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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-K
__X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996 Commission File Number 0-12593
PHOENIX LEASING INCOME FUND VII
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 68-0001202
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interest
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ________
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 _____
As of December 31, 1996, 345,974 Units of Limited Partnership interest were
outstanding. No market exists for the Units of Partnership interest and
therefore there exists no aggregate market value at December 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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PHOENIX LEASING INCOME FUND VII
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 5
Item 3. Legal Proceedings................................................ 5
Item 4. Submission of Matters to a Vote of Security Holders.............. 5
PART II
Item 5. Market for the Registrant's Securities and Related Security
Holder Matters................................................... 6
Item 6. Selected Financial Data.......................................... 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................ 7
Item 8. Financial Statements and Supplementary Data...................... 10
Item 9. Disagreements on Accounting and Financial Disclosure Matters..... 31
PART III
Item 10. Directors and Executive Officers of the Registrant............... 31
Item 11. Executive Compensation........................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management... 32
Item 13. Certain Relationships and Related Transactions................... 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.. 33
Signatures.................................................................. 34
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PART I
Item 1. Business.
General Development of Business.
Phoenix Leasing Income Fund VII, a California limited partnership (the
"Partnership"), was organized on October 29, 1981. The Partnership was
registered with the Securities and Exchange Commission with an effective date of
February 2, 1984 and shall continue to operate until its termination date unless
dissolved sooner due to the sale of substantially all of the assets of the
Partnership or a vote of the Limited Partners. The Partnership will terminate on
December 31, 1998. The General Partner is Phoenix Leasing Incorporated, a
California corporation. The General Partner or its affiliates also is or has
been a general partner in several other limited partnerships formed to invest in
capital equipment and other assets.
The Partnership's initial public offering was for 480,000 units of
limited partnership interest at a price of $250 per unit with an option of
increasing the public offering up to a maximum of 552,000. The Partnership
completed the offering on November 21, 1986, having sold 366,432 units for a
total capitalization of $91,608,000. Of the proceeds received through the
offering, the Partnership has incurred $11,288,000 in organizational and
offering expenses.
Phoenix Cablevision of Oregon, Inc. (the "Subsidiary") is a wholly-owned
subsidiary of the Partnership (hereinafter, both entities are collectively
referred to as the "Consolidated Partnership"). The Subsidiary was formed under
the laws of Nevada on July 22, 1993 to own and operate a cable television system
in the state of Oregon.
Narrative Description of Business.
The Consolidated Partnership conducts its business in two business
segments: Equipment Leasing and Financing Operations, and Cable Television
System Operations. A discussion of these two segments follows.
Equipment Leasing and Financing Operations.
From the initial formation of the Partnership through December 31, 1996,
the total investments in equipment leases and financing transactions (loans),
including the Partnership's pro-rata interest in investments made by joint
ventures, approximate $183,707,000. The average initial firm term of contractual
payments from equipment subject to lease was 36.27 months, and the average
initial net monthly payment rate as a percentage of the original purchase price
was 2.99%. The average initial firm term of contractual payments from loans was
70.99 months.
The Partnership's principal objective is to produce current income and
to build and maintain a balanced portfolio of assets through the acquisition and
financing of various types of capital equipment including computer peripherals,
terminal systems, small computer systems, communications equipment, IBM-software
compatible mainframes, office systems and telecommunications equipment, and to
lease such equipment and products to third parties pursuant to either Operating
Leases or Full Payout Leases.
The principal markets for the types of equipment in which the
Partnership has invested in are (1) major corporations and other large
organizations seeking to reduce the cost of their peripheral equipment and large
computer systems, (2) major corporations with numerous operating locations
seeking to improve the timeliness and responsiveness of their data processing
systems, and (3) small organizations interested in improving the efficiency of
their overall operations by moving from manually operated to small
computer-based management systems.
In addition to acquiring equipment for lease to third parties, the
Partnership either directly or through the investment in joint ventures, has
provided limited financing to certain emerging growth companies, cable
television system operators, manufacturers and their lessees with respect to
equipment leased directly by such manufacturers to third parties. The
Partnership maintains a security interest in the equipment financed and in the
receivables due under any lease or rental agreement relating to such assets.
Such security interests will give the Partnership the right, upon a default, to
obtain possession of the assets.
The Partnership will not incur debt to finance the purchase of
equipment. However, the Partnership can enter into joint venture agreements with
certain other partnerships managed by the General Partner which would finance
the acquisition of equipment through the use of indebtedness which would be
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nonrecourse to the Partnership.
Competition. The equipment leasing industry is highly competitive.
Leases are offered on a wide variety of equipment ranging from construction
equipment to entire manufacturing facilities. The equipment leasing industry
offers to users an alternative to the purchase of nearly every type of
equipment. The General Partner intends to concentrate the Partnership's
activities, however, in markets in which the General Partner has expertise. The
computer equipment industry is extremely competitive. Competitive factors
include pricing, technological innovation and methods of financing (including
use of various short-term and long-term financing plans, as well as the outright
purchase of equipment). Generally, the impact of these factors to the
Partnership would be the realization of increased equipment remarketing and
storage costs, as well as lower residuals received from the sale or remarketing
of such equipment. Generally, the impact of these factors to the Partnership
would be the realization of increased equipment remarketing and storage costs,
as well as lower residuals received from the sale or remarketing of such
equipment.
There is strong competition in non-computer related equipment markets in
which the Partnership will engage as well. There is, however, no single dominant
company or factor in those other markets.
Cable Television System Operations.
Phoenix Cablevision of Oregon, Inc. (the Subsidiary), a wholly-owned
subsidiary of the Partnership, owns a cable television system in the state of
Oregon that was acquired through foreclosure on a defaulted note receivable to
the Partnership on October 28, 1993. The net carrying value of this defaulted
note receivable was approximately $544,000. Phoenix Cable Management Inc.
(PCMI), an affiliate of the General Partner, provides day to day management
services in connection with the operation of the system.
The cable television system owned by Phoenix Cablevision of Oregon, Inc.
is located in the counties of Douglas and Jackson in the State of Oregon and
consists of headend equipment in four locations and 66 miles of plant passing
approximately 2,007 homes and has approximately 1,751 cable subscribers. The
Subsidiary's cable television system serves the communities of Prospect, Butte
Falls, Shady Cove, Trail and other nearby areas in Jackson and Douglas counties.
The Subsidiary operates under three non-exclusive franchise agreements with the
cities of Glendale, Butte Falls and Shady Cove. These cable franchise agreements
expire between the years 2000 and 2002.
Cable television systems receive signals transmitted by nearby radio and
television broadcast stations, microwave relay systems and communications
satellites and distribute the signals to subscribers via coaxial cable. The
subscribers pay a monthly fee to the cable television system for such services.
Cable television companies operate under a non-exclusive franchise agreement
granted by each local government authority. As part of the franchise agreement,
the franchisee typically pays a portion of the gross revenues of the system to
the local government.
The Partnership intends to own and operate the cable system until such
time it can be sold. Any excess cash generated from operations of the cable
system will be used for upgrades and improvements to the system in order to
maximize the value of the system.
Competition. The Partnership's cable operations competes with numerous
other companies with far greater financial resources. In addition, cable
television franchises are typically non-exclusive and the Partnership could be
directly competing with other cable television systems. Cable television also
competes with conventional over-the-air broadcast television and direct
broadcast satellite transmission. Future technological developments may also
provide additional competitive factors.
The Telecommunications Bill allowed telephone companies to enter into
the cable television business and vice-versa. Large cable television systems
that have upgraded their systems with fiber and two way capabilities may find
themselves getting a piece of the much larger telephone revenue. For the smaller
rural cable systems, such as those owned by the Partnership or through
investments in joint ventures, it is unlikely that the Partnership will enter
into telephone services nor will the telephone companies try to seek our
customers in the near future. The systems owned by the Partnership are too small
and not dense enough to pay for the large amount of capital expenditures needed
for these services.
A favorable part of the bill is that small cable systems were
immediately deregulated from most regulations and that the definition of a small
cable operator is under 600,000 subscribers. This allowed small operators to
raise rates if needed, and eliminate the need to provide franchise authorities
with costly rate filings and justifications. The bill also allowed the local
telephone companies to buy out small cable operators in their own region as well
as to joint venture with small cable operators. During 1995, the General Partner
observed a renewed market interest in small cable systems. The final impact of
the Telecommunications Bill will not be known fully until a technical rewrite is
completed and all the legal challenges have been made.
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Please see Note 14 in the Partnership's financial statements for
financial information about the Partnership's business segments.
Other.
A brief description of the type of assets in which the Partnership has
invested as of December 31, 1996, together with information concerning the uses
of assets is set forth in Item 2.
Item 2. Properties.
Equipment Leasing and Financing Operations.
The Partnership is engaged in the equipment leasing and financing
industry and as such, does not own or operate any principal plants, mines or
real property. The primary assets held by the Partnership, either directly or
through its investment in joint ventures, are its investments in leases and
loans.
As of December 31, 1996, the Partnership owns equipment and has
outstanding loans to borrowers with an aggregate original cost of $6,077,000.
The equipment and loans have been made to customers located throughout the
United States. The following table summarizes the type of equipment owned or
financed by the Partnership, including its pro rata interest in joint ventures,
at December 31, 1996.
Percentage of
Asset Types Purchase Price(1) Total Assets
----------- ----------------- -------------
(Amounts in Thousands)
Small Computer Systems $ 1,278 21%
Financing of Solar Systems 2,086 34
Telecommunications 970 16
Reproduction Equipment 1,108 18
Financing Related to Cable TV Systems 382 6
Financing of Security Monitoring
Systems Companies 163 3
Capital Equipment Leased to Emerging
Growth Companies 90 2
------- ---
TOTAL $ 6,077 100%
======= ===
(1) These amounts include the Partnership's pro rata interest in equipment joint
ventures of $1,305,000, financing joint ventures of $2,086,000, and original
cost of outstanding loans of $545,000 at December 31, 1996.
Cable Television System Operations.
