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 September 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 800, 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>
September 30, December 31,
1996 1995
----------------------------------
<S> <C> <C>
Equipment held for operating leases $ 67,493 $ 58,333
Less accumulated depreciation (18,905 ) (12,796 )
----------------------------------
48,588 45,537
Equipment held for sale -- 156
----------------------------------
Net equipment 48,588 45,693
Cash and cash equivalents 1,793 11,965
Restricted cash 189 401
Investments in unconsolidated special purpose entities 37,047 38,689
Accounts receivable, net of allowance for
doubtful accounts of $331 in 1996 and $238 in 1995 1,010 872
Prepaid expenses 22 40
Deferred charges, net of accumulated amortization
of $438 in 1996 and $268 in 1995 479 534
Equipment acquisition deposits 19 --
----------------------------------
Total assets $ 89,147 $ 98,194
==================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 550 $ 270
Due to affiliates 503 513
Note payable 23,000 23,000
Prepaid deposits and reserve for repairs 861 1,120
----------------------------------
Total liabilities 24,914 24,903
Partners' capital:
Limited Partners (5,370,297 Depositary Units at March 31,
1996 and at December 31, 1995) 64,233 73,291
General Partner -- --
----------------------------------
Total partners' capital 64,233 73,291
----------------------------------
Total liabilities and partners' capital $ 89,147 $ 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 nine months
ended September 30, ended September 30,
1996 1995 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 3,135 $ 4,815 $ 9,144 $ 12,140
Interest and other income 68 66 366 314
Net gain (loss) on disposition of equipment 2 (21 ) 25 151
--------------------------------------------------------------
Total revenues 3,205 4,860 9,535 12,605
Expenses:
Depreciation and amortization 2,296 3,877 6,358 9,902
Management fees to affiliate 230 259 447 663
Repairs and maintenance 422 369 964 1,026
Interest expense 427 40 1,263 40
Marine equipment operating expenses 36 391 92 612
Insurance expense to affiliate -- 56 -- 101
Other insurance expense 23 38 55 123
General and administrative
expenses to affiliates 30 135 233 448
Other general and administrative expenses 245 160 649 393
Bad debt expense (120 ) 46 93 61
--------------------------------------------------------------
--------------------------------------------------------------
Total expenses 3,589 5,371 10,154 13,369
--------------------------------------------------------------
Equity in net loss of unconsolidated
special purpose entities (645 ) -- (807 ) --
--------------------------------------------------------------
Net loss $ (1,029 ) $ (511 ) $ (1,426 ) $ (764 )
==============================================================
Partners' share of net income (loss):
Limited Partners $ (1,156 ) $ (637 ) $ (1,807 ) $ (1,104 )
General Partner 127 126 381 340
--------------------------------------------------------------
Total $ (1,029 ) $ (511 ) $ (1,426 ) $ (764 )
==============================================================
Net loss per Depositary Unit
(5,370,297 Units in 1996 and 1995) $ (0.22 ) $ N/A $ (0.34 ) $ N/A
==============================================================
Cash distributions $ 2,545 $ 2,538 $ 7,632 $ 7,081
==============================================================
Cash distributions per Depositary Unit $ 0.45 $ 0.45 $ 1.35 $ N/A
==============================================================
</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 September
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) (1,807 ) 381 (1,426 )
Cash distributions (7,251 ) (381 ) (7,632 )
-----------------------------------------------------------------
Partners' capital at September 30, 1996 $ 64,233 $ -- $ 64,233
=================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
-----------------------------------
<S> <C> <C>
Operating activities:
Net loss $ (1,426 ) $ (764 )
Adjustments to reconcile net loss to net cash
provided by operating activities
Gain on disposition of equipment (25 ) (151 )
Depreciation and amortization 6,358 9,902
Cash distributions from unconsolidated special purpose
entities in excess of loss 7,480 --
Changes in operating assets and liabilities:
Restricted cash 212 --
Accounts receivable, net (234 ) (297 )
Prepaid expenses 18 30
Accounts payable and accrued expenses 282 115
Due to affiliates (10 ) (13 )
Prepaid deposits and reserve for repairs (259 ) 702
-----------------------------------
Cash provided by operating activities 12,396 9,524
-----------------------------------
Investing activities:
Payments for purchase of equipment and capitalized repairs (8,998 ) (25,140 )
Investment in equipment purchased and placed in
unconsolidated special purpose entities (5,838 ) --
Payments of acquisition-related fees to affiliate (402 ) (1,291 )
Payments for equipment acquisition deposits (19 ) --
Payments of lease negotiation fees to affiliate (90 ) (287 )
Proceeds from disposition of equipment 436 1,160
-----------------------------------
Cash used in investing activities (14,911 ) (25,558 )
-----------------------------------
Financing activities:
Partner's capital contributions, net of syndication and
underwriting costs -- 17,113
Proceeds from note payable -- 9,569
Decrease in due to affiliates relating to syndication activities -- (262 )
Cash distributions paid to affiliate (381 ) (340 )
Cash distributions paid to Limited Partners (7,251 ) (6,741 )
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 (7,657 ) 19,110
