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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 September 30, 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 [ ]
<PAGE>
NATIONAL LEASE INCOME FUND 7 L.P.
FORM 10-Q - SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1996 and December 31, 1995
STATEMENTS OF OPERATIONS - For the three months ended September 30, 1996
and 1995 and the nine months ended September 30, 1996 and 1995
STATEMENT OF PARTNERS' EQUITY - For nine months ended
September 30, 1996
STATEMENTS OF CASH FLOWS - For the nine months ended
September 30, 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
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 7 L.P.
BALANCE SHEETS
September 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents ....................... $ 482,789 $ 875,344
Leased equipment
Accounted for under the financing method ..... 29,023 251,308
Accounted for under the operating method, net
and accumulated depreciation of $1,450,353
and $2,064,024 and allowance for equipment
impairment of $502,998 and $562,764 ...... 25,693 113,412
Accounts receivable ............................. 26,491 22,640
Other receivables ............................... 15,866 24,424
----------- -----------
$ 579,862 $ 1,287,128
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Distributions payable ........................... $ 177,111 $ 506,030
Accounts payable and accrued expenses ........... 38,496 76,732
Deferred income ................................. 5,271 6,826
Due to affiliates ............................... 691 5,488
----------- -----------
Total liabilities ............................ 221,569 595,076
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (50,097 units issued
and outstanding) ............................. 570,711 901,133
General partners' deficit ....................... (212,418) (209,081)
----------- -----------
Total partners' equity ....................... 358,293 692,052
----------- -----------
$ 579,862 $ 1,287,128
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENTS OF OPERATIONS
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- --------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Rental ................................................ $155,716 $267,787 $518,204 $859,391
Interest
Other .............................................. 6,200 12,370 21,933 39,409
Financing leases ................................... 2,878 9,507 10,590 36,503
Other operating income ................................ 677 128 783 187
-------- -------- -------- --------
165,471 289,792 551,510 935,490
-------- -------- -------- --------
Costs and expenses
Provision for equipment impairment .................... -- 60,000 130,000 225,000
Depreciation .......................................... 25,319 122,245 117,655 419,194
General and administrative ............................ 16,051 26,816 51,367 106,618
Fees to affiliates .................................... 11,586 22,200 36,804 72,251
Operating ............................................. 1,160 10,516 23,349 14,280
-------- -------- -------- --------
54,116 241,777 359,175 837,343
-------- -------- -------- --------
111,355 48,015 192,335 98,147
Gain on disposition of equipment, net ...................... 2,410 2,559 43,189 90,767
-------- -------- -------- --------
Net income ................................................. $113,765 $ 50,574 $235,524 $188,914
======== ======== ======== ========
Net income attributable to
Limited partners ...................................... $112,627 $ 50,069 $233,169 $187,025
General partners ...................................... 1,138 505 2,355 1,889
-------- -------- -------- --------
$113,765 $ 50,574 $235,524 $188,914
======== ======== ======== ========
Net income per unit of limited partnership
interest (50,097 units outstanding) ................... $ 2.25 $ 1.00 $ 4.65 $ 3.73
======== ======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENT OF PARTNERS' EQUITY
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 nine months
ended September 30, 1996 .................................... 233,169 2,355 235,524
Distributions to partners for the nine
months ended September 30, 1996
($11.25 per limited partnership unit) ....................... (563,591) (5,692) (569,283)
--------- --------- ---------
Balance, September 30, 1996 ...................................... $ 570,711 $(212,418) $ 358,293
========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL LEASE INCOME FUND 7 L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ........................................ $ 235,524 $ 188,914
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for equipment impairment ......... 130,000 225,000
Depreciation ............................... 117,655 419,194
Gain on disposition of equipment, net ...... (43,189) (90,767)
Changes in assets and liabilities
Other receivables .............................. 8,558 (15,900)
Accounts receivable ............................ (3,851) 15,883
Accounts payable and accrued expenses .......... (38,236) (25,251)
Deferred income ................................ (1,555) 14,381
Due to affiliates .............................. (4,797) (3,604)
----------- -----------
Net cash provided by operating activities 400,109 727,850
----------- -----------
Cash flows from investing activities
Proceeds from the disposition of equipment,
including installment sales .................... 44,200 259,488
Minimum lease payments received on financing
leases, net of interest earned ................. 61,338 187,061
Other non-operating receipts ...................... -- (14,288)
----------- -----------
Net cash provided by investing activities 105,538 432,261
----------- -----------
Cash flows from financing activities
Distributions to partners ......................... (898,202) (1,442,186)
----------- -----------
Net decrease in cash and cash equivalents .............. (392,555) (282,075)
Cash and cash equivalents, beginning of period ......... 875,344 1,073,028
----------- -----------
Cash and cash equivalents, end of period ............... $ 482,789 $ 790,953
=========== ===========
</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 nine months ended September
30, 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 nine
months ended September 30, 1996 and 1995, rental revenue earned on a
month-to-month basis comprised approximately 78% and 24%, 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 is also party to an administrative
services agreement with Wexford Management LLC ("Wexford") pursuant to
which Wexford 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. During the nine months ended September 30, 1996,
reimbursable expenses to Wexford by the Partnership amounted to
$20,940.
