-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TvXYB49XpRZoU221i2FZ9jnCkIBUKpG3hR6hkQGzlwwzlEojIB1/x8azAeCbVGUp KdRHGaSVnJo68AnW/zoYcw== 0000950149-01-500311.txt : 20010327 0000950149-01-500311.hdr.sgml : 20010327 ACCESSION NUMBER: 0000950149-01-500311 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRONOS GLOBAL INCOME FUND XIV L P CENTRAL INDEX KEY: 0000891332 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943163375 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-23158 FILM NUMBER: 1579046 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FLR CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 10-K405 1 f70219ee10-k405.txt FORM 10-K405 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]. For the fiscal year ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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 Identification No.) incorporation or organization) One Front Street, 15th Floor, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 677-8990 Name of each exchange on Title of each class which registered - ------------------- ---------------- Not Applicable Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTERESTS ------------------------------------------------------------------ (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant is not applicable. Documents incorporated by Reference PART I Item 1 - Business Prospectus of Cronos Global Income Fund XIV, L.P., dated December 1, 1992 included as part of Registration Statement on Form S-1 (No. 33-51810) 2 PART I - FINANCIAL INFORMATION Item 1. Business (a) General Development of Business The Registrant 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, special purpose containers and container-related equipment. The Registrant was initially capitalized with $100, and commenced offering its limited partnership interests to the public subsequent to December 1, 1992, pursuant to its Registration Statement on Form S-1 (File No. 33-51810). The Registrant had no securities holders as defined by the Securities and Exchange Act of 1934 as of December 31, 1992. Additionally, the Registrant was not engaged in any trade or business during the period covered by this report, as the offering broke initial impound on January 29, 1993. The offering terminated on November 30, 1993. The Registrant raised $59,686,180 in subscription proceeds. The following table sets forth the use of said subscription proceeds:
Percentage of Amount Gross Proceeds ------ -------------- Gross Subscription Proceeds $59,686,180 100.0% Public Offering Expenses: Underwriting Commissions $ 5,968,618 10.0% Offering and Organization Expenses $ 1,387,438 2.3% ----------- ----- Total Public Offering Expenses $ 7,356,056 12.3% ----------- ----- Net Proceeds $52,330,124 87.7% Acquisition Fees $ 1,014,344 1.7% Working Capital Reserve $ 598,566 1.0% ----------- ----- Gross Proceeds Invested in Equipment $50,717,214 85.0% =========== =====
The general partner of the Registrant is Cronos Capital Corp. ("CCC"), a wholly-owned subsidiary of Cronos Holdings/Investments (U.S.), Inc., a Delaware corporation. These and other affiliated companies are ultimately wholly-owned by The Cronos Group, a holding company registered in Luxembourg (the "Parent Company") and are collectively referred to as the "Group". The activities of the container division of the Group are managed through the Group's subsidiary in the United Kingdom, Cronos Containers Limited (the "Leasing Company"). The Leasing Company manages the leasing operations of all equipment owned by the Group on its behalf or managed on behalf of other third-party container owners, including all other programs organized by CCC. On December 1, 1992, the Leasing Company entered into a Leasing Agent Agreement with the Registrant assuming the responsibility for all container leasing activities. For a discussion of recent developments in the Registrant's business, see Item 7, "Management's Discussion and Analysis of Financial Condition and Result of Operations." For information concerning the containers acquired by the Registrant, see Item 2, "Properties." 2 3 (b) Financial Information About Segments The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," which requires that public business enterprises report financial and descriptive information about reportable operating segments. 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 enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. The Leasing Company's management operates the Registrant's container fleet as a homogenous unit and has determined, after considering the requirements of SFAS No. 131, that as such it has a single reportable operating segment. The Registrant derives revenues from dry cargo containers and refrigerated containers. As of December 31, 2000, the Registrant operated 8,331 twenty-foot, 3,480 forty-foot and 213 forty-foot high-cube marine dry cargo containers, as well as 476 twenty-foot and 293 forty-foot marine refrigerated cargo containers. A summary of gross lease revenue earned by the Leasing Company, on behalf of the Registrant, by product, for the years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998 ---------- ---------- ---------- Dry cargo containers $4,446,638 $4,354,657 $5,296,071 Refrigerated containers 2,219,629 2,346,272 2,419,678 ---------- ---------- ---------- Total $6,666,267 $6,700,929 $7,715,749 ========== ========== ==========
Due to the Registrant's lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, it is impracticable to provide the geographic area information required by SFAS No. 131. Any attempt to separate "foreign" operations from "domestic" operations would be dependent on definitions and assumptions that are so subjective as to render the information meaningless and potentially misleading. One sub-lessee of the Leasing Company contributed approximately 13% or $888,300 of the Leasing Company's rental revenue earned during 2000 on behalf of the Registrant. No single sub-lessee of the Leasing Company contributed more than 10% of the Registrant's rental revenue earned during 1999 and 1998. (c) Narrative Description of Business (c)(1)(i) A marine cargo container is a reusable metal container designed for the efficient carriage of cargo with a minimum of exposure to loss from damage or theft. Containers are manufactured to conform to worldwide standards of container dimensions and container ship fittings adopted by the International Standards Organization ("ISO") in 1968. The standard container is either 20' long x 8' wide x 8'6" high (one twenty-foot equivalent unit ("TEU"), the standard unit of physical measurement in the container industry) or 40' long x 8' wide x 8'6" high (two TEU). Standardization of the construction, maintenance and handling of containers allows containers to be picked up, dropped off, stored and repaired efficiently throughout the world. This standardization is the foundation on which the container industry has developed. Standard dry cargo containers are rectangular boxes with no moving parts, other than doors, and are typically made of steel or aluminum. They are constructed to carry a wide variety of cargos ranging from heavy industrial raw materials to light-weight finished goods. Specialized containers include, among others, refrigerated containers for the transport of temperature-sensitive goods and tank containers for the carriage of liquid cargo. Dry cargo containers currently constitute approximately 87% (in TEU) of the worldwide container fleet. Refrigerated and tank containers currently constitute approximately 5% (in TEU) of the worldwide container fleet, with open-tops and other specialized containers constituting the remaining 8%. One of the primary benefits of containerization has been the ability of the shipping industry to effectively lower freight rates due to the efficiencies created by standardized intermodal containers. Containers can be handled much more efficiently than loose cargo and are typically shipped via several modes of transportation, including truck, railway and ship. Containers require loading and unloading only once and remain sealed until arrival at the final destination, significantly reducing transport time, labor and handling costs and losses due to damage and theft. Efficient movement of containerized cargo between ship and shore reduces the amount of time that a ship must spend in port and reduces the transit time of freight moves. 