Attached files
file | filename |
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EX-32 - EX-32 - CRONOS GLOBAL INCOME FUND XVI LP | f59621exv32.htm |
EX-31.2 - EX-31.2 - CRONOS GLOBAL INCOME FUND XVI LP | f59621exv31w2.htm |
EXCEL - IDEA: XBRL DOCUMENT - CRONOS GLOBAL INCOME FUND XVI LP | Financial_Report.xls |
EX-31.1 - EX-31.1 - CRONOS GLOBAL INCOME FUND XVI LP | f59621exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | 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 0-27496
CRONOS GLOBAL INCOME FUND XVI, L.P.
(Exact name of registrant as specified in its charter)
California (State or other jurisdiction of incorporation or organization) |
94-3230380 (I.R.S. Employer Identification No.) |
One Front Street, Suite 925, San Francisco, California (Address of principal executive offices) |
94111 (Zip Code) |
(415) 677-8990
(Registrants telephone number, including area code)
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (17 C.F.R. §232.405) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes þ
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act:
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
CRONOS GLOBAL INCOME FUND XVI, L.P.
Report on Form 10-Q for the Quarterly Period
Ended June 30, 2011
Ended June 30, 2011
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EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements | |
Presented herein are Cronos Global Income Fund XVI, L.P.s (the Partnership) condensed balance sheets as of June 30, 2011 and December 31, 2010, condensed statements of operations for the three and six months ended June 30, 2011 and 2010, and condensed statements of cash flows for the six months ended June 30, 2011 and 2010 (collectively the Financial Statements), prepared by the Partnership without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. These Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2010. These Financial Statements reflect, in the opinion of the Partnership and Cronos Capital Corp., the general partner, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The statements of operations for such interim periods are not necessarily indicative of the results for the full year. | ||
The information in this Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the securities laws. These forward-looking statements reflect the current view of the Partnership with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Partnerships control. All statements, other than statements of historical fact included in this report, including the statements under Managements Discussion and Analysis of Financial Condition and Results of Operations, regarding the Partnerships strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Partnership are forward-looking statements. When used in this report, the words would, believe, anticipate, intend, estimate, expect, project, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Partnership does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Although the Partnership believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable, the Partnership can give no assurance that these plans, intentions or expectations will be achieved. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict. | ||
Because the Partnership is a limited partnership, the Partnership is not entitled to rely upon the safe harbor provision for forward-looking statements relating to the operations of the Partnership under Section 21E of the Securities Exchange Act of 1934, as amended. |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Condensed Balance Sheets
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash |
$ | 720,188 | $ | 849,761 | ||||
Net lease receivables due from Leasing Agent |
361,640 | 242,963 | ||||||
Direct financing lease receivable, due from Leasing Agent within one year, net |
| 23,477 | ||||||
Direct financing lease receivable held for sale, net |
57,201 | | ||||||
Container rental equipment held for sale, net of accumulated deprecation |
1,986,667 | | ||||||
Total current assets |
3,125,696 | 1,116,201 | ||||||
Direct financing lease receivable, due from Leasing Agent after one year, net |
| 46,100 | ||||||
Container rental equipment, at cost |
| 10,954,532 | ||||||
Less accumulated depreciation |
| (8,579,045 | ) | |||||
Net container rental equipment |
| 2,375,487 | ||||||
Total assets |
$ | 3,125,696 | $ | 3,537,788 | ||||
Partners Capital |
||||||||
Partners capital: |
||||||||
General partner |
2,602 | 4,757 | ||||||
Limited partners |
3,123,094 | 3,533,031 | ||||||
Total partners capital |
$ | 3,125,696 | $ | 3,537,788 | ||||
The accompanying notes are an integral part of these financial statements.
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Condensed Statements of Operations
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net lease revenue from Leasing Agent |
$ | 236,864 | $ | 220,097 | $ | 471,271 | $ | 393,377 | ||||||||
Other operating income (expenses): |
||||||||||||||||
Depreciation |
(111,402 | ) | (186,571 | ) | (268,182 | ) | (383,774 | ) | ||||||||
Other general and administrative expenses |
(40,081 | ) | (34,601 | ) | (84,017 | ) | (74,095 | ) | ||||||||
Net gain on disposal of equipment |
170,700 | 90,681 | 262,291 | 198,109 | ||||||||||||
19,217 | (130,491 | ) | (89,908 | ) | (259,760 | ) | ||||||||||
Net income |
$ | 256,081 | $ | 89,606 | $ | 381,363 | $ | 133,617 | ||||||||
Allocation of net income: |
||||||||||||||||
General partner |
$ | 12,708 | $ | 10,638 | $ | 18,129 | $ | 22,603 | ||||||||
Limited partners |
243,373 | 78,968 | 363,234 | 111,014 | ||||||||||||
$ | 256,081 | $ | 89,606 | $ | 381,363 | $ | 133,617 | |||||||||
Limited partners per unit share of net income |
$ | 0.15 | $ | 0.05 | $ | 0.23 | $ | 0.07 | ||||||||
The accompanying notes are an integral part of these financial statements.
