<PAGE> Page 1 of 11
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1994
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______.
Commission file number 0-15287
PHOENIX LEASING CASH DISTRIBUTION FUND II
Registrant
_____California______ ______68-0032426______
State of Jurisdiction IRS Employer I.D. No.
2401 Kerner Boulevard, San Rafael, California 94901
Address of Principal Executive Offices Zip Code
(415) 485-4500
Registrant's Telephone No.
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 preceding requirements for the past 90 days.
YES ___X___ NO _______<PAGE>
<PAGE> Page 2 of 11
Part I. Financial Information
Item 1. Financial Statements
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands except for Unit Amounts)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
--------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,326 $ 2,032
Accounts receivable (net of allowance for losses on
accounts receivable of $356 and $453 at September
30, 1994 and December 31, 1993, respectively) 29 262
Notes receivable (net of allowance for losses on
notes receivable of $368 at September 30, 1994
and December 31, 1993) 1,979 1,960
Notes receivable, in-substance foreclosed 68 780
Equipment on operating leases and held for lease
(net of accumulated depreciation of $24,464 and
$34,365 at September 30, 1994 and December 31,
1993, respectively) 406 641
Net investment in financing leases 653 998
Cable property, systems and equipment(net of accum-
umulated depreciation of $426 and $0 at September
30, 1994 and December 31, 1993, respectively) 1,162 -
Other assets 312 249
--------- ---------
Total Assets $ 5,935 $ 6,922
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,114 $ 1,093
Notes payable 16 174
--------- ---------
Total Liabilities 1,130 1,267
--------- ---------
Minority interest in subsidiary 580 -
Partners' Capital
General Partner $ 77 $ 63
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units
outstanding at September 30, 1994 and
December 31, 1993 4,148 5,592
--------- ---------
Total Partners' Capital 4,225 5,655
--------- ---------
Total Liabilities and Partners' Capital $ 5,935 $ 6,922
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> Page 3 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands except for Per Unit Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME
Rental income $ 563 $ 900 $ 1,704 $ 2,993
Gain on sale of equipment 205 317 774 1,161
Gain on sale of marketable
securities - - 203 -
Interest income, notes receivable 118 73 277 221
Other income 66 33 96 76
-------- -------- -------- --------
Total Income 952 1,323 3,054 4,451
-------- -------- -------- --------
EXPENSES
Depreciation and amortization 127 314 365 1,807
Lease related operating expenses 143 261 645 850
Management fees to General Partner
and affiliate 35 55 120 183
Reimbursed administrative costs
to General Partner 37 32 102 101
Provision for losses on receivables - 25 - 82
Legal expense 84 37 226 133
Other expenses 81 86 170 190
-------- -------- -------- --------
Total Expenses 507 810 1,628 3,346
-------- -------- -------- --------
NET INCOME BEFORE MINORITY
INTEREST $ 445 $ 513 $ 1,426 $ 1,105
======== ======== ======== ========
Minority interest 17 - 17 -
NET INCOME $ 428 $ 513 $ 1,409 $ 1,105
======== ======== ======== ========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 1.12 $ 1.34 $ 3.68 $ 2.88
======== ======== ======== ========
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ 2.49 $ 2.49 $ 7.48 $ 7.47
======== ======== ======== ========
ALLOCATION OF NET INCOME:
General Partner $ 4 $ 5 $ 14 $ 11
Limited Partners 424 508 1,395 1,094
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> Page 4 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1994 1993
-------- --------
<S> <C> <C>
Operating Activities:
Net income $ 1,409 $ 1,105
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 365 1,807
Gain on sale of equipment (774) (1,161)
Minority interest earnings 17 -
Provision for early termination, financing leases - (4)
Provision for losses on notes receivable - 86
Gain on sale of marketable securities (203) -
Decrease in accounts receivable 331 320
Decrease in accounts payable and accrued expenses (71) (707)
Decrease in other assets 39 446
--------- ---------
Net cash provided by operating activities 1,113 1,892
--------- ---------
Investing Activities:
Principal payments, financing leases 300 421
Principal payments, notes receivable 31 86
Proceeds from sale of equipment 853 1,505
Proceeds from sale of marketable securities 245 -
