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 fiscal quarter ended June 30, 1996.
[ ] 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 33-40093
-----------------------
PLM EQUIPMENT GROWTH & INCOME FUND VII
(Exact name of registrant as specified in its
charter)
California 94-3168838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
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 ______
<PAGE>
PLM GROWTH & INCOME FUND VII
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-----------------------------------
<S> <C> <C>
Equipment held for operating leases $ 60,558 $ 58,333
Less accumulated depreciation (16,689) (12,796)
-----------------------------------
43,869 45,537
Equipment held for sale -- 156
-----------------------------------
Net equipment 43,869 45,693
Cash and cash equivalents 7,355 11,965
Restricted cash 379 401
Investments in unconsolidated special purpose entities 39,356 38,689
Accounts receivable, net of allowance for
doubtful accounts of $451 in 1996 and $238 in 1995 660 872
Prepaid expenses 65 40
Deferred charges, net of accumulated amortization
of $380 in 1996 and $268 in 1995 470 534
Equipment acquisition deposits 151 --
-----------------------------------
Total assets $ 92,305 $ 98,194
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 105 $ 270
Due to affiliates 273 513
Note payable 23,000 23,000
Prepaid deposits and reserve for repairs 1,120 1,120
-----------------------------------
Total liabilities 24,498 24,903
Partners' capital:
Limited Partners (5,370,297 Depositary Units at March 31,
1996 and at December 31, 1995) 67,807 73,291
General Partner -- --
-----------------------------------
Total partners' capital 67,807 73,291
-----------------------------------
Total liabilities and partners' capital $ 92,305 $ 98,194
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars except per unit amounts)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
1996 1995 1996 1995
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 2,965 $ 3,768 $ 6,009 $ 7,324
Interest and other income 109 160 298 248
Net gain (loss) on disposition of equipment 7 167 23 173
---------------------------------------------------------------
Total revenues 3,081 4,095 6,330 7,745
Expenses:
Depreciation and amortization 2,047 3,175 4,062 6,025
Management fees to affiliate 59 208 217 404
Repairs and maintenance 303 352 542 656
Interest expense 413 -- 836 --
Marine equipment operating expenses 38 91 56 220
Insurance expense to affiliate -- 22 -- 45
Other insurance expense 21 28 32 85
General and administrative
expenses to affiliates 115 136 203 314
Other general and administrative expenses 133 134 404 233
Bad debt expense 135 -- 213 15
---------------------------------------------------------------
---------------------------------------------------------------
Total expenses 3,264 4,146 6,565 7,997
---------------------------------------------------------------
Equity in net loss of unconsolidated
special purpose entities (176) -- (162) --
---------------------------------------------------------------
Net loss $ (359) $ (51) $ (397) $ (252)
===============================================================
Partners' share of net income (loss):
Limited Partners $ (486) $ (165) $ (651) $ (467)
General Partner 127 114 254 215
---------------------------------------------------------------
Total $ (359) $ (51) $ (397) $ (252)
===============================================================
Net loss per Depositary Unit
(5,370,297 Units in 1996 and 1995) $ (0.09) $ N/A $ (0.12) $ N/A
===============================================================
Cash distributions $ 2,543 $ 2,409 $ 5,087 $ 4,563
===============================================================
Cash distributions per Depositary Unit $ 0.45 $ 0.45 $ 0.90 $ 0.90
===============================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1994 to June 30,
1996
(in thousands)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital at December 31, 1994 $ 66,996 $ -- $ 66,996
Partners' capital contributions 18,873 -- 18,873
Underwriting commissions to affiliates (1,320) -- (1,320)
Syndication costs to affiliates (440) -- (440)
------------------------------------------------------------------
Partners' capital contributions, net 17,113 -- 17,113
Net income (loss) (1,661) 470 (1,191)
Cash distributions (9,157) (470) (9,627)
------------------------------------------------------------------
Partners' capital at December 31, 1995 73,291 -- 73,291
Net income (loss) (651) 254 (397)
Cash distributions (4,833) (254) (5,087)
------------------------------------------------------------------
Partners' capital at June 30, 1996 $ 67,807 $ -- $ 67,807
==================================================================
</TABLE>
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
------------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (397) $ (252)
Adjustments to reconcile net loss to net cash
provided by operating activities
Gain on disposition of equipment (23) (173)
Depreciation and amortization 4,062 6,025
Cash distributions from unconsolidated special purpose
entities in excess of income 5,252 --
Changes in operating assets and liabilities:
Increase in restricted cash 22 (6)
Accounts receivable, net 109 (91)
