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 March 31, 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
-------
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>
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)
March 31, December 31,
1996 1995
---- ----
ASSETS
Cash and cash equivalents $2,117 $1,951
Accounts receivable (net of allowance for losses
on accounts receivable of $66 and $67 at March 31,
1996 and December 31, 1995, respectively) 95 110
Notes receivable (net of allowance for losses on
notes receivable of $358 at March 31, 1996 and
December 31, 1995) 1,389 1,390
Equipment on operating leases and held for lease (net
of accumulated depreciation of $4,278 and $5,061 at
March 31, 1996 and December 31, 1995, respectively) 81 99
Net investment in financing leases 171 248
Investment in joint ventures 878 995
Cable systems, property and equipment (net of
accumulated depreciation of $682 and $640 at
March 31, 1996 and December 31, 1995, respectively) 972 997
Deferred income tax asset 122 118
Other assets 262 242
------ ------
Total Assets $6,087 $6,150
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 581 $ 584
Minority interest in subsidiary 535 541
------ ------
Total Liabilities 1,116 1,125
------ ------
Partners' Capital
General Partner 105 104
Limited Partners, 400,000 units authorized,
386,308 units issued and 379,583 units outstanding
at March 31, 1996 and December 31, 1995 4,810 4,895
Unrealized gains on available-for-sale securities 56 26
------ ------
Total Partners' Capital 4,971 5,025
------ ------
Total Liabilities and Partners' Capital $6,087 $6,150
====== ======
The accompanying notes are an integral part of these statements.
<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)
Three Months Ended
March 31,
1996 1995
---- ----
INCOME
Rental income $ 146 $ 248
Gain on sale of equipment 27 187
Equity in earnings from joint ventures 75 90
Cable subscriber revenue 133 146
Interest income, notes receivable 54 77
Other income 26 1
----- -----
Total Income 461 749
----- -----
EXPENSES
Depreciation and amortization 71 103
Lease related operating expenses 42 108
Program services, cable systems 45 50
Management fees to General Partner and affiliate 17 27
Reimbursed administrative costs to General Partner 33 38
Legal expense 24 28
General and administrative expenses 79 77
----- -----
Total Expenses 311 431
----- -----
NET INCOME BEFORE MINORITY
INTEREST AND INCOME TAXES $ 150 $ 318
Minority interest in earnings of subsidiary 6 6
Income tax expense (1) (1)
------ -----
NET INCOME $ 155 $ 323
===== =====
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .40 $ .84
======= =====
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ .63 $ .63
======== =====
ALLOCATION OF NET INCOME:
General Partner $ 2 $ 3
Limited Partners 153 320
------- -----
$ 155 $ 323
======== =====
The accompanying notes are an integral part of these statements.
<PAGE>
Page 4 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Operating Activities:
Net income $ 155 $ 323
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 71 103
Gain on sale of equipment (27) (187)
Equity in earnings from joint ventures (75) (90)
Provision for losses on accounts receivable 1 1
Decrease (increase) in deferred income tax asset (4) 16
Minority interest in earnings of subsidiary (6) (6)
Decrease in accounts receivable 14 15
Decrease in accounts payable and accrued expenses (3) (13)
Decrease (increase) in other assets (1) 12
------ -----
Net cash provided by operating activities 125 174
------ -----
Investing Activities:
Principal payments, financing leases 77 84
Principal payments, notes receivable 1 9
Proceeds from sale of equipment 26 172
Distribution from joint ventures 192 124
Purchase of equipment - (20)
Cable systems, property and equipment (16) (44)
Payment of acquisition fees - (1)
------ ------
Net cash provided by investing activities 280 324
------ -----
Financing Activities:
Payments of principal, notes payable - (10)
Distributions to minority partners - (31)
Distributions to partners (239) (239)
------ -----
Net cash used by financing activities (239) (280)
------ -----
Increase in cash and cash equivalents 166 218
Cash and cash equivalents, beginning of period 1,951 200
------ -----
Cash and cash equivalents, end of period $2,117 $ 418
====== =====
The accompanying notes are an integral part of these statements.
<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 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 March 31, 1996, the recorded investment in
notes that are considered to be impaired under Statement No. 114 was $35,000,
for which the related allowance for losses is $23,000. The average recorded
investment in impaired loans during the three months ended March 31, 1996 was
approximately $35,000.
The activity in the allowance for losses on notes receivable during the three
months ended March 31, is as follows:
1996 1995
---- ----
(Amounts in Thousands)
Beginning balance $358 $368
Provision for losses - -
Write downs - -
---- ----
Ending balance $358 $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 three month periods ended
<PAGE>
Page 6 of 11
March 31, 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
March 31,
1996 1995
---- ----
INCOME
Rental income $ 605 $ 823
Gain on sale of equipment 248 516
Other income 39 55
------ ------
Total income 892 1,394
------ ------
EXPENSES
Depreciation 89 345
Lease related operating expenses 443 658
Management fees to General Partner 31 64
General and administrative expenses 2 3
------ ------
Total expenses 565 1,070
------ ------
Net income $ 327 $ 324
====== ======
<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 net income of $155,000 for the three months ended March 31, 1996, as
compared to net income of $323,000 during the same period in 1995. The
Partnership reported decreases in both total revenues and total expenses during
the three months ended March 31, 1996, as compared to the same period in 1995.
