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 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 2-72177
SEI II L.P.
(formerly Shearson Equipment Investors - II)
Exact name of registrant as specified in its charter
New York
State or other jurisdiction 13-3064636
of incorporation or organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor
New York, NY ATTN: Andre Anderson 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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 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 is not contained herein, and will not be contained, to the
best of the 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
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
(a) General development of business
SEI II L.P. (the "Partnership" or the "Registrant") (formerly known as Shearson
Equipment Investors - II) is a limited partnership organized April 6, 1981
under the Partnership Law of the State of New York to engage in the acquisition
of various types of equipment and other property. The Partnership acquired,
through direct forms of ownership, various types of equipment which do not
incorporate high levels of technology and are therefore not likely to be
subject to technological obsolescence.
A Registration Statement on Form S-1, Registration No. 2-72177, filed with the
Securities and Exchange Commission and relating to the public offering (the
"Offering") of the limited partnership interests in the Partnership (the
"Interests"), became effective on June 25, 1981, the date on which the
Partnership's operations commenced. The Offering was completed as of October
2, 1981. As of that date, there were 3,614 Interests outstanding, (including
22 Interests purchased by the general partner and two Interests each purchased
by the two initial limited partners) which represent aggregate capital
contributions to the Partnership of $18,059,950.
The general partner of the Partnership is SEI II Equipment Inc. (the "General
Partner") (formerly Shearson Equipment Management Corporation), a Delaware
corporation which is an affiliate of Lehman Brothers Inc. ("LB"). Under the
Partnership Agreement, the General Partner has exclusive authority to manage
the operations and affairs of the Partnership and to make all decisions
regarding the business of the Partnership; but the acquisition, sales,
financing or refinancing of any item of equipment must be approved by a
majority of the members of the investment committee, whose members are
designated by the President of the General Partner. For a discussion of the
investment committee, see Item 10. "Directors and Executive Officers of the
Registrant."
At December 31, 1982, the Partnership had completed the acquisition of its
equipment portfolio. Equipment acquired by the Partnership is either operated
by or on behalf of the Partnership under operating agreements.
Commencing January 1, 1993, the General Partner engaged a new marine equipment
operator, Midwest Marine Management Company ("Midwest Marine"), to manage the
Partnership's barge fleet. The current management agreement with Midwest
Marine expires December 31, 1996.
(b) Financial information about industry segments
As of December 31, 1995, the Partnership's business consisted of one segment,
the investment in a fleet of 25 covered hopper river barges. With the
exception of such services as are provided by the Partnership to users of its
equipment, the Partnership does not engage in sales of goods or services.
(c) Narrative description of business
See Paragraphs (a) and (b) above and Item 7 "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Employees
The Partnership has no employees.
Item 2. Properties
During the period ended December 31, 1982, the Partnership acquired various
items of equipment which together constitute the Partnership's entire equipment
portfolio. No equipment purchases were made subsequent to December 31, 1982,
nor does the Partnership expect that it will acquire any additional equipment.
All of the equipment has been pledged as collateral under the credit agreement
described in Note 4 to the Partnership's financial statements. Commencing in
1987, the Partnership sold the following assets: two 2 offshore supply
vessels, the drilling rig, and 82 railcars, with the proceeds being used to
repay Partnership debt. The Partnership currently owns 25 covered river hopper
barges which are engaged in the intercoastal waterway transportation of
goods.
Item 3. Legal Proceedings
In March 1996, a purported class action, on behalf of all Limited Partners was
brought against the Partnership, Lehman Brothers Inc., Smith Barney Holdings
Inc., and a number of other limited partnerships in New York State Supreme
Court. The complaint alleges claims of common fraud and deceit, negligent
misrepresentation, breach of fiduciary duty and breach of implied covenant of
good faith and fair dealing. The defendants intend to defend the action
vigorously.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to the limited partners for a vote during the fourth
quarter of the year for which this report is filed.