Prepaid expenses (25) 25
Accounts payable and accrued expenses (164) 50
Due to affiliates (240) (57)
Prepaid deposits and reserve for repairs -- 337
------------------------------------
Cash provided by operating activities 8,596 5,858
------------------------------------
Investing activities:
Payments for purchase of equipment and capitalized repairs (2,301) (10,118)
Investment in equipment purchased and placed in
unconsolidated special purpose entities (5,919) --
Payments of acquisition-related fees to affiliate (105) (808)
Payments for equipment acquisition deposits (151) --
Payments of lease negotiation fees to affiliate (23) (180)
Proceeds from disposition of equipment 405 472
------------------------------------
Cash used in investing activities (8,094) (10,634)
------------------------------------
Financing activities:
Partner's capital contributions, net of syndication and
underwriting costs -- 17,113
Decrease in due to affiliates relating to syndication activities -- (262)
Cash distributions paid to affiliate (254) (215)
Cash distributions paid to Limited Partners (4,833) (4,328)
Payments of debt issuance costs (25) --
Decrease in subscriptions in escrow, net -- (4,239)
Decrease in restricted cash -- 4,010
------------------------------------
Cash (used in) provided by financing activities (5,112) 12,079
------------------------------------
Net (decrease) increase in cash and cash equivalents (4,610) 7,303
Cash and cash equivalents at beginning of period 11,965 200
------------------------------------
Cash and cash equivalents at end of period $ 7,355 $ 7,503
====================================
Supplemental information:
Interest paid $ 906 $ --
====================================
Supplemental disclosure of noncash investing and financing activities:
Sales proceeds included in accounts receivable $ 103 $ 649
====================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. ("FSI"), the
General Partner, the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the Partnership's financial position as of June 30, 1996, the
statements of operations for the three and six months ended June 30, 1996 and
1995, the statements of cash flows for the six months ended June 30, 1996 and
1995, and the statements of changes in partners' capital for the period from
December 31, 1994 to June 30, 1996. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the
accompanying financial statements. For further information, reference should be
made to the financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1995, on file at the
Securities and Exchange Commission.
2. Cash Distributions
Cash distributions are recorded when paid and totaled $2.5 million and $5.1
million for the three and six months ended June 30, 1996, respectively. Cash
distributions to investors in excess of net income are considered to represent a
return of capital on a Generally Accepted Accounting Principles (GAAP) basis.
All cash distributions to the Limited Partners for the six months ended June 30,
1996 and 1995, were deemed to be a return of capital. Cash distributions related
to second quarter results of $1.3 million were paid or are payable during July
and August 1996, depending on whether the individual unit holder elected to
receive a monthly or quarterly distribution check.
3. Investments in Unconsolidated Special Purpose Entities
During the second half of 1995, the Partnership began to increase the level of
its participation in the ownership of large-ticket transportation assets to be
owned and operated jointly with affiliated programs. This trend has continued
during 1996.
Prior to 1996, the Partnership accounted for operating activities associated
with joint ownership of transportation equipment as undivided interests,
including its proportionate share of each asset with similar wholly-owned assets
in its financial statements. Under generally accepted accounting principles, the
effects of such activities, if material, should be reported using the equity
method of accounting. Therefore, effective January 1, 1996, the Partnership
adopted the equity method to account for its investment in such jointly-held
assets.
The principle differences between the previous accounting method and the equity
method relate to the presentation of activities relating to these assets in the
statement of operations. Whereas, under equity accounting the Partnership's
proportionate share is presented as a single net amount, "equity in net income
(loss) of unconsolidated special purpose entities," under the previous method,
the Partnership's statement of operations reflected its proportionate share of
each individual item of revenue and expense. Accordingly, the effect of adopting
the equity method of accounting has no cumulative effect on previously reported
partner's capital or on the Partnership's net income (loss) for the period of
adoption. Because the effects on previously issued financial statements of
applying the equity method of accounting to investments in jointly-owned assets
are not considered to be material to such financial statements taken as a whole,
previously issued financial statements have not been restated. However, certain
items have been reclassified in the previously issued balance sheet to conform
to the current period presentation.