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Condensed Statements of Cash Flows
(Unaudited)
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Net cash provided by operating activities |
$ | 391,157 | $ | 283,822 | ||||
Cash flows from investing activities: |
||||||||
Proceeds from sale of container rental equipment |
272,725 | 508,146 | ||||||
Cash flows from financing activities: |
||||||||
Distributions to general partner |
(20,284 | ) | (22,534 | ) | ||||
Distributions to limited partners |
(773,171 | ) | (939,803 | ) | ||||
Net cash used in financing activities |
(793,455 | ) | (962,337 | ) | ||||
Net decrease in cash |
(129,573 | ) | (170,369 | ) | ||||
Cash at the beginning of the period |
849,761 | 650,666 | ||||||
Cash at the end of the period |
$ | 720,188 | $ | 480,297 | ||||
The accompanying notes are an integral part of these financial statements.
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(1) | Summary of Significant Accounting Policies |
(a) | Nature of Operations | ||
Cronos Global Income Fund XVI, L.P. (the Partnership) is a limited partnership that was organized under the laws of the State of California on September 1, 1995, for the purpose of owning and leasing dry and specialized marine cargo containers to ocean carriers. The Partnership commenced operations on March 29, 1996, when the minimum subscription proceeds of $2,000,000 were received from over 100 subscribers (excluding from such count, Pennsylvania residents, Cronos Capital Corp. (CCC), the general partner, and all affiliates of CCC). On February 3, 1997, CCC suspended the offer and sale of units in the Partnership. The offering terminated on December 27, 1997, at which time 1,599,667 limited partnership units had been sold. | |||
CCC and its affiliate, Cronos Containers Limited (the Leasing Agent), manage the business of the Partnership. CCC and the Leasing Agent also manage the container leasing business for other partnerships affiliated with CCC. | |||
One of the principal investment objectives of the Partnership was to lease its containers for ten to fifteen years, and then to dispose of them and liquidate. In April 2011, the Partnership commenced its 16th year of operations. Through occasional sales, retirements and casualty losses, the Partnership had sold or disposed of approximately 54% of its container fleet (measured on a TEU-basis) as of June 30, 2011. With the reduction in the size of the Partnerships container fleet, the administrative expenses incurred by the Partnership, as a percent of its gross revenues, has increased. For these reasons, CCC, as the general partner, concluded that it would be in the best interest of the Partnership and its limited partners to sell its remaining containers in bulk. | |||
CCC distributed a request for proposal (RFP) on May 31, 2011 to various third parties seeking their interest in purchasing the Partnerships remaining containers. The RFP solicited bids for the Partnerships remaining on-hire and off-hire containers subject to master lease and term lease (Operating Containers), and certain containers subject to direct financing leases. | |||
On August 1, 2011, the Partnership sold 3,499 units of its remaining containers and its direct financing lease receivables for $6,180,454 in cash. The Partnership reported on the sale in its Current Report on Form 8-K with an event date of August 1, 2011, and hereby incorporates by reference the 8-K report on the sale in this report. With the completion of this sale of containers, the Partnership has now resolved to wind up and dissolve. CCC will proceed with the orderly liquidation of the Partnership, the payment of its remaining liabilities, and the distribution of the net proceeds of the Partnerships liquidation to the general and limited partners. | |||
The Partnership is suspending further cash distributions from operations and sales proceeds. The Partnership will make one liquidating distribution to the limited partners of the Partnership, representing the net proceeds generated from the sale of the Partnerships containers and its remaining assets, after payment or reservation for payment of the Partnerships remaining liabilities. The liquidating distribution is expected to be made on or about September 15, 2011 to limited partners of record on August 1, 2011. CCC is not prepared at this time to estimate the amount of the final distribution, pending disposal of the Funds remaining containers and completion of an accounting review of the Funds remaining liabilities to be discharged prior to the Funds termination. | |||
CCC anticipates that the Partnership will complete its liquidation no later than September 30, 2011 and de-register the Partnerships outstanding limited partnership units under the Securities Exchange Act of 1934, as amended, thereby terminating the Partnerships obligation to file further periodic reports under the Exchange Act with the SEC. |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(1) | Summary of Significant Accounting Policies (continued) |
(a) | Nature of Operations (continued) | ||
The Partnerships operations are subject to economic, political and business risks inherent in a business environment. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers are generally the same as those to domestic customers. The Partnerships leases generally require all payments to be made in United States dollars. | |||
(b) | Leasing Agent | ||
The Partnership and the Leasing Agent have entered into an agreement (the Leasing Agent Agreement) whereby the Leasing Agent manages the leasing operations for all equipment owned by the Partnership. In addition to responsibility for leasing and re-leasing the equipment to ocean carriers, the Leasing Agent disposes of the containers at the end of their useful economic life 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 Agent to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Agent and its affiliates, as part of a single fleet operated without regard to ownership. The Leasing Agent Agreement generally provides that the Leasing Agent will make payments to the Partnership based upon rentals collected from ocean carriers after deducting direct operating expenses and management fees due both to CCC and the Leasing Agent. With the sale of the Partnerships container fleet, as described under Nature of Operations above, the Leasing Agent Agreement has been terminated. | |||
