Page 1 of 11
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 June 30, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES OF
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)
June 30, December 31,
1996 1995
ASSETS ------ ------
Cash and cash equivalents $2,981 $3,940
Accounts receivable (net of allowance for losses
on accounts receivable of $23 and $58 at June 30,
1996 and December 31, 1995, respectively) 75 65
Notes receivable (net of allowance for losses on notes
receivable of $359 at June 30, 1996 and December 31, 1995 304 317
Equipment on operating leases and held for lease (net
of accumulated depreciation and obsolescence reserves
of $1,935 and $2,694 at June 30, 1996 and December 31,
1995, respectively) 12 169
Net investment in financing leases (net of allowance for
early terminations of $0 and $34 at June 30, 1996 and
December 31, 1995, respectively) -- --
Property, cable systems and equipment (net of accumulated
depreciation of $297 and $238 at June 30, 1996 and
December 31, 1995, respectively) 886 912
Cable subscriber lists and franchise rights (net of
accumulated amortization of $431 and $350 at June 30,
1996 and December 31, 1995, respectively) 861 942
Investment in joint ventures 846 975
Other assets 107 107
------ ------
Total Assets $6,072 $7,427
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $1,372 $1,593
------ ------
Total Liabilities 1,372 1,593
------ ------
Partners' Capital
General Partner 287 262
Limited Partners, 480,000 units authorized, 366,432
units issued and 345,974 units outstanding at June
30, 1996 and December 31, 1995 4,408 5,573
Unrealized gains (losses) on available-for-sale
securities 5 (1)
------ ------
Total Partners' Capital 4,700 5,834
------ ------
Total Liabilities and Partners' Capital $6,072 $7,427
====== ======
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 OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Rental income $ 66 $ 440 $ 183 $ 715
Cable subscriber revenues 147 144 293 287
Equity in earnings from joint
ventures, net 84 98 133 179
Interest income, notes receivable -- 413 -- 419
Other income 57 56 97 107
------ ------ ------ ------
Total Income 354 1,151 706 1,707
------ ------ ------ ------
EXPENSES
Depreciation and amortization 114 141 248 290
Lease related operating expenses 7 6 13 30
Program service, cable system 37 34 72 67
Management fees to General Partner 17 157 33 196
Provision for losses on receivables (16) (15) (31) (14)
General and administrative expenses 109 95 203 182
------ ------ ------ ------
Total Expenses 268 418 538 751
------ ------ ------ ------
Net income before income taxes 86 733 168 956
Income tax benefit (expense) -- 3 (1) (10)
------ ------ ------ ------
NET INCOME $ 86 $ 736 $ 167 $ 946
====== ====== ====== ======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .21 $ 1.80 $ .41 $ 2.32
====== ====== ====== ======
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $ -- $ -- $ 3.78 $ --
====== ====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 13 $ 110 $ 25 $ 142
Limited Partners 73 626 142 804
------ ------ ------ ------
$ 86 $ 736 $ 167 $ 946
====== ====== ====== ======
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)
Six Months Ended
June 30,
1996 1995
Operating Activities: ------ ------
Net income $ 167 $ 946
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 248 290
Gain (loss) on sale of equipment 28 (107)
Equity in earnings from joint ventures, net (133) (179)
Provision for early termination, financing leases (34) --
Provision for losses on notes receivable -- (27)
Provision for losses on accounts receivable 3 13
Gain on sale of marketable securities (5) (32)
Decrease (increase) in accounts receivable (13) 41
Decrease in accounts payable and accrued expenses (221) (765)
Decrease (increase) in deferred income tax asset (1) 8
Decrease in other assets 1 36
------ ------
Net cash provided by operating activities 40 224
------ ------
Investing Activities:
Principal payments, financing leases 34 307
Principal payments, notes receivable 13 1,556
Proceeds from sale of equipment 21 205
Proceeds from sale of securities 11 288
Distributions from joint ventures 262 248
Property, cable systems and equipment (33) (16)
------ ------
Net cash provided by investing activities 308 2,588
------ ------
Financing Activities:
Distributions to partners 1,307 --
------ ------
Net cash provided by financing activities 1,307 --
------ ------
Increase (decrease) in cash and cash equivalents (959) 2,812
Cash and cash equivalents, beginning of period 3,940 1,248
------ ------
Cash and cash equivalents, end of period $2,981 $4,060
====== ======
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 June 30, 1996 the recorded investment in
notes that are considered to be impaired under Statement 114 was $609,000.
