Page 1 of 12
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, 1995
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 I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
- - --------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
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>
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<TABLE>
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)
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $1,632 $ 200
Accounts receivable (net of allowance for losses on accounts receivable
of $65 and $83 at September 30, 1995 and December 31, 1994, respectively) 160 209
Notes receivable (net of allowance for losses on notes receivable of $365 and
$368 at September 30, 1995 and December 31, 1994, respectively) 1,453 2,039
Equipment on operating leases and held for lease (net of accumulated
depreciation of $6,091 and $13,441 at September 30, 1995 and December 31,
1994, respectively) 125 292
Net investment in financing leases 327 564
Investment in joint ventures 1,187 1,488
Cable systems, property and equipment (net of accumulated depreciation of $599
and $469 at September 30, 1995 and December 31, 1994, respectively) 1,022 1,085
Deferred income tax asset 142 142
Other assets 223 319
------ ------
Total Assets $6,271 $6,338
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 631 $ 985
Minority interest in subsidiary 546 569
------ ------
Total Liabilities 1,177 1,554
------ ------
Partners' Capital
General Partner 103 92
Limited Partners, 400,000 units authorized, 386,308 units issued and
379,583 units outstanding at September 30, 1995 and December 31, 1994 4,991 4,692
------ ------
Total Partners' Capital 5,094 4,784
------ ------
Total Liabilities and Partners' Capital $6,271 $6,338
====== ======
The accompanying notes are an integral
part of these statements.
</TABLE>
<PAGE>
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<TABLE>
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME
Rental income $ 226 $ 563 $ 684 $ 1,704
Gain on sale of equipment 159 205 326 774
Equity in earnings (losses) from joint ventures 124 (23) 347 (34)
Cable subscriber revenue 151 49 440 49
Interest income, notes receivable 354 118 507 277
Gain on sale of securities -- -- -- 203
Other income 123 17 134 47
------- ------- ------- -------
Total Income 1,137 929 2,438 3,020
------- ------- ------- -------
EXPENSES
Depreciation and amortization 209 127 407 365
Lease related operating expenses 74 143 256 645
Program services, cable systems 46 -- 135 --
Management fees to General Partner and affiliate 51 35 101 120
Reimbursed administrative costs to General Partner 40 37 114 102
Legal expenses 59 84 136 226
General and administrative expenses 102 58 249 136
------- ------- ------- -------
Total Expenses 581 484 1,398 1,594
------- ------- ------- -------
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 556 $ 445 $ 1,040 $ 1,426
Minority interest in earnings of subsidiary (4) (17) (8) (17)
Income tax expense (6) -- (13) --
------- ------- ------- -------
NET INCOME $ 546 $ 428 $ 1,019 $ 1,409
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 1.43 $ 1.12 $ 2.66 $ 3.68
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .62 $ 2.49 $ 1.87 $ 7.48
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 5 $ 4 $ 10 $ 14
Limited Partners 541 424 1,009 1,395
------- ------- ------- -------
$ 546 $ 428 $ 1,019 $ 1,409
======= ======= ======= =======
The accompanying notes are an integral
part of these statements.