The Subsidiary's principal plants and real property consist of electronic
headend equipment, its plant (cable) and two parcels of land. The Subsidiary's
cable office is located on one parcel and one of the headends is located on the
other. The other three headends are located on land that is leased by the
Subsidiary.
Item 3. Legal Proceedings.
The Partnership is not a party to any pending legal proceedings which
would have a material adverse impact on its financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of Limited Partners, through the
solicitation of proxies or otherwise, during the year covered by this report.
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PART II
Item 5. Market for the Registrant's Securities and Related Security Holder
Matters.
(a)The Registrant's limited partnership interests are not publicly
traded. There is no market for the Registrant's limited partnership
interests and it is unlikely that any will develop.
(b)Approximate Number of Equity Security Investments:
Number of Unit Holders
Title of Class as of December 31, 1996
---------------------------------- -----------------------
Limited Partners 16,709
Item 6. Selected Financial Data.
1996(2) 1995(2) 1994(2) 1993(2) 1992
------ ------ ------ ------ ------
(Amounts in Thousands Except for Per Unit Amounts)
Total Income $1,344 $2,708 $3,329 $3,097 $4,580
Net Income (Loss) 399 1,364 1,520 (1,167) (1,994)
Total Assets 4,991 7,427 8,146 12,842 14,860
Distributions to Partners 2,600 1,286 2,594 2,593 4,127
Net Income (Loss) per Limited
Partnership Unit(1) .98 3.35 4.20 (3.38) (5.76)
Distributions per Limited
Partnership Unit 7.52 3.72 7.50 7.49 11.93
(1) Income (loss) per Limited Partnership Unit is not indicative of per unit
income (loss) due to reinvestments through the Capital Accumulation Plan.
(2) The 1996, 1995, 1994 and 1993 amounts reflect the consolidated activity of
the Partnership and its subsidiary.
The above selected financial data should be read in conjunction with the
consolidated financial statements and related notes appearing elsewhere in this
report.
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Item 7. 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 $399,000, $1,364,000 and $1,520,000 during 1996, 1995 and
1994, respectively. The decreased earnings during 1996, as compared to 1995, is
attributable to a reduction in both rental income and interest income from notes
receivable. The decreased earnings during 1995, as compared to 1994, is due to
the absence of a settlement during 1995, compared to the settlement of $763,000
during 1994. Partially offsetting the absence of a settlement during 1995 was an
increase of $378,000 in interest income from notes receivable.
Total revenues decreased by $1,364,000 and $621,000 during 1996 and 1995
respectively, when compared to the same periods in the previous year. The
decrease in total revenues, during 1996, is primarily due to a decline in rental
income and interest income from notes receivable. The decline in rental income
is a result of the overall reduction in the equipment portfolio due to ongoing
sales. The aggregate original cost of equipment owned directly by the
Partnership as of December 31, 1996 is $2.1 million, as compared to $4.6 million
as of December 31, 1995. Additionally, interest income from notes receivable
decreased $442,000 during 1996, as compared to 1995, due to an increase in the
amount of impaired notes receivable.
The decrease in total revenues, during 1995, is primarily due to the
absence of a settlement during 1995, as compared to the settlement of $763,000
during 1994, and a combined decrease in rental income and earned income from
financing leases of $358,000. The Partnership reported an increase in interest
income of $378,000 during 1995, as compared to 1994, partially offsetting the
above mentioned decreases. During 1995, the Partnership received settlements on
two defaulted notes receivable. The Partnership recognized interest income from
the receipt of a settlement on one of these notes receivable, causing the
increase in interest income from notes receivable during 1995. The settlement of
the second note receivable represented only a partial recovery of the
outstanding note receivable balance.
The Partnership holds notes receivable from cable television system
operators and security monitoring companies with a carrying value of
approximately $661,000. These notes are considered to be impaired at December
31, 1996. The Partnership has suspended the accrual of interest on these notes
and has provided an allowance for losses on notes receivable. The General
Partner is currently working with the borrowers, other creditors and the
bankruptcy court in order to seek remedies that will maximize the recovery of
the Partnership's investment in these notes.
Total expenses decreased by $404,000 and $451,000 during 1996 and 1995,
respectively, as compared to the same periods in the previous year. The decline
is attributable to decreases in depreciation and amortization as well as in
management fees. Depreciation and amortization decreased $218,000 during 1996,
and $255,000 during 1995. In addition, management fees to the General Partner
decreased $198,000 for the year ended December 31, 1996, as compared to the
previous year, as a result of settlements received from two defaulted notes
receivable during 1995.
For the last three years depreciation and amortization has declined as 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 due to 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.
Inflation affects the Partnership in relation to the current cost of
equipment placed on lease and the residual values realized when the equipment
comes off-lease and is sold. During the last several years inflation has been
low, thereby having very little impact upon the investments of the Partnership.
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
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revenue and program services expense remained relatively the same for the year
ended December 31, 1996 as compared to the same period in 1995 and 1994.
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 equipment and financing joint ventures decreased by
$18,000 and $8,000 for the year ended December 31, 1996, respectively, as
compared to the previous year. The decrease in earnings from equipment joint
ventures is a result of a majority of the equipment joint ventures being in a
liquidation stage. The decrease in earnings from financing joint ventures is due
to the decline in interest income from notes receivable.
The small increase in earnings from joint ventures of $35,000 during
1995, as compared to the same period in 1994, is the result of a full year of
earnings from a new investment in an equipment joint venture during the fourth
quarter of 1994.
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.
Net cash provided by leasing, financing and cable television activities
was $299,000, $3,148,000 and $1,595,000 during the years ended December 31,
1996, 1995 and 1994, respectively. The decrease in net cash provided during
1996, compared to 1995, is attributable to the decrease in rental income,
payments from notes receivable and finance leases. The increase in net cash
provided during 1995, compared to 1994, is attributable to the increase in
principle payments from notes receivable and the decrease in payments on
accounts payable. The increase in payments from notes receivable , during 1995,
is due to the Partnership receiving settlements on 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 $526,000,
$662,000 and $230,000 as distributions from joint ventures for the years ended
December 31, 1996, 1995 and 1994, respectively. The decrease in distributions is
reflective of the overall decrease in revenues generated by the joint ventures,
as discussed previously. Distributions from joint ventures were higher during
1995, compared to 1994, due to a new investment in an equipment joint venture
that was formed upon the receipt of a legal settlement during October of 1994.
As of December 31, 1996, the Partnership owned equipment held for lease
with a purchase price of $993,000 and a net book value of $0 , compared to
equipment being held for lease with an original cost of $1,334,000 and
$4,853,000 and a net book value of $7,000 and $21,000 at December 31, 1995 and
1994, respectively. 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 $2,600,000, $1,286,000
and $2,594,000 during 1996, 1995 and 1994, respectively. As a result, the
cumulative cash distributions to the Limited Partners are $82,581,000,
$79,981,000 and $78,695,000 at December 31, 1996, 1995 and 1994, respectively.
The General Partner did not receive distributions during the years ended
December 31, 1996, 1995 and 1994.
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
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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 year ended December 31, 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.
Forward-looking statements in this report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Actual results could differ from those anticipated by some of the statements
made above. Limited Partners are cautioned that such forward-looking statements
involve risks and uncertainties including without limitation the following: (i)
the Partnership's plans are subject to change at any time at the discretion of
the General Partner of the Partnership, (ii) future technological developments
in the industry in which the Partnership operates, (iii) competitive pressure on
pricing or services, (iv) substantial customer defaults or cancellations, (v)
changes in business conditions and the general economy, (vi) changes in
government regulations affecting the Partnership's core businesses and (vii) the
ability of the Partnership to sell its remaining assets.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
YEAR ENDED DECEMBER 31, 1996
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Phoenix Leasing Income Fund VII:
We have audited the accompanying consolidated balance sheets of Phoenix Leasing
Income Fund VII (a California limited partnership) and Subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements and the schedule referred to below
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Phoenix Leasing
Income Fund VII and Subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in Item
14, subsection (a) 2 is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not a required part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
San Francisco, California, ARTHUR ANDERSEN LLP
January 17, 1997
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PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
December 31,
1996 1995
------ ------
ASSETS
Cash and cash equivalents $2,155 $3,940
Accounts receivable (net of allowance for
losses on accounts receivable of $41 and
$58 at December 31, 1996 and 1995, respectively) 30 65
Notes receivable (net of allowance for losses
on notes receivable of $359 at December 31,
1996 and 1995) 302 317
Equipment on operating leases and held for lease
(net of accumulated depreciation of $1,316 and
$2,694 at December 31, 1996 and 1995, respectively) 2 169
Net investment in financing leases (net of allowance
for early terminations of $0 and $34 at December
31, 1996 and 1995, respectively) -- --
Property, cable systems and equipment (net of
accumulated depreciation of $358 and $238 at
December 31, 1996 and 1995, respectively) 841 912
Cable subscriber lists and franchise rights (net
of accumulated amortization of $512 and $350 at
December 31, 1996 and 1995, respectively) 780 942
Investment in joint ventures 730 975
Other assets 151 107
------ ------
Total Assets $4,991 $7,427
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $1,350 $1,593
------ ------
Total Liabilities 1,350 1,593
------ ------
Partners' Capital:
General Partner 322 262
Limited Partners, 480,000 units authorized,
366,432 units issued and 345,974 units
outstanding at December 31, 1996 and 1995 3,312 5,573
Unrealized gains (losses) on available-for-
sale securities 7 (1)
------ ------
Total Partners' Capital 3,641 5,834
------ ------