Included in this amount is $496,000 of impaired notes for which the related
allowance for losses is $11,000 and $113,000 of impaired notes for which there
is no allowance. The average recorded investment in impaired loans during the
six months ended June 30, 1996 was approximately $611,000.
The activity in the allowance for losses on notes receivable during the
six months ended June 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 six months ended June 30,
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.
<PAGE>
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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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Rental income $ 535 $ 840 $ 965 $1,359
Gain on sale of equipment 111 33 204 122
Other income 39 47 79 106
------ ------ ------ ------
Total Income 685 920 1,248 1,587
------ ------ ------ ------
EXPENSES
Depreciation 84 112 173 227
Lease related operating expenses 189 380 407 561
Management fees to General Partner 30 42 55 68
General and administrative expenses -- 1 1 3
------ ------ ------ ------
Total Expenses 303 535 636 859
------ ------ ------ ------
Net Income $ 382 $ 385 $ 612 $ 728
====== ====== ====== ======
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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Interest income - notes receivable $ 6 $ 21 $ 24 $ 48
Other income 16 62 18 66
------ ------ ------ ------
Total Income 22 83 42 114
------ ------ ------ ------
EXPENSES
Management fees to General Partner 1 4 1 5
General and administrative expenses 2 5 7 12
------ ------ ------ ------
Total Expenses 3 9 8 17
------ ------ ------ ------
Net Income $ 19 $ 74 $ 34 $ 97
====== ====== ====== ======
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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 Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------ ------ ------ ------
INCOME
Subscriber revenue $ 221 $ 213 $ 422 $ 431
Other income 5 2 10 5
------ ------ ------ ------
Total Income 226 215 432 436
------ ------ ------ ------
EXPENSES
Depreciation and amortization 66 64 132 136
Program services 73 61 138 132
Management fees to an affiliate of
the General Partner 10 10 19 20
General and administrative expenses 62 55 139 117
Provision for losses on accounts
receivable 2 2 4 4
------ ------ ------ ------
Total Expenses 213 192 432 409
------ ------ ------ ------
Net income before income taxes 13 23 -- 27
Income tax benefit (expense) (3) 8 -- (8)
------ ------ ------ ------
Net Income $ 10 $ 31 $ -- $ 19
====== ====== ====== ======
<PAGE>
Page 8 of 11
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 $86,000 and $167,000 during the three and six months ended June
30, 1996, respectively, as compared to net income of $736,000 and $946,000
during the same periods in the preceding year. The reduction in earnings for the
three and six months ended June 30, 1996 is a result of the decline in rental
income and interest income from notes receivable.
Total revenues decreased by $797,000 and $1,001,000 for the three and six
months ended June 30, 1996, respectively, when compared to the same periods in
the previous year. The decrease in total revenues for both the three and six
months ended June 30, 1996 is primarily attributable to a reduction in rental
income and interest income from notes receivable. The decline in rental income
of $374,000 and $532,000, for the three and six months ended June 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
June 30, 1996 is $3.1 million, as compared to $8.4 million as of June 30, 1995.
Interest income from notes receivable declined by $413,000 and $419,000
for the three and six months ended June 30, 1996, respectively, as compared to
the same periods in the previous year. During the quarter ended June 30, 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 three
and six months ended June 30, 1995. There have been no payoffs from impaired
notes receivable during 1996.
