Item 1. Business.
General Development of Business.
Phoenix Leasing Cash Distribution Fund II, a California limited partnership (the "Partnership"), was organized on June 28, 1984. The Partnership was registered with the Securities and Exchange Commission with an effective date of November 20, 1986 and shall continue to operate until its termination date unless dissolved sooner due to the sale of substantially all of the assets of the Partnership or a vote of the Limited Partners. The Partnership will terminate on December 31, 1997. The General Partner is Phoenix Leasing Incorporated, a California corporation. The General Partner or its affiliates also is or has been a general partner in several other limited partnerships formed to invest in capital equipment and other assets.
The initial registration was for 300,000 units of limited partnership interest at a price of $250 per unit with an option of increasing the public offering up to a maximum of 400,000 units. The Partnership sold 386,308 units for a total capitalization of $96,577,000. Of the proceeds received through the offering, the Partnership has incurred $11,540,000 in organizational and offering expenses. The Partnership concluded its public offering on February 4, 1988.
Phoenix Concept Cablevision Inc. (the "Subsidiary") is a majority owned subsidiary of the Partnership (hereinafter, both entities are collectively referred to as the "Consolidated Partnership"). The Subsidiary was formed under the laws of Nevada on December 22, 1992. The Partnership owns approximately 58% of the outstanding shares of Phoenix Concept Cablevision Inc. Phoenix Concept Cablevision Inc. owns 100% of the outstanding shares of Concept Cablevision of South Carolina, Inc., a Delaware corporation. Concept Cablevision of South Carolina, Inc. owns and operates a cable television system located in the state of South Carolina.
Narrative Description of Business.
The Consolidated Partnership conducts its business in two business segments: Equipment Leasing and Financing Operations, and Cable Television System Operations. A discussion of these two segments follows:
Equipment Leasing and Financing Operations.
From the initial formation of the Partnership through December 31, 1994, the total investments in equipment leases and financing transactions (loans), including the Partnership's pro rata interest in investments made by joint ventures, approximate $175,558,000. The average initial firm term of contractual payments from equipment subject to lease was 32.19 months, and the average initial net monthly payment rate as a percentage of the original purchase price was 2.24%. The average initial firm term of contractual payments from loans was 82.01 months.
The Partnership's principal objective is to produce cash flow to the investors on a continuing basis over the life of the Partnership. To achieve this objective, the Partnership has invested in various types of capital equipment and other assets to provide leasing or financing of the same to third parties, including Fortune 1000 companies and their subsidiaries, middle-market companies, emerging growth companies, cable television operators and others, on either a long-term or short-term basis. The types of equipment that the Partnership has invested in includes computer peripherals, terminal
Page 4 of 41
Item 1. Business (continued):
Narrative Description of Business (continued).
systems, small computer systems, communications equipment, IBM mainframes, IBM- software compatible mainframes, office systems, CAE/CAD/CAM equipment, telecommunications equipment, cable television equipment, medical equipment, production and manufacturing equipment and software products.
The Partnership has made secured loans to cable television systems, emerging growth companies, security monitoring companies and other businesses. These loans are asset-based and the Partnership receives a security interest in the assets financed.
The Partnership's financing activities have been concentrated in the cable television industry. The Partnership has made secured loans (notes receivable) to operators of cable television systems for the acquisition, refinancing, construction, upgrade and extension of such systems located throughout the United States. The loans to cable television system operators are secured by a senior or subordinated interest in the assets of the cable television system, its franchise agreements, subscriber lists, material contracts and other related assets. In some cases the Partnership has also received personal guarantees from the owners of the systems. At December 31, 1994, the Partnership's investments in notes receivable primarily consist of notes receivable from three cable television system operators. The Partnership's net investment in notes receivable before consideration of the allowance for losses on notes receivable (including notes receivable reclassified to in-substance foreclosed cable systems) of $2,366,000 approximate 37% of the total assets of the Partnership at December 31, 1994.
Several of the cable television system operators the Partnership provided financing to have experienced financial difficulties. These difficulties are believed to have been caused by several factors such as: a significant reduction in the availability of debt from banks and other financial institutions to finance acquisitions and operations, uncertainties related to future government regulation in the cable television industry and the economic recession in the United States. These factors have resulted in a significant decline in the demand for the acquisition of cable systems and have further caused an overall decrease in the value of many cable television systems.
The Partnership has acquired equipment pursuant to either "Operating" leases or "Full Payout" leases. The Partnership has also provided and intends to provide financing secured by assets in the form of notes receivable. Operating leases are generally short-term leases under which the lessor will receive aggregate rental payments in an amount that is less than the purchase price of the equipment. Full Payout leases are generally for a longer term under which the non-cancelable rental payments due during the initial term of the lease are at least sufficient to recover the purchase price of the equipment.
Competition. The General Partner has concentrated the Partnership's activities in the equipment leasing and financing industry, an area in which the General Partner has developed an expertise. The computer equipment leasing industry is extremely competitive. The Partnership competes with many well established companies having substantially greater financial resources. Competitive factors include pricing, technological innovation and methods of financing (including use of various short-term and long-term financing plans, as well as the outright purchase of equipment).
Page 5 of 41
Item 1. Business (continued):
Narrative Description of Business (continued):
Although IBM is still a dominant factor in the computer equipment marketplace, even IBM has been adversely affected by wide-spread competition in this industry. Given the high degree of competition and rapid pace of technological development in the computer equipment industry, revolutionary changes with respect to pricing, marketing practices, technological innovation and the availability of new and attractive financing plans could occur at almost any time. Significant action in any of these areas might materially and adversely affect the remarketability of equipment owned by the Partnership. Any such adverse effect on remarketability could also be reflected in the overall return realized by the Partnership. The General Partner believes that IBM and its competitors will continue to make significant advances in the computer equipment industry, some of which may result in revolutionary changes with respect to small, medium and large computer systems.
The Partnership will maintain working capital reserves in an amount which will fluctuate from time to time depending upon the needs of the Partnership, but which will be at least one percent of the gross offering proceeds.
Cable Television System Operations.
Phoenix Concept Cablevision, Inc. (the "Subsidiary") is a majority owned subsidiary of the Partnership. The Subsidiary was acquired through foreclosure of a defaulted note receivable to the Partnership on September 15, 1994. The Partnership owns approximately 58% of the outstanding shares of Phoenix Concept Cablevision, Inc. Phoenix Concept Cablevision, Inc. owns 100% of the outstanding shares of Concept Cablevision of South Carolina, Inc., which owns and operates a cable television system. Phoenix Cable Management Inc. (PCMI), an affiliate of the General Partner, provides day to day management services in connection with the operation of the system.
