Page 1 of 12
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q
__X__ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 0-12593
-------
PHOENIX LEASING INCOME FUND VII
- --------------------------------------------------------------------------------
Registrant
California 68-0001202
- ---------------------------- ----------------------------------
State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
- --------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
<PAGE>
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Part I. Financial Information
-----------------------------
Item 1. Financial Statements
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
March 31, December 31,
1996 1995
---- ----
ASSETS
Cash and cash equivalents $2,771 $3,940
Accounts receivable (net of allowance for losses
on accounts receivable of $39 and $58 at March
31, 1996 and December 31, 1995, respectively) 60 65
Notes receivable (net of allowance for losses on
notes receivable of $359 at March 31, 1996 and
December 31, 1995) 308 317
Equipment on operating leases and held for lease
(net of accumulated depreciation of $2,547 and
$2,694 at March 31, 1996 and December 31, 1995,
respectively) 105 169
Net investment in financing leases (net of allowance
for early terminations of $17 and $34 at March 31,
1996 and December 31, 1995, respectively) - -
Property, cable systems and equipment (net of
accumulated depreciation of $267 and $238 at March
31, 1996 and December 31, 1995, respectively) 895 912
Cable subscriber lists and franchise rights (net of
accumulated amortization of $391 and $350 at March
31, 1996 and December 31, 1995, respectively) 901 942
Investment in joint ventures 898 975
Other assets 109 107
------ ------
Total Assets $6,047 $7,427
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $1,437 $1,593
------ ------
Total Liabilities 1,437 1,593
------ ------
Partners' Capital
General Partner 274 262
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units out-
standing at March 31, 1996 and December 31, 1995 4,335 5,573
Unrealized gains (losses) on available
for sale securities 1 (1)
------ ------
Total Partners' Capital 4,610 5,834
------ ------
Total Liabilities and Partners' Capital $6,047 $7,427
====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
INCOME
Rental income $ 113 $ 180
Cable subscriber revenues 146 143
Equity in earnings from joint ventures, net 49 81
Gain on sale of equipment 5 94
Interest income, notes receivable - 6
Other income 39 52
----- -----
Total Income 352 556
----- -----
EXPENSES
Depreciation and amortization 134 149
Lease related operating expenses 6 24
Program service, cable system 35 33
Management fees to General Partner 16 39
Provision for losses on receivables (16) 1
General and administrative expenses 95 87
----- -----
Total Expenses 270 333
----- -----
Net income before income taxes 82 223
Income tax expense (1) (13)
----- -----
NET INCOME $ 81 $ 210
===== =====
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .20 $ .52
===== =====
DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $3.78 $ -
===== =====
ALLOCATION OF NET INCOME:
General Partner $ 12 $ 32
Limited Partners 69 178
----- -----
$ 81 $ 210
===== =====
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Operating Activities:
Net income $ 81 $ 210
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 134 149
Gain on sale of equipment (5) (94)
Equity in earnings from joint ventures, net (49) (81)
Provision for early termination, financing leases (17) -
Provision for losses on accounts receivable 1 1
Decrease in accounts receivable 4 37
Decrease in accounts payable and accrued expenses (156) (291)
Decrease in deferred income tax asset 1 13
Decrease (increase) in other assets (1) 262
------ ------
Net cash provided (used) by operating activities (7) 206
------ ------
Investing Activities:
Principal payments, financing leases 17 192
Principal payments, notes receivable 9 44
Proceeds from sale of equipment 5 190
Distributions from joint ventures 126 131
Property, plant and equipment, cable systems (12) (8)
------ ------
Net cash provided by investing activities 145 549
------ ------
Financing Activities:
Distributions to partners (1,307) -
------ ------
Net cash used by financing activities (1,307) -
------ ------
Increase (decrease) in cash and cash equivalents (1,169) 755
Cash and cash equivalents, beginning of period 3,940 1,248
------ ------
Cash and cash equivalents, end of period $2,771 $2,003
====== ======
The accompanying notes are an integral part of these statements.
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
The accompanying unaudited condensed financial statements have been
prepared by the Partnership in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Although management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Partnership's Financial Statement, as filed with the
SEC in the latest annual report on Form 10-K.
Note 2. Reclassification.
Reclassification - Certain 1995 amounts have been reclassified to conform
to the 1996 presentation.
Note 3. 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.
Phoenix Cablevision of Oregon, Inc. (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.
Note 4. Notes Receivable.
Impaired Notes Receivable. At March 31, 1996 the recorded investment in
notes that are considered to be impaired under Statement 114 was $613,000.
Included in this amount is $113,000 of impaired notes for which the related
allowance for losses is $11,000 and $500,000 of impaired notes for which there
is no allowance. The average recorded investment in impaired loans during the
three months ended March 31, 1996 was approximately $613,000.
