e10vk
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2010
OR
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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 0-23886
CRONOS GLOBAL INCOME FUND XV, L.P.
(Exact name of registrant as specified in its charter)
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California
(State or other jurisdiction of
incorporation or organization)
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94-3186624
(I.R.S. Employer Identification No.) |
One Front Street, Suite 925, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (415) 677-8990
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on |
Title of each class |
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which registered |
Not Applicable |
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Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTERESTS
(Title of Class)
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405
of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d)
of the Act. Yes o No þ
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 o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants 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. þ
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 the definitions
of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o | |
Accelerated filer o | |
Non-accelerated filer o | |
Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
State the aggregate market value of voting and non-voting stock held by non-affiliates of the
registrant: Not applicable. The outstanding Partnership interests of the Registrant are not traded
on any exchange or in any inter-dealer market.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which the common equity was sold, or the average bid and
asked price of such common equity, as of a specified date within the past 60 days. (See definition
of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable
Documents Incorporated by Reference:
Prospectus of Cronos Global Income Fund XV, L.P., dated December 17, 1993 included as part of
Registration Statement on Form S-1 (No. 33-69356).
CRONOS GLOBAL INCOME FUND XV, L.P.
Report on Form 10-K for the Fiscal Year
Ended December 31, 2010
TABLE OF CONTENTS
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EX-31.1 |
EX-31.2 |
EX-32 |
2
PART I
Item 1. Business
(a) General Development of Business
Cronos Global Income Fund XV, L.P. (the Partnership) is a limited partnership that was
organized under the laws of the State of California on August 26, 1993, for the purpose of owning
and leasing marine cargo containers, special purpose containers and container-related equipment.
The Partnership was initially capitalized with $100 and commenced offering its limited partnership
interests to the public subsequent to December 17, 1993, pursuant to its Registration Statement on
Form S-1 (File No. 33-69356). On October 12, 1994, the Partnership filed a Post-Effective
Amendment to its Registration Statement on Form S-1. The offering terminated on December 15, 1995.
The Partnership raised $143,031,380 in subscription proceeds. The following table sets forth
the use of said subscription proceeds:
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Percentage of |
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Amount |
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Gross Proceeds |
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Gross subscription proceeds |
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$ |
143,031,380 |
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100.0 |
% |
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Public offering expenses: |
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Underwriting commissions |
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$ |
14,303,138 |
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10.0 |
% |
Offering and organization expenses |
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$ |
2,977,551 |
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2.1 |
% |
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Total public offering expenses |
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$ |
17,280,689 |
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12.1 |
% |
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Net proceeds |
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$ |
125,750,691 |
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87.9 |
% |
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Acquisition fees |
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$ |
5,918,588 |
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4.1 |
% |
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Working capital reserve |
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$ |
1,460,334 |
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1.0 |
% |
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Gross proceeds invested in equipment |
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$ |
118,371,769 |
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82.8 |
% |
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The Partnership established an initial working capital reserve of approximately 1% of
subscription proceeds raised. The Partnership may reserve additional amounts from anticipated cash
distributions to the partners to meet working capital requirements.
The general partner of the Partnership (the General Partner) is Cronos Capital Corp.
(CCC). CCC and other affiliated companies are wholly-owned by Cronos Ltd., a Bermuda exempted
company (the Parent Company). On July 28, 2010, the Parent Company consummated several
transactions with investment funds affiliated with Kelso & Company, L.P. (collectively Kelso), a
private equity firm based in New York. Pursuant to these transactions, Kelso acquired a majority
interest in the Parent Company through a newly-organized holding company, Cronos Holding Company
Ltd. (Cronos or the Ultimate Holding Company), also a Bermuda exempted company. Cronos, the
Parent Company and other affiliated companies are collectively referred to as the Group.
In connection with the transactions with Kelso, Dennis J. Tietz retired as a director of CCC.
Messrs. Younger, Vaughan, and Kallas remain as directors of CCC. See Item 10 of Part III,
Directors, Executive Officers and Corporate Governance herein.
The leasing activities of the Group are managed through the Parent Companys subsidiary in the
United Kingdom, Cronos Containers Limited (the Leasing Agent). The Leasing Agent manages the
leasing operations of all equipment owned by the Group on its own behalf or on behalf of other
container owners, including all programs organized by CCC.
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On December 1, 1993, the Leasing Agent entered into an agreement (the Leasing Agent
Agreement) with the Partnership whereby the parties contracted for the Leasing Agent to manage the
leasing operations for all equipment owned by the Partnership.
See Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations herein for discussion of recent developments of the Partnerships business.
For information concerning the Partnerships owned containers, see Item 2, Properties.
(b) Narrative Description of Business
A marine cargo container is a reusable metal container designed for the efficient carriage of
cargo with a minimum risk of loss from damage or theft. Containers are manufactured to conform to
worldwide standards of container dimensions and containership fittings adopted by the International
Standards Organization (ISO) in 1968. The standard dry marine cargo container is either 20 long
x 8 wide x 86 high (one twenty-foot equivalent unit (TEU), the standard unit of physical
measurement in the container industry) or 40 long x 8 wide x 86 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.
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 ship, truck and rail. Containers allow for
efficient loading and unloading 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.
The logistical advantages and reduced freight rates brought about by containerization have
been major catalysts for world trade growth since the late 1960s, resulting in an increased demand
for containers. The worlds container fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 27.5 million TEU by the end of 2010. The container leasing business is cyclical, and
depends largely upon the rate of growth in the volume of world trade.
Benefits of Leasing
The container fleets of leasing companies represent approximately 41% of the worlds 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:
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Leasing provides shipping lines with the flexibility to respond to rapidly changing
market opportunities as they arise without relying exclusively on their own containers; |
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Leasing allows shipping lines to respond to changing seasonal and trade route demands,
thereby optimizing their capital investment and minimizing storage costs; |
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Leasing enables shipping lines to expand their trade routes and market shares at a
relatively low cost without making a permanent commitment to support their new structure; |
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Leasing allows the shipping lines to utilize the equipment they need without having to
make large capital expenditures; |
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Leasing offers a shipping line an alternative source of financing in a traditionally
capital-intensive industry; and |
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Leasing allows shipping lines to benefit from the relationships between container
manufacturers and leasing companies. |
4
Fleet Profile
The Partnership owns marine 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,
used to carry a wide variety of cargoes ranging from heavy industrial raw materials to light-weight
finished goods. The Partnerships dry cargo container fleet is constructed of all CortenÒ
steel (i.e., CortenÒ 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 and vegetables. The majority of the Partnerships 20-foot refrigerated containers have
high-grade stainless steel outer walls, while most of the Partnerships 40-foot refrigerated
containers are steel framed with aluminum outer walls to reduce weight. All refrigerated
containers are designed to minimize repair and maintenance and maximize damage resistance. All of
the Partnerships refrigerated containers utilize sophisticated refrigeration machinery.
Refrigerated containers are technologically more complex than other types of marine cargo
containers.
The Partnerships tank container fleet is constructed and maintained in accordance with
international codes for the worldwide transport and storage of bulk liquids on both land and sea.
These codes include the ISO, the International Maritime Organization standards and recommendations
and the American Society of Mechanical Engineers VIII Pressure Vessel Design Code. The
Partnerships tank fleet may carry highly flammable materials, corrosives, toxics and oxidizing
substances, but are also capable of carrying non-hazardous materials and food products. They have
a capacity of between 17,500 and 26,000 liters and are generally insulated and equipped with steam
or electrical heating.
The following table sets forth the number of containers in the Partnerships operating lease
fleet based on container type, and is measured in TEUs at December 31, 2010:
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Dry Cargo |
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Refrigerated |
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Containers |
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Containers |
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Tank Containers |
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Total |
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Container on lease: |
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Master lease |
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7,740 |
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8 |
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80 |
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7,828 |
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Term lease |
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Short term1 |
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426 |
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4 |
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42 |
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472 |
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Long term2 |
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4,158 |
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1 |
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37 |
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4,196 |
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4,584 |
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5 |
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79 |
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4,668 |
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Subtotal |
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12,324 |
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13 |
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159 |
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12,496 |
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Containers off-hire |
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466 |
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3 |
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12 |
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481 |
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Total container fleet |
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12,790 |
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16 |
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171 |
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12,977 |
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1. |
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Short term leases represent term leases that are either scheduled for renegotiation or
that may expire in 2011. |
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Long term leases represent term leases that will expire after 2011. |
The Leasing Agent makes payments to the Partnership based upon rentals collected from
customers.
Types of Leases
The Leasing Agent leases the Partnerships containers primarily to shipping lines operating in
major trade routes (see Item 1(d)). The Partnerships marine containers may be leased pursuant to
master leases, term leases, sales-type leases and direct financing leases.
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Master leases. Master leases provide customers with flexibility by allowing them to
pick up containers where and when required on pre-agreed terms, subject to restrictions
and availability. Master leases also define the number of containers that may be
returned within each calendar month, the permitted 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 revenue (including pick-up,
drop-off, handling and off-hire revenue) than term leases. The commercial terms of
master leases are usually negotiated or renewed annually. |
5
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Term leases. Term leases are for a fixed quantity of containers for a fixed period
of time, typically ranging from three to seven years. In most cases, containers cannot
be returned prior to the expiration of the lease. Some term lease agreements contain
early termination penalties that apply in the event of early redelivery. Term leases
provide greater revenue stability to the lessor, but 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. |
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Sales-type leases and direct financing leases. Sales-type leases and 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. |
The percentage of containers on term, master and other lease types varies widely among leasing
companies, depending upon each companys leasing strategy.
Lease rates depend on several factors including a customers credit worthiness, type of lease,
length of term, type and age of the containers, container replacement costs, interest rates,
maintenance provided and market conditions.
The Partnerships containers are leased globally and seasonal fluctuations are minimal. The
transportation industry in general and the container leasing industry in particular are subject to
fluctuations in supply and demand for equipment resulting from changes in general business
conditions, obsolescence, changes in the methods or economics of a particular mode of
transportation or changes in governmental regulations or safety standards.
The terms and conditions of the Leasing Agents 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 customers,
for an additional payment (which may be in the form of a higher per-diem rate), are relieved of the
responsibility of paying designated repair costs upon redelivery of the containers. The Leasing
Agent provides this service 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.
Amounts due under master leases are calculated at the end of each month and billed
approximately three to five days thereafter. Amounts due under term, sales-type and direct
financing leases are set forth in the respective lease agreements and are also billed three to five
days following month end. Payment is normally received within 60-90 days of billing.
Customers
The Partnership does not believe that its ongoing business is dependent upon a single lessee
of the Leasing Agent, although the loss of one or more of the Leasing Agents lessees could have an
adverse effect upon its business. The following lessees of the Leasing Agent each generated 10% or
more of the gross lease revenue earned on the Partnerships equipment in 2010: Mediterranean
Shipping Company S.A. generated approximately 33%, or $868,744 of gross lease revenue, and
Hapag-Lloyd AG generated approximately 20%, or $508,778 of gross lease revenue. The majority of
the Leasing Agents lessees are billed and pay in United States (US) dollars.
Credit Controls
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 oversees the performance of the Partnerships customers and recommends actions to be
taken in order to minimize credit risks. The Leasing Agent also uses specialist third party credit
information services and reports prepared by local staff to assess credit quality.