</TABLE>
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Operating Activities:
Net income $ 1,019 $ 1,409
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 407 365
Gain on sale of equipment (326) (774)
Equity in losses (earnings) from joint ventures (347) 34
Provision for losses on accounts receivable 15 (7)
Increase in deferred income tax asset -- --
Minority interest in losses of subsidiary 8 17
Gain on sale of securities -- (203)
Decrease in accounts receivable 34 338
Decrease in accounts payable and accrued expenses (344) (71)
Decrease in other assets 35 35
------- -------
Net cash provided by operating activities 501 1,143
------- -------
Investing Activities:
Principal payments, financing leases 237 300
Principal payments, notes receivable 586 31
Proceeds from sale of equipment 311 853
Proceeds from sale of securities -- 245
Distribution from joint ventures 648 --
Purchase of equipment (32) (94)
Investment in notes receivable -- (106)
Investment in securities -- (42)
Cable systems, property and equipment (69) (2)
Investment in joint ventures -- (30)
Payment of acquisition fees (1) (3)
------- -------
Net cash provided by investing activities 1,680 1,152
------- -------
Financing Activities:
Partners' contribution -- 12
Payments of principal, notes payable (9) (174)
Distributions to minority partners (31) --
Distributions to partners (709) (2,839)
------- -------
Net cash used by financing activities (749) (3,001)
------- -------
Decrease in cash and cash equivalents 1,432 (706)
Cash and cash equivalents, beginning of period 200 2,032
------- -------
Cash and cash equivalents, end of period $ 1,632 $ 1,326
======= =======
Supplemental Cash Flow Information:
Cash paid for interest expense $ -- $ 3
The accompanying notes are an integral
part of these statements.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
The accompanying unaudited condensed 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.
Financial Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity would estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. The Partnership does not expect
the adoption of this statement to have a material impact on its financial
position and results of operations. The Partnership plans to adopt Statement No.
121 on January 1, 1996.
Note 2. Reclassification.
Reclassification - Certain 1994 amounts have been reclassified to
conform to the 1995 presentation.
Note 3. Notes Receivable.
Impaired Notes Receivable. On January 1, 1995, the Partnership adopted
Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan", and Statement No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". Statement No. 114
requires that certain impaired loans be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate; or,
alternatively, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Prior to 1995, the allowance for
losses on notes receivable was based on the undiscounted cash flows or the fair
value of the collateral dependent loans.
In accordance with Statement No. 114, a loan is classified as
in-substance foreclosure when the Company has taken possession of the collateral
regardless of whether formal foreclosure proceedings take place. Notes
receivable previously classified as in-substance foreclosed cable systems but
for which the Company had not taken possession of the collateral have been
reclassified to notes receivable.
<PAGE>
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At September 30, 1995, the recorded investment in notes that are
considered to be impaired under Statement No. 114 was $105,000, for which the
related allowance for losses is $29,000. The average recorded investment
impaired loans during the nine months ended September 30, 1995 was approximately
$106,000. Generally, notes receivable are classified as impaired and the accrual
of interest on such notes are discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of the contractual payments. Any payments
received subsequent to the placement of the note receivable on to impaired
status will generally be applied towards the reduction of the outstanding note
receivable balance, which may include previously accrued interest as well as
principal. Once the principal and accrued interest balance has been reduced to
zero, the remaining payments will be applied to interest income.
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1995 1994
---- ----
(Amounts in Thousands)
Beginning balance $ 368 $ 368
Provision for losses -- --
Write downs (3) --
----- -----
Ending balance $ 365 $ 368
===== =====
Note 4. 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.
Phoenix Concept Cablevision, Inc. (The Subsidiary) is a corporation
subject to state and federal tax regulations. The Subsidiary reports to the
taxing authority on the accrual basis. When income and expenses are recognized
in different periods for financial reporting purposes than for tax purposes,
deferred taxes are provided for such differences using the liability method.
Note 5. 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 month periods ended
September 30, 1995 and 1994. 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.
<PAGE>
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Note 6. Investment in Joint Ventures.
Equipment Joint Ventures
The aggregate combined statements of operations of the equipment joint
ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Rental income $ 1,013 $ 409 $ 2,968 $ 1,728
Gain on sale of equipment 359 199 1,164 871
Other income 569 -- 674 4
------- ------- ------- -------
Total income 1,941 608 4,806 2,603
------- ------- ------- -------
EXPENSES
Depreciation 628 281 1,086 910
Lease related operating expenses 726 453 2,142 1,738
Management fees to General Partner 94 33 221 141
General and administrative expenses 1 16 8 57
------- ------- ------- -------
Total expenses 1,449 783 3,457 2,846
------- ------- ------- -------
Net income (loss) $ 492 $ (175) $ 1,349 $ (243)
======= ======= ======= =======
<PAGE>
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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 net income of $546,000 and $1,019,000 for the three and
nine months ended September 30, 1995, respectively, compared to net income of
$428,000 and $1,409,000 for the three and nine months ended September 30, 1994,
respectively. The increase in net income for the three months ended September
30, 1995, compared to the same period in 1994, is primarily attributable to an
increase in total revenues. The decrease in net income for the nine months ended
September 30, 1995, as compared to the same period in 1994, is attributable to a
decrease in total revenues.
