SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission file number 0-18555
---------------------------------------------------------
Leastec Income Fund V, A California Limited Partnership
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 68-0136036
---------------- --------------
(State of organization) (I.R.S. Employer Identification No.)
7175 West Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 980-1000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 .
--- -
Exhibit Index Appears on Page 11
Page 1 of 12 Pages
LEASTEC INCOME FUND V
A California Limited Partnership
Quarterly Report on Form 10-Q
for the Quarter Ended
September 30, 1996
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets-September 30, 1996 and December 31, 1995 3
Statements of Income-Three and Nine months ended
September 30, 1996 and 1995 4
Statements of Cash Flows-Nine months ended
September 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
LEASTEC INCOME FUND V
A California Limited Partnership
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Cash and cash equivalents $ 853,714 $ 446,663
Accounts receivable, net 29,947 120,375
Equipment held for sale or lease 141,823 59,534
Net investment in direct finance leases 1,293,410 1,803,274
Leased equipment, net 1,179,125 2,989,764
------------- -------------
Total assets $ 3,498,019 $ 5,419,610
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 165,634 $ 235,847
Payable to affiliates 16,677 27,918
Rents received in advance 53,512 40,894
Distributions payable to partners 447,003 186,101
Discounted lease rentals 953,483 2,061,334
-------------- ------------
Total liabilities 1,636,309 2,552,094
-------------- ------------
PARTNERS' CAPITAL:
General partner - -
Limited partners:
Class A 690,966 1,729,272
Class B 1,170,744 1,138,244
------------- ------------
Total partners' capital 1,861,710 2,867,516
------------- ------------
Total liabilities and partners' capital $ 3,498,019 $ 5,419,610
============ ===========
The accompanying notes are an integral part of these financial statements.
3
LEASTEC INCOME FUND V
A California Limited Partnership
STATEMENTS OF INCOME
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
1996 1995 1996 1995
---------- --------- ----------- ----------
REVENUE:
Operating lease rentals $ 535,335 $ 729,031 $ 1,820,376 $ 2,621,424
Direct finance lease income 39,125 56,591 135,821 189,022
Equipment sales margin 410,394 20,364 501,248 156,165
Interest income 7,058 1,853 14,845 9,646
---------- --------- ----------- -----------
Total revenue 991,912 807,839 2,472,290 2,976,257
---------- --------- ----------- -----------
EXPENSES:
Depreciation and amortization 236,637 441,363 985,777 1,561,429
Provision for losses - - - -
Management fees paid to general partner 35,622 45,384 122,242 159,838
Interest on discounted lease rentals 26,252 63,245 102,551 225,634
Direct services from general partner 13,795 16,474 49,297 59,278
General and administrative 53,417 44,035 269,702 155,085
---------- --------- ----------- -----------
Total expenses 365,723 610,501 1,529,569 2,161,264
---------- --------- ----------- -----------
NET INCOME $ 626,189 $ 197,338 $ 942,721 $ 814,993
========== ========= =========== ============
NET INCOME ALLOCATED:
To the general partner $ 45,789 $ 19,747 $ 96,841 $ 77,960
To the Class A limited partners 558,100 170,767 813,380 708,714
To the Class B limited partner 22,300 6,824 32,500 28,319
---------- --------- ----------- ------------
$ 626,189 $ 197,338 $ 942,721 $ 814,993
========== ========= =========== ============
Net income per weighted average Class A
limited partner unit outstanding $ 2.82 $ 0.86 $ 4.10 $ 3.58
========== ========= =========== ============
Weighted average Class A limited partner
units outstanding 198,025 198,475 198,214 197,831
========== ========= =========== ============
The accompanying notes are an integral part of these financial statements.
4
LEASTEC INCOME FUND V
A California Limited Partnership
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
--------------------------
1996 1995
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,202,527 $ 3,049,440
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on discounted lease rentals (1,107,851) (1,723,531)
Redemptions of Class A limited partner units (11,685) (9,909)
Distributions to partners (1,675,940) (1,782,685)
----------- -----------
Net cash used in financing activities (2,795,476) (3,516,125)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 407,051 (466,685)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 446,663 702,210
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 853,714 $ 235,525
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 102,551 $ 225,634
The accompanying notes are an integral part of these financial statements.
5
LEASTEC INCOME FUND V
A California Limited Partnership
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting
principles for annual financial statements. In the opinion of the
general partner, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been
included. The balance sheet at December 31, 1995 has been derived from
the audited financial statements included in the Partnership's 1995
Form 10-K. For further information, refer to the financial statements
of Leastec Income Fund V, a California Limited Partnership (the
"Partnership"), and the related notes, included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1995 (the
"1995 Form 10-K"), previously filed with the Securities and Exchange
Commission.