The Partnership may be subject to unexpected loss in rental revenue from lessees of its
containers that default under their container lease agreements with the Leasing Agent. The Leasing
Agent maintains insurance against costs of container recovery and repair in the event that a
customer declares bankruptcy, and against the loss of certain lease revenues.
6
Repair and Maintenance
All containers are inspected and repaired as needed when redelivered by customers, who are
obligated to pay for all damage repair with the exception of ordinary wear and tear, according to
standardized industry guidelines. Some customers are relieved of the responsibility of paying some
repair costs upon redelivery of containers, as described under Description of Business Types of
Leases. Depots in major port areas perform repair and maintenance that is verified by either
independent surveyors or the Leasing Agents technical and operations staff.
Before any repair or refurbishment is authorized on containers in the Partnerships fleet, the
Leasing Agents technical and operations staff reviews the location, age, condition and type of
container, and its suitability for continued leasing. The Leasing Agent compares the cost of such
repair or refurbishment with the prevailing market resale price that might be obtained for that
container and makes the decision whether to repair or sell the container accordingly. The Leasing
Agent is authorized to make this decision on behalf of the Partnership and makes this decision by
applying the same standards to the Partnerships containers as to its other managed containers.
Disposition of Used Containers
The Partnership estimates the useful operational life for its containers is 15 years. On
behalf of the Partnership, the Leasing Agent disposes of used containers in a worldwide secondary
market in which buyers include wholesalers, mini-storage operators, construction companies and
others. The market for used containers generally depends on the location of the container at the
time of disposition, foreign currency exchange rates, the lease market for marine cargo containers,
the cost of new containers, the quantity of used containers being supplied to the secondary market,
technological advances in container construction and in techniques of ocean transportation, and
developments in world trade. As the Partnerships fleet ages, a larger proportion of its revenue
and cash flow will be derived from selling its containers.
Operations
The Partnerships sales and marketing operations are conducted through the Leasing Agent in
the United Kingdom, with support provided by area offices and dedicated agents located in San
Francisco, New Jersey, Antwerp, Genoa, Gothenburg, Hamburg, Singapore, Hong Kong, Sydney, Tokyo,
Taipei, Seoul, Rio de Janeiro, Shanghai, Lisbon and Chennai.
The Leasing Agent also maintains agency relationships with 14 independent agents around the
world who are located in jurisdictions where the volume of the Leasing Agents business
necessitates a presence in the area but is not sufficient to justify a fully-functioning Leasing
Agent office or dedicated agent. Agents provide marketing support to the area offices covering the
region, together with limited operational support.
In addition, the Leasing Agent relies on the services of 217 independently owned and operated
depots around the world to inspect, repair, maintain and store containers while off-hire. The
Leasing Agents area offices authorize all container movements into and out of the depot and
supervise all repairs and maintenance performed by the depot. The Leasing Agents technical staff
sets the standards for repair of its managed fleet throughout the world and monitors the quality of
depot repair work. The depots provide a link to the Leasing Agents 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 customer.
The Leasing Agents global network is integrated with its computer system and provides 24-hour
communication between offices, agents and depots. The system allows the Leasing Agent to manage
and control the Partnerships fleet on a global basis, providing it with the responsiveness and
flexibility necessary to service the leasing market effectively. This system is an integral part
of the Leasing Agents service, as it processes information received from the various offices,
generates billings to customers and produces a wide range of reports on all aspects of the Leasing
Agents leasing activities. The system records the life history of each container, including the
length of time on and off-hire, 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.
In recent years, the Leasing Agent and other lessors have developed certain Internet-based
applications to enhance their customer support network, allowing customers access to make on-line
product inquiries. The Leasing Agent will introduce other Internet-based applications to support
its global operations when suitable applications are identified.
7
Insurance
The Leasing Agents lease agreements typically require customers 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. The precise nature and amount of the insurance carried by each customer
may vary. The Leasing Agent has purchased insurance policies that provide secondary coverage
effective in the event that a customer fails to have adequate primary coverage and coverage that
insures against customer default events. These policies cover 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 revenue in certain cases
and the cost of container recovery and repair. The Leasing Agent 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.
Competition
Container leasing companies compete not only with one another but also with their customers,
primarily the shipping lines. Approximately 41% of the worlds container fleet is owned by
container leasing companies, with the balance owned by shipping lines and other non-leasing owners.
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
lessors containers, the quality and flexibility of the service offered, the availability of
suitable financing, and the professional relationship between the customer and the lessor. Other
factors include the speed with which a Leasing Agent can prepare its containers for lease and the
ease with which a customer can do business with a lessor or its local area office.
The Leasing Agent, on behalf of the Partnership, competes with various container leasing
companies in the markets in which it conducts business. Mergers and acquisitions have been a
feature of the container leasing industry for over a decade, and currently, the container leasing
market essentially comprises three distinct groups. The first group includes six of the largest
leasing companies that control almost 72% of the total leased fleet. The second group, consisting
of five companies, which includes the Leasing Agent, controls approximately 22% of the total leased
fleet. The third group controls the remaining 6%, and is comprised of smaller, more specialized
fleet operators and new entrants to the container leasing industry who have been attracted by high
levels of containerized trade and low entry barriers to the container leasing industry.
Some leasing companies have greater financial resources than the Leasing Agent and may be
capable of offering lower per-diem rates on a larger fleet. However, ocean carriers will generally
lease containers from more than one leasing company in order to minimize dependence on a single
supplier. In addition, not all container leasing companies compete in the same market, as some
supply only dry cargo containers while others offer only long-term leases.
Environmental Matters
Historically, refrigerated containers have utilized a refrigerant gas which is a
chlorofluorocarbon (CFC) compound. It is generally assumed that CFCs are harmful to the Earths
ozone layer when released into the atmosphere. Many nations, including the US, have taken action,
both collectively and individually, to regulate CFCs. These nations have set various targets for
reductions in production and use of CFCs, and their eventual elimination. There has been
substantial progress in securing a viable substitute for the refrigerant used in containers.
Production of new container refrigeration units operating with the replacement refrigerant became
generally available in 1993. All of the Partnerships refrigerated containers use non-CFC
refrigerant gas in the operation and insulation of the containers. The refrigerant used in the
Partnerships refrigerated containers could also become subject to similar governmental
regulations.
8
Employees
The Partnership is a limited partnership and is managed by CCC. Accordingly the Partnership
does not have any employees. At February 28, 2011, CCC had 20 employees and the Leasing Agent had
23 employees.
(c) Financial Information About 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 enterprises 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 Agents management operates the Partnerships container fleet as a
homogeneous unit and has determined that as such it has a single reportable operating segment.
The Partnership derives revenues from dry cargo and specialized containers. Specialized
containers comprise refrigerated and tank containers. A summary of gross lease revenue earned by
each Partnership container product for the years ended December 31, 2010, 2009 and 2008 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Dry cargo containers |
|
$ |
2,050,360 |
|
|
$ |
2,937,457 |
|
|
$ |
4,350,690 |
|
Refrigerated containers |
|
|
40,247 |
|
|
|
63,784 |
|
|
|
224,535 |
|
Tank containers |
|
|
509,771 |
|
|
|
509,056 |
|
|
|
584,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,600,378 |
|
|
$ |
3,510,297 |
|
|
$ |
5,159,967 |
|
|
|
|
|
|
|
|
|
|
|
Due to the Partnerships lack of information regarding the physical location of its container
fleet while on lease in the global shipping trade, it is impracticable to provide geographic area
information. Any attempt to separate foreign operations from domestic operations would be
dependent on definitions and assumptions which are so subjective as to render the information
meaningless and potentially misleading. Accordingly, the Partnership believes that it does not
possess discernible geographic reporting segments as defined in the Financial Accounting Standard
Boards Accounting Standards Codification (the Codification or ASC) 280-10-05 Segment
Reporting.
(d) Financial Information About Geographic Areas
The Partnerships business is not divided between foreign or domestic operations. The
Partnerships business is the leasing of containers worldwide to ocean carriers. To this extent,
the Partnerships operations are subject to the fluctuations of world economic and political
conditions. 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.
Lease revenue is deemed to be earned based on the physical location of the containers while on
lease. Almost all of the Partnerships lease revenue is earned from containers leased worldwide to
ocean carriers. Due to the lack of information regarding the physical location of the
Partnerships fleet when on lease in the global shipping trade, the Partnership believes that it
does not possess discernible geographic reporting segments.
9
Item 1A. Risk Factors
An investment in the Partnership involves risk.
Risks Related to the Container Leasing Industry and to the Partnership
Demand for leased containers depends on economic and political factors beyond the control of
the Leasing Agent, CCC and the Partnership.
Demand for containers depends largely on levels of world trade and the rate of economic
growth. Demand for leased containers is largely dependent on the decision of shipping lines to
lease, rather than purchase, containers to supplement their own operating fleets. Any significant
changes in the composition of the shipping lines leased and owned container fleets could adversely
affect the demand for leased containers. Other factors that may affect demand for leased
containers, container utilization and per-diem rental rates include, but are not limited to:
|
|
|
prices of new and used containers; |
|
|
|
|
economic conditions, competitive pressures and consolidation in the container shipping
industry; |
|
|
|
|
shifting trends and patterns of cargo traffic; |
|
|
|
|
the availability and terms of container financing; |
|
|
|
|
fluctuations in inflation rates, interest rates and foreign currency values; |
|
|
|
|
overcapacity, undercapacity and consolidation of container manufacturers; |
|
|
|
|
the lead times required to purchase containers; |
|
|
|
|
the number of containers purchased by competitors and container lessees; |
|
|
|
|
container ship fleet overcapacity or undercapacity; |
|
|
|
|
increased repositioning by container shipping lines of their own empty containers to
higher demand locations instead of leasing containers; |
|
|
|
|
consolidation or withdrawal of individual container lessees in the container leasing
industry; |
|
|
|
|
import / export tariffs and restrictions; |
|
|
|
|
customs procedures, foreign exchange controls and other governmental regulations; |
|
|
|
|
natural disasters that are severe enough to affect local and global economies or
interfere with trade; and |
|
|
|
|
other political and economic factors. |
Lease rates may decrease, which could harm the results of operations and financial condition
of the Partnership.
Lease rates for containers depend on a large number of factors, including the following:
|
|
|
the supply of containers available; |
|
|
|
|
the price of new containers (which is positively correlated with the price of steel); |
|
|
|
|
the type and length of the lease; |
|
|
|
|
interest rates; |
|
|
|
|
embedded residual assumptions; |
|
|
|
|
the type and age of the container; |
|
|
|
|
the location of the container being leased; |
|
|
|
|
the number of containers available for lease by competitors; and |
|
|
|
|
the lease rates offered by competitors. |
Customer defaults could have an adverse effect on the profitability and financial condition of
the Leasing Agent and the Partnership.
The Partnerships container equipment is leased to numerous customers by the Leasing Agent.
The leases provide for the payment of lease rentals and the indemnification for damages and for the
loss of the equipment while on lease. Delays in the receipt of amounts due under the lease
agreements could adversely affect the business of the Leasing Agent and the Partnership.
A default by a customer may result in lost revenue for past leasing services and other items.
The recovery of containers from customers that have defaulted can prove difficult and expensive.
When containers are recovered, the Leasing Agent may not be able to re-lease the equipment at
comparable rates or on favorable lease terms.