During the six months ended June 30, 1996, the Partnership purchased a partial
beneficial interest in a trust owning five commercial aircraft for $5.6 million
and incurred acquisition and lease negotiation fees of $0.3 million to PLM
Transportation Equipment Corporation, an affiliate of the General Partner.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
3. Investments in Unconsolidated Special Purpose Entities (continued)
The net investment in unconsolidated special purpose entities includes the
following jointly owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
June 30, December 31,
Ownership Equipment 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
80% Bulk carrier marine vessel $ 8,609 $ 8,903
44% Bulk carrier marine vessel 3,571 3,836
24% 767-200ER Commercial aircraft 6,360 7,001
33% Two trusts that own three commercial aircraft, two aircraft engines,
and portfolio of aircraft rotables 8,483 10,664
29% Trust that own seven commercial aircraft 7,021 8,285
20% Trust that own five commercial aircraft 5,312 --
------------------------------
Investments in unconsolidated special purpose entities $ 39,356 $ 38,689
==============================
</TABLE>
4. Equipment
Owned equipment held for operating leases is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or net
realizable value and is subject to a pending contract for sale. The components
of equipment are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-----------------------------------
<S> <C> <C>
Aircraft $ 10,452 $ 10,450
Marine vessels 22,212 22,211
Trailers 13,137 11,343
Rail equipment 10,039 9,479
Modular buildings 4,718 4,850
-----------------------------------
60,558 58,333
Less accumulated depreciation (16,689) (12,796)
-----------------------------------
43,869 45,537
Equipment held for sale -- 156
-----------------------------------
Net equipment $ 43,869 $ 45,693
===================================
</TABLE>
Revenues are earned by placing the equipment in service under operating leases.
As of June 30, 1996, all equipment in the Partnership's portfolio was on lease
or operating in PLM-affiliated short-term trailer rental yards except for 61
trailers. The net book value of the equipment off-lease was $1.2 million. As of
December 31, 1995, all equipment in the Partnership's portfolio was on lease or
operating in PLM-affiliated short-term trailer rental yards.
During the six months ended June 30, 1996, six modular buildings and four
trailers with an aggregate net book value of $123,000 were sold for $152,000.
The Partnership also sold 58 trailers, which were held for sale as of December
31, 1995, with a net book value of $156,000 at the date of sale for proceeds of
$150,000
During the six months ended June 30, 1995, the Partnership sold 44 modular
buildings and 26 trailers with an aggregate net book value of $948,000 for
proceeds of $1,121,000.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
5. Debt
The General Partner has entered into a joint $35 million credit facility (the
"Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth
Fund III, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI and Professional Lease Management Income Fund I ("Fund
I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an
indirect wholly-owned subsidiary of the General Partner, and American Finance
Group, Inc. (AFG), a subsidiary of PLM International, Inc., which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Partnership or Fund I, plus (ii) 50% of unrestricted cash held by the borrower.
The Committed Bridge Facility became available on December 20, 1993, and was
amended and restated on May 31, 1996, to expire on May 23, 1997. The Committed
Bridge Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM
Equipment Growth Funds III through VII reduce the amount available to each other
under the Committed Bridge Facility. Individual borrowings may be outstanding
for no more than 179 days, with all advances due no later than May 23, 1997. The
Committed Bridge Facility prohibits the Partnership from incurring any
additional indebtedness. Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of
funds. Borrowings by the Partnership are guaranteed by the General Partner. As
of August 9, 1996, the PLM Equipment Growth Fund VI had $9,000,000 in
outstanding borrowings under the Committed Bridge Facility, TECAI had
$23,911,000 in outstanding borrowings and neither the Partnership nor any of the
other programs had any outstanding borrowings.
