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, 1997
[ ] 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 33-55796
-----------------------
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 EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-----------------------------------
<S> <C> <C>
Assets:
Equipment held for operating lease, at cost $ 62,849 $ 67,441
Less accumulated depreciation (25,951 ) (21,494 )
-----------------------------------
Net equipment 36,898 45,947
Cash and cash equivalents 10,338 2,468
Restricted cash 189 158
Investments in unconsolidated special-purpose entities 32,022 37,141
Accounts receivable, net of allowance for doubtful accounts
of $522 in 1997 and $330 in 1996 776 1,214
Prepaid expenses and other assets 3 58
Deferred charges, net of accumulated amortization
of $247 in 1997 and $493 in 1996 287 412
-----------------------------------
Total assets $ 80,513 $ 87,398
===================================
Liabilities and partners' capital:
Liabilities:
Accounts payable and accrued expenses $ 680 $ 296
Due to affiliates 948 605
Lessee deposits and reserve for repairs 1,850 1,360
Short-term note payable - 2,000
Note payable 23,000 23,000
-----------------------------------
Total liabilities 26,478 27,261
Partners' capital:
Limited partners (5,370,297 depositary units as of
September 30, 1997 and as of December 31, 1996) 54,035 60,137
General Partner - -
-----------------------------------
Total partners' capital 54,035 60,137
-----------------------------------
Total liabilities and partners' capital $ 80,513 $ 87,398
===================================
</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 weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 2,958 $ 3,135 $ 9,413 $ 9,144
Interest and other income 121 68 226 366
Net gain on disposition of equipment 2 2 1,802 25
--------------------------------------------------------------
Total revenues 3,081 3,205 11,441 9,535
--------------------------------------------------------------
Expenses:
Depreciation and amortization 2,143 2,296 6,701 6,358
Marine equipment operating expense 15 36 43 92
Repairs and maintenance 365 422 992 964
Interest expense 418 427 1,273 1,263
Insurance expense 28 23 65 55
Management fees to affiliate 163 230 524 447
General and administrative expenses
to affiliates 207 30 510 233
Other general and administrative expenses 98 245 262 649
Provision for (recovery of) bad debts 171 (120 ) 226 93
--------------------------------------------------------------
--------------------------------------------------------------
Total expenses 3,608 3,589 10,596 10,154
--------------------------------------------------------------
Equity in net income (loss) of unconsol-
idated special-purpose entities 168 (645 ) 686 (807 )
--------------------------------------------------------------
Net income (loss) $ (359 ) $ (1,029 ) $ 1,531 $ (1,426 )
==============================================================
Partners' share of net income (loss):
Limited partners $ (486 ) $ (1,156 ) $ 1,149 $ (1,807 )
General Partner 127 127 382 381
--------------------------------------------------------------
Total $ (359 ) $ (1,029 ) $ 1,531 $ (1,426 )
==============================================================
Net income (loss) per weighted-average
depositary unit (5,370,297 units as of
September 30, 1997 and 1996) $ (0.09 ) $ (0.22 ) $ 0.21 $ (0.34 )
==============================================================
Cash distributions $ 2,544 $ 2,545 $ 7,633 $ 7,632
==============================================================
Cash distributions per weighted-average
depositary unit $ 0.45 $ 0.45 $ 1.35 $ 1.35
==============================================================
</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, 1995 to September 30, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1995 $ 73,291 $ - $ 73,291
Net income (loss) (3,485 ) 509 (2,976 )
Cash distributions (9,669 ) (509 ) (10,178 )
-------------------------------------------------------
Partners' capital as of December 31, 1996 60,137 - 60,137
Net income 1,149 382 1,531
Cash distributions (7,251 ) (382 ) (7,633 )
-------------------------------------------------------
Partners' capital as of September 30, 1997 $ 54,035 $ - $ 54,035
=======================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1996
------------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,531 $ (1,426 )
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net gain on disposition of equipment (1,802 ) (25 )
Equity in net (income) loss from unconsolidated
special-purpose entities (686 ) 807
Depreciation and amortization 6,701 6,358
Changes in operating assets and liabilities:
Restricted cash (31 ) 212
Accounts receivable 393 (234 )
Prepaid expenses 55 18
Accounts payable and accrued expenses 384 282
