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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 September 30, 1996
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
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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)
September 30, December 31,
1996 1995
---- ----
ASSETS
Cash and cash equivalents $2,804 $1,951
Accounts receivable (net of allowance for
losses on accounts receivable of $69
and $67 at September 30, 1996 and
December 31, 1995, respectively) 151 110
Notes receivable (net of allowance for losses
on notes receivable of $358 at September 30,
1996 and December 31, 1995, respectively) 1,354 1,390
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$3,832 and $5,061 at September 30, 1996 and
December 31, 1995, respectively) 137 99
Net investment in financing leases -- 248
Investment in joint ventures 734 995
Cable systems, property and equipment (net of
accumulated depreciation of $768 and $640
at September 30, 1996 and December 31, 1995,
respectively) 935 997
Deferred income tax asset 119 118
Other assets 214 242
------ ------
Total Assets $6,448 $6,150
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 564 $ 584
Minority interest in subsidiary 541 541
------ ------
Total Liabilities 1,105 1,125
------ ------
Partners' Capital
General Partner 110 104
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units
outstanding at September 30, 1996 and
December 31, 1995 5,206 4,895
Unrealized gains on available-for-sale securities 27 26
------ ------
Total Partners' Capital 5,343 5,025
------ ------
Total Liabilities and Partners' Capital $6,448 $6,150
====== ======
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
INCOME
Rental income $ 180 $ 226 $ 473 $ 684
Gain on sale of equipment 32 159 78 326
Equity in earnings from joint
ventures 87 124 282 347
Cable subscriber revenue 142 151 424 440
Interest income, notes receivable 48 354 103 507
Other income 41 123 98 134
------- ------- ------- -------
Total Income 530 1,137 1,458 2,438
------- ------- ------- -------
EXPENSES
Depreciation and amortization 78 209 216 407
Lease related operating expenses 38 74 120 256
Program services, cable systems 45 46 138 135
Management fees to General Partner
and affiliate 17 51 49 101
Reimbursed administrative costs to
General Partner 36 42 103 121
Legal expense 14 59 59 136
General and administrative expenses 71 100 216 242
------- ------- ------- -------
Total Expenses 299 581 901 1,398
------- ------- ------- -------
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 231 $ 556 $ 557 $ 1,040
Minority interest in earnings of
subsidiary (5) (4) -- (8)
Income tax expense (3) (6) (2) (13)
------- ------- ------- -------
NET INCOME $ 223 $ 546 $ 555 $ 1,019
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .58 $ 1.43 $ 1.45 $ 2.66
======= ======= ======= =======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ .62 $ .63 $ 1.87
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 1 $ 5 $ 5 $ 10
Limited Partners 222 541 550 1,009
------- ------- ------- -------
$ 223 $ 546 $ 555 $ 1,019
======= ======= ======= =======
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)
Nine Months Ended
September 30,
1996 1995
---- ----
Operating Activities:
Net income $ 555 $ 1,019
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 216 407
Gain on sale of equipment (78) (326)
Equity in earnings from joint ventures (282) (347)
Provision for losses on accounts receivable 4 15
Increase in deferred income tax asset (1) --
Minority interest in earnings of subsidiary -- 8
Decrease (increase) in accounts receivable (46) 46
Decrease in accounts payable and
accrued expenses (19) (356)
Decrease (increase) in other assets (2) 35
------- -------
Net cash provided by operating activities 347 501
------- -------
Investing Activities:
Principal payments, financing leases 153 237
Principal payments, notes receivable 36 586
Proceeds from sale of equipment 75 311
Distribution from joint ventures 543 648
Purchase of equipment -- (32)
Cable systems, property and equipment (61) (69)
Payment of acquisition fees (1) (1)
------- -------
Net cash provided by investing activities 745 1,680
------- -------
Financing Activities:
Payments of principal, notes payable -- (9)
Distributions to minority partners -- (31)
Distributions to partners (239) (709)
------- -------
Net cash used by financing activities (239) (749)
------- -------
Increase in cash and cash equivalents 853 1,432
Cash and cash equivalents, beginning of period 1,951 200
------- -------
Cash and cash equivalents, end of period $ 2,804 $ 1,632
======= =======
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 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.
Note 2. Reclassification.
Reclassification - Certain 1995 amounts have been reclassified to
conform to the 1996 presentation.
Note 3. Notes Receivable.
Impaired Notes Receivable. At September 30, 1996, the recorded
investment in notes that are considered to be impaired under Statement No. 114
was $1,712,000 included in this amount is $32,000 of impaired notes for which
the related allowance for losses is $23,000 and $1,680,000 of impaired notes for
which there is no allowance.. The average recorded investment in impaired loans
during the nine months ended September 30, 1996 was approximately $1,164,000.
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1996 1995
---- ----
(Amounts in Thousands)
Beginning balance $ 358 $ 368
Provision for losses -- --
Write downs -- (3)
----- -----
Ending balance $ 358 $ 365
===== =====
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.