(this space intentionally left blank)
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of the Partnership's Operating Results for the Three Months Ended
June 30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the second quarter of 1996 when compared to the same quarter of
1995. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 538 $ 274
Marine vessels 895 868
Trailers 560 606
Rail equipment 488 515
Modular buildings 131 159
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$8,000, respectively, for the three months ended 1996, compared to $0.2 million
and $2,000, respectively during the same quarter of 1995. The increase in
aircraft contribution was due to the purchase of three DC-9 aircraft and two
Dash 8-100 aircraft during the later half of the second quarter of 1995. This
purchase gave 1996 three full months of lease revenues compared to one month of
lease revenues during 1995;
Marine vessels: Marine vessel lease revenues and direct expenses were $1.0
million and $70,000, respectively, for the three months ended 1996, compared to
$1.0 million and $96,000, respectively during the same quarter of 1995. The
increase in the marine vessel contribution was due to lower marine operating
expenses when compared to the same period of 1995;
Trailers: Trailer lease revenues and direct expenses were $651,000 and $91,000,
respectively, for the three months ended 1996, compared to $631,000 and $25,000,
respectively during the same quarter of 1995. The increase in trailer lease
revenues is due to a larger fleet in service. Trailer repairs increased due to
repairs incurred which were not needed during the same period of 1995;
Rail equipment: Railcar lease revenues and direct expenses were $0.6 million and
$146,000, respectively, for the three months ended 1996, compared to $0.6
million and $119,000, respectively during the same quarter of 1995. Although the
railcar fleet remained relatively the same size for both quarters, the decrease
in railcar contribution resulted from running repairs required on certain of the
railcars in the fleet during 1996 which were not needed during 1995;
Modular buildings: Modular building lease revenues and direct expenses were
$169,000 and $38,000, respectively, for the three months ended 1996, compared to
$160,000 and $1,000, respectively during the same quarter of 1995. The number of
modular buildings owned by the Partnership has been declining over the past
twelve months due to sales and dispositions, however, the Partnership is earning
a higher lease rate on the remaining buildings and has incurred increased
repositioning costs to move these building to new sites.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $2.9 million for the quarter ended June 30, 1996,
increased from $2.5 million for the same period in 1995. The variances are
explained as follows:
(a) The $0.4 million increase in interest expense is due to the increase in
long-term debt of $23 million when compared to the same period of 1995 when the
Partnership had no debt.
(b) Bad debt expense increased $0.1 million due to an increase in estimated
uncollectable receivables from certain leases.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the second quarter 1996 totaled $7,000
which resulted from the sale of three trailers with a net book value of $21,000,
for proceeds of $28,000. During the second quarter of 1995, the $167,000 net
gain on disposition of equipment resulted from the sale or disposal of 40
modular buildings and 26 trailers with an aggregate net book value of $876,000,
for proceeds of $1.0 million.
(D) Interest and other income
Interest and other income decreased $51,000 during the second quarter of 1996
due primarily to lower cash balances available for investments when compared to
the same period of 1995.
(E) Equity in net loss of unconsolidated special purpose entities represents net
loss generated from the operation of jointly-owned assets accounted for under
the equity method (see Note 2 to the financial statements).
<TABLE>
<CAPTION>
For the three months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ (104 ) $ (130 )
Marine vessels (72 ) (158 )
</TABLE>
Aircraft, rotable components, and aircraft engines: As of June 30, 1996, the
Partnership had a partial beneficial interest in four trusts which own 15
commercial aircraft, 2 aircraft engines and a portfolio of rotable components
and a 24% interest in a commercial aircraft. During the same period of 1995, the
Partnership only owned the 24% interest in a commercial aircraft. The
Partnership's share of lease revenues for this equipment increased to $2.1
million during the second quarter 1996 compared to $0.3 million during the same
period of 1995. The only significant expense was depreciation which increased to
$2.1 million during the second quarter of 1996 from $0.4 million during the same
period of 1995.
Marine vessels: As of June 30, 1996 and 1995, the Partnership owned an 80%
interest in a dry bulk carrier marine vessel and a 44% interest in a another dry
bulk carrier marine vessel. The Partnership's share of lease revenues increased
to $1.2 million for the second quarter 1996 from $0.8 million during the same
period of 1995. This increase was due to the change in the lease of one marine
vessel from bareboat charter to time charter. As a result of this change, direct
operating expenses increased to $0.5 million during the second quarter 1996 from
$0.2 million for the same period of 1995. Indirect operating expenses remained
relatively the same for both periods.
(F) Net Loss
As a result of the foregoing, the Partnership's net loss of $0.4 million for the
second quarter of 1996, increased from net loss of $51,000 during the same
period in 1995. The Partnership's ability to operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire during the duration
of the Partnership is subject to many factors and the Partnership's performance
in the second quarter 1996 is not necessarily indicative of future periods. In
the second quarter 1996, the Partnership distributed $2.4 million to the Limited
Partners, or $0.45 per Depositary Unit.
