Page 1 of 12
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - ----- ACT OF 1934
For the quarterly period ended September 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-8868
PHOENIX LEASING INCOME FUND 1977
Registrant
California 94-2446904
State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
- - -------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
preceding requirements for the past 90 days.
Yes X No
------- ------
Page 2 of 12
Part I. Financial Information
Item 1. Financial Statements
PHOENIX LEASING INCOME FUND 1977
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1995 1994
---- ----
ASSETS
Cash and cash equivalents $ 890 $ 415
Accounts receivable (net of allowance for losses on accounts receivable of
of $1 and $4 at September 30, 1995 and December 31, 1994, respectively) 1 10
Notes receivable (net of allowance for losses on notes receivable
of $92 at September 30, 1995 and December 31, 1994) 716 1,214
Equipment on operating leases and held for lease (net
of accumulated depreciation of $31 and $35 at September
30, 1995 and December 31, 1994, respectively) -- --
Investment in joint ventures 81 116
Other assets 3 8
------ ------
Total Assets $1,691 $1,763
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 17 $ 63
------ ------
Total Liabilities 17 63
------ ------
Partners' Capital
General Partners 48 29
Limited Partners, 20,000 units authorized and
issued, 16,521 units outstanding at September 30,
1995 and December 31, 1994 1,626 1,671
------ ------
Total Partners' Capital 1,674 1,700
------ ------
Total Liabilities and Partners' Capital $1,691 $1,763
====== ======
The accompanying notes are an integral
part of these statements.
Page 3 of 12
PHOENIX LEASING INCOME FUND 1977
STATEMENTS OF OPERATIONS
(Amounts in Thousands Except for Per Unit Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Rental income $ 4 $ 3 $ 35 $ 22
Gain (loss) on sale of equipment -- (3) 1 (6)
Equity in earnings from joint ventures, net 10 6 28 31
Interest income, notes receivable 23 12 141 44
Other income 13 5 25 10
----- ----- ----- -----
Total Income 50 23 230 101
----- ----- ----- -----
EXPENSES
Depreciation -- 3 -- 14
Lease related operating expenses -- -- -- 1
Management fees to General Partner 8 3 34 7
Liquidation fees to General Partner -- -- 22 22
Provision for losses on receivables -- -- 5 (1)
General and administrative expenses 10 9 31 38
----- ----- ----- -----
Total Expenses 18 15 92 81
----- ----- ----- -----
NET INCOME $ 32 $ 8 $ 138 $ 20
===== ===== ===== =====
NET INCOME PER LIMITED
PARTNERSHIP UNIT $1.72 $ .43 $7.21 $ .94
===== ===== ===== =====
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $-- $-- $9.95 $9.98
===== ===== ===== =====
ALLOCATION OF NET INCOME:
General Partners $ 4 $ 1 $ 19 $ 5
Limited Partners 28 7 119 15
----- ----- ----- -----
$ 32 $ 8 $ 138 $ 20
===== ===== ===== =====
The accompanying notes are an integral
part of these statements.
Page 4 of 12
PHOENIX LEASING INCOME FUND 1977
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Operating Activities:
Net income $ 138 $ 20
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation -- 14
Loss (gain) on sale of equipment (1) 6
Equity in earnings from joint ventures, net (28) (31)
Provision for losses on account receivable 7 --
Provision for early termination, financing leases (3) --
Decrease in accounts receivable 2 9
Increase (decrease) in accounts payable and accrued expenses (46) 8
Decrease in other assets 7 7
----- -----
Net cash provided by operating activities 76 33
----- -----
Investing Activities:
Principal payments, financing leases 3 30
Principal payments, notes receivable 498 67
Proceeds from sale of equipment 1 1
Distributions from joint ventures 61 49
----- -----
Net cash provided by investing activities 563 147
----- -----
Financing Activities:
Distributions to partners (164) (165)
----- -----
Net cash used by financing activities (164) (165)
----- -----
Increase (decrease) in cash and cash equivalents 475 (15)
Cash and cash equivalents, beginning of period 415 381
----- -----
Cash and cash equivalents, end of period $ 890 $ 396
===== =====
The accompanying notes are an integral
part of these statements.
Page 5 of 12
PHOENIX LEASING INCOME FUND 1977
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1. General.
The accompanying unaudited condensed financial statements have been
prepared by the Partnership in accordance with generally accepted accounting
principles, pursuant to the rules and regulations of the Securities and Exchange
Commission. In the opinion of Management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Although management believes that the disclosures are adequate to make
the information presented not misleading, it is suggested that these condensed
financial statements be read in conjunction with the financial statements and
the notes included in the Partnership's Financial Statement, as filed with the
SEC in the latest annual report on Form 10-K.
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. The Partnership does not expect
the adoption of this statement to have a material impact on its financial
position and results of operations. The Partnership plans to adopt Statement No.
121 on January 1, 1996.
Non Cash Investing Activities. During the quarter ended June 30, 1995,
the Partnership received a final distribution of common stock from one of its
investments in equipment joint ventures. The market value of the stock at the
distribution date was $2,000.