The activity in the allowance for losses on notes receivable during the
three months ended March 31, is as follows:
1996 1995
---- ----
(Amounts In Thousands)
Beginning balance $ 359 $ 401
Provision for losses - -
Write downs - -
----- -----
Ending balance $ 359 $ 401
===== =====
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Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on the
limited partner's share of net income and distributions, and the weighted
average number of units outstanding of 345,974 for the three months ended March
31, 1996 and 1995. For purposes of allocating income (loss) and distributions to
each individual limited partner, the Partnership allocates net income (loss) and
distributions based upon each respective limited partner's ending capital
account balance. The use of this method accurately reflects each limited
partner's participation in the partnership including reinvestment through the
Capital Accumulation Plan. As a result, the calculation of net income (loss) and
distributions per limited partnership unit is not indicative of per unit income
(loss) and distributions due to reinvestments through the Capital Accumulation
Plan.
Note 6. Investment in Joint Ventures.
Equipment Joint Ventures
The aggregate combined statements of operations of the equipment joint
ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended
March 31,
1996 1995
---- ----
INCOME
Rental income $ 430 $ 519
Gain on sale of equipment 93 89
Other income 40 59
----- -----
Total Income 563 667
----- -----
EXPENSES
Depreciation 89 114
Lease related operating expenses 218 181
Management fees to General Partner 25 27
General and administrative expenses 1 2
----- -----
Total Expenses 333 324
----- -----
Net Income $ 230 $ 343
===== =====
<PAGE>
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Financing Joint Ventures
The aggregate combined statements of operations of the financing joint
ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended
March 31,
1996 1995
---- ----
INCOME
Interest income - notes receivable $ 17 $ 28
Other income 2 4
----- -----
Total Income 19 32
----- -----
EXPENSES
Management fees to General Partner - 2
General and administrative expenses 4 6
----- -----
Total Expenses 4 8
----- -----
Net Income $ 15 $ 24
===== =====
Foreclosed Cable Systems Joint Ventures
The aggregate combined statements of operations of the foreclosed cable
systems joint ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended
March 31,
1996 1995
---- ----
INCOME
Subscriber revenue $ 200 $ 218
Other income 5 3
----- -----
Total Income 205 221
----- -----
EXPENSES
Depreciation and amortization 66 71
Program services 65 71
Management fees to an affiliate of the General Partner 9 10
General and administrative expenses 72 77
Provision for losses on accounts receivable 2 2
----- -----
Total Expenses 214 231
----- -----
Net loss before income taxes (9) (10)
Income tax expense (1) (1)
------ ------
Net Loss $ (10) $ (11)
====== ======
<PAGE>
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Leasing Income Fund VII and Subsidiary (the Partnership) reported
net income of $81,000 during the three months ended March 31, 1996, as compared
to net income of $210,000 during the same period in the preceding year. The
reduction in earnings for the three months ended March 31, 1996, as compared to
the prior year is attributable to declines in both rental income and gain on
sale of equipment.
Total revenues decreased by $204,000 for the three months ended March 31,
1996, as compared to the previous year. This decrease is primarily the result of
a $67,000 decline in rental income, an $89,000 decline in gain on sale of
equipment and a $32,000 decline in earnings from joint ventures, which will be
discussed under "Joint Ventures". The decrease in rental income, as well as
depreciation expense with respect to the Partnership's leasing activities,
during the three months ended March 31, 1996 as compared to the previous year,
is the result of an overall reduction in the size of the equipment portfolio due
to ongoing sales. The aggregate original cost of equipment owned directly by the
Partnership is $4.4 million at March 31, 1996, as compared to $9.9 million at
March 31, 1995.
The decline in gain on sale of equipment of $89,000 and the corresponding
decrease in proceeds from sale of equipment of $185,000 for the three months
ended March 31, 1996, compared to the prior year, is attributable to a reduction
in the amount of equipment sold during 1996. For the three months ended March
31, 1996, the Partnership sold equipment with an aggregate original cost of
$258,000, compared to $2,517,000 of equipment sold for the same period in 1995.
Total expenses for the three months ended March 31, 1996 decreased by
$63,000, as compared to the same period in 1995. The decline is attributable to
decreases in lease related operating expenses of $18,000, management fees to the
General Partner of $23,000 and provision for losses on receivables of $17,000
during the three months ended March 31, 1996, as compared to 1995. Lease related
operating expenses, like rental income, is expected to decline as a result of
the ongoing sale of the equipment portfolio. Management fees are also affected
by the liquidation of the equipment portfolio. As the equipment portfolio is
liquidated, gross revenues decline causing management fees to be reduced.
The $17,000 decrease in provision for losses on receivables is a result of
a portion of an allowance for early terminations of finance leases being
reversed and being recognized as income at March 31, 1996.
Because Phoenix Leasing Income Fund VII is in its liquidation stage, it is
not expected that the Partnership will acquire any additional equipment for its
leasing activities. As a result, revenues from leasing activities are expected
to continue to decline as the portfolio is liquidated and the remaining
equipment is released at lower rental rates.
Cable System
The Partnership acquired a cable system in satisfaction of a defaulted note
receivable held by the Partnership. The Partnership assumed ownership of this
cable system on October 28, 1993. The Partnership reported cable subscriber
revenues of $146,000 and program services expense of $35,000 during the three
months ended March 31, 1996, as compared to cable subscriber revenues of
$143,000 and program services expense of $33,000 during the same period in 1995.