The Leasing Agent leases containers to ocean carriers, generally under operating leases which are either master leases or term leases (mostly one to seven years) and periodically under direct financing leases. | |||
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 charged and recognized based upon the number of containers used and the applicable per-diem rate. Accordingly, rentals under master leases are variable and contingent upon the number of containers used. | |||
Term leases are for a fixed quantity of containers for a fixed period of time, typically varying from three to seven years. In most cases, containers cannot be returned prior to the expiration of the lease. Term lease agreements may contain early termination penalties that apply in the event of early redelivery. Term leases provide greater revenue stability to the lessor, usually at lower lease rates than master leases. Ocean carriers use term leases to lower their operating costs when they have a need for an identified number of containers for a specified term. Rentals under term leases are charged and recognized based upon the number of containers leased, the applicable per-diem rate and the length of the lease, irrespective of the number of days which the customer actually uses the containers. | |||
Direct financing leases are long-term in nature, usually ranging from three to seven years, and require relatively low levels of customer service. They ordinarily require fixed payments over a defined period and provide customers with an option to purchase the subject containers at the end of the lease term. Per-diem rates include an element of repayment of capital and therefore are usually higher than rates charged under either term or master leases. |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(1) | Summary of Significant Accounting Policies (continued) |
(c) | Basis of Presentation | ||
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011. For further information, refer to the financial statements and footnotes thereto included in the Partnerships Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC). | |||
(d) | Use of Estimates in Interim Financial Statements | ||
The preparation of interim financial statements, in conformity with US GAAP and SEC regulations for interim reporting, 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. The most significant estimates are those relating to the carrying value of equipment, including estimates relating to depreciable lives and residual values, and those relating to the allowance for doubtful accounts. Actual results could differ from those estimates. | |||
(e) | Container Rental Equipment and Container Rental Held for Sale | ||
Container rental equipment is depreciated over a 15-year life using the straight-line basis to its residual value of 10% of original equipment cost. The Partnership and CCC evaluate the period of depreciation and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives. | |||
Container rental equipment is considered to be impaired if the carrying value of the asset exceeds the expected future cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets are written down to fair value. An analysis projecting future cash flows from container rental equipment operations is prepared when indicators, such as material changes in market conditions, are present. Indicators of a potential impairment include a sustained decrease in utilization or operating profitability, or indications of technological obsolescence. The primary variables utilized by the analysis are current and projected utilization rates, per-diem rental rates, direct operating expenses, fleet size, container disposal proceeds and the timing of container disposals. Additionally, the Partnership evaluates future cash flows and potential impairment for its entire fleet rather than for each container type or individual container. As a result, future losses could result for individual container dispositions due to various factors, including age, condition, suitability for continued leasing, as well as the geographical location of containers when disposed. | |||
At June 30, 2011, the Partnerships Operating Containers were identified as held for sale. CCC and the Partnership evaluated the recoverability of the carrying value of the containers, now classified as held for sale, taking into consideration the sales price for the on-hire containers reflected by the various bids received in response to the RFP and the projected future cash flows for the remaining off-hire rental equipment containers. It was concluded that the estimated market value of these containers was higher than the carrying value. As a result of this evaluation, CCC and the Partnership determined impairment charges were not required |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(1) | Summary of Significant Accounting Policies (continued) |
(e) | Container Rental Equipment and Container Rental Held for Sale (continued) | ||
for the three- and six- month periods ended June 30, 2011. Additionally, depreciation of these containers ended as of the date of this reclassification. There were also no impairment charges for the three and six-month periods ended June 30, 2010. | |||
(f) | Allocation of Net Income or Loss, Partnership Distributions and Partners Capital | ||
Net income or loss has been allocated between the general and limited partners in accordance with the Partnership Agreement. The Partnership Agreement generally provides that CCC shall at all times maintain at least a 1% interest in each item of income or loss, including the gain arising from the sale of containers. The Partnership Agreement further provides that the gain arising from the sale of containers be allocated first to the partners with capital account deficit balances in an amount sufficient to eliminate any deficit capital account balance. Thereafter, the Partnerships gains arising from the sale of containers are allocated to the partners in accordance with their share of sale proceeds distributed. The Partnership Agreement also provides for income (excluding the gain arising from the sale of containers) for any period be allocated to CCC in an amount equal to that portion of CCCs distributions in excess of 1% of the total distributions made to both CCC and the limited partners of the Partnership for such period, as well as other allocation adjustments. | |||
