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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-17716
NATIONAL LEASE INCOME FUND 7 L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3473036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
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<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
FORM 10-Q - MARCH 31, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended
March 31, 1996 and 1995
STATEMENT OF PARTNERS' EQUITY - For the three months ended
March 31, 1996
STATEMENTS OF CASH FLOWS - For the three months ended
March 31, 1996 and 1995
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
NATIONAL LEASE INCOME FUND 7 L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ....................... $ 597,395 $ 875,344
Leased equipment
Accounted for under the financing method ..... 125,560 251,308
Accounted for under the operating method, net
of accumulated depreciation of $1,667,414
and $2,064,024 and allowance for equipment
impairment of $524,247 and $562,764 ...... 80,415 113,412
Other receivables ............................... 27,893 24,424
Accounts receivable ............................. 3,886 22,640
----------- -----------
Total assets ................................. $ 835,149 $ 1,287,128
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable ........................... $ 215,063 $ 506,030
Accounts payable and accrued expenses ........... 64,910 76,732
Deferred income ................................. 8,053 6,826
Due to affiliates ............................... 660 5,488
----------- -----------
288,686 595,076
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (50,097 units issued
and outstanding) ............................. 757,000 901,133
General partners' deficit ....................... (210,537) (209,081)
----------- -----------
Total partners' equity ....................... 546,463 692,052
----------- -----------
$ 835,149 $ 1,287,128
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENTS OF OPERATlONS
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues
Rental ........................................... $192,364 $308,201
Interest
Other .......................................... 9,004 14,201
Financing leases ............................... 4,176 14,748
Other operating income ........................... 75 --
-------- --------
205,619 337,150
-------- --------
Costs and expenses
Provision for equipment impairment ............... 75,000 90,000
Depreciation ..................................... 63,944 155,170
General and administrative ....................... 17,291 44 338
Fees to affiliates ............................... 17,172 25,132
Operating ........................................ 1,923 3,277
-------- --------
175,330 317,917
-------- --------
30,289 19,233
-------- --------
Gain on disposition of equipment, net .............. 39,185 12,329
-------- --------
Net income ......................................... $ 69,474 $ 31,562
======== ========
Net income attributable to
Limited partners ................................. $ 68,779 $ 31,246
General partners ................................. 695 316
-------- --------
$ 69,474 $ 31,562
======== ========
Net income per unit of limited partnership
interest (50,097 units outstanding) .............. $ 1.37 $ 0.62
======== ========
</TABLE>
See notes to financial statements
<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENT OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
Limited General Total
Partners' Partners' Partners'
Equity Deficit Equity
--------- --------- ---------
<S> <C> <C> <C>
Balance, January 1, 1996 ................ $ 901,133 $(209,081) $ 692,052
Net income for the three months
ended March 31, 1996 ............... 68,779 695 69,474
Distributions to partners for the three
months ended March 31, 1996
($4.25 per limited partnership unit) (212,912) (2,151) (215,063)
--------- --------- ---------
Balance, March 31, 1996 ................. $ 757,000 $(210,537) $ 546,463
========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ........................................ $ 69,474 $ 31,562
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for equipment impairment ......... 75,000 90,000
Depreciation ............................... 63,944 155,170
Gain on disposition of equipment, net ...... (39,185) (12,329)
Changes in assets and liabilities
Other receivables .............................. (3,469) (1,289)
Accounts receivable ............................ 18,754 12,260
Accounts payable and accrued expenses .......... (11,822) (16,707)
Deferred income ................................ 1,227 51,781
Due to affiliates .............................. (4,828) (1,867)
----------- -----------
Net cash provided by operating activities 169,095 308,581
----------- -----------
Cash flows from investing activities
Proceeds from the disposition of equipment,
including installment sales .................... 39,185 92,925
Minimum lease payments received on financing
leases, net of interest earned ................. 19,801 72,055
Other non-operating receipts ...................... -- 9,980
----------- -----------
Net cash provided by investing activities 58,986 174,960
----------- -----------
Cash flows from financing activities
Distributions to partners ......................... (506,030) (455,427)
----------- -----------
Net (decrease) increase in cash and cash equivalents ... (277,949) 28,114
Cash and cash equivalents, beginning of period ......... 875,344 1,073,028
----------- -----------
Cash and cash equivalents, end of period ............... $ 597,395 $ 1,101,142
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, related footnotes and discussion should be read in
conjunction with the financial statements, related footnotes and
discussions contained in the National Lease Income Fund 7 L.P. (the
"Partnership") annual report on Form 10-K for the year ended December
31, 1995. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results to be expected
for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Leases
For operating leases, rental revenue is recognized on a straight-line
basis and expenses (including depreciation) are charged to operations
as incurred. In addition, rental revenue received on leases that go
beyond the firm term (lessee does not supply notice of termination or
renewal as required by the lease) is recognized as earned. For the
three months ended March 31, 1996 and 1995, rental revenue earned on a
month-to-month basis comprised approximately 58% and 21%, respectively,
of the total rental revenue recognized.
