SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549-1004
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission File Number 0-21256
Cypress Equipment Fund II, Ltd.
(Exact name of Registrant as specified in its charter)
Florida 59-3082723
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
880 Carillon Parkway, St. Petersburg, Florida 33716
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (813) 573-3800
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 requirements for the past 90 days.
YES X NO
Number of Units at
Title of Each Class September 30, 1998
Units of Limited Partnership
Interest: $1,000 per unit 36,469
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II, 1996 Form 10-K, filed with the
Securities and Exchange Commission on June 16, 1998
Parts III and IV - Form S-1 Registration Statement
and all amendments and supplements thereto
File No. 33-44119
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
CYPRESS EQUIPMENT FUND II, LTD.
(a Limited Partnership)
BALANCE SHEETS
September 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
Rental Equipment, at Cost $ 31,785,374 $ 34,234,667
Less: Accumulated Depreciation (12,900,387) (12,630,987)
------------- -------------
18,884,987 21,603,680
Rental Equipment Held for Sale 4,105,073 4,105,073
Deposit on Equipment 3,118,969 3,118,969
Options 2,282,246 2,282,246
Investment In Partnerships 6,932,546 10,009,477
Net Investment in Direct Financing Lease 1,143,503 1,326,061
Deferred Debt Costs (Net of Accumulated
Amortization of $311,411 and $278,181,
Respectively) 13,228 44,238
Rent and Sales Proceeds Receivable 1,178,473 737,603
Accounts Receivable - Other 0 12,000
Prepaid Expense 246,840 88,408
Cash and Cash Equivalents 3,804,017 4,480,112
------------ ------------
Total Assets $ 41,709,882 $ 47,807,867
============= =============
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Notes Payable $ 15,252,152 $ 19,084,905
Payable to: General Partners 138,855 187,943
Affiliates 0 0
Others 93,823 268,626
Interest Payable 34,154 141,780
Unearned Revenue 374,267 458,961
------------- -------------
Total Liabilities 15,893,251 20,142,215
------------- -------------
Partners' Equity:
Limited Partners (36,469 units outstanding
at September 30,1998 and December 31, 1997) 25,877,390 27,707,925
General Partners (60,759) (42,273)
------------- -------------
Total Partners' Equity 25,816,631 27,665,652
------------- -------------
Total Liabilities and Partners' Equity $ 41,709,882 $ 47,807,867
============= =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CYPRESS EQUIPMENT FUND II, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
Revenues:
Rental Income $ 3,947,619 $ 4,427,409
Interest Income 137,444 146,263
Income from Direct Financing
Lease 102,703 0
Gain on Sale of Equipment 109,508 0
Gain on Sale of Rental
Equipment Held for Sale 0 565,046
------------ ------------
Total Revenues 4,297,274 5,138,718
------------ ------------
Operating Expenses:
Management Fees-General 289,128 220,121
Partners
General Administrative: 84,841 32,103
Affiliate 563,597 328,956
Other 1,086,204 1,160,007
Interest Expense 1,961,304 2,551,634
Depreciation and Amortization ------------ ------------
3,985,074 4,292,821
Total Operating Expenses ------------ ------------
Net Income Before Equity in 312,200 845,897
Income of Partnerships
Equity in Income of 601,578 399,076
Partnerships ------------ ------------
$ 913,778 $ 1,244,973
Net Income ============ ============
Allocation of Net Income: $ 904,640 $ 1,232,523
Limited Partners 9,138 12,450
General Partners ------------ ------------
$ 913,778 $ 1,244,973
============ ============
Net Income per $1,000 Limited $ 24.81 $ 33.80
Partnership Unit Outstanding ============ ============
Number of Limited Partnership 36,469 36,469
Units ============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
CYPRESS EQUIPMENT FUND II, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
Revenues:
Rental Income $ 1,115,803 $ 1,470,486
Interest Income 40,456 57,227
Income from Direct Financing
Lease 35,522 0
Gain on Sale of Equipment 109,508 0
Gain on Sale of Rental
Equipment Held for Sale 0 548,588
------------ ------------
Total Revenues 1,301,289 2,076,301
------------ ------------
Operating Expenses:
Management Fees-General 86,006 72,712
Partners
General Administrative: 31,426 12,068
Affiliate 83,386 126,313
Other 294,483 407,178
Interest Expense 575,002 862,190
Depreciation and Amortization ------------ ------------
1,070,303 1,480,461
Total Operating Expenses ------------ ------------
Net Income Before Equity in 230,986 595,840
Income of Partnerships
Equity in Income of 200,526 147,826
Partnerships ------------ ------------
$ 431,512 $ 743,666
Net Income ============ ============
Allocation of Net Income: $ 427,197 $ 736,229
Limited Partners 4,315 7,437
General Partners ------------ ------------
$ 431,512 $ 743,666
============ ============
Net Income per $1,000 Limited $ 11.71 $ 20.18
Partnership Unit Outstanding ============ ============
Number of Limited Partnership 36,469 36,469
Units ============ ============
The accompanying notes are an integral
part of these financial statements.
