United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 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: 02-72177
SEI II L.P.
Exact Name of Registrant as Specified in its Charter
New York 13-3064636
State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
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 ____
Balance Sheets At June 30, At December 31,
1997 1996
Assets
Equipment $ --- $ 8,306,724
Less accumulated depreciation --- (5,011,716)
Net equipment --- 3,295,008
Equipment held for sale 3,211,941 ---
Cash and cash equivalents 443,071 5,703,859
Due from equipment manager 213,629 425,549
Due from affiliate 12,233 ---
Other assets, net of accumulated amortization
of $15,192 in 1997 15,192 8,184
Total Assets $ 3,896,066 $ 9,432,600
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 36,495 $ 34,173
Accrued interest expense due to affiliate 9,923,711 9,824,043
Due to General Partner 706,453 696,999
Note payable to affiliate 2,200,496 7,839,000
Total Liabilities 12,867,155 18,394,215
Partners' Deficit:
General Partner (251,901) (251,806)
Limited Partners (3,614 units outstanding) (8,719,188) (8,709,809)
Total Partners' Deficit (8,971,089) (8,961,615)
Total Liabilities and Partners' Deficit $ 3,896,066 $ 9,432,600
Statement of Partners' Deficit
For the six months ended June 30, 1997 General Limited
Partner Partners Total
Balance at December 31, 1996 $(251,806) $(8,709,809) $(8,961,615)
Net loss (95) (9,379) (9,474)
Balance at June 30, 1997 $(251,901) $(8,719,188) $(8,971,089)
Statements of Operations Three months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
Revenues
Operating revenues $ 450,281 $ 668,072 $ 945,351 $1,295,812
Operating Expenses
Operating costs 338,908 374,059 634,514 699,749
Depreciation and amortization 7,596 83,067 98,259 166,134
Professional and other expenses 33,846 17,077 63,729 30,261
Equipment management fee -
Operators 26,317 31,483 53,319 61,972
General Partner 4,502 6,681 9,453 12,958
Insurance 4,211 4,211 8,422 8,422
Total operating expenses 415,380 516,578 867,696 979,496
Income from operations 34,901 151,494 77,655 316,316
Other Income (Expense)
Interest and miscellaneous income 6,608 64,875 12,539 126,659
Interest expense (48,261) (161,237) (99,668) (327,359)
Total Other Expense (41,653) (96,362) (87,129) (200,700)
Net Income (Loss) $ (6,752) $ 55,132 $ (9,474) $ 115,616
Net Income (Loss) Allocated:
To the General Partner $ (68) $ 551 $ (95) $ 1,156
To the Limited Partners (6,684) 54,581 (9,379) 114,460
$ (6,752) $ 55,132 $ (9,474) $ 115,616
Per limited partnership unit
(3,614 outstanding) $(1.85) $15.10 $(2.60) $31.67
Statements of Cash Flows
For the six months ended June 30, 1997 1996
Cash Flows From Operating Activities
Net income (loss) $ (9,474) $ 115,616
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 83,067 166,134
Amortization 15,192 ---
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Due from equipment manager 211,920 233,048
Due from affiliate (12,233) ---
Accounts payable and accrued expenses 2,322 (7,232)
Accrued interest expense due to affiliate 99,668 327,358
Due to General Partner 9,454 12,958
Net cash provided by operating activities 399,916 847,882
Cash Flows From Financing Activities
Payment of principal on note payable to affiliate (5,638,504) ---
Loan closing costs (22,200) ---
Net cash used for financing activities (5,660,704) ---
Net increase (decrease) in cash and cash equivalents (5,260,788) 847,882
Cash and cash equivalents, beginning of period 5,703,859 4,238,441
Cash and cash equivalents, end of period $ 443,071 $5,086,323
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1996 audited financial statements within Form 10-K.
The unaudited financial statements include all normal and reoccurring
adjustments which are, in the opinion of management, necessary to present a
fair statement of financial position as of June 30, 1997 and the results of
operations for the three and six months ended June 30, 1997 and 1996 and cash
flows for the six months ended June 30, 1997 and 1996 and the statement of
partners' deficit for the six months ended June 30, 1997. Results of operations
for the period are not necessarily indicative of the results to be expected for
the full year.
Reclassification. Certain prior year amounts have been reclassified in order
to conform to the current year's presentation.
The following significant event has occurred subsequent to fiscal year 1996
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Legal Proceedings
In March 1996, a purported class action suit 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 law fraud and deceit,
negligent misrepresentation, breach of fiduciary duty and breach of the implied
covenant of good faith and fair dealing. The defendants intend to defend the
action vigorously.
Barge Sale
On July 28, 1997, the Partnership executed a formal contract to sell its barge
fleet for $4.3 million in cash, representing the highest bid, to Midwest Marine
Management Company, the current operator of the barges, on an "as is, where as"
basis (the "Sale"). It is currently anticipated that the Sale will close on
August 28, 1997, following the satisfaction of certain conditions to closing.