PART II
Item 5. Market for the Registrant's Limited Partnership Interests and Related
Security Holder Matters
(a) Market Price Information
The only outstanding or authorized securities of the Registrant are the
Interests. There is no market for the Interests, nor is one expected to
develop. The Partnership Agreement imposes substantial restrictions on the
transfer of an Interest.
(b) Holders
The number of holders of Interests as of December 31, 1995 was 1,439.
(c) Cash Distributions per Interest
To the extent that funds are available and subject to the provisions of the
Partnership Agreement, the Partnership will make cash distributions from
operations to holders of Interests on a quarterly basis. Cash distributions
from operations are made at the sole discretion of the General Partner. The
Partnership Agreement prohibits the investment of cash available for
distributions from operations in other than temporary money market investments
or United States government securities. Cash distributions from operations are
paid 99% to the limited partners and 1% to the General Partner and are
distributed to each limited partner entitled to such distribution in the ratio
in which the number of Interests owned by such limited partner bears to the
total number of Interests issued, outstanding and held by limited partners
entitled to such distribution.
No cash distributions have been made to the partners since the third quarter of
1982.
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the
Partnership's financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," also
included herein.
Years Ended December 31,
1995 1994 1993 1992 1991
Operating Revenues $2,892,077 $1,852,384 $1,710,410 $2,268,236 $2,060,383
Income (Loss) from
operations 882,829 383,191 64,416 246,662 (28,543)
Interest and
Miscellaneous income 220,098 93,874 61,143 59,164 51,789
Other income - - - - 429,639
Interest expense (692,302) (547,495) (470,340) (489,937) (669,255)
Net Income (Loss) 410,625 (70,430) (344,781) (184,111) (216,370)
Net Income (Loss) Per
Interest 112.48 (19.29) (94.45) (50.43) (59.27)
Total Assets at
Period-End 8,539,370 7,413,095 6,919,509 6,888,038 6,626,805
Long-term Debt at
Period-End 7,839,000 7,839,000 7,839,000 7,839,000 7,839,000
Accrued interest
expense due to
affiliate 8,657,814 7,965,512 7,418,017 6,947,677 6,457,740
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
(a) Liquidity and Capital Resources
On May 30, 1986, the Partnership restructured its long-term debt. Buttonwood
Leasing Corporation (the "Purchaser"), an affiliate of the General Partner,
purchased from the Partnership's lenders the Promissory Note (the "Note")
originally executed by the Partnership in favor of the lenders and which was
dated December 9, 1981. Subsequent to the Note purchase, the Purchaser entered
into an understanding with the Partnership on the following terms and
conditions. First, the principal amount of the loan would remain the same.
Second, interest would be charged on the outstanding principal amount of the
Note at a rate equal to the prime rate charged by Bank America Illinois,
formerly Continental Illinois National Bank, which was 8.75% at December 31,
1995, compared to 7.75% at December 31, 1994. No interest was paid relating to
the Note for the twelve months ended December 31, 1995, and, as a result, the
Partnership's accrued interest expense increased to $8,657,814 at December 31,
1995 , compared to $7,965,512 at December 31, 1994. As of December 31, 1995,
the maturity date of the Note was extended to January 3, 1997, with all other
terms and conditions of the Note remaining unchanged.
During 1995, the Partnership's fleet of 25 covered hopper river barges
continued to operate on the inland waterways of the United States, including
the Ohio, Illinois and Mississippi Rivers. Conditions for barge traffic
improved during 1995, as the record 1994 harvest translated into increased
barge utilization rates in 1995. Increased foreign demand for U.S. crops,
specifically corn and soybeans, also contributed to better operating conditions
in 1995. Furthermore, the recent increase in the level of northbound traffic,
which entails hauling cargo such as steel and fertilizer, has had a positive
impact on barge utilization. Although the General Partner believes that the
recent improvement in barge traffic has had a positive impact on the value of
the Partnership's barge fleet, it is unlikely that the value of the barges will
increase to an amount which is equal to or in excess of the Partnership's
existing indebtedness.