2. Equipment Held for Sale or Re-lease
-----------------------------------
Equipment held for sale or re-lease, recorded at the lower of cost or
market value expected to be realized, consists of equipment previously
leased to end users which has been returned to the Partnership
following lease expiration.
3. Bankrupt Lessee
---------------
Anchor Glass filed for protection under Chapter 11 of the bankruptcy
code on September 13, 1996. The aggregate net book value under two
leases with this lessee was $598,525 at September 30, 1996. Potential
outcomes are (i) the lessee affirms its leases and the Partnership
collects all rents due under the leases or (ii) the lessee rejects the
leases and returns the underlying equipment to the Partnership. If the
leases are rejected and the equipment is returned to the Partnership or
sold to a third party, it is possible that remarketing proceeds will be
less than the net book value of the equipment. However, if the lessee
affirms the leases, the Partnership would not be subject to a loss. The
lessee has not made its intentions known at this time and, accordingly,
the amount of loss, if any, cannot be determined as of September 30,
1996. Regardless of the lessee's decision to accept or reject the
leases, the general partner believes that the ultimate outcome will not
have a material adverse impact on the Partnership's financial position
or results of operations.
6
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
Presented below are schedules (prepared solely to facilitate the discussion of
results of operations that follows) showing condensed statements of income
categories and analyses of changes in those condensed categories derived from
the Statements of Income:
Condensed Statements of Condensed Statements of
Income for the three months The effect on Income for the nine months The effect on
ended September 30, net income of ended September 30, net income of
--------------------------- changes between --------------------------- changes between
1996 1995 periods 1996 1995 periods
------------ ------------ ---------------- ------------ ------------ ---------------
Leasing margin $ 311,571 $ 281,014 $ 30,557 $ 867,869 $ 1,023,383 $ (155,514)
Equipment sales margin 410,394 20,364 390,030 501,248 156,165 345,083
Interest income 7,058 1,853 5,205 14,845 9,646 5,199
Management fees paid to
general partner (35,622) (45,384) 9,762 (122,242) (159,838) 37,596
Direct services from general
partner (13,795) (16,474) 2,679 (49,297) (59,278) 9,981
General and administrative (53,417) (44,035) (9,382) (269,702) (155,085) (114,617)
Provision for losses - - - - - -
------------ ------------ ------------ ------------ ------------ ------------
Net income $ 626,189 $ 197,338 $ 428,851 $ 942,721 $ 814,993 $ 127,728
============ ============ ============ ============ ============ ============
The Partnership is in its liquidation period, as defined in the Partnership
Agreement, and as expected, the Partnership is not purchasing additional
equipment, initial leases are expiring and the equipment is being remarketed
(i.e., re-leased, renewed or sold). As a result, both the size of the
Partnership's leasing portfolio and the amount of leasing revenue are declining
(referred to in this discussion as "portfolio run-off").
LEASING MARGIN
Leasing margin consists of the following:
Three months ended Nine months ended
September 30, September 30,
------------------------------ -----------------------------
1996 1995 1996 1995
------------ ------------ ------------ -----------
Operating lease rentals $ 535,335 $ 729,031 $ 1,820,376 $ 2,621,424
Direct financing lease income 39,125 56,591 135,821 189,022
Depreciation and amortization (236,637) (441,363) (985,777) (1,561,429)
Interest expense on related discounted lease rentals (26,252) (63,245) (102,551) (225,634)
----------- ----------- ----------- -----------
Leasing margin $ 311,571 $ 281,014 $ 867,869 $ 1,023,383
=========== =========== =========== ===========
Leasing margin ratio 54% 36% 44% 36%
=========== =========== =========== ===========
7
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
LEASING MARGIN, (continued)
All components of leasing margin for the nine months ended September 30, 1996,
compared to the comparable period of 1995, have declined and are expected to
decline further, due to portfolio run-off.
Leasing margin ratio for both periods and leasing margin for the three months
ended September 30, 1996 increased compared to the comparable period of 1995
primarily because of (a) remarketing activities, and (b) a portion of the
Partnership's portfolio consists of operating leases financed with non-recourse
debt. Leasing margin and leasing margin ratio for an operating lease financed
with non-recourse debt increases during the term of the lease since rents and
depreciation are typically fixed while interest expense declines as the related
non-recourse debt is repaid.
The ultimate rate of return on leases depends, in part, on the general level of
interest rates at the time the leases are originated. Because leasing is an
alternative to financing equipment purchases with debt, lease rates tend to rise
and fall with interest rates (although lease rate movements generally lag
interest rate movements in the capital market). Interest rates declined from
1990 until the early part of 1994. The lease rates on equipment purchased by the
Partnership during that period reflect that low interest rate environment. This
will result in corresponding reductions in the ultimate overall yields to
partners.