3 4 The logistical advantages and reduced freight rates brought about by containerization have been major catalysts for world trade growth during the last twenty-five years, resulting in increased demand for containerization. The world's container fleet has grown from an estimated 270,000 TEU in 1969 to approximately 14 million TEU by mid-2000. The container leasing business is cyclical, and depends largely upon the rate of increase in world trade. The container leasing industry has experienced cyclical downturns during the last sixteen years. BENEFITS OF LEASING Leasing companies own approximately 46% of the world's container fleet with the balance owned predominantly by shipping lines. Shipping lines, which traditionally operate on tight profit margins, often supplement their owned fleet of containers by leasing a portion of their equipment from container leasing companies and, in doing so, achieve the following financial and operational benefits: - Leasing allows the shipping lines to utilize the equipment they need without having to make large capital expenditures; - Leasing offers a shipping line an alternative source of financing in a traditionally capital-intensive industry; - Leasing enables shipping lines to expand their routes and market shares at a relatively inexpensive cost without making a permanent commitment to support their new structure; - Leasing allows shipping lines to respond to changing seasonal and trade route demands, thereby optimizing their capital investment and storage costs. TYPES OF LEASES The Registrant's containers are leased primarily to shipping lines operating in major trade routes (see Item 1(d)). Most if not all of the Registrant's marine dry cargo containers are leased pursuant to operating leases, primarily master leases, where the containers are leased to the ocean carrier on a daily basis for any desired length of time, with the flexibility of picking up and dropping off containers at various agreed upon locations around the world. Some of the Registrant's containers may be leased pursuant to term leases, which may have durations of less than one year to five years. The Registrant's specialized containers are generally leased on longer-term leases because the higher cost, value and complexity of this equipment makes it more expensive to redeliver and lease out. - Master lease. Master leases are short-term leases under which a customer reserves the right to lease a certain number of containers, as needed, under a general agreement between the lessor and the lessee. Such leases provide customers with greater flexibility by allowing them to pick up and drop off containers where and when needed, subject to restrictions and availability, on pre-agreed terms. The commercial terms of master leases are negotiated annually. Master leases also define the number of containers that may be returned within each calendar month, the return locations and applicable drop-off charges. Due to the increased flexibility they offer, master leases usually command higher per-diem rates and generate more ancillary fees (including pick-up, drop-off, handling and off-hire fees) than term leases. Short-term lease agreements have a duration of less than one year and include one-way, repositioning and round-trip leases. Ocean carriers generally use one-way leases to manage trade imbalances (where more containerized cargo moves in one direction than another) by picking up a container in one port and dropping it off at another location after one or more legs of a voyage. - Term lease. Term leases are for a fixed period of time and include both long and short-term commitments, with most extending from three to five years. Term lease agreements may contain early termination penalties that apply in the event of early redelivery. In most cases, however, equipment is not returned prior to the expiration of the lease. Term leases provide greater revenue stability to the lessor, but at lower rates than master leases. Ocean carriers use long-term leases when they have a need for identified containers for a specified term. Short-term lease agreements have a duration of less than one year and include one-way, repositioning and round-trip leases. They differ from master leases in that they define the number of containers to be leased and the lease term. Ocean carriers generally use one-way leases to manage trade imbalances (where more containerized cargo moves in one direction than another) by picking up a container in one port and dropping it off at another location after one or more legs of a voyage. 4 5 The terms and conditions of the Leasing Company's leases provide that customers are responsible for paying all taxes and service charges arising from container use, maintaining the containers in good and safe operating condition while on lease and paying for repairs, excluding ordinary wear and tear, upon redelivery. Some leases provide for a "damage protection plan" whereby lessees, for an additional payment (which may be in the form of a higher per-diem rate), are relieved of the responsibility of paying some of the repair costs upon redelivery of the containers. The Leasing Company has historically provided this service on a limited basis to selected customers. Repairs provided under such plans are carried out by the same depots, under the same procedures, as are repairs to containers not covered by such plans. Customers also are required to insure leased containers against physical damage and loss, and against third party liability for loss, damage, bodily injury or death. The percentage of equipment on term leases as compared to master leases varies widely among leasing companies, depending upon each company's strategy or margins, operating costs and cash flows. Lease rates depend on several factors including the type of lease, length of term, maintenance provided, type and age of the equipment, location and availability, and market conditions. CUSTOMERS The Registrant is not dependent upon any particular customer or group of customers of the Leasing Company and only one of those customers account for more than 10% of the Registrant's revenue, contributing approximately 13% or $888,300 of the rental billings earned during 2000. The customers of the Leasing Company are billed and pay in United States dollars. The Leasing Company sets maximum credit limits for the Registrant's customers, limiting the number of containers leased to each according to established credit criteria. The Leasing Company continually tracks its credit exposure to each customer. The Leasing Company's credit committee meets quarterly to analyze the performance of the Registrant's customers and to recommend actions to be taken in order to minimize credit risks. The Leasing Company uses specialist third party credit information services and reports prepared by local staff to assess credit applications. The Registrant is subject to unexpected loss in rental revenue from lessees of its containers that default under their container lease agreements with the Leasing Company. FLEET PROFILE The Registrant acquired high-quality dry cargo containers manufactured to specifications that exceed ISO standards and are designed to minimize repair and operating costs. Dry cargo containers are the most commonly used type of container in the shipping industry. The Registrant's dry cargo container fleet is constructed of all Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage), which is a high-tensile steel yielding greater damage and corrosion resistance than mild steel. Refrigerated containers are used to transport temperature-sensitive products, such as meat, fruit, vegetables and photographic film. All of the Registrant's refrigerated containers have high-grade stainless steel interiors. The majority of the Registrant's 20-foot refrigerated containers have high-grade stainless steel walls, while most of the Registrant's 40-foot refrigerated containers are steel framed with aluminum outer walls to reduce weight. As with the dry cargo containers, all refrigerated containers are designed to minimize repair and maintenance and maximize damage resistance. The Registrant purchased its dry cargo containers from manufacturers in China, Korea, Indonesia, Thailand, and India as part of a policy of sourcing container production in locations where it can meet customer demands most effectively. The Registrant's refrigerated containers were purchased mainly from Korean manufacturers. The majority of its refrigeration units were purchased from Carrier Transicold, the primary container refrigeration unit supplier in the United States. 5 6 As of December 31, 2000, the Registrant owned 8,331 twenty-foot, 3,480 forty-foot and 213 forty-foot high-cube marine dry cargo containers, as well as 476 twenty-foot and 293 forty-foot marine refrigerated cargo containers. The following table sets forth the number of containers on lease, by container type and lease type as of December 31, 2000:
Number of Containers on Lease ------------------- 20-Foot Dry Cargo Containers: Term Leases 1,212 Master Leases 4,764 ----- Total on lease 5,976 ===== 40-Foot Dry Cargo Containers: Term Leases 661 Master Leases 1,815 ----- Total on lease 2,476 ===== 40-Foot High-Cube Dry Cargo Containers: Term Leases 34 Master Leases 133 ----- Total on lease 167 ===== 20-Foot Refrigerated Cargo Containers: Term Leases 105 Master Leases 312 ----- Total on lease 417 ===== 40-Foot Refrigerated Cargo Containers: Term Leases 122 Master Leases 100 ----- Total on lease 222 =====