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. including its interests in
Equipment Management, the Corporate General Partner and IREG, through
liquidation; however, there can be no assurance of the timing of such
transaction or the effect it may have on the Partnership.
The Partnership has entered into a management agreement with IREG,
pursuant to which IREG receives 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 $14,852 and $30,551 for the nine months ended September 30,
1996 and 1995, respectively.
<PAGE>
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
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,
subject to increase after the limited partners have received certain
specified minimum returns on their investment. For the nine months
ended September 30, 1996 and 1995, IREG earned partnership management
fees of $21,952 and $41,700, 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
$175,340 ($3.50 per unit) and $1,771 respectively, at September 30,
1996, were paid in November 1996.
5 EQUIPMENT SALES - 1996
During the nine months ended September 30, 1996, the Partnership sold
certain equipment for management information systems, which it had
originally purchased for purchase prices aggregating $867,103 inclusive
of associated acquisition fees, to various unaffiliated third parties
for an aggregate sales price of $44,200. Such equipment had net
carrying values aggregating $1,011 (net of allowances for equipment
impairment aggregating $134,766 provided for in prior periods with
respect to such equipment) when sold.
<PAGE>
6 DUE TO AFFILIATES
The amount due to affiliates as of September 30, 1996 and December 31,
1995 represents the following:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Equipment management fees ...................... $ 615 $2,516
Partnership management fees .................... 76 2,972
------ ------
$ 691 $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 $3.50 per unit of
limited partnership interest totaling $177,111 for the quarter ended
September 30, 1996, which represented cash from operations of $157,095
generated during the current quarter and sales of $2,410 during the
current quarter as well as from reserves generated in prior periods. As
of September 30, 1996, the Partnership had operating reserves of
approximately $265,500 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 September 30, 1996, the Partnership remained the owner of
equipment originally purchased for an aggregate of approximately
$3,171,000 (inclusive of approximately $1,404,000 of equipment
originally accounted for as financing leases) of which approximately
$1,436,000 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 $214,000 and representing approximately 16%
of the Partnership's monthly rentals generated during the quarter ended
September 30, 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.
Upon the sale of the remaining assets, the Partnership will have
liquidated all of its equipment portfolio. The Managing General Partner
will then prepare a final accounting of the assets and liabilities and
commence the dissolution and termination of the Partnership and make a
final distribution to partners.
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 September 30, 1996.
Results of Operations
Net income increased for the quarter and nine months ended September
30, 1996 as compared with the prior year's periods, primarily due to
the reduction of rental revenues and the reduction of gains recognized
on dispositions of equipment in the current year periods, more than
offset by the decrease in expenses.
Rental revenues decreased for the quarter and nine months ended
September 30, 1996, due to the expiration of certain leases in
accordance with the terms of such leases subsequent to the prior year's
periods, 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 $4,016,000 at September
30, 1995 to approximately $1,979,000 at September 30, 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 quarter and nine months ended
September 30, 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,
the Partnership did not record a provision for equipment impairment to
recognize the loss in value of certain equipment for the quarter ended
September 30, 1996 compared to $60,000 for the comparable prior year's
period. During the nine months ended September 30, 1996 the Partnership
recorded provisions for equipment impairment of $130,000 as compared to
provisions of $225,000 recorded during the prior year's period.
Net gains recognized in connection with the disposition of equipment
were $2,410 and $43,189 during the current quarter and nine month
period ended September 30, 1996 as compared to the net gains recognized
of $2,559 and $90,767 during the prior year periods.
<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: November 12, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1996 Form 10-Q of National Lease Income Fund 7
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 482,789
<SECURITIES> 0
<RECEIVABLES> 42,357
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 525,146
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 579,862
<CURRENT-LIABILITIES> 221,569
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 358,293
<TOTAL-LIABILITY-AND-EQUITY> 579,862
<SALES> 0
<TOTAL-REVENUES> 551,510
<CGS> 0
<TOTAL-COSTS> 111,520
<OTHER-EXPENSES> 247,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 235,524
<INCOME-TAX> 0
<INCOME-CONTINUING> 235,524
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,524
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