Total Liabilities and Partners' Capital $4,991 $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)
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
INCOME
Rental income $ 295 $1,116 $1,357
Earned income, finance leases -- 37 154
Equity in earnings from joint ventures, net 281 307 272
Interest income, notes receivable 16 458 80
Settlements -- -- 763
Cable subscriber revenue 582 583 557
Other income 170 207 146
------ ------ ------
Total Income 1,344 2,708 3,329
------ ------ ------
EXPENSES
Depreciation and amortization 397 615 870
Lease related operating expenses 16 35 117
Program service, cable system 136 142 122
Management fees to General Partner 57 255 243
Interest expense -- -- 99
Provision for (recovery of) losses
on receivables (2) (15) (59)
General and administrative expenses 384 360 451
------ ------ ------
Total Expenses 988 1,392 1,843
------ ------ ------
NET INCOME BEFORE INCOME TAXES 356 1,316 1,486
Income tax benefit 43 48 34
------ ------ ------
NET INCOME $ 399 $1,364 $1,520
====== ====== ======
NET INCOME PER LIMITED PARTNERSHIP UNIT $ .98 $ 3.35 $ 4.20
====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 60 $ 205 $ 68
Limited Partners 339 1,159 1,452
------ ------ ------
$ 399 $1,364 $1,520
====== ====== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 14 of 35
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(Amounts in Thousands Except for Unit Amounts)
General Unrealized
Partner's Limited Partners' Gains Total
Amount Units Amount (Losses) Amount
--------- ------------------- --------- ------
Balance, December 31, 1993 $ (11) 345,974 $6,842 $-- $6,831
Distributions to partners ($7.50
per limited partnership unit) -- -- (2,594) -- (2,594)
Unrealized losses on available-
for-sale securities -- -- -- (1) (1)
Net income 68 -- 1,452 -- 1,520
----- ------- ------ ----- -----
Balance, December 31, 1994 57 345,974 5,700 (1) 5,756
Distributions to partners ($3.72
per limited partnership unit) -- -- (1,286) -- (1,286)
Net income 205 -- 1,159 -- 1,364
----- ------- ------ ----- -----
Balance, December 31, 1995 262 345,974 5,573 (1) 5,834
Distributions to partners ($7.52
per limited partnership unit) -- -- (2,600) -- (2,600)
Change in unrealized gains on
available-for-sale securities -- -- -- 8 8
Net income 60 -- 339 -- 399
----- ------- ------ ----- ------
Balance, December 31, 1996 $ 322 345,974 $3,312 $ 7 $3,641
===== ======= ====== ===== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 15 of 35
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
Operating Activities:
Net income $ 399 $1,364 $1,520
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 397 615 870
Loss (gain) on sale of equipment 25 (77) (85)
Equity in earnings from joint
ventures, net (281) (307) (272)
Gain on sale of marketable securities (5) (28) (5)
Provision for (recovery of) early
termination, financing leases (34) (37) 28
Provision for (recovery of) losses on
notes receivable -- (27) --
Provision for (recovery of) losses on
accounts receivable 32 48 (87)
Settlements -- -- (459)
Decrease in accounts receivable 3 42 267
Decrease in accounts payable and
accrued expenses (243) (797) (1,893)
Decrease (increase) in other assets (43) 243 (34)
------ ------ ------
Net cash provided (used) by operating activities 250 1,039 (150)
------ ------ ------
Investing Activities:
Principal payments, financing leases 34 533 1,132
Principal payments, notes receivable 15 1,576 613
Proceeds from sale of equipment 27 155 213
Proceeds from sale of marketable securities 11 46 5
Distributions from joint ventures 526 662 230
Purchase of equipment -- -- (459)
Investment in joint ventures -- -- (44)
Property, cable systems and equipment (48) (33) (107)
------ ------ ------
Net cash provided by investing activities 565 2,939 1,583
------ ------ ------
Financing Activities:
Payments of principal, notes payable -- -- (1,720)
Distributions to partners (2,600) (1,286) (2,594)
------ ------ ------
Net cash used by financing activities (2,600) (1,286) (4,314)
------ ------ ------
Increase (decrease) in cash and cash equivalents (1,785) 2,692 (2,881)
Cash and cash equivalents, beginning of period 3,940 1,248 4,129
------ ------ ------
Cash and cash equivalents, end of period $2,155 $3,940 $1,248
====== ====== ======
Supplemental Cash Flow Information:
Cash paid for interest expense $ -- $ -- $ 123
------ ------ ------
The accompanying notes are an integral part of
these statements.
<PAGE>
Page 16 of 35
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Organization and Partnership Matters.
Phoenix Leasing Income Fund VII, a California limited partnership (the
"Partnership"), was formed on October 29, 1981, to invest in capital equipment
of various types and to lease such equipment to third parties on either a
long-term or short-term basis. Minimum investment requirements were met February
28, 1984, at which time the Partnership commenced operations. The Partnership's
termination date is December 31, 1998.
The Partnership has also made investments in joint ventures with
affiliated partnerships managed by the General Partner for the purpose of
spreading the risks of financing or acquiring certain capital equipment leased
to third parties. (See Note 8.)
On October 28, 1993, the Partnership foreclosed upon a cable television
system in Oregon that was in default on a subordinated loan payable to the
Partnership with a carrying amount of approximately $544,000. As part of the
settlement between the Partnership, the senior lender and the borrower, the
borrower transferred ownership of all of its assets and liabilities to the
Partnership. Included in the outstanding liabilities assumed was outstanding
senior debt in an amount of $1.7 million, which has subsequently been paid off.
Phoenix Cablevision of Oregon, Inc. (the Subsidiary) was formed under
the laws of Nevada on July 22, 1993 to own and operate the foreclosed cable
television system. Phoenix Cablevision of Oregon, Inc. is a wholly-owned
subsidiary of the Partnership (hereinafter, both entities are collectively
referred to as the Consolidated Partnership).
The acquisition of the Subsidiary by the Partnership was accounted for
using the "purchase method" of accounting. The purchase price was allocated in
accordance with the fair market value of the assets (including intangible
assets) and liabilities.
For financial reporting purposes, as more specifically described in the
Partnership Agreement, consolidated income in any quarter will be allocated,
before liquidation and redemption fees, 15% to Phoenix Leasing Incorporated (the
"General Partner") and 85% to the Limited Partners subject to the following
limitations. To the extent that consolidated income for any quarter, when added
to consolidated income for all prior accounting periods, does not exceed
consolidated losses for all prior accounting periods, such consolidated income
shall be allocated, before liquidation and redemption fees, 1% to the General
Partner and 99% to the Limited Partners. Consolidated income shall be allocated,
before liquidation and redemption fees, 1% to the General Partner and 99% to the
Limited Partners in any quarter subsequent to a quarter in which the General
Partner was allocated, before liquidation and redemption fees, 1% of
consolidated losses, to the extent of previously allocated Consolidated
Partnership losses. A consolidated loss in any quarter shall be allocated,
before liquidation and redemption fees, 1% to the General partner and 99% to the
Limited Partners.
In the event the General Partner has a deficit balance in its capital
account at the time of partnership liquidation, it will be required to
contribute the amount of such deficit to the Partnership.
As compensation for management services the General Partner receives a
fee, payable quarterly, in an amount equal to 6% of the Partnership's gross
revenues for the quarter from which such payment is being made, which revenues
shall include rental and note receipts, maintenance fees, proceeds from the sale
of equipment and other income.
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the Subsidiary. The Subsidiary pays a management fee equal to four
and one-half percent of the System's monthly gross revenue for these services.
Management fees paid or due PCMI totaled $26,000 for the year ended December 31,
1996. Revenues subject to a management fee at the Subsidiary level are not
subject to management fees at the Partnership level.
In consideration for the services and activities performed by the
General Partner in connection with the disposition of the Partnership's
equipment, the General Partner shall receive liquidation fees equal to 15% of
<PAGE>
Page 17 of 35
the "Net Capital Contribution" of the Limited Partners with respect to all
Partnership interests other than those interests which have been previously
redeemed and accordingly were subject to the 15% redemption fee.
For financial reporting purposes, the Partnership began to recognize the
liquidation fee in the second year of operations when the General Partner began
its activities of liquidating portions of the equipment portfolio. The original
firm terms of the initial leases (generally 24 months) began to expire at this
point in time. The present value of the liquidation fee is recognized using an
interest method and accreted to the face amount over a period of approximately
eight years in order to properly match the liquidation fee expense with the
activities of the General Partner in connection with ongoing portfolio
liquidation. The liquidation fees have been fully accrued as of December 31,
1993. The Partnership began to pay the liquidation fees to the General Partner
in 1991.
Note 2. Summary of Significant Accounting Policies.
Principles of Consolidation. The 1996, 1995 and 1994 financial
statements include the accounts of the Partnership and its wholly-owned
subsidiary, Phoenix Cablevision of Oregon, Inc. The Partnership has complete
authority in, and responsibility for, the overall management and control of the
Subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Leasing Operations. The Partnership's leasing operations consist of both
financing and operating leases. The financing method of accounting for leases
records as unearned income at the inception of the lease the excess of net
rentals receivable and estimated residual value at the end of the lease term
over the cost of equipment leased. Unearned income is credited to income monthly
over the term of the lease on a declining basis to provide an approximate level
rate of return on the unrecovered cost of the investment. Initial direct costs
of consummating new leases are capitalized and included in the cost of
equipment.
Under the operating method of accounting for leases, the leased
equipment is recorded as an asset at cost and depreciated using an accelerated
depreciation method over the estimated useful life of six years, except for
equipment leased under vendor agreements, which is depreciated on a
straight-line basis over the estimated useful life, ranging up to six years.
The Partnership's policy is to review periodically the expected
economic life of its rental equipment in order to determine the probability of
recovering its undepreciated cost. Such reviews consider, among other things,
recent and anticipated technological developments affecting computer equipment
and competitive factors within the computer marketplace. Although remarketing
rental rates are expected to decline in the future with respect to some of the
Partnership's rental equipment, such rentals are expected to exceed projected
expenses, including depreciation. Should subsequent reviews of the equipment
portfolio indicate that rentals plus anticipated sales proceeds will not exceed
expenses in any future period, the Partnership will revise its depreciation
policy and may accelerate depreciation as appropriate. As a result of such
review, the Partnership recognized additional depreciation expense of $6,000,
$38,000 and $0 ($.02, $.11 and $0 per limited partnership unit) for the years
ended December 31, 1996, 1995 and 1994, respectively.
Rental income for the year is determined on the basis of rental
payments due for the period under the terms of the lease. Maintenance, repairs
and minor renewals of the leased equipment are charged to expense.