Concept Cablevision of South Carolina, Inc. owns and operates a cable television system located in the state of South Carolina, which currently consists of two headend locations and 81 miles of plant passing approximately 3,710 homes and has approximately 2,058 cable subscribers at December 31, 1994. The cable television system serves the communities of Holly Hill, St. George, Reevesville, Eutawville, certain unincorporated areas in Dorchester County and other communities in Orangeburg County. The cable system operates under six non-exclusive franchise agreements with each of the stated municipalities. These cable franchise agreements expire between the years 1996 and 2003.
Cable television systems receive signals transmitted by nearby radio and television broadcast stations, microwave relay systems and communications satellites and distribute the signals to subscribers via coaxial cable. The subscribers pay a monthly fee to the cable television system for such services. Cable television companies operate under a non-exclusive franchise agreement granted by each local government authority. As part of the franchise agreement, the franchisee typically pays a portion of the gross revenues of the system to the local government.
The Partnership intends to own and operate the cable system until such time it can be sold. Any excess cash generated from operations of the cable system will be used for upgrades and improvements to the system in order to maximize the value of the system.
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Item 1. Business (continued):
Narrative Description of Business (continued):
Competition. The Partnership's cable operations competes with numerous other companies with far greater financial resources. In addition, cable television franchises are typically non-exclusive and the Partnership could be directly competing with other cable television systems. Cable television also competes with conventional over-the-air broadcast television and direct broadcast satellite transmission. Future technological developments may also provide additional competitive factors.
Please see Note 17 in the Partnership's financial statements for financial information about the Partnership's business segments.
Other.
A brief description of the type of assets in which the Partnership has invested as of December 31, 1994, together with information concerning the uses of assets is set forth in Item 2.
Item 2. Properties.
The Partnership is engaged in the equipment leasing and financing industry. The primary assets held by the Partnership are its investments in leases and loans either directly or through its investment in joint ventures.
As of December 31, 1994, the Partnership owns equipment and has outstanding loans to borrowers with an aggregate original cost of $22,325,000. The equipment and loans have been made to customers located throughout the United States. The following table summarizes the type of equipment owned or financed by the Partnership, including its pro rata interest in joint ventures, at December 31, 1994.
Percentage of Asset Types Purchase Price(1) Total Assets ----------------------------------- ------------------- ------------- (Amounts in Thousands)
Computer Peripherals $ 6,851 31% Mainframes 4,975 22 Reproduction Equipment 4,475 20 Financing Related to Cable Television Systems 3,516 16 Telecommunications 1,153 5 Capital Equipment Leased to Emerging Growth Companies 1,142 5 Small Computer Systems 157 1 Financing of Security Monitoring System Companies 56 - -------- ---- TOTAL $ 22,325 100% ======== ====
(1) These amounts include the Partnership's pro rata interest in equipment joint ventures of $2,113,000, cost of equipment on financing leases of $1,576,000 and original cost of outstanding loans of $3,573,000 at December 31, 1994.
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Item 2. Properties (continued).
Cable Television System Operations.
The Subsidiary's principal plants and real property consist of electronic headend equipment, its plant (cable) and two parcels of land. The Subsidiary's headends are located on the two parcels of land.
Item 3.
Item 3. Legal Proceedings.
The Registrant is not a party to any pending legal proceedings which would have a material adverse impact on its financial position.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Limited Partners, through the solicitation of proxies or otherwise, during the year covered by this report.
Item 5.
Item 5. Market for the Registrant's Securities and Related Security Holder Matters.
(a) The Registrant's limited partnership interests are not publicly traded. There is no market for the Registrant's limited partnership interests and it is unlikely that any will develop.
(b) Approximate number of equity security investments:
Number of Unit Holders Title of Class as of December 31, 1994 ---------------------------------- -----------------------
Limited Partners 9,345
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PART II
Item 6.
Item 6. Selected Financial Data.
Amounts in Thousands Except for Per Unit Amounts ------------------------------------------------ 1994(1) 1993 1992 1991 1990 ---- ---- ---- ---- ----
Total Income $5,095 $5,613 $10,706 $14,290 $27,016
Net Income (Loss) 2,925 1,570 (1,540) (5,429) (2,969)
Total Assets 6,338 6,922 10,168 24,728 45,925
Distributions to Partners 3,796 3,794 14,269 14,623 14,119
Net Income (Loss) per Limited Partnership Unit 7.63 4.09 (4.01) (14.09) (7.67)
Distributions per Limited Partnership Unit 10.00 9.99 37.54 36.89 35.02
(1) The 1994 amounts reflect the consolidated activity of the Partnership and its subsidiary.
The above selected financial data should be read in conjunction with the financial statements and related notes appearing elsewhere in this report.
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Item 7.
Item 7. 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 $2,925,000 during the year ended December 31, 1994, as compared to net income of $1,570,000 during 1993 and a net loss of $1,540,000 during 1992. The improvement in earnings during 1994 is primarily due to a settlement of $1,180,000 received by the Partnership during 1994. The improvement in earnings during 1993 was attributable to a substantial decrease in depreciation expense.
Total revenues declined by $518,000 during 1994, as compared to a decline of $5,093,000 during 1993. The decline in revenues during 1994 and 1993 was primarily attributable to the decrease in rental income, a result of the decrease in the amount of equipment owned by the Partnership. At December 31, 1994, the Partnership owned equipment, including its pro rata interest in equipment joint ventures, with an aggregate original cost of $19 million as compared to $40 million and $58 million at December 31, 1993 and 1992, respectively. 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. Additionally, the Partnership reported a decreased gain on the sale of equipment of $629,000 during 1994 due to a decrease in the market value of equipment sold. Partially offsetting these decreases was a settlement received by the Partnership during 1994 (see Note 11).
Another factor contributing to the decrease in total revenues during 1993 was the absence of an equipment insurance settlement that existed during 1992. During 1992, the Partnership received an equipment insurance settlement of $1,235,000 for the full replacement value of certain capital equipment owned by the Partnership and was not a normal recurring event.
Total expenses decreased by $1,897,000 and $8,203,000 during 1994 and 1993, respectively, due primarily to the decrease in depreciation and amortization of $1,536,000 and $6,906,000 during 1994 and 1993, respectively. The decrease in depreciation and amortization expense is attributable to the decrease in the size of the equipment portfolio due to the sale of equipment and a large portion of the equipment having been fully depreciated. The Partnership sold equipment with an aggregate original cost of $22,547,000, $18,149,000 and $20,744,000 during the years ended December 31, 1994, 1993 and 1992, respectively.