The Partnership's cash and cash equivalents balance totalled $4,238,441 at
December 31, 1995, which represents an increase over the balance of $2,931,466
at December 31, 1994. The increase is due to an increase in net cash flow from
operating activities reflecting an increase in barge utilization. At December
31, 1995, the amount due from the Partnership's equipment manager was $673,652,
compared to $522,083 at December 31, 1994. The increase is due to the timing
of the distributions of net revenues from the equipment manager.
(b) Results of Operations
1995 versus 1994
For the year ended December 31, 1995, the Partnership generated net income of
$410,625, compared to a net loss of $70,430 for the year ended December 31,
1994. The difference is primarily attributable to increased operating
revenues.
Operating revenues for the year ended December 31, 1995 totalled $2,892,077,
compared to $1,852,384 for the year ended December 31, 1994. The increase is
primarily attributable to an increase in barge utilization. The record harvest
of soybeans in 1994 positively impacted revenue during 1995 as there was a
greater quantity of goods to transport. Strong U.S. exports in 1995, also
contributed to increased barge utilization. Furthermore, revenues were lower
than usual in 1994 as a result of the 1993 floods which damaged crops and
reduced utilization.
Interest and miscellaneous income increased to $220,098 for the year ended
December 31, 1995, compared to $93,874 for the year ended December 31, 1994.
The increase is mainly due to an increase in interest income due to a higher
cash balance invested and higher interest rates.
Operating costs for the year ended December 31, 1995 were $1,454,871, compared
to $949,093 for the year ended December 31, 1994. The increase is primarily
attributable to increased towing costs as a result of greater utilization in
1995, and lower than normal towing costs for the first three quarters of 1994.
Interest expense for the year ended December 31, 1995 totalled to $692,302
compared with $547,495 for the year ended December 31, 1994. The increase is
due to an increase in the prime rate charged on the outstanding principal
amount of the Note.
1994 versus 1993
For the year ended December 31, 1994, the Partnership incurred a net loss of
$70,430, compared to a net loss of $344,781 for the year ended December 31,
1993. The difference is attributable to increased operating revenues and
decreased operating costs. Operating revenues for the year ended December 31,
1994 totalled $1,852,384, compared to $1,710,410 for the year ended December
31, 1993. The increase is primarily attributable to an increase in barge
utilization as a result of a significant crop harvest during the third and
fourth quarters of 1994.
Operating costs for the year ended December 31, 1994 were $949,093, compared to
$1,123,360 for the year ended December 31, 1993. The decrease is primarily
attributable to a decrease in towing costs and costs incurred in 1993 due to
the change in equipment managers which included repair costs of $29,389 and
barge relocation costs of $42,547. Towing costs in the first two quarters of
1993 were approximately 50% of operating revenues. Commencing with the third
quarter of 1993 and through the end of 1994, these costs averaged approximately
36% of operating revenues. The decline in towing costs is attributable to a
decrease in towing rates due to intense competition among tow operators as a
result of decreased barge traffic caused by the flooding in the Midwest in
1993. The residual effects of the flooding continued to impact barge traffic
during the first and second quarter of 1994.
Interest expense for the year ended December 31, 1994 increased to $547,495
from $470,340 at December 31, 1993 due to increases in the prime rate charged
on the outstanding principal amount of the Note.
Item 8. Financial Statements and Supplementary Data
See item 14 "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"
for a listing of the financial statements filed with this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors and its affairs are managed by its
General Partner, SEI II Equipment Inc. Decisions as to which items of
equipment should be acquired, sold, financed or refinanced by the Partnership
and whether such acquisitions should be direct or indirect, are made by an
investment committee designated by the President of the General Partner. The
investment committee has the right, power and authority to utilize the services
of affiliates of the General Partner for assistance in evaluating the
suitability of equipment for investment by the Partnership.
Certain officers and directors of the General Partner are now serving (or in
the past have served) as officers or directors of entities which act as general
partners of a number of limited partnerships which have sought protection under
the provisions of the federal Bankruptcy Code. The partnerships which have
filed bankruptcy petitions own assets which have been adversely affected by the
economic conditions in the markets in which that asset is located and,
consequently, the partnerships sought protection of the bankruptcy laws to
protect the partnerships' assets from loss through foreclosure.