The Leasing Company makes payments to the Registrant based upon rentals collected from ocean carriers after deducting certain operating expenses associated with the containers, such as the base management fee payable to CCL, certain expense reimbursements payable to CCC and CCL incentive fees payable to CCC, the costs of maintenance and repairs not performed by lessees, independent agent fees and expenses, depot expenses for handling, inspection and storage, and additional insurance. REPAIR AND MAINTENANCE All containers are inspected and repaired when redelivered by a customer, and customers are obligated to pay for all damage repair, excluding wear and tear, according to standardized industry guidelines. Depots in major port areas perform repair and maintenance that is verified by independent surveyors or the Leasing Company's technical and operations staff. Before any repair or refurbishment is authorized on older containers in the Registrant's fleet, the Leasing Company's technical and operations staff reviews the age, condition and type of container, and its suitability for continued leasing. The Leasing Company compares the cost of such repair or refurbishment with the prevailing market resale price that might be obtained for that container and makes the appropriate decision whether to repair or sell the container. The Leasing Company is authorized to make this decision on behalf of the Registrant and makes these decisions by applying the same standards to the Registrant's containers as to its own containers. 6 7 MARKET FOR USED CONTAINERS The Registrant estimates that the period for which a dry cargo or refrigerated container may be used as a leased marine cargo container ranges from 10 to 15 years. The Leasing Company, on behalf of the Registrant, disposes of used containers in a worldwide market in which buyers include wholesalers, mini-storage operations, construction companies and others. As the Registrant's fleet ages, a larger proportion of its revenue will be derived from selling its containers. OPERATIONS The Registrant's container leasing and marketing operations are conducted through the Leasing Company in the United Kingdom, with support provided by area offices and dedicated agents located in San Francisco, California; Iselin, New Jersey; Hamburg; Antwerp; Genoa; Gothenburg, Sweden; Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de Janeiro; Shanghai and Madras, India. The Leasing Company also maintains agency relationships with over 25 independent agents around the world, who are generally paid commissions based upon the amount of revenues they generate in the region or the number of containers that are leased from their area. The agents are located in jurisdictions where the volume of the Leasing Company's business necessitates a presence in the area but is not sufficient to justify a fully-functioning Leasing Company office or dedicated agent. Agents provide marketing support to the area offices covering the region, together with limited operational support. In addition, the Leasing Company relies on the services of over 300 independently-owned and operated depots around the world to inspect, repair, maintain and store containers while off-hire. The Leasing Company's area offices authorize all container movements into and out of the depot and supervise all repair and maintenance performed by the depot. The Leasing Company's technical staff sets the standards for repair of its owned and managed fleet throughout the world and monitors the quality of depot repair work. The depots provide a vital link to the Leasing Company's operations, as the redelivery of a container into a depot is the point at which the container is off-hired from one customer and repaired in preparation for re-leasing to the next. The Leasing Company's global network is integrated with its computer system and provides 24-hour communication between offices, agents and depots. The system allows the Leasing Company to manage and control the Registrant's fleet on a global basis, providing it with the responsiveness and flexibility necessary to service the master lease market effectively. This system is an integral part of the Leasing Company's service, as it processes information received from the various offices, generates billings to the Leasing Company's lessees and generates a wide range of reports on all aspects of the Leasing Company's leasing activities. The system records the life history of each container, including the length of time on and off lease and repair costs, as well as port activity trends, leasing activity and equipment data per customer. The operations and marketing data is fully interfaced with the finance and accounting system to provide revenue, cost and asset information to management and staff around the world. The Leasing Company intends to continue to enhance its computer system as needs arise in the future. INSURANCE The Registrant's lease agreements typically require lessees to obtain insurance to cover all risks of physical damage and loss of the equipment under lease, as well as public liability and property damage insurance. However, the precise nature and amount of the insurance carried by each ocean carrier varies from lessee to lessee. In addition, the Registrant has purchased secondary insurance effective in the event that a lessee fails to have adequate primary coverage. This insurance covers liability arising out of bodily injury and/or property damage as a result of the ownership and operation of the containers, as well as insurance against loss or damage to the containers, loss of lease revenues in certain cases and costs of container recovery and repair in the event that a customer goes into bankruptcy. The Registrant believes that the nature and the amounts of its insurance are customary in the container leasing industry and subject to standard industry deductions and exclusions. (c)(1)(ii) Inapplicable. (c)(1)(iii) Inapplicable. (c)(1)(iv) Inapplicable. 7 8 (c)(1)(v) The Registrant's containers are leased globally; therefore, seasonal fluctuations are minimal. Other economic and business factors to which the transportation industry in general and the container leasing industry in particular are subject, include fluctuations in general business conditions and fluctuations in supply and demand for equipment resulting from, among other things, obsolescence, changes in the methods or economics of a particular mode of transportation or changes in governmental regulations or safety standards. (c)(1)(vi) The Registrant established a working capital reserve of approximately 1% of subscription proceeds raised. In addition, the Registrant may reserve additional amounts from anticipated cash distributions to the partners to meet working capital requirements. Amounts due under master leases are calculated at the end of each month and billed approximately six to eight days thereafter. Amounts due under short-term and long-term leases are set forth in the respective lease agreements and are generally payable monthly. However, payment is normally received within 45-100 days of billing. Past due penalties are not customarily collected from lessees and, accordingly, are not generally levied by the Leasing Company against lessees of the Registrant's containers. (c)(1)(vii) For the year ended December 31, 2000, one sub-lessee of the Leasing Company accounted for approximately 13% or $888,300 of the Registrant's rental revenue billings. The Registrant does not believe that its ongoing business is dependent upon a single customer, although the loss of one or more of its largest customers could have an adverse effect upon its business. (c)(1)(viii) Inapplicable. (c)(1)(ix) Inapplicable. (c)(1)(x) Competition among container leasing companies is based upon several factors, including the location and availability of inventory, lease rates, the type, quality and condition of the containers, the quality and flexibility of the service offered and the confidence in and professional relationship with the lessor. Other factors include the speed with which a leasing company can prepare its containers for lease and the ease with which a lessee believes it can do business with a lessor or its local area office. Not all container leasing companies compete in the same market, as some supply only dry cargo containers and not specialized containers, while others offer only long-term leases. The Leasing Company, on behalf of the Registrant, competes with various container leasing companies in the markets in which it conducts business, including Transamerica Leasing, GE-Seaco, Textainer Corp., Triton Container International Ltd. and others. Mergers and acquisitions have been a feature of the container leasing industry for over a decade and the leasing market is essentially comprised of three distinct groups: the very large (in TEU terms) market leaders Transamerica Leasing and GE Seaco, who between them, with fleets of around 1.1 million TEU each in mid-2000, control in excess of one third of the total leased fleet; a substantial middle tier of companies possessing fleets in the 250,000 to 900,000 TEU range, and the smaller more specialized fleet operators. In recent years, several major leasing companies, as well as numerous smaller ones, have been acquired by competitors. The Leasing Company believes that the current trend toward consolidation in the container leasing industry will continue, up to a point. There appears to be an upper limit to the size of the optimum fleet, beyond which dis-economies of scale and/or barriers against further market share development become apparent. Furthermore, ocean carriers have a tendency to support a number of lessors simultaneously, in order to maximize competition and increase the number of available locations for redelivery of containers. Economies of scale, worldwide operations, diversity, size of fleet and financial strength are increasingly important to the successful operation of a container leasing business. Additionally, as containerization grows, and as regions such as South America and the Indian sub-continent become ever bigger generators of containerized cargo, customers may demand more flexibility from leasing companies regarding per-diem rates, pick-up and drop-off locations, and the availability of containers. In recent years, the Leasing Company and other lessors have developed certain internet based applications. For the Leasing Company, these applications will allow customers access to make on-line product inquiries. The Leasing Company is continuing to develop this side of business and will introduce other internet options in the future, including on-line bookings for all products. 