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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 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 0-12593
-------
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 _____
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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)
September 30, December 31,
ASSETS 1996 1995
------ ------
Cash and cash equivalents $1,934 $3,940
Accounts receivable (net of allowance for losses
on accounts receivable of $43 and $58 at September
30, 1996 and December 31, 1995, respectively) 25 65
Notes receivable (net of allowance for losses on
notes receivable of $359 at September 30, 1996
and December 31, 1995) 302 317
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,845 and
$2,694 at September 30, 1996 and December 31,
1995, respectively) 5 169
Net investment in financing leases (net of allowance
for early terminations of $0 and $34 at September
30, 1996 and December 31, 1995, respectively) -- --
Property, cable systems and equipment (net of
accumulated depreciation of $328 and $238
at September 30, 1996 and December 31, 1995,
respectively) 861 912
Cable subscriber lists and franchise rights (net
of accumulated amortization of $471 and $350 at
September 30, 1996 and December 31, 1995,
respectively) 821 942
Investment in joint ventures 800 975
Other assets 110 107
------ ------
Total Assets $4,858 $7,427
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $1,384 $1,593
------ ------
Total Liabilities 1,384 1,593
------ ------
Partners' Capital
General Partner 297 262
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units outstanding
at September 30, 1996 and December 31, 1995 3,173 5,573
Unrealized gains (losses) on available-for-
sale securities 4 (1)
------ ------
Total Partners' Capital 3,474 5,834
------ ------
Total Liabilities and Partners' Capital $4,858 $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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Rental income $ 73 $ 268 $ 256 $ 983
Cable subscriber revenues 145 148 438 434
Equity in earnings from joint
ventures, net 60 108 193 287
Interest income, notes receivable 16 6 16 425
Other income 27 17 124 125
------ ------ ------ ------
Total Income 321 547 1,027 2,254
------ ------ ------ ------
EXPENSES
Depreciation and amortization 77 190 325 481
Lease related operating expenses 2 7 15 19
Program service, cable system 35 39 106 105
Management fees to General Partner 12 27 45 223
Provision for losses on receivables 28 33 (3) 20
General and administrative expenses 102 79 305 278
------ ------ ------ ------
Total Expenses 256 375 793 1,126
------ ------ ------ ------
Net income before income taxes 65 172 234 1,128
Income tax benefit 2 12 1 2
------ ------ ------ ------
NET INCOME $ 67 $ 184 $ 235 $1,130
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .17 $ .46 $ .58 $ 2.78
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ 3.74 $ 3.72 $ 7.52 $ 3.72
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 10 $ 27 $ 36 $ 169
Limited Partners 57 157 199 961
------ ------ ------ ------
$ 67 $ 184 $ 235 $1,130
====== ====== ====== ======
The accompanying notes are an integral part of these statements.
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
------ ------
Operating Activities:
Net income $ 235 $1,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 325 481
Loss (gain) on sale of equipment 26 (75)
Equity in earnings from joint ventures, net (193) (287)
Provision for early termination, financing leases (34) --
Provision for losses on notes receivable -- (27)
Provision for losses on accounts receivable 31 47
Gain on sale of marketable securities (5) --
Decrease in accounts receivable 9 33
Decrease in accounts payable and accrued expenses (209) (827)
Increase in deferred income tax asset (1) (4)
Decrease (increase) in other assets (3) 298
------ ------
Net cash provided by operating activities 181 769
------ ------
Investing Activities:
Principal payments, financing leases 34 398
Principal payments, notes receivable 15 1,569
Proceeds from sale of equipment 24 148
Proceeds from sale of marketable securities 11 --
Distributions from joint ventures 367 505
Property, plant and equipment, cable systems (38) (24)
------ ------
Net cash provided by investing activities 413 2,596
------ ------
Financing Activities:
Distributions to partners (2,600) (1,286)
------ ------
Net cash used by financing activities (2,600) (1,286)
------ ------
Increase (decrease) in cash and cash equivalents (2,006) 2,079
Cash and cash equivalents, beginning of period 3,940 1,248
------ ------
Cash and cash equivalents, end of period $1,934 $3,327
====== ======
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 September 30, 1996 the recorded investment
in notes that are considered to be impaired under Statement 114 was $607,000.