Due to affiliates 343 (10 )
Lessee deposits and reserve for repairs 490 (259 )
-----------------------------
Net cash provided by operating activities 7,378 5,723
-----------------------------
Investing activities:
Payments for purchase of equipment and capitalized repairs (91 ) (8,998 )
Payments for equipment acquisition deposits - (19 )
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities - (5,838 )
Distributions from unconsolidated special purpose entities 5,805 6,673
Payments of acquisition fees to affiliate - (402 )
Payments of lease negotiation fees to affiliate - (90 )
Proceeds from disposition of equipment 4,411 436
-----------------------------
Net cash provided by (used in) investing activities 10,125 (8,238 )
-----------------------------
Financing activities:
Payments of short-term note payable (2,000 ) -
Cash distributions paid to limited partners (7,251 ) (7,251 )
Cash distributions paid to General Partner (382 ) (381 )
Payments of debt issuance costs - (25 )
-----------------------------
Net cash used in financing activities (9,633 ) (7,657 )
-----------------------------
Net increase (decrease) in cash and cash equivalents 7,870 (10,172 )
Cash and cash equivalents at beginning of year 2,468 11,965
-----------------------------
Cash and cash equivalents at end of year $ 10,338 $ 1,793
=============================
Supplemental information:
Interest paid $ 864 $ 938
=============================
Supplemental disclosure of noncash investing and financing activities:
Sale proceeds included in accounts receivable $ 5 $ 118
=============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth & Income Fund VII
(the Partnership) as of September 30, 1997 and December 31, 1996, the statements
of operations for the three and nine months ended September 30, 1997 and 1996,
the statements of changes in partners' capital for the period December 31, 1995
to September 30, 1997, and the statements of cash flows for the nine months
ended September 30, 1997 and 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, 1996, on file at the
Securities and Exchange Commission.
2. Reclassifications
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
3. 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, 1997, respectively.
Cash distributions to limited partners in excess of net income are considered to
represent a return of capital. Cash distributions to the limited partners of
$6.1 million for the nine months ended September 30, 1997 were deemed to be a
return of capital. All cash distributions paid to the limited partners for the
nine months ended September 30, 1996 were deemed to be a return of capital. Cash
distributions related to the results from the third quarter of 1997, of $1.2
million, were paid or are payable during October and November 1997, depending on
whether the individual limited partner elected to receive a monthly or quarterly
distribution check.
4. Investments in Unconsolidated Special-Purpose Entities
The net investments in unconsolidated special-purpose entities (USPEs) include
the following jointly-owned equipment (and related assets and liabilities) (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------
<S> <C> <C>
33% interest in two trusts that own three 737-200A commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables $ 7,636 $ 9,126
80% interest in an entity owning a bulk carrier marine vessel 6,678 7,362
24% in a trust owning a 767-200ER commercial aircraft 5,062 5,798
33% interest in a trust that owns six 737-200A commercial aircraft 4,582 5,407
25% interest in a trust that owns four 737-200A commercial aircraft 3,621 4,206
44% interest in an entity owning a bulk carrier marine vessel 2,683 3,142
10% interest in an equity owning a mobile offshore drilling unit 1,760 2,100
----------- -----------
Net investments $ 32,022 $ 37,141
=========== ===========
</TABLE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
5. Equipment
The components of owned equipment are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------------------------
<S> <C> <C>
Equipment held for operating lease:
Marine vessels $ 22,212 $ 22,212
Aircraft 15,933 15,933
Trailers 14,495 14,547
Rail equipment 10,056 10,053
Modular buildings 153 4,696
----------- ------------
62,849 67,441
Less accumulated depreciation (25,951 ) (21,494 )
----------- ------------
Net equipment $ 36,898 $ 45,947
=========== ============
</TABLE>
As of September 30, 1997, all of the equipment was on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for two commuter
aircraft and five railcars. As of December 31, 1996, all of the equipment was on
lease or operating in PLM-affiliated short-term trailer rental facilities,
except for five railcars. The net book value of the equipment off lease was $4.5
million and $0.1 million as of September 30, 1997 and December 31, 1996,
respectively.
