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 September 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
State or Other Jurisdiction of 13-3064636
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
(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 September 30, At December 31,
1997 1996
Assets
Equipment $ _ $ 8,306,724
Less accumulated depreciation _ (5,011,716)
Net equipment _ 3,295,008
Cash and cash equivalents 711,759 5,703,859
Due from equipment manager 123,114 425,549
Other assets _ 8,184
Total Assets $ 834,873 $ 9,432,600
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 31,149 $ 34,173
Accrued interest expense due to affiliate _ 9,824,043
Due to General Partner _ 696,999
Note payable to affiliate _ 7,839,000
Total Liabilities 31,149 18,394,215
Partners' Capital (Deficit):
General Partner (154,153) (251,806)
Limited Partners (3,614 units outstanding) 957,877 (8,709,809)
Total Partners' Capital (Deficit) 803,724 (8,961,615)
Total Liabilities and Partners'
Capital (Deficit) $ 834,873 $ 9,432,600
Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1997
General Limited
Partner Partners Total
Balance at December 31, 1996 $ (251,806) $ (8,709,809) $ (8,961,615)
Net Income 97,653 9,667,686 9,765,339
Balance at September 30, 1997 $ (154,153) $ 957,877 $ 803,724
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Operating revenues $ 232,886 $ 539,652 $ 1,178,237 $ 1,835,464
Operating Expenses
Operating costs 190,867 332,121 825,381 1,031,870
Depreciation and amortization 15,192 83,068 113,451 249,202
Professional and other expenses 24,913 13,915 88,642 44,176
Equipment management fee
Operators 16,580 28,442 69,899 90,414
General Partner 2,329 5,397 11,782 18,355
Insurance 4,211 4,211 12,633 12,633
Total operating expenses 254,092 467,154 1,121,788 1,446,650
Income (loss) from operations (21,206) 72,498 56,449 388,814
Other Income (Expense)
Interest and
miscellaneous income 8,233 70,019 20,772 196,678
Interest expense (30,490) (163,008) (130,158) (490,367)
Gain on sale of equipment 1,076,059 _ 1,076,059 _
Total Other Income
/(Expense) 1,053,802 (92,989) 966,673 (293,689)
Extraordinary Items
Gain on forgiveness
of indebtedness 8,742,217 _ 8,742,217 _
Net Income (Loss) $ 9,774,813 $ (20,491) $ 9,765,339 $ 95,125
Net Income (Loss) Allocated:
To the General Partner $ 97,748 $ (205) $ 97,653 $ 951
To the Limited Partners 9,677,065 (20,286) 9,667,686 94,174
$ 9,774,813 $ (20,491) $ 9,765,339 $ 95,125
Per limited partnership unit
(3,614 outstanding)
Income (loss) from operations
and Other Income (Expense) $ 282.87 $ (5.61) $ 280.27 $ 26.06
Income from Extraordinary
Items 2,394.80 _ 2,394.80 _
$ 2,677.67 $ (5.61) $ 2,675.07 $ 26.06
Statements of Cash Flows
For the nine months ended September 30, 1997 1996
Cash Flows From Operating Activities
Net income $ 9,765,339 $ 95,125
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation 83,067 249,202
Amortization 30,384 _
Gain on sale of equipment (1,076,059) _
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Due from equipment manager 302,435 286,231
Accounts payable and accrued expenses (3,024) (3,116)
Accrued interest expense due to affiliate (9,824,043) 490,367
Due to General Partner (696,999) 18,355
Net cash provided by (used for) operating
activities (1,418,900) 1,136,164
Cash Flows From Investing Activities
Net proceeds from sale of equipment 4,288,000 _
Net cash provided by investing activities 4,288,000 _
Cash Flows From Financing Activities
Payment of principal on note payable
to affiliate (7,839,000) _
Loan closing costs (22,200) _
Net cash used for financing activities (7,861,200) _
Net increase (decrease) in cash and cash
equivalents (4,992,100) 1,136,164
Cash and cash equivalents, beginning of period 5,703,859 4,238,441
Cash and cash equivalents, end of period $ 711,759 $ 5,374,605
Notes to the Financial Statements
The unaudited interim financial statements should be read in
conjunction with the Partnership's annual 1996 audited financial
statements within Form 10-K.
The unaudited interim financial statements include all
adjustments which are, in the opinion of management, necessary to
present a fair statement of financial position as of September
30, 1997, the results of operations for the three-month and nine-
month periods ended September 30, 1997 and 1996, the statement of
partners' deficit for the nine-month period ended September 30,
1997 and the statements of cash flows for the nine-month periods
ended September 30, 1997 and 1996. Results of operations for the
three-month and nine-month periods ended September 30, 1997 are
not necessarily indicative of the results to be expected for the
full year.
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 of the Partnership 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"). The Sale closed on August 29, 1997.