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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, 1996 and 1995. 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 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,
1996 1995 1996 1995
---- ---- ---- ----
INCOME
Rental income $ 568 $1,013 $1,838 $2,968
Gain on sale of equipment 159 359 702 1,164
Other income 30 569 104 674
------ ------ ------ ------
Total income 757 1,941 2,644 4,806
------ ------ ------ ------
EXPENSES
Depreciation 81 628 254 1,086
Lease related operating expenses 267 726 1,110 2,142
Management fees to General Partner 33 94 100 221
General and administrative expenses 2 1 7 8
------ ------ ------ ------
Total expenses 383 1,449 1,471 3,457
------ ------ ------ ------
Net income $ 374 $ 492 $1,173 $1,349
====== ====== ====== ======
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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 $223,000 and $555,000 for the three and nine
months ended September 30, 1996, respectively, compared to net income of
$546,000 and $1,019,000 for the three and nine months ended September 30, 1995,
respectively.
Total revenues decreased by $607,000 and $980,000 for the three and nine
months ended September 30, 1996, respectively, as compared to the same periods
in 1995. The decrease in total revenues during both periods was primarily the
result of decreases in interest income from notes receivable and a decreased
gain on sale of equipment. The decrease in the gain on sale of equipment is
primarily the result of a decrease in the amount of equipment sold, as well as a
decrease in the market value of an aging equipment portfolio. During the nine
months ended September 30, 1996, the Partnership sold equipment with an
aggregate original cost of $1.5 million, as compared to the $8.1 million of
equipment sold during the same period in 1995.
The decrease in interest income from notes receivable for the three and
nine months ended September 30, 1996, is 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.
Total expenses decreased by $282,000 and $497,000 during the three and
nine months ended September 30, 1996, respectively, as compared to the same
periods in 1995. The largest decrease came from depreciation and lease related
operating expenses. Lease related operating expenses decreased 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. Depreciation decreased as
the result of an increasing portion of the Partnership's equipment lease
portfolio reaching the end of its depreciable life.
Joint Ventures:
The Partnership reported a small decrease in earnings from joint ventures
of $37,000 and $65,000 during the three and nine months ended September 30,
1996, respectively, as compared to the same periods in 1995. The decrease in
earnings is reflective of a decrease in rental income from one joint venture, a
result of the ongoing liquidation of the joint venture's equipment portfolio.
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Page 8 of 10
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 maximize 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 leasing, financing and
cable television operations of $536,000 during the nine months ended September
30, 1996, as compared to $1,324,000 during the nine months ended September 30,
1995. 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. Proceeds
from the sale of equipment decreased by $236,000 during the nine months ended
September 30, 1996, as compared to the same period in 1995, due to a decrease in
the amount of equipment sold.
The limited partners received distributions of $239,000 and $709,000 for
the nine months ended September 30, 1996 and 1995, respectively. The cumulative
cash distributions to limited partners are $80,203,000 and $79,725,000 at
September 30, 1996 and 1995, respectively. The General Partner did not receive
distributions for the nine months ended September 30, 1996 and 1995. 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 at this time.
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
nine months ended September 30, 1996, as compared to the same period in 1995.
The Partnership made its last quarterly distribution on January 15, 1996. Future
distributions to partners will be made on an annual basis with the next
distribution scheduled to be made on January 15, 1997. The distribution to be
made to partners on January 15, 1997 is anticipated to be slightly higher than
the January 15, 1996 distribution amount. The Partnership will reach the end of
its term on December 31, 1997, at which time it will liquidate its remaining
assets and make a final distribution to partners of the excess cash, if any.
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
September 30, 1996
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:
(27) Financial Data Schedule
b) Reports on 8-K: None
<PAGE>
Page 10 of 10
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
---- ----- ---------
November 12, 1996 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- ----------------- Senior Vice President ----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
November 12, 1996 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations ----------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
November 12, 1996 Senior Vice President of /S/ GARY W. MARTINEZ
- ----------------- Phoenix Leasing Incorporated ----------------------
General Partner (Gary W. Martinez)
November 12, 1996 Partnership Controller /S/ MICHAEL K. ULYATT
- ----------------- Phoenix Leasing Incorporated ----------------------
General Partner (Michael K. Ulyatt)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,804
<SECURITIES> 0
<RECEIVABLES> 1,932
<ALLOWANCES> 427
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,672
<DEPRECIATION> 4,600
<TOTAL-ASSETS> 6,448
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,343
<TOTAL-LIABILITY-AND-EQUITY> 6,448
<SALES> 0
<TOTAL-REVENUES> 1,458
<CGS> 0
<TOTAL-COSTS> 901
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 555
<INCOME-TAX> 0
<INCOME-CONTINUING> 555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 555
<EPS-PRIMARY> 1.45
<EPS-DILUTED> 0
</TABLE>