The following is a brief description of the directors and executive officers of
the General Partner:
Name Office
Rocco Andriola President and Director
Regina Hertl Vice President, Chief Financial Officer and Director
Michael Marron Vice President
Rocco F. Andriola, 37, is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Regina M. Hertl, 37, is a First Vice President of Lehman Brothers in its
Diversified Asset Group and is responsible for the investment management of
commercial and residential real estate, and a venture capital portfolio. From
January 1988 through December 1988, Ms. Hertl was Vice President of the Real
Estate Accounting Group within the Controller's Department of Shearson Lehman
Brothers. From September 1986 through December 1987, she was an Assistant Vice
President responsible for real estate accounting analysis within the
Controller's Department at Shearson. From September 1981 to September 1986,
Ms. Hertl was employed by the accounting firm of Coopers & Lybrand. Ms. Hertl,
who is a Certified Public Accountant, graduated from Manhattan College in 1981
with a B.S. degree in Accounting.
Michael Marron, 32, is a Vice President of Lehman Brothers and has been a
member of the Diversified Asset Group since 1990 where he has actively managed
and restructured a diverse portfolio of syndicated limited partnerships. Prior
to joining Lehman Brothers, Mr. Marron was associated with Peat Marwick
Mitchell & Co. serving in both its audit and tax divisions from 1985 to 1989.
Mr. Marron received a B.S. degree from the State University of New York at
Albany in 1985 and is a Certified Public Accountant.
Item 11. Executive Compensation
Neither of the General Partners nor any of their directors and officers
received any compensation from the Partnership. See Item 13 below with respect
to a description of certain transactions of the General Partners and their
affiliates with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
No person (including any "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934) is known to the Partnership to be the
beneficial owner of more than five percent of the outstanding Interests as of
December 31, 1995.
(b) Security ownership of management
Under the terms of the Limited Partnership Agreement, the Partnership's affairs
are managed by the General Partner. The General Partner owns 22 interests.
The General Partner also shares in the profits, losses and distributions of the
Partnership.
(c) Changes in Control
None.
Item 13. Certain Relationships and Related Transactions
Pursuant to a Management Agreement dated June 25, 1981 between the Partnership
and the General Partner, the General Partner is entitled to receive equipment
management fees for services rendered in the management of equipment owned by
the Partnership. The amount of the equipment management fees charged is the
lesser of (i) the aggregate of amounts customarily charged by third parties for
similar services or (ii) 5% of annual gross revenues. For the year ended
December 31, 1995, equipment management fees aggregating $160,604 were expensed
by the Partnership. Of this amount, $131,683 was due or paid by the
Partnership to an independent, third-party operator, and $28,921 was earned by
the General Partner. These fees were added to uncollected fees for prior years
and, as of December 31, 1995, $671,201 remains to be paid to the General
Partner. In accordance with the Partnership Agreement, the General Partner has
deferred its rights to receive such fees until such time as the Partnersh ip is
in a position to make cash distributions to all partners.
The General Partner is also entitled to receive, for services rendered, a
Partnership management fee equal to 5% of cash distributions from operations.
Such services relate to decision-making as to the terms of acquisitions and
dispositions of equipment, selecting, retaining and supervising consultants,
engineers, lenders and others, maintaining the books and records of the
Partnership and otherwise generally managing the day-to-day operations of the
Partnership. The Partnership management fees are payable at the same time as,
but only if and when, cash distributions from operations are paid to the
limited partners. Partnership management fees are in addition to all other
fees, commissions or compensation paid or permitted to be paid to the General
Partner or its affiliates. For the year ended December 31, 1995, no
Partnership management fees were paid to the General Partner.
First Data Investor Services Group, formerly The Shareholder Services Group,
provides partnership accounting and investor relations services for the
Registrant. Prior to May 1993, these services were provided by an affiliate of
the General Partner. The Registrant's transfer agent and certain tax reporting
services are provided by Service Data Corporation, an unaffiliated company.