However, the decrease in total revenues exceeded the decrease in total expenses,
causing the reduction in earnings.
Total revenues decreased by $288,000 during the three months ended March
31, 1996, as compared to the same period in 1995. The primary factors
contributing to the decrease in revenues was a decreased gain on the sale of
equipment and a decrease in rental income. The Partnership reported a decreased
gain on the sale of equipment of $160,000 during the three months ended March
31, 1996, as compared to the same period in 1995. The decreased gain on the sale
of equipment is reflective of a decrease in the amount of equipment sold during
1996, as compared to the same period in 1995. Rental income decreased by
$102,000 during the three months ended March 31, 1996, as compared to the same
period in 1995. 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
March 31, 1996, the Partnership's lease portfolio consisted of equipment with an
aggregate original cost of $6.3 million, as compared to $11.3 million at March
31, 1995. 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 the decreases mentioned above, the Partnership reported
smaller decreases in all other income categories except for other income. The
small increase in other income was attributable to increases in interest income
earned on cash and cash equivalents, a result of the Partnership maintaining a
higher average cash balance during the three months ended March 31, 1996, as
compared to the same period in 1995.
Total expenses decreased by $120,000 during the three months ended March
31, 1996, as compared to the same period in 1995. The decrease in total expenses
is attributable to decreases in all expense categories, except for general and
administrative expense. The largest decrease in expenses came from a $32,000
decrease in depreciation and amortization expense and a $66,000 decrease in
lease related operating expenses.
Lease related operating expenses decreased due to decreases in maintenance,
administrative and residual sharing expenses incurred by 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 and amortization expense decreased due to a reduction in the
size of the equipment portfolio due to the ongoing sale of equipment. The
Partnership is currently in its liquidation stage and is not expected to acquire
any additional equipment. The Partnership will reach the end of its term on
December 31, 1997.
<PAGE>
Page 8 of 11
Cable Television System:
Cable subscriber revenues decreased approximately $13,000 during the three
months ended March 31, 1996, as compared to the same period in 1995. This
decrease is attributable to the cable system offering free cable service to its
subscribers for the month of March 1996 as a special promotion.
Joint Ventures:
The Partnership reported a decrease in earnings from joint ventures of
$15,000 during the three months ended March 31, 1996, as compared to the same
period in 1995. The decrease in earnings is reflective of a decrease in earnings
from one joint venture due to a decrease in rental revenues. The decrease in
rental revenues was caused by a decrease in the amount of equipment owned by the
joint venture due to the ongoing sale of equipment.
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
$125,000 during the three months ended March 31, 1996, as compared to $174,000
during the same period in 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.
The Partnership owned equipment held for lease with an original cost of
$1,581,000 and a net book value of $0 at March 31, 1996, as compared to
$3,279,000 and $8,000, respectively at March 31, 1995. 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 was $239,000 for both the three months
ended March 31, 1996 and 1995. 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 $239,000 for both the three months ended
March 31, 1996 and 1995. The cumulative cash distributions to limited partners
are $80,203,000 and $79,254,000 at March 31, 1996 and 1995, respectively. The
General Partner did not receive distributions for the three months ended March
31, 1996 and 1995. 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
<PAGE>
Page 9 of 11
generated from operations will also continue to decline. The Partnership has
switched from a quarterly distribution plan to an annual distribution plan. The
next distribution to partners is anticipated 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>
Page 10 of 11
PHOENIX LEASING CASH DISTRIBUTION FUND II
March 31, 1996
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>
Page 11 of 11
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
---- ----- ---------
May 13, 1996 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- -------------------- Senior Vice President -----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
May 13, 1996 Senior Vice President, /S/ BRYANT J. TONG
- -------------------- Financial Operations -----------------------
(Principal Accounting Officer (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
May 13, 1996 Senior Vice President of /S/ GARY W. MARTINEZ
- -------------------- Phoenix Leasing Incorporated -----------------------
General Partner (Gary W.Martinez)
May 13, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,117
<SECURITIES> 0
<RECEIVABLES> 1,908
<ALLOWANCES> 424
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,530
<DEPRECIATION> 4,278
<TOTAL-ASSETS> 6,087
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,971
<TOTAL-LIABILITY-AND-EQUITY> 6,087
<SALES> 0
<TOTAL-REVENUES> 461
<CGS> 0
<TOTAL-COSTS> 311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 156
<INCOME-TAX> (1)
<INCOME-CONTINUING> 155
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155
<EPS-PRIMARY> .40
<EPS-DILUTED> 0
</TABLE>