During 1994 and 1993, the Partnership also experienced a decrease in lease related operating expenses of $279,000 and $1,035,000, respectively, due to a decrease in maintenance, remarketing and refurbishing expenses incurred on a portion of the Partnership's reproduction equipment purchased pursuant to a vendor lease and remarketing agreement. In accordance with the agreement, these expenses are deducted from the rents and sales proceeds received from such leases.
The Partnership has been impacted by the recession in recent years through an increase in the number of lessee and borrower defaults. This has caused an increase in delinquent lease and loan payments from customers, and the Partnership has seen an increase in lessees and borrowers filing for protection under the bankruptcy laws. This has resulted in a loss of revenues from such delinquent or defaulted leases and has also forced the Partnership to renegotiate its leases on far less favorable terms. These defaults and
Page 10 of 41
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Results of Operations (continued)
delinquencies have also resulted in an increase in legal and collection related expenses. The recession has also caused manufacturers of newer computer equipment to engage in highly aggressive sales practices by discounting new products by as much as 50-60%. The effects of this practice have been lower re-leasing and resale revenues on the equipment owned by the Partnership, thereby earning lower returns than originally anticipated as reflected by the decrease in rental income.
Inflation affects the Partnership in relation to the current cost of equipment placed on lease and the residual values realized when the equipment comes off lease and is sold. During the last several years inflation has been low, thereby having very little impact upon the Partnership.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from equipment leasing and financing activities. The Partnership has contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts and will also receive payments on its outstanding notes receivable. The Partnership's future liquidity is dependent upon its receiving payment of such contractual obligations. 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.
The net cash generated by equipment leasing and financing activities was $2,052,000, $2,647,000 and $4,998,000 during 1994, 1993 and 1992, respectively. The net cash generated by equipment leasing and financing activities continues to decline for the same reasons as the decrease in rental income as previously discussed.
In addition, the Partnership owns a majority interest in a cable television system it received through the foreclosure on a defaulted note receivable on September 15, 1994. Only the results of operations since September 15, 1994 are included in the consolidated results of operations of the Partnership. As a result, this cable television system did not generate significant revenues during 1994.
Proceeds from sale of equipment decreased due to a decrease in the market value of equipment sold. The Partnership received proceeds of $968,000, $1,857,000 and $3,520,000 during 1994, 1993 and 1992, respectively.
During the fourth quarter of 1992, the Partnership borrowed an additional $465,000 from a bank. This loan was paid off in full during 1994. The Partnership repaid $174,000 and $291,000 of its outstanding debt during 1994 and 1993, respectively.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
In addition to acquiring equipment for lease to third parties, the Partnership has provided financing to cable television system operators, emerging growth companies, security monitoring system companies, and other businesses. The Partnership maintains a security interest in the equipment financed. Such security interest will give the Partnership the right, upon default to obtain possession of the assets. The aggregate original amount of outstanding financing provided by the Partnership approximates $3.6 million at December 31, 1994, as compared to $4.2 million at December 31, 1993 and 1992. The $3.6 million of financing as of December 31, 1994 is classified as follows: 98% financing to cable television systems and 2% financing to security monitoring companies. The $4.2 million of financing as of December 31, 1993 and 1992 was classified as follows: 99% financing to cable television systems and 1% financing to security monitoring companies.
The Partnership owns equipment being held for lease with an aggregate original cost of $3,650,000, $13,484,000 and $16,645,000, and a net book value of $36,000, $40,000 and $549,000 at December 31, 1994, 1993 and 1992, respectively. 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 years ended December 31, 1994, 1993 and 1992 were $3,796,000, $3,794,000 and $14,269,000, 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%. The limited partners received distributions of $3,796,000, $3,794,000 and $14,269,000 for the years ended December 31, 1994, 1993 and 1992, respectively. The cumulative distributions to Limited Partners are $79,015,000, $75,219,000 and $71,425,000 at December 31, 1994, 1993 and 1992, respectively.
The General Partner did not receive payment for its share of cash distributions for the years ended December 31, 1994, 1993 and 1992. In accordance with the partnership agreement, upon termination of the Partnership, the General Partner is required to restore any deficit balance in its capital account. During 1992, the General Partner elected to make an early contribution for such deficit capital balance and is no longer receiving payment for its share of the cash available for distribution.
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 decline. As the cash generated by Partnership operations continues to decline, the rate of cash distributions made to limited partners will also decline. During 1993, the Partnership reduced the cash distributions to partners due to such decline in the cash available for distribution. It is anticipated that the Partnership will make quarterly distributions to partners during 1995 at a lower rate than those made during 1994.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Liquidity and Capital Resources (continued)
The Partnership has been adversely impacted by several factors that have resulted in returns and recovery of investment in lower than anticipated amounts. The factors impacting the Partnership have been, the economic recession in the United States, the rate of obsolescence of computer equipment, the market demand and remarketability for equipment owned by the Partnership, aggressive manufacturer sales practices and a general unavailability of debt to companies. All of these factors have resulted in the decline in revenues and the reduced distributions to partners.
Cash generated from leasing and financing operations has been and is anticipated to continue to be sufficient to meet the Partnership's ongoing operational expenses and debt service.
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Item 8.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA --------------------------------------------------------
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY --------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994 ----------------------------
Page 14 of 41
REPORT OF INDEPENDENT AUDITORS
The Partners Phoenix Leasing Cash Distribution Fund II
We have audited the consolidated financial statements of Phoenix Leasing Cash Distribution Fund II (a California limited partnership) and Subsidiary listed in the accompanying index to financial statements (Item 14(a)). Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements listed in the accompanying index to financial statements (Item 14(a)) present fairly, in all material respects the consolidated financial position of Phoenix Leasing Cash Distribution Fund II and Subsidiary at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
San Francisco, California January 20, 1995
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
Note 1. Organization and Partnership Matters.
Phoenix Leasing Cash Distribution Fund II, a California limited partnership (the "Partnership"), was formed on June 28, 1984, to invest in capital equipment of various types and to lease such equipment to third parties on either a long-term or short-term basis, and to provide financing to emerging growth companies and cable television system operators. The Partnership's minimum investment requirements were met November 24, 1986. The Partnership's termination date is December 31, 1997.
On September 15, 1994, the Partnership, along with three other affiliated partnerships (collectively "the Partnerships"), entered into a settlement agreement with a borrower to transfer ownership of all of the outstanding stock in a cable television system company to a corporation owned by the partnerships in full satisfaction of a defaulted note receivable to the partnerships. As a result of this settlement agreement, Concept Cablevision of South Carolina, Inc. transferred 100% of the outstanding stock to Phoenix Concept Cablevision, Inc., a majority owned subsidiary of the Partnership. The net carrying value of the defaulted note, including other capitalized costs, to the Partnership at the settlement date was approximately $769,000 and was carried over (from in- substance foreclosed cable systems) to the basis in the cable system. Phoenix Concept Cablevision, Inc. (the Subsidiary) was formed under the laws of Nevada on December 22, 1992 (hereinafter, the Partnership and the Subsidiary are collectively referred to as the Consolidated Partnership). The acquisition of Concept Cablevision of South Carolina Inc. by the Subsidiary through foreclosure was accounted for using the "purchase method" of accounting in which the transfer price was allocated in accordance with the relative fair market value of the assets and liabilities acquired.