For additional information regarding fees paid and reimbursed to the General
Partner or its affiliates during 1995, 1994 and 1993, see Note 4 to the
Financial Statements in Item 14, "Exhibits, Financial Statement Schedules, and
Reports on Form 8-K."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial statements:
SEI II L.P.
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Public Accountants F-1
Statements of Financial Condition as of
December 31, 1995 and 1994 F-2
Statements of Partners' Deficit for the years
ended December 31, 1995, 1994 and 1993 F-2
Statements of Operations
for the years ended December 31, 1995, 1994, and 1993 F-3
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-3
Notes to Financial Statements F-4
(2) Financial Statement Schedules:
No schedules are presented because the information is not applicable or
is included in the Financial Statements or the notes thereto.
(3) Exhibits:
3.1 Agreement of Limited Partnership dated June 25, 1981 (filed as
Exhibit 3b to Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on May 7, 1981, No. 2-72177 and
incorporated herein by reference).
3.1 Certificate of Limited Partnership of the Partnership as filed
in the office of the County Clerk of New York County on April 6,
1981(filed as Exhibit 3a to Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission on May 7, 1981, No. 2-72177
and incorporated herein by reference).
10.1 Acquisition Services Agreement between the Partnership and the
General Partner dated June 25, 1981 (filed as Exhibit 12c to
Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on May 7, 1981, No. 2-72177 and incorporated herein
by reference).
10.2 Management Agreement between the Partnership and the General
Partner dated June 25, 1981 (filed as Exhibit 12d to Registration
Statement on Form S-1 as filed with the Securities and Exchange
Commission on May 7, 1981, No. 2-72177 and incorporated herein by
reference).
10.3 Agreement for Financial Advisory Services between the
Partnership and Shearson Leasing Corporation dated June 25, 1981 (filed
as Exhibit 12e to Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission on May 7, 1981, No. 2-72177 and
incorporated herein by reference).
27.0 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
for which this report is filed.
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.
SEI II L.P.
BY: SEI II EQUIPMENT INC.
General Partner
Date: March 28, 1996
BY: /s/ Rocco F. Andriola
Name: Rocco F. Andriola
Title: President and Director
Date: March 28, 1996
BY: /s/ Regina Hertl
Name: Regina Hertl
Title: Vice President, Director
and Chief Financial Officer
Date: March 28, 1996
BY: /s/ Michael T. Marron
Name: Michael T. Marron
Title: Vice President
To the Partners of
SEI II L.P.:
We have audited the accompanying statements of financial condition of SEI II
L.P. (a New York limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' deficit and cash flows for each of
the three years in the period 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 financial position of SEI II L.P. as of December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 6, 1996
Statements of Financial Condition
December 31, 1995 and 1994
Assets 1995 1994
Equipment $ 8,306,724 $ 8,306,724
Less-accumulated depreciation 4,679,447 4,347,178
Net Equipment 3,627,277 3,959,546
Cash and cash equivalents 4,238,441 2,931,466
Due from equipment manager 673,652 522,083
Total Assets $ 8,539,370 $ 7,413,095
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 30,628 $ 36,201
Accrued interest expense due
to affiliate 8,657,814 7,965,512
Deferred interest payable to affiliate 512,854 512,854
Due to General Partner 671,201 642,280
Note payable to affiliate 7,839,000 7,839,000
Total Liabilities 17,711,497 16,995,847
Partners' Deficit:
General Partner (253,911) (258,017)
Limited Partners
(3,614 units outstanding) (8,918,216) (9,324,735)
Total Partners' Deficit (9,172,127) (9,582,752)
Total Liabilities and
Partners' Deficit $ 8,539,370 $ 7,413,095
Statements of Partners' Deficit
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at January 1, 1993 $(8,913,676) $ (253,865) $(9,167,541)
Net Loss (341,333) (3,448) (344,781)
Balance at December 31, 1993 (9,255,009) (257,313) (9,512,322)
Net Loss (69,726) (704) (70,430)