Total revenues increased by $208,000 during the three months ended
September 30, 1995, but decreased by $582,000 for the nine months ended
September 30, 1995, as compared to the same periods in 1994. Rental income
decreased during both the three and nine months ended September 30, 1995, as
compared to the same periods in 1994. The decrease in rental income is
attributable to a reduction in the size of the equipment portfolio due to the
ongoing sale of equipment. At September 30, 1995, the Partnership's lease
portfolio consisted of equipment with an aggregate original cost of $8.6
million, as compared to $28 million at September 30, 1994. 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.
During the three and nine months ended September 30, 1995, the
Partnership reported increases in interest income from notes receivable,
earnings from joint ventures, cable subscriber revenues and an increase in other
income, as compared to the same periods in 1994. The increase in earnings from
joint ventures will be further discussed under "Joint Ventures" and the increase
in cable subscriber revenues will be discussed under "Cable Television System".
The increase in interest income from notes receivable during the three
months ended September 30, 1995, was attributable to the payoff of a defaulted
note receivable from a cable television system operator during the third quarter
of 1995. The Partnership had suspended the accrual of interest income on this
note. Upon payoff, the proceeds were first applied against the outstanding
balance, with the excess proceeds recognized as interest income.
The decrease in gain on sale of marketable securities of $203,000 during
the nine months ended September 30, 1995, as compared to the same period in
1994, is due to the sale of stock warrants that the Partnership had been granted
as part of a lease agreement. There were no comparable sales of stock warrants
during 1995.
Total expenses increased by $97,000 during the three months ended
September 30, 1995, but decreased by $196,000 during the nine months ended
September 30, 1995, as compared to the same periods in 1994. The increase in
total expenses during the three months ended September 30, 1995 is attributable
to increases in several expense line items related to the operation of a cable
television system. The increase in cable television system expenses is due to
the foreclosure upon a cable television system in September of 1994. As a
result, there were no comparable expenses from this cable television system in
1994.
<PAGE>
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Lease related operating expenses decreased by $69,000 and $389,000 due to
decreases in maintenance, administrative and residual sharing expenses on the
Partnership's equipment leased pursuant to a purchase agreement with the
manufacturer of the equipment. These expenses decreased as a result of the
decrease in the revenues received from this equipment.
Cable Television System:
The increase in cable subscriber revenues, program services expense,
general and administrative expenses and depreciation during the three and nine
months ended September 30, 1995, as compared to the same periods in 1994, is
attributable to the acquisition of a cable television system on September 14,
1994. As a result, there were no comparable cable subscriber revenues during the
three and nine months ended September 30, 1995.
Joint Ventures:
The Partnership reported an increase in earnings from joint ventures of
$147,000 and $381,000 during the three and nine months ended September 30, 1995,
respectively, as compared to the same periods in 1994. The increase in earnings,
as well as distributions, is reflective of the Partnership's investment in a new
joint venture that was formed on October 28, 1994. As a result, there were no
earnings from this joint venture during the three and nine months ended
September 30, 1994.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from leasing and
financing operations. The Partnership has contractual obligations with lessees
and borrowers for fixed terms at fixed payment amounts. The liquidity of the
Partnership is dependent upon its success in collecting these contractual
payments owed the Partnership. 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.