-----------------------------------
Net (decrease) increase in cash and cash equivalents (10,172 ) 3,076
Cash and cash equivalents at beginning of period 11,965 200
-----------------------------------
Cash and cash equivalents at end of period $ 1,793 $ 3,276
===================================
Supplemental information:
Interest paid $ 938 $ --
===================================
Supplemental disclosure of noncash investing and financing activities:
Sales proceeds included in accounts receivable $ 118 $ --
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 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 September 30, 1996,
the statements of operations for the three and nine months ended September 30,
1996 and 1995, the statements of cash flows for the nine months ended September
30, 1996 and 1995, and the statements of changes in partners' capital for the
period from December 31, 1994 to September 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 $7.6
million for the three and nine months ended September 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 nine months
ended September 30, 1996 and 1995, were deemed to be a return of capital. Cash
distributions related to third quarter results of $1.3 million were paid or are
payable during October and November 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 the equity method of 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 nine months ended September 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
September 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>
September 30, December 31,
Ownership Equipment 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
80% Bulk carrier marine vessel $ 7,754 $ 8,903
44% Bulk carrier marine vessel 3,175 3,836
24% 767-200ER Commercial aircraft 6,058 7,001
33% Two trusts that own three commercial aircraft, two aircraft engines,
and portfolio of aircraft rotables 8,821 10,664
29% Trust that owns seven commercial aircraft (see note below) -- 8,285
33% Trust that owns six commercial aircraft (see note below) 6,376 --
25% Trust that owns four commercial aircraft (see note below) 4,863 --
------------------------------
Investments in unconsolidated special purpose entities $ 37,047 $ 38,689
==============================
</TABLE>
The Partnership has beneficial interests in two certain unconsolidated special
purpose entities that own multiple aircraft (the "Trusts"). These Trusts contain
provisions, under certain circumstances, for allocating specific aircraft to the
beneficial owners. During September 1996, PLM Equipment Growth Fund V, an
affiliated partnership which also has a beneficial interest in the Trust,
renegotiated its senior loan agreement and was required, for loan collateral
purposes, to withdraw the aircraft designated to it from the Trust. The result
was to restate the percentage ownership of the remaining beneficial owners of
the Trusts beginning September 30, 1996. This change has no effect on the income
or loss recognized during 1996.
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 fair
value less cost to sell and is subject to a pending contract for sale. The
components of equipment are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------------------------
<S> <C> <C>
Aircraft $ 15,933 $ 10,450
Marine vessels 22,212 22,211
Trailers 14,585 11,343
Rail equipment 10,045 9,479
Modular buildings 4,718 4,850
----------------------------------
67,493 58,333
Less accumulated depreciation (18,905 ) (12,796 )
----------------------------------
48,588 45,537
Equipment held for sale -- 156
----------------------------------
Net equipment $ 48,588 $ 45,693
==================================
</TABLE>
Revenues are earned by placing the equipment in service under operating leases.
As of September 30, 1996, all equipment in the Partnership's portfolio was on
lease or operating in PLM-affiliated short-term trailer rental yards except for
9 railcars and 51 trailers with an aggregate net book value of $0.8 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.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
4. Equipment (continued)
During the nine months ended September 30, 1996, the Partnership purchased a
commercial aircraft, 209 trailers and 35 railcars for $9.0 million and incurred
acquisition and lease negotiation fees of $0.5 million to TEC for this
equipment.
During the nine months ended September 30, 1996, six modular buildings and eight
trailers with an aggregate net book value of $160,000 were sold for $191,000.
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 nine months ended September 30, 1995, the Partnership sold 47 modular
buildings and 26 trailers with an aggregate net book value of $1,009,000 for
proceeds of $1,160,000.
Periodically, PLM International. Inc., (the Company) will purchase groups of
assets whose ownership may be allocated among affiliated partnerships and the
Company. Generally in these cases, only assets that are on lease will be
purchased by the affiliated partnerships. The Company will generally assume the
ownership and remarketing risks associated with off-lease equipment. Allocation
of the purchase price will be determined by a combination of third party
industry sources, and recent transactions or published fair market value
references. During the nine months ended September 30, 1996, the Company
realized $0.7 million of gains on the sale of 69 off-lease railcars purchased by
the Company as part of a group of assets in 1994 which had been allocated to the
Partnership, PLM Equipment Growth Funds IV, VI, Professional Lease Management
Income Fund I, L.L.C. and the Company.