Purchase of equipment (96) (7)
Investment in financing leases - (185)
Investment in notes receivable (106) -
Investment in marketable securities (42) -
Payment of acquisition fees (3) (10)
--------- ---------
Net cash provided by investing activities 1,182 1,810
--------- ---------
Financing Activities:
Partners' contributions 12 -
Payments of principal, notes payable (174) (228)
Distributions to partners (2,839) (2,836)
--------- ---------
Net cash used by financing activities (3,001) (3,064)
--------- ---------
Increase (decrease) in cash and cash equivalents (706) 638
Cash and cash equivalents, beginning of period 2,032 1,459
--------- ---------
Cash and cash equivalents, end of period $ 1,326 $ 2,097
========= =========
Supplemental Cash Flow Information:
Cash paid for interest expense $ 3 $ 15
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.<PAGE>
<PAGE> Page 5 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General:
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Partnership in accordance with generally accepted
accounting principles, pursuant to the rules and regulations of the Securities
and Exchange Commission. In the opinion of Management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Although management believes that the
disclosures are adequate to make the information presented not misleading, it
is suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes included in the Partnership's
Financial Statement, as filed with the SEC in the latest annual report on Form
10-K.
Principles of Consolidation - The consolidated financial statements include all
of the accounts of the Partnership, and its majority owned subsidiary, Phoenix
Concept Cablevision Inc., a Nevada corporation. The Partnership owns
approximately 58% of the outstanding shares of Phoenix Concept Cablevision Inc.
Phoenix Concept Cablevision Inc. owns 100% of the outstanding shares of Concept
Cablevision of South Carolina, Inc., a Delaware corporation. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
Note 2. Reclassification:
Reclassification - Certain 1993 amounts have been reclassified to conform to
the 1994 presentation.
Note 3. Income Taxes:
Federal and state income tax regulations provide that taxes on the income or
loss of the Partnership are reportable by the partners in their individual
income tax returns. Accordingly, no provision for such taxes has been made in
the accompanying financial statements.
Note 4. Net Income (Loss) and Distributions Per Limited Partnership Unit:
Net income and distributions per limited partnership unit were based on the
limited partners' share of net income and distributions, and the weighted
average number of units outstanding of 379,583 for the nine months ended
September 30, 1994 and 1993. For purposes of allocating income (loss) and
distributions to each individual limited partner, the Partnership allocates net
income (loss) and distributions based upon each respective limited partner's
ending capital account balance.
Note 5. Acquisition of Cable Television Company:
On September 14, 1994, the Partnership, along with three other affiliated
partnerships (collectively "the Partnerships"), entered into a settlement
agreement with a borrower to transfer ownership of all of the outstanding stock
in a cable television system company in full satisfaction of a defaulted note
receivable to the Partnerships. As a result of this settlement agreement,
Concept Cablevision of South Carolina, Inc. transferred 100% of the outstanding
stock to Phoenix Concept Cablevision, Inc., a majority owned subsidiary of the
Partnership. The net carrying value of the defaulted note, including other
capitalized costs, to the Partnership at the settlement date was approximately
$769,000.<PAGE>
<PAGE> Page 6 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 5. Acquisition of Cable Television Company (Continued):
Concept Cablevision of South Carolina, Inc. owns and operates two cable
television systems located in the State of South Carolina, which currently
provides cable television services to approximately 1,916 subscribers. The
acquisition of the subsidiary by the Partnership was accounted for using the
"purchase method" of accounting and the operating results are included in the
consolidated financial statements since the date of acquisition.
The pro forma results listed below are unaudited and reflect the consolidated
results of operations as if the Subsidiary had been acquired at the beginning
of the current period and the immediately preceding period.