For financing leases, unearned income is recognized as revenue over the
respective lease term so as to produce a constant rate of return on the
net investment.
Leased equipment
The cost of leased equipment represents the initial cost of the
equipment to the Partnership plus miscellaneous acquisition and closing
costs, and is carried at the lower of depreciated cost or net
realizable value.
Depreciation is computed using the straight-line method, over the
estimated useful lives of such assets (five years for equipment for
management information and electronic laser printing systems and eight
years for telephone equipment, retail sales equipment, voice mail
systems, transportation and related equipment).
When equipment is sold or otherwise disposed of, the cost and
accumulated depreciation (and any related allowance for equipment
impairment) are removed from the accounts and any gain or loss on such
sale or disposal is reflected in operations. Normal maintenance and
repairs are charged to operations as incurred. The Partnership provides
allowances for equipment impairment based upon a quarterly review of
all equipment in its portfolio, when management believes that, based
upon market analysis, appraisal reports and leases currently in place
with respect to specific equipment, the investment in such equipment
may not be recoverable.
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The corporate general partner of the Partnership, ALI Capital Corp.
(the "Corporate General Partner"), the managing general partner of the
Partnership, ALI Equipment Management Corp., ("Equipment Management")
and Integrated Resources Equipment Group, Inc. ("IREG") are wholly
owned subsidiaries of Presidio Capital Corp. ("Presidio"). Fourth Group
Partners, was the associate general partner of the Partnership through
February 27, 1995. On February 28, 1995, Presidio Boram Corp., a
subsidiary of Presidio, became the associate general partner. Other
limited partnerships and similar investment programs have been formed
by Equipment Management or its affiliates to acquire equipment and,
accordingly, conflicts of interest may arise between the Partnership
and such other limited partnerships. Affiliates of Equipment Management
have also engaged in businesses related to the management of equipment
and the sale of various types of equipment and may transact business
with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio will control the Partnership through
its direct or indirect ownership of all of the shares of Equipment
Management, the Corporate General Partner and, as of February 28, 1995,
the associate general partner. Presidio is managed by Presidio
Management Company, LLC ("Presidio Management"), a company controlled
by a director of Presidio. Presidio Management is responsible for the
day-to-day management of Presidio and, among other things, has
authority to designate directors of Equipment Management, the Corporate
General Partner and the associate general partner. In March 1996,
Presidio Management assigned its agreement for the day-to-day
management of Presidio to Wexford Management LLC ("Wexford").
Presidio is a liquidating company. Although Presidio has no immediate
plans to do so, it will ultimately seek to dispose of the interests it
acquired from Integrated Resources, Inc. through liquidation; however,
there can be no assurance of the timing of such transaction or the
effect it may have on the Partnership.
In March 1995, Presidio elected new directors for Equipment Management.
Wexford Management Corp., formerly Concurrency Management Corp.,
provides management and administrative services to Presidio, its direct
and indirect subsidiaries, as well as to the Partnership. Effective
January 1, 1996, Wexford Management Corp. assigned its agreement to
provide management and administrative services to Presidio and its
subsidiaries to Wexford. During the three months ended March 31, 1996,
reimbursable expenses to Wexford by the Partnership amounted to $6,955.