10
Fluctuations in the residual value of containers may impact profitability and the
long-term returns generated by leased equipment.
The majority of containers that are at the end of their useful economic life are sold in the
non-maritime secondary market for use as temporary or permanent storage facilities. The proceeds
realized on the disposition of such containers depend on a variety of factors, including the
location of the container at the time of disposition, foreign currency exchange rates, the lease
market for marine cargo containers, the price of new containers, the quantity of used containers
supplied to the secondary market, and technological advances in container manufacturing. A
reduction in container residual values could adversely affect the long-term returns generated by
containers, resulting in reduced profitability and capital availability.
The Leasing Agent operates in a highly competitive industry.
The Leasing Agent competes with leasing companies, banks and other financial institutions.
Some of the Leasing Agents competitors have greater financial resources and may be capable of
offering lower per-diem rates. In addition, the barriers to entry for the container leasing
industry are relatively low at times when capital is readily available. If the supply of available
equipment increased significantly as a result of container purchases by competitors and/or new
companies entering the industry, demand for the Partnerships equipment could be adversely
affected.
Increases in the cost of insurance or the lack of availability of insurance could increase the
risk exposure of the Partnership and reduce its profitability. Potential losses could exceed
maximum insurance coverage limits.
The Leasing Agents lease agreements typically require customers 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
customer may vary. In addition, the Leasing Agent has purchased insurance policies that provide
secondary coverage effective in the event a customer fails to have adequate primary coverage and
insures against customer default events. These policies cover 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 revenue in certain cases
and the cost of container recovery and repair. Nevertheless, the insurance coverage and
indemnities provided may not provide full protection. In addition, there is a risk that the cost
of such insurance may increase or become prohibitively expensive and such insurance coverage may
not continue to be available.
The Leasing Agent relies on its information technology systems to conduct its business. Any
failure or interruption in these systems could have an adverse effect on the profitability and
financial condition of the Leasing Agent and the Partnership.
The efficient operation of the Leasing Agents business is highly dependent on information
technology systems that allow the Leasing Agent to track the container equipment and all
transactions involving the equipment, including container pick-ups and drop-offs, and to bill its
customers. In addition, the information provided by information technology systems is used by the
Leasing Agent to manage its business.
The information technology systems are vulnerable to damage or interruption from circumstances
including fire, natural disasters, power loss and computer system failures and viruses. Any such
interruption could have a material adverse effect on the Partnerships business.
The Leasing Agent and Partnership are reliant on electronic banking systems to receive and
make payments. Any failure or interruption in banking systems could have an adverse effect on the
profitability and financial condition of the Leasing Agent and the Partnership.
The majority of payments from customers to the Leasing Agent are made via electronic funds
transfer (EFT). Similarly, the Leasing Agent transfers funds to the Partnership by EFT. Any
failure or interruption in banking systems could have an adverse effect on the operations of the
Leasing Agent and the Partnership.
11
Specialized containers could experience potential mechanical, obsolescence and other risks.
Specialized containers include refrigerated containers and tanks. Refrigerated containers are
subject to inherent risks of mechanical breakdown, technological obsolescence and potential
environmental issues relating to refrigerant gases. Tanks, which can be used to transport
hazardous materials, include additional risks of environmental and tort liability.
Environmental liability may adversely affect the Partnerships business and financial
situation.
Under the laws of certain nations, the owner of a container may be liable for environmental
damage and / or cleanup costs and / or other sums in the event of actual or threatened discharge or
other contamination by material in a container. This liability could potentially be imposed on a
container owner, such as the Partnership, even if the owner is not at fault. It is not possible to
predict the amount of any such liability.
Affiliates of the Leasing Company may not have adequate resources to pay container
manufacturers for equipment purchased for resale.
Affiliates of the Leasing Agent periodically acquire equipment from container manufacturers
for resale to Managed Equipment Programs and other parties (the Purchasers). The affiliates
agree to the terms of the sale with the Purchasers prior to placing an order with the container
manufacturers. If the Purchasers do not complete the purchase of the equipment, then the
affiliates of the Leasing Agent may not have the resources to pay the container manufacturer. In
such an event they would need to seek a new Purchaser and / or extend the payment terms with the
manufacturers. There is a risk that a default by a Purchaser could impair the financial condition
of the Leasing Agent.
There are political, economic and business risks inherent in the global business environment.
The container leasing business may be adversely affected by additional business, economic and
political risks that generally are beyond the control of the Leasing Agent, CCC and the
Partnership:
|
|
|
Political and economic instability; |
|
|
|
|
Increases in maintenance expenses, taxes, third party fees and other expenses
attributable to the operation and the maintenance of the containers that cannot be offset
by increased lease revenues from the containers; |
|
|
|
|
Fluctuations in supply and demand for containers 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; |
|
|
|
|
Restrictions on the movement of capital; |
|
|
|
|
The imposition of new direct and indirect taxes in jurisdictions in which the Leasing
Agent trades; |
|
|
|
|
The effects of strikes and labor disputes; and |
|
|
|
|
Terrorist acts, conflicts and wars. |
Risk Associated with the Operations of an Equipment Leasing Business in Partnership Form
There is no assurance of successful operations.
No assurance can be given that the Partnerships operations will be successful or that it will
meet its originally stated investment objectives. Specifically, there is no assurance that cash
will be available for distribution to the Partnerships investors.
The Partnership has a high degree of reliance on CCC and the Leasing Agent.
The Partnerships operations are dependent upon the ability of CCC, and its affiliate, the
Leasing Agent, to arrange for the leasing, maintenance and eventual sale of containers on behalf of
the Partnership. The Partnerships limited Partners have no right to take part in the day-to-day
management of the Partnership; all decisions with respect to such management are made exclusively
by CCC.
The Partnership is dependent on key personnel in CCC and the Leasing Agent.
Most of CCCs and the Leasing Agents senior executives and other management-level employees
have been with CCC or the Leasing Agent for over ten years and have significant industry
experience. The loss of the services of
one or more of them could have a material
12
adverse effect on the Partnerships business. CCC
believes that its future success and that of the leasing partnerships it manages depend upon its
and its affiliates ability to retain key members of their management teams and to attract capable
management in the future. There can be no assurance that CCC and its affiliates will be able to do
so. CCC does not maintain key man life insurance on any of its officers.
There is a lack of liquidity for Partnership units.
There is no market for the Partnerships units and there are significant restrictions on the
transferability thereof. Limited partners may not be able to liquidate their investment, even in
the event of an emergency. While the limited partners may present their units for repurchase by
the Partnership, in accordance with the terms of the Partnership Agreement, there can be no
assurance that the Partnership will exercise its option to repurchase any of the units presented.
The Limited Partners have limited voting rights.
Limited partners have only limited voting rights on matters affecting the Partnerships
business, and are not permitted to take part in the management of the Partnership. Generally, for
any matter submitted for a vote of the limited partners, including the removal of the General
Partner, a vote of a simple majority in interest of the limited partners is required for approval.
|
|
Limited liability is not clearly established. |
In certain jurisdictions in which the Partnership may do business, the limited liability of
limited partnerships formed under the laws of other jurisdictions has not been clearly established.
There can be no assurance that CCC will be able, even through its best efforts, to ensure that the
limited liability of the Partnerships limited partners will be preserved in all jurisdictions.
Were limited liability not available to the limited partners, the limited partners might be liable
for the Partnerships debt in an amount exceeding their capital contributions to the Partnership
plus their share of the profits thereof.
Item 1B. Unresolved Staff Comments
Inapplicable.
Item 2. Properties
As of December 31, 2010, the Partnership owned dry cargo and specialized container equipment
suitable for transporting cargo by rail, sea or highway, comprising:
|
|
|
|
|
Containers |
|
Quantity (Units) |
Dry Cargo 20 Foot |
|
|
5,632 |
|
Dry Cargo 40 Foot |
|
|
2,668 |
|
Dry Cargo 40 Foot High-Cube |
|
|
911 |
|
Refrigerated 20 Foot |
|
|
12 |
|
Refrigerated 40 Foot High-Cube |
|
|
2 |
|
Tanks |
|
|
171 |
|
Utilization by customers of the Partnerships containers fluctuates over time, depending
on the supply of and demand for containers. During 2010, utilization of the dry cargo,
refrigerated and tank container fleets averaged 97%, 79% and 85%, respectively.
During 2010, the Partnership disposed the following quantity of containers:
|
|
|
|
|
Containers |
|
Quantity (Units) |
Dry Cargo 20 Foot |
|
|
2,199 |
|
Dry Cargo 40 Foot |
|
|
607 |
|
Dry Cargo 40 Foot High-Cube |
|
|
183 |
|
Refrigerated 20 Foot |
|
|
7 |
|
Refrigerated 40 Foot High-Cube |
|
|
9 |
|
Tanks |
|
|
10 |
|
13
Item 3. Legal Proceedings
Inapplicable.
Item 4. Removed and Reserved
PART II
Item 5. Market for the Partnerships Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
(a) |
|
Market Information; Recent Sales of Unregistered Securities |
|
|
|
|
The Partnerships outstanding units of limited partnership interests are not traded on
any market nor does an established public trading market exist for such purposes. |
|
|
|
|
The Partnership sold no equity securities during 2010 that were not registered under the
Securities Act of 1933, as amended. |
|
|
(b) |
|
Holders |
|
|
|
|
As of December 31, 2010, there were 7,432 holders of record of the Partnerships limited
partnership interests. |
|
|
(c) |
|
Dividends |
Inapplicable. For the distributions made by the Partnership to its limited partners, see
Item 6 Selected Financial Data.
|
(d) |
|
Securities authorized for issuance under equity compensation plans |
Inapplicable.
Inapplicable.
Inapplicable.
|
(g) |
|
Purchases of equity securities by the issuer and affiliated purchasers |
Inapplicable.
14
Item 6. Selected Financial Data
The selected financial data presented below as at December 31, 2010 and 2009 and for the years
ended December 31, 2010, 2009 and 2008 were derived from the audited financial statements of the
Partnership, included herein.
The selected financial data presented below as at December 31, 2008, 2007 and 2006 and for the
years ended December 31, 2007 and 2006 were derived from the audited financial statements of the
Partnership, which are not included herein.
The selected financial data should be read in conjunction with Item 7: Managements Discussion and
Analysis of Financial Condition and Results of Operations and with the financial statements and
related notes appearing elsewhere in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net lease revenue |
|
$ |
1,981,690 |
|
|
$ |
2,182,043 |
|
|
$ |
3,968,894 |
|
|
$ |
5,118,881 |
|
|
$ |
6,749,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,975,701 |
|
|
$ |
1,053,762 |
|
|
$ |
1,148,674 |
|
|
$ |
1,324,243 |
|
|
$ |
1,667,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners share of net
income (per unit basis) |
|
$ |
0.40 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
$ |
0.10 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions per unit of
limited partnership interest |
|
$ |
0.57 |
|
|
$ |
0.87 |
|
|
$ |
1.11 |
|
|
$ |
1.40 |
|
|
$ |
1.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year-end: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,214,518 |
|
|
$ |
8,404,227 |
|
|
$ |
13,761,598 |
|
|
$ |
20,792,932 |
|
|
$ |
29,800,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital |
|
$ |
7,214,518 |
|
|
$ |
8,404,227 |
|
|
$ |
13,761,598 |
|
|
$ |
20,792,932 |
|
|
$ |
29,800,002 |
|
15
Item 7. 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 historical financial statements and the notes
thereto and the other financial information appearing elsewhere in this report.