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, September 30,
1993 1994
------------ ------------
<S> <C> <C>
Gross revenues $6,244,000 $3,477,000
Net income before minority interest 1,707,000 1,547,000
Minority interest 58,000 58,000
Net income 1,649,000 1,489,000
Net income per limited
partnership unit 4.30 3.88
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would have
occurred had the acquisition occurred at the beginning of each of the above
years, nor are they necessarily indicative of future operating results.
Note 6. Subsequent Event:
On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to the
Partnership and sixteen other affiliated partnerships, filed suit in the
Superior Court for the County of Marin, Case No. 150016, against Xerox
Corporation, a corporation with which the General Partner had entered into a
contractual agreement for the acquisition and administration of leased
equipment. The lawsuit was settled out of court effective as of October 28,
1994 pursuant to the terms of a Confidential Settlement Agreement and Mutual
Release. The settlement agreement generally provides for compensation payable
to the Partnership and its affiliates in cash and kind, including the
assignment by Xerox of certain lease proceeds and its issuance of a credit
toward future purchases of Xerox goods and services. The agreement further
provides for the sale by Xerox to the Partnership and its affiliates of
equipment subject to lease. The suit that was filed in the Superior Court for
the County of Marin, Case No. 150016, has been dismissed with prejudice on the
merits. The settlement will be included in the Partnership's operating results
during the fourth quarter of 1994.<PAGE>
<PAGE> Page 7 of 11
Phoenix Leasing Cash Distribution Fund II and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Phoenix Leasing Cash Distribution Fund II and Subsidiary (the Partnership)
reported consolidated net income of $428,000 during the three months ended
September 30, 1994, compared to net income of $513,000 during the same period
in 1993. The small decrease in net income for the three months ended September
30, 1994, compared to the same period in 1993, is primarily attributable to a
decreased gain on the sale of equipment.
The Partnership reported consolidated net income of $1,409,000 during the
nine months ended September 30, 1994, as compared to net income of $1,105,000
during the same period in 1993. The increased net income for the nine months
ended September 30, 1994, compared to the same period in 1993, is primarily due
to a decrease in depreciation expense. In addition, the Partnership also
recognized a gain on the sale of marketable securities. The gain of marketable
securities was attributable to stock warrants granted to the Partnership as
part of a lease/finance agreement with an emerging growth company. During the
nine months ended September 30, 1994, the Partnership sold the stock of these
emerging growth companies and recognized a gain on sale of $203,000.
Total revenues decreased by $371,000 and $1,397,000 for the three and nine
months ended September 30, 1994, respectively, compared to the same periods in
1993 due primarily to the decreases in rental income and a decreased gain on
sale of equipment. The decrease in rental income, as well as the decrease in
depreciation expense, is attributable to a reduction in the size of the
equipment portfolio due to equipment sales. At September 30, 1994, the
Partnership owned equipment with an aggregate original cost of $28.8 million,
as compared to $44 million at September 30, 1993. As the Partnership continues
to sell equipment upon expiration of the lease terms, it is anticipated that
the equipment portfolio and rental income will continue to decrease. In
addition to sales of equipment, depreciation expense also has declined as a
result of a larger portion of the equipment portfolio having been fully
depreciated.
Another factor contributing to the reduction in total revenues is the
decrease in gain on sale of equipment for the three and nine months ended
September 30, 1994, as compared to the same periods in 1993. The decline in
gain and proceeds from sale of equipment is attributable to a decrease in sales
activity. For the nine months ended September 30, 1994, the Partnership sold
equipment with an aggregate original cost of $11.2 million compared to $14.3
million during the same period in 1993.