8 9 Some of the Leasing Company's competitors with larger fleets have greater financial resources than the Leasing Company and may be more capable of offering lower per diem rates. In the Leasing Company's experience, however, ocean carriers will generally lease containers from more than one leasing company in order to minimize dependence on a single supplier. Furthermore, by having as many suppliers as possible, the carrier is able to maximize the number of off-hires and off-hire locations available, as typically each supplier may limit the number of containers which can be off-hired by location. The advantage to the carrier is that this prevents the carrier from being burdened with an excess number of off-hired containers, which incur both storage and per diem charges, in a low demand market. (c)(1)(xi) Inapplicable. (c)(1)(xii) Environmental Matters A portion of the Registrant's equipment portfolio consists of special purpose containers, primarily refrigerated containers. Historically, refrigerated containers have utilized a refrigerant gas which is a chlorofluorocarbon ("CFC") compound. Countries that are signatories to the Montreal Protocol in the environment agreed in November 1992 to restrict the use of environmentally destructive refrigerants, banning production (but not use) of CFCs beginning in January 1996. CFCs are used in the operation, insulation and manufacture of refrigerated containers. All of the Leasing Company's refrigerated containers purchased since June 1993 use none-CFC refrigerant gas in the operation and insulation of the containers, although a reduced quantity of CFCs is still used in the container manufacturing process. The replacement refrigerant used in the Leasing Company's new refrigerated containers may also become subject to similar governmental regulations. Depending on market pressures and future governmental regulations, the Registrant's refrigerated containers may have to be retrofitted with non-CFC refrigerants, the cost of which will be borne by the Registrant. The Leasing Company's technical staff has cooperated with refrigeration manufacturers in conducting investigations into the most effective and economical retrofit plan. CCC and the Leasing Company believe that this expense, should it be required, would not be material to the Registrant's financial position or results of operations. In addition, refrigerated containers that are not retrofitted may command lower prices in the used container market. (c)(1)(xiii) The Registrant, as a limited partnership, is managed by CCC, the general partner, and accordingly does not itself have any employees. At February 28, 2001, CCC had 14 employees, consisting of 3 officers, 4 other managers and 7 clerical and staff personnel. (d) Financial Information About Geographic Areas The Registrant's business is not divided between foreign or domestic operations. The Registrant's business is the leasing of containers worldwide to ocean carriers. To this extent, the Registrant's operations are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Registrant believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of leases to domestic customers. The Leasing Company's leases generally require all payments to be made in United States currency. 9 10 Item 2. Properties As of December 31, 2000, the Registrant owned 8,331 twenty-foot, 3,480 forty-foot and 213 forty-foot high-cube marine dry cargo containers, as well as 476 twenty-foot and 293 forty-foot refrigerated cargo containers, suitable for transporting cargo by rail, sea or highway. The average useful life and manufacturers' invoice cost of the Registrant's fleet as of December 31, 2000 were as follows:
Estimated Useful Life Average Age Average Cost ----------- ----------- ------------ 20-Foot Dry Cargo Containers 10-15 years 8 years $ 2,463 40-Foot Dry Cargo Containers 10-15 years 8 years $ 4,170 40-Foot High-Cube Dry Cargo Containers 10-15 years 4 years $ 3,673 20-Foot Refrigerated Cargo Containers 10-15 years 7 years $19,482 40-Foot Refrigerated Cargo Containers 10-15 years 8 years $23,897
Utilization by lessees of the Registrant's containers fluctuates over time depending on the supply of and demand for containers in the Registrant's inventory locations. During 2000, utilization of the dry cargo and refrigerated container fleet averaged 74% and 88%, respectively. During 2000, the Registrant disposed of 111 twenty-foot, 35 forty-foot and one forty-foot high-cube marine dry cargo containers, as well as one twenty-foot and 22 forty-foot refrigerated cargo containers at an average book loss of $1,118 per container. Additionally, the Registrant, embarked on a refrigerated reshell program during 2000, whereby certain forty-foot refrigerated cargo containers considered to no longer be suitable for leasing were converted to twenty-foot refrigerated containers. The reshelling involved the removal of the existing machinery from the forty-foot refrigerated containers and reassembling the machinery with new twenty-foot refrigerated container shells. During 2000, approximately $106,000 was paid to Cronos Equipment (Bermuda) Ltd., an affiliate of CCC and the Leasing Company, in association with the reshelling of 23 forty-foot refrigerated containers. This amount included the cost of the new twenty-foot refrigerated container shells, as well as miscellaneous transportation costs. 10 11 Item 3. Legal On March 20, 2000, KM Investments, LLC, a California limited liability company ("KM") filed a complaint in the Superior Court for the County of Los Angeles against CCC, as general partner of the Registrant, alleging violation of the California Revised Limited Partnership Act, breach of fiduciary duty, and unfair competition. KM is assignee of units of limited partnership interests in the Registrant and six other California limited partnerships (collectively, the "Cronos Partnerships") managed by CCC, as general partner. KM, which is in the business of making unregistered tender offers for up to 4.9% of the outstanding limited partnership interests in limited partnerships, claimed that CCC had wrongfully refused to provide KM with lists of the limited partners of the Cronos Partnerships to enable KM to make unregistered tender offers to the limited partners of the Cronos Partnerships. KM asked for declaratory relief, damages according to proof, attorneys' fees, costs, interest, and a temporary restraining order and/or a preliminary injunction barring CCC from giving limited partner lists to any other party before delivering such lists to KM. After the Court heard challenges by CCC to KM's complaint and its first amended complaint, which challenges were granted in part and denied in part, CCC filed its answer to KM's first amended complaint on October 20, 2000, denying the allegations thereof, denying that KM was entitled to any damages, and asserting various affirmative defenses. Before conducting expensive discovery, the parties engaged in settlement discussions, which were consummated subsequent to December 31, 2000, when the parties agreed to the terms of a settlement. Under the terms of the settlement, CCC will provide copies of the limited partner lists of the Cronos Partnerships to KM, in return for a payment by KM and KM's covenant to provide copies of any mini-tender offer materials to CCC concurrently with their transmission by KM to the limited partners of the Cronos Partnerships. KM has also agreed to pay for tendered limited partner units within three (3) business days of confirmation of the transfer from CCC. The parties have agreed to broad reciprocal releases as part of the settlement. The settlement entails no payments by CCC or by the Cronos Partnerships to KM. Item 4. Submission of Matters to a Vote of Security Holders Inapplicable. 11 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters (a) Market Information (a)(1)(i) The Registrant's outstanding units of limited partnership interests are not traded on any market nor does an established public trading market exist for such purposes. (a)(1)(ii) Inapplicable. (a)(1)(iii) Inapplicable. (a)(1)(iv) Inapplicable. (a)(1)(v) Inapplicable. (a)(2) Inapplicable. (b) Holders Number of Unit Holders (b)(1) Title of Class as of December 31, 2000 -------------- ----------------------- Units of limited partnership interests 4,140 (c) Dividends Inapplicable. For the distributions made by the Registrant to its limited partners, see Item 6, "Selected Financial Data." 12 13 Item 6. Selected Financial Data
Year Ended December 31, ------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Net lease revenue $ 4,332,091 $ 4,011,372 $ 4,826,207 $ 5,372,706 $ 6,755,171 Net income $ 1,025,096 $ 878,989 $ 1,740,032 $ 2,285,497 $ 3,742,316 Net income per unit of limited partnership interest $ 0.29 $ 0.23 $ 0.50 $ 0.68 $ 1.14 Cash distributions per unit of limited partnership interest $ 1.32 $ 1.40 $ 1.57 $ 1.70 $ 2.14 At year-end: Total assets $32,306,756 $35,409,876 $38,928,811 $42,110,277 $45,165,211 Partners' capital $32,306,756 $35,409,876 $38,928,811 $42,110,277 $45,165,211