For financial reporting purposes, Partnership income shall be allocated as follows: (a) first, to the General Partner until the cumulative income so allocated is equal to the cumulative distributions to the General Partner, (b) second, before redemption fees, 1% to the General Partner and 99% to the Limited Partners until the cumulative income so allocated is equal to any cumulative Partnership loss and syndication expenses for the current and all prior accounting periods, and (c) the balance, if any, to the Unit Holders. All Partnership losses shall be allocated, before redemption fees, 1% to the General Partner and 99% to the Unit Holders.
The General Partner is entitled to receive 5% of all cash distributions until the Limited Partners have recovered their initial capital contributions plus a cumulative return of 12% per annum. Thereafter, the General Partner will receive 15% of all cash distributions. In the event the General Partner has a deficit balance in its capital account at the time of partnership liquidation, it will be required to contribute the amount of such deficit to the Partnership. During the year ended December 31, 1992, the General Partner elected to make an early contribution of $1,404,000, and the $189,000 in accrued distributions to the General Partner at December 31, 1991 was reversed. In addition, the General Partner did not draw its share of the 1994, 1993 and 1992 cash available for distribution.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 1. Organization and Partnership Matters (continued).
As compensation for management services, the General Partner receives a fee payable quarterly, in an amount equal to 3.5%, subject to certain limitations, of the Partnership's gross revenues for the quarter from which such payment is being made, which revenues shall include, but are not limited to, rental receipts, maintenance fees, proceeds from the sale of equipment and interest income.
Phoenix Cable Management Inc. (PCMI), an affiliate of the General Partner, provides day to day management services in connection with the operation of the Subsidiary. The Subsidiary will pay a management fee equal to four and one-half percent of the System's monthly gross revenue for these services. Management fees paid or due PCMI totalled $9,000 for the year ended December 31, 1994.
The General Partner will be compensated for services performed in connection with the analysis of assets available to the Partnership, the selection of such assets and the acquisition thereof, including obtaining lessees for the equipment and negotiating and concluding master lease agreements with certain lessees. As compensation for such acquisition services, the General Partner will receive a fee equal to 4%, subject to certain limitations, of (a) the purchase price of equipment acquired by the Partnership, or equipment leased to customers by manufacturers, the financing for which is provided by the Partnership, or (b) financing provided to businesses such as cable operators, emerging growth companies, or security monitoring system companies, payable upon such acquisition or financing, as the case may be. As of December 31, 1994, $6,875,000 had been paid or accrued to the General Partner for its acquisition fee. Acquisition fees are amortized over the life of the assets principally on a straight-line basis.
Phoenix Securities, Inc., an affiliate of the General Partner, has contracted with or employs certain persons who have performed wholesaling activities in connection with the offering of the units through broker-dealers. As of December 31, 1994, $1,336,000 has been paid or accrued to Phoenix Securities, Inc.
Note 2. Summary of Significant Accounting Policies.
Principles of Consolidation. The consolidated financial statements include all of the accounts of the Partnership, and its majority owned subsidiary, Phoenix Concept Cablevision Inc., a Nevada corporation since the date of acquisition, September 15, 1994. The Partnership owns approximately 58% of the outstanding shares of Phoenix Concept Cablevision Inc. Phoenix Concept Cablevision Inc. owns 100% of the outstanding shares of Concept Cablevision of South Carolina, Inc., a Delaware corporation. All significant intercompany accounts and transactions have been eliminated in the consolidation.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 2. Summary of Significant Accounting Policies (continued).
Leasing Operations. The Partnership's leasing operations consist of both financing and operating leases. The financing method of accounting for leases records as unearned income at the inception of the lease, the excess of net rentals receivable and estimated residual value at the end of the lease term, over the cost of equipment leased. Unearned income is credited to income monthly over the term of the lease on a declining basis to provide an approximate level rate of return on the unrecovered cost of the investment. Initial direct costs of consummating new leases are capitalized and included in the cost of equipment.
Under the operating method of accounting for leases, the leased equipment is recorded as an asset at cost and depreciated. The Partnership's leased equipment is depreciated primarily on an accelerated depreciation method over the estimated useful life of six years, except for equipment leased under vendor agreements, which is depreciated on a straight-line basis over the estimated useful life, ranging up to six years.
The Partnership's policy is to review periodically the expected economic life of its rental equipment in order to determine the probability of recovering its undepreciated cost. Such reviews address, among other things, recent and anticipated technological developments affecting computer equipment and competitive factors within the computer marketplace. Although remarketing rental rates are expected to decline in the future with respect to some of the Partnership's rental equipment, such rentals are expected to exceed projected expenses and depreciation. Where reviews of the equipment portfolio indicate that rentals plus anticipated sales proceeds will not exceed expenses in any future period, the Partnership revises its depreciation policy and accelerates depreciation as appropriate.
Rental income for the year is determined on the basis of rental payments due for the period under the terms of the lease. Maintenance, repairs and minor renewals of the leased equipment are charged to expense.
Cable Television System Operations. The consolidated statement of operations includes the operating activity of the Subsidiary for the period from the date of acquisition (September 15, 1994) to December 31, 1994. The Subsidiary's cable operations consist of a cable system located in the state of South Carolina, which currently provides cable television services to approximately 2,058 subscribers out of two headend locations.
Property, cable systems and equipment are depreciated using the straight-line method over the estimated service lives ranging from five to ten years. Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred.
Costs assigned to intangible assets are amortized using the straight- line method over estimated lives of eight years.
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 2. Summary of Significant Accounting Policies (continued).
Cable television services are billed monthly in advance. Revenue is deferred and recognized as the services are provided. Investments in Joint Ventures. Minority investments in net assets of the equipment joint ventures reflect the Consolidated Partnership's equity basis in the ventures. Under the equity method of accounting, the original investment is recorded at cost and is adjusted periodically to recognize the Consolidated Partnership's share of earnings, losses, cash contributions and cash distributions after the date of acquisition.
Non Cash Investing Activities. During the year ended December 31, 1994, the Partnership contributed equipment and other investments received through a settlement to a joint venture. The amount of such contribution was $1,430,000. The Partnership also foreclosed upon a cable television company in 1994 as discussed in Note 1 to the consolidated financial statements.