As another source of liquidity, the Partnership owns a majority interest
in a cable television company that it acquired ownership through foreclosure on
a defaulted note receivable. This cable television company is expected to
generate a positive cash flow, which will first be used for capital improvements
and upgrades to the system in order to optimize the value to be received upon
the eventual sale of the system. Any excess cash from operations or the sale of
the system will then be distributed to the Partnership in accordance with its
ownership interest. The Partnership received a distribution for its share of the
excess cash from the cable television system of $116,000 during the nine months
ended September 30, 1995.
The Partnership reported net cash generated by operating activities of
$501,000 during the nine months ended September 30, 1995, as compared to
$1,143,000 during the same period in 1994. This decrease is due to the decline
in rental income which is attributable to the reduction in the amount of
equipment owned by the Partnership from $8.6 million at September 30, 1995, to
$28 million at September 30, 1994.
The Partnership owned equipment held for lease with an original cost of
$2,486,000 and a net book value of $1,000 at September 30, 1995, as compared to
$13,357,000 and $48,000, respectively at September 30, 1994. The General Partner
is actively engaged, on behalf of the Partnership, in remarketing and selling
<PAGE>
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the Partnership's off-lease equipment portfolio.
The cash distributed to partners for the nine months ended September 30,
1995 and 1994 was $709,000 and $2,839,000, respectively. 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 $709,000 and $2,839,000
for the nine months ended September 30, 1995 and 1994, respectively. The
cumulative cash distributions to limited partners are $79,725,000 and
$78,058,000 at September 30, 1995 and 1994, respectively. The General Partner
did not receive distributions for the nine months ended September 30, 1995 and
1994. While the General Partner is entitled to receive 5% of the cash
distributions, it has voluntarily elected not to receive payment at this time
for its share of 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. Distributions declined
during the nine months ended September 30, 1995, as compared to the same period
in 1994. It is anticipated that the Partnership will continue to make
distributions to partners in October of 1995 and January of 1996 at
approximately the same rate as those made during the nine months ended September
30, 1995. After the January 1996 distribution, the Partnership will switch to an
annual distribution with the first annual distribution to be made on January 15,
1997.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's ongoing
operations expenses.
<PAGE>
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PHOENIX LEASING CASH DISTRIBUTION FUND II
September 30, 1995
Part II. Other Information
Item 1. Legal Proceedings. Inapplicable
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>
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<TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHOENIX LEASING CASH DISTRIBUTION FUND II
(Registrant)
<CAPTION>
Date Title Signature
<S> <C> <C>
November 13, 1995 /S/ PARITOSH K. CHOKSI
- - ----------------- Chief Financial Officer, ----------------------
Senior Vice President (Paritosh K. Choksi)
and Treasurer of
Phoenix Leasing Incorporated
General Partner
November 13, 1995 /S/ BRYANT J. TONG
- - ----------------- Senior Vice President, ------------------
Financial Operations (Bryant J. Tong)
(Principal Accounting Officer)
and a Director of
Phoenix Leasing Incorporated
General Partner
November 13, 1995 /S/ GARY W. MARTINEZ
- - ----------------- Senior Vice President of --------------------
Phoenix Leasing Incorporated (Gary W. Martinez)
General Partner
November 13, 1995 /S/ MICHAEL K. ULYATT
- - ----------------- Partnership Controller ---------------------
Phoenix Leasing Incorporated (Michael K. Ulyatt)
General Partner
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,632
<SECURITIES> 0
<RECEIVABLES> 2,043
<ALLOWANCES> 430
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,837
<DEPRECIATION> 6,690
<TOTAL-ASSETS> 6,271
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 5,094
<TOTAL-LIABILITY-AND-EQUITY> 6,271
<SALES> 0
<TOTAL-REVENUES> 2,438
<CGS> 0
<TOTAL-COSTS> 1,398
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,040
<INCOME-TAX> (13)
<INCOME-CONTINUING> 1,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,019
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 0
</TABLE>