Included in this amount is $113,000 of impaired notes for which the related
allowance for losses is $11,000 and $494,000 of impaired notes for which there
is no allowance. The average recorded investment in impaired loans during the
nine months ended September 30, 1996 was approximately $610,000.
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1996 1995
---- ----
(Amounts In Thousands)
Beginning balance $ 359 $ 401
Provision for losses - (27)
Write downs - (15)
---- ------
Ending balance $359 $ 359
==== =====
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 nine months ended
September 30, 1996 and 1995. For purposes of allocating income (loss) and
distributions to each individual limited partner, the Partnership allocates net
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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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Rental income $ 452 $ 763 $1,418 $2,122
Gain on sale of equipment 53 140 257 262
Other income 30 570 109 676
------ ------ ------ ------
Total Income 535 1,473 1,784 3,060
------ ------ ------ ------
EXPENSES
Depreciation 81 628 254 855
Lease related operating expenses 166 338 573 899
Management fees to General Partner 28 76 83 144
General and administrative expenses -- -- 2 3
------ ------ ------ ------
Total Expenses 275 1,042 912 1,901
------ ------ ------ ------
Net Income $ 260 $ 431 $ 872 $1,159
====== ====== ====== ======
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Interest income - notes receivable $ 9 $ 14 $ 32 $ 62
Other income 6 7 24 74
------ ------ ------ ------
Total Income 15 21 56 136
------ ------ ------ ------
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EXPENSES
Management fees to General Partner 1 2 1 7
General and administrative expenses 2 3 10 15
------ ------ ------ ------
Total Expenses 3 5 11 22
------ ------ ------ ------
Net Income $ 12 $ 16 $ 45 $ 114
====== ====== ====== ======
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 Nine months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Subscriber revenue $ 213 $ 222 $ 635 $ 653
Other income 16 3 20 7
------ ------ ------ ------
Total Income 229 225 655 660
------ ------ ------ ------
EXPENSES
Depreciation and amortization 67 65 199 200
Program services 70 76 208 209
Management fees to an affiliate of the
General Partner 10 10 29 29
General and administrative expenses 63 69 196 186
Provision for losses on accounts
receivable 2 2 6 7
------ ------ ------ ------
Total Expenses 212 222 638 631
------ ------ ------ ------
Net income before income taxes 17 3 17 29
Income tax expense (2) (6) (2) (13)
------ ------ ------ ------
Net Income (Loss) $ 15 $ (3) $ 15 $ 16
====== ====== ====== ======
<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 $67,000 and $235,000 during the three and nine months ended
September 30, 1996, respectively, as compared to net income of $184,000 and
$1,130,000 during the same periods in the preceding year. The reduction in
earnings for the three and nine months ended September 30, 1996 is a result of
the decline in rental income and interest income from notes receivable.
Total revenues decreased by $226,000 and $1,227,000 for the three and nine
months ended September 30, 1996, respectively, when compared to the same periods
in the previous year. The decrease in total revenues for the three months ended
September 30, 1996 is primarily attributable to a reduction in rental income.
The decrease in total revenues for the nine months ended September 30, 1996, as
compared to the same period in 1995, is attributable to the decrease in rental
income and interest income from notes receivable. The decline in rental income
of $195,000 and $727,000, for the three and nine months ended September 30,
1996, as compared to the same periods in the previous year, is a 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 as of
September 30, 1996 is $2.8 million, as compared to $6.6 million as of September
30, 1995.
Interest income from notes receivable declined by $409,000 for the nine
months ended September 30, 1996, respectively, as compared to the same period in
the previous year. During the second quarter of 1995, the Partnership received
final payoffs from two of its notes receivable which were considered to be
impaired. The Partnership recognized interest income from the receipt of the
settlement from one of these notes receivable. As a result, interest income from
notes receivable was higher than expected during the nine months ended September
30, 1995.
Total expenses for the three and nine months ended September 30, 1996
decreased by $119,000 and $333,000, respectively, as compared to the same
periods in 1995. The decline is primarily the result of a decrease in
depreciation expense. In addition, management fees to the General Partner
decreased for the nine months ended September 30, 1996. Management fees to the
General Partner were higher during 1995 as a result of settlements received from
two defaulted notes receivable. The Partnership also experienced an increase in
general and administrative expense during the three and nine months ended
September 30, 1996 and 1995, as compared to the same periods in 1995, due to
increased legal expense.