Note 2. Reclassification.
Reclassification - Certain 1994 amounts have been reclassified to
conform to the 1995 presentation.
Note 3. Income Taxes.
Federal and state income tax regulations provide that taxes on the
income or loss of the Partnership are reportable by the partners in their
individual income tax returns. Accordingly, no provision for such taxes has been
made in the accompanying financial statements.
Page 6 of 12
Note 4. Notes Receivable.
Impaired Notes Receivable. On January 1, 1995, the Partnership adopted
Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors
for Impairment of a Loan", and Statement No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". Statement No. 114
requires that certain impaired loans be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate; or,
alternatively, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Prior to 1995, the allowance for
losses on notes receivable was based on the undiscounted cash flows or the fair
value of the collateral dependent loans.
In accordance with Statement No. 114, a loan is classified as
in-substance foreclosure when the Company has taken possession of the collateral
regardless of whether formal foreclosure proceedings take place. Notes
receivable previously classified as in-substance foreclosed cable systems but
for which the Company had not taken possession of the collateral have been
reclassified to notes receivable.
At September 30, 1995, the recorded investment in notes that are
considered to be impaired under Statement No. 114 was $10,000 for which there is
no related allowance for losses. The average recorded investment in impaired
loans during the nine months ended September 30, 1995 was approximately
$211,000. 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.
During the quarter ended June 30, 1995, the Partnership received a
settlement on its one remaining note receivable which was considered to be
impaired under Statement No. 114. The Partnership received $450,000 as a
settlement for this note receivable of which $352,000 was applied towards the
outstanding note receivable balance and the remaining $98,000 applied to
interest income. There was no related allowance for this note receivable.
The Partnership received a payoff during the nine months ended
September 30, 1995 from an impaired note receivable from a cable television
system operator.
The activity in the allowance for losses on notes receivable during the
nine months ended September 30, is as follows:
1995 1994
---- ----
(Amounts in Thousands)
Beginning balance $ 92 $ 92
Provision for losses - -
Write downs - -
--- ---
Ending balance $ 92 $ 92
=== ===
Page 7 of 12
Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based on
the limited partners' share of net income and distributions, and the weighted
average number of units outstanding of 16,521 for the nine month periods ended
September 30, 1995 and 1994.
Note 6. Investment in Joint Ventures.
Equipment Joint Ventures
The aggregate combined statements of operations of the equipment joint
ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Rental income $ 763 $ 150 $2,126 $ 595
Gain on sale of equipment 137 17 259 134
Other income 570 106 676 162
------ ------ ------ ------
Total income 1,470 273 3,061 891
------ ------ ------ ------
EXPENSES
Depreciation 629 1 858 3
Lease related operating expenses 338 52 904 323
Management fees to General Partner 76 7 144 26
General and administrative expenses 4 26 9 76
------ ------ ------ ------
Total expenses 1,047 86 1,915 428
------ ------ ------ ------
Net income $ 423 $ 187 $1,146 $ 463
====== ====== ====== ======
Page 8 of 12
Financing Joint Ventures
The aggregate combined statements of operations of the financing joint
venture is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Other income $ 6 $-- $67 $ 1
--- --- --- ---
Total income 6 -- 67 1
--- --- --- ---
EXPENSES
Management fees to General Partner 1 1 4 3
General and administrative expenses -- 1 1 3
--- --- --- ---
Total expenses 1 2 5 6
--- --- --- ---
Net income (loss) $ 5 $(2) $62 $(5)
=== === === ===
Page 9 of 12
PHOENIX LEASING INCOME FUND 1977
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Phoenix Leasing Income Fund 1977 (the Partnership) reported net income of
$32,000 and $138,000 for the three and nine months ended September 30, 1995,
respectively, compared to net income of $8,000 and $20,000 for the same periods
in 1994, respectively. The improvement in earnings for the three and nine months
ended September 30, 1995, compared to the same periods in 1994, is primarily a
result of an increase in interest income from notes receivable.
Total revenues increased by $27,000 for the three months ended September
30, 1995, compared to the same period in 1994, and increased by $129,000 for the
nine months ended September 30, 1995, compared to the same period in the prior
year. The increase in total revenues for the three and nine months ended
September 30, 1995, compared to the same period in 1994, is attributable to the
increase in interest income from notes receivable. The increase in interest
income from notes receivable is attributable to the payoff of two outstanding
notes receivable from cable television system operators. During the three months
ended September 30, 1995, the Partnership received a payment for the settlement
of an outstanding note receivable from a cable television system operator that
had been in default and the Partnership had suspended the accrual of interest
income. Another similar payment had been received in the second quarter of 1995,
which is included in the nine month period ended September 30, 1995. The amount
received in excess of the net carrying value of the notes was recognized as
interest income.