Forward-Looking Statements
The information in this Annual Report on Form 10-K (the Report) contains certain
forward-looking statements within the meaning of the securities laws. These forward-looking
statements reflect the current view of the Partnership and CCC with respect to future events and
financial performance, and are subject to a number of risks and uncertainties, many of which are
beyond the control of the Partnership and CCC. All statements other than statements of historical
facts included in this Report, including statements under Managements Discussion and Analysis of
Financial Condition and Results of Operations, regarding the Partnerships strategy, future
operations, estimated revenues, projected costs, prospects, plans and objectives of the Partnership
are forward-looking statements.
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 and CCC
believe that their plans, intentions and expectations reflected in or suggested by the
forward-looking statements made in this report are reasonable, the Partnership and CCC can give no
assurance that these plans, intentions or expectations will be achieved. Future economic,
political and industry trends that could potentially impact revenues and profitability are
difficult to predict, as well as the risks and uncertainties including, but not limited to, changes
in demand for leased containers, changes in global business conditions and their effect on world
trade, changes within the global shipping industry, the financial strength of the shipping lines
and other lessees of the Partnerships containers, fluctuations in new container prices, changes in
the costs of maintaining and repairing used containers, changes in competition, changes in the
ability of the Leasing Agent to maintain insurance on behalf of the Partnerships container fleet,
as well as other risks detailed herein and from time to time in the Partnerships filings with the
Securities and Exchange Commission (SEC).
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.
Primary Revenue Items
All of the revenue generated by the Partnership comes from the leasing and sale of containers.
One of the primary components of the Partnerships results of operations is net lease revenue.
Net lease revenue is determined by deducting direct operating expenses, management fees and
reimbursable 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
those associated with the Partnerships containers and may be categorized as follows:
|
|
|
Activity-related expenses, include agents costs and depot costs such as repairs,
maintenance and handling; |
|
|
|
|
Inventory-related expenses for off-hire containers, comprised of 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, include legal costs related to the recovery of containers and
doubtful accounts, insurance and provisions for doubtful accounts. |
Partnership Overview
Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer
the business of the Partnership is vested with CCC. A Leasing Agent Agreement exists between the
Partnership and the Leasing Agent, whereby they have contracted for the Leasing Agent to manage the
leasing operations for all container equipment owned by the Partnership. In addition to
responsibility for leasing and re-leasing the container equipment to ocean carriers, the
Leasing Agent disposes of the containers at the end of their useful economic life. The
Leasing
16
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.
During the Partnerships first 10 years of operations, its primary objective was to generate
cash flow from operations for distribution to its limited partners. Aside from the initial working
capital reserve retained from gross subscription proceeds (equal to approximately 1% of such
proceeds), the Partnership relied primarily on container rental receipts to meet this objective, as
well as to finance operating expenses. No credit lines are maintained to finance working capital.
Commencing in 2005, the Partnerships 11th year of operations, the Partnership began to focus its
attention on the disposition of its fleet in accordance with another of its original investment
objectives, realizing the residual value of its containers commencing after the tenth full year of
operations. Cash generated from container sales proceeds are distributed to its limited partners.
In February 2011, the Partnership completed its 17th year of operations.
Accordingly, it will continue its liquidation phase. At December 31, 2010, approximately 26% of
the original equipment remained in the Partnerships fleet compared to 34% at December 31, 2009.
CCC will take several factors into consideration when examining options for the timing of the
disposal of the containers. These factors include the level of gross lease revenue generated by
the diminishing fleet, the level of costs relative to this revenue, projected disposal proceeds on
the disposition of the Partnerships containers, overall market conditions and any foreseeable
changes in other general and administrative expenses.
During the first half of 2011, CCC may distribute a request for proposal (RFP) to
prospective third-party container buyers. A RFP would seek to determine any interest such parties
may have in purchasing the remaining containers owned by the Partnership. CCC will not make a
decision relating to the final liquidation of the Partnership until any such proposals have been
received and fully evaluated. If a decision is made to liquidate the Partnership, the distribution
of cash from operations or sales proceeds may be suspended while the liquidation of the remaining
containers in the fleet is evaluated. This is to ensure that sufficient cash reserves will be
available for expenses relating to the final liquidation and subsequent dissolution of the
Partnership. CCC would make one or more liquidating distributions to the Limited Partners on or
before the termination of the Partnership, or reinstate the monthly cash distributions should no
decision be made to liquidate the fleet in 2011.
The following table details the proportion of the operating lease fleet remaining by
product type, and is measured in TEUs at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Cargo Containers |
|
|
Refrigerated Containers |
|
|
Tank Containers |
|
|
Total |
|
|
|
TEU |
|
|
% |
|
|
TEU |
|
|
% |
|
|
TEU |
|
|
% |
|
|
TEU |
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchases |
|
|
48,306 |
|
|
|
100 |
% |
|
|
663 |
|
|
|
100 |
% |
|
|
229 |
|
|
|
100 |
% |
|
|
49,198 |
|
|
|
100 |
% |
Less disposals |
|
|
35,516 |
|
|
|
74 |
% |
|
|
647 |
|
|
|
98 |
% |
|
|
58 |
|
|
|
25 |
% |
|
|
36,221 |
|
|
|
74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining fleet at December 31, 2010 |
|
|
12,790 |
|
|
|
26 |
% |
|
|
16 |
|
|
|
2 |
% |
|
|
171 |
|
|
|
75 |
% |
|
|
12,977 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upon the liquidation of CCCs interest in the Partnership, 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.
Market & Industry Overview
Demand for container equipment depends largely on world trade levels and the rate of economic
growth, both of which are driven primarily by consumer demand.
The world economy entered a period of recovery in 2010, as the rate of growth in world output
returned largely to pre-recessionary levels. The revival in world trade has been well received by
the shipping sector with all major container lines expected to report profits in 2010.
The combined effects of increased trade volumes on major trade routes, the practice of slow
steaming employed by many of the shipping lines (to conserve fuel), the reduction in the size of
the global container fleet in 2009, and the capital constraints experienced by many shipping lines
have placed greater reliance on leasing companies. Demand for leased
containers strengthened throughout 2010, as trade volumes
17
increased and shipping lines
responded to the improved market by leasing increased quantities of containers. Lease rates have
remained relatively stable as equipment has been leased out under existing contractual terms.
Leasing companies have also reported a corresponding decline in direct operating expenses,
particularly inventory-related expenses, as off-hire container volumes have declined in line with
the improved market.
During 2010, the secondary market demand for used containers remained favorable. Higher
utilization levels not only contributed to a reduction in container inventories, but also a
corresponding decrease in the volume of containers available for sale and an increase in container
sale prices. Future proceeds and the volume of containers disposed will be highly dependent on
factors such as the performance of the container leasing market, regional economics, currency
fluctuations, new equipment prices and the volume of new equipment entering the market place.
The Partnerships average fleet size and utilization rates for each of the last three years were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Fleet size (measured in TEUs) |
|
|
|
|
|
|
|
|
|
|
|
|
Dry cargo containers |
|
|
14,402 |
|
|
|
19,521 |
|
|
|
23,989 |
|
Refrigerated containers |
|
|
27 |
|
|
|
54 |
|
|
|
212 |
|
Tank containers |
|
|
178 |
|
|
|
192 |
|
|
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization rates for combined fleet |
|
|
|
|
|
|
|
|
|
|
|
|
Average for the period |
|
|
95 |
% |
|
|
88 |
% |
|
|
96 |
% |
At end of period |
|
|
97 |
% |
|
|
89 |
% |
|
|
94 |
% |
Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009
Overview
Net income for 2010 was $1,921,939, or 182%, higher than in 2009. The primary reasons for the
change in profitability were:
|
|
|
The Partnership experienced stronger market conditions for leased containers; |
|
|
|
|
Depreciation expense declined in line with the reduction in fleet size as the
Partnership continued to sell equipment that had reached the end of its useful economic
life for maritime leasing; and |
|
|
|
|
The gain recorded upon the sale of container equipment increased by 37% when compared
to the prior year due to lower net book values at the time of disposal and higher
proceeds per container as a result of the more favorable secondary market conditions in
2010. |
Analysis & Discussion
Net lease revenue declined by $200,353, or 9%, compared to the prior year. The decline was
primarily due to:
|
|
|
a $909,919, or 26%, reduction in gross lease revenue as a direct result of the
reduction in fleet size. This is particularly attributable to the Partnerships dry
cargo container fleet which declined by 24% year on year; |
This was partially offset by:
|
|
|
a $500,238, or 53%, decrease 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. |
Depreciation expense in 2010 declined by $1,597,051, or 66%, when compared to 2009. This is a
direct result of the combined effect of the Partnerships declining fleet size and an increase in
the number of fully depreciated containers in the Partnerships remaining fleet.
18
Other general and administrative expenses amounted to $334,262 in 2010, an increase of
$59,946, or 22%, when compared to 2009. This increase was primarily attributable to higher
professional fees for third-party investor administrative services and audit services.
Net gain on disposal of equipment for the twelve months ended December 31, 2010 increased by
$585,187, or 37%, compared to 2009. The Partnership disposed of 3,015 containers during 2010,
compared to 3,635 containers during 2009. The increase in the net gain was due in part to the
combined effect of lower net book values for containers sold in 2010 compared to those sold in
2009, and an increase in the proceeds realized per container.
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008
Overview
Net income for 2009 was $94,912, or 8%, lower than in 2008. Net income for 2009 included the
impact of:
|
|
|
a 21% reduction in the size of the container fleet (measured in TEUs) as equipment
that was redelivered by customers was sold; |
|
|
|
|
a decline in the levels of net lease revenues, resulting from the combined effect of
the reduction in the size of the fleet, lower utilization and lease per-diem levels, and
increased direct operating expenses; and |
|
|
|
|
a decrease in depreciation expense as a result of the declining fleet size. |
Analysis & Discussion
Net lease revenue declined $1,786,851, or 45%, compared to the prior year. The decline was
primarily due to:
|
|
|
a $1,649,670 reduction in gross lease revenue, of which approximately 47% was
attributable to a reduction in the size of the Partnerships fleet and 53% was
attributable to the combined effect of both lower utilization rates and dry cargo
container per-diem rental rates; |
|
|
|
|
a $330,916 increase in direct operating expenses as both activity-related and
inventory-related expenses increased in line with the level of containers off-hired by
the shipping lines. |
Depreciation expense in 2009 declined by $1,371,255, or 36%, when compared to 2008 as a direct
result of the partnerships declining fleet size.
Other general and administrative expenses amounted to $274,316 in 2009, a decrease of $64,945,
or 19%, when compared to 2008. This was primarily attributable to lower professional fees for
third-party investor administrative services and audit services.
Net gain on disposal of equipment for the twelve months ended December 31, 2009 increased by
$273,752, or 21%, compared to 2008. The Partnership disposed of 3,635 containers during 2009,
compared to 3,236 containers during 2008. The increase in the net gain was due in part to the
combined effect of lower net book values for containers sold in 2009 compared to those sold in
2008, and an increase in the volumes of containers sold as a direct result of shipping lines
redelivering containers.