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 September 30, 1996, AFG had $27,791,000 in outstanding borrowings. Neither
the Partnership, Fund I, TECAI nor any of the other programs had any outstanding
borrowings.
On October 31, 1996, the General Partner amended this agreement (for details
refer to "Liquidity and Capital Resources").
<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
September 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 third 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 September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 578 $ 613
Marine vessels 891 895
Trailers 591 612
Rail equipment 524 472
Modular buildings 87 199
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $585,000 and $7,000,
respectively, for the three months ended 1996, compared to $618,000 and $5,000,
respectively during the same quarter of 1995. The decrease in aircraft
contribution was due to additional rents received during 1995 which were not
earned during 1996;
Marine vessels: Marine vessel lease revenues and direct expenses were $1.0
million and $85,000, respectively, for the three months ended 1996, compared to
$1.0 million and $80,000, respectively during the same quarter of 1995. The
decrease in the marine vessel contribution was due to slightly higher marine
operating expenses when compared to the same period of 1995;
Trailers: Trailer lease revenues and direct expenses were $761,000 and $170,000,
respectively, for the three months ended 1996, compared to $665,000 and $53,000,
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 $0.7 million and
$175,000, respectively, for the three months ended 1996, compared to $0.6
million and $159,000, respectively during the same quarter of 1995. Although the
railcar fleet remained relatively the same size for both quarters, the increase
in railcar lease revenues is due to the purchase of additional railcars during
1996. Direct expenses increased due to a larger fleet which required running
repairs during 1996;
Modular buildings: Modular building lease revenues and direct expenses were
$115,000 and $28,000, respectively, for the three months ended 1996, compared to
$199,000 and $-0-, 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. Direct expenses increased
$28,000 during the third quarter 1996, the increase was due to repairs and
commission expenses incurred during 1996 which were not needed during the same
period of 1995.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $3.1 million for the quarter ended September 30,
1996, increased from $2.9 million for the same period in 1995. The variances are
explained as follows:
(a) The $0.4 million increase in interest expense during the third quarter of
1996 is due to the long-term debt of $23 million in place for the full quarter
when compared to the same period of 1995, the Partnership had $5.3 million in
short-term debt in place for 30 days and an additional $4.3 million in
short-term debt in place for 2 days;
(b) Bad debt expense decreased $0.2 million due to an decrease in estimated
uncollectable receivables from certain leases.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the third quarter 1996 totaled $2,000
which resulted from the sale of four trailers with a net book value of $37,000,
for proceeds of $39,000. During the third quarter of 1995, the $21,000 net loss
on disposition of equipment resulted from the sale or disposal of three modular
buildings a net book value of $60,000, for proceeds of $39,000.
(D) 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 3 to the financial statements).
<TABLE>
<CAPTION>
For the three months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ (150 ) $ (377 )
Marine vessels (495 ) (153 )
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1996,
the Partnership had a 24% interest in a commercial aircraft and a partial
beneficial interest in four trusts which own 13 commercial aircraft, 2 aircraft
engines and a portfolio of rotable components. During the same period of 1995,
the Partnership owned the 24% interest in a commercial aircraft and had just
purchased a partial beneficial interest in three additional trusts which
contained 10 commercial aircraft, 2 aircraft engines and a portfolio of rotable
components. The Partnership's share of lease revenues for this equipment
increased to $2.0 million during the third quarter 1996 compared to $0.6 million
during the same period of 1995. Operating expenses which are comprised primarily
of depreciation expense, increased to $2.1 million during the third quarter of
1996 from $0.9 million during the same period of 1995.
Marine vessels: As of September 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 decreased
to $0.6 million for the third quarter 1996 from $1.1 million during the same
period of 1995. This decrease was due to a lower per diem rate earned on both
marine vessels during the third quarter 1996 when compared to the same period of
1995. Direct operating expenses remained relatively the same for both periods.
Indirect operating expenses decreased $0.2 million due primarily to lower
depreciation expenses due to the double declining method of depreciation.