Balance at December 31, 1994 (9,324,735) (258,017) (9,582,752)
Net Income 406,519 4,106 410,625
Balance at December 31, 1995 $(8,918,216) $ (253,911) $(9,172,127)
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Revenues 1995 1994 1993
Operating revenues $2,892,077 $1,852,384 $1,710,410
Operating Expenses
Operating costs 1,454,871 949,093 1,123,360
Depreciation 332,269 332,269 332,269
Professional and other expenses 44,660 48,422 49,722
Equipment management fee -
Operators 131,683 105,558 100,088
General Partner 28,921 18,524 17,104
Insurance 16,844 15,327 23,451
Total Operating Expenses 2,009,248 1,469,193 1,645,994
Income from operations 882,829 383,191 64,416
Other Income (Expense):
Interest and
miscellaneous income 220,098 93,874 61,143
Interest expense (692,302) (547,495) (470,340)
Total Other Expense (472,204) (453,621) (409,197)
Net Income (Loss) $ 410,625 $ (70,430) $ (344,781)
Net Income (Loss) Allocated:
To the General Partner $ 4,106 $ (704) $ (3,448)
To the Limited Partners 406,519 (69,726) (341,333)
$ 410,625 $ (70,430) $ (344,781)
Per limited partnership unit
(3,614 outstanding) $ 112.48 $ (19.29) $ (94.45)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from
Operating Activities: 1995 1994 1993
Net income (loss) $ 410,625 $ (70,430) $ (344,781)
Adjustments to reconcile
net income (loss) to net cash
provided by operating
activities:
Depreciation 332,269 332,269 332,269
Increase (decrease)
in cash arising
from changes
in operating assets
and liabilities:
Due from equipment manager (151,569) (162,238) (359,845)
Operating receivables, net - - 293,474
Prepaid expenses - - 8,103
Accounts payable and
accrued expenses (5,573) (2,003) (111,192)
Accrued interest expense
due to affiliate 692,302 547,495 470,340
Due to General Partner 28,921 18,524 17,104
Net cash provided by
operating activities 1,306,975 663,617 305,472
Net increase in cash
and cash equivalents 1,306,975 663,617 305,472
Cash and cash equivalents
at beginning of period 2,931,466 2,267,849 1,962,377
Cash and cash equivalents
at end of period $4,238,441 $2,931,466 $2,267,849
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization of the Partnership
The Partnership was organized under the Partnership Act of the State of New
York on April 6, 1981. The term of the Partnership will continue through
December 31, 2011, unless terminated and dissolved sooner pursuant to the
Partnership Agreement.
The general partner is SEI II Equipment Inc. (the "General Partner") formerly
Shearson Equipment Management Corp., an affiliate of Lehman Brothers Inc. On
July 31, 1993, certain of Shearson Lehman Brothers Inc.'s domestic retail
brokerage and management businesses were sold to Smith Barney, Harris Upham &
Co. Inc. Included in the purchase was the name "Shearson." Consequently, the
General Partner's name was changed to SEI II Equipment Inc. to delete any
reference to "Shearson."
The Partnership's business consists of one segment, the investment in a fleet
of 25 covered hopper river barges which are engaged in the intercoastal
waterway transportation of goods. With the exception of such services as are
provided by the Partnership to users of its equipment, the Partnership does not
engage in the sales of goods or services.
Upon formation of the Partnership, the General Partner contributed $1,000 and
purchased 22 partner units for $100,650. The initial Limited Partners
contributed $18,300 for four partner units. An additional 3,588 limited
partnership units were then sold at a price of $5,000 per unit. The offering
was completed as of October 2, 1981. As of that date, there were 3,614
interests outstanding, (including 22 interests purchased by the General Partner
and two interests each purchased by the two initial limited partners) which
represent aggregate capital contributions to the Partnership of $18,059,950.
The General Partner has entered into various agency agreements with independent
equipment managers for the operation of the Partnership's equipment. The
results of such operations are reported to the General Partner by the
independent equipment managers and have been reflected in the accompanying
financial statements.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted
accounting principles. Revenues are recognized as earned and expenses are
recorded as obligations are incurred.