Actual cash distributions differ from the allocations of net income or loss between the general and limited partners as presented in these financial statements. Partnership distributions are paid to the partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to CCC. Distributions of sales proceeds are allocated 99% to the limited partners and 1% to CCC. The allocations remain in effect until such time as the limited partners have received from the Partnership aggregate distributions in an amount equal to their capital contributions plus an 8% cumulative, compounded (daily), annual return on their adjusted capital contributions. Thereafter, all Partnership distributions will be allocated 85% to the limited partners and 15% to CCC. Cash distributions from operations to CCC in excess of 5% of distributable cash will be considered an incentive fee and will be recorded as compensation to CCC, with the remaining distributions from operations charged to partners capital. | |||
Upon dissolution, the assets of the Partnership will be sold and the proceeds thereof distributed as follows: (i) all of the Partnerships debts and liabilities to persons other than CCC or the limited partners shall be paid and discharged; (ii) all of the Partnerships debts and liabilities to CCC and the limited partners shall be paid and discharged; and (iii) the balance of such proceeds shall be distributed to CCC and the limited partners in accordance with the positive balances of CCC and the limited partners capital accounts. CCC shall contribute to the Partnership, if necessary, an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess of the Limited Partners capital contributions to the Partnership over the capital contributions previously made to the Partnership by CCC, after giving effect to the allocation of income or loss arising from the liquidation of the Partnerships assets. |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(2) | Net Lease Receivables Due from Leasing Agent |
Net lease receivables due from Leasing Agent at June 30, 2011 and December 31, 2010 comprised: |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
Gross lease receivables |
$ | 466,539 | $ | 367,051 | ||||
Less: |
||||||||
Direct operating expenses payable |
60,923 | 77,823 | ||||||
Base management fees payable |
16,868 | 18,309 | ||||||
Reimbursable administrative expenses payable |
4,807 | 5,072 | ||||||
Allowance for doubtful accounts |
22,301 | 22,884 | ||||||
Net lease receivables due from Leasing Agent |
$ | 361,640 | $ | 242,963 | ||||
Included within the amount of gross lease receivables are $110,205 and $44,997 in respect of amounts owed by the Leasing Agent in relation to disposal related invoices at June 30, 2011 and December 31, 2010, respectively. | ||
At June 30, 2011 and December 31, 2010, respectively, amounts of $39 and $2,001 were recorded as doubtful debt expense. In addition, $51 and $309 were written-off in the three months ended June 30, 2011 and 2010, respectively. In the six months ended June 30, 2011 and 2010, respectively, $622 and $511 were written-off. |
(3) | Net Lease Revenue |
Net lease revenue for the three and six-month period ended June 30, 2011 and 2010 comprised: |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Gross lease revenue |
$ | 286,586 | $ | 303,874 | $ | 573,278 | $ | 611,552 | ||||||||
Interest
income from direct finance lease |
6,151 | 8,541 | 12,926 | 17,298 | ||||||||||||
Less: |
||||||||||||||||
Direct operating expenses |
20,804 | 55,029 | 43,891 | 157,289 | ||||||||||||
Base management fees |
20,277 | 21,783 | 40,876 | 43,035 | ||||||||||||
Reimbursed administrative expenses |
||||||||||||||||
Salaries |
10,934 | 11,911 | 21,118 | 26,361 | ||||||||||||
Other payroll related expenses |
1,605 | 902 | 4,018 | 2,816 | ||||||||||||
General and administrative
expenses |
2,253 | 2,693 | 5,030 | 5,972 | ||||||||||||
55,873 | 92,318 | 114,933 | 235,473 | |||||||||||||
Net lease revenue |
$ | 236,864 | $ | 220,097 | $ | 471,271 | $ | 393,377 | ||||||||
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(4) | Operating Segment |
An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprises chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and about which separate financial information is available. CCC and the Leasing Agent operate the Partnerships container fleet as a homogenous unit and have determined that as such, it has a single reportable operating segment. | ||
A summary of gross lease revenue earned by each Partnership container type for the periods ended June 30, 2011 and 2010 follows: |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Dry cargo containers |
$ | 240,589 | $ | 245,725 | $ | 481,056 | $ | 484,415 | ||||||||
Refrigerated containers |
16,463 | 22,936 | 32,604 | 52,839 | ||||||||||||
Tank containers |
29,534 | 35,213 | 59,618 | 74,298 | ||||||||||||
Total |
$ | 286,586 | $ | 303,874 | $ | 573,278 | $ | 611,552 | ||||||||
Due to the Partnerships lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, the Partnership believes that it does not possess discernible geographic reporting segments. |
(5) | Limited Partners Capital |
Cash distributions made to the limited partners for the six-month period ended June 30, 2011 and 2010 were as follows: |
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Cash Distributions from Operations |
$ | 293,270 | $ | 306,601 | ||||
Cash Distributions from Sales Proceeds |
479,901 | 633,202 | ||||||
Total Cash Distributions |
$ | 773,171 | $ | 939,803 | ||||
These distributions are used in determining Adjusted Capital Contributions as defined by the Partnership Agreement. | ||
The limited partners per unit share of capital at June 30, 2011 and December 31, 2010, was $1.95 and $2.21, respectively. This is calculated by dividing the limited partners capital at the end of June 30, 2011, and December 31, 2010, by 1,599,667, the total number of outstanding limited partnership units. |
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CRONOS GLOBAL INCOME FUND XVI, L.P.