During the year ended December 31, 1993, the Partnership reclassified two foreclosed notes receivable from Notes Receivable to In-Substance Foreclosed Cable Systems on the balance sheet. The amount of such reclassification was $774,000.
Financial Accounting Pronouncements. In May 1993, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," which 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. In October 1994, the FASB issued Statement of Financial Accounting Standards No. 118 "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure," which amended Statement No. 114 by eliminating the provisions regarding how a creditor should report income on an impaired loan. Statement No. 114, as amended by Statement No. 118, must be applied no later than January 1, 1995. The Partnership has determined that the adoption of these statements will not have a material impact on its financial position and results of operations.
In December 1991, the FASB issued Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," which requires disclosure of the fair value of financial instruments for which it is practicable to estimate fair value. For entities with less than $150 million in total assets, this statement must be applied to financial statements issued for fiscal years ending after December 15, 1995.
Reclassification. Certain 1993 and 1992 amounts have been reclassified to conform to the 1994 presentation.
Cash and Cash Equivalents. This includes deposits at banks, investments in money market funds and other highly liquid short-term investments with original maturities of less than 90 days.
Credit and Collateral. The Partnership's activities have been concentrated in the equipment leasing and financing industry. A credit evaluation is performed by the General Partner for all leases and loans made,
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PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 2. Summary of Significant Accounting Policies (continued).
with the collateral requirements determined on a case-by-case basis. The Partnership's loans are generally secured by the equipment or assets financed and, in some cases, other collateral of the borrower. In the event of default, the Partnership has the right to foreclose upon the collateral used to secure such loans.
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1994 1993 ---- ---- (Amounts in Thousands)
Lease payments $ 182 $ 636 Cable system service 64 - Property taxes 35 68 Other 11 11 292 715 ----- ------ Less: allowance for losses on accounts receivable (83) (453) ----- ------ Total $ 209 $ 262 ===== ====== Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1994 1993 ---- ---- (Amounts in Thousands) Notes receivable from cable television system operators with stated interest ranging from 17% to 19% per annum, receivable in installments ranging from 60 to 108 months, collateralized by a security interest in the cable system assets. These notes have a graduated repayment schedule followed by a balloon payment. $2,298 $ 2,282
Notes receivable from security monitoring companies with stated interest at 16% per annum, with payments to be taken out of the monthly payments received from assigned contracts, collateralized by all assets of the borrower. At the end of 48 months, the remaining balance, if any, is due and payable. 42 46 ------ ------- 2,340 2,328
Less: allowance for losses on notes receivable (362) (362) ------ ------- Total $1,978 $ 1,966 ====== =======
Page 24 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 4. Notes Receivable (continued).
The Partnership currently has an outstanding note receivable from a security monitoring company that is not in compliance with certain debt covenants. As a result, the Partnership has suspended the recognition of interest income on this note. The outstanding balance of this note receivable at December 31, 1994 was approximately $42,000. The General Partner is currently pursuing remedies that will maximize recovery of the Partnership's investment, which management believes is realizable.
The Partnership's notes receivable to cable television system operators provide a payment rate in an amount that is usually less than the contractual interest rate. The difference between the payment rate and the contractual interest rate is added to the principal and therefore deferred until the maturity date of the note. Upon maturity of the note, the original principal and deferred interest is due and payable in full. Although the contractual interest rates may be higher, effective January 1, 1993, the amount of interest being recognized on the Partnership's outstanding notes receivable to cable television system operators is being limited to the amount of the payments received, thereby deferring the recognition of a portion of the deferred interest until the loan is paid off. During 1992, the Partnership had been limiting the amount of interest income to 16% on these notes receivable.
The Partnership provides for estimated losses from any permanent impairment in the recovery of notes receivable, including accrued interest.
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
Equipment on lease consists primarily of computer peripheral equipment, computer mainframes and reproduction equipment.
The Partnership's operating leases are for initial lease terms of approximately 12 to 48 months. During the remaining terms of existing operating leases, the Partnership will not recover all of the undepreciated cost and related expenses of its rental equipment, and therefore must remarket a portion of its equipment in future years.
The Partnership has agreements with some of the manufacturers of its equipment, whereby such manufacturers will undertake to remarket off-lease equipment on a best-efforts basis. This agreement permits the Partnership to assume the remarketing function directly if certain conditions contained in the agreements are not met. For their remarketing services, the manufacturers are paid a percentage of net monthly rentals.
The Partnership has entered into direct lease arrangements with lessees consisting of Fortune 1000 companies and other businesses in different industries located throughout the United States. Generally, it is the responsibility of the lessee to provide maintenance on leased equipment. The General Partner administers the equipment portfolio of leases acquired through the direct leasing program. Administration includes the collection of rents from the lessees and remarketing of the equipment.
Page 25 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 5. Equipment on Operating Leases and Investment in Financing Leases (continued).
The net investment in financing leases consists of the following at December 31:
1994 1993 ---- ---- (Amounts in Thousands)
Minimum lease payments to be received $ 507 $ 959 Estimated residual value of leased equipment (unguaranteed) 95 140 Less: unearned income (38) (101) ------ ------- Net investment in financing leases $ 564 $ 998 ====== =======
Minimum rentals to be received on noncancellable operating and financing leases for the years ended December 31 are as follows:
Operating Financing --------------------- (Amounts in Thousands)
1995 . . . . . . . . . . . . . . . . . . $377 $348 1996 . . . . . . . . . . . . . . . . . 179 159 1997 . . . . . . . . . . . . . . . . . . 45 - 1998 . . . . . . . . . . . . . . . . . . 23 - 1999 and future . . . . . . . . . . . . - - ---- ---- Total $624 $507 ==== ====
The Partnership receives contingent monthly rental payments on its reproduction equipment that is not included in the minimum rentals to be received. The contingent monthly rentals consist of a monthly rental payment that is based upon actual machine usage. The monthly usage charge included in income for the years ended December 31, 1994, 1993 and 1992 was $376,000, $640,000 and $978,000, respectively.
The net book value of equipment held for lease at December 31, 1994 and 1993 amounted to $36,000 and $40,000, respectively.
Note 6. In-Substance Foreclosed Cable Systems.
As of December 31, 1994, the Partnership has a nonperforming outstanding note receivable from a cable television system operator where in-substance foreclosure has occurred. Upon reclassification from notes receivable, this note is recorded at the lower of its carrying value or estimated fair market value of the cable system. The Partnership, along with other affiliated partnerships managed by the General Partner, has a total carrying value in this cable system of $151,000. The net carrying value of the Partnership's investment is $61,000 which represents a 41% pro rata interest in the total investment.