Equipment Manager. On January 1, 1993, the Partnership transferred management of
its assets to a new equipment manager, Midwest Marine Management Company
("Midwest Marine"). The original equipment manager maintained individual
balance sheets for each owner. Midwest Marine operates the barge fleet and
provides for pooling of all owners' assets. Due to this pooling, the
Partnership is entitled to a proportion of the pooled net revenues; therefore,
as of December 31, 1993, the Partnership no longer records operating assets or
liabilities other than the balance due from Midwest Marine.
Equipment and Depreciation. The equipment balance at December 31, 1995 and 1994
consisted of 25 covered hopper river barges, stated at cost. Depreciation for
financial reporting purposes is computed on a straight-line basis over the
estimated useful lives of 25 years.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. The Partnership
adopted FAS 121 in the fourth quarter of 1995. Based on current circumstances,
the adoption of FAS 121 has no impact on the financial statements.
Cash Equivalents. Cash equivalents consist of short-term highly liquid
investments with maturities of three months or less from the date of purchase.
The carrying amount approximates fair value because of the short maturity of
these investments.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions's insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation.
Fair Value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Income Taxes. No provision for income taxes has been made in the accompanying
financial statements since such taxes are the responsibility of the individual
partners rather than that of the Partnership.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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.
3. Partnership Allocations
The Partnership Agreement substantially provides for the following:
Distribution of Partnership Funds. Net cash from operations shall be
distributed at the discretion of the General Partner, 99% to the Limited
Partners and 1% to the General Partner.
Cash from sales or refinancings shall be allocated and paid first to all
partners until the amount of all distributions received by them equals their
positive capital account balances. Any balance will be allocated to the
Limited Partners until the cumulative amount of distributions made to them
equals their Original Invested Capital plus a cumulative 10% per annum return
as defined. Thereafter, cash will be distributed 85% to the Limited Partners
and 15% to the General Partner. The cumulative amount of distributions to date
does not exceed the required distributions as of December 31, 1995.
Cash distributions to the partners are presently prohibited by the amended
credit agreement with the Partnership's lender (Note 4). No cash distributions
have been made by the General Partner since the third quarter of 1982.
Allocation of Income and Losses. All operating profits and losses and losses
from sales or refinancings shall be allocated 1% to the General Partner and 99%
to the Limited Partners. Profits from sales or refinancings shall be allocated
to the General Partner based on the greater of either 1% of such profits or the
amount distributable to the General Partner, as defined in the Partnership
Agreement. Any remaining profits shall be allocated to the Limited Partners.
4. Related Party Transactions
General Partner Fees. The Partnership Agreement specifies that the General
Partner will receive (a) an equipment management fee in an amount that will not
exceed 5% of the annual gross revenues of all equipment owned by the
Partnership; (b) in the event the General Partner subcontracts to third parties
for services to be rendered in the management of the equipment, any management
fee paid to a third party will reduce the fee otherwise earned by the General
Partner, but not below 1% of gross revenues. As of December 31, 1995, $671,201
in equipment management fees earned by the General Partner remains to be paid
to the General Partner. In accordance with the Partnership Agreement, the
General Partner has deferred its rights to receive such fees until such time as
the Partnership is in a position to make cash distributions to all partners.
Cash and Cash Equivalents. Cash reflected on the Partnership's balance sheet at
December 31, 1995 and 1994 was on deposit with an affiliate of the General
Partner.
