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, 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
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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>
June 30, December 31,
1997 1996
<S> <C> <C>
Assets:
Equipment held for operating lease, at cost $ 62,919 $ 67,441
Less accumulated depreciation (23,867 ) (21,494 )
Net equipment 39,052 45,947
Cash and cash equivalents 8,702 2,468
Restricted cash 158 158
Investments in unconsolidated special-purpose entities 33,238 37,141
Accounts receivable, net of allowance for doubtful accounts
of $358 in 1997 and $330 in 1996 1,028 1,214
Prepaid expenses and other assets 16 58
Deferred charges, net of accumulated amortization
of $323 in 1997 and $493 in 1996 317 412
Total assets $ 82,511 $ 87,398
Liabilities and partners' capital:
Liabilities:
Accounts payable and accrued expenses $ 193 $ 296
Due to affiliates 866 605
Lessee deposits and reserve for repairs 1,514 1,360
Short-term note payable - 2,000
Note payable 23,000 23,000
Total liabilities 25,573 27,261
Partners' capital:
Limited partners (5,370,297 depositary units as of
June 30, 1997 and as of December 31, 1996) 56,938 60,137
General Partner - -
Total partners' capital 56,938 60,137
Total liabilities and partners' capital $ 82,511 $ 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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Lease revenue $ 3,310 $ 2,965 $ 6,456 $ 6,009
Interest and other income 56 109 105 298
Net gain on disposition of equipment 1,790 7 1,800 23
Total revenues 5,156 3,081 8,361 6,330
Expenses:
Depreciation and amortization 2,265 2,047 4,559 4,062
Marine equipment operating expense 18 38 28 56
Repairs and maintenance 386 303 627 542
Interest expense 418 413 855 836
Insurance expense 17 21 37 32
Management fees to affiliate 185 59 361 217
General and administrative expenses
to affiliates 138 115 305 203
Other general and administrative expenses 61 133 162 404
Provision for (recovery of) bad debts (149 ) 135 55 213
Total expenses 3,339 3,264 6,989 6,565
Equity in net income (loss) of unconsol-
idated special-purpose entities 339 (176 ) 518 (162 )
Net income (loss) $ 2,156 $ (359 ) $ 1,890 $ (397 )
Partners' share of net income (loss):
Limited partners $ 2,029 $ (486 ) $ 1,635 $ (651 )
General Partner 127 127 255 254
Total $ 2,156 $ (359 ) $ 1,890 $ (397 )
Net income (loss) per weighted-average
depositary unit: (5,370,297 units as of
June 30, 1997 and 1996) $ 0.38 $ (0.09 ) $ 0.30 $ (0.12 )
Cash distributions $ 2,544 $ 2,543 $ 5,089 $ 5,087
Cash distributions per weighted-average
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, 1995 to June 30, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
<S> <C> <C> <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 1,635 255 1,890
Cash distributions (4,834 ) (255 ) (5,089 )
Partners' capital as of June 30, 1997 $ 56,938 $ - $ 56,938
</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 Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net income (loss) $ 1,890 $ (397 )
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Net gain on disposition of equipment (1,800 ) (23 )
Equity in net (income) loss from unconsolidated
special-purpose entities (518 ) 162
Depreciation and amortization 4,559 4,062
Changes in operating assets and liabilities:
Restricted cash - 22
Accounts receivable 141 109
Prepaid expenses 42 (25 )
Accounts payable and accrued expenses (103 ) (164 )
Due to affiliates 261 (240 )
Lessee deposits and reserve for repairs 154 -
Net cash provided by operating activities 4,626 3,506
Investing activities:
Payments for purchase of equipment and capitalized repairs (87 ) (2,301 )
Payments for equipment acquisition deposits - (105 )
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities - (5,919 )
Distributions from unconsolidated special purpose entities 4,421 5,090
Payments of acquisition fees to affiliate - (151 )
Payments of lease negotiation fees to affiliate - (23 )
Proceeds from disposition of equipment 4,363 405
Net cash provided by (used in) investing activities 8,697 (3,004 )
Financing activities:
Payments of short-term note payable (2,000 ) -
Cash distributions paid to limited partners (4,834 ) (4,833 )
Cash distributions paid to General Partner (255 ) (254 )
Payments of debt issuance costs - (25 )
Net cash used in financing activities (7,089 ) (5,112 )
Net increase (decrease) in cash and cash equivalents 6,234 (4,610 )
Cash and cash equivalents at beginning of year 2,468 11,965
Cash and cash equivalents at end of year $ 8,702 $ 7,355
Supplemental information:
Interest paid $ 822 $ 906
Supplemental disclosure of noncash investing and financing activities:
Sales proceeds included in accounts receivable $ 5 $ 103
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 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 June 30, 1997 and December 31, 1996, the statements of
operations for the three and six months ended June 30, 1997 and 1996, the
statements of changes in partners' capital for the period December 31, 1995 to
June 30, 1997, and the statements of cash flows for the six months ended June
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 $5.1
