UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED MARCH 31, 1999
[ ] 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,
1999 1998
-----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 104,438 $ 97,404
Less accumulated depreciation (48,601) (46,578)
--------------------------------------
Net equipment 55,837 50,826
Cash and cash equivalents 830 404
Restricted cash 269 219
Accounts receivable, less allowance for doubtful accounts
of $286 in 1999 and $251 in 1998 2,297 1,893
Investments in unconsolidated special-purpose entities 17,632 22,817
Deferred charges, net of accumulated amortization
of $264 in 1999 and $231 in 1998 333 293
Prepaid expenses and other assets 146 85
--------------------------------------
Total assets $ 77,344 $ 76,537
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 896 $ 657
Due to affiliates 1,572 1,318
Lessee deposits and reserve for repairs 1,400 1,530
Notes payable 23,000 23,000
--------------------------------------
Total liabilities 26,868 26,505
Minority interests 3,660 3,785
Partners' capital:
Limited partners (5,326,819 limited partnership units as of
March 31, 1999 and 5,334,211 as of December 31, 1998) 46,816 46,247
General Partner -- --
--------------------------------------
Total partners' capital 46,816 46,247
--------------------------------------
Total liabilities and partners' capital $ 77,344 $ 76,537
======================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
------------------------------
REVENUES
<S> <C> <C>
Lease revenue $ 5,259 $ 3,986
Interest and other income 40 53
Net gain (loss) on disposition of equipment (14) 33
-----------------------------
Total revenues 5,285 4,072
------------------------------
Expenses
Depreciation and amortization 2,293 2,277
Repairs and maintenance 631 538
Equipment operating expenses 746 317
Insurance expenses 135 62
Management fees to affiliate 282 221
Interest expense 413 410
General and administrative expenses to affiliates 190 180
Other general and administrative expenses 138 131
Provision for bad debts 35 19
-----------------------------
Total expenses 4,863 4,155
-----------------------------
Minority interests 37 13
Equity in net income of unconsolidated special-purpose entities 2,726 5,712
-----------------------------
Net income $ 3,185 5,642
==============================
Partners' share of net income
Limited partners $ 3,059 $ 5,515
General Partner 126 127
------------------------------
Total $ 3,185 $ 5,642
==============================
Net income per weighted-average limited partnership unit $ 0.57 $ 1.03
==============================
Cash distribution $ 2,526 $ 2,542
==============================
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, 1997 TO MARCH 31, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 51,062 $ -- $ 51,062
Net income 5,317 507 5,824
Repurchase of limited partnership units (512) -- (512)
Cash distribution (9,620) (507) (10,127)
-------------------------------------------------------
Partners' capital as of December 31, 1998 46,247 -- 46,247
Net income 3,059 126 3,185
Repurchase of limited partnership units (90) -- (90)
Cash distribution (2,400) (126) (2,526)
-------------------------------------------------------
Partners' capital as of March 31, 1999 $ 46,816 $ -- $ 46,816
=======================================================
</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,
1999 1998
------------------------------
Operating activities
<S> <C> <C>
Net income $ 3,185 $ 5,642
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 2,293 2,277
Net (gain) loss on disposition of equipment 14 (33)
Equity in net income from unconsolidated special-purpose entities (2,726) (5,712)
Changes in operating assets and liabilities:
Restricted cash (50) (202)
Accounts receivable, net (404) 51
Prepaid expenses and other assets (61) (6)
Accounts payable and accrued expenses 239 210
Due to affiliates 179 11
Lessee deposits and reserve for repairs (130) (59)
Minority interests (125) (22)
-----------------------------
Net cash provided by operating activities 2,414 2,157
-----------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (7,182) (3,013)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities -- (6,518)
Distribution from unconsolidated special-purpose entities 965 4,942
Distributions from liquidation of unconsolidated special-purpose entities 7,021 10,443
Payments of acquisition fees to affiliate (322) (135)
Payments of lease negotiation fees to affiliate (72) (30)
Proceeds from disposition of equipment 218 217
-------------------------------
Net cash provided by investing activities 628 5,906
-------------------------------
Financing activities
Payments due to affiliates -- (3,582)
Cash distribution paid to limited partners (2,400) (2,415)
Cash distribution paid to General Partner (126) (127)
Repurchase of limited partnership units (90) (415)
-----------------------------
Net cash used in financing activities (2,616) (6,539)
-----------------------------
Net increase in cash and cash equivalents 426 1,524
Cash and cash equivalents at beginning of period 404 9,327
-----------------------------
Cash and cash equivalents at end of period $ 830 $ 10,851
=============================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 29
=============================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
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, 1999 and December 31, 1998, the statements of
income for the three months ended March 31, 1999 and 1998, the statements of
changes in partners' capital for the period from December 31, 1997 to March 31,
1999, and the statements of cash flows for the three months ended March 31, 1999
and 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/A for the year ended December 31, 1998, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
Beginning in the Partnership's seventh year of operations, which commences on
January 1, 2002, the General Partner will stop reinvesting excess cash, if any,
which, less reasonable reserves, will be distributed to the partners. Beginning
in the Partnership's ninth year of operations, which commences on January 1,
2004, the General Partner intends to begin an orderly liquidation of the
Partnership's assets. The General Partner anticipates that the liquidation of
the assets will be completed by the end of the Partnership's tenth year of
operations. The Partnership will terminate on December 31, 2013, unless
terminated earlier upon sale of all equipment or by certain other events.