Cable Television System:
- - - -------------------------
The increase in cable property, systems and equipment on the balance sheet
at September 30, 1994, is attributable to the acquisition of a cable television
system. On September 14, 1994, the Partnership entered into a settlement
agreement with a borrower to transfer ownership of all of the outstanding stock
in a cable television system company in full satisfaction of a defaulted note
receivable. As a result of this settlement agreement, Concept Cablevision of
South Carolina, Inc. transferred 100% of the outstanding stock to Phoenix
Concept Cablevision, Inc. (the Subsidiary). Phoenix Concept Cablevision, Inc.
is owned by Phoenix Leasing Cash Distribution Fund II (the Partnership) and
three other affiliated partnerships. The net carrying value of Phoenix Leasing
Cash Distribution Fund II's note, including other capitalized costs, was
approximately $769,000.<PAGE>
<PAGE> Page 8 of 11
Phoenix Leasing Cash Distribution Fund II and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations (continued)
The cable television company did not have a significant impact upon the
consolidated net income of the Partnership during the three and nine months
ended September 30, 1994. The Partnership intends to own and operate the cable
system until such time it can be sold. Any excess cash generated from
operations of the cable system will be used for upgrades and capital
improvements to the cable system in order to maximize the value of the system.
It is expected that the cable television system will generate a positive cash
flow from operations.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from leasing and
financing operations. The Partnership has contractual obligations with a well
diversified group of lessees for fixed lease terms at fixed rental amounts and
will also receive payments on its outstanding notes receivable. As the initial
lease terms expire, the Partnership will continue to renew, remarket or sell
the equipment. The future liquidity in excess of the remaining contractual
obligations will depend upon the General Partner's success in re-leasing and
selling the Partnership's equipment as it comes off lease.
The net cash from operating activities decreased by $955,000 during the
nine months ended September 30, 1994, compared to the same period in 1993.
This decrease is primarily due to the decline in rental income which is
attributable to the reduction in the amount of equipment owned by the
Partnership.
The Partnership's debt continues to decrease as the Partnership pays
monthly installments of principal and interest. The Partnership made payments
of principal of $174,000 for the nine months ended September 30, 1994 on its
outstanding debt compared to $228,000 for the same period in 1993.
The aggregate original cost of equipment owned by the Partnership at
September 30, 1994 approximates $28.8 million, as compared to $44 million at
September 30, 1993. The $28.8 million of equipment owned at September 30, 1994
is classified as follows: 44% reproduction equipment, 29% computer peripheral
equipment, 17% computer mainframes, 5% capital equipment leased to emerging
growth companies, 4% telecommunications equipment and 1% small computer
systems. The $44 million of equipment owned at September 30, 1993 was
classified as follows: 54% computer peripheral equipment, 35% reproduction
equipment, 6% capital equipment leased to emerging growth companies, 3%
telecommunications equipment, 1% small computer systems and 1% computer
mainframes.
In addition to acquiring equipment for lease to third parties, the
Partnership has provided financing to cable television system operators and
security monitoring companies. The Partnership maintains a security interest in
the equipment financed. Such security interest will give the Partnership the
right, upon default to obtain possession of the assets. The aggregate original
amount of outstanding financing provided by the Partnership approximates $3.6
million at September 30, 1994. The $3.6 million of financing is classified as
follows: 98% financing to cable television systems and 2% financing to security
monitoring companies.<PAGE>
<PAGE> Page 9 of 11
Phoenix Leasing Cash Distribution Fund II and Subsidiary
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (Continued)
The Partnership owned equipment held for lease with an original cost of
$13,357,000 and a net book value of $48,000 at September 30, 1994, as compared
to $15,298,000 and $86,000, respectively at September 30, 1993. The General
Partner is actively engaged, on behalf of the Partnership, in remarketing and
selling the Partnership's off-lease equipment portfolio.
In accordance with the Limited Partnership Agreement, the limited partners
are entitled to 95% of the cash available for distribution and the General
Partner is entitled to 5%. As a result, the limited partners received
distributions of $2,839,000 and $2,836,000 for the nine months ended September
30, 1994 and 1993, respectively. The cumulative cash distributions to limited
partners are $78,058,000 and $74,262,000 at September 30, 1994 and 1993,
respectively. The General Partner did not receive distributions for the nine
months ended September 30, 1994 and 1993. While the General Partner is
entitled to receive 5% of the cash distributions, it has voluntarily elected
not to receive payment for its share to the cash distributions.