Liquidity and Capital Resources
Distributions are paid monthly. Distributions may be 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 Partnership Agreement. Cash
distributions from operations to CCC in excess of 5% of distributable cash will be considered an
incentive fee and compensation to CCC.
From inception through February 28, 2011, the Partnership distributed $127,051,649 in cash
from operations, and $29,261,828 in cash from
19
container sales proceeds to its limited partners.
This represents total distributions of $156,313,477, or 109%, of the limited partners original
invested capital. The liquidation of the Partnerships remaining containers will be the primary
factor influencing the future level of cash generated from operating, investing and financing
activities and the level of distributions from operations and sales proceeds to its partners in
subsequent periods.
At December 31, 2010, the Partnership had $2,800,849 in cash, an increase of $697,750 from the
cash balances at December 31, 2009. As of December 31, 2010, the Partnership held its cash on
deposit in an operating bank account. The General Partner has reviewed the investment strategy for
the Partnerships cash balances and will invest cash in short-term, interest bearing accounts as
opportunities arise. At December 31, 2010, the Partnership had an additional $30,000 as part of
its working capital for estimated expense related to the ultimate sale of its remaining containers,
final liquidation of its remaining assets and subsequent dissolution.
Cash from Operating Activities: Net cash provided by operating activities, primarily generated
by net lease revenue receipts, was $1,782,383 during 2010, compared to $2,301,380 and $4,116,277
during 2009 and 2008, respectively.
Cash from Investing Activities: Net cash provided by investing activities was $3,080,777
during 2010, compared to $3,691,972 and $3,503,731 in 2009 and 2008, respectively. These amounts
represent sales proceeds generated from the sale of container rental equipment.
Cash from Financing Activities: Net cash used in financing activities was $4,165,410 during
2010 compared to $6,411,133 and $8,180,008 during 2009 and 2008, respectively. These amounts
represent distributions to the Partnerships general and limited partners.
Off-Balance Sheet Arrangements
At December 31, 2010, the Partnership did not have any off-balance sheet arrangements and did
not have any such arrangements during the years ended December 31, 2010, 2009 and 2008,
respectively.
Contractual Obligations
As of December 31, 2010, the Partnership did not have any contractual obligations within the
meaning of Item 303 of the SECs Regulation S-K, such as long-term debt obligations, capital lease
obligations, operating lease obligations, purchase obligations, or other long-term liabilities
under generally accepted accounting principles.
Critical Accounting Policies
Container equipment depreciable lives: The Partnerships container rental equipment is
depreciated over a 15-year life using the straight-line basis to a residual value of 10% of the
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 equipment valuation: The Partnership and CCC review container rental equipment
when changes in circumstances require consideration as to whether the carrying value of the
equipment has become impaired, pursuant to guidance established in ASC 360-10-35 Accounting for
the Impairment or Disposal of Long-Lived Assets. The Partnership and CCC consider assets to be
impaired if the carrying value of the asset exceeds the future projected 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 in 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 container type or each 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.
Allowance for doubtful accounts: The Leasing Agent continually tracks the Partnerships
credit exposure to each of the lessees of the Partnerships containers using specialist third-party
credit information services and reports prepared by
its local staff to assess credit quality. The Leasing Agents credit committee, which
oversees the performance of existing customers, meets quarterly to analyze performance and to
20
recommend actions taken in order to minimize credit risk. The Leasing Agent derives an allowance
for doubtful accounts reflecting specific amounts provided against known probable losses plus an
additional amount based on historical loss experience. However, the Partnership may be subject to
an unexpected loss in net lease revenue resulting from lessees of its containers that default under
their container lease agreements with the Leasing Agent.
Accounting Pronouncements Adopted During the Period
On July 21, 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2010-20, disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. This ASU amends Accounting Standards Codification Topic 310,
Receivables, and requires expanded disclosures about the credit quality of an entitys loan, lease
and other financing receivables and its related allowance for credit losses. The purpose of the
Credit Quality of Financing Receivables and the Allowance for Credit Losses is to provide financial
statement users more information to understand an entitys exposure to credit losses and how the
allowance relates to that exposure. The disclosures will help investors assess credit risk in a
companys receivables portfolios and the adequacy of its allowance for credit losses. The
disclosures are effective as of the end of a reporting period for interim and annual reporting
periods ending on or after December 15, 2010. The Partnership adopted FASB ASU No. 2010-20 on
December 1, 2010, and the adoption did not have impact the Partnerships financial position,
results of operations or cash flows.
Inflation
The Partnership believes inflation has not had a material adverse effect on the results of its
operations.
21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Exchange rate risk: In 2010, approximately 92% of the gross lease revenues billed by the
Leasing Agent on behalf of the Group, or on behalf of other third-party container owners, including
the Partnership, were billed and paid in US dollars, and approximately 46% of direct operating
expenses were incurred and paid in US dollars. Of the 54% non-US dollar direct operating expenses,
the Leasing Agent estimates these are individually small, unpredictable and were incurred in
varying denominations. Thus, the Leasing Agent determined such amounts are not suitable for
cost-effective hedging.
In 2010, 12% of container disposals were billed and paid in non-US dollar currencies. The
Leasing Agent considers that such sales are individually small, unpredictable, are transacted in a
variety of currencies and as such are unsuitable for cost-effective hedging.
As exchange rates are outside 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.
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 8. Financial Statements and Supplementary Data
22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Partners
Cronos Global Income Fund XV, L.P.
San Francisco, California
We have audited the accompanying balance sheets of Cronos Global Income Fund XV, L.P. (the
Partnership) as of December 31, 2010 and 2009, and the related statements of operations,
partners capital, and cash flows for each of the three years in the period ended December 31,
2010. These financial statements are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Partnership is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the Partnerships internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements, 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, 2010 and 2009, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2010, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Deloitte LLP
Reading, United Kingdom
March 16, 2011
23
CRONOS GLOBAL INCOME FUND XV, L.P.
Balance Sheets
December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
2,800,849 |
|
|
$ |
2,103,099 |
|
Net lease receivables due from Leasing Agent |
|
|
544,910 |
|
|
|
370,401 |
|
Sales-type lease receivable, due from Leasing Agent within one year, net |
|
|
|
|
|
|
22,198 |
|
Direct financing lease receivable, due from Leasing Agent within one
year, net |
|
|
48,249 |
|
|
|
44,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
3,394,008 |
|
|
|
2,539,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct financing lease receivable, due from Leasing Agent after one year, net |
|
|
163,707 |
|
|
|
193,964 |
|
|
|
|
|
|
|
|
|
|
Container rental equipment, at cost |
|
|
32,577,888 |
|
|
|
41,962,519 |
|
Less accumulated depreciation |
|
|
(28,921,085 |
) |
|
|
(36,291,967 |
) |
|
|
|
|
|
|
|
Net container rental equipment |
|
|
3,656,803 |
|
|
|
5,670,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,214,518 |
|
|
$ |
8,404,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners capital: |
|
|
|
|
|
|
|
|
General partner |
|
$ |
21,365 |
|
|
$ |
13,932 |
|
Limited partners |
|
|
7,193,153 |
|
|
|
8,390,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total partners capital |
|
$ |
7,214,518 |
|
|
$ |
8,404,227 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
24
CRONOS GLOBAL INCOME FUND XV, L.P.
Statements of Operations
For the years ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Net lease revenue from Leasing Agent |
|
$ |
1,981,690 |
|
|
$ |
2,182,043 |
|
|
$ |
3,968,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other operating income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
(828,131 |
) |
|
|
(2,425,182 |
) |
|
|
(3,796,437 |
) |
Other general and administrative expenses |
|
|
(334,262 |
) |
|
|
(274,316 |
) |
|
|
(339,261 |
) |
Net gain on disposal of equipment |
|
|
2,156,404 |
|
|
|
1,571,217 |
|
|
|
1,297,465 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
994,011 |
|
|
|
(1,128,281 |
) |
|
|
(2,838,233 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
2,975,701 |
|
|
|
1,053,762 |
|
|
|
1,130,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
18,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,975,701 |
|
|
$ |
1,053,762 |
|
|
$ |
1,148,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of net income: |
|
|
|
|
|
|
|
|
|
|
|
|
General partner |
|
$ |
90,494 |
|
|
$ |
186,759 |
|
|
$ |
258,378 |
|
Limited partners |
|
|
2,885,207 |
|
|
|
867,003 |
|
|
|
890,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,975,701 |
|
|
$ |
1,053,762 |
|
|
$ |
1,148,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners per unit share of net income |
|
$ |
0.40 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
25
CRONOS GLOBAL INCOME FUND XV, L.P.
Statements of Partners Capital
For the years ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited |
|
|
General |
|
|
|
|
|
|
|
Partners |
|
|
Partner |
|
|
Total |
|
Balances at January 1, 2008 |
|
$ |
20,787,141 |
|
|
$ |
5,791 |
|
|
$ |
20,792,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
890,296 |
|
|
|
258,378 |
|
|
|
1,148,674 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions |
|
|
(7,926,320 |
) |
|
|
(253,688 |
) |
|
|
(8,180,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2008 |
|
$ |
13,751,117 |
|
|
$ |
10,481 |
|
|
$ |
13,761,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
867,003 |
|
|
|
186,759 |
|
|
|
1,053,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions |
|
|
(6,227,825 |
) |
|
|
(183,308 |
) |
|
|
(6,411,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2009 |
|
$ |
8,390,295 |
|
|
$ |
13,932 |
|
|
$ |
8,404,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
2,885,207 |
|
|
|
90,494 |
|
|
|
2,975,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash distributions |
|
|
(4,082,349 |
) |
|
|
(83,061 |
) |
|
|
(4,165,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010 |
|
$ |
7,193,153 |
|
|
$ |
21,365 |
|
|
$ |
7,214,518 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
26
CRONOS GLOBAL INCOME FUND XV, L.P.
Statements of Cash Flows
For the years ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,975,701 |
|
|
$ |
1,053,762 |
|
|
$ |
1,148,674 |
|
Adjustments to reconcile net income to net cash from
operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
828,131 |
|
|
|
2,425,182 |
|
|
|
3,796,437 |
|
Net gain on disposal of equipment |
|
|
(2,156,404 |
) |
|
|
(1,571,217 |
) |
|
|
(1,297,465 |
) |
Decrease in net lease and other receivables
due from Leasing Agent |
|
|
134,955 |
|
|
|
393,653 |
|
|
|
468,631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
(1,193,318 |
) |
|
|
1,247,618 |
|
|
|
2,967,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,782,383 |
|
|
|
2,301,380 |
|
|
|
4,116,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of container rental equipment |
|
|
3,080,777 |
|
|
|
3,691,972 |
|
|
|
3,503,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to general partner |
|
|
(83,061 |
) |
|
|
(183,308 |
) |
|
|
(253,688 |
) |
Distributions to limited partners |
|
|
(4,082,349 |
) |
|
|
(6,227,825 |
) |
|
|
(7,926,320 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(4,165,410 |
) |
|
|
(6,411,133 |
) |
|
|
(8,180,008 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
697,750 |
|
|
|
(417,781 |
) |
|
|
(560,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year |
|
|
2,103,099 |
|
|
|
2,520,880 |
|
|
|
3,080,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year |
|
$ |
2,800,849 |
|
|
$ |
2,103,099 |
|
|
$ |
2,520,880 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
27
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
December 31, 2010, 2009 and 2008
(1) |
|
Summary of Significant Accounting Policies |
|
(a) |
|
Nature of Operations |
|
|
|
|
Cronos Global Income Fund XV, L.P. (the Partnership) is a limited partnership that was
organized under the laws of the State of California on August 26, 1993, for the purpose of
owning and leasing dry and specialized marine cargo containers to ocean carriers. The
Partnership commenced operations on February 22, 1994, 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). The Partnership offered 7,500,000 units of limited partnership
interest at $20 per unit or $150,000,000. The offering terminated on December 15, 1995,
at which time 7,151,569 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. |
|
|
|
|
In February 2011, the Partnership completed its 17th year of operations and is
in the liquidation phase wherein CCC focuses its attention on the retirement of the
remaining equipment in the Partnerships container fleet. At December 31, 2010,
approximately 26% of the original equipment remained in the Partnerships fleet. CCC will
take several factors into consideration when examining options for the timing of the
disposal of the containers. These factors include the level of gross lease revenue
generated by the diminishing fleet, the level of costs relative to this revenue, projected
disposal proceeds on the disposition of the Partnerships containers, overall market
conditions and any foreseeable changes in other general and administrative expenses.
