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, 1997
-------------------------------------------------
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, 1997
Table of Contents
-----------------
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Balance Sheets-September 30, 1997 and December 31, 1996 3
Statements of Income-Three and Nine months ended
September 30, 1997 and 1996 4
Statements of Cash Flows-Nine months ended
September 30, 1997 and 1996 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)
ASSETS
September 30, December 31,
1997 1996
------------ ------------
Cash and cash equivalents $ 429,278 $ 465,217
Accounts receivable, net 22,046 122,357
Equipment held for sale or re-lease 128,696 128,696
Net investment in direct finance leases 575,598 1,105,111
Leased equipment, net 599,901 1,011,332
----------- -----------
Total assets $ 1,755,519 $ 2,832,713
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 235,502 $ 283,321
Payable to affiliates 16,090 31,361
Rents received in advance 4,000 34,242
Distributions payable to partners 157,929 225,019
Discounted lease rentals 365,777 721,550
----------- -----------
Total liabilities 779,298 1,295,493
----------- -----------
PARTNERS' CAPITAL:
General partner - -
Limited partners:
Class A - 360,500
Class B 976,221 1,176,720
----------- -----------
Total partners' capital 976,221 1,537,220
----------- -----------
Total liabilities and partners' capital $ 1,755,519 $ 2,832,713
=========== ===========
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,
--------------------------- ---------------------------
1997 1996 1997 1996
----------- ---------- ----------- -----------
REVENUE:
Operating lease rentals $ 268,294 $ 535,335 $ 895,703 $ 1,820,376
Direct financing lease income 20,369 39,125 71,900 135,821
Equipment sales margin - 410,394 121,950 501,248
Interest income 5,666 7,058 12,759 14,845
---------- ---------- ---------- -----------
Total revenue 294,329 991,912 1,102,312 2,472,290
---------- ---------- ---------- -----------
EXPENSES:
Depreciation and amortization 156,765 236,637 399,249 985,777
Provision for losses - - - -
Management fees paid to general partner 23,962 35,622 72,607 122,242
Interest on discounted lease rentals 10,577 26,252 39,620 102,551
Direct services from general partner 15,164 13,795 47,908 49,297
General and administrative 37,550 53,417 146,032 269,702
---------- ---------- ---------- -----------
Total expenses 244,018 365,723 705,416 1,529,569
---------- ---------- ---------- -----------
NET INCOME $ 50,311 $ 626,189 $ 396,896 $ 942,721
========== ========== ========== ===========
NET INCOME ALLOCATED:
To the general partner $ 13,158 $ 45,789 $ 47,895 $ 96,841
To the Class A limited partners 35,726 558,100 335,593 813,380
To the Class B limited partner 1,427 22,300 13,408 32,500
---------- ---------- ---------- -----------
$ 50,311 $ 626,189 $ 396,896 $ 942,721
========== ========== ========== ===========
Net income per weighted average Class A
limited partner unit outstanding $ .18 $ 2.82 $ 1.69 $ 4.10
========== ========== ========== ===========
Weighted average Class A limited partner
units outstanding 198,025 198,025 198,025 198,214
========== ========== ========== ===========
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,
-------------------------
1997 1996
----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,344,819 $ 3,202,527
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on discounted lease rentals (355,773) (1,107,851)
Redemptions of Class A limited partner units - (11,685)
Distributions to partners (1,024,985) (1,675,940)
----------- ------------
Net cash used in financing activities (1,380,758) (2,795,476)
----------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (35,939) 407,051
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 465,217 446,663
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 429,278 $ 853,714
=========== ============
Supplemental disclosure of cash flow information:
Interest paid on discounted lease rentals $ 39,620 $ 102,551
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, 1996 has been derived from
the audited financial statements included in the Partnership's 1996
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, 1996 (the
"1996 Form 10-K"), previously filed with the Securities and Exchange
Commission.
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 Condensed Statements
of Income for The effect on of Income for The effect on
the three months net income the nine months net income
ended September 30, of changes ended September 30, of changes
------------------------- between ------------------------- between
1997 1996 periods 1997 1996 periods
---------- ----------- ------------- ---------- ---------- -------------
Leasing margin $ 121,321 $ 311,571 $ (190,250) $ 528,734 $ 867,869 $ (339,135)
Equipment sales margin - 410,394 (410,394) 121,950 501,248 (379,298)
Interest income 5,666 7,058 (1,392) 12,759 14,845 (2,086)
Management fees paid
to general partner (23,962) (35,622) 11,660 (72,607) (122,242) 49,635
Direct services from
general partner (15,164) (13,795) (1,369) (47,908) (49,297) 1,389
General and administrative (37,550) (53,417) 15,867 (146,032) (269,702) 123,670
Provision for losses - - - - - -
--------- --------- ----------- ---------- ---------- ----------
Net income $ 50,311 $ 626,189 $ (575,878) $ 396,896 $ 942,721 $ (545,825)
========= ========= =========== ========== ========== ==========
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,
------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
Operating lease rentals $ 268,294 $ 535,335 $ 895,703 $ 1,820,376
Direct financing lease income 20,369 39,125 71,900 135,821
Depreciation and amortization (156,765) (236,637) (399,249) (985,777)
Interest expense on related discounted lease rentals (10,577) (26,252) (39,620) (102,551)
---------- ----------- ----------- -----------
Leasing margin $ 121,321 $ 311,571 $ 528,734 $ 867,869
========== ========== =========== ===========
Leasing margin ratio 42% 54% 55% 44%
== == == ==
7
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, (continued)
Results of Operations, continued
- ---------------------
LEASING MARGIN, (continued)
All components of leasing margin have declined and are expected to decline
further, due to portfolio run-off.
Leasing margin ratio fluctuates based upon remarketing activities. Remarketing
revenue will vary as initial lease terms expire.
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 markets). 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. Annual average 5-year U.S. Treasury yields for the past seven years
were as follows:
Annual average 5-year U.S. Treasury Yield
Year Yield
---- -----
1990 8.37
1991 7.37
1992 6.19
1993 5.14
1994 6.69
1995 6.53
1996 6.18
EQUIPMENT SALES MARGIN
Equipment sales margin consists of the following:
Three months ended Nine months ended
September 30, September 30,
------------------------- ----------------------
1997 1996 1997 1996
---------- ----------- --------- -----------
Equipment sales revenue $ - $ 775,840 $ 157,950 $ 1,227,338
Cost of equipment sales - (365,446) (36,000) (726,090)
---------- ---------- --------- -----------
Equipment sales margin $ - $ 410,394 $ 121,950 $ 501,248
========== ========== ========= ===========
8
LEASTEC INCOME FUND V
A California Limited Partnership
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations, (continued)
Results of Operations, continued
- ---------------------
EQUIPMENT SALES MARGIN, continued
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.
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 because no other-than-temporary losses in
the value of equipment were identified in the quarterly assessments of the
Partnership's assets.
EXPENSES
Management fees paid to the general partner decreased primarily as a result of
portfolio run-off. General and administrative expenses for the nine months ended
September 30, 1996 included $107,928 reimbursed to the general partner for
insurance costs related to prior years.
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 nine months ended September 30, 1997, the Partnership declared
distributions to the partners of $957,895 ($157,929 of which was paid in October
1997), 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.
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 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.
The general partner currently anticipates that the Partnership will generate
cash flow from rentals and equipment sales during the remainder of 1997 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. 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 for
the remainder of 1997 (all of which is expected to be a return of capital).
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, 1997.
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: November 13, 1997 By: /s/Anthony M. DiPaolo
---------------------
Anthony M. DiPaolo
Senior Vice President
12