<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For the Quarter ended Commission File Number
September 30, 1996 33-19038
PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(Exact name of registrant as specified in its charter)
MISSOURI
(State or other jurisdiction of incorporation or organization)
43-1507816
(I.R.S. Employer Identification No.)
6300 LAMAR, P.O. BOX 29217, SHAWNEE MISSION KANSAS 66201-9217
(913) 236-2000
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
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 such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(A Missouri Limited Partnership)
Table of Contents
Part I - Financial Information
Financial Statements: Page
Balance Sheets - September 30, 1996 and
December 31, 1995 3
Statements of Income for the Quarters and Nine
Months Ended September 30, 1996 and 1995 4
Statements of Cash Flow for the Nine Months Ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. 12
Item 2. Changes in Securities. 12
Item 3. Default Upon Senior Securities. 12
Item 4. Submission of Matters to a Vote of Security
Holders. 12
Item 5. Other Information. 12
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits 12
(b) Reports on Form 8-K 12
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PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(A Missouri Limited Partnership)
Balance Sheets
September 30, December 31,
1996 1995
Assets (Unaudited)
Investment Property:
Cost $ 4,363,082 $ 7,362,387
Less accumulated depreciation 2,534,923 4,376,718
Less allowance for loss on
investment property 650,000 650,000
Investment property, net 1,178,159 2,335,669
Cash and cash equivalents 279,557 386,282
Rents and other receivables 6,363 138,605
$ 1,464,079 $ 2,860,556
Total assets ========== ==========
Liabilities and Partners' Equity
Liabilities:
Due to affiliates $ 3,215 $ 6,527
Accounts payable 26,458 64,972
Unearned rental income - -
Deferred gain on sale of asset 168,405 218,413
Due to Pershing Lease Income
Limited Partnership 25,102 -
Total liabilities 223,180 289,912
Partners' Equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 38,445 41,566
Cumulative cash distributions (383,907) (367,962)
(344,462) (325,396)
Limited Partners (24,137 units):
Capital contributions, net of
offering costs 10,707,885 10,707,885
Cumulative net income 426,169 735,163
Cumulative cash distributions (9,548,693) (8,547,008)
1,585,361 2,896,040
Total partners' equity accounts 1,240,899 2,570,644
Total liabilities and partners'
equity $ 1,464,079 $ 2,860,556
========== ==========
See accompanying notes to financial statements.
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PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(A Missouri Limited Partnership)
Statements of Income
(Unaudited)
For the Quarters and Nine Months
Ended September 30, 1996 and 1995
Nine Months Ended Quarter Ended
September 30 September 30
1996 1995 1996 1995
Revenue:
Rental income $ 76,772 $ 483,312 $ 9,959 $ 139,331
Interest income 21,906 50,733 7,264 4,099
Gain on sale of
investment property 90,433 702,547 41,526 -
Provision for loss on
investment property - (650,000) - -
Total revenue 189,111 586,592 58,749 143,430
Expenses:
Depreciation 319,152 559,305 92,406 185,449
General and
administrative 182,073 80,148 10,457 14,024
Total expenses 501,225 639,453 102,863 199,473
Net income $(312,114) $ (52,861) $ (44,114) $ (56,043)
======== ======== ======== ========
See accompanying notes to financial statements.
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PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(A Missouri Limited Partnership)
Statements of Cash Flows
For the Nine Months ended September 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net income $ (312,114) $ (52,861)
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 319,152 559,305
Gain on sale of investment property (90,433) (702,547)
Provision for loss on
investment property - 650,000
Changes in assets and liabilities:
Receivables 132,242 (1,493)
Prepaid insurance - 506
Due to affiliates (3,312) (9,611)
Accounts payable (38,514) (26,727)
Due to Pershing Lease Income Limited
Partnership 25,102 -
Unearned rental income - (87,393)
Net cash provided by operating
activities 32,123 329,179
Cash flows from investing activities:
Disposition of investment property 878,782 1,448,443
Cash flows from financing activities:
Cash distribution to Partners (1,017,630) (2,357,226)
Net increase (decrease) in cash and
cash equivalents (106,725) (579,604)
Cash and cash equivalents at
beginning of period $ 386,282 $ 952,851
Cash and cash equivalents at end of
period $ 279,557 $ 373,247
========== ==========
See accompanying notes to financial statements.