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Three months ended Nine months ended
September 30, September 30,
---------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ -----------
Equipment sales revenue $ 775,840 $ 44,102 $ 1,227,338 $ 317,034
Cost of equipment sales (365,446) (23,738) (726,090) (160,869)
----------- ----------- ----------- -----------
Equipment sales margin $ 410,394 $ 20,364 $ 501,248 $ 156,165
=========== =========== =========== ===========
The Partnership is in its liquidation period. During the liquidation period, as
initial leases terminate, equipment is being remarketed (i.e., re-leased or sold
to either the original lessee or a third party) and, accordingly, the timing and
amount of equipment sales cannot be projected accurately.
PROVISION FOR LOSSES
The remarketing of equipment for an amount greater than its book value is
reported as equipment sales margin (if the equipment is sold) or leasing margin
(if the equipment is re-leased). The realization of less than the carrying value
of equipment (which is typically not known until remarketing subsequent to the
initial lease termination has occurred) is recorded as provision for losses.
8
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
PROVISION FOR LOSSES, continued
Residual values are established equal to the estimated value to be received from
the equipment following termination of the lease. In estimating such values, the
Partnership considers all relevant facts regarding the equipment and the lessee,
including, for example, the likelihood that the lessee will re-lease the
equipment. The nature of the Partnership's leasing activities is that it has
credit exposure and residual value exposure and, accordingly, in the ordinary
course of business, it will incur losses from those exposures. The Partnership
performs ongoing quarterly assessments of its assets to identify any
other-than-temporary losses in value.
No provision for losses were recorded during either the three and nine months
ended September 30, 1996 or the corresponding periods in 1995 because no
other-than-temporary losses in the value of equipment were identified in the
quarterly assessments of the Partnership's assets.
EXPENSES
General and administrative expenses increased primarily due to $107,928
reimbursed to the general partner during the second quarter 1996 for insurance
costs related to prior years.
Management fees paid to the general partner decreased due to portfolio run-off.
Liquidity and Capital Resources
- -------------------------------
The Partnership funds its activities principally with cash from rents, interest
income and sale of off-lease equipment. Available cash and cash reserves of the
Partnership are invested in interest bearing cash accounts and short-term U.S.
government securities pending distributions to the partners.
During the three months ended September 30, 1996, the Partnership declared
distributions to the partners of $915,818 ($447,003 of which was paid in October
1996), all of which constituted a return of capital. Distributions may be
characterized for tax, accounting and economic purposes as a return of capital,
a return on capital or both. The total return on capital over a leasing
partnership's life can only be determined at the termination of the Partnership
after all residual cash flows (which include proceeds from the re-leasing and
sale of equipment after initial lease terms expire) have been realized. However,
as the general partner has represented for the last several years, all
distributions to the partners are expected to be a return of capital.
9
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
(continued)
Liquidity and Capital Resources, continued
- -------------------------------
The general partner currently anticipates that the Partnership will generate
cash flow from rentals and equipment sales during the remainder of 1996 which,
when added to cash and cash equivalents on hand, should provide sufficient cash
to enable the Partnership to meet its current operating requirements and to fund
distributions to the Class A limited partners. The general partner currently
anticipates that the remaining 1996 distributions to the Class A limited
partners are expected to be in the range of an annualized rate of 1% to 3% of
their capital contributions (all of which is expected to be a return of
capital). Because the Partnership is in liquidation, as defined in the
Partnership Agreement, cash distributions to the Class A limited partners will
be based upon cash availability and will vary.
The Partnership is required to dissolve and distribute all of its assets no
later than December 31, 1998. However, the general partner anticipates that all
equipment will be sold prior to that date and that the Partnership will be
liquidated earlier.
The Class B distributions of cash from operations are subordinated to the Class
A limited partners receiving distributions of cash from operations, as scheduled
in the Partnership Agreement (i.e., 15%). Therefore, because of the decrease in
the distributions to the Class A limited partners effective as of June 1994,
CAII, the sole Class B limited partner, ceased receiving distributions of cash
from operations as of March 1994 and, as a result of this subordination, the
general partner currently anticipates that CAII will not receive any future
Class B distributions related to the $1.2 million of Class B limited partner's
capital shown on the accompanying Balance Sheets.
10
LEASTEC INCOME FUND V
A California Limited Partnership
PART II.
OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is involved in routine legal proceedings incidental to
the conduct of its business. The general partner believes none of
these legal proceedings will have a material adverse effect on the
financial condition or operations of the Partnership.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The Partnership did not file any reports on Form 8-K during the
quarter ended September 30, 1996.
11
LEASTEC INCOME FUND V
A California Limited Partnership
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LEASTEC INCOME FUND V
A California Limited Partnership
By: CAI Partners Management Company
Dated: October 30, 1996 By: /s/John E. Christensen
----------------------
John E. Christensen
Senior Vice President,
Chief Administrative Officer and Director
12