Cable Television System Operations. The consolidated statement of
operations includes the operating activity of the Subsidiary for the years ended
December 31, 1996, 1995 and 1994. The Subsidiary's cable operations consist of a
cable system located in the State of Oregon, which currently provides cable
television services to approximately 1,751 subscribers out of four headend
locations.
Property, cable systems and equipment are depreciated using the
straight-line method over the estimated service lives ranging from five to 10
years. Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Costs assigned to intangible assets are amortized using the
straight-line method over estimated lives of eight years.
Cable television services are billed monthly in advance. Revenue is
deferred and recognized as the services are provided.
<PAGE>
Page 18 of 35
Portfolio Valuation Methodology. The Partnership uses the portfolio
method of accounting for the net realizable value of the Partnership's equipment
portfolio.
Investment in Joint Ventures. Investments in net assets of the
equipment, financing and foreclosed cable systems joint ventures reflect the
Consolidated Partnership's equity basis in the ventures. Under the equity method
of accounting, the original investment is recorded at cost and is adjusted
periodically to recognize the Consolidated Partnership's share of earnings,
losses, cash contributions and cash distributions after the date of acquisition.
Investment in Available-for-Sale Securities. The Partnership has
investments in stock and stock warrants in pubic companies that have been
determined to be available for sale. Available-for-sale securities are stated at
their fair market value, with the unrealized gains and losses reported in a
separate component of partners' capital.
Cash and Cash Equivalents. Cash and cash equivalents includes deposits
at banks, investments in money market funds and other highly liquid short-term
investments with original maturities of less than 90 days.
Credit and Collateral. The Partnership's activities have been
concentrated in the equipment leasing and financing industry. A credit
evaluation is performed by the General Partner for all leases and loans made,
with the collateral requirements determined on a case-by-case basis. The
Partnership's loans are generally secured by the equipment or assets financed
and, in some cases, other collateral of the borrower. In the event of default,
the Partnership has the right to foreclose upon the collateral used to secure
such loans.
Non Cash Investing Activities. During the year ended December 31, 1995,
the Partnership received a final distribution of marketable securities from one
of its investments in equipment joint ventures. The market value of the
marketable securities at the distribution date was $9,000 and is included in
Other Assets for the year ended December 31, 1995.
Financial Accounting Pronouncements. In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity would estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. Statement No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. At January 1, 1996, the adoption
of Statement No. 121 did not materially impact the Partnership's financial
position or results of operations.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Reclassification. Certain 1995 and 1994 amounts have been reclassified
to conform to the 1996 presentation.
<PAGE>
Page 19 of 35
Note 3. Accounts Receivable.
Accounts receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Lease payments $ 47 $ 104
Cable system service 19 13
Property taxes 5 3
General Partner and affiliates -- 3
------ ------
71 123
Less: allowance for losses on
accounts receivable (41) (58)
------ ------
Total $ 30 $ 65
====== ======
Note 4. Notes Receivable.
Notes receivable consist of the following at December 31:
1996 1995
------ ------
(Amounts in Thousands)
Notes receivable from cable television
system operators with interest ranging
from 15% to 21%, per annum, receivable in
installments ranging from 39 to 96 months
through January 1996, collateralized by a
security interest in the cable system
assets. $ 548 $ 548
Notes receivable from security monitoring
companies with interest at 16% per annum,
with payments to be taken out of the monthly
payments received from assigned contracts,
collateralized by all assets of the borrower.
At the end of 48 months, the remaining
balance, if any, is due and payable. 113 128
------ ------
661 676
Less: allowance for losses on notes receivable (359) (359)
------ ------
Total $ 302 $ 317
====== ======
The Partnership's notes receivable from cable television system
operators provide for a monthly payment rate in an amount that is less than the
contractual interest rate. The difference between the payment rate and the
contractual interest rate are added to the principal and therefore deferred
until the maturity date of the note. Upon maturity of the note, the original
principal and deferred interest is due and payable in full. Although the
contractual interest rates may be higher, due to a high degree of uncertainty
relating to the collection of the entire amount of contractual owed interest,
the Partnership limited the amount of interest being recognized on its
performing notes receivable to the amount of the payments received, thereby
deferring the recognition of a portion of the deferred interest until such time
as management believes it will be realized.
Generally, notes receivable are classified as impaired and the accrual
of interest on such notes are discontinued when the contractual payment of
principal or interest has become 90 days past due or management has serious
doubts about further collectibility of the contractual payments. Any payments
received subsequent to the placement of the note receivable on to impaired
status will generally be applied towards the reduction of the outstanding note
receivable balance, which may include previously accrued interest as well as
principal. Once the principal and accrued interest balance has been reduced to
zero, the remaining payments will be applied to interest income.
<PAGE>
Page 20 of 35
At December 31, 1996, the recorded investment in notes that are
considered to be impaired was $661,000, for which the related allowance for
losses is $235,000. The average recorded investment in impaired loans during the
year ended December 31, 1996 was approximately $623,000.
At December 31, 1995, the recorded investment in notes that are
considered to be impaired was $143,000. Included in this amount is $113,000 of
impaired notes for which the related allowance for losses is $11,000 and $30,000
of impaired notes for which there is no allowance. The average recorded
investment in impaired loans during the year ended December 31, 1995 was
approximately $537,000.
During the year ended December 31, 1995, the Partnership received a
settlement on one of its notes receivable from a cable television system
operator which was considered to be impaired. The Partnership received a partial
recovery of $27,000 as a settlement which was applied towards the $41,000
outstanding note receivable balance. The remaining balance of $14,000 was
written-off through its related allowance for loan losses. The related allowance
for loan losses for this note receivable was provided for in a previous year in
an amount equal to the carrying value of the note. Upon receipt of the
settlement of this note receivable, the Partnership reduced the allowance for
loan losses by $27,000 during the year ended December 31, 1995. This reduction
in the allowance for loan losses was recognized as income during the period.
The activity in the allowance for losses on notes receivable during the
years ended December 31, is as follows:
1996 1995
-------- --------
(Amounts in Thousands)
Beginning balance $ 359 $ 401
Provision for (recovery of) losses - (27)
Write downs - (15)
-------- --------
Ending balance $ 359 $ 359
======== ========
Note 5. Equipment on Operating Leases and Investment in Financing Leases.
Equipment on lease consists primarily of small computer systems,
reproduction and telecommunication systems subject to operating leases.
The Partnership's operating leases are for initial lease terms of
approximately 12 to 36 months. During the remaining terms of existing operating
leases the Partnership will not recover all of the undepreciated cost and
related expenses of its rental equipment, and therefore must remarket a portion
of its equipment in future years.
The Partnership has agreements with some of the manufacturers of certain
of its equipment whereby such manufacturers undertake to remarket off-lease
equipment on a best-efforts basis. These agreements permit the Partnership to
assume the remarketing function directly if certain conditions contained in the
agreements are not met. For their remarketing services, the manufacturers are
paid a percentage of net monthly rentals. Certain manufacturers are entitled to
additional fees after the Partnership has recovered certain amounts. Generally,
these manufacturers provide maintenance of the leased equipment for a fee based
on net monthly rentals.
The Partnership has entered into direct lease arrangements with certain
lessees. Generally, it is the responsibility of the lessee to provide
maintenance on leased equipment. The General Partner administers the equipment
portfolio of leases acquired through the direct leasing program. Administration
includes the collection of rents from the lessees and remarketing of the
equipment.
The net investment in financing leases consists of the following at
December 31:
1996 1995
------- -------
(Amounts in Thousands)
Minimum lease payments to be received $ - $ 35
Less: unearned income - (1)
allowance for early terminations - (34)
------- -------
Net investment in financing leases $ - $ -
======= =======
<PAGE>
Page 21 of 35
Minimum rentals (net of executory costs) to be received on noncancelable
operating leases for the years ended December 31 are as follows:
Operating
---------
(Amounts in Thousands)
1997......................................... $ 25
1998 and thereafter.......................... -
------
Total $ 25
======
The net book value of equipment held for lease at December 31, 1996 and
1995 amounted to $0 and $7,000, respectively.
Note 6. Property, Cable Systems and Equipment.
The cost of property, cable systems and equipment and the related
accumulated depreciation consist of the following at December 31:
1996 1995
------- -------
(Amounts in Thousands)
Distributions systems $ 896 $ 868
Headend equipment 179 174
Building 63 63
Land 23 23
Automobiles 38 22
------- ------
1,199 1,150
Less: accumulated depreciation (358) (238)
------- ------
Net property, cable systems and equipment $ 841 $ 912
======= ======
Depreciation expense totaled approximately $119,000 and $114,000 for the
years ended December 31, 1996 and December 31, 1995, respectively.
Note 7. Cable Subscriber Lists and Franchise Rights.
Cable subscriber lists and franchise rights include the following at
December 31:
1996 1995
------- ------
(Amounts in Thousands)
Subscriber lists $ 1,111 $1,111
Franchise rights 181 181
------- ------
1,292 1,292
Less: accumulated amortization (512) (350)
------- ------
Net cable subscriber lists and
franchise rights $ 780 $ 942
======= ======
Amortization expense totaled approximately $161,000 for the years ended
December 31, 1996 and December 31, 1995.
<PAGE>
Page 22 of 35
Note 8. Investment in Joint Ventures.
Equipment Joint Ventures
The Partnership owns a limited or general partnership interest in
equipment joint ventures. These investments are accounted for using the equity
method of accounting. The other partners of the ventures are entities organized
and managed by the General Partner.