<PAGE>
CYPRESS EQUIPMENT FUND II, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---- ----
Cash Flows from Operating
Activities:
Net Income $ 913,778 $ 1,244,973
Adjustments to Reconcile Net
Income to Net Cash Provided
by Operating Activities:
(Gain) on Sale of Equipment (109,508) 0
Depreciation and Amortization 1,961,304 2,551,634
Deferred Interest on Notes
Payable 334,392 389,969
Equity in Income of Investment
In Partnerships (601,578) (399,076)
Changes in Operating Assets
and Liabilities:
Decrease in Rental Equipment
Held for Sale 0 20,043
(Increase) Decrease in Rent
Receivable (286,321) (42,672)
(Increase) Decrease in
Prepaid Expenses (158,432) 14,088
Increase (Decrease) in
Interest Payable (107,626) 46,944
Decrease in Accounts
Receivable - General (142,549) (29,173)
(Increase) Decrease in
Payable to:
General Partners (49,088) (333,605)
Affiliates 0 (11,393)
Other (174,803) 27,183
Increase (Decrease) in Unearned
Revenue (84,694) (187)
------------ ------------
Net Cash Provided by
Operating Activities 1,494,875 3,478,728
------------ ------------
Cash Flows from Investing
Activities:
Purchases of Equipment (30,664) (2,169,692)
Escrow Deposit 0 (9,420)
Purchase of Direct Financing
Lease 182,558 0
Investment in Partnerships 3,022 0
Distributions Received 3,675,487 868,175
Casualty of Options 0 751,372
Proceeds from Sale of Equipment 918,473 0
Decrease in Sales Receivable 0 1,483
----------- -----------
Net Cash (Used In) Investing
Activities 4,748,876 (558,082)
----------- -----------
Cash Flows from Financing
Activities:
Proceeds from Notes Payable 0 6,935,387
Payment of Notes Payable (4,167,145) (8,025,073)
(Increase) in Deferred Debt
Costs 10,098 (107,222)
Distributions to Partners (2,762,799) (2,762,799)
----------- -----------
Net Cash (Used In) Provided
by Financing Activities (6,919,846) (3,959,707)
----------- -----------
Increase (Decrease) in Cash (676,095) (1,039,061)
Cash and Cash Equivalents at
Beginning of Period 4,480,112 5,671,366
----------- -----------
Cash and Cash Equivalents at End
of Period $ 3,804,017 $ 4,632,305
=========== ===========
Supplemental Cash Flow Information:
Interest Paid $ 931,930 $ 867,425
============ ===========
Non-Cash Activities:
Notes Payable in 1998 were increased by $495,617, the amount of Deferred
Interest on Notes Payable.
In 1996, Leased Equipment with a cost of $4,136,743 and a net book value of
$3,692,643 was transferred to Equipment Held for Sale.
Notes Payable in 1997 were increased by $606,257, the amount of Deferred
Interest on Notes Payable.
The accompanying notes are an integral
part of these financial statements.
<PAGE>
CYPRESS EQUIPMENT FUND II, LTD.
(a Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
September 30, 1998
NOTE 1 - ORGANIZATION
Cypress Equipment Fund II, Ltd., (the "Partnership"), a Florida
limited partnership, was formed November 13, 1991, for the purpose of
acquiring and leasing transportation, manufacturing, industrial and other
capital equipment. The Partnership was funded with limited partner capital
contributions and commenced operations on June 22, 1992. The Partnership
will terminate on December 31, 2015, or sooner, in accordance with the
terms of the Limited Partnership Agreement. The Partnership has received
Limited and General Partner capital contributions of $36,469,000 and
$2,000, respectively.
