
