During the first half of 2011, CCC may distribute a request for proposal (RFP) to
prospective third-party container buyers. A RFP would seek to determine any interest such
parties may have in purchasing the remaining containers owned by the Partnership. CCC
will not make a decision relating to the final liquidation of the Partnership until any
such proposals have been received and fully evaluated. If a decision is made to liquidate
the Partnership, the distribution of cash from operations or sales proceeds may be
suspended while the liquidation of the remaining containers in the fleet is evaluated.
This is to ensure that sufficient cash reserves will be available for expenses relating to
the final liquidation and subsequent dissolution of the Partnership. CCC would make one
or more liquidating distributions to the Limited Partners on or before the termination of
the Partnership, or reinstate the monthly cash distributions should no decision be made to
liquidate the fleet in 2011. |
|
|
|
|
The Partnerships operations depend on global economic and political conditions. The
Partnership believes that the profitability and risk profile of leases with foreign
customers are generally the same as those with domestic customers. The majority of the
Partnerships leases generally require all payments to be made in US dollars. |
|
|
(b) |
|
Cronos Ltd. |
|
|
|
|
Cronos Ltd. (the Parent Company), a Bermuda exempted company, is the parent of CCC, the
General Partner of the Partnership. On July 28, 2010, Cronos consummated several
transactions with investment funds affiliated with Kelso & Company, L.P. (collectively
Kelso), a private equity firm based in New York. Pursuant to these transactions, Kelso
acquired a majority interest in Cronos through a newly-organized holding company, Cronos
Holding Company Ltd. (Cronos or the Ultimate Holding Company), also a Bermuda exempted
company. |
|
|
|
|
In connection with the transactions with Kelso, Dennis J. Tietz retired as a director of
CCC. Messrs. Younger, Vaughan, and Kallas remain as directors of CCC. |
28
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(1) |
|
Summary of Significant Accounting Policies (continued) |
|
(c) |
|
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. |
|
|
|
|
The Leasing Agent leases containers to ocean carriers, generally under operating leases
which are either master leases or term 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, and
rentals are charged and recognized 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. |
|
|
|
|
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. |
|
|
|
|
Sales-type leases and 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. |
|
|
(d) |
|
Concentrations of Credit Risk |
|
|
|
|
The Partnerships financial instruments that are exposed to concentrations of credit risk
consist primarily of cash, cash equivalents and net lease receivables due from the Leasing
Agent. |
|
|
|
|
Net lease receivables due from the Leasing Agent (see notes 1(c) and 4 for discussion
regarding net lease receivables) subject the Partnership to a significant concentration of
credit risk. The net lease receipts, represent rentals collected from ocean carriers
after deducting payments for direct operating expenses and management fees, are remitted
by the Leasing Agent to the Partnership on a weekly basis. |
|
|
(e) |
|
Basis of Accounting |
|
|
|
|
The Partnerships accounting records are maintained in US dollars and the financial
statements are prepared in accordance with accounting principles generally accepted in the
United States of America (US GAAP). |
29
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(1) |
|
Summary of Significant Accounting Policies (continued) |
|
(f) |
|
Use of Estimates |
|
|
|
|
The preparation of financial statements in conformity with US GAAP requires the
Partnership to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reported
period. The most significant estimates relate to the carrying value of equipment
including estimates relating to depreciable lives, residual values and asset impairments.
Actual results could differ from those estimates. |
|
|
(g) |
|
Allocation of Net Income or Loss, Partnership Distributions and Partners
Capital |
|
|
|
|
Net income or loss has been allocated between 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 net 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 its partners 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. |
|
|
(h) |
|
Acquisition Fees |
|
|
|
|
Pursuant to the Partnership Agreement, acquisition fees paid to CCC were based on 5% of
the equipment purchase price. These fees were capitalized and included in the cost of the
container rental equipment. |
30
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(1) |
|
Summary of Significant Accounting Policies (continued) |
|
(i) |
|
Container Rental Equipment |
|
|
|
|
Container rental equipment is depreciated over a 15-year life using the straight-line
basis to a residual value of 10% of the 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. |
|
|
|
|
In accordance with ASC 360-10-35 Accounting for the Impairment or Disposal of
Long-Lived Assets, 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 of projected future cash flows from container
operations is prepared annually or upon material changes in market conditions. 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. |
|
|
(j) |
|
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. |
|
|
(k) |
|
Accounting Pronouncements Adopted During the Period |
|
|
|
|
On July 21, 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) No. 2010-20, disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This ASU amends Accounting Standards
Codification Topic 310, Receivables, and requires expanded disclosures about the credit
quality of an entitys loan, lease and other financing receivables and its related
allowance for credit losses. The purpose of the Credit Quality of Financing Receivables
and the Allowance for Credit Losses is to provide financial statement users more
information to understand an entitys exposure to credit losses and how the allowance
relates to that exposure. The disclosures will help investors assess credit risk in a
companys receivables portfolios and the adequacy of its allowance for credit losses. The
disclosures are effective as of the end of a reporting period for interim and annual
reporting periods ending on or after December 15, 2010. The Partnership adopted FASB ASU
No. 2010-20 on December 1, 2010, and the adoption did not have impact the Partnerships
financial position, result of operations or cash flows. |
31
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(2) |
|
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 assess its performance, and about which separate financial
information is available. CCC and the Leasing Agent operate the Partnerships container fleet
as a homogeneous unit and have determined that as such, it has a single reportable operating
segment. |
|
|
|
The Partnership derives revenues from marine dry cargo, refrigerated and tank containers that
are used by its customers in global trade routes. As of December 31, 2010, the Partnership
owned dry cargo and specialized container equipment, comprising: |
|
|
|
|
|
Containers |
|
Quantity (Units) |
|
Dry Cargo 20 Foot |
|
|
5,632 |
|
|
|
|
|
|
Dry Cargo 40 Foot |
|
|
2,668 |
|
|
|
|
|
|
Dry Cargo 40 Foot High-Cube |
|
|
911 |
|
|
|
|
|
|
Refrigerated 20 Foot |
|
|
12 |
|
|
|
|
|
|
Refrigerated 40 Foot High-Cube |
|
|
2 |
|
|
|
|
|
|
Tanks |
|
|
171 |
|
|
|
A summary of gross lease revenue earned by each Partnership container type for the years
ended December 31, 2010, 2009 and 2008 follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Dry cargo containers |
|
$ |
2,050,360 |
|
|
$ |
2,937,457 |
|
|
$ |
4,350,690 |
|
Refrigerated containers |
|
|
40,247 |
|
|
|
63,784 |
|
|
|
224,535 |
|
Tank containers |
|
|
509,771 |
|
|
|
509,056 |
|
|
|
584,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,600,378 |
|
|
$ |
3,510,297 |
|
|
$ |
5,159,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the Partnerships lack of information regarding the physical location of its container
fleet while on lease in the global shipping trade, the Partnership believes that it does not
possess discernible geographic reporting segments. |
|
|
The Partnership does not believe that its ongoing business is dependent upon a single lessee of
the Leasing Agent, although the loss of one or more of the Leasing Agents lessees could have
an adverse effect upon its business. The following lessees of the Leasing Agent each generated
10% or more of gross lease revenue earned on the Partnerships equipment. During 2010,
Mediterranean Shipping Company S.A. (MSC) generated approximately 33%, or $868,744 of gross
lease revenue, and Hapag-Lloyd AG generated approximately 20%, or $508,778 of gross lease
revenue, respectively. During 2009, MSC generated approximately 25%, or $889,063 of gross
lease revenue, and Hapag-Lloyd AG generated approximately 15%, or $543,207 of gross lease
revenue, respectively. During 2008, MSC generated approximately 18%, or $916,982 of gross lease
revenue, and Hapag-Lloyd AG generated approximately 11%, or $583,423 of gross lease revenue,
respectively. |
|
|
At December 31, 2010, the Partnership held its cash on deposit in an operating bank account.
The Partnership will review its investment strategy for cash balances on a periodic basis.