The purpose of the joint ventures is the acquisition and leasing of
various types of equipment. During the term of the Partnership, Phoenix Leasing
Income Fund VII is participating in the following equipment joint ventures:
Weighted
Joint Venture Percentage Interest
------------- -------------------
Arroyo Joint Venture XV(2) 32.47%
Arroyo Joint Venture XVI(3) 32.14
Arroyo Joint Venture XVII(1) 1.64
Xerox Graphics Joint Venture(1) 16.79
PLI Limited Partnership Fund A(2) 19.98
VMX Joint Venture(1) 47.55
Acro Joint Venture, Residential(3) 31.30
Leveraged Joint Venture 1987-2 32.23
Leveraged Joint Venture 1987-3 39.60
Phoenix Leasing POST Joint Venture I(2) 45.00
Phoenix Joint Venture 1994-1 19.89
(1) Closed during 1994
(2) Closed during 1995
(3) Closed during 1996
<TABLE>
An analysis of the Partnership's investment in equipment joint ventures is as follows:
<CAPTION>
Net Investment Net Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- --------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 2 $ 910 $ 261 $ 179 $ 994
====== ===== ====== ======= =======
Year Ended
December 31, 1995 $ 994 $ 0 $ 289 $ 632 $ 651
====== ===== ====== ======= =======
Year Ended
December 31, 1996 $ 651 $ 0 $ 272 $ 464 $ 459
====== ===== ====== ======= =======
</TABLE>
The aggregate combined financial information of the equipment joint
ventures as of December 31 and for the years then ended is presented as follows:
<PAGE>
Page 23 of 35
COMBINED BALANCE SHEETS
ASSETS
December 31,
1996 1995
------ ------
(Amounts in Thousands)
Cash and cash equivalents $ 351 $ 545
Accounts receivable 1,311 1,456
Operating lease equipment 526 1,021
Other assets 512 691
------ ------
Total Assets $2,700 $3,713
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable 372 454
Partners' capital 2,328 3,259
------ ------
Total Liabilities and Partners' Capital $2,700 $3,713
====== ======
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
(Amounts in Thousands)
Rental income $1,839 $2,571 $ 996
Gain on sale of equipment 328 553 207
Other income 268 735 296
------ ------ ------
Total Income 2,435 3,859 1,499
------ ------ ------
EXPENSES
Depreciation 332 955 82
Lease related operating expenses 716 1,306 564
Management fee to the General Partner 104 197 59
Other expenses 2 195 27
------ ------ ------
Total Expenses 1,154 2,653 732
------ ------ ------
Net Income $1,281 $1,206 $ 767
====== ====== ======
As of December 31, 1996 and 1995, the Partnership's pro rata interest in
the equipment joint ventures' net book value of off-lease equipment was $7,000
and $21,000, respectively.
The General Partner earns a management fee of 6% of the Partnership's
respective interest in gross revenues of each equipment joint venture. Revenues
subject to management fees at the joint venture level are not subject to
management fees at the Partnership level.
Financing Joint Ventures
The Partnership has invested in financing joint ventures which are
combined for reporting purposes into Phoenix Funding Partnership (PFP). The
Partnership's current investment in PFP consists of two financing joint
ventures. The purpose of the financing joint ventures is to provide, on a
limited basis, financing to manufacturers and their lessees for equipment leased
directly by manufacturers to third parties. All loans to manufacturers are
secured by equipment. The Partnership uses the equity method of accounting to
account for its investment in the PFP.
<PAGE>
Page 24 of 35
PFP periodically reviews the probability of recovering the outstanding
note balances. Such reviews address, among other things, current cash receipts,
costs of collection efforts, the current economic situation and potential
uncollectible receivables. If the review indicates that future cash receipts,
net of anticipated future expenses, does not exceed the outstanding note
balances, PFP provides a reserve for any anticipated loan loss as appropriate.
Due to a high degree of uncertainty relating to the collection of the
entire amount of contractually owed principal and interest over the lives of the
notes receivable, the PFP loan portfolios apply all cash receipts (principal and
interest) to the outstanding note balances. Under this method, interest income
will not be recognized until the outstanding note balances are recovered.
The following information summarizes the Partnership's respective
interest in the original loan proceeds of the funding partnership.
Weighted
Joint Venture Percentage Interest
------------- -------------------
Phoenix Funding Partnership 17.38%
<TABLE>
An analysis of the Partnership's investment account in financing joint ventures is as follows:
<CAPTION>
Net Investment Net Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- -------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 47 $0 $ 7 $ 46 $ 8
===== == ====== ===== =====
Year Ended
December 31, 1995 $ 8 $0 $ 16 $ 21 $ 3
===== == ====== ===== =====
Year Ended
December 31, 1996 $ 3 $0 $ 8 $ 7 $ 4
===== == ====== ===== =====
</TABLE>
The aggregate combined financial information of the financing joint
ventures as of December 31 and for the years then ended is presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31,
1996 1995
------ ------
(Amounts in Thousands)
Cash and cash equivalents $ 38 $ 28
------ ------
Total Assets $ 38 $ 28
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4 $ 5
Partners' capital 34 23
------ ------
Total Liabilities and Partners' Capital $ 38 $ 28
====== ======
<PAGE>
Page 25 of 35
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
(Amounts in Thousands)
Interest income $ 46 $ 73 $ 86
Other income 30 77 18
------ ------ ------
Total Income 76 150 104
------ ------ ------
EXPENSES
Management fee to the General Partner 2 8 19
Other expenses 11 19 44
------ ------ ------
Total Expenses 13 27 63
------ ------ ------
Net Income $ 63 $ 123 $ 41
====== ====== ======
The General Partner earns a management fee of 6% of the Partnership's
respective interest in gross payments received for each financing joint venture.
Revenues subject to a management fee at the joint venture level are not subject
to management fees at the Partnership level.
Foreclosed Cable Systems Joint Ventures
The Partnership owns an interest in foreclosed cable systems joint
ventures, along with other partnerships managed by the General Partner and its
affiliates. The Partnership foreclosed upon nonperforming outstanding notes
receivable to cable television operators to whom the Partnership, along with
other affiliated partnerships managed by the General Partner, had extended
credit. The Partnerships' notes receivables were exchanged for interests (their
capital contribution), on a pro rata basis, in newly formed joint ventures owned
by the partnerships and managed by the General Partner. Title to the cable
television systems is held by the joint ventures. These investments are
accounted for using the equity method of accounting.
The joint ventures owned by the Partnership, along with their percentage
ownership is as follows:
Percentage
Joint Venture Ownership
------------- ---------
Phoenix Pacific Northwest J.V. 5.24%
Phoenix Concept Cablevision, Inc. 22.32
<TABLE>
An analysis of the Partnership's net investment in foreclosed cable systems joint ventures is as follows:
<CAPTION>
Net Investment Net Investment
at Beginning Equity in at End
Date of Period Contributions Earnings Distributions of Period
- ---- -------------- ------------- --------- ------------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994 $ 40 $ 298 $ 4 $ 5 $ 337
===== ===== ===== ==== =====
Year Ended
December 31, 1995 $ 337 $ 0 $ 2 $ 18 $ 321
===== ===== ===== ==== =====
Year Ended
December 31, 1996 $ 321 $ 0 $ 1 $ 55 $ 267
===== ===== ===== ==== =====
</TABLE>
<PAGE>
Page 26 of 35
The aggregate combined financial information of the foreclosed cable
systems joint ventures as of December 31 and for the years then ended is
presented as follows:
COMBINED BALANCE SHEETS
ASSETS
December 31,
1996 1995
------ ------
(Amounts in Thousands)
Cash and cash equivalents $ 140 $ 256
Accounts receivable 68 78
Property, plant and equipment 1,470 1,625
Cable subscriber lists and franchise rights 88 116
Deferred income tax 119 118
Other assets 22 22
------ ------
Total Assets $1,907 $2,215
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 265 $ 265
Partners' capital 1,642 1,950
------ ------
Total Liabilities and Partners' Capital $1,907 $2,215
====== ======
COMBINED STATEMENTS OF OPERATIONS
INCOME
For the Years Ended December 31,
1996 1995 1994
------ ------ ------
(Amounts in Thousands)
Subscriber revenue $ 856 $ 883 $ 467
Other income 17 7 2
------ ------ ------
Total Income 873 890 469
------ ------ ------
EXPENSES
Depreciation and amortization 266 265 112
Program services 276 277 147
General and administrative expenses 259 245 110
Management fees to an affiliate of the
General Partner 38 39 20
Provision for losses on accounts
receivable 8 8 8
------ ------ ------
Total Expenses 847 834 397
------ ------ ------
Net Income Before Income Taxes 26 56 72
Income tax expense (4) (39) (18)
------ ------ ------
Net Income $ 22 $ 17 $ 54
====== ====== ======
Phoenix Cable Management Inc. (PCMI), an affiliate of the General
Partner, provides day to day management services in connection with the
operation of the foreclosed cable systems joint ventures. The foreclosed cable
systems joint ventures will pay a management fee equal to four and one-half
percent of the System's monthly gross revenue for these services. Revenues
subject to a management fee at the joint venture level will not be subject to
management fees at the Partnership level.
<PAGE>
Page 27 of 35
Note 9. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1996 1995
------- --------
(Amounts in Thousands)
Liquidation fees payable to General Partner $ 953 $ 1,173
Equipment lease operations 108 97
Security deposits 43 43
General Partner and affiliates 52 43
Other 194 237
------- -------
Total $ 1,350 $ 1,593
======= =======
Note 10. Settlements.
On July 1, 1991, Phoenix Leasing Incorporated, as General Partner to the
Partnership and sixteen other affiliated partnerships, filed suit in the
Superior Court for the County of Marin, Case No. 150016, against Xerox
Corporation, a corporation with which the General Partner had entered into
contractual agreements for the acquisition and administration of leased
equipment. The lawsuit was settled out of court, effective as of October 28,
1994 pursuant to the terms of a Confidential Settlement Agreement and Mutual
Release. The settlement agreement generally provides for compensation payable to
the Partnership and its affiliates in cash and kind, including the assignment by
Xerox of certain goods and services. The agreement further provides for the sale
by Xerox to the Partnership and its affiliates of equipment subject to lease.
The suit has been dismissed with prejudice on the merits.
The Partnership's pro rata share of the Xerox settlement was $751,000,
which consists of cash of $298,000, and assigned monthly rentals and credits for
goods and services valued at $453,000. In addition, the Partnership purchased
additional leased equipment at an aggregate cost of $457,000. The Partnership,
along with sixteen other affiliated partnerships managed by the General Partner,
contributed its share of the assigned monthly rentals, credits for goods and
services and purchased equipment leases to a joint venture, in exchange for an
interest in the joint venture.