During the nine months ended September 30, 1997, the Partnership disposed of or
sold trailers and modular buildings with a net book value of $2.5 million for
$4.3 million.
During the nine months ended September 30, 1996, the Partnership disposed of or
sold modular buildings and trailers with an aggregate net book value of $0.3
million for $0.3 million.
6. Transactions with General Partner and Affiliates
Partnership management fees payable to an affiliate of the General Partner were
$0.1 million as of September 30, 1997 and December 31, 1996. The Partnership's
proportional share of USPE-affiliate management fees of $155,000 and $55,000
were payable as of September 30, 1997 and December 31, 1996, respectively.
The Partnership's proportional share of the affiliated expenses incurred by the
USPEs during 1997 and 1996 are listed in the following table (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 127 $ 90 $ 374 $ 411
Insurance expense 35 51 141 196
Data processing and administrative 34 66 101 102
expenses
</TABLE>
Transportation Equipment Indemnity Company, Ltd. (TEI) provides marine insurance
coverage for Partnership equipment and other insurance brokerage services. TEI
is an affiliate of the General Partner.
The Partnership's proportional share of lease negotiation and equipment
acquisition fees paid by USPEs to PLM Worldwide Management Services (WMS) during
the nine months ended September 30, 1996 was $0.3 million. No similar fees were
paid during the same period of 1997. WMS is a wholly-owned
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
6. Transactions with General Partner and Affiliates (continued)
subsidiary of PLM International, Inc.
The balance due to affiliates as of September 30, 1997 includes $0.1 million due
to FSI and its affiliates for management fees and $0.8 million due to an
affiliated USPE. The balance due to affiliates as of December 31, 1996 includes
$0.1 million due to FSI and its affiliates for management fees and $0.5 million
due to an affiliated USPE.
7. Debt
The General Partner entered into a short-term, joint $50.0 million credit
facility. As of September 30, 1997, the Partnership had repaid its $2.0 million
borrowing under the short-term joint $50.0 million credit facility that had been
outstanding as of December 31, 1996. Among the eligible borrowers, PLM Equipment
Growth Fund V had borrowings of $9.1 million and PLM Equipment Growth Fund VI
had borrowings of $10.0 million as of September 30, 1997.
8. Contingencies
As more fully described by the Partnership in its Form 10-K for the year ended
December 31,1996, PLM International, Inc. (PLMI) and various of its affiliates
are named as defendants in a lawsuit filed as a class action on January 22, 1997
in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the
Koch action). On March 6, 1997, the defendants removed the Koch action from the
state court to the United States District Court for the Southern District of
Alabama, Southern Division (Civil Action No. 97-0177-BH-C), following which
plaintiffs filed a motion to remand the action to the state court. On September
24, 1997, the district court denied plaintiffs' motion and dismissed without
prejudice the individual claims of the California class representative,
reasoning that he had been fraudulently joined as a plaintiff. On October 3,
1997, plaintiffs filed a motion requesting that the district court reconsider
its ruling or, in the alternative, that the court modify its order dismissing
the California plaintiff's claims so that it is a final appealable order, as
well as certify for an immediate appeal to the Eleventh Circuit Court of Appeals
that part of its order denying plaintiffs' motion to remand. On October 7, 1997,
the district court denied each of these motions. On October 10, 1997, defendants
filed a motion to compel arbitration of plaintiffs' claims and to stay further
proceedings pending the outcome of such arbitration. PLMI believes that the
allegations of the Koch action are completely without merit and intends to
defend this matter vigorously.