Page 26 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 6. In-Substance Foreclosed Cable Systems (continued).
In order to maximize the recovery of the Partnership's investment, the General Partner anticipates that upon foreclosure, it will hold and manage the operations of the foreclosed cable system, on behalf of the partnerships, until such time that the General Partner can sell the cable television system.
Note 7. Cable Systems, Property and Equipment.
The cost of cable systems, property and equipment and the related accumulated depreciation consist of the following at December 31, 1994 (amounts in thousands):
Distribution systems $ 933 Headend equipment 330 Building 251 Land 21 Automobiles 19 ------ 1,554 Less: accumulated depreciation (469) ------ Net property, cable systems and equipment $1,085 ======
Depreciation expense totaled approximately $43,000 for the period from September 15, 1994 to December 31, 1994.
Note 8. Investment in Joint Ventures.
Equipment Joint Ventures.
The Partnership owns a limited or general partnership interest in equipment joint ventures. These investments are accounted for using the equity method of accounting. The other partners of the ventures are entities organized and managed by the General Partner.
The purpose of the joint ventures is the acquisition and leasing of various types of equipment. During the term of the Partnership, Phoenix Leasing Cash Distribution Fund II has participated in the following equipment joint ventures: Weighted Joint Venture Percentage Interest ------------- -------------------
Phoenix Leasing Joint Venture 1990-1 13.23% Phoenix Joint Venture 1994-1 31.25
Page 27 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 8. Investment in Joint Ventures (continued).
Equipment Joint Ventures (continued).
An analysis of the Partnership's investment in equipment joint ventures is as follows:
Net Investment Equity in Net Investment at Beginning Earnings at End Date of Period Contributions (Losses) Distributions of Period ---- -------------- ------------- --------- ------------- -------------- (Amounts in Thousands)
Year Ended December 31, 1992 $693 $ 0 $ 54 $ 272 $ 475 ==== ====== ===== ===== ====== Year Ended December 31, 1993 $475 $ 0 $(100) $ 356 $ 19 ==== ====== ===== ===== ====== Year Ended December 31, 1994 $ 19 $1,463 $ 6 $ 0 $1,488 ==== ====== ===== ===== ======
The aggregate combined financial information of the equipment joint ventures as of December 31 and for the years then ended is presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31, 1994 1993 ---- ---- (Amounts in Thousands)
Cash and cash equivalents $ 122 $ 2 Accounts receivable 2,155 486 Operating lease equipment 2,527 1,842 Other assets 890 - ------ ------ Total Assets $5,694 $2,330 ====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 904 $2,168 Partners' capital 4,790 162 ------ ------ Total Liabilities and Partners' Capital $5,694 $2,330 ====== ======
Page 28 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 8. Investment in Joint Ventures (continued).
Equipment Joint Ventures (continued).
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31, 1994 1993 1992 ---- ---- ---- (Amounts in Thousands)
Rental income $2,583 $3,791 $5,620 Gain on sale of equipment 1,096 1,177 859 Other income 38 8 12 ------ ------ ------ Total Income 3,717 4,976 6,491 ------ ------ ------
EXPENSES
Depreciation 1,248 1,677 2,165 Lease related operating expenses 2,314 3,582 3,402 Management fee to the General Partner 197 291 392 Interest expense - - 70 Other expenses 125 160 188 ------ ------ ------ Total Expenses 3,884 5,710 6,217 ------ ------ ------ Net Income (Loss) $ (167) $ (734) $ 274 ====== ====== ======
As of December 31, 1994 and 1993, the Partnership's pro rata interest in the equipment joint ventures' net book value of off-lease equipment was $13,000 and $68,000, respectively.
The General Partner earns a management fee of 3.5% of the Partnership's respective interest in the gross receipts of the joint venture. Revenues subject to a management fee at the joint venture level are not subject to management fees at the Partnership level.
Page 29 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 9. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at December 31:
1994 1993 ---- ---- (Amounts in Thousands)
Equipment lease operations $ 383 $ 732 Sales and property taxes 364 263 General Partner and affiliates 43 38 Other 195 60 ------- ------ Total $ 985 $1,093 ======= ======
Note 10. Notes Payable.
Notes payable consist of the following at December 31:
1994 1993 ---- ---- (Amounts in Thousands)
Note payable to a bank, collateralized by leased equipment, non-recourse to the other assets of the Partnership, with interest of 4.75% per annum, payable in 22 monthly installments through August 1, 1994 $- $174 ==== ==== Principal payments of $174,000 were due and paid in 1994.
Note 11. Settlement.
On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to the Partnership and sixteen other affiliated partnerships, filed suit in the Superior Court for the County of Marin, Case No. 150016, against Xerox Corporation, a corporation with which the General Partner had entered into contractual agreements for the acquisition and administration of leased equipment. The lawsuit was settled out of court effective as of October 28, 1994 pursuant to the terms of a Confidential Settlement Agreement and Mutual Release. The settlement agreement generally provides for compensation payable to the Partnership and its affiliates in cash and kind, including the assignment by Xerox of certain goods and services. The agreement further provides for the sale by Xerox to the Partnership and its affiliates of equipment subject to lease. The suit that was filed in the Superior Court for the County of Marin, Case No. 150016, has been dismissed with prejudice on the merits.
Page 30 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 11. Settlement (continued).
The Partnership's pro rata share of the Xerox settlement was $1,180,000, which consists of cash of $469,000, and assigned monthly rentals and credits for goods and services valued at $711,000. In addition, the Partnership purchased additional leased equipment at an aggregate cost of $718,000. The Partnership, along with sixteen other affiliated partnerships managed by the General Partner, contributed its share of the assigned monthly rentals, credits for goods and services and purchased equipment leases to a joint venture, in exchange for an interest in the joint venture.
Note 12. 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.
The net differences between the tax basis and the reported amounts of the Partnership's assets and liabilities is as follows at December 31:
Reported Amounts Tax Basis Net Difference ---------------- --------- -------------- (Amounts in Thousands) ---- Assets $4,774 $6,120 $(1,346)
Liabilities 777 773 4
---- Assets $6,922 $7,966 $(1,044)
Liabilities 1,267 1,267 0
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 income tax purposes, deferred taxes are provided for such differences using the liability method.
For the year ended December 31, 1994, the Subsidiary's income tax provision includes the following components (amounts in thousands):
Current tax expense $ 19 Deferred tax benefit (8) ---- Income tax provision, net $ 11 ====
Page 31 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 12. Income Taxes.
