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 March 31, 1998
[ ] 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>
March 31, December 31,
1998 1997
--------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 69,133 $ 58,844
Less accumulated depreciation (29,711) (24,650 )
---------------------------------------
39,422 34,194
Equipment held for sale -- 4,148
---------------------------------------
Net equipment 39,422 38,342
Cash and cash equivalents 10,851 9,327
Restricted cash 393 191
Accounts receivable, less allowance for doubtful accounts
of $486 in 1998 and $522 in 1997 744 887
Investments in unconsolidated special-purpose entities 28,133 31,377
Deferred charges, net of accumulated amortization
of $237 in 1998 and $274 in 1997 283 296
Prepaid expenses and other assets 34 49
---------------------------------------
Total assets $ 79,860 $ 80,469
=======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 674 $ 367
Due to affiliates 995 4,563
Lessee deposits and reserve for repairs 1,444 1,477
Notes payable 23,000 23,000
---------------------------------------
Total liabilities 26,113 29,407
Partners' capital:
Limited partners (5,340,967 limited partnership units as of
March 31, 1998 and 5,370,297 as of December 31, 1997) 53,747 51,062
General Partner -- --
---------------------------------------
Total partners' capital 53,747 51,062
---------------------------------------
Total liabilities and partners' capital $ 79,860 $ 80,469
=======================================
</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
Ended March 31,
1998 1997
---------------------------------
<S> <C> <C>
Revenues
Lease revenue $ 3,221 $ 3,146
Interest and other income 53 49
Net gain on disposition of equipment 33 9
----------------------------------
Total revenues 3,307 3,204
Expenses
Depreciation and amortization 1,939 2,294
Repairs and maintenance 452 241
Interest expense 410 437
Management fees to affiliate 183 176
Equipment operating expense 9 10
Other insurance expense 21 19
General and administrative expenses to affiliates 171 169
Other general and administrative expenses 121 99
Bad debt expense 19 204
----------------------------------
Total expenses 3,325 3,649
----------------------------------
Equity in net income of unconsolidated special-purpose entities 5,660 178
----------------------------------
Net income (loss) $ 5,642 $ (267)
==================================
Partners' share of net income (loss)
Limited partners $ 5,515 $ (394)
General Partner 127 127
----------------------------------
Total $ 5,642 $ (267)
==================================
Netincome (loss) per weighted-average limited partnership unit
(5,359,061 units and 5,370,297 units as of March 31, 1998
and 1997, respectively) $ 1.03 $ (0.07)
==================================
Cash distribution $ 2,542 $ 2,545
==================================
Cash distribution per weighted-average limited partnership unit $ 0.45 $ 0.45
==================================
</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, 1996
to March 31, 1998 (in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 $ 60,137 $ -- $ 60,137
Net income 593 508 1,101
Cash distribution (9,668) (508) (10,176)
------------------------------------------------------------
Partners' capital as of December 31, 1997 51,062 -- 51,062
Net income 5,515 127 5,642
Repurchase of limited partnership units (415) -- (415)
Cash distribution (2,415) (127) (2,542)
------------------------------------------------------------
Partners' capital as of March 31, 1998 $ 53,747 $ -- $ 53,747
============================================================
</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 Three Months
Ended March 31,
1998 1997
----------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 5,642 $ (267)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,939 2,294
Net gain on disposition of equipment (33) (9)
Equity in net income from unconsolidated
special-purpose entities (5,660) (178)
Changes in operating assets and liabilities:
Restricted cash (202) --
Accounts receivable, net 131 254
Prepaid expenses and other assets 15 22
Accounts payable and accrued expenses 307 276
Due to affiliates 14 11
Lessee deposits and reserve for repairs (33) 134
---------------------------------
Net cash provided by operating activities 2,120 2,537
---------------------------------
Investing activities
Payments for equipment and capitalized repairs (3,013) (1)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities (6,518) --
Distributions from unconsolidated special purpose entities 4,979 3,885
Distributions from liquidation of unconsolidated special purpose entities 10,443 --
Payments of acquisition fees to affiliate (135) --
Payments of lease negotiation fees to affiliate (30) --
Proceeds from disposition of equipment 217 38
---------------------------------
Net cash provided by investing activities 5,943 3,922
---------------------------------
Financing activities
Payments of short-term note payable -- (2,000)
Payments due to affiliates (3,582) --
Cash distribution paid to limited partners (2,415) (2,418)
Cash distribution paid to General Partner (127) (127)
Repurchase of limited partnership units (415) --
---------------------------------
Net cash used in financing activities (6,539) (4,545)
---------------------------------
Net increase in cash and cash equivalents 1,524 1,914
Cash and cash equivalents at beginning of period 9,327 2,468
---------------------------------
Cash and cash equivalents at end of period $ 10,851 $ 4,382
=================================
Supplemental information
Interest paid $ 29 $ 28
=================================
Supplemental disclosure of noncash investing and financing activities:
Sale proceeds included in accounts receivable $ 35 $ 49
=================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
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 March 31, 1998 and December 31, 1997, the statements of
operations and statements of cash flows for the three months ended March 31,
1998 and 1997, and the statements of changes in partners' capital for the period
from December 31, 1996 to March 31, 1998. Certain information and note
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, 1997,
on file with the Securities and Exchange Commission.