3. REPURCHASE OF LIMITED PARTNERSHIP UNITS
In 1998, the Partnership agreed to repurchase approximately 60,800 limited
partnership units in 1999 for an aggregate purchase price of up to $0.8 million.
During the three months ended March 31, 1999, the Partnership had repurchased
7,392 limited partnership units for $0.1 million. The General Partner may
repurchase additional units in the future.
4. CASH DISTRIBUTIONS
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For the three
months ended March 31, 1999 and 1998, cash distributions totaled $2.5 million,
respectively. None of the cash distributions to the limited partners during the
three months ended March 31, 1999 and 1998 were deemed to be a return of
capital.
Cash distributions related to the results from the first quarter of 1999, of
$1.2 million, will be paid during the second quarter of 1999.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of March 31, 1999 included $0.2 million due to
FSI and its affiliates for management fees and $1.4 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 1998 included $0.1 million due to FSI and its affiliates for
management fees and $1.2 million due to an affiliated USPE.
The Partnership's proportional share of USPE-affiliated management fees of
$0.1 million and $45,000 was payable as of March 31, 1999 and December 31, 1998,
respectively.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
The Partnership's proportional share of the affiliated expenses incurred by the
USPEs during 1999 and 1998 is listed in the following table (in thousands of
dollars):
For the Three Months
Ended March 31,
1999 1998
---------------------------
Management fees $ 59 $ 78
Data processing and administrative
expenses 24 33
Insurance expense -- 2
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner and currently in liquidation, will no longer provide certain
marine insurance coverage as had been provided during 1998. These services will
be provided by an unaffiliated third party.
The Partnership and USPEs paid FSI $0.4 million and $0.6 million for equipment
acquisition and lease negotiation fees during the three months ended March 31,
1999 and 1998, respectively.
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of dollars):
March 31, December 31,
1999 1998
----------------------------------
Marine vessels $ 39,977 $ 39,977
Marine containers 17,230 9,957
Trailers 17,203 17,280
Aircraft 15,933 15,933
Railcars 9,794 10,084
Portable heaters 4,301 4,085
Modular buildings -- 88
----------- ------------
104,438 97,404
Less accumulated depreciation (48,601) (46,578)
----------- ------------
Net equipment $ 55,837 $ 50,826
=========== ============
As of March 31, 1999, all owned equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for two commuter aircraft and four railcars. As of December
31, 1998, all owned equipment in the Partnership's portfolio was either on lease
or operating in PLM-affiliated short-term trailer rental facilities, except for
two commuter aircraft and three railcars. The net book value of the equipment
off lease was $3.2 million and $3.3 million as of March 31, 1999 and December
31, 1998, respectively.
During the three months ended March 31, 1999, the Partnership purchased a
portfolio of portable heaters for $0.2 million, including acquisition fees of
$9,000, and marine containers for $7.3 million, including acquisition fees of
$0.3 million. All acquisition fees were paid to FSI.
During the three months ended March 31, 1999, the Partnership disposed of or
sold railcars, modular buildings, and trailers with an aggregate net book value
of $0.2 million for $0.2 million.