The Partnership's asset portfolio continues to decline as a result of the
ongoing liquidation of assets, and therefore it is expected that the cash
generated from operations will also continue to decline. If the cash generated
by Partnership operations continue to decline, the rate of cash distributions
made to limited partners will also decline.
The Partnership has been adversely impacted by several factors that have
caused them to achieve returns and recovery of investment in lower than
anticipated amounts. The factors impacting the Partnership have been, the
economic recession in the United States, the rate of obsolescence of computer
equipment, the market demand and remarketability for equipment owned by the
Partnership, aggressive manufacturer sales practices and a general
unavailability of debt to companies. All of these factors have resulted in the
decline in revenues and the reduced distributions to partners.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's on-going
operational expenses.<PAGE>
<PAGE> Page 10 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II
September 30, 1994
Part II. Other Information
Item 1. Legal Proceedings
On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to the
Partnership and sixteen other affiliated partnerships, filed suit in the
Superior Court for the County of Marin, Case No. 150016, against Xerox
Corporation, a corporation with which the General Partner had entered into a
contractual agreement for the acquisition and administration of leased
equipment.
The lawsuit was settled out of court effective as of October 28, 1994 pursuant
to the terms of a Confidential Settlement Agreement and Mutual Release. The
settlement agreement generally provides for compensation payable to the
Partnership and its affiliates in cash and kind, including the assignment by
Xerox of certain lease proceeds and its issuance of a credit toward future
purchases of Xerox goods and services. The agreement further provides for the
sale by Xerox to the Partnership and its affiliates of equipment subject to
lease. The suit that was filed in the Superior Court for the County of Marin,
Case No. 150016, will be withdrawn and dismissed with prejudice on the merits.
Item 2. Changes in Securities Inapplicable.
Item 3. Defaults Upon Senior Securities Inapplicable.
Item 4. Submission of Matters to a Vote of Securities Holders Inapplicable.
Item 5. Other Information Inapplicable.
Item 6. Exhibits and Reports on 8-K
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None.<PAGE>
<PAGE> Page 11 of 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHOENIX LEASING CASH DISTRIBUTION FUND II
(Registrant)
<TABLE>
<S> <C>
November 10, 1994 BY: /S/Paritosh K. Choksi
Paritosh K. Choksi
Senior Vice President
Chief Financial Officer
Treasurer
Phoenix Leasing Incorporated
Corporate General Partner
November 10, 1994 BY: /S/Bryant J. Tong
Bryant J. Tong
Senior Vice President,
Financial Operations
(Principal Accounting Officer)
Phoenix Leasing Incorporated
Corporate General Partner
November 10, 1994 BY: /S/Gary W. Martinez
Gary W. Martinez
Senior Vice President
Phoenix Leasing Incorporated
Corporate General Partner
November 10, 1994 BY: /S/Michael K. Ulyatt
Michael K. Ulyatt
Partnership Controller
Phoenix Leasing Incorporated
Corporate General Partner<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 9-MOS
<CASH> 1,326
<SECURITIES> 0
<RECEIVABLES> 2,800
<ALLOWANCES> 724
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 26,458
<DEPRECIATION> 24,890
<TOTAL-ASSETS> 5,935
<CURRENT-LIABILITIES> 0
<BONDS> 38
<COMMON> 0
0
0
<OTHER-SE> 4,225
<TOTAL-LIABILITY-AND-EQUITY> 5,935
<SALES> 0
<TOTAL-REVENUES> 3,054
<CGS> 0
<TOTAL-COSTS> 1,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,409
<EPS-PRIMARY> 3.68
<EPS-DILUTED> 0
</TABLE>