The Partnership entered into a management agreement with IREG, pursuant
to which IREG would receive 5% of annual gross rental revenues on
operating leases; 2% of annual gross rental revenues on full payout
leases which contain net lease provisions; and 1% of annual gross
rental revenues if services are performed by third parties under the
active supervision of Equipment Management, as defined in the Limited
Partnership Agreement. The Partnership incurred equipment management
fees of $9,750 and $11,432 for the three months ended March 31, 1996
and 1995, respectively.
During the operating and sale stage of the Partnership, IREG is
entitled to a partnership management fee equal to 4% of distributable
cash from operations as defined in the Limited Partnership Agreement,
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
subject to increase after the limited partners have received certain
specified minimum returns on their investment. For the three months
ended March 31, 1996 and 1995, IREG earned Partnership management fees
of $13,700, respectively.
The general partners are entitled to 1% of distributable cash from
operations, cash from sales or financings and cash from the equipment
reserve account and, in general, an allocation of 1% of taxable net
income or loss of the Partnership.
During the operating and liquidating stage of the Partnership, IREG may
be entitled to receive certain other fees which are subordinated to the
receipt by the limited partners of their original invested capital and
certain specified minimum returns on their investment.
Upon the ultimate liquidation of the Partnership, the general partners
may be required to remit to the Partnership certain payments
representing capital account deficit restoration based upon a formula
provided within the Limited Partnership Agreement. Such restoration
amount may be less than the recorded general partners' deficit, which
could result in distributions to the limited partners of less than
the recorded equity.
In April 1995, Equipment Management and certain affiliates entered into
an agreement with Fieldstone Private Capital Group, L.P. ("Fieldstone")
pursuant to which Fieldstone performs certain management and
administrative services relating to the Partnership as well as certain
other partnerships in which Equipment Management serves as general
partner. Substantially all costs associated with the retention of
Fieldstone will be paid by Equipment Management.
4 DISTRIBUTIONS TO PARTNERS
Distributions payable to the Limited Partners and General Partners of
$212,912 and $2,151, respectively, at March 31, 1996, were paid in May
1996.
5 EQUIPMENT SALES - 1996
During the three months ended March 31, 1996, the Partnership sold
certain equipment for management information systems, which it had
originally purchased for purchase prices aggregating $545,446 inclusive
of associated acquisition fees, to various unaffiliated third parties
for an aggregate sales price of $39,185. Such equipment had net
carrying values aggregating $-0- (net of allowances for equipment
impairment aggregating $103,017 provided for in prior periods with
respect to such equipment) when sold.
<PAGE>
6 DUE TO AFFILIATES
The amount due to affiliates as of March 31, 1996 and December 31, 1995
represents the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Equipment management fees ...................... $ 266 $2,516
Partnership management fees .................... 394 2,972
------ ------
$ 660 $5,488
====== ======
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership declared a cash distribution of $4.25 per unit of
limited partnership interest totaling $215,063 for the quarter ended
March 31, 1996, which represented cash from operations of $176,099
generated during the current quarter and sales of $38,964 during the
current quarter. As of March 31, 1996, the Partnership had operating
reserves of approximately $303,000 which was comprised of undistributed
cash from operations, as well as general working capital reserves of
$250,460.
Although expense levels have been reduced, the Partnership anticipates
that most of its administrative expenses (i.e. accounting and investor
services including printing) are fixed and thus will not decrease
significantly during the Partnership's future operating period. Other
expenses such as insurance and fees to affiliates will decline during
such period.
As of March 31, 1996, the Partnership remained the owner of equipment
originally purchased for an aggregate of approximately $3,492,000
(inclusive of approximately $1,404,000 of equipment originally
accounted for as financing leases) of which approximately $1,595,000 is
leased on a month-to-month basis (on an original cost basis). Excluding
rents on a month-to-month basis and renewals, the leases of equipment
(subject to operating leases) with purchase prices aggregating
approximately $706,000 and representing approximately 35% of the
Partnership's monthly rentals generated during the quarter ended March
31, 1996, are scheduled to expire during the remainder of 1996, unless
renewed or remarketed. The Partnership's anticipated cash from
operations for the remainder of 1996, based on firm term leases in
place, is not sufficient to maintain previous distribution levels.