The decline in depreciation and amortization of $113,000 and $156,000 for
the three and nine months ended September 30, 1996, respectively, as compared to
the same periods in the previous year, is a result of a reduction in
depreciation from leasing activities. In addition to the declining equipment
portfolio as previously discussed, the decrease in depreciation expense is also
the result of an increasing portion of the equipment portfolio being fully
depreciated.
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.
<PAGE>
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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 television system on October 28, 1993. Both cable subscriber revenue
and program services expense remained relatively the same for the three and nine
months ended September 30, 1996 as compared to the same periods in 1995.
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
released at lower rental rates and eventually liquidated.
Earnings from joint ventures decreased by $48,000 and $94,000 for the
three and nine months ended September 30, 1996, as compared to the same periods
in the prior year. This decrease is a result of the overall decline in revenues
and expenses experienced by the equipment joint ventures as a result of a
majority of the equipment joint ventures being in the liquidation stage. Other
factors contributing to the decline in earnings from joint ventures is the
decline in interest income from notes receivable for financing joint ventures.
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 nine months ended September 30, 1996, the net cash provided by
leasing, financing and cable television activities was $230,000 compared to
$2,736,000 for the same period in the prior year. The decrease in net cash
provided during 1996, as compared to 1995, is attributable to the decrease in
rental income, payments on notes receivable and financing leases. Payments from
notes receivable were higher than usual during the nine months ended September
30, 1995 as a result of the Partnership receiving settlements from notes
receivable from two cable television system operators that had been in default.
Distributions from joint ventures has become one of the primary sources of
cash generated by the Partnership. The Partnership received $367,000 as
distributions from joint ventures for the nine months ended September 30, 1996,
compared to $505,000 for the same period in 1995. This decrease in distributions
is reflective of the overall decrease in revenues generated by the joint
ventures, as discussed previously.
As of September 30, 1996, the Partnership owned equipment held for lease
with a purchase price of $1,540,000 and a net book value of $2,000 compared to
$1,927,000 and $14,000, respectively at September 30, 1995. The General Partner
is actively engaged, on behalf of the Partnership, in remarketing and selling
the Partnership's off-lease equipment portfolio.
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The Limited Partners received distributions of $2,600,000 for the nine
months ended September 30, 1996, as compared to distributions of $1,286,000 for
the nine months ended September 30, 1995. As a result, the cumulative cash
distributions to the Limited Partners are $82,581,000 and $79,981,000 at
September 30, 1996 and 1995, respectively. The General Partner did not receive
distributions during the nine months ended September 30, 1996 and 1995.
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 continue to 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.
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. As a result, distributions during
the nine months ended September 30, 1996 were higher than those made during the
same period in 1995. The Partnership anticipates making distributions to
partners on January and July of 1997 at the same amount as those made on January
and July of 1996.
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>
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PHOENIX LEASING INCOME FUND VII
September 30, 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>
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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
---- ----- ---------
November 12, 1996 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- ----------------- Senior Vice President -----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
November 12, 1996 Senior Vice President, /S/ BRYANT J. TONG
- ----------------- Financial Operations -----------------------
(Principal Accounting Officer) (Bryant J. Tong)
Phoenix Leasing Incorporated
General Partner
November 12, 1996 Senior Vice President /S/ GARY W. MARTINEZ
- ----------------- Phoenix Leasing Incorporated -----------------------
General Partner (Gary W. Martinez)
November 12, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,934
<SECURITIES> 0
<RECEIVABLES> 729
<ALLOWANCES> 402
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,039
<DEPRECIATION> 2,173
<TOTAL-ASSETS> 4,858
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,474
<TOTAL-LIABILITY-AND-EQUITY> 4,858
<SALES> 0
<TOTAL-REVENUES> 1,027
<CGS> 0
<TOTAL-COSTS> 793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (3)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 234
<INCOME-TAX> 1
<INCOME-CONTINUING> 235
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
</TABLE>
