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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 0-11168
PHOENIX LEASING INCOME FUND 1981
Registrant
California 94-2735708
State of Jurisdiction I.R.S. Employer Identification No.
2401 Kerner Boulevard, San Rafael, California 94901-5527
- - --------------------------------------------------------------------------------
Address of Principal Executive Offices Zip Code
Registrant's telephone number, including area code: (415) 485-4500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
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Part I. Financial Information
Item 1. Financial Statements
PHOENIX LEASING INCOME FUND 1981
BALANCE SHEETS
(Amounts in Thousands Except for Unit Amounts)
(Unaudited)
September 30, December 31,
1995 1994
---- ----
ASSETS
Cash and cash equivalents $1,672 $1,509
Accounts receivable (net of allowance for losses on accounts receivable of $5
and $8 at September 30, 1995 and December 31, 1994, respectively) 10 27
Notes receivable (net of allowance for losses on notes receivable of $0 and $53
at September 30, 1995 and December 31, 1994, respectively) 11 434
Equipment on operating leases and held for lease (net of accumulated
depreciation of $355 and $498 at September 30, 1995 and December 31, 1994,
respectively) 18 37
Net investment in financing leases -- 2
Investment in joint ventures 198 261
Other assets 33 42
------ ------
Total Assets $1,942 $2,312
====== ======
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 44 $ 110
------ ------
Total Liabilities 44 110
------ ------
Partners' Capital
General Partners 92 53
Limited Partners, 25,000 units authorized, 20,883
units issued and 18,762 units outstanding at
September 30, 1995 and December 31, 1994 1,806 2,149
------ ------
Total Partners' Capital 1,898 2,202
------ ------
Total Liabilities and Partners' Capital $1,942 $2,312
====== ======
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING INCOME FUND 1981
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 $ 21 $ 22 $ 96 $ 93
Gain on sale of equipment -- 276 -- 278
Equity in earnings from joint ventures, net 34 9 92 54
Interest income, notes receivable -- 5 129 15
Other income 24 15 61 33
----- ----- ----- -----
Total Income 79 327 378 473
----- ----- ----- -----
EXPENSES
Depreciation 6 6 18 20
Lease related operating expenses -- 2 -- 4
Management fees to General Partner 2 24 45 44
Liquidation fees to General Partner -- -- 70 63
Provision for losses on receivables -- -- (53) (2)
General and administrative expenses 10 15 34 51
----- ----- ----- -----
Total Expenses 18 47 114 180
----- ----- ----- -----
NET INCOME $ 61 $ 280 $ 264 $ 293
===== ===== ===== =====
NET INCOME PER LIMITED
PARTNERSHIP UNIT $2.87 $13.17 $11.98 $13.38
===== ===== ===== =====
DISTRIBUTIONS PER LIMITED
PARTNERSHIP UNIT $-- $-- $29.99 $30.01
===== ===== ===== =====
ALLOCATION OF NET INCOME:
General Partners $ 7 $ 33 $ 39 $ 42
Limited Partners 54 247 225 251
----- ----- ----- -----
$ 61 $ 280 $ 264 $ 293
===== ===== ===== =====
The accompanying notes are an integral
part of these statements.
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PHOENIX LEASING INCOME FUND 1981
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Operating Activities:
Net income $ 264 $ 293
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 18 20
Gain on sale of equipment -- (278)
Equity in earnings from joint ventures, net (92) (54)
Provision for losses on notes receivable (53) --
Provision for early termination, financing leases -- (2)
Decrease (increase) in accounts receivable 17 (13)
Increase (decrease) in accounts payable
and accrued expenses (66) 46
Decrease in other assets 7 7
------- -------
Net cash provided by operating activities 95 19
------- -------
Investing Activities:
Principal payments, financing leases 2 158
Principal payments, notes receivable 476 156
Proceeds from sale of equipment 1 305
Distributions from joint ventures 152 102
Investment in joint ventures -- (27)
------- -------
Net cash provided by investing activities 631 694
------- -------
Financing Activities:
Distributions to partners (563) (563)
------- -------
Net cash used by financing activities (563) (563)
------- -------
Increase in cash and cash equivalents 163 150
Cash and cash equivalents, beginning of period 1,509 1,295
------- -------
Cash and cash equivalents, end of period $ 1,672 $ 1,445
======= =======
The accompanying notes are an integral
part of these statements.
Page 5 of 13
PHOENIX LEASING INCOME FUND 1981
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
that 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.