Storage Technology Corporation (STC), a major manufacturer of equipment
purchased by the Partnership, filed for protection from creditors under Chapter
11 of the Federal Bankruptcy Code on October 14, 1984. On June 18, 1987 STC's
plan of reorganization was approved and the Partnership received a settlement.
On August 31, 1994, the United States Bankruptcy Court for the District
of Colorado ordered a final distribution from the Disputed Claims Reserve which
was provided for in the Debtors' Joint Plan of Reorganization. On December 23,
1994, the Partnership received its pro rata share of the final distribution from
the Disputed Claims Reserve valued at $12,000. The final distribution consisted
of cash of $6,000 and common stock valued at $6,000.
Note 11. 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.
The net difference between the tax basis and the reported amounts of the
Partnership's assets and liabilities are as follows at December 31:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
1996
- ----
Assets $ 4,869 $ 5,662 $ (793)
Liabilities 1,228 984 244
<PAGE>
Page 28 of 35
1995
- ----
Assets $ 7,353 $ 8,113 $ (760)
Liabilities 1,519 1,074 445
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. The subsidiary was
formed in July 1993.
The Subsidiary's income tax benefit includes the following components
for the years ended December 31:
1996 1995
------ ------
(Amounts in Thousands)
Current tax benefit $ 13 $ 4
Deferred tax asset related to
future taxable income, net 30 44
------ ------
Income tax benefit, net $ 43 $ 48
====== ======
The income tax benefit differed from the statutory federal rate because
of the following:
1996 1995
------ ------
(Amounts in Thousands)
Federal income tax benefit, based on
statutory federal income tax rate of 34% $ 39 $ 43
State income tax benefit, net of
federal provision 4 5
------ ------
Total Income tax benefit $ 43 $ 48
====== ======
The Subsidiary's net deferred tax asset as of December 31, resulted from
the following temporary differences:
1996 1995
------ ------
(Amounts in Thousands)
Depreciation and amortization $ 93 $ 64
Bad debt expense 7 5
Net operating loss carryforward 36 24
------ ------
Subtotal 136 93
Valuation allowance (10) (10)
------ ------
Deferred tax asset $ 126 $ 83
====== ======
The Partnership has provided a valuation allowance for the deferred tax
asset of $10,000 as of December 31, 1996 and 1995 based on the General Partner's
evaluation of the likelihood that such benefit will ultimately be realized.
As of December 31, 1996 and 1995, the Subsidiary's net operating loss
carryforward of $36,372 and $61,850, respectively, for federal and state tax
reporting purposes expires December 31, 2011 and December 31, 2010,
respectively.
Note 12. Related Entities.
The General Partner serves in the capacity of general partner in other
partnerships, all of which are engaged in the equipment leasing and financing
business.
The General Partner incurs certain expenses, such as data processing,
equipment storage and equipment remarketing costs, for which it is reimbursed by
the Partnership. Equipment remarketing costs are incurred as the General Partner
remarkets certain equipment on behalf of the Partnership. These expenses
incurred by the General Partner are reimbursed at the lower of the actual costs
or an amount equal to 90% of the fair market value for such services. The
equipment remarketing costs reimbursed to the General Partner were $3,000,
$5,000 and $24,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
<PAGE>
Page 29 of 35
Note 13. 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 consolidated net income and distributions, and
the weighted average number of units outstanding of 345,974 for the years ended
December 31, 1996, 1995 and 1994. For purposes of allocating consolidated income
(loss) and distributions to each individual limited partner, the Partnership
allocates consolidated 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 consolidated net income (loss) and distributions per
limited partnership unit is not indicative of per unit consolidated income
(loss) and distributions due to reinvestments through the Capital Accumulation
Plan.
Note 14. Business Segments.
The Consolidated Partnership currently operates in two business
segments: the equipment leasing and financing industry and the cable TV
industry. Information about the Consolidated Partnership's operations in these
two segments are as follows:
1996 1995 1994
------- ------- -------
(Amounts in Thousands)
Total Revenues
Equipment leasing and financing $ 861 $ 2,238 $ 2,757
Cable TV operations 483 470 572
------- ------- -------
Total $ 1,344 $ 2,708 $ 3,329
======= ======= =======
Net Income (Loss)
Equipment leasing and financing $ 469 $ 1,443 $ 1,576
Cable TV operations (70) (79) (56)
------- ------- -------
Total $ 399 $ 1,364 $ 1,520
======= ======= =======
Identifiable Assets
Equipment leasing and financing $ 3,121 $ 5,270 $ 5,608
Cable TV operations 1,870 2,157 2,538
------- ------- -------
Total $ 4,991 $ 7,427 $ 8,146
======= ======= =======
Depreciation and Amortization Expense
Equipment leasing and financing $ 116 $ 340 $ 597
Cable TV operations 281 275 273
------- ------- -------
Total $ 397 $ 615 $ 870
======= ======= =======
Capital Expenditures
Equipment leasing and financing $ -- $ -- $ 459
Cable TV operations 48 33 107
------- ------- -------
Total $ 48 $ 33 $ 566
======= ======= =======
Note 15. Subsequent Events.
In January 1997, cash distributions of $1,307,000 were made to the Limited
Partners.
Note 16. Fair Value of Financial Instruments.
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument for which it is practicable to estimate
that value.
<PAGE>
Page 30 of 35
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
Notes Receivable
The fair value of notes receivable is estimated based on the lesser of the
discounted expected future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings, or the estimated
fair value of the underlying collateral. Please refer to footnote 4 for a
description of the Partnership's accounting policies on notes receivable which
contribute to the difference between the carrying amount and the fair value.
Securities, Available-for-Sale
The fair values of investments in securities available-for-sale are estimated
based on quoted market prices.
The estimated fair values of the Partnership's financial instruments are as
follows at December 31:
Carrying
Amount Fair Value
-------- ----------
(Amounts in Thousands)
1996
- ----
Assets
Cash and cash equivalents $ 2,155 $ 2,155
Securities, available-for-sale 16 16
Notes receivable 302 427
1995
- ----
Assets
Cash and cash equivalents $ 3,940 $ 3,940
Securities, available-for-sale 14 14
Notes receivable 317 959
<PAGE>
Page 31 of 35
Item 9. Disagreements on Accounting and Financial Disclosure Matters.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The registrant is a limited partnership and, therefore, has no executive
officers or directors. The general partner of the registrant is Phoenix Leasing
Incorporated, a California corporation. The directors and executive officers of
Phoenix Leasing Incorporated (PLI) are as follows:
GUS CONSTANTIN, age 59, is President, Chief Executive Officer and a Director
of PLI. Mr. Constantin received a B.S. degree in Engineering from the University
of Michigan and a Master's Degree in Management Science from Columbia
University. From 1969 to 1972, he served as Director, Computer and Technical
Equipment of DCL Incorporated (formerly Diebold Computer Leasing Incorporated),
a corporation formerly listed on the American Stock Exchange, and as Vice
President and General Manager of DCL Capital Corporation, a wholly-owned
subsidiary of DCL Incorporated. Mr. Constantin was actively engaged in marketing
manufacturer leasing programs to computer and medical equipment manufacturers
and in directing DCL Incorporated's IBM System/370 marketing activities. Prior
to 1969, Mr. Constantin was employed by IBM as a data processing systems
engineer for four years. Mr. Constantin is an individual general partner in four
active partnerships and is an NASD registered principal. Mr. Constantin is the
founder of PLI and the beneficial owner of all of the common stock of Phoenix
American Incorporated.
PARITOSH K. CHOKSI, age 43, is Senior Vice President, Chief Financial
Officer, Treasurer and a Director of PLI. He has been associated with PLI since
1977. Mr. Choksi oversees the finance, accounting, information services and
systems development departments of the General Partner and its Affiliates and
oversees the structuring, planning and monitoring of the partnerships sponsored
by the General Partner and its Affiliates. Mr. Choksi graduated from the Indian
Institute of Technology, Bombay, India with a degree in Engineering. He holds an
M.B.A. degree from the University of California, Berkeley.
GARY W. MARTINEZ, age 46, is Senior Vice President and a Director of PLI. He
has been associated with PLI since 1976. He manages the Asset Management
Department, which is responsible for lease and loan portfolio management. This
includes credit analysis, contract terms, documentation and funding; remittance
application, change processing and maintenance of customer accounts; customer
service, invoicing, collection, settlements and litigation; negotiating lease
renewals, extensions, sales and buyouts; and management information reporting.
From 1973 to 1976, Mr. Martinez was a Loan Officer with Crocker National Bank,
San Francisco. Prior to 1973, he was an Area Manager with Pennsylvania Life
Insurance Company. Mr. Martinez is a graduate of California State University,
Chico.
BRYANT J. TONG, age 42, is Senior Vice President, Financial Operations of
PLI. He has been with PLI since 1982. Mr. Tong is responsible for investor
services and overall company financial operations. He is also responsible for
the technical and administrative operations of the cash management, corporate
accounting, partnership accounting, accounting systems, internal controls and
tax departments, in addition to Securities and Exchange Commission and other
regulatory agency reporting. Prior to his association with PLI, Mr. Tong was
Controller-Partnership Accounting with the Robert A. McNeil Corporation for two
years and was an auditor with Ernst & Whinney (succeeded by Ernst & Young) from
1977 through 1980. Mr. Tong holds a B.S. in Accounting from the University of
California, Berkeley, and is a Certified Public Accountant.
CYNTHIA E. PARKS, age 41, is Vice President, General Counsel and Assistant
Secretary of PLI. Prior to joining PLI in 1984, she was with GATX Leasing
Corporation, and had previously been Corporate Counsel for Stone Financial
Companies, and an Assistant Vice President of the Bank of America, Bank
Amerilease Group. She has a Bachelor's degree from Santa Clara University, and
earned her J.D. from the University of San Francisco School of Law.
Neither the General Partner nor any Executive Officer of the General Partner
has any family relationship with the others.
Phoenix Leasing Incorporated or its affiliates and the executive officers of
the General Partner serve in a similar capacity to the following affiliated
limited partnerships:
Phoenix Leasing American Business Fund, L.P.
<PAGE>
Page 32 of 35
Phoenix Leasing Cash Distribution Fund V, L.P.