Notes to Unaudited Condensed Financial Statements
(6) | Subsequent Event |
As reported under Item(1)(a) (Nature of Operations) above, on August 1, 2011, the Partnership sold 3,499 units of its remaining containers and its direct financing lease receivables for $6,180,454 in cash. As of June 30, 2011, the book value of the containers and direct financing lease receivables was $2,043,868. The sale was reported by the Partnership in its 8-K Report, with an event date of August 1, 2011. | ||
With the completion of this sale of containers, the Partnership has now resolved to wind up and dissolve. See Note 1(a), herein, for further discussions. |
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the Partnerships historical financial condition and results of
operations should be read in conjunction with the Partnerships December 31, 2010, Annual Report on
Form 10-K and the financial statements and the notes thereto appearing elsewhere in this report.
Results of Operations
Partnership Overview
Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer
the business of the Partnership is vested in CCC. A Leasing Agent Agreement exists between the
Partnership and the Leasing Agent, whereby the Partnership contracted with the Leasing Agent to
manage the leasing operations for all equipment owned by the Partnership. In addition to
responsibility for leasing and re-leasing the equipment to ocean carriers, the Leasing Agent
disposes of the containers at the end of their useful economic life. The Leasing Agent has full
discretion over which ocean carriers and suppliers of goods and services it may deal with. The
Leasing Agent Agreement permits the Leasing Agent to use the containers owned by the Partnership,
together with other containers owned or managed by the Leasing Agent and its affiliates, as part of
a single fleet operated without regard to ownership.
All of the revenue generated by the Partnership comes from the leasing and sale of marine dry
cargo, refrigerated and tank containers. The primary component of the Partnerships results of
operations is net lease revenue. Net lease revenue is determined by deducting direct operating
expenses, management fees and reimbursed administrative expenses from the gross lease revenues that
are generated from the leasing of the Partnerships containers. Gross lease revenue is directly
related to the size, utilization and per-diem rental rates of the Partnerships fleet. Direct
operating expenses are direct costs associated with the Partnerships containers and may be
categorized as follows:
| Activity-related expenses, including agent costs and depot costs such as repairs, maintenance and handling; | ||
| Inventory-related expenses for off-hire containers, comprising storage and repositioning costs. These costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered and the frequency and size of repositioning moves undertaken; and | ||
| Legal and other expenses, including legal costs related to the recovery of containers and doubtful accounts, insurance and provisions for doubtful accounts. |
The following table summarizes the composition of the Partnerships operating lease fleet
based on container type, and is measured in twenty foot equivalent units (TEUs) at June 30, 2011:
Dry Cargo | Refrigerated | Tank | ||||||||||||||
Containers | Containers | Containers | Total | |||||||||||||
Container on lease: |
||||||||||||||||
Master lease |
3,818 | 31 | 9 | 3,858 | ||||||||||||
Term lease |
||||||||||||||||
Short term1 |
688 | 2 | 16 | 706 | ||||||||||||
Long term2 |
678 | 8 | 12 | 698 | ||||||||||||
1,366 | 10 | 28 | 1,404 | |||||||||||||
Subtotal |
5,184 | 41 | 37 | 5,262 | ||||||||||||
Containers off-hire |
125 | 7 | 4 | 136 | ||||||||||||
Total container fleet |
5,309 | 48 | 41 | 5,398 | ||||||||||||
1. | Short term leases represent term leases that are either scheduled for renegotiation or that may expire on or before June 2012. | |
2. | Long term leases represent term leases that will expire after June 2012. |
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At June 30, 2011, approximately 46% of the original equipment remained in the
Partnerships operating fleet, compared to approximately 48% at December 31, 2010. The following
table details the proportion of the operating lease fleet remaining by product type, and is
measured in TEUs:
Dry Cargo Containers |
Refrigerated Containers |
Tank Containers | Total | |||||||||||||||||||||||||||||
TEU | % | TEU | % | TEU | % | TEU | % | |||||||||||||||||||||||||
Total purchases |
11,053 | 100 | % | 690 | 100 | % | 52 | 100 | % | 11,795 | 100 | % | ||||||||||||||||||||
Less disposals |
5,744 | 52 | % | 642 | 93 | % | 11 | 21 | % | 6,397 | 54 | % | ||||||||||||||||||||
Remaining fleet at June 30, 2011 |
5,309 | 48 | % | 48 | 7 | % | 41 | 79 | % | 5,398 | 46 | % | ||||||||||||||||||||
Market & Industry Overview
The utilization rate for the Partnerships container fleet was 98% at June 30, 2011. The
container leasing sector as a whole continued to benefit from strong
demand created by growth in global trade and other industry factors.
While lease rates remain stable as customers secure equipment to meet
their demands, inventory related and activity related direct
operating expenses have declined in line with the reduction of
inventory of off-hire containers.
The robust secondary market for used containers has continued into the first quarter of 2011.
Strong utilization led to a reduction in containers available for sale. For the quarter, the
Partnership disposed of 141 containers, compared to 177 for the same period in 2010. The average
disposal proceeds per 20-foot dry cargo container, sold at the end of
its economic life, in the second quarter of 2011 increased 81% to $1,624 when compared to the same period of 2010.