Cypress Equipment Management Corporation II, a California corporation
and a wholly-owned subsidiary of Cypress Leasing Corporation, is the
Managing General Partner; RJ Leasing - 2, Inc., a Florida corporation and
a second tier subsidiary of Raymond James Financial, Inc., is the
Administrative General Partner; and Raymond James Partners, Inc., a Florida
corporation and a wholly-owned subsidiary of Raymond James Financial, Inc.,
is the other General Partner.
Cash distributions, subject to payment of the equipment management
fees, and profits and losses of the Partnership shall be allocated 99% to
the Limited Partners and 1% to the General Partners. Once each Limited
Partner has received cumulative cash distributions equal to his capital
contributions, an incentive management fee equaling 4% of cash available
for distributions will be paid to the General Partners. When each Limited
Partner has received cumulative cash distributions equal to his capital
contributions plus an amount equal to 8% of adjusted capital contributions
per annum, an incentive management fee equaling 23% of cash available for
distributions will be paid to the General Partners.
NOTE 2 - NOTES PAYABLE
A significant amount of the rental equipment acquired by the
Partnership is pledged at time of purchase as collateral for the notes
payable.
During the nine months ended September 30, 1997, the outstanding
balance of $4,234,500 with the CIT Group Credit Facility was paid in full.
In June 1997 a credit facility of $9,234,500 was arranged with Heller
Financial and the amount drawn down was $6,234,500.
During the nine months ended September 30, 1998, nothing was paid on
the $7,834,500 outstanding under the Heller Financial credit facility.
Under the terms of the agreement $3,600,000 of this balance matures in
1998, the remainder matures in 1999.
NOTE 3 - COMPENSATION AND REIMBURSEMENTS TO GENERAL PARTNERS AND AFFILIATES
The General Partners and their affiliates are entitled to the
following types of compensation and reimbursements for costs and expenses
incurred for the Partnership for the nine months ended September 30, 1998
Equipment Management Fees $289,128
General and Administrative Costs 84,841
General Partners' Distributions 27,624
NOTE 4 - BASIS OF PREPARATION
The unaudited financial statements presented herein have been prepared
in accordance with the instructions to Form 10-Q and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These statements should be read in conjunction with
the financial statements and notes thereto included with the Partnership's
Form 10-K for the year ended December 31, 1997. In the opinion of
management, these financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to summarize fairly the
Partnership's financial position and results of operations. The results of
operations for the period may not be indicative of the results to be
expected for the year.
NOTE 5 - CASH AND CASH EQUIVALENTS
It is the Partnership's policy to include short-term investments with
an original maturity of three months or less in Cash and Cash Equivalents.
These short-term investments are comprised of money market mutual funds and
a repurchase agreement. All of the Partnership's securities included in
Cash and Cash Equivalents are considered held-to-maturity. The balance of
$3,804,017 at September 30, 1998, represents cash of $1,104, a repurchase
agreement of $3,674,000, and money market mutual funds of $128,913.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Options were purchased in March 1995. If the options are exercised
upon lease terminations August 1999, and January 2000, the Partnership will
pay the strike prices of approximately $1,535,122 and $5,137,500
respectively, to the seller for 193 railcars and 685 railcars,
respectively.
NOTE 7 - SUBSEQUENT EVENTS
On November 4, 1998, the Partnership paid distributions of $2,735,175
to the Limited Partners and $27,629 to the General Partners for the quarter
ended September 30, 1998.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998, Compared to Nine Months Ended
September 30, 1997
Rental income of $3,947,619 plus Income from Direct Financing Lease of
$102,703 for a total of $4,050,322 for the nine months ended September 30,
1998 was comparable to rental income of $4,427,409 for the nine months
ended September 30, 1997. Interest income was also comparable for the nine
months ended September 30, 1998, as compared to 1997. During the nine
months ended September 30, 1997, equipment held for sale with an original
cost of $36,137 was sold for $36,500 resulting in a gain on sale of
$16,458. During the same period an option was exercised with a total cost
of $1,338,217 and was sold for a net of $1,886,805 resulting in a gain on
sale of $548,588. During the nine months ended September 30, 1998,
equipment with an original cost of $1,644,874 was casualtied with proceeds
of $986,672, resulting in a gain of $109,508.
Interest expense increased of $1,086,204 for the nine months ended
September 30, 1998 was comparable to $1,160,007 for the nine months ended
September 30, 1997. Management fee expense increased for the nine months
ended September 30, 1998, as compared to 1997, due to the calculations of
two leases being based on the cash received by the Partnership instead of
the revenue recognized by the Partnership. Depreciation expense decreased
for the nine months ended September 30, 1998 versus 1997, because certain
equipment is no longer being depreciated using an accelerated method.