Cash at December 31, 2010 and 2009 was $2,800,849 and $2,103,099, respectively. |
32
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(4) |
|
Net Lease Receivables Due from Leasing Agent |
|
|
Net lease receivables at December 31, 2010 and 2009 comprised: |
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Gross lease receivables |
|
$ |
1,076,823 |
|
|
$ |
985,154 |
|
Less: |
|
|
|
|
|
|
|
|
Direct operating payables and accrued expenses |
|
|
413,926 |
|
|
|
482,040 |
|
Base management fees payable |
|
|
41,986 |
|
|
|
42,263 |
|
Reimburseable administrative expenses |
|
|
12,464 |
|
|
|
17,329 |
|
Allowance for doubtful accounts |
|
|
63,537 |
|
|
|
73,121 |
|
|
|
|
|
|
|
|
|
|
|
531,913 |
|
|
|
614,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net lease receivables due from Leasing Agent |
|
$ |
544,910 |
|
|
$ |
370,401 |
|
|
|
|
|
|
|
|
|
|
Included within the amount of gross lease receivables are $242,537 and $296,053 in respect of
amounts owed by the Leasing Agent in relation to disposal related invoices for the years ended
December 31, 2010 and 2009, respectively. |
|
|
For the years ended December 31, 2010 and 2009, respectively, $1,309 and $17,491 were recorded
as doubtful debt expense in relation to trade receivables. In addition, $10,893 and $121,140
were written-off for the years ended December 31, 2010 and 2009, respectively. |
(5) |
|
Direct Financing Lease Receivables Due from Leasing Agent |
|
|
The Leasing Agent, on behalf of the Partnership, entered into direct financing lease
agreements that included bargain purchase options. The Partnership classified the agreements
as direct financing leases and has recorded direct financing lease receivables. The underlying
equipment had previously been classified as container rental equipment. At December 31, 2010,
the minimum future lease rentals under these direct financing leases, net of unearned income
were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Direct |
|
|
Unearned Direct |
|
|
Net Minimum Future |
|
|
|
Financing Lease |
|
|
Financing Lease |
|
|
Direct Financing |
|
|
|
Receivable |
|
|
Income |
|
|
Lease Rentals |
|
2011 |
|
$ |
207,666 |
|
|
$ |
159,417 |
|
|
$ |
48,249 |
|
2012 |
|
|
183,113 |
|
|
|
106,884 |
|
|
|
76,229 |
|
2013 |
|
|
106,601 |
|
|
|
32,509 |
|
|
|
74,092 |
|
2014 |
|
|
17,084 |
|
|
|
3,698 |
|
|
|
13,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
514,464 |
|
|
$ |
302,508 |
|
|
$ |
211,956 |
|
|
|
|
|
|
|
|
|
|
|
Ageing of past due amounts for finance lease receivables at December 31, 2010 and 2009
comprised:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2010 |
|
|
2009 |
|
Current 30 days |
|
$ |
41,940 |
|
|
$ |
1,109 |
|
31 60 days |
|
|
1,956 |
|
|
|
|
|
61 120 days |
|
|
133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
44,029 |
|
|
$ |
1,109 |
|
|
|
|
|
|
|
|
33
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(6) |
|
Damage Protection Plan |
|
|
The Leasing Agent offers a service to several customers of the Partnership, whereby the
customer pays an additional rental fee and in return the Partnership undertakes to cover the
cost of certain damage repairs which may be required
when the container is redelivered. The level of damage cover provided will vary according to
the terms of each lease agreement. |
|
|
Net lease revenue for 2010, 2009 and 2008 comprised: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Gross lease revenue |
|
$ |
2,600,378 |
|
|
$ |
3,510,297 |
|
|
$ |
5,159,967 |
|
Interest income from sales-type lease and
direct financing lease |
|
|
183,778 |
|
|
|
70,175 |
|
|
|
46,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,784,156 |
|
|
|
3,580,472 |
|
|
|
5,206,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses |
|
|
445,972 |
|
|
|
946,210 |
|
|
|
615,294 |
|
Base management fees (note 8) |
|
|
191,144 |
|
|
|
243,354 |
|
|
|
358,293 |
|
Reimbursable administrative expenses (note 8): |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries |
|
|
119,913 |
|
|
|
155,136 |
|
|
|
194,771 |
|
Other payroll related expenses |
|
|
15,213 |
|
|
|
16,302 |
|
|
|
24,512 |
|
General and administrative expenses |
|
|
30,224 |
|
|
|
37,427 |
|
|
|
44,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
802,466 |
|
|
|
1,398,429 |
|
|
|
1,237,289 |
|
|
|
|
|
|
|
|
|
|
|
|
Net lease revenue |
|
$ |
1,981,690 |
|
|
$ |
2,182,043 |
|
|
$ |
3,968,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent master lease rentals earned on the Partnerships equipment approximated $1,728,991,
$2,273,268, and $3,748,452 of gross lease revenue, in the years ended December 31, 2010, 2009
and 2008, respectively. |
|
|
As of December 31, 2010, the minimum lease rentals receivable on the Partnerships equipment in
future years under non-cancelable term operating leases were: |
|
|
|
|
|
2011 |
|
$ |
310,103 |
|
2012 |
|
|
233,734 |
|
2013 |
|
|
190,785 |
|
2014 |
|
|
118,729 |
|
2015 |
|
|
101,505 |
|
Thereafter |
|
|
264,334 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,219,190 |
|
|
|
|
|
34
CRONOS GLOBAL INCOME FUND XV, L.P.
Notes to Financial Statements
(8) |
|
Related Party Transactions |
|
|
CCC and the Leasing Agent are related parties of the Partnership. |
|
|
Base management fees are equal to 7% of the gross lease revenue earned on the Partnerships
equipment. Reimbursable 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 earned by CCC and the Leasing Agent for
the years indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Base management fees |
|
|
|
|
|
|
|
|
|
|
|
|
Leasing Agent |
|
$ |
191,144 |
|
|
$ |
243,354 |
|
|
$ |
358,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursable administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
CCC |
|
|
24,614 |
|
|
|
26,663 |
|
|
|
27,390 |
|
Leasing Agent |
|
|
140,736 |
|
|
|
182,202 |
|
|
|
236,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165,350 |
|
|
|
208,865 |
|
|
|
263,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
356,494 |
|
|
$ |
452,219 |
|
|
$ |
621,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following compensation was payable to CCC and the Leasing Agent at December 31, 2010
and 2009: |
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
CCC |
|
$ |
2,616 |
|
|
$ |
2,366 |
|
Leasing Agent |
|
|
51,834 |
|
|
|
57,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
54,450 |
|
|
$ |
59,592 |
|
|
|
|
|
|
|
|
(9) |
|
Limited Partners Capital |
|
|
Cash distributions made to the Limited Partners during 2010, 2009 and 2008 were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Cash Distribution from Operations |
|
$ |
983,338 |
|
|
$ |
2,830,829 |
|
|
$ |
4,082,353 |
|
Cash Distribution from Sales Proceeds |
|
|
3,099,011 |
|
|
|
3,396,996 |
|
|
|
3,843,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Distributions |
|
$ |
4,082,349 |
|
|
$ |
6,227,825 |
|
|
$ |
7,926,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
These distributions are used in determining Adjusted Capital Contributions as defined by the
Partnership Agreement. |
|
|
The limited partners per unit share of capital at December 31, 2010, 2009 and 2008 was $1.01,
$1.17, and $1.92, respectively. This is calculated by dividing the limited partners capital
at the end of each year by 7,151,569, the total number of outstanding limited partnership
units. |
35
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Inapplicable.
Item 9A. Controls and Procedures
See Item 9A(T).
Item 9A(T). Controls and Procedures
Evaluation of Disclosure 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 that occurred during the Partnerships fourth
fiscal quarter ended December 31, 2010 that has materially affected, or is reasonably likely to
materially affect, the Partnerships internal control over financial reporting.
Report of Management on Internal Control Over Financial Reporting
CCCs management is responsible for establishing and maintaining adequate internal control
over financial reporting for the Partnership. Management assessed the effectiveness of the
Partnerships internal control over financial reporting as of December 31, 2010. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) on Internal ControlIntegrated Framework. Based on its assessment,
management determined that the Partnership maintained effective internal control over financial
reporting as of December 31, 2010.
This annual report does not include an attestation report of the Partnerships independent
registered public accounting firm regarding internal control over financial reporting. The
Partnerships internal control over financial reporting is not subject to attestation by the
Partnerships registered public accounting firm pursuant to the rules of the Securities and
Exchange Commission that permit the Partnership to provide only managements report in this annual
report.
This report of management on internal control over financial reporting shall not be deemed to
be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to
the liabilities of that section.
Item 9B. Other Information
Inapplicable.
36
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The Partnership, as such, has no officers or directors, but is managed by CCC, the General
Partner. The officers and directors of CCC at February 28, 2011, are as follows:
|
|
|
Name |
|
Office |
Peter J. Younger
|
|
President and Chairman of the Board of Directors of
CCC, and Chief Executive Officer of CCC and Cronos
Holding Company Ltd. |
|
|
|
Frank P. Vaughan
|
|
Executive Vice President, Treasurer, Director of CCC
and Chief Financial Officer of CCC and Cronos Holding
Company Ltd. |
|
|
|
John Kallas
|
|
Vice President, Secretary and Director of CCC |
|
|
|
Timothy D. May
|
|
Vice President and Director of CCC |
|
|
|
Matthew L. Dowling
|
|
Vice President and Director of CCC |
Peter J. Younger Mr. Younger, 54, President and Director, was elected to the Board of
Directors of CCC in December 2005. From 1991 through December 2004, Mr. Younger served in various
officer positions with the Leasing Agent, most recently as its Managing Director. From 1987 to
1991, Mr. Younger served as Vice President and Controller of CCC. Prior to 1987, Mr. Younger was a
certified public accountant and a principal with the accounting firm of Johnson, Glaze and Co.,
Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration from Western Baptist
College, Salem, Oregon.
On November 3, 2009, Mr. Younger was appointed Chief Executive Officer and Chairman of the
Board of Directors of CCC. Mr. Younger was appointed President and Chief Executive Officer of
Cronos Holding Company Ltd. on July 28, 2010. From August 1, 2007 until July 28, 2010, Mr. Younger
served as President and Chief Executive Officer of Cronos Ltd. Prior to August 1, 2007, Mr.
Younger served as The Cronos Groups (predecessor of Cronos Ltd.) President and Chief Operating
Officer in addition to being a member of The Cronos Groups Board of Directors.
Frank P. Vaughan Mr. Vaughan, 46, was first elected Vice President, Chief Financial Officer
and Director of CCC in December 2007. He was elected Treasurer of CCC in November 2009. Mr.
Vaughan was appointed as Executive Vice President of CCC and Cronos Holding Company Ltd. on October
1, 2010 and is responsible for the accounting operations of CCC. See key management personnel of
the Leasing Agent for further information.
John Kallas Mr. Kallas, 48, Vice President, Secretary and Director. Mr. Kallas was appointed
Vice President of Information Technology in September 2007 and is currently responsible for Cronos
Information Technology functions. From June 2008 to November 2010, Mr. Kallas also served as Vice
President of Operations. Mr. Kallas was elected Secretary of CCC on December 2007. Mr. Kallas
joined the Board of Directors of CCC in November 2000. Mr. Kallas served as CCCs Chief Financial
Officer from December 1993 to December 2007 and has held various accounting positions since joining
CCC including Controller, Director of Accounting and Corporate Accounting Manager. From 1985 to
1989, Mr. Kallas was an accountant with KPMG Peat Marwick, San Francisco, California. Mr. Kallas
holds a Masters degree in Finance and Business Administration from St. Marys College, a B.S.
degree in Business Administration from the University of San Francisco, and is a certified public
accountant (inactive).
Timothy D. May Mr. May, 41, was elected Director of CCC in January 2011. See key management
personnel of the Leasing Agent for further information.
Matthew L. Dowling Mr. Dowling, 53, Vice President of Operations, was elected Director of CCC
in January 2011. He is currently responsible for Cronos equipment procurement operations, asset
tracking, disposition, lease contract administration and depot contract administration. From 2004
to 2010, Mr. Dowling was with Marin Mountain Bikes, Inc., where he served as Chief Executive and
Chief Financial Officer. From 1996 to 2003, Mr. Dowling held various executive finance and
operations positions with a manufacturing company and a financial firm. From 1988 to 1996, Mr.
Dowling served as the Leasing Agents Vice President of Finance and was responsible for container
financing and various other finance and operational activities.
37
The key management personnel of the Leasing Agent at February 28, 2011, were as follows:
|
|
|
Name |
|
Title |
Frank P. Vaughan
|
|
Director of the Leasing Agent and Executive Vice
President, Chief Financial Officer of Cronos Holding
Company Ltd. |
|
|
|
John C. Kirby
|
|
Director of the Leasing Agent and Executive Vice
President of Cronos Ltd. for the Atlantic Region |
|
|
|
Timothy D. May
|
|
Director of the Leasing Agent and Vice President of
Cronos Ltd. for the Pacific Region |
|
|
|
Timothy W. Courtenay
|
|
Director of the Leasing Agent |
Frank P. Vaughan Mr. Vaughan, 46, was appointed a Director of the Leasing Agent in November
2000. Based in the United Kingdom (UK), Mr. Vaughan is responsible for Cronos Holding Company
Ltd.s and the Leasing Agents financial operations. Mr. Vaughan joined the Leasing Agent in 1991
and has held various finance and accounting positions, including Director of Planning and Manager
of Group Reporting. Prior to joining Cronos in 1991, Mr. Vaughan was an accountant with the
Automobile Association in the UK, from 1987 to 1991, where he worked in their insurance, travel,
publishing, and member services divisions. Mr. Vaughan holds a Bachelor of Commerce degree, with
honors, from University College Cork in Ireland, and is a qualified Chartered Management
Accountant.