The Partnerships average fleet size and utilization rates for the six-month period ended June
30, 2011 and 2010 were as follows:
Six Months Ended | ||||||||
June 30, | June 30, | |||||||
2011 | 2010 | |||||||
Average fleet size (measured in TEUs) |
||||||||
Dry cargo containers |
5,486 | 6,195 | ||||||
Refrigerated containers |
51 | 86 | ||||||
Tank containers |
42 | 50 | ||||||
Utilization rates for combined fleet |
||||||||
Average for the period |
97 | % | 87 | % | ||||
At end of period |
98 | % | 97 | % |
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Three Months Ended June 30, 2011, Compared to the Three Months Ended June 30, 2010
Overview
Net income for the three months ended June 30, 2011, was $256,081, an increase of $166,475, or
186%, when compared to the corresponding period in the prior year. The primary reasons for the
change in profitability were:
§ | The Partnership experienced stronger market conditions for leased containers; | ||
§ | Depreciation expense was lower than in the prior year, as the Partnership continued to sell equipment that had reached the end of its useful economic life for maritime leasing; and | ||
§ | The increase in level of gains recorded on equipment disposals. |
Analysis and discussion
Net lease revenue increased by $16,767, or 8%, in the second quarter of 2011 when compared to
the corresponding period in 2010. The increase was primarily due to:
§ | a $34,224, or 62%, decline in direct operating expenses as a result of the increase in utilization and corresponding decline in inventories of off-hire equipment, which resulted in a reduction in both activity-related and inventory-related expenses, partially offset by | ||
§ | a $17,288, or 6% reduction in gross lease revenue (a component of net lease revenue), that was attributable to the reduction in the Partnerships fleet size. |
Other components of net lease revenue are interest income from direct financing leases,
management fees and reimbursed administrative expenses. Interest income from direct financing
leases decreased by $2,390 and management fees and reimbursed administrative expenses decreased by
$2,220 when compared to the corresponding period of 2010.
Depreciation expense of $111,402 was $75,169, or 40%, lower than in the corresponding period
in 2010. This was a direct result of the decline of the size of the Partnerships fleet and the
fact that some of the Partnership fleet is now fully depreciated.
Other general and administrative expenses were $40,081 for the three-month period ended June
30, 2011, an increase of $5,480, or 16%, when compared to the same period in 2010. The increase
was primarily attributable to higher professional fees for investor administrative services.
Net gain on disposal of equipment for the three months ended June 30, 2011, was $170,700, an
increase of $80,019, or 88%, when compared to the corresponding period in 2010. The increase in
the net gain was due to the combined effect of lower net book values for the containers sold in
2011 compared to those sold in 2010, and an increase in the proceeds realized per container.
On August 1, 2011 the Partnership sold 3,499 units of its remaining containers
and direct financing lease receivables for $6,180,454 in cash. See Item (1)(a) above (Nature of Operations). This container sale will be the
primary contributing factor to net gain or loss on disposals in the subsequent quarter. There were
no reductions to the carrying value of container rental equipment due to impairment during the
three-month periods ended June 30, 2011 and June 30, 2010.
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Six Months Ended June 30, 2011, Compared to the Six Months Ended June 30, 2010
Overview
Net income for the six months ended June 30, 2011, was $381,363, an increase of $247,746, or
185%, when compared to the corresponding period in the prior year. The primary reasons for the
change in profitability were:
§ | The Partnership experienced stronger market conditions for leased containers; | ||
§ | Depreciation expense was lower than in the prior year, as the Partnership continued to sell equipment that had reached the end of its useful economic life for maritime leasing; and partially offset by | ||
§ | The increase in level of gains recorded on equipment disposals. |
Analysis and discussion
Net lease revenue increased by $77,894, or 20%, in the second quarter of 2011 when compared to
the corresponding period in 2010. The increase was primarily due to:
§ | a $113,398, or 72%, decline in direct operating expenses as a result of the increase in utilization and corresponding decline in inventories of off-hire equipment, which resulted in a reduction in both activity-related and inventory-related expenses, partially offset by | ||
§ | a $38,274, or 6% reduction in gross lease revenue (a component of net lease revenue), that was attributable to the reduction in the Partnerships fleet size. |
Other components of net lease revenue are interest income from direct financing leases,
management fees and reimbursed administrative expenses. Interest income from direct financing
leases decreased by $4,372 and management fees and reimbursed administrative expenses decreased by
$7,142, when compared to the corresponding period of 2010.
Depreciation expense of $268,182 was $115,592, or 30%, lower than in the corresponding period
in 2010. This was a direct result of the decline of the size of the Partnerships fleet and the
fact that some of the Partnership fleet is now fully depreciated.
Other general and administrative expenses were $84,017 for the six-month period ended June 30,
2011, an increase of $9,922, or 13%, when compared to the same period in 2010. The increase was
primarily attributable to higher professional fees for investor administrative services.
Net gain on disposal of equipment for the six months ended June 30, 2011, was $262,291, an
increase of $64,182, or 32%, when compared to the corresponding period in 2010. The increase in
the net gain was due to the combined effect of lower net book values for the containers sold in
2011 compared to those sold in 2010, and an increase in the proceeds realized per container.