2. Repurchase of Limited Partnership Units
In 1997, the Partnership agreed to repurchase up to 46,000 limited partnership
units for an aggregate purchase price of up to a maximum of $0.7 million. As of
March 31, 1998, the Partnership had repurchased 29,330 limited partnership units
for $0.4 million. The General Partner may repurchase the additional units in the
future.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $2.5 million for the three
months ended March 31, 1998 and 1997. Cash distributions to limited partners in
excess of net income are considered to represent a return of capital. None of
the cash distributions to the limited partners for the three months ended March
31, 1998 were deemed to be a return of capital. All cash distributions to the
limited partners for the three months ended March 31, 1997 were deemed to be a
return of capital. Cash distributions related to the results from the first
quarter of 1998, of $1.2 million, were paid during the second quarter of 1998.
4. Transactions with General Partner and Affiliates
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997 are listed
in the following table (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
-------------------------------
<S> <C> <C>
Management fees $ 109 $ 121
Data processing and administrative expenses 40 78
Insurance expense 12 58
</TABLE>
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million and $0.2 million were payable as of March 31, 1998 and December 31,
1997, respectively.
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provides marine insurance coverage for Partnership equipment
and other insurance brokerage services. TEI did not provide the same insurance
coverage during 1998, as had been provided for during 1997. These services were
provided by an unaffiliated third party.
The Partnership paid FSI $0.2 million for equipment acquisition and lease
negotiation fees during the three months ended March 31, 1998. No similar fees
were paid to FSI during the same period of 1997.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
4. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of equipment acquisition and lease
negotiation fees paid by USPEs to FSI during the three months ended March 31,
1998 was $0.4 million. No similar fees were paid during the same period of 1997.
The balance due to affiliates as of March 31, 1998 includes $0.1 million due to
FSI and its affiliates for management fees and $0.9 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1997 includes $0.1
million due to FSI and its affiliates for management fees and $4.5 million due
to an affiliated USPE. During the first quarter of 1998, the Partnership paid
$3.6 million due to affiliated USPEs.
5. 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 owned equipment are as follows (in thousands of dollars):
March 31, December 31,
1998 1997
----------------------------------
Marine vessels $ 22,212 $ 22,212
Trailers 17,625 18,111
Aircraft 15,933 8,305
Rail equipment 10,075 10,063
Portable heaters 3,135 --
Modular buildings 153 153
------------- --------------
69,133 58,844
Less accumulated depreciation (29,711) (24,650)
------------- --------------
39,422 34,194
Equipment held for sale -- 4,148
------------- --------------
Net equipment $ 39,422 $ 38,342
============= ==============
As of March 31, 1998, all of the equipment was on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for two commuter
aircraft. As of December 31, 1997, all of the equipment was on lease or
operating in PLM-affiliated short-term trailer rental facilities, except for two
commuter aircraft that were held for sale and a railcar. The net book value of
the equipment off lease was $3.9 million and $4.1 million as of March 31, 1998
and December 31, 1997, respectively.
The Partnership purchased a portfolio of portable heaters during the three
months ended March 31, 1998 for $3.1 million including $0.1 million in
acquisition fees paid to FSI.
During the three months ended March 31, 1998, the Partnership disposed of or
sold trailers with a net book value of $0.2 million for $0.2 million.