The net effect of the above revenue and expense items resulted in a
net income of $913,778 for the nine months ended September 30, 1998,
compared to $1,244,973 for the nine months ended September 30, 1997.
During the nine months ended September 30, 1998, the Partnership did
not incur any additional borrowing and made $4,167,145 of principal
payments on notes.
Three Months Ended September 30, 1998, Compared to Three Months Ended
September 30, 1997
Rental income and Income from Direct Finance Lease of $1,151,325 for
the three months ended September 30, 1998 was comparable to rental income
of $1,470,486 for the three months ended September 30, 1997. Interest
income was also comparable for the three months ended September 30, 1998,
as compared to 1997.
Interest expense decreased from $407,178 for the three months ended
September 30, 1997 to $294,483 for the three months ended September 30,
1998 as a result of a lower average level of debt during the period.
Management fee expense was higher for the three months ended September 30,
1998, as compared to 1997 due to the calculations of two leases being based
on the cash received by the Partnership instead of the revenue recognized
by the Partnership. Depreciation expense decreased for the three months
ended September 30, 1998 versus 1997, because certain equipment is no
longer being depreciated using an accelerated method.
The net effect of the above revenue and expense items resulted in a
net income of $431,512 for the three months ended September 30, 1998,
compared to $743,659 for the three months ended September 30, 1997.
During the three months ended September 30, 1998, the Partnership did
not incur any additional borrowing.
Liquidity and Capital Resources
Short-term liquidity requirements consist of funds needed to make cash
distributions to limited and general partners and meet commitments for
investments in equipment, administrative expenses, and debt retirement.
These short-term needs will be funded by Cash and Cash Equivalents at
September 30, 1998, future rental income, interest income, and sales
proceeds.
For the nine months ended September 30, 1998, the Partnership had a
net income of $913,778. After adjusting net income during this period for
depreciation and amortization, and the changes in operating assets and
liabilities, net cash provided by operating activities was $1,494,875.
Cash provided by investing activities consisted primarily of $3,675,487 of
distributions from the Investment in Partnerships. Cash used in financing
activities was $6,919,846 in payment of notes payable and to pay cash
distributions to limited and general partners of $2,762,799. In total,
during the nine months ending September 30, 1998, Cash and Cash Equivalents
decreased $676,095 from operating activities, investing activities and
financing activities, resulting in an ending Cash and Cash Equivalent
balance as of September 30, 1998, of $3,804,017.
In the opinion of the General Partners, the Partnership will have,
through Cash and Cash Equivalents at September 30, 1998, and through future
rental income, interest income, and equipment sales proceeds, sufficient
funds to remain liquid for the foreseeable future. The General Partners
are not aware of any trends that could adversely affect the Partnership's
liquidity or the ability to meet near-term obligations.
<PAGE>
CYPRESS EQUIPMENT FUND II, LTD.
(a Limited Partnership)
September 30, 1998
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits - None.
b) Reports on Form 8-K -None.
<PAGE>
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.
Cypress Equipment Fund II, Ltd.
RJ Leasing - 2, Inc.
Administrative General Partner
Date: November 13, 1998 By: /s/J. Davenport Mosby, III
J. Davenport Mosby, III
President
Date: November 13, 1998 By: /s/John McDonald
John McDonald
Vice President
Date: November 13, 1998 By: /s/Christa Kleinrichert
Christa Kleinrichert
Secretary and Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,804,017
<SECURITIES> 0
<RECEIVABLES> 1,178,473
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 31,785,374
<DEPRECIATION> (12,900,387)
<TOTAL-ASSETS> 41,709,882
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 25,816,631
<TOTAL-LIABILITY-AND-EQUITY> 41,709,882
<SALES> 0
<TOTAL-REVENUES> 4,297,274
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,898,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,086,204
<INCOME-PRETAX> 913,778
<INCOME-TAX> 0
<INCOME-CONTINUING> 913,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 913,778
<EPS-PRIMARY> 24.81<F2>
<EPS-DILUTED> 24.81<F2>
<FN>
<F1>REGISTRANT HAS AN UNCLASSIFIED BALANCE SHEET.
<F2>EPS IS NET INCOME PER $1,000 LIMITED PARTNERSHIP UNIT.
</FN>
</TABLE>