On June 5, 1997, PLMI and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No. 987062 (the
Romei action). The named plaintiff has alleged the same facts and the same nine
causes of action as is in the Koch action (as described in the Partnership's
Form 10-K for the year ended December 31, 1996), plus five additional causes of
action against all of the defendants, as follows: violations of California
Business and Professions Code Sections 17200, et seq. for alleged unfair and
deceptive practices, a claim for constructive fraud, a claim for unjust
enrichment, a claim for violations of California Corporations Code Section 1507,
and a claim for treble damages under California Civil Code Section 3345. The
plaintiff is an investor in PLM Equipment Growth Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in certain California limited partnerships sponsored by PLM Securities,
for which FSI acts as the general partner, including the Partnership, PLM
Equipment Growth Funds IV, V, and VI.
PLMI and the other defendants removed the Romei action to the United States
District Court for the Northern District of California (Case No. C-97-2450 SC)
on June 30, 1997, based on the federal court's diversity jurisdiction. The
defendants then filed a motion to compel arbitration of the plaintiffs' claims,
based on an agreement to arbitrate contained in the PLM Equipment Growth Fund V
limited partnership agreement, to which plaintiff is a party. Pursuant to an
agreement with plaintiff, PLMI and the other defendants withdrew their petition
for removal of the Romei action and their motion to compel arbitration,
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
8. Contingencies (continued)
and on July 31, 1997, filed with the district court for the Northern District of
California (Case No. C-97-2847 WHO) a petition under the Federal Arbitration Act
seeking to compel arbitration of plaintiff's claims and for an order staying the
state court proceedings pending the outcome of the arbitration. In connection
with this agreement, plaintiff agreed to a stay of the state court action
pending the district court's decision on the petition to compel arbitration. On
October 7, 1997, the district court denied PLMI's petition to compel and
indicated that a memorandum decision would follow. On October 22, 1997, the
district court filed its memorandum decision and order, explaining the reason
for its denial of PLMI's petition to compel. The district court reasoned that
the plaintiff's claims are grounded in securities law, and therefore, excluded
from arbitration under the terms of the Partnership agreement. On August 22,
1997, the plaintiff filed an amended complaint with the state court alleging two
new causes of action for violations of the California Securities Law of 1968
(California Corporations Code Sections 25400 and 25500) and for violation of
California Civil Code Section 1709 and 1710. PLMI will soon be required to
respond to the amended complaint, and a status conference has been set for
December 5, 1997. PLMI believes that the allegations of the amended complaint in
the Romei action are completely without merit and intends to defend this matter
vigorously.
9. Subsequent Event
During October 1997 the Partnership purchased 248 trailers for $3.8 million,
including $0.2 million in acquisition and lease negotiation fees paid to FSI.
During October 1997, the short-term credit facility was amended and restated to
decrease the available borrowings for American Finance Group, Inc. (AFG), a
subsidiary of PLMI, to $35.0 million and to extend the termination date of the
credit facility to December 2, 1997. The General Partner believes it will be
able to extend the credit facility prior to its expiration on similar terms and
increase the amount of available borrowings for AFG to $50.0 million.
<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, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operation, and asset-specific insurance expenses) on owned equipment
decreased during the third quarter of 1997 when compared to the same quarter of
1996. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1997 1996
----------------------------
<S> <C> <C>
Trailers $ 815 $ 591
Marine vessels 739 891
Aircraft 501 578
Rail equipment 486 524
Modular buildings 16 87
</TABLE>
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.1
million, respectively, for the three months ended September 30, 1997, compared
to $0.8 million and $0.2 million, respectively, during the same period of 1996.
The increase in trailer contribution was due to the purchase of additional
equipment during 1996 and lower repairs required on the existing fleet when
compared to the same period of 1996.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.8
million and $0.1 million, respectively, for the three months ended September 30,
1997, compared to $1.0 million and $0.1 million, respectively, during the same
period of 1996. The decrease in marine vessel contribution was due to a lower
lease rate earned on one marine vessel during the third quarter of 1997 when
compared to the same period of 1996.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$5,000, respectively, for the three months ended September 30, 1997, compared to
$0.6 million and $7,000, respectively, during the same period of 1996. The
decrease in aircraft contribution was due to the off-lease status of two
commuter aircraft that were on lease during the same period of 1996.