million for the three and six months ended June 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
$3.2 million for the six months ended June 30, 1997 were deemed to be a return
of capital. All cash distributions paid to the limited partners for the six
months ended June 30, 1996 were deemed to be a return of capital. Cash
distributions related to the results from the second quarter of 1997, of $1.2
million, were paid or are payable during July and August 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>
June 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 $ 7,236 $ 9,126
80% interest in an entity owning a bulk carrier marine vessel 7,022 7,362
24% in a trust owning a 767-200ER commercial aircraft 5,264 5,798
33% interest in a trust that owns six 737-200A commercial aircraft 5,124 5,407
25% interest in a trust that owns four 737-200A commercial aircraft 3,927 4,206
44% interest in an entity owning a bulk carrier marine vessel 2,820 3,142
10% interest in an equity owning a mobile offshore drilling unit 1,845 2,100
Net investments $ 33,238 $ 37,141
</TABLE>
5. Transactions with General Partner and Affiliates
Partnership management fees payable to an affiliate of the General Partner were
$0.1 million as of June 30, 1997 and December 31, 1996. The Partnership's
proportional share of USPE-affiliate management fees of $130,000 and $55,000
were payable as of June 30, 1997 and December 31, 1996, respectively.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
5. Transactions with General Partner and Affiliates (continued)
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 Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Management fees $ 125 $ 193 $ 247 $ 321
Insurance expense 48 92 106 144
Data processing and administrative
expenses 34 18 67 35
</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 six months ended June 30, 1996 was $0.3 million. No similar fees were paid
during the same period of 1997. WMS is a wholly-owned subsidiary of PLM
International, Inc.
The balance due to affiliates as of June 30, 1997 includes $0.1 million due to
FSI and its affiliates and $0.7 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 and $0.5 million due to an affiliated USPE.
6. Equipment
The components of owned equipment are as follows (in thousands):
June 30, December 31,
1997 1996
Equipment held for operating lease:
Marine vessels $ 22,212 $ 22,212
Aircraft 15,933 15,933
Trailers 14,567 14,547
Rail equipment 10,054 10,053
Modular buildings 153 4,696
62,919 67,441
Less accumulated depreciation (23,867 ) (21,494 )
Net equipment $ 39,052 $ 45,947
As of June 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 a railcar. 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 $4.7
million and $0.1 million as of June 30, 1997 and December 31, 1996,
respectively.
During the six months ended June 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.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
6. Equipment (continued)
During the six months ended June 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.
7. Debt
As of June 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, American Finance Group,
Inc., a wholly-owned subsidiary of PLM International, Inc., had $7.1 million in
outstanding borrowings. Neither the Partnership, PLM Equipment Growth Fund IV,
PLM Equipment Growth Fund V, PLM Equipment Growth Fund VI, Professional Lease
Management Income Fund I, L.L.C., nor TEC Acquisub, Inc. had any outstanding
borrowings.
8. Contingencies
PLM International, Inc. 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
February 3, 1997, the state court filed an order conditionally certifying the
class pursuant to the provisions of Rule 23 of the Alabama Rules of Civil
Procedure (ARCP), as requested by plaintiffs in an ex parte motion filed on
January 22, 1997. Defendants were not given notice of the motion, nor were they
given an opportunity to be heard regarding the issue of conditional class
certification. The order specifies that the class shall consist of (with certain
narrow exceptions) all purchasers of limited partnership units in the
Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, and PLM
Equipment Growth Fund VI. In issuing the order, the court emphasized that the
certification is conditional in accordance with Rule 23(d) of the ARCP, and that
the plaintiffs will bear the burden of proving each requisite element of Rule 23
at the time of the evidentiary hearing on the issue of class certification. To
date, no such hearing date has been set. The defendants filed a notice of
removal of 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) on March 6, 1997, arguing that the parties are fully diverse for
the purposes of diversity jurisdiction pursuant to 28 U.S.C. Section 1441. The
plaintiffs filed a motion to remand the Koch action to the state court and
defendants have responded to this motion. The federal court has not yet ruled on
this motion, and defendants do not need to respond to the complaint until after
such motion is decided. PLM International, Inc. believes that the allegations of
the Koch action are completely without merit and intends to defend this matter
vigorously.