During the three months ended March 31, 1997, the Partnership disposed of or
sold trailers with a net book value of $29,000 for $38,000.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
6. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs include the following jointly-owned equipment (and
related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------------- -------------
<S> <C> <C>
50% interest in a trust owning an MD-82 commercial aircraft $ 6,229 $ 682
80% interest in an entity owning a bulk-carrier marine vessel 5,926 6,014
33% interest in two trusts owning three 737-200A commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables 5,089 8,036
24% interest in a trust owning a 767-200ER commercial aircraft 4,621 4,824
50% interest in a trust owning two 737-200A commercial aircraft
at March 31, 1998 and four 737-200A commercial aircraft
at December 31, 1997 2,061 4,362
44% interest in an entity owning a bulk-carrier marine vessel 2,359 2,439
10% interest in an entity owning a mobile offshore drilling unit 1,671 1,712
25% interest in a trust that owned four 737-200A commercial aircraft 177 3,308
Net investments $ 28,133 $ 31,377
============= =============
</TABLE>
As of March 31, 1998 and December 31, 1997, the Partnership had an interest in
trusts that own multiple aircraft (the Trusts). At December 31, 1997, two of
these Trusts contained provisions, under certain circumstances, for allocating
specific aircraft to the beneficial owners. During the three months ended March
31, 1998, in one of these Trusts, the Partnership sold the commercial aircraft
assigned to it with a net book value of $1.8 million for proceeds of $4.5
million. During the same period, in another trust, the Partnership also sold one
commercial aircraft assigned to it with a net book value of $2.7 million for
proceeds of $6.0 million. In addition, in these same two Trusts, two affiliated
programs sold the aircraft designated to them.
During the three months ended March 31, 1998, the Partnership completed its
commitment to purchase an interest in a trust owning an MD-82 Stage III
commercial aircraft for $6.8 million including acquisition and lease negotiation
fees of $0.4 million that was paid to FSI for the purchase of this equipment.
The Partnership made a deposit of $0.7 million toward this purchase in 1997.
7. Debt
The General Partner entered into a short-term, joint $50.0 million credit
facility. As of March 31, 1998, the Partnership had no borrowing under the
short-term joint $50.0 million credit facility. Among the eligible borrowers,
American Finance Group, Inc., a subsidiary of PLM International, Inc., had
borrowings of $38.7 million under the short-term joint, $50.0 million credit
facility as of March 31, 1998. No other eligible borrower had any outstanding
borrowings.
8. Contingencies
PLM International, Inc. (the Company) 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). The plaintiffs, who filed the complaint on their own and on behalf of
all class members similarly situated, are six individuals who allegedly invested
in certain California limited partnerships for which FSI acts as the General
Partner, including the Partnership, PLM Equipment Growth Fund IV, PLM Equipment
Growth Fund V, and PLM Equipment Growth Fund VI (the Growth Funds). The
complaint asserts eight causes of action against all defendants, as follows:
fraud and deceit, suppression, negligent misrepresentation and suppression,
intentional breach of fiduciary duty, negligent breach of fiduciary duty, unjust
enrichment, conversion, and conspiracy. Additionally, plaintiffs allege a cause
of action against PLM Securities Corp. for breach of third-party beneficiary
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
8. Contingencies (continued)
contracts in violation of the National Association of Securities Dealers rules
of fair practice. Plaintiffs allege that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial advisors,
agents, general partner, and control persons. Based on these duties, plaintiffs
assert liability against the defendants for improper sales and marketing
practices, mismanagement of the Growth Funds, and concealing such mismanagement
from investors in the Growth Funds. Plaintiffs seek unspecified compensatory and
recissory damages, as well as punitive damages, and have offered to tender their
limited partnership units back to the defendants.
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) based on the district court's diversity
jurisdiction, 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. In responses to such denial, plaintiffs filed a petition for writ of
mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On
November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for
rehearing and consideration by the full court of the order denying the petition
for a writ of mandamus, which petition was supplemented by plaintiffs on January
27, 1998.
On October 10, 1997, defendants filed a motion to compel arbitration of
plaintiffs' claims, based on an agreement to arbitrate contained in the limited
partnership agreement of each Growth Fund, and to stay further proceedings
pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition,
the district court granted the motion on December 8, 1997. On December 15, 1997,
plaintiffs filed with the Eleventh Circuit a notice of appeal from the district
court's order granting defendants' motion to compel arbitration and to stay the
proceedings, and of the district court's September 24, 1997 order denying
plaintiffs' motion to remand and dismissing the claims of the California
plaintiff. Plaintiffs filed an amended notice of appeal on December 31, 1997.