<PAGE>
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 1996 when compared to the same
period of 1995. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands):
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 1,095 $ 261
Marine vessels 1,795 1,712
Trailers 1,061 1,202
Rail equipment 992 1,042
Modular buildings 455 377
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $1.1 million and
$18,000, respectively, for the six months ended 1996, compared to $0.3 million
and $15,000, respectively during the same period of 1995. The increase was due
to the purchase of three DC-9 aircraft and two Dash 8-100 aircraft during the
later half of the second quarter of 1995. This purchase gave 1996 six full
months of lease revenues compared to one month of lease revenues during the same
period of 1995;
Marine vessels: Marine vessel lease revenues and direct expenses were $1.9
million and $0.1 million, respectively, for the six months ended 1996, compared
to $1.9 million and $0.2 million, respectively during the same period of 1995.
The decrease in direct expenses was due to the lower marine operating expenses
and a small insurance refund due to an overpayment in a prior year;
Trailers: Trailer lease revenues and direct expenses were $1.2 million and $0.1,
respectively, for the six months ended 1996, compared to $1.3 million and $0.1
million, respectively during the same period of 1995. The trailer fleet is
experiencing lower utilization of its equipment in the PLM affiliated short-term
rental yards;
Rail equipment: Railcar lease revenues and direct expenses were $1.3 million and
$$0.3 million, respectively, for the six months ended 1996, compared to $1.2
million and $0.2 million, respectively during the same period of 1995. Although
the railcar fleet remained relatively the same size for both periods, the
decrease in railcar contribution resulted from running repairs required on
certain of the railcars in the fleet during 1996 which were not needed during
1995;
Modular buildings: Modular buildings lease revenues and direct expenses were
$0.5 million and $50,000, respectively, for the six months ended 1996, compared
to $0.4 million and $1,000, respectively during the same period of 1995. The
number of modular buildings owned by the Partnership has been declining over the
past twelve months due to sales and dispositions, however, the Partnership is
earning a higher lease rate on the remaining fleet and is in the process of
relocating buildings to other sites for future lease.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $6.1 million for the six months ended June 30, 1996,
increased from $5.2 million for the same period in 1995. The variances are
explained as follows:
(a) A $0.8 million increase in interest expense from 1995 levels reflecting the
increase in long-term debt of $23 million compared to the same period of 1995
when the Partnership had no debt.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the six months ended June 30, 1996
totaled $23,000 which resulted from the sale of six modular building and four
trailers with an aggregate net book value of $123,000 for proceeds of $151,000.
The Partnership also sold 58 trailers, which were held for sale as of December
31, 1995, with a net book value of $156,000 at the date of sale for proceeds of
$150,000. For the six months ended June 30, 1995, the $173,000 net gain on
disposition of equipment resulted from the sale of 44 modular buildings and 26
trailers with an aggregate net book value of $948,000, for proceeds of $1.1
million.
(D) Interest and other income
Interest and other income increased $50,000 during the six months ended June 30,
1996 due primarily to higher cash balances available for investments during the
first quarter of 1996 when compared to the same period of 1995. The
Partnership's cash balances for investments decreased during the second quarter
of 1996.
(E) Equity in net loss of unconsolidated special purpose entities represents net
loss generated from the operation of jointly-owned assets accounted for under
the equity method (see Note 2 to the financial statements).
<TABLE>
<CAPTION>
For the six months
ended June 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ (213 ) $ (150 )
Marine vessels 51 (299 )
</TABLE>
Aircraft, rotable components, and aircraft engines: As of June 30, 1996, the
Partnership had a partial beneficial interest in four trusts which own 15
commercial aircraft, 2 aircraft engines and a portfolio of rotable components
and a 24% interest in a commercial aircraft. During the same period of 1995, the
Partnership only owned the 24% interest in a commercial aircraft. The
Partnership's share of lease revenues for this equipment increased to $3.8
million during the six months ended June 30, 1996 compared to $0.6 million
during the same period of 1995. The only significant expense was depreciation
which increased $3.1 million during the six months ended June 30, 1996 when
compared to the same period of 1995.
Marine vessels: As of June 30, 1996 and 1995, the Partnership had an 80%
interest in a dry bulk carrier marine vessel and a 44% interest in a another dry
bulk carrier marine vessel. The Partnership's share of lease revenues increased
to $2.4 million during the six months ended June 30, 1996 from $1.6 million
during the same period of 1995. This increase was due to the change in the lease
of one marine vessel from bareboat charter to time charter which earns higher
revenues. As a result of this change, direct operating expenses increased to
$0.9 million during the six months ended June 30, 1996 from $0.5 million for the
same period of 1995. Indirect operating expenses remained relatively the same
for both periods.