The income tax provision differed from the statutory federal rate because of the following (amounts in thousands):
Federal income tax benefit, based on statutory federal and state income tax rate of 37.3% $ 11 Depreciation and amortization 7 Bad debt expense 1 ----- Total income tax provision $ 19 ===== The Subsidiary's net deferred tax benefit of $142 as of December 31, 1994 resulted from the following temporary differences (amounts in thousands):
Depreciation and amortization $(141) Bad debt expense (1) ----- Total $(142) =====
Note 13. Related Entities.
The General Partner and its affiliates serve in the capacity of general partner in other partnerships, all of which are engaged in the equipment leasing and financing business.
Note 14. Reimbursed Costs to the General Partner.
The General Partner incurs certain administrative costs, such as data processing, investor and lessee communications, lease administration, accounting, equipment storage and equipment remarketing, for which it is reimbursed by the Partnership. These expenses incurred by the General Partner are to be reimbursed at the lower of the actual costs or an amount equal to 90% of the fair market value for such services. The reimbursed costs to the General Partner for the years ended December 31 are as follows:
1994 1993 1992 ---- ---- ---- (Amounts in Thousands)
General administration $147 $139 $ 179 Equipment remarketing and administrative 28 81 168 Data processing 4 14 20 ---- ---- ----- Totals $179 $234 $ 367 ==== ==== =====
In addition, the General Partner receives a management fee and an acquisition fee (see Note 1).
Page 32 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 15. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income (loss) and distributions per limited partnership unit were based on the Limited Partners' share of consolidated net income (loss) and distributions, and the weighted average number of units outstanding of 379,583, 379,583 and 380,133 for the years ended December 31, 1994, 1993 and 1992, respectively. For the purposes of allocating consolidated income (loss) and distributions to each individual Limited Partner, the Partnership allocates consolidated net income (loss) and distributions based upon each respective Limited Partner's ending capital account balance.
Note 16. Subsequent Events.
In January 1995, cash distributions of $239,000 were made to the Limited Partners.
Note 17. Business Segments.
The Partnership currently operates in two business segments: the equipment leasing and financing industry and the cable TV industry. The operations in the cable TV industry are for the period from the date of acquisition (September 15, 1994) to December 31, 1994. Information about the Partnership's operations in these two segments are as follows:
1994 1993 1992 ---- ---- ---- (Amounts in Thousands)
Total Revenues Equipment leasing and financing $ 4,896 $5,613 $10,706 Cable TV operations 199 0 0 ------- ------ ------- Total $ 5,095 $5,613 $10,706 ======= ====== ======= Net Income (Loss) Equipment leasing and financing $ 2,914 $1,570 $(1,540) Cable TV operations 11 0 0 ------- ------ ------- Total $ 2,925 $1,570 $(1,540) ======= ====== ======= Identifiable Assets Equipment leasing and financing $ 4,774 $6,922 $10,168 Cable TV operations 1,564 0 0 ------- ------ ------- Total $ 6,338 $6,922 $10,168 ======= ====== ======= Depreciation and Amortization Expense Equipment leasing and financing $ 424 $2,010 $ 8,916 Cable TV operations 50 0 0 ------- ------ ------- Total $ 474 $2,010 $ 8,916 ======= ====== ======= Capital Expenditures Equipment leasing and financing $ 813 $ 192 $ 221 Cable TV operations 128 0 0 ------- ------ ------- Total $ 941 $ 192 $ 221 ======= ====== =======
Page 33 of 41
PHOENIX LEASING CASH DISTRIBUTION FUND II AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1994
Note 18. Pro Forma Information (Unaudited).
On September 15, 1994, the Partnership, along with three other affiliated partnerships (collectively "the Partnerships"), entered into a settlement agreement with a borrower to transfer ownership of all of the outstanding stock in a cable television system company in full satisfaction of a defaulted note receivable to the Partnerships. As a result of this settlement agreement, Concept Cablevision of South Carolina, Inc. transferred 100% of the outstanding stock to Phoenix Concept Cablevision, Inc., a majority owned subsidiary of the Partnership (see Note 1).
The following table summarizes the unaudited pro forma consolidated results of operations of the Partnership for the years ended December 31, 1994 and 1993, as if this cable television system had been acquired at the beginning of each year.
For the Years Ended December 31, 1994 1993 ---- ---- (Amounts in Thousands except for Per Unit Amounts)
Total income $ 5,521 $6,244 Net income before minority interest 3,067 1,707 Minority interest in earnings of Subsidiary 63 58 Net income 3,004 1,649 Net income per limited partnership unit 7.91 4.34
These pro forma results reflect certain adjustments which, among other things, include an increase in operating revenues from cable subscribers, increases in operating expenses of cable system, depreciation and amortization of tangible and intangible assets and adjustments of interest expense on outstanding debt.
The above pro forma consolidated statement should not necessarily be considered as indicative of the results that would have occurred had the acquisition been made at the beginning of each year and their operations consolidated for each twelve month period.
Page 34 of 41
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure Matters.
None.
Page 35 of 41
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The registrant is a limited partnership and, therefore, has no executive officers or directors. The general partner of the registrant is Phoenix Leasing Incorporated, a California corporation. The directors and executive officers of Phoenix Leasing Incorporated (PLI) are as follows:
GUS CONSTANTIN, age 57, is President, Chief Executive Officer and a Director of PLI. Mr. Constantin received a B.S. degree in Engineering from the University of Michigan and a Master's Degree in Management Science from Columbia University. From 1969 to 1972, he served as Director, Computer and Technical Equipment of DCL Incorporated (formerly Diebold Computer Leasing Incorporated), a corporation formerly listed on the American Stock Exchange, and as Vice President and General Manager of DCL Capital Corporation, a wholly-owned subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing manufacturer leasing programs to computer and medical equipment manufacturers and in directing DCL Incorporated's IBM System/370 marketing activities. Prior to 1969, Mr. Constantin was employed by IBM as a data processing systems engineer for four years. Mr. Constantin is an individual general partner in four active partnerships and is an NASD registered principal. Mr. Constantin is the founder of PLI and the beneficial owner of all of the common stock of Phoenix American Incorporated.
PARITOSH K. CHOKSI, age 41, is Senior Vice President, Chief Financial Officer and Treasurer of PLI. He has been associated with PLI since 1977. Mr. Choksi oversees the finance, accounting, information services and systems development departments of the General Partner and its Affiliates and oversees the structuring, planning and monitoring of the partnerships sponsored by the General Partner and its Affiliates. Mr. Choksi graduated from the Indian Institute of Technology, Bombay, India with a degree in Engineering. He holds an M.B.A. degree from the University of California, Berkeley.