Total expenses for the three and six months ended June 30, 1996 decreased
by $150,000 and $213,000, respectively, as compared to the same periods in 1995.
The decline is primarily the result of a decrease in management fees to the
General Partner for the three and six months ended June 30, 1996 of $140,000 and
$163,000, respectively, as compared to the same periods in 1995. Management fees
to the General Partner were higher during 1995 as a result of settlements
received from two defaulted notes receivable.
The decline in depreciation and amortization of $27,000 and $42,000 for
the three and six months ended June 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 re-leased 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 television system on October 28, 1993. The Partnership reported cable
subscriber revenues of $147,000 and $293,000 for the three and six months ending
June 30, 1996, respectively, as compared to cable subscriber revenues of
$144,000 and $287,000 for the same periods in 1995. The Partnership reported
program services expense of $37,000 and $72,000, respectively, for the three and
six months ended June 30, 1996, as compared to program services expense of
$34,000 and $67,000 for the same periods in 1995. Both cable subscriber revenue
and program services expense remained relatively the same for the three and six
months ended June 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
re-leased at lower rental rates and eventually liquidated.
Earnings from joint ventures decreased by $14,000 and $46,000 for the
three and six months ended June 30, 1996, as compared to the same periods in the
<PAGE>
Page 9 of 11
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 and an
increase in program service costs, as well as, general and administrative
expenses, for the foreclosed cable systems 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 six months ended June 30, 1996, the net cash provided by
leasing, financing and cable television activities was $87,000 compared to
$2,087,000 for the same period in the prior year. The decrease in net cash
provided during 1996, 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 six months ended June 30,
1995 as a result of the Partnership receiving settlements from notes receivable
from two cable television system operators that had been in default.
Due to the maturity of an investment in a U.S. Treasury note, the
Partnership received proceeds of $288,000 in January of 1995. As a result,
proceeds from the sale of securities was higher during 1995.
Distributions from joint ventures has become one of the primary sources of
cash generated by the Partnership. Cash distributions from joint ventures
remained relatively the same for the six months ended June 30, 1996 as compared
to the same period in 1995. The Partnership received $262,000 as distributions
from joint ventures for the six months ended June 30, 1996, compared to $248,000
for the same period in 1995.
As of June 30, 1996, the Partnership owned equipment held for lease with a
purchase price of $1,350,000 and a net book value of $6,000 compared to
$3,385,000 and $42,000, respectively at June 30, 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 six
months ended June 30, 1996, as compared to distributions of $0 for the six
months ended June 30, 1995. As a result, the cumulative cash distributions to
the Limited Partners are $81,288,000 and $78,694,000 at June 30, 1996 and 1995,
respectively. The General Partner did not receive distributions during the six
months ended June 30, 1996 and 1995.
The Partnership did not make distributions to partners during the six
months ended June 30, 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.
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>
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PHOENIX LEASING INCOME FUND VII
June 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>
Page 11 of 11
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
---- ----- ---------
August 13, 1996 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- --------------- Senior Vice President ----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
August 13, 1996 Senior Vice President, /S/ BRYANT J. TONG
- --------------- Financial Operations ----------------------
(Principal Accounting Officer) (Bryant J. Tong)
and a Director of
Phoenix Leasing Incorporated
General Partner
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,981
<SECURITIES> 0
<RECEIVABLES> 761
<ALLOWANCES> 382
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,130
<DEPRECIATION> 2,232
<TOTAL-ASSETS> 6,072
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,700
<TOTAL-LIABILITY-AND-EQUITY> 6,072
<SALES> 0
<TOTAL-REVENUES> 706
<CGS> 0
<TOTAL-COSTS> 538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (31)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 168
<INCOME-TAX> (1)
<INCOME-CONTINUING> 167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167
<EPS-PRIMARY> .41
<EPS-DILUTED> 0
</TABLE>