Appellate briefs have not yet been filed in this matter. The Company believes
that the allegations of the Koch action are completely without merit and intends
to continue to defend this matter vigorously.
On June 5, 1997, the Company 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 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 for
which FSI acts as the General Partner, including the Growth Funds. The complaint
alleges the same facts and the same nine causes of action as in the Koch action,
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, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, the defendants 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 motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. By memorandum and order dated October 23, 1997, the district
court denied the Company's petition to compel arbitration. On November 5, 1997,
the Company filed an expedited motion for leave to file a motion for
reconsideration of this order, which motion was granted on November 14, 1997.
The parties have agreed to have oral argument on the
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
8. Contingencies (continued)
reconsideration motion set for July 22, 1998. The state court action has been
stayed pending the district court's decision on this motion.
In connection with her opposition to the Company's petition to compel
arbitration, 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 Sections 1709 and 1710.
Plaintiff has also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required. The Company 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 May 1998, the Partnership purchased an interest in an trust owning an
MD-82 commercial aircraft for $7.4 million, the remaining interest in this trust
was purchased by an affiliated program. FSI was paid $0.4 million for
acquisition and lease negotiation fees for the purchase of this interest.
(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
March 31, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operation, and asset-specific insurance expenses) on owned equipment
decreased during the first quarter of 1998 when compared to the same quarter of
1997. The following table presents lease revenues less direct expenses by owned
equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
------------------------------
<S> <C> <C>
Trailers $ 1,007 $ 722
Marine vessels 783 899
Rail equipment 534 610
Aircraft 392 501
Portable heaters 18 --
Modular buildings 15 152
</TABLE>
Trailers: Trailer lease revenues and direct expenses were $1.2 million and $0.2
million, respectively, for the three months ended March 31, 1998, compared to
$0.8 million and $0.1 million, respectively, during the same period of 1997. The
increase in trailer contribution was due to the purchase of additional equipment
during the fourth quarter of 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.8
million and $9,000, respectively, for the three months ended March 31, 1998,
compared to $1.0 million and $0.1 million, respectively, during the same period
of 1997. The decrease in marine vessel contribution was due to a lower lease
rate earned on one marine vessel during the first quarter of 1998, when compared
to the same period of 1997, which was partially offset by lower repairs and
maintenance.
Rail equipment: Rail equipment lease revenues and direct expenses were $0.7
million and $0.2 million, respectively, for the three months ended March 31,
1998, compared to $0.7 million and $0.1 million, respectively, during the same
period of 1997. The decrease in railcar contribution during 1998 was due to an
increase in repairs that were required during 1998 but were not required in
1997.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and $0.1
million, respectively, for the three months ended March 31, 1998, compared to
$0.5 million and $5,000, respectively, during the same period of 1997. The
decrease in aircraft contribution was due to repairs needed to the commuter
aircraft and to their off-lease status in 1998.
Portable Heaters: Portable heaters lease revenues and direct expenses were
$18,000 and $0, respectively, for the three months ended March 31, 1998. The
Partnership purchased this equipment during the first quarter of 1998.
Modular buildings: Modular building lease revenues and direct expenses were
$15,000 and $0, respectively, for the three months ended March 31, 1998,
compared to $0.2 million and $1,000, respectively, during the same quarter of
1997. The primary reason for the decrease in lease revenues and direct expenses
was 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 $2.8 million for the three months ended March 31,
1998, decreased from $3.4 million for the same period in 1997. Significant
variances are explained as follows:
(1) A $0.4 million decrease in depreciation and amortization expenses from 1997
levels reflects the double-declining balance method of depreciation.