Distribution levels will fluctuate based upon the remarketing success
of the Partnership's equipment including any proceeds generated by the
sale of the assets and requirements for operating reserves, if any.
The Partnership provided additional allowances for equipment impairment
of $75,000 to recognize the loss in value with respect to certain
equipment remaining as of March 31, 1996, as well as certain leased
equipment sold during the quarter ended March 31, 1996. The net
carrying values above reflect such provisions.
At the present time, the level of fees payable to IREG for services
rendered to the Partnership and other affiliated equipment leasing
partnerships is declining. The effect of this situation cannot be
determined at this point. The management agreements between the
Partnership and IREG may be terminated by either party to such
agreements.
In April 1995, The Managing General Partner and certain affiliates
entered into an agreement with Fieldstone pursuant to which Fieldstone
performs certain management and administrative services relating to the
Partnership as well as certain other partnerships in which the Managing
General Partner serves as general partner. Substantially all costs
associated with the retention of Fieldstone will be paid by the
Managing General Partner.
<PAGE>
Liquidity and Capital Resources (continued)
On February 28, 1995 Presidio Boram Corp., a subsidiary of Presidio,
became the Associate General Partner upon the withdrawal of Fourth
Group Partners, the former Associate General Partner.
Inflation and changing prices have not had any material effect on the
Partnership's revenues since its inception nor does the Partnership
anticipate any material effect on its business from these factors.
The Partnership had no outstanding material commitments for equipment
acquisitions as of March 31, 1996.
Results of Operations
Net income increased for the three months ended March 31, 1996 as
compared with the prior year's period, as the decrease in revenues was
exceeded by the decrease in expenses.
Rental revenues decreased for the three months ended March 31, 1996,
due to the expiration of certain leases in accordance with the terms of
such leases subsequent to the prior year's period (some of which were
renewed at lower lease rates in accordance with current market
conditions), as well as the sale or disposition of certain equipment
during and subsequent to the prior year's period. Equipment subject to
operating leases decreased from approximately $4,786,000 at March 31,
1995 to approximately $3,148,000 at March 31, 1996 (both amounts at
original acquisition cost) due to the sale or disposition of equipment,
which is consistent with the Partnership's decision, in 1992, to cease
reinvestment in additional equipment and commence the liquidation of
the Partnership.
Costs and expenses decreased in the three months ended March 31, 1996
in comparison to the prior year as follows: (i) fees to affiliates
decreased due to the reduction in equipment management fees as a result
of a decrease in rentals (as defined, which include operating and
financing leases) on which such fees are based, as well as to the
decrease in partnership management fees resulting from a reduction in
the distribution of cash from operations generated during the current
year's period; and (ii) depreciation expense decreased due to the
elimination of depreciation expense resulting from the sale or
disposition of certain equipment during or subsequent to the prior
year's period, as well as to the fact that certain equipment was fully
depreciated during or prior to the current year's period. Additionally,
during the three months ended March 31, 1996 the Partnership recorded
provisions for equipment impairment of $75,000 to recognize the loss in
value of certain equipment, as compared to provisions of $90,000
recorded during the prior year's period.
Net gains recognized in connection with the disposition of equipment
were $39,185 during the current year period as compared to the net gain
recognized of $12,329 during the prior year period.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
National Lease Income Fund 7 L.P.
By: ALI Equipment Management Corp.
Managing General Partner
/S/ Douglas J. Lambert
--------------------------------------------
Douglas J. Lambert
President (Principal Executive and Financial
Officer)
Date: May 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE MARCH 31, 1996 FORM 10Q OF NATIONAL LEASE INCOME FUND 7 L.P.
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 597,395
<SECURITIES> 0
<RECEIVABLES> 31,779
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 629,174
<PP&E> 2,345,846
<DEPRECIATION> 1,685,539
<TOTAL-ASSETS> 835,149
<CURRENT-LIABILITIES> 288,686
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 546,463
<TOTAL-LIABILITY-AND-EQUITY> 835,149
<SALES> 0
<TOTAL-REVENUES> 205,619
<CGS> 0
<TOTAL-COSTS> 36,387
<OTHER-EXPENSES> 138,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 69,474
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,474
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