Rail equipment: Rail equipment lease revenues and direct expenses were $0.7
million and $0.2 million, respectively, for the three months ended September 30,
1997 and 1996. The railcar fleet remained relatively the same for both periods.
The decrease in railcar contribution during 1997 was due to an increase in
repairs required during 1997 when compared to 1996.
Modular buildings: Modular building lease revenues and direct expenses were
$16,000 and $0, respectively, for the three months ended September 30, 1997,
compared to $0.1 million and $28,000, respectively, during the same quarter of
1996. The primary reason for the decrease in lease revenues and direct expenses
was due to the sale of the majority of this equipment during the second quarter
of 1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $3.2 million for the quarter ended September 30,
1997, increased from $3.1 million for the same period in 1996. Indirect expenses
increased $0.1 million during the third quarter of 1997 when compared to the
same period of 1996. Significant variances are explained as follows:
(1) A $0.3 million increase in the allowance for bad debts, when compared
to the same period of 1996, was due to the collection of unpaid invoices that
had previously been reserved for bad debt in 1996 and to an increase in
uncollectible amounts due from certain lessees during 1997.
(2) A $0.2 million increase in depreciation and amortization expenses from
1996 levels reflects the purchase of a commercial aircraft, trailers, and
railcars during 1996, which was offset in part by the double-declining balance
method of depreciation.
(3) A $0.1 million decrease in management fees was due to lower lease
revenues earned during 1997.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the third quarter of 1997 totaled
$2,000, and resulted from the sale of trailers with an aggregate net book value
of $29,000 for proceeds of $31,000. Net gain on disposition of equipment for the
third quarter of 1996 totaled $2,000, and resulted from the sale of trailers
with a net book value of $37,000 for proceeds of $39,000.
(D) Interest and Other Income
Interest and other income increased $0.1 million during the third quarter of
1997, due primarily to higher average cash balances available for investment
throughout most of the quarter when compared to the same period of 1996.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1997 1996
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 302 $ (150 )
Marine vessels (133 ) (495 )
Mobile offshore drilling unit (1 ) -
</TABLE>
Aircraft, rotable components, and aircraft engines: During the third quarter of
1997, lease revenues of $1.9 million were offset by depreciation and
administrative expenses of $1.6 million. During the same period of 1996, lease
revenues of $2.0 million were offset by depreciation and administrative expenses
of $2.2 million. Revenues decreased $0.1 million due to a lower lease rate
earned during the fourth quarter of 1997 when compared to the same period of
1996. The decline in direct expenses of $0.4 million was due primarily to the
double-declining balance method of depreciation.
Marine vessels: During the third quarter of 1997, lease revenues of $0.9 million
were offset by depreciation and administrative expenses of $1.1 million. During
the same period of 1996, lease revenues of $0.6 million were offset by
depreciation and administrative expenses of $1.1 million. The primary reason
lease revenues increased was due to higher day rates earned while on lease.
Although expenses remained relatively the same for both periods, a decrease in
depreciation expense, due primarily to the double-declining balance method of
depreciation, was offset by an increase in marine operating expenses.
Mobile offshore drilling unit: As of September 30, 1997, the Partnership owned
an interest in a mobile offshore drilling unit that was purchased during the
fourth quarter of 1996. Revenues of $0.1 million were offset by depreciation and
administrative expenses of $0.1 million.