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PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(A Missouri Limited Partnership)
Notes to Financial Statements
(Unaudited)
In the opinion of the General Partner, the accompanying unaudited
financial statements contain all adjustments necessary to present
fairly the financial position, results of operations and cash flows.
(1) Summary of Significant Accounting Policies
Organization
Pershing Lease Income Limited Partnership II (the "Partnership")
was organized under the Missouri Revised Uniform Limited Partnership
Act on February 24, 1989. The Partnership was formed to invest
primarily in equipment to be leased to third parties. The initial
capital of $1,500 represented capital contributions of $1,000 by
Waddell & Reed Leasing, Inc. (the General Partner) and $500 from the
initial Limited Partner. The Amended Agreement of Limited Partnership
authorized the issuance of up to 60,000 Limited Partnership units at a
price of $500 per unit and up to 20,000 additional units. The
Partnership had an initial closing and twelve subsequent closings. The
closings occurred on November 1, 1989, December 11, 1989, January 9,
1990, February 9, 1990, March 9, 1990, April 10, 1990, May 9, 1990,
June 11, 1990, July 11, 1990, August 9, 1990, September 12, 1990,
October 10, 1990 and November 1, 1990 with subscribers purchasing
6,887, 1,987, 2,264, 1,293, 904, 1,241, 1,071, 1,461, 1,114, 1,314,
2,050, 672 and 1,879 units, respectively.
Pursuant to the terms of the Amended Agreement of Limited
Partnership, distributable cash from operations and profits for federal
income tax purposes from normal operations, as defined, are to be
allocated 95% to the Limited Partners and 5% to the General Partner
until payout has occurred, and 85% to the Limited Partners and 15% to
the General Partner thereafter. "Payout" means the time when the
aggregate amount of all distributions to the Limited Partners of
distributable cash from operations and of distributable cash from sales
or refinancing equals the aggregate amount of the Limited Partners'
original invested capital plus a cumulative 8% annual return on their
aggregate unreturned invested capital (calculated from the beginning of
the first full fiscal quarter following each Limited Partner's
admission to the Partnership). Losses for federal income tax purposes
from the normal operations of the Partnership will be allocated 99% to
the Limited Partners and 1% to the General Partner.
The General Partner contributed $1,000 for its General Partnership
interest. The General Partner is not required to make any other
capital contributions except under certain limited circumstances upon
termination of the Partnership.
<PAGE>
Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
Notes to Financial Statements, Continued
(Unaudited)
Basis of Presentation
The Partnership financial statements are presented on the accrual
basis of accounting.
Cash and Cash Equivalents
Cash and cash equivalents in the accompanying statements of cash
flows include cash on hand and short-term investments with original
maturities of less than ninety days.
Investment Property
Investment property consists primarily of aircraft and mining
equipment. At September 30, 1996 and December 31, 1995, the
Partnership owned investment property, with a depreciable cost basis of
$4,363,082 and $7,362,387, respectively. The depreciable cost basis at
September 30, 1996 and December 31, 1995, includes acquisition fees of
$197,849 and $333,855 respectively, which were paid to the General
Partner. Depreciation on investment property is provided using
straight-line and accelerated methods over lives ranging from 5 to 12
years.
Organization Costs
Organization costs consist of legal and related costs to form the
Partnership and are being amortized over a five year period on a
straight-line basis.
Income Taxes
The Partnership is a pass-through entity and, accordingly, taxes on
income, if any, are the responsibility of the individual partners.
Partners' equity at September 30, 1996 as reported herein has been
reduced by sales commissions and other costs of the offering which will
not be deductible by the partners until the Partnership is liquidated
or the partners' units are otherwise disposed of.
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Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
Notes to Financial Statements, Continued
(Unaudited)
(2) Leases
The Partnership leases the investment property to unrelated third
parties under operating leases. Rental income is reported when earned.