Long-term Debt. On May 30, 1986, the Partnership restructured its long-term
debt which had been in default since June 1985. Buttonwood Leasing Corporation
(the "Purchaser"), which is an affiliated corporation of the General Partner,
purchased from the Partnership's lenders (the "Banks") the Promissory Note
dated December 9, 1981 (the "Note") originally executed by the Partnership in
favor of the Banks. In consideration of the Purchaser purchasing the Note, the
Banks issued releases in favor of the Partnership and the General Partner
releasing each from any and all liability arising under the terms of the Note
and from the loan documentation issued and executed in connection with the
Note, with the exception that the Purchaser agreed to waive enforcement of
certain financial covenants contained in the loan documentation, covenants of
which the Partnership was not in compliance. Subsequent to the Note purchase,
the Purchaser entered into an understanding with the Partnership on the fo
lowing terms and conditions. First, the principal amount of the loan would
remain the same. Second, interest would be charged on the outstanding
principal amount of the Note at a rate equal to the prime rate charged by Bank
America Illinois, formerly Continental Illinois National Bank, which was 8.75%
at December 31, 1995, 7.75% at December 31, 1994 and 6.0% at December 31, 1993.
Accrued and deferred interest is payable at maturity of the Note. As of
December 31, 1995, the maturity date of the Note was extended until January 3,
1997.
The fair market value of the note is substantially less than its carrying
amount. It is not practicable for the Partnership to estimate the fair value
of this financial instrument as no quoted market price exists and the cost of
obtaining an independent valuation appears excessive to the Partnership.
5. Utilization of Equipment
At December 31, 1995, the Partnership's equipment portfolio included 25 covered
hopper river barges. The barges are carried on the Partnership's statement of
financial condition at an aggregate net book value of $3,627,277.
6. Litigation
In March 1996, a purported class action, on behalf of all Limited Partners, was
brought against the Partnership, Lehman Brothers Inc., Smith Barney Holdings
Inc., and a number of other limited partnerships in New York State Supreme
Court. The complaint alleges claims of common fraud and deceit, negligent
misrepresentation, breach of fiduciary duty and breach of implied covenant of
good faith and fair dealing. The defendants intend to defend the action
vigorously.
7. Reconciliation of Differences between Financial Statements and the
Partnership's Tax Return
Net income, as reported in 1995 $ 410,625
Adjustments-
Depreciation differential between the Accelerated
Cost Recovery System (ACRS) and depreciation
for financial reporting 332,269
Decrease in accrued operating expenses (5,573)
Management fee expense 28,921
Increase in accrued interest expense
due to affiliate 692,302
Total adjustments 1,047,919
Net income per the Partnership's 1995 tax return $ 1,458,544
Net income allocation:
Limited Partners (3,614 interests) $ 1,443,959
General Partner 14,585
$ 1,458,544
Per Limited Partnership interest $ 399.55
Partners' deficit, as reported December 31, 1995 $(9,172,127)
Adjustments, as above 1,047,919
Adjustments, prior years 5,197,316
Syndication expenses 1,740,961
Partners' deficit, per the Partnership's 1995 tax return $(1,185,931)
The partners' deficit reported on the Partnership's
tax return is allocable to the partners
as follows:
Limited Partners (3,614 interests) $(1,372,938)
General Partner 187,007
$(1,185,931)
The Partnership's tax returns and the amounts of distributable Partnership
income or loss are subject to examination by federal and state taxing
authorities. In the event of an examination of the Partnership's tax return,
the tax liability of the partners could be changed if an adjustment in the
Partnership's income or loss is ultimately sustained by the taxing authorities.
Schedule V - Property, Plant and Equipment for the Years Ended December
31, 1995, 1994 and 1993
Balance at Other Balance at
Beginning of Additions Charges End of
Classification Period at Cost Retirements Add (Deduct) Period
1993:
Equipment $8,306,724 $ 0 $ 0 $ 0 $8,306,724
1994:
Equipment $8,306,724 $ 0 $ 0 $ 0 $8,306,724
1995:
Equipment $8,306,724 $ 0 $ 0 $ 0 $8,306,724
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
for the Years Ended December 31, 1995, 1994 and 1993
Balance at Additions Other Balance at
Beginning of Charged to Charges End of
Classification Period Expense Retirements Add (Deduct) Period
1993:
Equipment $3,682,640 $332,269 $ 0 $ 0 $4,014,909
1994:
Equipment $4,014,909 $332,269 $ 0 $ 0 $4,347,178
1995:
Equipment $4,347,178 $332,269 $ 0 $ 0 $4,679,447