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES The Registrant's primary objective is to generate cash flow from operations for distribution to its limited partners and, during the initial years of operation, reinvest excess cash flow in additional equipment. Aside from the initial working capital reserve retained from gross subscription proceeds (equal to approximately 1% of such proceeds), the Registrant relies primarily on container rental receipts to meet this objective as well as to finance operating needs. No credit lines are maintained to finance working capital. At December 31, 2000, the Registrant had $1,706,333 in cash and cash equivalents, an increase of $687,113 and a decrease of $152,500, respectively, from the cash balances at December 31, 1999 and December 31, 1998. Cash distributions from operations are allocated 5% to the general partner and 95% to the limited partners. Distributions of sales proceeds are allocated 1% to the general partner 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 the general partner and 85% to the limited partners, pursuant to Section 6.1(b) of the Registrant's Partnership Agreement. Cash distributions from operations to the general partner in excess of 5% of distributable cash will be considered an incentive fee and compensation to the general partner. From inception through February 28, 2001, the Registrant has distributed $39,074,749 in cash from operations and $261,128 in cash from container sales proceeds to its limited partners. This represents total distributions of $39,335,877, or 66% of the limited partners' original invested capital. Distributions are paid monthly based primarily on each quarter's cash flow from operations. Monthly distributions are also affected by periodic increases or decreases to working capital reserves, as deemed appropriate by the general partner. Sales proceeds distributed to its partners may fluctuate in subsequent periods, reflecting the level of container disposals. 13 14 RESULTS OF OPERATIONS 2000 - 1999 - ----------- During the first three quarters of 2000, growth in the volume of containerized trade improved, resulting in increased demand for containers in many locations, most significantly throughout Asia. Over the course of the final quarter, the economic slowdown that was reported in the United States and other worldwide locations began to affect the import and export markets of many countries, as well as the container leasing markets worldwide. Late in the fourth quarter of 2000, off-hire container inventories grew as redeliveries of leased equipment increased significantly and demand declined due to reduced export volumes, particularly within Asia. The soft market conditions at the end of 2000 were further impacted by the shipping lines' continued purchase of new containers for their own accounts, thereby reducing the need to supplement their own container fleet with leased containers. Furthermore, the shipping lines focused their efforts on repositioning their own idle containers to demand locations in order to fulfill customer requirements. The registrant expects these market conditions to continue through the first half of 2001. The primary component of the Registrant's results of operations is net lease revenue. Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses, from rental revenues billed by the Leasing Company from the leasing of the Registrant's containers. Net lease revenue is directly related to the size, utilization and per-diem rental rates of the Registrant's fleet. Net lease revenue for 2000 increased by approximately 8%, when compared to 1999. Gross rental revenue, a component of net lease revenue, decreased from $6,700,929 in 1999 to $6,666,267 in 2000. This decrease was primarily the result of lower per-diem rates partially offset by higher utilization levels. The Registrant's dry and refrigerated cargo container average utilization rates increased from 69% and 84%, respectively, during 1999, to 74% and 88%, respectively, during 2000. Dry and refrigerated cargo container per-diem rental rates declined 7% and 5%, respectively, from 1999 levels. The Registrant's average fleet size (as measured in twenty-foot equivalent units ("TEU")) was 16,846 TEU compared to 16,822 TEU in 1999. Rental operating expenses were approximately 23% of rental revenue during 2000 as compared to 28% during 1999. The decrease was attributable to the Registrant's higher utilization rate in 2000, and its impact on activity based expenses such as storage and handling. Base management fees, dependent on the operating performance of the fleet, remained unchanged in 2000 when compared to 1999. The Registrant disposed of 114 twenty-foot, 41 forty-foot and one forty-foot high-cube marine dry cargo containers, as well as one twenty-foot and 22 forty-foot refrigerated cargo containers during 2000, as compared to 61 twenty-foot, 35 forty-foot and 10 forty-foot refrigerated cargo containers during 1999. These disposals resulted in a loss of $190,044 for 2000, as compared to a loss of $4,331 for 1999. The Registrant does not believe that the carrying amount of its containers has been permanently impaired or that events or changes in circumstances have indicated that the carrying amount of its containers may not be fully recoverable. The Registrant believes that the 2000 net loss on container disposals was a result of various factors including the age, condition, suitability for continued leasing, as well as the geographical location of the containers when disposed. These factors will continue to influence the decision to repair or dispose of a container when it is returned by a lessee, as well as the amount of sales proceeds received and the related gain or loss on container disposals. The level of the Registrant's container disposals in subsequent periods will also contribute to fluctuations in the net gain or loss on disposals. 1999 - 1998 - ----------- Net lease revenue for 1999 declined by approximately 17%, when compared to 1998. Gross rental revenue, a component of net lease revenue, decreased from $7,715,749 in 1998 to $6,700,929 in 1999. The Registrant's dry and refrigerated cargo container utilization rates fluctuated from averages of 76% and 80% during 1998, to averages of 69% and 84% during 1999, respectively. Dry cargo and refrigerated container per-diem rental rates declined 9% and 8%, respectively, from 1998 levels. The Registrant's average fleet size (as measured in twenty-foot equivalent units ("TEU")) was 16,822 TEU in 1999, as compared to 16,700 TEU in 1998. Rental equipment operating expenses were approximately 28% of rental revenue during 1999 as compared to 25% during 1998. The increase was attributable to the Registrant's lower utilization rate in 1999, and its impact on activity based expenses such as storage and handling. Base management fees, dependent on the operating performance of the fleet, declined $65,626, or approximately 13% during 1999 when compared to 1998. 14 15 The Registrant disposed of 61 twenty-foot and 23 forty-foot marine dry cargo containers, as well as 10 forty-foot refrigerated cargo containers during 1999, as compared to 62 twenty-foot, 19 forty-foot and one forty-foot high-cube marine dry cargo container during 1998. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Inapplicable. Item 8. Financial Statements and Supplementary Data 15 16 INDEPENDENT AUDITORS' REPORT The Partners Cronos Global Income Fund XIV, L.P. We have audited the accompanying balance sheets of Cronos Global Income Fund XIV, L.P. (the "Partnership") as of December 31, 2000 and 1999, and the related statements of operations, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Partnership at December 31, 2000 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP San Francisco, CA February 16, 2001 16 17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS The Partners Cronos Global Income Fund XIV, L.P. We have audited the accompanying statement of operations, partners' capital, and cash flows of Cronos Global Income Fund XIV, L.P. (the "Partnership"), for the year ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Partnership, and its cash flows for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ Moore Stephens, P.C. Certified Public Accountants New York, New York March 5, 1999 17 18 CRONOS GLOBAL INCOME FUND XIV, L.P. BALANCE SHEETS DECEMBER 31, 2000 AND 1999
2000 1999 ------------ ------------ Assets ------ Current assets: Cash and cash equivalents, includes $1,523,270 in 2000 and $1,019,120 in 1999 in interest-bearing accounts (note 3) $ 1,706,333 $ 1,019,220 Net lease receivables due from Leasing Company (notes 1 and 4) 612,985 914,603 ------------ ------------ Total current assets 2,319,318 1,933,823 ------------ ------------ Container rental equipment, at cost 52,085,963 53,013,739 Less accumulated depreciation (note 1) 22,098,525 19,537,686 ------------ ------------ Net container rental equipment 29,987,438 33,476,053 ------------ ------------ Total assets $ 32,306,756 $ 35,409,876 ============ ============ Partners' Capital ----------------- Partners' capital (deficit): General partner $ (68,926) $ (37,894) Limited partners (note 8) 32,375,682 35,447,770 ------------ ------------ Total partners' capital $ 32,306,756 $ 35,409,876 ============ ============
The accompanying notes are an integral part of these financial statements. 18 19 CRONOS GLOBAL INCOME FUND XIV, L.P. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- Net lease revenue (notes 1 and 6) $ 4,332,091 $ 4,011,372 $ 4,826,207 Other operating expenses: Depreciation and amortization (note 1) 3,086,981 3,091,239 3,093,356 Other general and administrative expenses 99,972 106,655 114,231 ----------- ----------- ----------- 3,186,953 3,197,894 3,207,587 ----------- ----------- ----------- Income from operations 1,145,138 813,478 1,618,620 Other income (expenses): Interest income 70,002 69,842 92,444 Net gain (loss) on disposal of equipment (190,044) (4,331) 28,968 ----------- ----------- ----------- (120,042) 65,511 121,412 ----------- ----------- ----------- Net income $ 1,025,096 $ 878,989 $ 1,740,032 =========== =========== =========== Allocation of net income: General partner $ 167,842 $ 184,750 $ 242,943 Limited partners 857,254 694,239 1,497,089 ----------- ----------- ----------- $ 1,025,096 $ 878,989 $ 1,740,032 =========== =========== =========== Limited partners' per unit share of net income $ 0.29 $ 0.23 $ 0.50 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 19 20 CRONOS GLOBAL INCOME FUND XIV, L.P. STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Limited General Partners Partner Total ------------ ------------ ------------ Balances at December 31, 1997 $ 42,109,888 $ 389 $ 42,110,277 Net income 1,497,089 242,943 1,740,032 Cash distributions (4,675,418) (246,080) (4,921,498) ------------ ------------ ------------ Balances at December 31, 1998 38,931,559 (2,748) 38,928,811 Net income 694,239 184,750 878,989 Cash distributions (4,178,028) (219,896) (4,397,924) ------------ ------------ ------------ Balances at December 31, 1999 35,447,770 (37,894) 35,409,876 Net income 857,254 167,842 1,025,096 Cash distributions (3,929,342) (198,874) (4,128,216) ------------ ------------ ------------ Balances at December 31, 2000 $ 32,375,682 $ (68,926) $ 32,306,756 ============ ============ ============