Minimum lease payments scheduled to be received in the future under
existing noncancellable operating leases follow:
Year Amount
1996 $ 5,250
1997 1,750
1998 -
$ 7,000
=========
(3) Related Party Transactions
Fees, commissions and other expenses paid or payable by the
Partnership to the General Partner or affiliates of the General Partner
for the quarter ended September 30, 1996 are as follows:
Management fees $ 508
Reimbursable operating expenses 6,562
$ 7,070
=======
At September 30, 1996, the following costs were due to the General
Partner or affiliates:
Management fees $ 207
Reimbursable operating expenses 3,008
$ 3,215
=======
<PAGE>
Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1996 the Partnership had sufficient cash to
satisfy the current Partnership obligations and provide a working
capital reserve.
At September 30, 1996, the Partnership had $4.4 million of
equipment on an original cost basis. Of this equipment, $140 thousand
was on a lease scheduled to expire January 31, 1997 and $4.2 million
was in inventory. Because the amount of equipment on lease has
substantially declined, the cash generated from rental income will be
limited and distributions may need to be suspended until the remaining
equipment is sold.
A Fokker F-27 aircraft with an original cost basis of $4.2 million
accounts for the equipment in inventory. It has been off lease since
October 1994 and we believe it will most likely be sold rather than
leased again. When it is sold, we plan to begin the process of
closing the Partnership.
Partnership Operations
Rental income for the quarter was $10,000; down $129,000 from the
third quarter of 1995 due to the sale of investment property and lease
expirations. A Fokker F-27 aircraft with an original cost basis of
$4.2 million has been off lease since October, 1994. To reduce the
net book value of the aircraft to its estimated market value, the
Partnership recorded an allowance of $650,000 in the first quarter of
1995. The lease on the remaining equipment is scheduled to expire
during the first quarter of 1997. Future distribution rates will
depend on the results of remarketing this equipment.
Depreciation expense for the quarter was $92,000, down $93,000 from
the third quarter of 1995 due to the sale of $3 million in equipment.
General and administrative expense was $10,000 for the quarter; down
$4,000 from last year.
<PAGE>
Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Cash from Operations and Distributable Cash from Operations
Shown below is the calculation of Cash from Operations and
Distributable Cash from Operations for the quarter ended September 30,
1996 as defined by Section 17 of the Amended Agreement of Limited
Partnership:
Rental income $ 9,959
Cash from sales 98,175
Interest income 7,264
Total cash inflow 115,398
Operating expenses (9,948)
Cash from operations 105,450
Reserve for distributions and operations (1,094)
Partnership management fee (508)
Distributable cash from operations $103,848
=======
Allocation of Distributable Cash from Operations and Sales:
Operations Sales Total
Limited Partners $ 5,389 $ 97,193 $102,582
General Partner 284 982 1,266
$ 5,673 $ 98,175 $103,848
======= ======= =======
On August 29, 1996, the cash distributions for the second quarter
of 1996 in the amount of $555,151 were paid to the Limited Partners of
record on June 30, 1996.
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Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
Equipment Summary
(Unaudited)
Lessee
Eveleth Expansion Co.
Acquisition
Equipment Description Cost
Aircraft $ 4,222,717
Heavy Duty Equipment 140,365
$ 4,363,082
==========
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Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Default Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) Form 8-K - An 8-K was filed on July 29, 1996, indicating
under Item 6 that there had been a Resignation of Registrant's
Directors. On July 12, 1996, Robert L. Hechler was appointed
President and Director of Waddell & Reed Leasing, Inc., the
General Partner of Pershing Lease Income Limited Partnership
II due to the retirement of George L. Wirkkula, former
President and Director. No financial statement were filed
with this report.
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Pershing Lease Income Limited Partnership II
(A Missouri Limited Partnership)
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.
<PAGE>
PERSHING LEASE INCOME LIMITED PARTNERSHIP II
(Registrant)
By: /s/ Michael D. Strohm
Michael D. Strohm, as Executive Vice
President, and Assistant Treasurer
of the General Partner
Date: November 26, 1996
By: /s/ Robert L. Hechler
Robert L. Hechler, President, Treasurer
Director of the General Partner
(Principal Accounting and Financial
Officer)
Date: November 26, 1996
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