(E) Net Loss
As a result of the foregoing, the Partnership's net loss of $1.0 million for the
third quarter of 1996, increased from net loss of $0.5 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 third quarter of 1996 is not necessarily indicative of future periods. In
the third quarter of 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 Nine Months Ended
September 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 nine months ended September 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 nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft $ 1,670 $ 902
Marine vessels 2,686 2,608
Trailers 1,653 1,815
Rail equipment 1,516 1,514
Modular buildings 543 576
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $1.7 million and
$25,000, respectively, for the nine months ended 1996, compared to $0.9 million
and $21,000, 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, resulting in nine full months of lease
revenues compared to four months of lease revenues during the same period of
1995;
Marine vessels: Marine vessel lease revenues and direct expenses were $2.9
million and $0.2 million, respectively, for the nine months ended 1996, compared
to $2.9 million and $0.3 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 $2.0 million and $0.3,
respectively, for the nine months ended 1996, compared to $2.0 million and $0.2
million, respectively during the same period of 1995. Although revenues appear
to be relatively consistent for both periods, the Partnership purchased
additional trailers during 1996 which increased lease revenues, however, the
increase was offset by the trailer fleet in the PLM affiliated short-term rental
yards; which is experiencing lower utilization of its equipment The increase of
$0.1 million in direct expenses is due to repairs needed to the trailers in the
above mentioned rental yard to maintain rental ready status;
Rail equipment: Railcar lease revenues and direct expenses were $2.0 million and
$442,000, respectively, for the nine months ended 1996, compared to $1.9 million
and $359,000, respectively during the same period of 1995. The increase in lease
revenues during the nine months ended 1996 was due to the purchase of additional
railcars during 1996. This increase was offset by the increase in repairs needed
during 1996 which were not needed during the same period of 1995;
Modular buildings: Modular buildings lease revenues and direct expenses were
$0.6 million and $78,000, respectively, for the nine months ended 1996, compared
to $0.6 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.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $9.0 million for the nine months ended September 30,
1996, increased from $7.7 million for the same period in 1995. The variances are
explained as follows:
(a) A $1.2 million increase in interest expense from 1995 levels reflecting the
increase in long-term debt of $23 million for the nine months ended September
30, 1996, compared to the same period of 1995, the Partnership had $5.3 million
in short-term debt in place for 30 days and an additional $4.3 million in
short-term debt in place for 2 days;
(b) A $0.1 million increase in administrative expenses from 1995 levels due to
repositioning and storage cost of equipment for $0.2 million which wasn't needed
during the same period of 1995 offset, in part, by a decrease of $0.1 million in
other administrative expenses due to lower cost associated with purchasing
equipment.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the nine months ended September 30,
1996 totaled $25,000 which resulted from the sale of nine modular building and
eight trailers with an aggregate net book value of $160,000 for proceeds of
$191,000. 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 nine months ended September 30, 1995, the $151,000
net gain on disposition of equipment resulted from the sale of 47 modular
buildings and 26 trailers with an aggregate net book value of $1.0 million, for
proceeds of $1.2 million.
(D) Interest and other income
Interest and other income increased $52,000 during the nine months ended
September 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 nine months
ended September 30,
1996 1995
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ (363 ) $ (478 )
Marine vessels (444 ) (452 )
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1996,
the Partnership had a 24% interest in a commercial aircraft and a partial
beneficial interest in four trusts which own 13 commercial aircraft, 2 aircraft
engines and a portfolio of rotable components. During the same period of 1995,
the Partnership owned the 24% interest in a commercial aircraft and had just
purchased a partial beneficial interest in three additional trusts which
contained 10 commercial aircraft, 2 aircraft engines and a portfolio of rotable
components. The Partnership's share of lease revenues for this equipment
increased to $5.8 million during the nine months ended September 30, 1996
compared to $1.2 million during the same period of 1995. Operating expenses
which is comprised primarily of depreciation and administrative expenses,
increased to $6.2 million during the nine months ended September 30, 1996 from
$1.6 million during the same period of 1995 due to the Partnership's increased
investment.
Marine vessels: As of September 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 $3.0 million during the nine months ended September 30, 1996 from $2.7
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 $1.5 million during the nine months ended September 30, 1996 from $1.0
million for the same period of 1995. Indirect operating expenses which is
comprised primarily of depreciation and administrative expenses, decreased to
$2.0 million duiring the nine months ended September 30, 1996 from $2.2 million
during the same period of 1995. The decrease of $0.2 million was due to the
double declining balance method of depreciation.
F) Net loss
As a result of the foregoing, the Partnership's net loss of $1.4 million for the
nine months ended September 30, 1996, increased from a net loss of $0.8 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 nine months ended September 30, 1996 is not
necessarily indicative of future periods. In the nine months ended September 30,
1996, the Partnership distributed $7.3 million to the Limited Partners, or $1.35
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 nine months ended
September 30, 1996, the Partnership generated sufficient operating cash to meet
its operating obligations and pay distributions.
The General Partner has entered into a joint $50 million credit facility (the
"Committed Bridge Facility") on behalf of the Partnership, 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
October 31, 1996, to expire on October 31, 1997 and increased the available
borrowings for AFG to $50 million. The Partnership, TECAI, Fund I and the other
partnerships collectively may borrow up to $35 million of the Committed Bridge
Facility. 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 IV 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 October 31, 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 November 11, 1996, AFG had $39,033,000
in outstanding borrowings and neither the Partnership, Fund I, TECAI 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.
(this space intentionally left blank)
<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: November 11, 1996 By: /s/ David J. Davis
------------------
David J. Davis
Vice President and
Corporate Controller
-15-
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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0
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