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 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 0-23158
CRONOS GLOBAL INCOME FUND XIV, L.P.
(Exact name of registrant as specified in its charter)
California 94-3163375
(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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CRONOS GLOBAL INCOME FUND XIV, L.P.
REPORT ON FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1997 (unaudited) and December 31, 1996 4
Statements of Operations for the three and nine months ended September 30, 1997 and 1996 (unaudited) 5
Statements of Cash Flows for the nine months ended September 30, 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
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Presented herein are the Registrant's balance sheets as of September 30,
1997 and December 31, 1996, statements of operations for the three and
nine months ended September 30, 1997 and 1996, and statements of cash
flows for the nine months ended September 30, 1997 and 1996.
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CRONOS GLOBAL INCOME FUND XIV, L.P.
BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
1997 1996
------------ ------------
Assets
Current assets:
Cashand cash equivalents, includes $1,046,926 at September 30, 1997 and
$1,730,128 at December 31, 1996 in interest-bearing accounts $ 1,267,674 $ 1,730,504
Net lease receivables due from Leasing Company
(notes 1 and 2) 1,162,767 1,173,515
------------ ------------
Total current assets 2,430,441 2,904,019
------------ ------------
Container rental equipment, at cost 53,131,844 52,798,896
Less accumulated depreciation 12,843,837 10,575,957
------------ ------------
Net container rental equipment 40,288,007 42,222,939
------------ ------------
Organizational costs, net 227,867 435,983
------------ ------------
$ 42,946,315 $ 45,562,941
============ ============
Partners' Capital
Partners' capital:
General partner $ 401 $ 776
Limited partners 42,945,914 45,562,165
------------ ------------
Total partners' capital 42,946,315 45,562,941
------------ ------------
$ 42,946,315 $ 45,562,941
============ ============
The accompanying notes are an integral part of these financial statements
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CRONOS GLOBAL INCOME FUND XIV, L.P.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Net lease revenue (notes 1 and 3) $ 1,455,218 $ 1,603,150 $ 3,953,363 $ 5,170,080
Other operating expenses:
Depreciation 837,743 841,822 2,527,653 2,527,919
Other general and administrative expenses 21,599 25,585 72,764 70,239
------------ ------------ ------------ ------------
859,342 867,407 2,600,417 2,598,158
------------ ------------ ------------ ------------
Earnings from operations 595,876 735,743 1,352,946 2,571,922
Other income:
Interest income 13,447 20,879 48,139 64,101
Net gain on disposal of equipment 13,275 10,214 66,167 63,005
------------ ------------ ------------ ------------
26,722 31,093 114,306 127,106
------------ ------------ ------------ ------------
Net earnings $ 622,598 $ 766,836 $ 1,467,252 $ 2,699,028
============ ============ ============ ============
Allocation of net earnings:
General partner $ 62,897 $ 78,555 $ 203,899 $ 261,931
Limited partners 559,701 688,281 1,263,353 2,437,097
------------ ------------ ------------ ------------
$ 622,598 $ 766,836 $ 1,467,252 $ 2,699,028
============ ============ ============ ============
Limited partners' per unit share of net earnings $ .18 $ .23 $ .42 $ .82
============ ============ ============ ============
The accompanying notes are an integral part of these financial statements
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CRONOS GLOBAL INCOME FUND XIV, L.P.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
---------------------------------
September 30, September 30,
1997 1996
------------- -------------
Net cash provided by operating activities $ 3,910,506 $ 5,132,661
Cash flows provided by (used in) investing activities:
Proceeds from sale of container rental equipment 301,738 239,990
Purchase of container rental equipment (563,044) (122,400)
Acquisition fees paid to general partner (28,152) (339,120)
------------- -------------
Net cash used in investing activities (289,458) (221,530)
------------- -------------
Cash flows used in financing activities:
Distribution to partners (4,083,878) (5,235,631)
------------- -------------
Net decrease in cash and cash equivalents (462,830) (324,500)
Cash and cash equivalents at January 1 1,730,504 1,919,339
------------- -------------
Cash and cash equivalents at September 30 $ 1,267,674 $ 1,594,839
============= =============
The accompanying notes are an integral part of these financial statements
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CRONOS GLOBAL INCOME FUND XIV, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Nature of Operations
Cronos Global Income Fund XIV, L.P. (the "Partnership") is a
limited partnership organized under the laws of the State of
California on July 30, 1992, for the purpose of owning and
leasing marine cargo containers. Cronos Capital Corp. ("CCC") is
the general partner and, with its affiliate Cronos Containers
Limited (the "Leasing Company"), manages the business of the
Partnership. The Partnership shall continue until December 31,
2012, unless sooner terminated upon the occurrence of certain
events.