Mr. Vaughan was appointed Executive Vice President and Chief Financial Officer and Secretary (USA)
of Cronos Holding Company Ltd. on July 28, 2010. Prior to July 28, 2010., Mr. Vaughan served as
The Cronos Groups (predecessor of Cronos Ltd.) Senior Vice President and Chief Financial Officer.
John C. Kirby Mr. Kirby, 57, is responsible for the Leasing Agents marketing operations in
the Atlantic region. Mr. Kirby is based in the UK. 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 Agent, until his promotion to Vice President-Operations of the Leasing
Agent in 1992. Mr. Kirby is also Vice President of Cronos Ltd., the Leasing Agents corporate
parent. From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container Leasing Agent,
as Technical Manager, based in Hamburg, Germany. Mr. Kirby acquired a professional engineering
qualification from the Mid-Essex Technical College in England.
Timothy D. May Mr. May, 41, joined the Leasing Agent in 1996 as Technical Sales Manager, and
was later appointed Corporate Operations Director. Mr. May has served as Vice President since
March 2006, where he oversees lease marketing activities and operations for the Pacific region.
Prior to joining Cronos in 1996, Mr. May was Operations Manager with Tiphook Container Rental and a
Specialist Surveyor with Lloyds Register of Shipping. Mr. May received his Master of Business
Administration degree from Henley Business School in England and holds a Bachelor of Engineering
degree, with honors, from Nottingham University, also in England.
Timothy W. Courtenay Mr. Courtenay, 50, joined the Leasing Agent in 1995 and is based in the
UK. Mr. Courtenay serves as the Director of Risk Management. From 1988 to when he joined Cronos,
Mr. Courtenay was a financial controller for a real estate firm based in London, England. Mr.
Courtenay holds a B.A. degree, with honors, in Accountancy from Leeds University and is a qualified
Chartered Management Accountant. Mr. Courtenay also holds a diploma in employment law.
38
Audit Committee
The Partnership is governed by CCC pursuant to the terms and provisions of its Partnership
Agreement. The business of CCC, in turn, is supervised by its board of directors. The board of
directors of CCC has delegated the oversight of the Partnerships financial reporting, audit and
compliance to an audit committee (the Audit Committee). The members of the Audit Committee are
Peter J. Younger, Frank P. Vaughan and John Kallas. All of the members of the Audit Committee are
officers of CCC and therefore are not independent as defined by the Exchange Act and stock
exchange rules.
Audit Committee Financial Expert
The board of directors of CCC has determined that John Kallas, a member of CCCs board,
qualifies as an audit committee financial expert within the meaning of the rules of the SEC. CCCs
board has made this judgment by reason of Mr. Kallas experience and training, described above in
Mr. Kallas biography, under the listing of officers and directors of CCC. As a result of Mr.
Kallas being an officer of CCC, he is not considered independent within the meaning of the rules
of the SEC.
Code of Ethics
CCC has adopted a Code of Ethics (the Code) that applies to the senior officers of CCC,
including the officers identified above. The Code is designed to promote honest and ethical
conduct by such officers in their management of the business of CCC, including its activities as
General Partner of the Partnership; full and fair disclosure in the reports and documents CCC
prepares for and on behalf of the Partnership; and compliance with applicable governmental laws,
rules, and regulations. The Code provides a mechanism for the reporting of violations of the Code
and measures to enforce adherence to the Code. A copy of the Code may be requested, without
charge, from:
Cronos Capital Corp.
The General Partner
Attention: Corporate Secretary
One Front Street, Suite 925
San Francisco, CA 94111
(415) 677-8990
ir@cronos.com
Section 16(a) Beneficial Ownership Reporting Compliance
The Partnership has followed the practice of reporting acquisitions and dispositions of the
Partnerships units of limited partnership interests by CCC, its General Partner. As CCC did not
acquire or dispose of any of the Partnerships units of limited partnership interests during the
fiscal year ended December 31, 2010, no reports of beneficial ownership under Section 16(a) of the
Securities Exchange Act of 1934, as amended, were filed with the SEC.
39
Item 11. Executive Compensation
Partnership distributions are paid to its 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.
The Partnership does not pay or reimburse CCC or the Leasing Agent for any remuneration
payable by them to their executive officers, directors or any other controlling persons. However,
the Partnership does reimburse CCC and the Leasing Agent 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 Partnership by independent
parties, such as legal, accounting, transfer agent, data processing, operations, communications,
duplicating and other such services; (ii) performing administrative services necessary to the
prudent operations of the Partnership.
The following table sets forth the fees the Partnership paid (on a cash basis) to CCC or the
Leasing Agent (CCL) for the year ended December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Cash Fees and |
Name |
|
Description |
|
Distributions |
1) CCL
|
|
Base management fees equal to 7% of
gross lease revenue from the leasing of
containers subject to leases whereby the
aggregate rental payments due during the
initial term of the lease are less than
the purchase price of the equipment
subject to the lease pursuant to Section
4.3 of the Limited Partnership Agreement
|
|
$ |
191,421 |
|
|
|
|
|
|
|
|
2) CCC
CCL
|
|
Reimbursable administrative expenses
equal to the costs expended by CCC and
its affiliates for services necessary to
the prudent operation of the Partnership
pursuant to Section 4.4 of the Limited
Partnership Agreement
|
|
$
$ |
24,364
145,851 |
|
|
|
|
|
|
|
|
3) CCC
|
|
Interest in Fund 5% of distributions of
distributable cash for any quarter
pursuant to Section 6.1 of the Limited
Partnership Agreement
|
|
$ |
83,061 |
|
40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
|
(a) |
|
Securities Authorized for Issuance Under Equity Compensation Plans |
Inapplicable.
|
(b) |
|
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
Partnership.
|
(c) |
|
Security Ownership of Management |
The Partnership has no directors or officers. It is managed by CCC. CCC owns five units,
representing 0.00007% of the total number of units outstanding.
Inapplicable.
Item 13. Certain Relationships and Related Transactions, and Director Independence
|
(a) |
|
Transactions with Related Persons |
The Partnerships only transactions with management and other related parties during 2010 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.
|
(b) |
|
Review, Approval or Ratification of Transactions with Related Persons |
Inapplicable.
|
(c) |
|
Promoters and Certain Control Persons |
Inapplicable.
|
(d) |
|
Smaller Reporting Companies |
For information required by paragraph (a) of Item 404 of Regulation S-K, see Item 11 of this
report, Executive Compensation, herein.
The Partnership has no parents within the meaning of the Exchange Act and the SECs rules.
See also Item 12(b) herein, Security Ownership of Certain Beneficial Owners.
CCC is the General Partner of the Partnership and manages the Partnerships business. The
parent of CCC is Cronos Ltd., which owns 100% of the outstanding capital stock of CCC.
|
(e) |
|
Director Independence |
The Partnership has no officers or directors. The directors of CCC, the General Partner of
the Partnership, are identified under Part III, Item 10, Directors, Executive Officers and
Corporate Governance herein. None of the directors of CCC is independent within the meaning of
relevant SEC and stock exchange definitions of the term.
41
Item 14. Principal Accountant Fees and Services
CCC, on behalf of the Partnership has appointed Deloitte LLP as the Partnerships independent
auditor for the fiscal year ended December 31, 2010. CCCs board of directors has the authority to
pre-approve audit related and non-audit services on behalf of the Partnership, that are not
prohibited by law, to be performed by the Partnerships independent auditors.
Audit Fees
Audit fees represent fees for professional services provided in connection with the audit of
the Partnerships financial statements and review of its quarterly financial statements and audit
services provided in connection with its statutory or regulatory filings. The Partnership incurred
fees of $67,745 and $50,285 during the fiscal years ended December 31, 2010 and 2009, respectively,
for these audit services.
Audit-Related Fees
The Partnership did not incur audit-related fees during the fiscal years ended December 31,
2010 and 2009. Typically, audit-related fees, if incurred, would consist of fees for accounting
consultations and other attestation services.
Tax Fees
The Partnership did not incur tax fees during the fiscal years ended December 31, 2010 and
2009. Typically, tax fees, if incurred, would consist of fees for compliance services, tax advice
and tax planning.
All Other Fees
The Partnership did not incur any other fees for services provided by its independent auditor
during the fiscal years ended December 31, 2010 and 2009.
42
PART IV
Item 15. Exhibits and Financial Statement Schedules
All schedules are omitted as the information is not required or the information is included in
the financial statements or notes thereto.
(3) Exhibits
|
|
|
|
|
Exhibit |
|
|
|
|
No. |
|
Description |
|
Method of Filing |
3(a)
|
|
Limited Partnership Agreement of the
Partnership, amended and restated as of
September 12, 1988
|
|
* |
|
|
|
|
|
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 Certifications
|
|
Filed with this document
**** |
|
|
|
* |
|
Incorporated by reference to Exhibit A to the Prospectus of the Partnership dated September
12, 1988, included as part of Registration Statement on Form S-1 (No. 33-23321) |
|
** |
|
Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (No.
33-23321) |
|
*** |
|
Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No.
33-42697) |
|
**** |
|
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. |
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 XV, 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 |
|
|
Date: March 16, 2011
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 General Partner of the
Partnership, in the capacities and on the dates indicated:
|
|
|
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
/s/ Peter J. Younger
Peter J. Younger
|
|
President and Chairman of the Board of Directors
of
Cronos Capital Corp. (CCC) (Principal
Executive Officer of CCC)
|
|
March 16, 2011 |
|
|
|
|
|
/s/ Frank P. Vaughan
Frank P. Vaughan
|
|
Executive Vice President, Treasurer, Chief Financial
Officer and Director of CCC
(Principal Financial and Accounting Officer
of CCC)
|
|
March 16, 2011 |
/s/ John Kallas
John Kallas
|
|
Vice President, Secretary and Director of CCC
|
|
March 16, 2011 |
|
|
|
|
|
/s/ Timothy D. May
Timothy D. May
|
|
Vice President and Director of CCC
|
|
March 16, 2011 |
|
|
|
|
|
/s/ Matthew L. Dowling
Matthew L. Dowling
|
|
Vice President and Director of CCC
|
|
March 16, 2011 |
Exhibit Index
|
|
|
|
|
Exhibit No. |
|
Description |
|
Method of Filing |
3(a)
|
|
Limited Partnership Agreement of the
Partnership, amended and restated as of
September 12, 1988
|
|
* |
|
|
|
|
|
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 Certifications
|
|
Filed with this document
**** |
|
|
|
* |
|
Incorporated by reference to Exhibit A to the Prospectus of the Partnership dated September
12, 1988, included as part of Registration Statement on Form S-1 (No. 33-23321) |
|
** |
|
Incorporated by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (No.
33-23321) |
|
*** |
|
Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No.
33-42697) |
|
**** |
|
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. |