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 was
reimbursed for all closing costs incurred in connection with the
Sale. The balance of the proceeds from the Sale was applied to
the Partnership's outstanding debt obligation, which totaled
$4,073,000 on August 29, 1997. When the sale was completed, the
Partnership's remaining accrued interest balance of $8,033,436
was forgiven by Buttonwood, and the General Partner has forgiven
the 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 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 August 29, 1997, the Partnership completed the sale of its
fleet of 25 covered hopper river barges (the "Sale") to Midwest
Marine Management Company ("Midwest Marine"), Marine Investments,
L.L.C. and Kathryn Rae Towing, Inc. for $4.3 million in cash,
which represented the highest bid received during the sales
process. Midwest Marine had served as the operator of the Barges
while they were owned by the Partnership.
Prior to the Sale, 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.
Accordingly, the Partnership received a disposition fee of
$215,000 and was also reimbursed for legal and advertising
expenses related to the Sale. The balance of the proceeds of the
Sale, totaling $4,073,000, were applied to the Partnership's
outstanding debt obligations. After the receipt of such partial
repayment, Buttonwood forgave the Partnership's remaining accrued
interest balance of $8,033,436, allowing the Partnership to
retain all of its remaining cash reserves. In addition, in order
for a distribution to be made to the limited partners, the
General Partner forgave equipment management fees due from the
Partnership of approximately $700,000. After collection of
amounts due the Partnership and providing for any remaining
liabilities, limited partners will receive a final liquidating
distribution which is expected to be paid in the fourth quarter
of 1997, and the Partnership will be dissolved. It is currently
estimated that approximately $800,000 will be available for
distribution to the limited partners. However, the final amount
will be dependent on the establishment of any reserves deemed
necessary for contingencies, and other factors.
The Partnership's cash and cash equivalents balance totaled
$711,759 at September 30, 1997, compared to $5,703,859 at
December 31, 1996. The decrease is primarily due to the $5.5
million principal payment on the Partnership's note payable
obligation paid on January 3, 1997, partially offset by proceeds
received from the Sale.
Due from equipment manager declined to $123,114 at September 30,
1997, from $425,549 at December 31, 1996, due to the receipt of a
net revenue distribution by Midwest Marine.
Accrued interest expense due to affiliate, due to General
Partner, and note payable to affiliate all decreased to $0 at
September 30, 1997 due to the partial payment of accrued
interest, the forgiveness of remaining accrued interest by
Buttonwood, and the forgiveness of equipment management fees by
the General Partner in conjunction with the Sale.
Results of Operations
For the three and nine months ended September 30, 1997, the
Partnership generated net income of $9,774,813 and $9,765,339,
respectively, compared to a net loss of $20,491 and net income of
$95,125 for the respective periods in 1996. The increase in net
income in both periods is primarily attributable to the
forgiveness of debt by Buttonwood, and a gain on the sale of
equipment recognized in the third quarter of 1997, as discussed
below.
Operating revenues were $232,886 and $1,178,237 for the three and
nine months ended September 30, 1997, respectively, compared to
$539,652 and $1,835,464 for the corresponding periods in 1996.
The decrease in operating revenues is primarily attributable to a
lower average barge revenue rate during the first eight months of
1997 due to the decreased demand for barge shipping. The
decrease is also attributable to the Sale, which caused
operations to cease in August 1997.
For the three and nine months ended September 30, 1997,
operating costs were $190,867 and $825,381, respectively,
compared to $332,121 and $1,031,870 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 and the Sale which limited
operating expenses in the third quarter.
For the three and nine months ended September 30, 1997,
depreciation and amortization totaled $15,192 and $113,451,
respectively, compared to $83,068 and $249,202 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 Statement of Financial Accounting Standards No. 121.
Professional and other expenses for the three and nine months
ended September 30, 1997 were $24,913 and $88,642, respectively,
compared to $13,915 and $44,176 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_operators and General Partner_decreased
for the three and nine months ended September 30, 1997 in
comparison to the 1996 periods. The decreases are the result of
lower net revenues in the 1997 period and the Sale.
Interest and miscellaneous income for the three and nine-months
ended September 30, 1997 was $8,233 and $20,772, respectively,
compared to $70,019 and $196,678 for the corresponding periods in
1996. The decreases are attributable to the Partnership
maintaining lower cash balances in the 1997 periods.
Interest expense declined from $163,008 and $490,367 for the
three and nine months ended September 30, 1996, respectively, to
$30,490 and $130,158 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. The
decrease is also due to quarterly principal payments made
thereafter in accordance with the terms of the Amended Note.
On August 29, 1997, the Partnership recognized a gain on sale of
equipment of $1,076,059 due to the Sale. This gain resulted from
the net proceeds exceeding the carrying value of the properties
at the time of the Sale.
On August 29, 1997 the Partnership recognized extraordinary
income due to the forgiveness of indebtedness totaling
$8,742,217, of which $8,033,436 related to the Amended Note and
the Sale. The remaining $708,781 resulted from waived management
fees due to the General Partner.
Part II Other Information
Item 1 Legal Proceedings
In March 1996, a purported class action suit on behalf
of all limited partners of the Partnership 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 - None
(27) Financial Data Schedule
(b) Reports on Form 8-K:
On August 29, 1997 the Partnership filed a Current
Report on Form 8-K reporting the consummation of the
sale of its principal asset, a fleet of 25 covered
hopper river barges.
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: November 14, 1997 BY: /s/ Rocco F. Andriola
President, Director and
Chief Financial Officer