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.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
7. 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,
1999 1998
------------------------------
<S> <C> <C>
50% interest in a trust owning a MD-82 Stage III commercial aircraft $ 6,370 $ 6,804
24% interest in a trust owning a 767-200ER Stage III commercial aircraft 4,167 4,341
50% interest in a trust owning a MD-82 Stage III commercial aircraft 3,186 3,546
44% interest in an entity owning a dry bulk-carrier marine vessel 2,198 2,211
10% interest in an entity owning a mobile offshore drilling unit 1,393 1,450
50% interest in a trust that owned four 737-200A Stage II commercial
aircraft 193 222
25% interest in a trust that owned four 737-200A Stage II commercial
aircraft 125 141
33% interest in two trusts that owned a total of three 737-200A Stage II
commercial aircraft, two stage II aircraft engines, and
a portfolio of aircraft rotables -- 4,102
------------- -------------
Net investments $ 17,632 $ 22,817
============= =============
</TABLE>
During the three months ended March 31, 1999, the General Partner sold the
Partnership's 33% interest in two trusts that owned a total of three 737-200A
Stage II commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables. The Partnership's interest in the trusts were sold for
proceeds of $7.0 million for its net investment of $4.0 million.
8. OPERATING SEGMENTS
The Partnership operates or operated in six primary operating segments: marine
vessel leasing, trailer leasing, aircraft leasing, railcar leasing, marine
container leasing, and portable heater leasing. Each equipment leasing segment
engages in short-term to mid-term operating leases to a variety of customers.
(This space intentionally left blank)
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
8. OPERATING SEGMENTS (CONTINUED)
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Marine Marine
Vessel Trailer Aircraft Railcar Container All
For the quarter ended March 31, Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total 1999
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 2,304 $ 983 $ 505 $ 692 $ 458 $ 317 $ 5,259
Interest income and other -- -- -- -- -- 40 40
Gain (loss) on disposition of -- 4 -- (42) -- 24 (14)
equipment
------------------------------------------------------------------------
Total revenues 2,304 987 505 650 458 381 5,285
COSTS AND EXPENSES
Operations support 1,150 205 5 141 -- 11 1,512
Depreciation and amortization 690 390 345 188 507 173 2,293
Interest expense -- -- -- -- -- 413 413
Management fees to affiliate 115 54 25 49 22 17 282
General and administrative expenses 18 112 8 13 6 171 328
Provision for (recovery of) bad -- 42 -- (4) -- (3) 35
debts
------------------------------------------------------------------------
Total costs and expenses 1,973 803 383 387 535 782 4,863
------------------------------------------------------------------------
Minority interests 37 -- -- -- -- -- 37
Equity in net income (loss) of USPEs (22) -- 2,700 -- -- 48 2,726
------------------------------------------------------------------------
Net income (loss) $ 346 $ 184 $ 2,822 $ 263 $ (77) $ (353) $ 3,185
========================================================================
Total assets as of March 31, 1999 $ 18,490 $ 8,845 $ 20,055 $ 5,304 $ 16,683 $ 7,967 $ 77,344
=========================================================================
Marine Portable
Vessel Trailer Aircraft Railcar Heater
For the quarter ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F2>2 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,557 $ 1,200 $ 505 $ 691 $ 18 $ 15 $ 3,986
Interest income and other -- -- -- -- -- 53 53
Gain on disposition of equipment -- 33 -- -- -- -- 33
------------------------------------------------------------------------
Total revenues 1,557 1,233 505 691 18 68 4,072
Costs and expenses
Operations support 444 193 113 157 -- 10 917
Depreciation and amortization 829 498 634 217 88 11 2,277
Interest expense -- -- -- -- -- 410 410
Management fees to affiliate 78 69 25 47 1 1 221
General and administrative expenses 34 119 10 16 -- 132 311
Provision for (recovery of) bad -- 5 -- 30 -- (16) 19
debts
------------------------------------------------------------------------
Total costs and expenses 1,385 884 782 467 89 548 4,155
------------------------------------------------------------------------
Minority interests 13 -- -- -- -- -- 13
Equity in net income (loss) of USPEs (62) -- 5,752 -- -- 22 5,712
------------------------------------------------------------------------
Net income (loss) $ 123 $ 349 $ 5,475 $ 224 $ (71) $ (458) $ 5,642
========================================================================
Total assets as of March 31, 1998 $ 21,582 $ 10,809 $ 26,096 $ 6,281 $ 3,048 $ 14,049 $ 81,865
========================================================================
<FN>
- --------------------------
<F1>
1 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues from portable heaters and modular
buildings and aggregate net income (loss) from an investment in an entity owning
a mobile offshore drilling unit.