Liquidity and Capital Resources
During the Partnerships first ten years of operations, the Partnerships primary objective
was to generate cash flow from operations for distribution to its limited partners. The
Partnership relied primarily on container rental receipts to meet this objective. No credit lines
are maintained to finance working capital. Commencing in April 2007, the Partnership began to
focus its attention on the retirement of the remaining equipment in the Partnerships container
fleet, in accordance with another of its original
investment objectives, realizing the residual value of its containers after the expiration of
their economic useful lives, estimated to be 15 years after placement in leased service.
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In April 2011, the Partnership commenced its 16th year of operations and had sold or disposed
of approximately 54% of its container fleet (measured on a TEU basis). With the reduction in the
size of the Partnerships container fleet, the administrative expenses incurred by the Partnership,
as a percent of its gross revenues, has increased. For these reasons, CCC, as the general partner,
concluded that it would be in the best interest of the Partnership and its limited partners to sell
its remaining containers in bulk.
CCC distributed a request for proposal (RFP) on May 31, 2011 to various third parties
seeking their interest in purchasing the Partnerships remaining containers. On August 1, 2011, the Partnership sold 3,499 units of its remaining containers and its direct financing
lease receivables for $6,180,454 in cash. The Partnership reported on the sale in its Current Report on Form 8-K with an event date of August 1, 2011, and hereby incorporates by reference this
8-K report on the sale in this report.
With the completion of this sale of containers, the Partnership has now resolved to wind up
and dissolve. CCC will proceed with the orderly liquidation of the remaining assets of the
Partnership, with the proceeds thereof distributed as follows: (i) all of the Partnerships debts
and liabilities to persons other than CCC or the limited partners shall be paid and discharged;
(ii) all of the Partnerships debts and liabilities to CCC and the limited partners shall be paid
and discharged; and (iii) the balance of such proceeds shall be distributed to CCC and the limited
partners in accordance with the positive balances of CCC and the limited partners capital
accounts. CCC shall contribute to the Partnership, if necessary, an amount equal to the lesser of
the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess
of the Limited Partners capital contribution to the Partnership over the capital contributions
previously made to the Partnership by CCC, after giving effect to the allocation of income or loss
arising from the liquidation of the Partnerships assets.
Distributions are paid monthly, based primarily on each quarters cash flow from operations.
Monthly distributions are also affected by periodic increases or decreases to working capital
reserves, as deemed appropriate by CCC. Cash distributions from operations are allocated 5% to CCC
and 95% to the limited partners. Distributions of sales proceeds are allocated 1% to CCC and 99%
to the limited partners. This sharing arrangement will remain in place until the limited partners
have received aggregate distributions in an amount equal to their capital contributions plus an 8%
cumulative, compounded (daily) annual return on their adjusted capital contributions. Thereafter,
all distributions will be allocated 15% to CCC and 85% to the limited partners, pursuant to Section
6.1(b) of the Partnerships Partnership Agreement.
The Partnership will make one liquidating distribution to the limited partners of the
Partnership, representing the net proceeds generated from the sale of the Partnerships containers
and the Partnerships
remaining assets, after payment or reservation for payment of the Partnerships remaining
liabilities. The liquidating distribution is
expected to be made on or about September 15, 2011 to limited partners of record on August 1, 2011.
CCC is not prepared at this time to estimate the amount of the final distribution, pending disposal of the Funds remaining containers and completion of an accounting review of the
Funds remaining liabilities to be discharged prior to the Funds termination.
CCC anticipates that the Partnership will complete its liquidation no later than September 30,
2011 and de-register the Partnerships outstanding limited partnership units under the Securities
Exchange Act of 1934, as
16
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amended,
thereby terminating the Partnerships obligation to file further periodic
reports under the Exchange Act with the SEC.
At June 30, 2011, the Partnership had $720,188 in cash, a decrease of $129,573 from cash
balances at December 31, 2010. As of June 30, 2011, the Partnership held its cash on deposit in an
operating bank account. The Partnership reviews its investment strategy for cash balances on a
periodic basis and will invest in short-term, interest bearing accounts as appropriate.
Cash from Operating Activities: Net cash provided by operating activities, primarily generated
by net lease revenue receipts, was $391,157 for the six months ended June 30, 2011, compared to
$283,822 for the same six-month period in 2010.
Cash from Investing Activities: Net cash provided by investing activities was $272,725 for the
six months ended June 30, 2011, compared to $508,146 in the corresponding period of 2010. These
amounts represent sales proceeds generated from the sale of container rental equipment.
Cash from Financing Activities: Net cash used in financing activities was $793,455 for the six
months ended June 30, 2011, compared to $962,337 for the six months ended June 30, 2010. These
amounts represent distributions to the Partnerships general and limited partners.
Critical Accounting Policies
The Partnerships accounting policies are fundamental to understanding managements discussion
and analysis of results of operations and financial condition. The Partnership has identified
three significant policies that require the Partnership to make subjective and / or complex
judgments about matters that are inherently uncertain. These policies include the following:
| Container equipment depreciable lives and residual values. | ||
| Container equipment recoverability and valuation. | ||
| Allowance for doubtful accounts. |
The Partnership, in consultation with its audit committee, has reviewed and approved these
significant accounting policies which are further described in the Partnerships December 31, 2010
Annual Report on Form 10-K.