F) Net loss
As a result of the foregoing, the Partnership's net loss of $0.4 million for the
six months ended June 30, 1996, increased from net loss of $0.3 million during
the same period in 1995. The Partnership's ability to operate and liquidate
assets, secure leases, and re-lease those assets whose leases expire during the
duration of the Partnership is subject to many factors and the Partnership's
performance in the six months ended June 30, 1996 is not necessarily indicative
of future periods. In the six months ended June 30, 1996, the Partnership
distributed $4.8 million to the Limited Partners, or $0.90 per Depositary Unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing of
$23 million. No further capital contributions from original partners are
permitted under the terms of the Partnership's Limited Partnership Agreement.
The Partnership relies on operating cash flow to meet its operating obligations,
make cash distributions to partners and increase the Partnership's equipment
portfolio with any remaining available surplus cash. For the six months ended
June 30, 1996, the Partnership generated sufficient operating cash to meet its
operating obligations and pay distributions.
The General Partner has entered into a joint $35 million credit facility (the
"Committed Bridge Facility") on behalf of the Partnership, PLM Equipment Growth
Fund III, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM
Equipment Growth Fund VI and Professional Lease Management Income Fund I ("Fund
I"), all affiliated investment programs, TEC Acquisub, Inc. ("TECAI"), an
indirect wholly-owned subsidiary of the General Partner, and American Finance
Group (AFG), a subsidiary of PLM International, Inc., which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Partnership or Fund I, plus (ii) 50% of unrestricted cash held by the borrower.
The Committed Bridge Facility became available on December 20, 1993, and was
amended and restated on May 31, 1996, to expire on May 23, 1997. The Committed
Bridge Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM
Equipment Growth Funds III through VII reduce the amount available to each other
under the Committed Bridge Facility. Individual borrowings may be outstanding
for no more than 179 days, with all advances due no later than May 23, 1997. The
Committed Bridge Facility prohibits the Partnership from incurring any
additional indebtedness. Interest accrues at either the prime rate or adjusted
LIBOR plus 2.5% at the borrowers option and is set at the time of an advance of
funds. Borrowings by the Partnership are guaranteed by the General Partner. As
of August 9, 1996, the PLM Equipment Growth Fund VI had $9,000,000 in
outstanding borrowings under the Committed Bridge Facility, TECAI had
$23,911,000 in outstanding borrowings and neither the Partnership nor any of the
other programs had any outstanding borrowings.
(III) TRENDS
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors. Throughout 1995 and the first part of 1996, market
conditions, supply and demand equilibrium, and other factors varied in several
markets. In the refrigerated over-the-road trailer markets, oversupply
conditions, industry consolidations, and other factors resulted in falling rates
and lower returns. In the dry over-the-road trailer markets, strong demand and a
backlog of new equipment deliveries produced high utilization and returns. The
marine vessel and rail markets could be generally categorized by increasing
rates as the demand for equipment is increasing faster than new additions net of
retirements. Finally, demand for narrowbody stage II aircraft, such as those
owned by the Partnership, has increased as expected savings from newer
narrowbody aircraft have not materialized and deliveries of the newer aircraft
have slowed down. These trends are expected to continue for the near term. These
different markets have had individual effects on the performance of Partnership
equipment - in some cases resulting in declining performance, and in others, in
improved performance.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
governmental or other regulations, and others. The unpredictability of some of
these factors, or of their occurrence, makes it difficult for the General
Partner to clearly define trends or influences that may impact the performance
of the Partnership's equipment. The General Partner continuously monitors both
the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may make an evaluation to reduce the
Partnership's exposure to equipment markets in which it determines that it
cannot operate equipment and achieve acceptable rates of return. Alternatively,
the General Partner may make a determination to enter equipment markets in which
it perceives opportunities to profit from supply-demand instabilities or other
market imperfections.
The Partnership intends to use excess cash flow, if any, after payment of
expenses, loan principal, and cash distributions to acquire additional equipment
during the first seven years of Partnership operations. The General Partner
believes these acquisitions may cause the Partnership to generate additional
earnings and cash flow for the Partnership.
<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>
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.
PLM EQUIPMENT GROWTH FUND & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Dated: August 9, 1996 By: /s/ David J. Davis
--------------------------
David J. Davis
Vice President and
Corporate Controller
-14-
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