(2) A $0.2 million decrease in the allowance for bad debts was due to a decrease
in uncollectable amounts due from certain lessees.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the first quarter of 1998 totaled
$33,000, and resulted from the sale of trailers with an aggregate net book value
of $0.2 million for proceeds of $0.2 million. Net gain on disposition of
equipment for the first quarter of 1997 totaled $9,000, and resulted from the
sale of trailers with a net book value of $29,000 for proceeds of $38,000.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
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 of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
------------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 5,752 $ 435
Mobile offshore drilling unit 22 (4)
Marine vessels (114) (253)
---------- ---------
Equity in net income of unconsolidated special-purpose entities $ 5,660 $ 178
========== =========
</TABLE>
Aircraft, rotable components, and aircraft engines: During the first quarter of
1998, lease revenues of $1.9 million and the gain from the sale of the
Partnerships interest in two trusts of $5.9 million were offset by depreciation
and administrative expenses of $2.0 million. During the same period of 1997,
lease revenues of $2.0 million were offset by depreciation and administrative
expenses of $1.6 million. Revenues decreased $0.1 million due to a lower lease
rate earned on certain equipment during the first quarter of 1998 when compared
to the same period of 1997, which was offset in part by the Partnership's
investment in an additional trust during 1997. The decline in expenses of $0.4
million was due primarily to the double-declining balance method of
depreciation.
Mobile offshore drilling unit: During the three months ended March 31 1998 and
1997, revenues of $0.1 million were offset by depreciation and administrative
expenses of $0.1 million.
Marine vessels: During the first quarter of 1998, lease revenues of $0.8 million
were offset by depreciation and administrative expenses of $0.9 million. During
the same period of 1997, lease revenues of $0.8 million were offset by
depreciation and administrative expenses of $1.1 million. The decrease in
depreciation and administrative expenses was due primarily to the
double-declining balance method of depreciation.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income for the period ended
March 31, 1998 was $5.6 million, compared to a net loss of $0.3 million during
the same period of 1997. The Partnership's ability to acquire, 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 first
quarter of 1998 is not necessarily indicative of future periods. In the first
quarter of 1998, the Partnership distributed $2.4 million to the limited
partners, or $0.45 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION - CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 1998, the Partnership generated operating
cash of $7.1 million (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
three months ended March 31, 1998 of approximately $2.5 million) to the
partners.
During the three months ended March 31, 1998, the General Partner sold owned
equipment and two investments in USPEs and received aggregate proceeds of $10.7
million. The Partnership purchased a portfolio of portable heaters for $3.2
million, including acquisition and lease negotiation fees of $0.2 million that
was paid to FSI for this equipment. The Partnership also completed its
commitment to purchase an interest in a trust owning an MD-82 Stage III
commercial aircraft for $6.8 million including acquisition and lease negotiation
fees of $0.4 million that was paid to FSI for the purchase of this equipment.
The Partnership made a deposit of $0.7 million toward this interest in 1997.
The General Partner has entered into a short-term joint $50.0 million credit
facility. As of May 13, 1998, PLM Equipment Growth Fund V had $1.6 million in
outstanding borrowings and American Finance Group, Inc., a wholly owned
subsidiary of PLM International, Inc., had $37.6 million in outstanding
borrowings. No other eligible borrower had any outstanding borrowings.
(III) YEAR 2000 COMPLIANCE
The General Partner is currently addressing the year 2000 computer software
issue and is creating a timetable for carrying out any program modifications
that may be required. The General Partner does not anticipate that the cost of
those modifications allocatable to the Partnership will be material.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998. The effect of adoption of these statements will be limited to the form
and content of the Partnership's disclosures and will not impact the
Partnership's results of operations, cash flow, or financial position.
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1998 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 continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may decide 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, which
concludes December 31, 2001. The General Partner believes that these
acquisitions may cause the Partnership to generate additional earnings and cash
flow for the Partnership.
(VI) 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.
(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 & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Date: May 14, 1998 By: /s/ Richard K Brock
-------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,244
<SECURITIES> 0
<RECEIVABLES> 1,230
<ALLOWANCES> (486)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 69,133
<DEPRECIATION> (29,711)
<TOTAL-ASSETS> 79,860
<CURRENT-LIABILITIES> 0
<BONDS> 23,000
0
0
<COMMON> 0
<OTHER-SE> 53,747
<TOTAL-LIABILITY-AND-EQUITY> 79,860
<SALES> 0
<TOTAL-REVENUES> 3,307
<CGS> 0
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<OTHER-EXPENSES> 2,896
<LOSS-PROVISION> 19
<INTEREST-EXPENSE> 410
<INCOME-PRETAX> 5,642
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,642
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,642
<EPS-PRIMARY> 1.03
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