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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 June 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___
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Part I. Financial Information
Item 1. Financial Statements
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
June 30, December 31,
1995 1994
---- ----
ASSETS
Cash and cash equivalents $ 611 $ 200
Accounts receivable (net of allowance for losses on
accounts receivable of $56 and $83 at June 30,
1995 and December 31, 1994, respectively) 160 209
Notes receivable (net of allowance for losses on
notes receivable of $368 at June 30, 1995 and
December 31,1994, respectively) 2,011 2,039
Equipment on operating leases and held for lease (net
of accumulated depreciation of $7,298 and $13,441
at June 30, 1995 and December 31, 1994,
respectively) 151 292
Net investment in financing leases 405 564
Investment in joint ventures 1,423 1,488
Cable systems, property and equipment (net of
accumulated depreciation of $558 and $469 at
June 30, 1995 and December 31, 1994,
respectively) 1,057 1,085
Deferred income tax asset 146 142
Other assets 268 319
------ ------
Total Assets $ 6,232 $ 6,338
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 906 $ 985
Minority interest in subsidiary 542 569
------ ------
Total Liabilities 1,448 1,554
------ ------
Partners' Capital
General Partner 97 92
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units
outstanding at June 30, 1995 and December
31, 1994 4,687 4,692
------ ------
Total Partners' Capital 4,784 4,784
------ ------
Total Liabilities and Partners' Capital $ 6,232 $ 6,338
====== ======
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Rental income $ 211 $ 621 $ 458 $ 1,141
Gain (loss) on sale of equipment (20) 178 167 569
Equity in earnings (losses) from
joint ventures 133 (9) 223 (10)
Gain on sale of securities - 102 - 203
Cable subscriber revenue 143 - 289 -
Interest income, notes receivable 77 80 154 159
Other income 10 37 11 47
------- ------- ------- -------
Total Income 554 1,009 1,302 2,109
------- ------- ------- -------
EXPENSES
Depreciation and amortization 95 121 198 238
Lease related operating expenses 74 217 182 501
Program services, cable systems 39 - 90 -
Management fees to General
Partner and affiliate 23 42 50 85
Reimbursed administrative costs
to General Partner 36 31 74 65
Legal expenses 50 76 77 143
General and administrative
expenses 84 43 146 95
------- ------- ------- -------
Total Expenses 401 530 817 1,127
------- ------- ------- -------
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 153 $ 479 $ 485 $ 982
Minority interest in earnings
of subsidiary (11) - (4) -
Income tax benefit (expense) 8 - (8) -
------- ------- ------- -------
NET INCOME $ 150 $ 479 $ 473 $ 982
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .39 $ 1.25 $ 1.23 $ 2.56
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .62 $ 2.47 $ 1.25 $ 4.99
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 2 $ 5 $ 5 $ 10
Limited Partners 148 474 468 972
------- ------- ------- -------
$ 150 $ 479 $ 473 $ 982
======= ======= ======= =======
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Operating Activities:
Net income $ 473 $ 982
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 198 238
Gain on sale of equipment (167) (569)
Equity in losses (earnings) from joint ventures (223) 10
Provision for losses on accounts receivable 3 (8)
Increase in deferred income tax asset (4) -
Minority interest in losses of subsidiary 4 -
Gain on sale of securities - (203)
Decrease in accounts receivable 46 323
Decrease in accounts payable and accrued expenses (69) (137)
Decrease in other assets 24 24
-------- --------
Net cash provided by operating activities 285 660
-------- --------
Investing Activities:
Principal payments, financing leases 159 203
Principal payments, notes receivable 28 9
Proceeds from sale of equipment 260 605
Proceeds from sale of securities - 245
Distribution from joint ventures 288 -
Purchase of equipment (32) (10)
Investment in securities - (42)
Cable systems, property and equipment (63) -
Investment in joint ventures - (12)
Payment of acquisition fees (1) -
-------- --------
Net cash provided by investing activities 639 998
-------- --------
Financing Activities:
Payments of principal, notes payable (9) (152)
Distributions to minority partners (31) -
Distributions to partners (473) (1,893)
-------- --------
Net cash used by financing activities (513) (2,045)
-------- --------
Decrease in cash and cash equivalents 411 (387)
Cash and cash equivalents, beginning of period 200 2,032
-------- --------
Cash and cash equivalents, end of period $ 611 $ 1,645
======== ========
Supplemental Cash Flow Information:
Cash paid for interest expense $ - $ 3
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO 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.
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At June 30, 1995, the recorded investment in notes that are considered
to be impaired under Statement No. 114 was $106,000, for which the related
allowance for losses is $29,000. 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
six months ended June 30, is as follows:
1995 1994
---- ----
(Amounts in Thousands)
Beginning balance $368 $368
Provision for losses - -
Write downs - -
--- ---
Ending balance $368 $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 six month periods ended
June 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.
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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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Rental income $ 1,132 $ 665 $ 1,955 $ 1,319
Gain on sale of
equipment 289 241 805 672
Other income 50 4 106 3
------- ------- ------- -------
Total income 1,471 910 2,866 1,994
------- ------- ------- -------
EXPENSES
Depreciation 112 300 458 629
Lease related operating
expenses 758 607 1,416 1,284
Management fees to
General Partner 64 47 128 108
General and administrative
expenses 3 22 6 41
------- ------- ------- -------
Total expenses 937 976 2,008 2,062
------- ------- ------- -------
Net income (loss) $ 534 $ (66) $ 858 $ (68)
======= ======= ======= =======
Note 7. Subsequent Event.