Inflation
The Partnership believes inflation has not had a material adverse effect on the results of its
operations.
17
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Exchange rate risk: Substantially all of the Partnerships revenues are billed and paid in US
dollars and a significant portion of costs are billed and paid in US dollars. Of the non-US dollar
direct operating expenses, the majority are individually small, unpredictable and incurred in
various denominations. Thus, the Leasing Agent has determined such amounts are not suitable for
cost effective hedging. As exchange rates are outside of the control of the Partnership and
Leasing Agent, there can be no assurance that such fluctuations will not adversely affect the
Partnerships results of operations and financial condition. The Partnership believes it does not
have significant exposure to other forms of market risk.
Credit risk: The Leasing Agent sets maximum credit limits for all of the Partnerships
customers, limiting the number of containers leased to each according to established credit
criteria. The Leasing Agent continually tracks its credit exposure to each customer. The Leasing
Agents credit committee meets quarterly to analyze the performance of the Partnerships customers
and to recommend actions to be taken in order to minimize credit risks. The Leasing Agent uses
specialist third party credit information services and reports prepared by local staff to assess
credit quality.
Item 4. Controls and Procedures
The Partnership, as such, has no officers or directors, but is managed by CCC, the general
partner. The principal executive and principal financial officers of CCC have evaluated the
disclosure controls and procedures of the Partnership as of the end of the period covered by this
report. As used herein, the term disclosure controls and procedures has the meaning given to the
term by Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), and
includes the controls and other procedures of the Partnership that are designed to ensure that
information required to be disclosed by the Partnership in the reports that it files with the SEC
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the SECs rules and forms. Based upon their evaluation, the principal executive and
principal financial officers of CCC have concluded that the Partnerships disclosure controls and
procedures were effective such that the information required to be disclosed by the Partnership in
this report is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms applicable to the preparation of this report and is accumulated and
communicated to CCCs management, including CCCs principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosures.
There have not been any changes in the Partnerships internal control over financial reporting
identified in connection with Managements Report in the Partnerships December 31, 2010 Annual
Report on Form 10-K that occurred during the Partnerships second quarter ended June 30, 2011 that
have materially affected, or are reasonably likely to materially affect, the Partnerships internal
control over financial reporting.
18
Table of Contents
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable. |
Item 1A. Risk Factors
There are no material changes from the risk factors as disclosed under Item 1A of Part I in
the Partnerships December 31, 2010 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. [Removed and Reserved]
Item 5. Other Information
Not applicable.
Item 6. Exhibits
(a) | Exhibits |
Exhibit | ||||
No. | Description | Method of Filing | ||
3(a)
|
Limited Partnership Agreement, amended and restated as of December 28, 1995 | * | ||
3(b)
|
Certificate of Limited Partnership | ** | ||
10
|
Form of Leasing Agent Agreement with Cronos Containers Limited | *** | ||
31.1
|
Rule 13a-14 Certification | Filed with this document | ||
31.2
|
Rule 13a-14 Certification | Filed with this document | ||
32
|
Section 1350 Certification | Filed with this document **** | ||
101.INS |
XBRL Instance Document | |||
101.SCH |
XBRL Taxonomy Extension Schema Document | |||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
* | Incorporated by reference to Exhibit A to the Prospectus of the Partnership dated December 28, 1995, included as part of Registration Statement on Form S-1 (No. 33-98290) | |
** | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-98290) | |
*** | Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-98290) | |
**** | This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed filed with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act. |
19
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has
duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
CRONOS GLOBAL INCOME FUND XVI, L.P. |
||||
By | Cronos Capital Corp. | |||
The General Partner | ||||
By | /s/ Peter J. Younger | |||
Peter J. Younger | ||||
President and Chief Executive Officer of
Cronos Capital Corp. (CCC) Principal Executive Officer of CCC |
||||
By | /s/ Frank P. Vaughan | |||
Frank P. Vaughan | ||||
Chief Financial Officer and Director of Cronos Capital Corp. (CCC) Principal Financial and Accounting Officer of CCC |
||||
Date: August 12, 2011
20
Table of Contents
EXHIBIT INDEX
Exhibit | ||||
No. | Description | Method of Filing | ||
3(a)
|
Limited Partnership Agreement, amended and restated as of December 28, 1995 | * | ||
3(b)
|
Certificate of Limited Partnership | ** | ||
10
|
Form of Leasing Agent Agreement with Cronos Containers Limited | *** | ||
31.1
|
Rule 13a-14 Certification | Filed with this document | ||
31.2
|
Rule 13a-14 Certification | Filed with this document | ||
32
|
Section 1350 Certification | Filed with this document **** | ||
101.INS |
XBRL Instance Document | |||
101.SCH |
XBRL Taxonomy Extension Schema Document | |||
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | |||
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | |||
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |
* | Incorporated by reference to Exhibit A to the Prospectus of the Partnership dated December 28, 1995, included as part of Registration Statement on Form S-1 (No. 33-98290) | |
** | Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-98290) | |
*** | Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-98290) | |
**** | This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not deemed to be filed with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act. |