The Partnership commenced operations on January 29, 1993 when
the minimum subscription proceeds of $2,000,000 were obtained.
As of September 30, 1997, the Partnership operated 8,317
twenty-foot, 3,560 forty-foot and 98 forty-foot high-cube marine
dry cargo containers and 454 twenty-foot and 340 forty-foot
refrigerated cargo containers.
The Partnership offered 4,250,000 units of limited partnership
interests at $20 per unit, or $85,000,000. The offering
terminated on November 30, 1993, at which time 2,984,309 limited
partnership units had been purchased.
(b) Leasing Company and Leasing Agent Agreement
The Partnership 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 and the Leasing Company. 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)
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CRONOS GLOBAL INCOME FUND XIV, L.P.
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, and reimbursed administrative expenses 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 September 30, 1997 and December 31, 1996 were as follows:
September 30, December 31,
1997 1996
------------ ------------
Lease receivables, net of doubtful accounts
of $133,447 at September 30, 1997 and $144,071
at December 31, 1996 $ 2,026,428 $ 2,184,535
Less:
Direct operating payables and accrued expenses 515,465 644,735
Damage protection reserve 125,859 143,887
Base management fees 184,177 181,305
Reimbursed administrative expenses 38,160 41,093
------------ ------------
$ 1,162,767 $ 1,173,515
============ ============
(Continued)
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GLOBAL INCOME FUND XIV, L.P.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(3) Net Lease Revenue
Net lease revenue is determined by deducting direct operating expenses,
base management fees and reimbursed administrative expenses to CCC and
its affiliates from the rental revenue billed by the Leasing Company
under operating leases to ocean carriers for the containers owned by the
Partnership. Net lease revenue for the three and nine-month periods
ended September 30, 1997 and 1996 was as follows:
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Rental revenue $ 2,084,545 $ 2,381,314 $ 6,113,089 $ 7,426,993
Less:
Rental equipment operating expenses 376,792 481,226 1,412,107 1,337,124
Base management fees 143,957 163,994 424,887 514,445
Reimbursed administrative expenses 108,578 132,944 322,732 405,344
------------ ------------ ------------ ------------
$ 1,455,218 $ 1,603,150 $ 3,953,363 $ 5,170,080
============ ============ ============ ============
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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 September 30, 1997 and
December 31, 1996.
At September 30, 1997, the Registrant had $1,267,674 in cash and cash
equivalents, a decrease of $462,830 from the December 31, 1996 cash
balances. At September 30, 1997, the Registrant had approximately
$72,000 in cash generated from equipment sales reserved as part of its
cash balances. Throughout the remainder of 1997, the Registrant expects
to continue using cash generated from equipment sales to purchase and
replace containers which have been lost or damaged beyond repair.
The Registrant's cash distribution from operations for the third quarter
of 1997 was 8.0% (annualized) of the limited partners' original capital
contribution, unchanged from the second quarter of 1997. These
distributions are directly related to the Registrant's results from
operations and may fluctuate accordingly.
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 their need for leased
containers. Once the demand for leased containers began to fall,
per-diem rental rates were also adversely affected. Since the beginning
of 1997, the container leasing industry has experienced a modest
recovery as indicated by an upward trend in container utilization. The
impact of this trend on the utilization rates of the Registrant has been
mixed. The Registrant's dry container utilization rate increased from
79% at December 31, 1996 to 83% at September 30, 1997, while the
refrigerated container utilization rate increased from 79% at December
31, 1996 to 82% at September 30, 1997, respectively. Increasing cargo
volumes and continuing equipment imbalances within the container fleets
of shipping lines and transport companies have re-established a need for
these companies to replenish their leased fleets during 1997.
Although there has been an improvement in container utilization rates,
per-diem rental rates continue to remain under pressure as a result of
the following factors: start-up leasing companies offering new
containers and low rental rates in an effort to break into the leasing
market; established leasing companies reducing rates to very low levels;
and a continuing oversupply of containers. The recent volatility of the
Hong Kong and other Asian financial markets and its impact on trade,
shipping, and container leasing, especially intra-Asia and Asia-Europe
routes, has yet to be determined. While these conditions could impact
the Registrant's financial condition and operating performance through
the remainder of 1997 and first half of 1998, the Registrant is well
positioned to take advantage of further improvements in the container
leasing market.