Both cable subscriber revenue and program services expense remained relatively
the same for the three months ended March 31, 1996 compared to 1995.
<PAGE>
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Joint Ventures
The Partnership has made investments in various equipment and financing
joint ventures along with other affiliated partnerships managed by the General
Partner for the purpose of spreading the risk of investing in certain equipment
leasing and financing transactions. These joint ventures are not currently
making any significant additional investments in new equipment leasing or
financing transactions. As a result, the earnings and cash flow from such
investments are anticipated to continue to decline as the portfolios are
re-leased at lower rental rates and eventually liquidated.
The decrease in earnings from equipment joint ventures of $32,000 for the
three months ended March 31, 1996, as compared to the same period in 1995, is
the result of a decline in rental income in one equipment joint venture and a
decrease in gain on sale of equipment in another.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from equipment leasing
and financing activities. The Partnership has contractual obligations with
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 Partnership also
owns a cable television system and has investments in equipment leasing and
foreclosed cable television system joint ventures.
During the three months ended March 31, 1996, the net cash provided by
leasing, financing and cable television activities was $19,000 compared to
$442,000 for the same period in the prior year. The net decrease in cash
generated is due to a decrease in rental income, payments on notes receivable
and financing leases.
Distributions from joint ventures decreased slightly for the three months
ended March 31, 1996 compared to the same period in the prior year. The
Partnership received distributions from joint ventures of $126,000 for the three
months ended March 31, 1996 compared to $131,000 for the same period in 1995.
The slight decrease in distributions is attributable to a closure of one
equipment joint venture during the second quarter of 1995.
As of March 31, 1996, the Partnership owned equipment held for lease with
a purchase price of $1,847,000 and a net book value of $34,000 compared to
$4,377,000 and $51,000, respectively at March 31, 1995. The General Partner is
actively engaged, on behalf of the Partnership, in remarketing and selling the
Partnership's off-lease equipment portfolio.
The Limited Partners received distributions of $1,307,000 for the three
months ended March 31, 1996, as compared to distributions of $0 for the same
period in 1995. As a result, the cumulative cash distributions to the Limited
Partners are $81,288,000 and $78,694,000 at March 31, 1996 and 1995,
respectively. The General Partner did not receive distributions during the three
months ended March 31, 1996 and 1995.
The Partnership did not make distributions to partners during the three months
ended March 31, 1995. During 1993, the Partnership foreclosed upon a cable
television system that it had extended credit. Pursuant to this foreclosure, the
Partnership assumed $1.7 million in debt that matured on December 31, 1994. As a
result, the Partnership did not make distributions to partners on July 15, 1994
or January 15, 1995 in order to retain sufficient cash to pay off the
outstanding debt at its maturity date. The Partnership has resumed making
semi-annual distributions beginning with the July 15, 1995 distribution.
<PAGE>
Page 10 of 12
As the Partnership's asset portfolio continues to decline as a result of
the ongoing liquidation of assets, it is expected that the cash generated from
leasing operations will also decline. Due to the decrease in cash generated by
leasing and financing activities, the Partnership is no longer making quarterly
distributions to partners. Distributions are being made semi-annually in January
and July.
Cash on hand and cash generated from cable television, equipment leasing
and financing operations has been and is anticipated to continue to be
sufficient to meet the Consolidated Partnership's ongoing operational expenses.
<PAGE>
Page 11 of 12
PHOENIX LEASING INCOME FUND VII
March 31, 1996
Part II. Other Information.
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable
Item 3. Defaults Upon Senior Securities. Inapplicable
Item 4. Submission of Matters to a Vote of Securities Holders. Inapplicable
Item 5. Other Information. Inapplicable
Item 6. Exhibits and Reports on 8-K:
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None
<PAGE>
Page 12 of 12
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 INCOME FUND VII
-------------------------------
(Registrant)
Date Title Signature
---- ----- ---------
May 13, 1996 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- --------------------- Senior Vice President -----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
May 13, 1996 Senior Vice President, /S/ BRYANT J. TONG
- --------------------- Financial Operations ----------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
May 13, 1996 Senior Vice President of /S/ GARY W. MARTINEZ
- --------------------- Phoenix Leasing Incorporated ----------------------
General Partner (Gary W. Martinez)
May 13, 1996 Partnership Controller /S/ MICHAEL K. ULYATT
- --------------------- Phoenix Leasing Incorporated ----------------------
General Partner (Michael K. Ulyatt)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,771
<SECURITIES> 0
<RECEIVABLES> 766
<ALLOWANCES> 398
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,814
<DEPRECIATION> 2,814
<TOTAL-ASSETS> 6,047
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,610
<TOTAL-LIABILITY-AND-EQUITY> 6,047
<SALES> 0
<TOTAL-REVENUES> 352
<CGS> 0
<TOTAL-COSTS> 270
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (16)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 82
<INCOME-TAX> 1
<INCOME-CONTINUING> 81
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 81
<EPS-PRIMARY> 3.78
<EPS-DILUTED> 0
</TABLE>