Based upon its analysis, the General Partner believes that the anticipated net
proceeds to the Partnership of the proposed sale, after payment of all fees and
expenses, including the proposed disposition fee (see below), will exceed the
carrying value of the equipment.
Prior to commencing the sale process, the General Partner recognized that it
would be extremely unlikely for 16-year old barges, which would ordinarily be
expected to depreciate further in value over time, to appreciate approximately
200% over a short period of time from their 1996 appraised value of $4.1
million to an amount that would exceed the Partnership's debt obligation of in
excess of $12 million. Furthermore, the Partnership's lender, Buttonwood
Leasing Corporation ("Buttonwood"), an affiliate of the General Partner, had
previously informed the Partnership that no further extensions of the loan
would be provided upon its maturity in early January 1998. To avoid a
foreclosure at maturity, the Partnership initiated negotiations with
Buttonwood. The negotiations resulted in an agreement whereby the Partnership,
as an inducement for it to proceed with marketing the Barges for sale, would
receive a disposition fee equal to 5% of the gross sales proceeds.
In addition to receiving a disposition fee, the Partnership will be reimbursed
for all closing costs incurred in connection with the Sale. The balance of the
proceeds from the Sale will be applied to the Partnership's outstanding debt
obligation, which totaled $12,124,207 as of June 30, 1997. After receipt of
such partial repayment, Buttonwood has indicated that it will forgive the
Partnership's then remaining debt balance (in excess of $8.0 million) which
will allow the Partnership to retain all of its existing cash reserves. If the
sale is completed and the balance of the Partnership's debt is forgiven by
Buttonwood, the General Partner will waive equipment management fees due from
the Partnership in excess of $700,000 in order to allow a final distribution to
be made to the Limited Partners.
After consummating the Sale, satisfying the Partnership's debt obligations as
set forth above and providing for the Partnership's remaining liabilities, a
final liquidating distribution will be made to the Limited Partners and the
Partnership will be dissolved.
Part I, Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
On January 3, 1997, the Partnership entered into a First Amended and Restated
Credit Note ("Amended Note") with Buttonwood Leasing Corporation. At that
time, a principal payment of $5,500,000 was made by the Partnership reducing
the outstanding principal balance from $7,839,000 to $2,339,000, and the
maturity date of the Amended Note was extended until the earlier of January 2,
1998, or the date on which the Partnership sells the barges. The outstanding
principal balance of the Amended Note as of June 30, 1997 totaled $2,200,496.
In accordance with the Amended Note, the Partnership is required to pay
quarterly installments of principal only on April 1, 1997, July 1, 1997, and
October 1, 1997 (each a "Payment Date") in an amount equal to the amount of
interest accrued on the unpaid principal balance from the later of January 3,
1997 or the immediately preceding Payment Date. In addition, the Partnership
is required to pay interest on the unpaid principal balance on the Amended Note
at maturity. Interest on the outstanding principal balance of the Amended Note
is computed using simple interest at a rate equal to the Prime Rate as charged
by Bank America Illinois. At June 30, 1997, the interest rate was 8.50%
compared to 8.25% at December 31, 1996 and 8.25% at March 31, 1997.
In addition to the quarterly principal installments, the Partnership is
required to make quarterly cash sweep payments, which are applied to principal,
on or before the 60th day after the end of each calendar quarter commencing
March 31, 1997. The amount of each cash sweep payment will be equal to 90% of
Net Operating Income (as defined in the Amended Note) minus the scheduled
principal installments paid on any debt for the immediately preceding calendar
quarter of the Partnership.
On July 28, 1997, the Partnership executed a formal contract to sell its barge
fleet for $4.3 million in cash, representing the highest bid, to Midwest Marine
Management Company, the current operator of the barges, on an "as is, where as"
basis (the "Sale"). It is currently anticipated that the Sale will close on
August 28, 1997, following the satisfaction of certain conditions to closing.
Based upon its analysis, the General Partner believes that the anticipated net
proceeds to the Partnership of the proposed sale, after payment of all fees and
expenses, including the proposed disposition fee (see below), will exceed the
carrying value of the equipment.
Prior to commencing the sale process, the General Partner recognized that it
would be extremely unlikely for 16-year old barges, which would ordinarily be
expected to depreciate further in value over time, to appreciate approximately
200% over a short period of time from their 1996 appraised value of $4.1
million to an amount that would exceed the Partnership's debt obligation of in
excess of $12 million. Furthermore, the Partnership's lender, Buttonwood
Leasing Corporation ("Buttonwood"), an affiliate of the General Partner, had
previously informed the Partnership that no further extensions of the loan
would be provided upon its maturity in early January 1998. To avoid a
foreclosure at maturity, the Partnership initiated negotiations with
Buttonwood. The negotiations resulted in an agreement whereby the Partnership,
as an inducement for it to proceed with marketing the Barges for sale, would
receive a disposition fee equal to 5% of the gross sales proceeds.