GARY W. MARTINEZ, age 44, is Senior Vice President of PLI. He has been associated with PLI since 1976. He manages the Asset Management Department, which is responsible for lease and loan portfolio management. This includes credit analysis, contract terms, documentation and funding; remittance application, change processing and maintenance of customer accounts; customer service, invoicing, collection, settlements and litigation; negotiating lease renewals, extensions, sales and buyouts; and management information reporting. From 1973 to 1976, Mr. Martinez was a Loan Officer with Crocker National Bank, San Francisco. Prior to 1973, he was an Area Manager with Pennsylvania Life Insurance Company. Mr. Martinez is a graduate of California State University, Chico.
BRYANT J. TONG, age 40, is Senior Vice President, Financial Operations and a Director of PLI. He has been with PLI since 1982. Mr. Tong is responsible for investor services and overall company financial operations. He is also responsible for the technical and administrative operations of the cash management, corporate accounting, partnership accounting, accounting systems, internal controls and tax departments, in addition to Securities and Exchange Commission and other regulatory agency reporting. Prior to his association with PLI, Mr. Tong was Controller-Partnership Accounting with the Robert A. McNeil Corporation for two years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from 1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of California, Berkeley, and is a Certified Public Accountant.
Page 36 of 41
Item 10. Directors and Executive Officers of the Registrant (continued).
SUSAN D. ACKERMAN, age 53, is Vice President, Secretary and a Director of PLI. She joined PLI in 1978. She oversees the personnel, corporate secretarial and corporate communications functions of the General Partner and its affiliates. Her duties include responsibility for recruitment and placement of personnel, and development and administration of employee benefits, salary and bonus policies. Prior to her association with PLI, Ms. Ackerman served as Educational and Administrative Assistant to the Business, Economics and Foreign Language Departments at the College of Marin and as legal assistant to an appellate attorney. She attended St. Olaf College and the University of Oslo.
Neither the General Partner nor any Executive Officer of the General Partner has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive officers of the General Partner serve in a similar capacity to the following affiliated limited partnerships:
Phoenix Leasing American Business Fund, L.P. Phoenix Leasing Cash Distribution Fund V, L.P. Phoenix Income Fund, L.P. Phoenix High Tech/High Yield Fund Phoenix Leasing Cash Distribution Fund IV Phoenix Leasing Cash Distribution Fund III Phoenix Leasing Cash Distribution Fund Phoenix Leasing Capital Assurance Fund Phoenix Leasing Income Fund VII Phoenix Leasing Income Fund VI Phoenix Leasing Growth Fund 1982 Phoenix Leasing Income Fund 1982-2 Phoenix Leasing Income Fund 1981 Phoenix Leasing Income Fund 1980 Phoenix Leasing Income Fund 1977 and Phoenix Leasing Income Fund 1975
Page 37 of 41
Item 11.
Item 11. Executive Compensation.
Set forth is the information relating to all direct remuneration paid or accrued by the Registrant during the last year to the General Partner.
(A) (B) (C) (D)
Aggregate of Name of Capacities Cash and cash- contingent Individual or in which equivalent forms forms of persons in group served of remuneration remuneration
(C1) (C2) Securities or Salaries, fees, property insurance directors' fees, benefits or reim- commissions and bursement, personal bonuses benefits ---------------- ------------------- (Amounts in Thousands)
Phoenix Leasing Incorporated General Partner $156(1) $0 $0 ===== == ==
(1) consists of management and acquisition fees.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) No person owns of record, or is known by the Registrant to own beneficially, more than five percent of any class of voting securities of the Registrant.
(b) The General Partner of the Registrant owns the equity securities of the Registrant set forth in the following table:
(1) (2) (3) Title of Class Amount Beneficially Owned Percent of Class -------------- ------------------------- ----------------
General Partner Represents a 5% interest in the 100% Interest Registrant's profits and distributions, until the Limited Partners have recovered their capital contributions plus a cumulative return of 12% per annum, compounded quarterly, on the unrecovered portion thereof. Thereafter, the General Partner will receive 15% interest in the Registrant's profits and distributions.
Limited Partner Interest 336 units .09%
Item 13.
Item 13. Certain Relationships and Related Transactions.
None.
Page 38 of 41
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No. -------- (a) 1. Financial Statements for the year ended December 31, 1994:
Consolidated Balance Sheets as of December 31, 1994 and 1993 15 Consolidated Statements of Operations for the Years Ended December 31, 1994, 1993 and 1992 16 Consolidated Statements of Partners' Capital for the Years Ended December 31, 1994, 1993 and 1992 17 Consolidated Statements of Cash Flows for the Years ended December 31, 1994, 1993 and 1992 18 Notes to Consolidated Financial Statements 19-33
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts and Reserves 41
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the financial statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the year ended December 31, 1994.
(c) Exhibits
2. Plan of acquisition, reorganization, arrangement, liquidation or succession:
a) Balance Sheet as of August 31, 1994 (unaudited). E2 1-9 Profit and Loss Statement for the eight months ended August 31, 1994 (unaudited). Balance Sheet as of December 31, 1993 (unaudited). Profit and Loss Statement for the year ended December 31, 1993 (unaudited).
b) Settlement Agreement and Releases dated September 15, 1994. E2 10-36
21. Additional Exhibits
a) Listing of all subsidiaries of the Registrant:
Page 39 of 41
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (continued).
Phoenix Concept Cablevision, Inc., a Nevada corporation Majority owned (58%) subsidiary of Phoenix Leasing Cash Distribution Fund II
b) Financial Statements for Significant Subsidiaries:
Phoenix Joint Venture 1994-1 E21 1-11
27. Financial Data Schedule
Page 40 of 41
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)
BY: PHOENIX LEASING INCORPORATED, A CALIFORNIA CORPORATION GENERAL PARTNER
Date: March 28, 1995 By: /S/ GUS CONSTANTIN -------------- ------------------------------------ Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/S/ GUS CONSTANTIN President, Chief Executive March 28, 1995 ------------------ Officer and a Director of -------------- (Gus constantin) Phoenix Leasing Incorporated, General Partner
/S/ PARITOSH K. CHOKSI Chief Financial Officer, March 28, 1995 ---------------------- Senior Vice President -------------- (Paritosh K. Choksi) and Treasurer of Phoenix Leasing Incorporated General Partner
/S/ BRYANT J. TONG Senior Vice President, March 28, 1995 ------------------ Financial Operations -------------- (Bryant J. Tong) (Principal Accounting Officer) and a Director of Phoenix Leasing Incorporated General Partner
/S/ GARY W. MARTINEZ Senior Vice President of March 28, 1995 -------------------- Phoenix Leasing Incorporated -------------- (Gary W. Martinez) General Partner
/S/ MICHAEL K. ULYATT Partnership Controller March 28, 1995 --------------------- Phoenix Leasing Incorporated -------------- (Michael K. Ulyatt) General Partner