Phoenix Income Fund, L.P.
Phoenix Leasing Cash Distribution Fund IV
Phoenix High Tech/High Yield Fund
Phoenix Leasing Cash Distribution Fund III
Phoenix Leasing Cash Distribution Fund II
Phoenix Leasing Income Fund VI
Phoenix Leasing Growth Fund 1982 and
Phoenix Leasing Income Fund 1977
Item 11. Executive Compensation.
<TABLE>
Set forth is the information relating to all direct remuneration paid or accrued by the Registrant
during the last year to the General Partner.
(A) (B) (C) (D)
<CAPTION>
Cash and cash- Aggregate of
Name of Individual Capacities in equivalent forms contingent forms
or persons in group which served of remuneration of remuneration
- ------------------- ------------- -------------------------------------- ----------------
(C1) (C2)
Securities or property
Salaries, fees, directors' insurance benefits or
fees, commissions, and reimbursement, personal
bonuses benefits
------------------------- -----------------------
(Amounts in Thousands)
<S> <C> <C> <C>
Phoenix Leasing
Incorporated General Partner $ 31(1) $ 0 $ 0
Phoenix Cable Manager
Management, Inc. 26(1) 0 0
-------- ---- ----
$ 57 $ 0 $ 0
======== ==== ====
</TABLE>
(1) consists of management fees.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a)No person owns of record, or is known by the Registrant to own
beneficially, more than five percent of any class of voting
securities of the Registrant.
(b)The General Partner of the Registrant owns the equity securities of
the Registrant set forth in the following table:
(1) (2) (3)
Title of Class Amount Beneficially Owned Percent of Class
- -------------- ------------------------- ----------------
General Partner Interest Represents a 15% interest 100%
in the Registrant's profits
and distributions
Limited Partner Interest 4 units -
Item 13. Certain Relationships and Related Transactions.
None.
<PAGE>
Page 33 of 35
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
Page No.
--------
(a) 1. Financial Statements:
Report of Independent Public Accountants 11
Consolidated Balance Sheets as of December 31,
1996 and 1995 12
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 13
Consolidated Statements of Partners' Capital for the
years ended December 31, 1996, 1995 and 1994 14
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 15
Notes to the Consolidated Financial Statements 16-30
2. Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts and Reserves 35
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended December 31,
1996.
(c) Exhibits:
21. Additional Exhibits.
a) Listing of all Subsidiaries of the Registrant:
Phoenix Cablevision of Oregon, Inc., a Nevada corporation and
wholly owned subsidiary
b) Financial Statements for Significant Subsidiaries:
Phoenix Joint Venture 1994-1 E21 1-10
27. Financial Data Schedule.
<PAGE>
Page 34 of 35
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)
BY: PHOENIX LEASING INCORPORATED,
A CALIFORNIA CORPORATION
GENERAL PARTNER
Date: March 25, 1997 By: /S/ GUS CONSTANTIN
-------------- -------------------------
Gus Constantin, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/S/ GUS CONSTANTIN President, Chief Executive Officer and a March 25, 1997
- ---------------------- Director of Phoenix Leasing Incorporated --------------
(Gus Constantin) General Partner
/S/ PARITOSH K. CHOKSI Chief Financial Officer, March 25, 1997
- ---------------------- Senior Vice President, --------------
(Paritosh K. Choksi) Treasurer and a Director of
Phoenix Leasing Incorporated
General Partner
/S/ BRYANT J. TONG Senior Vice President, March 25, 1997
- ---------------------- Financial Operations of --------------
(Bryant J. Tong) (Principal Accounting Officer)
Phoenix Leasing Incorporated
General Partner
/S/ GARY W. MARTINEZ Senior Vice President and a Director of March 25, 1997
- ---------------------- Phoenix Leasing Incorporated --------------
(Gary W. Martinez) General Partner
/S/ MICHAEL K. ULYATT Partnership Controller of March 25, 1997
- ---------------------- Phoenix Leasing Incorporated --------------
(Michael K. Ulyatt) General Partner
<PAGE>
<TABLE>
Page 35 of 35
PHOENIX LEASING INCOME FUND VII AND SUBSIDIARY
SCHEDULE II
(Amounts in Thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Classification Balance at Charged to Charged to Deductions Balance at
Beginning of Expense Revenue End of
Period Period
- ------------------------------ --------------- ---------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for losses on accounts
receivable $ 373 $ 6 $ 92 $ 155 $ 132
Allowance for early termination
of financing leases 129 28 0 86 71
Allowance for losses on notes
receivable 401 0 0 0 401
------ ------ ---- ------ ------
Totals $ 903 $ 34 $ 92 $ 241 $ 604
====== ====== ==== ====== ======
Year ended December 31, 1995
Allowance for losses on accounts
receivable $ 132 $ 48 $ 0 $ 122 $ 58
Allowance for early termination
of financing leases 71 0 37 0 34
Allowance for losses on notes
receivable 401 0 27 15 359
------ ------ ---- ------ ------
Totals $ 604 $ 48 $ 64 $ 137 $ 451
====== ====== ==== ====== ======
Year ended December 31, 1996
Allowance for losses on accounts
receivable $ 58 $ 32 $ 0 $ 49 $ 41
Allowance for early termination
of financing leases 34 0 34 0 0
Allowance for losses on notes
receivable 359 0 0 0 359
------ ------ ---- ------ ------
Totals $ 451 $ 32 $ 34 $ 49 $ 400
====== ====== ==== ====== ======
</TABLE>
Exhibit 21 - Page 1 of 10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Venturers of
Phoenix Joint Venture 1994-1
We have audited the accompanying balance sheets of Phoenix Joint Venture 1994-1
(a California general partnership) as of December 31, 1996 and 1995 and the
related statements of operations, venturers' capital and cash flows for the
years ended December 31, 1996, 1995 and for the period from inception (October
28, 1994) to December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Phoenix Joint Venture 1994-1 as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the two years then ended and for the period from inception (October
28, 1994) to December 31, 1994, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule II is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 17, 1997
<PAGE>
Exhibit 21 - Page 2 of 10
PHOENIX JOINT VENTURE 1994-1
BALANCE SHEET
(Amounts in Thousands)
December 31,
1996 1995
---- ----
ASSETS
Cash and cash equivalents $ 291 $ 433
Accounts receivable (net of allowance for
losses on accounts receivable of $51
and $191 at December 31, 1996 and 1995,
respectively) 230 215
Credits receivable, net 1,079 1,237
Assigned monthly rentals, net 512 691
Equipment on operating leases and held for
lease (net of accumulated depreciation of
$1,002 and $849 at December 31, 1996 and
1995, respectively) 521 1,004
Capitalized acquisition fees (net of accumulated
amortization of $29 and $22 at December 31, 1996
and 1995, respectively) 5 17
------ ------
Total Assets $2,638 $3,597
====== ======
LIABILITIES AND VENTURERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 318 $ 399
------ ------
Total Liabilities 318 399
------ ------
Venturers' Capital 2,320 3,198
------ ------
Total Liabilities and Venturers' Capital $2,638 $3,597
====== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Exhibit 21 - Page 3 of 10
PHOENIX JOINT VENTURE 1994-1
STATEMENT OF OPERATIONS
(Amounts in Thousands)
For the period
from inception
(October 28, 1994)
December 31, through
1996 1995 December 31, 1994
------ ------ -----------------
INCOME
Rental income $1,587 $2,767 $ 389
Gain on sale of equipment 329 417 --
Earned income, assigned monthly rentals 33 81 20
Other income 92 109 17
------ ------ ------
Total Income 2,041 3,374 426
------ ------ ------
EXPENSES
Lease related operating expenses 641 1,179 169
Depreciation 332 955 77
Amortization, acquisition fees 7 21 1
Management fees to General Partner 97 174 20
Provision for (recovery of) losses
on receivables (132) 191 --
General and administrative expenses 1 1 --
------ ------ ------
Total Expenses 946 2,521 267
------ ------ ------
NET INCOME $1,095 $ 853 $ 159
====== ====== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Exhibit 21 - Page 4 of 10
PHOENIX JOINT VENTURE 1994-1
STATEMENT OF VENTURERS' CAPITAL
(Amounts in Thousands)
Balance at inception, October 28, 1994 $ 0
Net income 159
Contributions 4,576
------
Balance, December 31, 1994 4,735
Net income 853
Distributions (2,390)
------
Balance, December 31, 1995 3,198
Net income 1,095
Distributions (1,973)
------
Balance, December 31, 1996 $2,320
======
The accompanying notes are an integral part of
these statements.
<PAGE>
Exhibit 21 - Page 5 of 10
PHOENIX JOINT VENTURE 1994-1
STATEMENT OF CASH FLOWS
(Amounts in Thousands)
For the period
from inception
(October 28, 1994)
December 31, through
1996 1995 December 31, 1994
------ ------ -----------------
Operating Activities:
Net income $1,095 $ 853 $ 159
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 332 955 77
Amortization of acquisition fees 7 21 1
Amortization of discount on credits (73) (92) (17)
Gain on sale of equipment (329) (417) --
Provision for (recovery of) losses
on accounts receivable (132) 191 --
Decrease (increase) in accounts receivable 117 (17) (389)
Decrease in credits receivable 231 278 --
Increase (decrease) in accounts payable
and accrued expenses (81) 103 295
Accrued interest, assigned monthly rentals -- -- (20)
------ ------ ------
Net cash provided by operating activities 1,167 1,875 106
------ ------ ------
Investing Activities:
Principal payments, assigned
monthly rentals 179 199 --
Proceeds from sale of equipment 480 681 --
Payment of acquisition fees 5 (38) --
------ ------ ------
Net cash provided by investing activities 664 842 --
------ ------ ------
Financing Activities:
Distributions to Venturers (1,973) (2,390) --
------ ------ ------
Net cash used by financing activities (1,973) (2,390) --
------ ------ ------
Increase (decrease) in cash and
cash equivalents (142) 327 106
Cash and cash equivalents, beginning
of period 433 106 --
------ ------ ------
Cash and cash equivalents, end of period $ 291 $ 433 $ 106
====== ====== ======
The accompanying notes are an integral part of
these statements.