On June 5, 1997, PLM International, Inc. 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 the 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 PLM Financial Services, Inc. acts as the
general partner, including the Partnership, PLM Equipment Growth Fund IV, PLM
Equipment Growth Fund V and PLM Equipment Growth Fund VI.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
8. Contingencies (continued)
PLM International, Inc. 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. A hearing on this motion to compel arbitration has been scheduled for
August 22, 1997, although the district court may decide the motion without such
argument. PLM International, Inc. believes that the allegations of the Romei
action are completely without merit and intends to defend this matter
vigorously.
(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, 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 second 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 June 30,
1997 1996
<S> <C> <C>
Marine vessels $ 902 $ 895
Trailers 746 560
Aircraft 501 538
Rail equipment 492 488
Modular buildings 256 131
</TABLE>
Marine vessels: Marine vessel lease revenues and direct expenses were $1.0
million and $0.1 million, respectively, for the three months ended June 30, 1997
and 1996. The small increase in marine vessel contribution was due to lower
estimated drydock repairs during 1997 when compared to 1996.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.1
million, respectively, for the three months ended June 30, 1997, compared to
$0.7 million and $0.1 million, respectively, during the same period of 1996. The
increase in trailer contribution was due to the purchase of additional equipment
during 1996.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$5,000, respectively, for the three months ended June 30, 1997, compared to $0.5
million and $8,000, 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 purchase of a commercial aircraft during the third quarter 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 June 30,
1997, compared to $0.6 million and $0.1 million, respectively, during the same
period of 1996. The increase in railcar contribution was due to the purchase of
additional equipment during 1996, which was offset in part by higher repair
costs during 1997.
Modular buildings: Modular building lease revenues and direct expenses were $0.3
million and $11,000, respectively, for the three months ended June 30, 1997,
compared to $0.2 million and $38,000, respectively, during the same quarter of
1996. The primary reason for the increase in lease revenues was because of a
higher net lease rate earned on the leased equipment when compared to the same
period of 1996, which was offset in part by 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 $2.9 million for the quarter ended June 30, 1997
and 1996. Although indirect expenses remained relatively the same for both
periods, significant variances are explained as follows:
(1) 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.
(2) A $0.1 million increase in management fees was due to an increase in
lease revenues earned during 1997 when compared to the same period of 1996.
(3) A $0.3 million decrease in the allowance for bad debts was due to the
collection of unpaid invoices that had previously been reserved for bad debt.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the second quarter of 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 second quarter 1996 totaled $7,000, and
resulted from the sale of trailers with a net book value of $21,000 for proceeds
of $28,000.
(D) Interest and Other Income
Interest and other income decreased $0.1 million during the second quarter of
1997, due primarily to lower 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 June 30,
1997 1996
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 432 $ (104 )
Marine vessels (53 ) (72 )
Mobile offshore drilling unit (40 ) -
</TABLE>
Aircraft, rotable components, and aircraft engines: During the second quarter of
1997, lease revenues of $2.1 million were offset by depreciation and
administrative expenses of $1.6 million. During the same period of 1996, lease
revenues of $2.1 million were offset by depreciation and administrative expenses
of $2.2 million. Revenues remained relatively the same for both periods, while
the decline in expenses of $0.6 million was due primarily to the
double-declining balance method of depreciation.
Marine vessels: During the first quarter of 1997, lease revenues of $0.9 million
were offset by depreciation and administrative expenses of $1.0 million. During
the same period of 1996, lease revenues of $1.2 million were offset by
depreciation and administrative expenses of $1.3 million. The primary reason
lease revenues decreased was due to lower day rates earned while on lease; lower
earnings were offset in part by a decrease in expenses of $0.1 million due to
the double-declining balance method of depreciation and lower marine operating
expenses.
Mobile offshore drilling unit: As of June 30, 1997, the Partnership owned an
interest in a mobile offshore drilling unit that was purchased during the fourth
quarter of 1996. Revenues of $91,000 were offset by depreciation and
administrative expenses of $131,000.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net income for the period ended
June 30, 1997 was $2.2 million, compared to a net loss of $0.4 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 second quarter of 1997
is not necessarily indicative of future periods. In the second quarter of 1997,
the Partnership distributed $2.4 million to the limited partners, or $0.45 per
weighted-average depositary unit.