(F) Net Loss
As a result of the foregoing, the Partnership's net loss for the period ended
September 30, 1997 was $0.4 million, compared to a net loss of $1.0 million
during the same period of 1996. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the third
quarter of 1997 is not necessarily indicative of future periods. In the third
quarter of 1997, the Partnership distributed $2.4 million to the limited
partners, or $0.45 per weighted-average depositary unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1997 and 1996
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance, marine
equipment operation, and asset-specific insurance expenses) on owned equipment
increased during the nine months ended September 30, 1997 when compared to the
same period of 1996. The following table presents lease revenues less direct
expenses by owned equipment type (in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1996
----------------------------
<S> <C> <C>
Marine vessels $ 2,539 $ 2,686
Trailers 2,283 1,653
Rail equipment 1,589 1,516
Aircraft 1,502 1,670
Modular buildings 424 543
</TABLE>
Marine vessels: Marine vessel lease revenues and direct expenses were $2.7
million and $0.2 million, respectively, for the nine months ended September 30,
1997, compared to $2.9 million and $0.2 million, respectively, during the same
period of 1996. The decrease in marine vessel contribution was due to a lower
lease rate earned on one marine vessel during 1997 when compared to 1996.
Trailers: Trailer lease revenues and direct expenses were $2.7 million and $0.4
million, respectively, for the nine months ended September 30, 1997, compared to
$2.0 million and $0.3 million, respectively, during the same period of 1996. The
increase in trailer contribution was due to the purchase of additional equipment
during 1996.
Rail equipment: Rail equipment lease revenues and direct expenses were $2.1
million and $0.5 million, respectively, for the nine months ended September 30,
1997, compared to $2.0 million and $0.4 million, respectively, during the same
period of 1996. The increase in railcar contribution was due to the purchase of
additional equipment during 1996.
Aircraft: Aircraft lease revenues and direct expenses were $1.5 million and
$13,000, respectively, for the nine months ended September 30, 1997, compared to
$1.7 million and $25,000, respectively, during the same period of 1996. The
decrease in aircraft contribution was due to the off-lease status of two
commuter aircraft that were on lease during the same period of 1996, which was
offset in part by the revenues earned on a commercial aircraft that was
purchased during the third quarter of 1996.
Modular buildings: Modular building lease revenues and direct expenses were $0.4
million and $12,000, respectively, for the nine months ended September 30, 1997,
compared to $0.6 million and $78,000, respectively, during the same period of
1996. The primary reason for the decrease in modular building contribution is
due to the sale of the majority of this equipment during the second quarter of
1997.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $9.5 million for the nine months ended September 30,
1997 increased from $9.0 million for the same period of 1996. The significant
variances are explained as follows:
(1) A $0.3 million increase in depreciation and amortization expenses from
1996 levels reflects the purchase of a commercial aircraft, trailers, and
railcars during 1996, which was offset in part by the double-declining balance
method of depreciation.
(2) A $0.1 million increase in management fees was due to higher lease
revenues during 1997 when compared to the same period of 1996.
(3) A $0.1 million increase in the allowance for bad debts was due to an
increase in uncollectable amounts due from certain lessees during 1997; in
addition, during 1996, the Partnership was able to collect some of the unpaid
invoices that had previously been reserved for as a bad debt.
(4) A $0.1 million decrease in administrative expenses was due to lower
costs associated with the transportation and inspection of certain equipment
that was purchased during 1996. Similar costs and expenses were not required
during 1997. This decrease was offset in part by an increase in rental yard
costs incurred during 1997, due to the increase in the number of trailers in the
PLM-affiliated short-term rental yards when compared to the same period of 1996.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the nine months ended September 30,
1997 totaled $1.8 million, and resulted from the sale of trailers and modular
buildings with an aggregate net book value of $2.5 million for $4.3 million. Net
gain on disposition of equipment for the nine months ended September 30, 1996
totaled $25,000, and resulted from the sale of modular buildings and trailers
with an aggregate net book value of $0.3 million for proceeds of $0.3 million.