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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 $12,000 for which there is
no allowance. The average recorded investment in impaired loans during the nine
months ended September 30, 1995 was approximately $167,000. 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 $591,000 as a
settlement for this note receivable of which $462,000 was applied towards the
outstanding note receivable balance and the remaining $129,000 applied to
interest income. There was no related allowance for this note receivable. The
remaining general allowance for losses on notes receivable balance of $53,000
was no longer necessary due to the payment of this note receivable. As a result,
the remaining allowance for loan losses was reduced to zero through the
recognition of income.
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 $ 53 $ 53
Provision for losses (53) --
Write downs -- --
---- ----
Ending balance $-- $ 53
==== ====
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Note 5. Net Income (Loss) and Distributions per Limited Partnership Unit.
Net income and distributions per limited partnership unit were based
on the limited partner's share of net income and distributions, and the weighted
average number of units outstanding of 18,762 for the nine months ended
September 30, 1995 and 1994. For purposes of allocating income (loss) and
distributions to each individual limited partner, the Partnership allocates net
income (loss) and distributions based upon each respective limited partner's
ending capital account balance. The use of this method accurately reflects each
limited partner's participation in the partnership including reinvestment
through the Capital Accumulation Plan. As a result the calculation of net income
(loss) and distributions per limited partnership unit is not indicative of per
unit income (loss) and distributions due to reinvestments through the Capital
Accumulation Plan.
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 $1,065 $ 558 $3,201 $2,322
Gain on sale of equipment 397 246 1,273 1,035
Other income 571 111 680 182
------ ------ ------ ------
Total income 2,033 915 5,154 3,539
------ ------ ------ ------
EXPENSES
Depreciation 629 281 1,089 913
Lease related operating expenses 711 505 2,245 2,060
Management fees to General Partner 94 44 220 170
General and administrative expenses 5 28 16 130
------ ------ ------ ------
Total expenses 1,439 858 3,570 3,273
------ ------ ------ ------
Net income $ 594 $ 57 $1,584 $ 266
====== ====== ====== ======
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Financing Joint Ventures
The aggregate combined statements of operations of the financing joint
ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Interest income - notes receivable $ 14 $ 48 $ 62 $ 49
Other income 7 2 74 12
---- ---- ---- ----
Total income 21 50 136 61
---- ---- ---- ----
EXPENSES
Management fees to General Partner 2 4 7 17
General and administrative expenses 3 8 15 28
---- ---- ---- ----
Total expenses 5 12 22 45
---- ---- ---- ----
Net income $ 16 $ 38 $114 $ 16
==== ==== ==== ====
Foreclosed Cable System Joint Ventures
The aggregate combined statements of operations of the foreclosed cable
systems joint ventures is presented below:
COMBINED STATEMENTS OF OPERATIONS
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
INCOME
Subscriber revenue $151 $ 49 $440 $ 49
Other income 1 -- 4 --
---- ---- ---- ----
Total income 152 49 444 49
---- ---- ---- ----
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COMBINED STATEMENTS OF OPERATIONS (Continued)
(Amounts in Thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
EXPENSES
Depreciation and amortization $ 48 $-- $ 152 $--
Program services 46 -- 136 --
Management fees to an affiliate of the
General Partner 7 2 20 2
Provision for losses on accounts receivable 2 1 4 1
General and administrative expenses 35 7 100 7
----- ----- ----- -----
Total expenses 138 10 412 10
----- ----- ----- -----
Net income before income taxes 14 39 32 39
Income tax benefit (expense) (5) -- (13) --
----- ----- ----- -----
Net income $ 9 $ 39 $ 19 $ 39
===== ===== ===== =====
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PHOENIX LEASING INCOME FUND 1981
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
The Partnership reported net income of $61,000 and $264,000 for the
three and nine months ended September 30, 1995, respectively, as compared to net
income of $280,000 and $293,000 for the same periods in the preceding year.
The decreased net income during the three and nine months ended
September 30, 1995, as compared to the same periods in 1994, is primarily due to
the absence of a gain or loss on sale of equipment during 1995, as compared to a
large gain on sale of equipment during the same periods in 1994. During the
three and nine months ended September 30, 1995, the Partnership reported
increased earnings from joint ventures and an increase in other income. The
increase in other income was primarily due to the increase in interest income
earned on cash and cash equivalents.