<PAGE>
Exhibit 21 - Page 6 of 10
PHOENIX JOINT VENTURE 1994-1
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Organization.
Phoenix Joint Venture 1994-1 (the "Joint Venture"), a California general
partnership, was formed on October 28, 1994 for the purpose of investing in a
pool of reproduction equipment and receivables by several Phoenix Leasing
Partnerships (the "Venturers").
Income or loss is allocated to each Venturer based upon their respective
interest in the Joint Venture. Distributions are made in the same manner.
As compensation for its management services, the Joint Venture pays a
management fee to Phoenix Leasing Incorporated (PLI) based upon the management
fee rate of each respective Venturer of the Joint Venture applied to the
Venturers' respective interest in the Joint Venture's gross revenues for the
quarter, which revenue generally incudes rental and note receipts, proceeds from
the sale of equipment and other income. Any revenues subject to a management fee
at the Joint Venture level will not be subject to a management fee at the
Venturers' level.
As compensation for services performed in connection with the analysis
of equipment available to the Joint Venture, the Managing Venturer receives an
acquisition fee based on the acquisition fee rate of each respective Venturer of
the Joint Venture applied to the Venturer's respective interest in the Joint
Venture's purchase price of equipment acquired by the Joint Venture.
Acquisition fees are amortized over the average expected life of the
assets, principally on a straight-line basis.
Note 2. Summary of Significant Accounting Policies.
Leasing Operations - The Joint Venture's leasing operations consist of
reproduction equipment manufactured by Xerox Corporation. The leases have been
classified as operating leases.
Under the method of accounting for operating leases, the leased
equipment is recorded as an asset at cost and depreciated on a straight-line
basis over the estimated useful life of five years. Rental income for the year
is determined on the basis of rental payments due for the period under the terms
of the lease. Maintenance and repairs of the leased equipment are charged to
expense as incurred.
The Joint Venture's policy is to review periodically the probability of
recovering its undepreciated cost of equipment. Such reviews address, among
other matters recent and anticipated technological developments affecting
reproduction equipment and competitive factors within the reproduction equipment
marketplace. Although remarketing rental rates are expected to decline in the
future with respect to some of the Joint Venture's rental equipment, such
rentals are expected to exceed projected expenses, including depreciation.
Should subsequent reviews of the equipment portfolio indicate that rentals plus
anticipated sales proceeds will not exceed expenses in any future period, the
Joint Venture will revise its depreciation policy and may accelerate
depreciation as appropriate.
The Joint Venture has also been assigned the monthly rental payments
from a pool of engineering and graphics reprographic equipment owned by Xerox
Corporation. The Joint Venture has recorded these assigned monthly rentals at
the discounted value of the expected cash flows. The excess of the assigned
monthly rentals over the present value of the expected cash flows is recorded as
unearned income. Unearned income is credited to income monthly over the term of
the agreement on a declining basis to provide an approximate level rate of
return on the unrecovered cost of the investment.
Non-Cash Investing Activities. In October 1994, the Venturers formed the
Joint Venture to which they contributed the credits issued by Xerox Corporation,
the equipment purchased and the assigned monthly rentals from Xerox Corporation
as described in Notes 1, 3, 4 and 5 of the financial statements. The following
non-cash activities from this transaction were excluded from the statement of
cash flow.
<PAGE>
Exhibit 21 - Page 7 of 10
Amounts
In Thousands
------------
Credit receivable $ 1,406
Equipment purchased 2,300
Assigned monthly rentals 870
-------
$ 4,576
=======
Cash and Cash Equivalents - Cash and cash equivalents includes deposits
at banks and investments in money market funds.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Note 3. Credits Receivable.
The Joint Venture owns credits issued by Xerox Corporation for the
purchase of products and services from Xerox Corporation and its subsidiaries.
The Credits granted are non-transferrable and are good for a period of seven
years at which time they expire. The credits will be used by Phoenix Leasing
Incorporated and affiliates, who will reimburse the Joint Venture for the fair
market value of the credits used.
The credits receivable consist of the following at December 31,
1996 1995
------- -------
(Amounts in Thousands)
Credits receivable $ 1,171 $ 1,402
Unamortized discount (92) (165)
------- -------
Credits receivable, net $ 1,079 $ 1,237
======= =======
Note 4. Assigned Monthly Rentals.
The Joint Venture has the right to receive payments on a pool of leased
equipment pursuant to the terms of an agreement with Xerox Corporation entered
into on October 28, 1994. Title to this equipment continues to be held by Xerox
Corporation. All of the monthly rental payments received pursuant to this
equipment, net of certain administrative and other costs, are passed along to
the Joint Venture and are applied towards the outstanding assigned monthly
rental balance and income. The end date of this agreement is the earlier of the
Joint Venture's receipt of $1.2 million in aggregate payments, 60 months from
the pool start date or the date on which no equipment remains subject to the
terms of the agreement. As of December 31, 1996 and 1995, the Joint Venture has
received cumulative assigned monthly rentals receipts of $491,000 and $280,000,
respectively, pursuant to this agreement.
Note 5. Equipment on Operating Leases.
Equipment on lease consists of reproduction equipment classified as
operating leases. During the initial terms of the existing operating leases the
Joint Venture will not recover all the undepreciated cost and related expenses
of its rental equipment and therefore must remarket a portion of its equipment
in future years.
Minimum rentals to be received on non-cancelable operating leases for
the years ended December 31, are as follows:
<PAGE>
Exhibit 21 - Page 8 of 10
(Amounts in Thousands)
1997......................................... $ 232
1998......................................... 39
1999 and future.............................. 8
-----
Total $ 279
======
The Joint Venture has an agreement with Xerox Corporation, whereby Xerox
Corporation provides administration, maintenance and repairs of leased equipment
on behalf of the Joint Venture. The agreement terminates upon the earlier of (1)
the Joint Venture receiving a specified dollar amount; (2) 66 months, or (3) the
date on which no equipment remains. As compensation for these services, Xerox
deducts a fee from the monthly rentals and sales proceeds.
Also pursuant to the vendor agreement, Xerox Corporation undertakes to
remarket and refurbish off-lease equipment on a best efforts basis. This
agreement permits the Joint Venture to assume the remarketing function directly
if certain conditions contained in the agreement are not met. For its
remarketing services, Xerox Corporation is paid a remarketing and refurbishing
fee based on a specified percentage of the monthly rentals received by the Joint
Venture. On March 15, 1996, the agreement was amended to reduce the remarketing
and refurbishing fees paid to Xerox.
The Joint Venture also receives contingent rental payments on its
reproduction equipment that is not included in the minimum rentals to be
received. The contingent rentals consist of a monthly rental payment that is
based upon actual machine usage.
Note 6. Accounts Payable and Accrued Expenses.
Accounts payable and accrued expenses consist of the following at
December 31:
1996 1995
------- -------
(Amounts in Thousands)
Equipment lease operations $ 312 $ 368
PLI and affiliates 6 31
------- -------
Total $ 318 $ 399
======= =======
Note 7. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Joint Venture are reportable by the Venturers on their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
The net differences between the tax basis and the reported amounts of
the Partnership's assets and liabilities are as follows at December 31:
Reported Amounts Tax Basis Net Difference
---------------- --------- --------------
(Amounts in Thousands)
1996
- ----
Assets $ 2,638 $ 2,930 $ (292)
Liabilities 318 316 2
1995
- ----
Assets $ 3,597 $ 4,081 $ (484)
Liabilities 399 395 4
<PAGE>
Exhibit 21 - Page 9 of 10
Note 8. Related Entities.
The Joint Venture is sponsored and funded by various partnerships
managed by PLI. PLI serves in the capacity of general partner in other
partnerships and managing venturer in other joint ventures, all of which are
engaged in the equipment leasing and financing business.
Note 9. Fair Value of Financial Instruments.
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents approximates fair value because
of the short maturity of these instruments.
Credits Receivable, Net
The fair value of credits receivable, net is estimated by the present value of
future cash flow discounted at an approximate fair value rate.
Assigned Monthly Rents, Net
The carrying amount of assigned monthly rents, net is estimated by taking the
present value of the projected cash flow expected to be received on the
portfolio of equipment that was assigned from Xerox pursuant to the agreement.
The estimated fair values of the Joint Venture's financial instruments
at December 31, 1996 and 1995 approximate the carrying amounts reported in the
balance sheet.
<PAGE>
<TABLE>
Exhibit 21 - Page 10 of 10
PHOENIX JOINT VENTURE 1994-1
SCHEDULE II
(Amounts in Thousands)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
Classification Balance at Charged to Charged to Deductions Balance at
Beginning of Expense Revenue End of
Period Period
- ------------------------------ --------------- ---------------- ------------- ------------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Allowance for credits receivable $ 320 $ 0 $ 0 $ 0 $ 320
----- ----- ----- ----- -----
Totals $ 320 $ 0 $ 0 $ 0 $ 320
===== ===== ===== ===== =====
Year ended December 31, 1995
Allowance for credits receivable $ 320 $ 0 $ 0 $ 80 $ 240
Allowance for losses on accounts
receivable 0 191 0 0 191
----- ----- ----- ----- -----
Totals $ 320 $ 191 $ 0 $ 80 $ 431
===== ===== ===== ===== =====
Year ended December 31, 1996
Allowance for credits receivable $ 240 $ 0 $ 0 $ 38 $ 202
Allowance for losses on accounts
receivable 191 0 132 8 51
----- ----- ----- ----- -----
Totals $ 431 $ 0 $ 132 $ 46 $ 253
===== ===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,155
<SECURITIES> 0
<RECEIVABLES> 732
<ALLOWANCES> 400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,517
<DEPRECIATION> 1,674
<TOTAL-ASSETS> 4,991
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,641
<TOTAL-LIABILITY-AND-EQUITY> 1,350
<SALES> 0
<TOTAL-REVENUES> 1,344
<CGS> 0
<TOTAL-COSTS> 988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 356
<INCOME-TAX> 43
<INCOME-CONTINUING> 399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399
<EPS-PRIMARY> .98
<EPS-DILUTED> 0
</TABLE>