(D) Interest and Other Income
Interest and other income decreased $0.1 million during the nine months ended
September 30, 1997, due primarily to lower cash balances available for
investment throughout most of the period when compared to the same period of
1996.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1997 1996
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 1,170 $ (363 )
Marine vessels (439 ) (444 )
Mobile offshore drilling unit (45 ) -
</TABLE>
Aircraft, rotable components, and aircraft engines: During the nine months ended
September 30, 1997, revenues of $6.1 million were offset by depreciation and
administrative expenses of $4.9 million. During the same period of 1996, lease
revenues of $5.8 million were offset by depreciation and administrative expenses
of $6.2 million. Revenues increased during 1997 by $0.3 million because the
interest in a trust owning aircraft was purchased late in the first quarter of
1996. This equipment was on lease for the full nine months of 1997, compared to
only six months during the same period of 1996. The decline in expenses of $1.3
million was due to the double-declining balance method of depreciation.
Marine vessels: During the nine months ended September 30, 1997, revenues of
$2.7 million were offset by depreciation and administrative expenses of $3.1
million. During the same period of 1996, revenues of $3.0 million were offset by
depreciation and administrative expenses of $3.4 million. The primary reason
revenues decreased was because of the lower day rates earned while on lease. The
decline in expenses of $0.3 million was due to the double-declining balance
method of depreciation.
Mobile offshore drilling unit: As of September 30, 1997, the Partnership owned
an interest in a mobile offshore drilling unit that was purchased during the
fourth quarter of 1996. Revenues of $0.3 million were offset by depreciation and
administrative expenses of $0.3 million.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net income for the period ended
September 30, 1997 was $1.5 million, compared to a net loss of $1.4 million
during the same period of 1996. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the nine months
ended September 30, 1997 is not necessarily indicative of future periods. In the
nine months ended September 30, 1997, the Partnership distributed $7.3 million
to the limited partners, or $1.35 per weighted-average depositary unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1997, the Partnership generated
sufficient operating cash (net cash provided by operating activities, plus
distributions from unconsolidated special-purpose entities) to meet its
operating obligations and maintain the current level of distributions (total for
nine months ended September 30, 1997 of approximately $7.6 million) to the
partners. During the nine months ended September 30, 1997, the General Partner
sold equipment for $4.3 million.
The General Partner has entered into a short-term joint $50.0 million credit
facility. As of November 10, 1997, the PLM Equipment Growth Fund V had $3.6
million in outstanding borrowings and PLM Equipment Growth Fund VI had $2.0
million in outstanding borrowings. Neither the Partnership, PLM Equipment Growth
Fund IV, American Finance Group, Inc. (AFG), a wholly-owned subsidiary of PLM
International, Inc., TEC Aquisub, Inc., an indirect wholly-owned subsidiary of
FSI, nor Professional Lease Management Income Fund I, LLC had any outstanding
borrowings.
During October 1997, the short-term credit facility was amended and restated to
decrease the available borrowings for AFG to $35.0 million and to extend the
termination date of the credit facility to December 2, 1997. The General Partner
believes it will be able to extend the credit facility prior to its expiration
on similar terms and increase the amount of available borrowings for AFG to
$50.0 million.
(III) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1997 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
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.
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,
and government or other regulations. 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 those equipment markets in which it determines 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 that these acquisitions may cause the Partnership to generate
additional earnings and cash flow for the Partnership.
(IV) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
<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>
ursuant 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 & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Date: November 10, 1997 By: /s/ Richard Brock
--------------------------
Richard Brock
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,527
<SECURITIES> 0
<RECEIVABLES> 776
<ALLOWANCES> (522)
<INVENTORY> 0
<CURRENT-ASSETS> 11,114
<PP&E> 62,849
<DEPRECIATION> 25,951
<TOTAL-ASSETS> 80,713
<CURRENT-LIABILITIES> 1,828
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 54,035
<TOTAL-LIABILITY-AND-EQUITY> 80,713
<SALES> 0
<TOTAL-REVENUES> 11,441
<CGS> 0
<TOTAL-COSTS> 10,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 226
<INTEREST-EXPENSE> 1,273
<INCOME-PRETAX> 1,531
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,531
<EPS-PRIMARY> 0
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