The Partnership received $803,000 in July of 1995 as payment in full on
one of its notes receivable from a cable television system operator with a net
carrying value of approximately $561,000.
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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 $150,000 and $473,000 for the three and six
months ended June 30, 1995, respectively, compared to net income of $479,000 and
$982,000 for the three and six months ended June 30, 1994, respectively. The
decrease in net income for both the three and six months ended June 30, 1995,
compared to the same periods in 1994, is attributable to a decrease in revenues
generated by the Partnership as it equipment portfolio continues to decline, a
result of the ongoing liquidation of equipment upon the end of its lease term.
Total revenues decreased by $455,000 and $807,000 for the three and six
months ended June 30, 1995, respectively, as compared to the same periods in
1994. The largest decrease came from the decrease in rental income of $410,000
and $683,000 for the three and six months ended June 30, 1995, resepectively,
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 June 30, 1995, the Partnership owned equipment
with an aggregate original cost of $9.8 million, as compared to $33.9 million at
June 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.
Another factor contributing to the reduction in total revenues is the
decrease in gain on sale of equipment and a decreased gain on the sale of
securities for the three and six months ended June 30, 1995, as compared to the
same periods in 1994. The small loss on sale of equipment during the three
months ended June 30, 1995 of $20,000, as compared to a gain on the sale of
equipment of $178,000 during the same period in 1994, as well as the decreased
gain on the sale of equipment of $402,000 during the six months ended June 30,
1995, as compared to the same period in 1994, is due to a decrease in the sales
proceeds received on an increase in amount of equipment sold. This decrease in
sales proceeds is reflective of the decrease in the market value of the
equipment as it approaches the end of its useful life.
The decrease in gain on sale of marketable securities of $102,000 and
$203,000 during the three and six months ended June 30, 1995, respectively, as
compared to the same periods in 1994, is due to the sale of stock warrants that
the Partnership had been granted as part of a lease agreement in 1994. There
were no comparable sales of stock warrants during 1995.
Total expenses decreased by $129,000 and $310,000 during the three and
six months ended June 30, 1995, respectively, as compared to the same periods in
1994. The largest decrease came from lease related operating expenses. Lease
related operating expenses decreased by $143,000 and $319,000 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.
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Cable Television System:
The increase in cable subscriber revenue during the three and six months
ended June 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 cable subscriber revenues during the three and six months ended
June 30, 1995. The acquisition of this cable television system was also
responsible for the increase in program services expenses and the increase in
general and administrative expenses.
Joint Ventures:
The Partnership reported an increase in earnings from joint ventures of
$142,000 and $233,000 during the three and six months ended June 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 six months ended June 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 reported net cash generated by operating activities of
$285,000 during the six months ended June 30, 1995, as compared to $660,000
during the six months ended June 30, 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.
The Partnership owned equipment held for lease with an original cost of
$2,458,000 and a net book value of $1,000 at June 30, 1995, as compared to
$13,389,000 and $60,000, respectively at June 30, 1994. The General Partner is
actively engaged, on behalf of the Partnership, in remarketing and selling the
Partnership's off-lease equipment portfolio.
The cash distributed to partners for the six months ended June 30, 1995
and 1994 was $473,000 and $1,893,000, 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 $473,000 and $1,893,000
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for the six months ended June 30, 1995 and 1994, respectively. The cumulative
cash distributions to limited partners are $79,488,000 and $77,112,000 at June
30, 1995 and 1994, respectively. The General Partner did not receive
distributions for the six months ended June 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 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. If the cash generated
by Partnership operations continue to decline, the rate of cash distributions
made to limited partners will also decline. Distributions declined during the
six months ended June 30, 1995, as compared to the same period in 1994. It is
anticipated that the Partnership will continue to make distributions to partners
during 1995 at approximately the same reduced rate as those made during the six
months ended June 30, 1995.
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.
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PHOENIX LEASING CASH DISTRIBUTION FUND II
June 30, 1995
Part II. Other Information
Item 1. Changes in Securities. Inapplicable
Item 2. Defaults Upon Senior Securities. Inapplicable
Item 3. Submission of Matters to a Vote of Securities Holders. Inapplicable
Item 4. Other Information. Inapplicable
Item 5. Exhibits and Reports on 8-K:
a) Exhibits: None
(27) Financial Data Schedule
b) Reports on 8-K: None
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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)
Date Title Signature
August 10, 1995 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
Senior Vice President (Paritosh K. Choksi)
and Treasurer of
Phoenix Leasing Incorporated
General Partner
August 10, 1995 Senior Vice President, /S/ BRYANT J. TONG
Financial Operations (Bryant J. Tong)
(Principal Accounting Officer)
and a Director of
Phoenix Leasing Incorporated
General Partner
August 10, 1995 Senior Vice President of /S/ GARY W. MARTINEZ
Phoenix Leasing Incorporated (Gary W. Martinez)
General Partner
August 10, 1995 Partnership Controller /S/ MICHAEL K. ULYATT
Phoenix Leasing Incorporated (Michael K. Ulyatt)
General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 611
<SECURITIES> 0
<RECEIVABLES> 2,595
<ALLOWANCES> 424
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,064
<DEPRECIATION> 7,856
<TOTAL-ASSETS> 6,232
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 4,784
<TOTAL-LIABILITY-AND-EQUITY> 6,232
<SALES> 0
<TOTAL-REVENUES> 1,302
<CGS> 0
<TOTAL-COSTS> 817
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 485
<INCOME-TAX> 8
<INCOME-CONTINUING> 473
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 0
</TABLE>