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2) Material changes in the results of operations between the three and
nine-month periods ended September 30, 1997 and the three and nine-month
periods ended September 30, 1996.
Net lease revenue for the three and nine-month periods ended September
30, 1997 was $1,455,218 and $3,953,363, respectively, a decline of
approximately 9% and 24% from the same periods in the prior year,
respectively. Gross rental revenue (a component of net lease revenue)
for the three and nine-month periods ended September 30, 1997 was
$2,084,545 and $6,113,089, respectively, reflecting a decline of 13% and
18% from the same respective periods in the prior year. During 1997,
gross lease revenue was primarily impacted by lower per-diem rental
rates and utilization levels. Average dry cargo container per-diem
rental rates for the three and nine-month periods ended September 30,
1997 declined approximately 12% and 11%, respectively, when compared to
the same respective periods in the prior year. Average refrigerated
container per-diem rental rates for the three and nine-month periods
ended September 30, 1997 declined approximately 8% and 12%,
respectively, when compared to the same respective periods in the prior
year. Dry cargo container utilization, which steadily increased since
December 31, 1996, did not recover to the same levels experienced during
the three and nine-month periods ended September 30, 1996. Refrigerated
container utilization rates fluctuated in each of the three and
nine-month periods ended September 30, 1997, resulting in lower average
utilization rates when compared to the same periods in the prior year.
The Registrant's average fleet size and utilization rates for the three
and nine-month periods ended September 30, 1997 and September 30, 1996
were as follows:
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Average Fleet Size (measured in
twenty-foot equivalent units (TEU))
Dry cargo containers 15,625 15,424 15,554 15,447
Refrigerated containers 1,134 1,151 1,138 1,153
Average Utilization
Dry cargo containers 83% 83% 81% 84%
Refrigerated containers 79% 85% 77% 90%
Rental equipment operating expenses were 18% and 23%, respectively, of
the Registrant's gross lease revenue during the three and nine-month
periods ended September 30, 1997, as compared to 20% and 18%,
respectively, during the three and nine-month periods ended September
30, 1996. These changes were largely attributable to an increase in
costs associated with lower utilization levels, including handling and
storage.
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 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 general partner or the Registrant, Arthur Andersen
confirmed to the 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.
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Following Arthur Andersen's resignation, the Parent Company subsequently
received notification from the Securities and Exchange Commission that
it was conducting a private investigation of the Parent Company
regarding the events and circumstances leading to Arthur Andersen's
resignation. The results of this investigation are still pending.
Accordingly, the Registrant does not, at this time, have sufficient
information to determine the impact, if any, that the Securities and
Exchange Commission investigation of the Parent Company and 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 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.
Arthur Andersen's report on the financial statements of Cronos Capital
Corp. and the Registrant, for either of the previous 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 previous two 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.
The Registrant retained a new auditor, 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.
The President of the Leasing Company, a subsidiary of the Parent
Company, along with two marketing Vice Presidents, resigned in June
1997. These vacancies were filled by qualified, long-time employees who
average over 15 years of experience in the container leasing industry,
therefore providing continuity in the management of the Leasing Company.
The Registrant and general partner do not believe these changes will
have a material impact on the future operating results and financial
condition of the Registrant.
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.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of December 2, 1992
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with Cronos Containers ***
Limited
27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter ended
September 30, 1997.
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 2, 1992, included as part of Registration
Statement on Form S-1 (No. 33-51810)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 33-51810)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-51810)
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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.
CRONOS GLOBAL INCOME FUND XIV, L.P.
By Cronos Capital Corp.
The General Partner
By /s/ JOHN KALLAS
------------------------------------
John Kallas
Vice President, Treasurer
Principal Finance & Accounting Officer
Date: November 10, 1997
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EXHIBIT INDEX
Exhibit
No. Description Method of Filing
------- ----------- ----------------
3(a) Limited Partnership Agreement of the Registrant, *
amended and restated as of December 2, 1992
3(b) Certificate of Limited Partnership of the Registrant **
10 Form of Leasing Agent Agreement with Cronos Containers ***
Limited
27 Financial Data Schedule Filed with this document
- ----------
* Incorporated by reference to Exhibit "A" to the Prospectus of the
Registrant dated December 2, 1992, included as part of Registration
Statement on Form S-1 (No. 33-51810)
** Incorporated by reference to Exhibit 3.2 to the Registration Statement
on Form S-1 (No. 33-51810)
*** Incorporated by reference to Exhibit 10.2 to the Registration Statement
on Form S-1 (No. 33-51810)