<PAGE>
Comparison of the Partnership's Operating Results for the Six Months Ended
June 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 six months ended June 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 Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Marine vessels $ 1,801 $ 1,795
Trailers 1,468 1,061
Rail equipment 1,103 992
Aircraft 1,002 1,092
Modular buildings 408 455
</TABLE>
Marine vessels: Marine vessel lease revenues and direct expenses were $1.9
million and $0.1 million, respectively, for the six months ended June 30, 1997
and 1996. The small increase in marine vessel contribution was due to lower
estimated drydock repairs during 1997 when compared to 1996.
Trailers: Trailer lease revenues and direct expenses were $1.7 million and $0.2
million, respectively, for the six months ended June 30, 1997, compared to $1.2
million and $0.1 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 $1.4
million and $0.3 million, respectively, for the six months ended June 30, 1997,
compared to $1.3 million and $0.3 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 $1.0 million and
$9,000, respectively, for the six months ended June 30, 1997, compared to $1.1
million and $18,000, 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 purchase of a commercial aircraft 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 six months ended June 30, 1997,
compared to $0.5 million and $50,000, respectively, during the same quarter of
1996. The primary reason for the decrease in lease revenues was because of an
overall lower net lease rate earned on the leased equipment, when compared to
the same period of 1996, and 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 $6.3 million for the quarter ended June 30, 1997
increased from $5.9 million for the same period of 1996. The significant
variances are explained as follows:
(1) A $0.5 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 decrease in administrative expenses was due to costs
associated with the transportation and inspection of certain equipment during
1996, which was not required during 1997.
(4) A $0.1 million decrease in the allowance for bad debts was due to the
collection of unpaid invoices that had previously been reserved for bad debt.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the six months ended June 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 six months ended June 30, 1996 totaled
$23,000, 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 $0.2 million during the six months ended
June 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 Six Months
Ended June 30,
1997 1996
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 868 $ (213 )
Marine vessels (306 ) 51
Mobile offshore drilling unit (44 ) -
</TABLE>
Aircraft, rotable components, and aircraft engines: During the six months ended
June 30, 1997, revenues of $4.1 million were offset by depreciation and
administrative expenses of $3.2 million. During the same period of 1996, lease
revenues of $3.8 million were offset by depreciation and administrative expenses
of $4.0 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 six months of 1997, compared to
only three months during the same period of 1996. The decline in expenses of
$0.8 million was due to the double-declining balance method of depreciation.
Marine vessels: During the six months ended June 30, 1997, revenues of $1.8
million were offset by depreciation and administrative expenses of $2.1 million.
During the same period of 1996, revenues of $2.4 million were offset by
depreciation and administrative expenses of $2.3 million. The primary reason
revenues decreased was because of the lower day rates earned while on lease. The
decline in expenses of $0.2 million was due to the double-declining balance
method of depreciation.
Mobile offshore drilling unit: As of June 30, 1997, the Partnership owned an
interest in a mobile offshore drilling unit that was purchased during the fourth
quarter of 1996. Revenues of $0.2 million were offset by depreciation and
administrative expenses of $0.2 million.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net income for the period ended
June 30, 1997 was $1.9 million, compared to a net loss of $0.4 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 six months ended June
30, 1997 is not necessarily indicative of future periods. In the six months
ended June 30, 1997, the Partnership distributed $4.8 million to the limited
partners, or $0.90 per weighted-average depositary unit.
<PAGE>
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 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 six months ended June
30, 1997 of approximately $5.1 million) to the partners. During the six months
ended June 30, 1997, the General Partner sold equipment for $4.3 million.
The General Partner had entered into a short-term joint $50.0 million credit
facility, and as of August 12, 1997, the Partnership had no borrowings with the
credit facility. PLM Equipment Growth Fund VI had $10.0 million; American
Finance Group, Inc., a wholly-owned subsidiary of PLM International, Inc., had
$13.9 million; and TEC Acquisub, Inc. had $7.2 million in outstanding
borrowings. Neither the Partnership, PLM Equipment Growth Fund IV, PLM Equipment
Growth Fund V, nor Professional Lease Management Income Fund I, L.L.C. had any
outstanding borrowings.
(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>
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 & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
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 & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Date: August 12, 1997 By: /s/ Richard Brock
--------------------------
Richard Brock
Vice President and
Corporate Controller
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