The accompanying notes are an integral part of these financial statements. 20 21 CRONOS GLOBAL INCOME FUND XIV, L.P. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ----------- ----------- ----------- Cash flows from operating activities: Net income $ 1,025,096 $ 878,989 $ 1,740,032 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 3,086,981 3,091,239 3,093,356 Net (gain) loss on disposal of equipment 190,044 4,331 (28,968) Decrease (increase) in net lease receivables due from Leasing Company 299,266 (91,750) 173,016 ----------- ----------- ----------- Total adjustments 3,576,291 3,003,820 3,237,404 ----------- ----------- ----------- Net cash provided by operating activities 4,601,387 3,882,809 4,977,436 ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of container rental equipment 457,931 236,234 226,176 Purchases of container rental equipment (238,026) (534,030) - Acquisition fees paid to general partner (5,963) (26,702) - ----------- ----------- ----------- Net cash provided by (used in) investing activities 213,942 (324,498) 226,176 ----------- ----------- ----------- Cash flows from financing activities Distributions to partners (4,128,216) (4,397,924) (4,921,498) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 687,113 (839,613) 282,114 Cash and cash equivalents at beginning of year 1,019,220 1,858,833 1,576,719 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 1,706,333 $ 1,019,220 $ 1,858,833 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 21 22 CRONOS GLOBAL INCOME FUND XIV, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 (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 worldwide to ocean carriers. To this extent, the Partnership's operations are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of leases to domestic customers. The Partnership's leases generally require all payments to be made in United States currency. Cronos Capital Corp. ("CCC") is the general partner and, with its affiliate Cronos Containers Limited (the "Leasing Company"), manages the business of the Partnership. CCC and the Leasing Company also manage the container leasing business for other partnerships affiliated with the general partner. 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. 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 sold. (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 one 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, and 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. 22 23 CRONOS GLOBAL INCOME FUND XIV, L.P. NOTES TO FINANCIAL STATEMENTS (c) Concentrations of Credit Risk The Partnership's financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and net lease receivables due from the Leasing Company. See note 3 for further discussion regarding the credit risk associated with cash and cash equivalents. Net lease receivables due from the Leasing Company (see notes 1(b) and 4 for discussion regarding net lease receivables) subject the Partnership to a significant concentration of credit risk. These net lease receivables, representing rentals earned by the Leasing Company, on behalf of the Partnership, from ocean carriers after deducting direct operating expenses and management fees to CCC and the Leasing Company, are remitted by the Leasing Company to the Partnership three to four times per month. The Partnership has historically never incurred a loss associated with the collectability of unremitted net lease receivables due from the Leasing Company. (d) 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. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which 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 reporting period. Actual results could differ from those estimates. (e) Allocation of Net Income and Partnership Distributions Net income has been allocated between general and limited partners in accordance with the Partnership Agreement. Actual cash distributions differ from the allocations of net income between the general and limited partners as presented in these financial statements. Partnership distributions are paid to its partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to the general partner. Distributions of sales proceeds are allocated 99% to the limited partners and 1% to the general partner. 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 the general partner. Cash distributions for the first 10% are charged to partners' capital. Cash distributions from operations to the general partner in excess of 5% of distributable cash will be considered an incentive fee and will be recorded as compensation to the general partner. (f) Acquisition Fees Pursuant to the Partnership Agreement, acquisition fees paid to CCC are based on 5% of the equipment purchase price. These fees are capitalized and included in the cost of the container rental equipment. 23 24 CRONOS GLOBAL INCOME FUND XIV, L.P. NOTES TO FINANCIAL STATEMENTS (g) Container Rental Equipment In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", 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. Depreciation policies are also evaluated to determine whether subsequent events and circumstances warrant revised estimates of useful lives. There were no reductions to the carrying value of container rental equipment during 2000, 1999, and 1998. Container rental equipment is depreciated over a twelve-year life on a straight line basis to its salvage value, estimated to be 30%. (h) Income Taxes The Partnership is not subject to income taxes, consequently no provision for income taxes has been made. The Partnership files federal and state annual information tax returns, prepared on the accrual basis of accounting. Taxable income or loss is reportable by the partners individually. (i) Financial Statement Presentation The Partnership has determined that, for accounting purposes, the Leasing Agent Agreement is a lease, and the receivables, payables, gross revenues and operating expenses attributable to the containers managed by the Leasing Company are, for accounting purposes, those of the Leasing Company and not of the Partnership. Consequently, the Partnership's balance sheets and statements of operations display the payments to be received by the Partnership from the Leasing Company as the Partnership's receivables and revenues. (2) Operating Segment The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which changes the way public business enterprises report financial and descriptive information about reportable operating segments. 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 enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. Management operates the Partnership's container fleet as a homogenous unit and has determined, after considering the requirements of SFAS No. 131, that as such it has a single reportable operating segment. The Partnership derives revenues from dry cargo containers and refrigerated containers. As of December 31, 2000, the Partnership owned 8,331 twenty-foot, 3,480 forty-foot and 213 forty-foot high-cube marine dry cargo containers, as well as 476 twenty-foot and 293 forty-foot marine refrigerated cargo containers. A summary of gross lease revenue earned by the Leasing Company, on behalf of the Partnership, by product, for the years ended December 31, 2000, 1999 and 1998 follows:
2000 1999 1998 ---------- ---------- ---------- Dry cargo containers $4,446,638 $4,354,657 $5,296,071 Refrigerated containers 2,219,629 2,346,272 2,419,678 ---------- ---------- ---------- Total $6,666,267 $6,700,929 $7,715,749 ========== ========== ==========
24 25 Due to the Partnership's lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, it is impracticable to provide the geographic area information required by SFAS No. 131. One sub-lessee of the Leasing Company contributed approximately 13% or $888,300 of the Leasing Company's rental revenue earned during 2000 on behalf of the Partnership. No single sub-lessee of the Leasing Company contributed more than 10% of the Leasing Company rental revenue earned during 1999 and 1998 on behalf of the Partnership. (3) Cash and Cash Equivalents Cash equivalents include highly-liquid investments with a maturity of three months or less on their acquisition date. Cash equivalents are carried at cost which approximates fair value. The Partnership maintains its cash and cash equivalents in accounts which, at times, may exceed federally insured limits. The Partnership has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. The Partnership places its cash equivalents in investment grade, short-term debt instruments and limits the amount of credit exposure with any one commercial issuer. (4) 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 earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease receivables at December 31, 2000 and December 31, 1999 were as follows:
December 31, December 31, 2000 1999 ------------ ----------- Gross lease receivables $1,438,798 $1,820,401 Less: Direct operating payables and accrued expenses 358,868 369,952 Damage protection reserve (note 5) 93,440 85,575 Base management fees payable 169,923 176,504 Reimbursed administrative expenses 75,348 33,959 Allowance for doubtful accounts 128,230 239,808 ---------- ---------- Net lease receivables $ 612,985 $ 914,603 ========== ==========
(5) Damage Protection Plan The Leasing Company offers a repair service to several lessees of the Partnership's containers, whereby the lessee pays an additional rental fee for the convenience of having the Partnership incur the repair expense for containers damaged while on lease. This fee is recorded as revenue when earned according to the terms of the rental contract. An accrual has been recorded to provide for the estimated costs incurred by this service. This accrual is a component of net lease receivables due from the Leasing Company (see note 4). The Partnership is not responsible in the event repair costs exceed predetermined limits, or for repairs that are required for damages not defined by the damage protection plan agreement. 25 26 (6) 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 earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease revenue for the years ended December 31, 2000, 1999 and 1998 was as follows:
2000 1999 1998 ---------- ---------- ---------- Rental revenue $6,666,267 $6,700,929 $7,715,749 Less: Rental equipment operating expenses 1,536,470 1,865,442 1,895,367 Base management fees (note 7) 457,013 457,003 522,629 Reimbursed administrative expenses (note 7): Salaries 229,190 192,150 224,637 Other payroll related expenses 20,894 32,813 38,819 General and administrative expenses 90,609 142,149 208,090 ---------- ---------- ---------- $4,332,091 $4,011,372 $4,826,207 ========== ========== ==========
(7) Compensation to General Partner and its Affiliates Base management fees are equal to 7% of gross lease revenues attributable to operating leases pursuant to the Partnership Agreement. Reimbursed administrative expenses are equal to the costs expended by CCC and its affiliates for services necessary for the prudent operation of the Partnership pursuant to the Partnership Agreement. The following compensation was paid or will be paid by the Partnership to CCC or its affiliates:
2000 1999 1998 -------- -------- -------- Base management fees $457,013 $457,003 $522,629 Reimbursed administrative expenses 340,693 367,112 471,546 Acquisition fees 5,963 -- -- -------- -------- -------- $803,669 $824,115 $994,175 ======== ======== ========
(8) Limited Partners' Capital Cash distributions made to the limited partners during 2000 included distributions of proceeds from equipment sales in the amount of $261,128. These distributions, as well as cash distributions from operations, are used in determining "Adjusted Capital Contributions" as defined by the Partnership Agreement. During 1999 and 1998, cash distributions consisted solely of cash generated from operations. The limited partners' per unit share of capital at December 31, 2000, 1999 and 1998 was $11, $12 and $13, respectively. This is calculated by dividing the limited partners' capital at the end of the year by 2,984,309, the total number of limited partnership units. 26 27 (9) Legal On March 20, 2000, KM Investments, LLC, a California limited liability company ("KM") filed a complaint in the Superior Court for the County of Los Angeles against CCC, as general partner of the Registrant, alleging violation of the California Revised Limited Partnership Act, breach of fiduciary duty, and unfair competition. KM is assignee of units of limited partnership interests in the Registrant and six other California limited partnerships (collectively, the "Cronos Partnerships") managed by CCC, as general partner. KM, which is in the business of making unregistered tender offers for up to 4.9% of the outstanding limited partnership interests in limited partnerships, claimed that CCC had wrongfully refused to provide KM with lists of the limited partners of the Cronos Partnerships to enable KM to make unregistered tender offers to the limited partners of the Cronos Partnerships. KM asked for declaratory relief, damages according to proof, attorneys' fees, costs, interest, and a temporary restraining order and/or a preliminary injunction barring CCC from giving limited partner lists to any other party before delivering such lists to KM. After the Court heard challenges by CCC to KM's complaint and its first amended complaint, which challenges were granted in part and denied in part, CCC filed its answer to KM's first amended complaint on October 20, 2000, denying the allegations thereof, denying that KM was entitled to any damages, and asserting various affirmative defenses. Before conducting expensive discovery, the parties engaged in settlement discussions, which were consummated subsequent to December 31, 2000, when the parties agreed to the terms of a settlement. Under the terms of the settlement, CCC will provide copies of the limited partner lists of the Cronos Partnerships to KM, in return for a payment by KM and KM's covenant to provide copies of any mini-tender offer materials to CCC concurrently with their transmission by KM to the limited partners of the Cronos Partnerships. KM has also agreed to pay for tendered limited partner units within three (3) business days of confirmation of the transfer from CCC. The parties have agreed to broad reciprocal releases as part of the settlement. The settlement entails no payments by CCC or by the Cronos Partnerships to KM. ************************ 27 28 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Inapplicable. 28 29 PART III Item 10. Directors and Executive Officers of the Registrant The Registrant, as such, has no officers or directors, but is managed by CCC, the general partner. The officers and directors of CCC at February 28, 2001, are as follows:
Name Office ------------------------- ----------------------------------------------------- Dennis J. Tietz President, Chief Executive Officer and Director John Kallas Vice President, Chief Financial Officer and Director Elinor A. Wexler Vice President/Administration, Secretary and Director Peter J. Younger Director John M. Foy Director
DENNIS J. TIETZ Mr. Tietz, 48, as President and Chief Executive Officer, is responsible for the general management of CCC. Mr. Tietz was appointed Chief Executive Officer of The Cronos Group, indirect corporate parent of CCC, in December 1998 and elected Chairman of the Board in March 1999. Mr. Tietz is also President and a director of Cronos Securities Corp. From 1986 until August 1992, Mr. Tietz was responsible for the organization, marketing and after-market support of CCC's investment programs. Mr. Tietz was a regional manager for CCC, responsible for various container leasing activities in the U.S. and Europe from 1981 to 1986. Prior to joining CCC in December 1981, Mr. Tietz was employed by Trans Ocean Leasing Corporation as Regional Manager based in Houston, with responsibility for all leasing and operational activities in the U.S. Gulf. Mr. Tietz holds a B.S. degree in Business Administration from San Jose State University and is a Registered Securities Principal with the NASD. JOHN KALLAS Mr. Kallas, 38, was elected Vice President, Chief Financial Officer of CCC in November, 2000. Mr. Kallas also joined the Board of Directors of CCC in November, 2000. Mr. Kallas has been employed by CCC since 1989, and is responsible for managed container investment programs, treasury, and CCC's financial operations. Mr. Kallas has held various accounting positions since joining Cronos including Controller, Director of Accounting and Corporate Accounting Manager. From 1985 to 1989, Mr. Kallas was an accountant with KPMG Peat Marwick, San Francisco. Mr. Kallas holds a Masters degree in Finance and Business Administration from St. Mary's College, a B.S. degree in Business Administration/Accounting from the University of San Francisco and is a certified public accountant. ELINOR A. WEXLER Ms. Wexler, 52, was elected Vice President - Administration and Secretary of CCC in August 1992. Ms. Wexler joined the Board of Directors of CCC in June 1997. Ms. Wexler has been employed by CCC since 1987, and is responsible for investor services, compliance and securities registration. From 1983 to 1987, Ms. Wexler was Manager of Investor Services for The Robert A. McNeil Corporation, a real estate syndication company, in San Mateo, California. From 1971 to 1983, Ms. Wexler held various positions, including securities trader and international research editor, with Nikko Securities Co., International, based in San Francisco. Ms. Wexler attended the University of Oregon, Portland State University and the Hebrew University of Jerusalem, Israel. Ms. Wexler is also Vice President and Secretary of Cronos Securities Corp. and a Registered Principal with the NASD. PETER J. YOUNGER Mr. Younger, 44, was elected to the Board of Directors of CCC in June 1997. See key management personnel of the Leasing Company for further information. JOHN M. FOY Mr. Foy, 55, was elected to the Board of Directors of CCC in April 1999. See key management personnel of the Leasing Company for further information. 29 30 The key management personnel of the Leasing Company and its affiliates at February 28, 2001, were as follows:
Name Title ----------------------- ----------------------------------------------- Peter J. Younger Chief Operating Officer/Chief Financial Officer John M. Foy Senior Vice President/Americas Nico Sciacovelli Senior Vice President/Europe, Middle East and Africa John C. Kirby Senior Vice President/Operations