During the nine months ended September 30, 1995, the Partnership
reported an increase in interest income from notes receivable, as well as the
recognition of the allowance for loan losses as income. During the second
quarter of 1995, the Partnership received a settlement payment of $591,000 on a
defaulted note receivable from a cable television system operator. Upon recovery
of this defaulted note receivable, the Partnership reduced the allowance for
loan losses by $53,000 during the quarter ended June 30, 1995. This reduction in
the allowance for loan losses was recognized as income during the period.
Total expenses decreased by $29,000 and $66,000 for the three and nine
months ended September 30, 1995, respectively, as compared to the same periods
in the preceding year. The decrease is due to a $53,000 decrease in the
provision for losses on notes receivable for both the three and nine months
ended September 30, 1995, as compared to the prior year.
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.
The increase in earnings from joint ventures of $25,000 and $38,000 for
the three and nine months ended September 30, 1995, compared to the same periods
in the previous year, is due to an increase in earnings in two equipment joint
ventures. The increase in earnings from joint ventures for the three and nine
months ended September 30, 1995 is due to one equipment joint venture
experiencing a decline in depreciation expense as a result of its equipment
portfolio having been fully depreciated. The increase for both periods is also
due to earnings from an investment in a new equipment joint venture that was
formed in October of 1994.
Liquidity and Capital Resources
The Partnership reported net cash provided by equipment leasing and
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financing activities of $573,000 during the nine months ended September 30,
1995, as compared to net cash provided of $333,000 during the same period in
1994. The increase in cash generated for the nine months ended September 30,
1995 is due to a settlement received on a defaulted note receivable during the
second quarter of 1995.
Distributions from joint ventures were $152,000 for the nine months
ending September 30, 1995, compared to $102,000 for the same period in the
preceding year. The increase, during the nine months ended September 30, 1995,
is attributable to an increase in the amount of cash available for distributions
in several of the equipment joint ventures. The increase in cash available for
one of these equipment joint ventures is due to the receipt of a cash settlement
in December of 1994 which was not distributed to the Partnerships until January
of 1995. Another equipment joint venture also experienced an increase in cash
available as a result of a decline in lease related operating expenses.
Distributions from joint ventures also improved as a result of an investment in
a new equipment joint venture which was formed in the October of 1994.
The aggregate original cost of equipment owned by the Partnership,
approximates $602,000 at September 30, 1995 compared to $1.3 million at
September 30, 1994. As of September 30, 1995, the Partnership owned equipment
being held for lease with a purchase price of $53,000 and a net book value of
$0, compared to $608,000 and $3,000, 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 distributions of $563,000 for the periods
ended September 30, 1995 and 1994. As a result, the cumulative distributions to
the Limited Partners are $19,539,000 and $18,976,000 as of September 30, 1995
and 1994, respectively. The General Partner did not receive cash distributions
during the nine month periods ended September 30, 1995 and 1994, but did receive
payment of certain management and liquidation fees.
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 operations will also decline. Due to the decrease in cash generated by
leasing and financing activities, the Partnership is no longer making quarterly
cash distributions to partners. Distributions are now being made annually. The
last quarterly distribution was made in January of 1993 and the first annual
distribution was made in January of 1994. The Partnership plans to make its next
annual distribution in January of 1996 at approximately the same rate as the
January 1995 distribution.
The Partnership plans to make a special distribution to partners on
October 15, 1995, due to the increase in the Partnership's cash and cash
equivalents. This increase in cash and cash equivalents is a result of the
payoff of a defaulted note receivable from a cable television system operator
during the second quarter of 1995.
Cash generated from leasing and financing operations has been and is
anticipated to continue to be sufficient to meet the Partnership's ongoing
operational expenses.
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PHOENIX LEASING INCOME FUND 1981
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 13 of 13
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 1981
(Registrant)
Date Title Signature
November 13, 1995 /S/ PARITOSH K. CHOKSI
- - ----------------- Chief Financial Officer, ----------------------
Senior Vice President (Paritosh K. Choksi)
and Treasurer of
Phoenix Leasing Incorporated
General Partner
November 13, 1995 /S/ BRYANT J. TONG
- - ----------------- Senior Vice President, ------------------
Financial Operations (Bryant J. Tong)
(Principal Accounting Officer)
and a Director of
Phoenix Leasing Incorporated
General Partner
November 13, 1995 /S/ GARY W. MARTINEZ
- - ----------------- Senior Vice President of --------------------
Phoenix Leasing Incorporated (Gary W. Martinez)
General Partner
November 13, 1995 /S/ MICHAEL K. ULYATT
- - ----------------- Partnership Controller ---------------------
Phoenix Leasing Incorporated (Michael K. Ulyatt)
General Partner