Rental income increased during the nine months ended September 30, 1995,
primarily as a result of the recognition as rental income, prepaid rent that had
previously been recorded as a liability. During this period it was determined
that these payments were no longer a liability and the amount was subsequently
recognized as rental income. Because the Partnership is in its liquidation
stage, it is not expected that the Partnership will acquire additional
equipment. As a result, revenues from equipment leasing activities are expected
to decline as the portfolio is liquidated and the remaining equipment is
re-leased at lower rental rates. At September 30, 1995, the Partnership owned
equipment with an aggregate original cost, excluding the Partnership's pro rata
interest in joint ventures, of $96,000 as compared to $246,000 at September 30,
1994. Other income increased during the three and nine months ended September
30, 1995, as compared to the same period in 1994, due to the increase in the
Partnership's cash balances combined with an increase in interest rates earned
on such balances.
Total expenses increased by $3,000 and $11,000 for the three and nine
months ended September 30, 1995, respectively, compared to the same periods in
1994. The increase is primarily the result of an increase in management fees to
the General Partner. The increase in management fees is the direct result of the
receipt of a payoff on the outstanding notes receivable during the three and
nine months ended September 30, 1995. The decrease in depreciation expense of
$3,000 and $14,000 for the three and nine months ended September 30, 1995 is due
to the equipment portfolio having been fully depreciated.
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
Page 10 of 12
investments are anticipated to continue to decline as the portfolios are re-
leased at lower rental rates and eventually liquidated.
Earnings from joint ventures increased by $4,000 during the three months
ended September 30, 1995, but decreased by $3,000 during the nine months ended
September 30, 1995, as compared to the same periods in 1994. The increase for
the three months ended September 30, 1995, is a result of earnings from a new
joint venture that was formed in October of 1994 upon the receipt of a legal
settlement.
The decrease in earnings for the nine months ended September 30, 1995, as
compared to the same period in 1994, is due to several equipment joint ventures
that closed since the second quarter of 1994. The absence of earnings from the
closed joint ventures offset the increase in earnings of $17,000 from a new
joint venture formed in October of 1994.
Liquidity and Capital Resources
The Partnership's primary source of liquidity comes from rental and note
receipts. The Partnership has contractual obligations from lessees and borrowers
for fixed terms at stated amounts. The Partnership also has investments in
equipment leasing and financing joint ventures in which it receives a share of
the profits and receives cash distributions. The future liquidity of the
Partnership will depend upon the General Partner's success in collecting
contractual amounts owed.
The Partnership reported net cash provided by leasing and financing
activities of $577,000 for the nine months ended September 30, 1995, as compared
to $130,000 for the nine months ended September 30, 1994. This improvement is
attributable to the payoff of two notes receivable from cable television system
operators that had been in default.
Distributions from joint ventures increased during the nine months ended
September 30, 1995, as compared to the same period in 1994. Distributions from
joint ventures consisted primarily of cash received from the Partnership's
investments in equipment joint ventures during both years.
As of September 30, 1995, the Partnership owned equipment held for lease
with a purchase price of $31,000 and a net book value of $0, compared to $66,000
and $1,000, respectively, at September 30, 1994. 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 $164,000 in cash distributions during the
nine months ended September 30, 1995 and 1994. As a result, the cumulative cash
distributions to the Limited Partners are $28,121,000 and $27,957,000 as of
September 30, 1995 and 1994, respectively. The General Partner did not receive
cash distributions during the nine months ended September 30, 1995 and 1994, but
did receive payment of liquidation fees of $22,000 during the nine months ended
September 30, 1995 and 1994. Due to the decrease in the cash generated by
leasing operations, the Partnership is no longer making quarterly cash
distributions to Partners. Distributions are now being made on an annual basis
with the annual distribution date being January 15. Due to the increase in the
cash balance of the Partnership, resulting from the receipt of payoffs from two
notes receivable from cable television system operators that had been in
default, the Partnership will make a special cash distribution to partners on
October 15, 1995.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's on-going
operational expenses.
Page 11 of 12
PHOENIX LEASING INCOME FUND 1977
September 30, 1995
Part II. Other Information.
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable
Item 3. Defaults Upon Senior Securities. Inapplicable
Item 4. Submission of Matters to a Vote of Securities Holders.Inapplicable
Item 5. Other Information. Inapplicable
Item 6. Exhibits and Reports on 8-K:
a) Exhibits:
(27) Financial Data Schedule
b) Reports on 8-K: None
Page 12 of 12
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 1977
(Registrant)
Date Title Signature
November 13, 1995 Chief Financial Officer, /S/ PARITOSH K. CHOKSI
- - ----------------- Senior Vice President ----------------------
and Treasurer of (Paritosh K. Choksi)
Phoenix Leasing Incorporated
General Partner
November 13, 1995 Senior Vice President, /S/ BRYANT J. TONG
- - ----------------- Financial Operations ------------------
(Principal Accounting Officer) (Bryant J. Tong)
and a Director of
Phoenix Leasing Incorporated
General Partner
November 13, 1995 Senior Vice President of /S/ GARY W. MARTINEZ
- - ----------------- Phoenix Leasing Incorporated --------------------
General Partner (Gary W. Martinez)
November 13, 1995 Partnership Controller /S/ MICHAEL K. ULYATT
- - ----------------- Phoenix Leasing Incorporated ---------------------
General Partner (Michael K. Ulyatt)