PETER J. YOUNGER Mr. Younger, 44, was elected to the Board of Directors of The Cronos Group on January 13, 2000. Mr. Younger will serve as a director until the 2001 annual meeting and his successor is elected and takes office. Mr. Younger was appointed as Chief Operating Officer of The Cronos Group on August 4, 2000, and its Chief Financial Officer in March 1997. From 1991 to 1997, Mr. Younger served as Vice President of Finance for the Leasing Company, located in the UK. From 1987 to 1991 Mr. Younger served as Vice President and Controller for CCC in San Francisco. Prior to 1987, Mr. Younger was a certified public accountant and a principal with the accounting firm of Johnson, Glaze and Co. in Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration from Western Baptist College, Salem, Oregon. JOHN M. FOY Mr. Foy, 55, is directly responsible for the Leasing Company's lease marketing and operations in North America, Central America, and South America, and is based in San Francisco. From 1985 to 1993, Mr. Foy was Vice President/Pacific with responsibility for dry cargo container lease marketing and operations in the Pacific Basin. From 1977 to 1985 Mr. Foy was Vice President of Marketing for Nautilus Leasing Services in San Francisco with responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy was Regional Manager for Flexi-Van Leasing, a container lessor, with responsibility for container leasing activities in the Western United States. Mr. Foy holds a B.A. degree in Political Science from University of the Pacific, and a Bachelor of Foreign Trade from Thunderbird Graduate School of International Management. NICO SCIACOVELLI Mr. Sciacovelli, 51, was elected Senior Vice President - Europe, Middle East and Africa in June 1997. Mr. Sciacovelli is directly responsible for the Leasing Company's lease marketing and operations in Europe, the Middle East and Africa and is based in Italy. Since joining Cronos in 1983, Mr. Sciacovelli served as Area Director and Area Manager for Southern Europe. Prior to joining Cronos, Mr. Sciacovelli was a Sales Manager at Interpool Ltd. JOHN C. KIRBY Mr. Kirby, 47, is responsible for container purchasing, contract and billing administration, container repairs and leasing-related systems, and is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as European Technical Manager and advanced to Director of European Operations in 1986, a position he held with CCC, and later the Leasing Company, until his promotion to Senior Vice President/Operations of the Leasing Company in 1992. From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container leasing company, as Technical Manager based in Hamburg, Germany. Mr. Kirby acquired a professional engineering qualification from the Mid-Essex Technical College in England. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The Registrant has followed the practice of reporting acquisitions and dispositions of the Registrant's units of limited partnership interests by CCC, its general partner. As CCC did not acquire or dispose of any of the Registrant's units of limited partnership interests during the fiscal year ended December 31, 2000, no reports of beneficial ownership under Section 16(a) of the Securities Exchange Act of 1934, as amended, were filed with the SEC. 30 31 Item 11. Executive Compensation The Registrant commenced monthly distributions to its partners (general and limited) from distributable cash from operations beginning in the second quarter of 1993. Such distributions are allocated 95% to the limited partners and 5% to the general partner. Sales proceeds will be allocated 99% to the limited partners and 1% to the general partner. The allocations will remain in effect until such time as the limited partners have received from the Registrant 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 the general partner. The Registrant will not pay or reimburse CCC or the Leasing Company for any remuneration payable by them to their executive officers, directors or any other controlling persons. However, the Registrant will reimburse the general partner and the Leasing Company for certain services pursuant to the Partnership Agreement. These services include but are not limited to (i) salaries and related salary expenses for services which could be performed directly for the Registrant by independent parties, such as legal, accounting, transfer agent, data processing, operations, communications, duplicating and other such services; and (ii) performing administrative services necessary to the prudent operations of the Registrant. The following table sets forth the fees the Registrant paid (on a cash basis) to CCC or the Leasing Company ("CCL") for the year ended December 31, 2000.
Cash Fees and Name Description Distributions ---------------- ---------------------------------------------------- ----------------------- 1) Base management fees - equal to 7% of gross lease revenues attributable to operating leases pursuant to Section 4.3 of the Limited Partnership Agreement CCL $ 433,430 2) Reimbursed administrative expenses - equal to the costs expended by CCC and its affiliates for services necessary to the prudent operation of the Registrant pursuant to Section 4.4 of the Limited Partnership Agreement CCC $ 27,301 CCL $ 272,003 3) Interest in Fund - 5% of distributions of distributable cash for any quarter pursuant to Section 6.1 of the Limited Partnership Agreement CCC $ 198,874 4) Acquisition fee - equal to 5% of the purchase price of containers acquired by the Registrant pursuant to Section 4.2 of the Limited Partnership Agreement CCC $ 5,963
31 32 Item 12. Security Ownership of Certain Beneficial Owners and Management (a) Security Ownership of Certain Beneficial Owners There is no person or "group" of persons known to the management of CCC to be the beneficial owner of more than five percent of the outstanding units of limited partnership interests of the Registrant. (b) Security Ownership of Management The Registrant has no directors or officers. It is managed by CCC. CCC owns 5 units, representing 0.0002% of the total amount of units outstanding. (c) Changes in Control Inapplicable. Item 13. Certain Relationships and Related Transactions (a) Transactions with Management and Others The Registrant's only transactions with management and other related parties during 2000 were limited to those fees paid or amounts committed to be paid (on an annual basis) to CCC, the general partner, and its affiliates. See Item 11, "Executive Compensation," herein. Additionally, see Part I, Item 2, herein, for a description of its payment of refrigerated container reshell costs to Cronos Equipment (Bermuda) Ltd., an affiliate of CCC and the Leasing Company. (b) Certain Business Relationships Inapplicable. (c) Indebtedness of Management Inapplicable. (d) Transactions with Promoters Inapplicable. 32 33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page ---- (a)1. Financial Statements Independent Auditors' Report................................................................ 16 Report of Independent Public Accountants.................................................... 17 (a)2. The following financial statements of the Registrant are included in Part II, Item 8: Balance Sheets - as of December 31, 2000 and 1999........................................... 18 Statements of Operations - for the years ended December 31, 2000, 1999 and 1998............. 19 Statements of Partners' Capital - for the years ended December 31, 2000, 1999 and 1998...... 20 Statements of Cash Flows - for the years ended December 31, 2000, 1999 and 1998............. 21 Notes to Financial Statements............................................................... 22
All schedules are omitted as the information is not required or the information is included in the financial statements or notes thereto. 33 34 (a)3. 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 ***
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended December 31, 2000. - ----------------- * 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) 34 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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/ Dennis J. Tietz ----------------------------------- Dennis J. Tietz President and Director of Cronos Capital Corp. ("CCC") Principal Executive Officer of CCC Date: March 26, 2001 Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Cronos Capital Corp., the managing general partner of the Registrant, in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Dennis J. Tietz President and Director of - ------------------------------------ Cronos Capital Corp. March 26, 2001 Dennis J. Tietz ("CCC") (Principal Executive Officer of CCC) /s/ John Kallas Chief Financial Officer and - ------------------------------------ Director of March 26, 2001 John Kallas Cronos Capital Corp. ("CCC") (Principal Financial and Accounting Officer of CCC) /s/ Elinor A. Wexler Vice President-Administration, - ------------------------------------ Secretary and Director of March 26, 2001 Elinor A. Wexler Cronos Capital Corp.
SUPPLEMENTAL INFORMATION The Registrant's annual report will be furnished to its limited partners on or about April 30, 2001. Copies of the annual report will be concurrently furnished to the Commission for information purposes only, and shall not be deemed to be filed with the Commission. 36 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 ***
- ------------------ * 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) -----END PRIVACY-ENHANCED MESSAGE-----