In addition to receiving a disposition fee, the Partnership will be reimbursed
for all closing costs incurred in connection with the Sale. The balance of the
proceeds from the Sale will be applied to the Partnership's outstanding debt
obligation, which totaled $12,124,207 as of June 30, 1997. After receipt of
such partial repayment, Buttonwood has indicated that it will forgive the
Partnership's then remaining debt balance (in excess of $8.0 million) which
will allow the Partnership to retain all of its existing cash reserves. If the
sale is completed and the balance of the Partnership's debt is forgiven by
Buttonwood, the General Partner will waive equipment management fees due from
the Partnership in excess of $700,000 in order to allow a final distribution to
be made to the Limited Partners.
After consummating the Sale, satisfying the Partnership's debt obligations as
set forth above and providing for the Partnership's remaining liabilities, a
final liquidating distribution will be made to the Limited Partners and the
Partnership will be dissolved. The Partnership's cash and cash equivalents
balance totaled $443,071 at June 30, 1997, compared to $5,703,859 at December
31, 1996. The decrease is due to the $5.5 million principal payment on the
Partnership's note payable obligation paid on January 3, 1997.
Due from affiliate increased from $0 at December 31, 1996 to $12,233 at June
30, 1997. The balance at June 30, 1997 represents legal expenses incurred by
the Partnership in connection with the sale of the barges which are to be
reimbursed to the Partnership by Buttonwood.
At June 30, 1997, other assets were $15,192, compared to $8,184 at December 31,
1996. The increase is mainly due to legal costs related to the January 3, 1997
restructuring of the Partnership's note payable obligation which is being
amortized over one year.
The Partnership's fleet of 25 covered hopper river barges continue to operate
primarily on the Mississippi and Illinois Rivers. The barges haul various
types of agricultural products, primarily corn and soybean, in a southbound
direction, and steel, fertilizers and animal feed in a northbound direction.
Operating revenues declined for the first six months of 1997 as compared with
the corresponding period last year since there were less crops available for
shipment. The decreased demand for barges resulted in lower barge rental rates
during the first half of 1997. Although the 1996 harvest was relatively
strong, it is anticipated that it will not likely be transported until the
latter portion of 1997, after farmers have replenished their depleted crop
inventories.
Results of Operations
For the three and six months ended June 30, 1997, the Partnership generated a
net loss of $6,752 and $9,474, respectively, compared to net income of $55,132
and $115,616 for the corresponding periods in 1996. The change from net income
to net loss is primarily attributable to lower operating revenues and lower
interest and miscellaneous income, which were partially offset by lower total
operating expenses and interest expense.
Operating revenues were $450,281 and $945,351 for the three and six months
ended June 30, 1997, respectively, compared to $668,072 and $1,295,812 for the
corresponding periods in 1996. The decrease in operating revenues is primarily
attributable to a lower average barge revenue rate during the first six months
of 1997 due to the decreased demand for barge shipping.
For the three and six months ended June 30, 1997, operating costs were $338,908
and $634,514, respectively, compared to $374,059 and $699,749 for the
comparable 1996 periods. The decreases for both periods are primarily
attributable to a reduction in towing costs incurred by the Partnership during
the 1997 periods.
For the three and six months ended June 30, 1997, depreciation and amortization
totaled $7,596 and $98,259, respectively, compared to $83,067 and $166,134 for
the corresponding periods in 1996. Effective March 31, 1997, the Partnership
stopped recording depreciation expense as a result of the reclassification of
the barges as equipment held for sale pursuant to Financial Accounting
Standards No. 121.
Professional and other expenses for the three and six months ended June 30,
1997 were $33,846 and $63,729, respectively, compared to $17,077 and $30,261
for the corresponding periods in 1996. During the 1997 periods, certain
expenses incurred by an unaffiliated third party service provider in servicing
the Partnership, which were voluntarily absorbed by affiliates of the General
Partner in prior periods, were reimbursed to the General Partner and its
affiliates. Equipment management fee was $30,819 and $62,772 for the three and
six-month periods ended June 30, 1997, respectively, compared to $38,164 and
$74,930 for the same periods in 1996. Management fees are a function of net
revenue. The decreases are the result of lower net revenues in the 1997 period.
Interest and miscellaneous income totaled $6,608 and $12,539 for the three and
six months ended June 30, 1997, respectively, compared to $64,875 and $126,659
for the corresponding periods in 1996. The decreases are primarily
attributable to lower interest income as a result of a lower cash balance in
1997.
Interest expense declined from $161,237 and $327,359 for the three and six
months ended June 30, 1996, respectively, to $48,261 and $99,668 for the same
periods in 1997 due to a lower outstanding principal balance on the Amended
Note as a result of the $5,500,000 principal payment made on January 3, 1997.
Part II Other Information
Item 1 Legal Proceedings
In March 1996, a purported class action suit 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 the New York State Supreme Court. The
complaint alleges claims of common law fraud and
deceit, negligent misrepresentation, breach of
fiduciary duty and breach of the implied covenant of
good faith and fair dealing. The defendants intend to
defend the action vigorously.
Items 2-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(10) Vessel Sale & Purchase Agreement between the Partnership
and Midwest Marine Management Company.
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the three-month period covered by this report.
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: August 14, 1997 BY:/s/ Rocco F. Andriola
President, Director &
Chief Financial Officer