<F2>
2 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues from modular buildings and aggregate net
income (loss) from an investment in an entity owning a mobile offshore drilling
unit and an investment in an entity owning marine containers.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
9. DEBT
The General Partner has entered into a short-term, joint $24.5 million credit
facility (the Committed Bridge Facility) on behalf of the Partnership that is
due to expire on December 14, 1999. Among the other eligible borrowers, PLM
Equipment Growth Fund VI had borrowings of $3.7 million and TEC Acquisub, Inc.,
an indirect wholly-owned subsidiary of PLM International, Inc., had borrowings
of $11.3 million under the short-term joint, $24.5 million credit facility as of
March 31, 1999. No other eligible borrower had any outstanding borrowings.
The General Partner believes it will be able to renew the Committed Bridge
Facility upon its expiration with similar terms as those in the current
Committed Bridge Facility.
10. NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing net
income attributable to limited partners by the weighted-average number of
Partnership units deemed outstanding during the period. The weighted-average
number of Partnership units deemed outstanding during the three months ended
March 31, 1999 and 1998 was 5,331,432 and 5,359,061, respectively.
11. CONTINGENCIES
PLM International (the Company) and various of its affiliates are named as
defendants in a lawsuit filed as a purported class action on January 22, 1997 in
the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the
Koch action). Plaintiffs, who filed the complaint on their own and on behalf of
all class members similarly situated, are six individuals who invested in
certain California limited partnerships (the Funds) for which the Company's
wholly-owned subsidiary, FSI, acts as the general partner, including the
Partnership, PLM Equipment Growth Funds IV, V, and VI. The state court ex parte
certified the action as a class action (i.e., solely upon plaintiffs' request
and without the Company being given the opportunity to file an opposition). 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
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, and control persons. Based on these duties, plaintiffs assert liability
against defendants for improper sales and marketing practices, mismanagement of
the Funds, and concealing such mismanagement from investors in the 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.
In March 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. Removal of the action to federal court automatically nullified
the state court's ex parte certification of the class. In September 1997, the
district court denied plaintiffs' motion to remand the action to state court and
dismissed without prejudice the individual claims of the California plaintiff,
reasoning that he had been fraudulently joined as a plaintiff. In October 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
partnership, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court granted
defendants' motion in December 1997.
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
11. CONTINGENCIES (CONTINUED)
Following various unsuccessful requests that the district court reverse, or
otherwise certify for appeal, its order denying plaintiffs' motion to remand the
case to state court and dismissing the California plaintiff's claims, plaintiffs
filed with the U.S. Court of Appeals for the Eleventh Circuit a petition for a
writ of mandamus seeking to reverse the district court's order. The Eleventh
Circuit denied plaintiffs' petition in November 1997, and further denied
plaintiffs subsequent motion in the Eleventh Circuit for a rehearing on this
issue. Plaintiffs also appealed the district court's order granting defendants'
motion to compel arbitration, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
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 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, defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the 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. In October 1997, the district court denied the Company's
petition to compel arbitration, but in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off calendar and the district court has dismissed the petition
pending settlement of the Romei action, as discussed below. The state court
action continues to be stayed pending such resolution. In connection with her
opposition to the petition to compel arbitration, plaintiff filed an amended
complaint with the state court in August 1997, 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 also served certain discovery requests on
defendants. Because of the stay, no response to the amended complaint or to the
discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding (MOU) related to the settlement of those actions (the monetary
settlement). The monetary settlement contemplated by the MOU provides for
stipulating to a class for settlement purposes, and a settlement and release of
all claims against defendants and third party brokers in exchange for payment
for the benefit of the class of up to $6.0 million. The final settlement amount
will depend on the number of claims filed by authorized claimants who are
members of the class, the amount of the administrative costs incurred in
connection with the settlement, and the amount of attorneys' fees awarded by the
Alabama district court. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy.
The parties to the monetary settlement have also agreed to an equitable
settlement (the equitable settlement) which provides, among other things: (a)
for the extension of the operating lives of the Partnership and Funds V and VII
by judicial amendment to each of their partnership agreements, such that FSI,
the general partner of each such partnership, will be permitted to reinvest cash
flow, surplus partnership funds or retained proceeds in additional equipment
into the year 2004, and will liquidate the partnerships' equipment in 2006; (b)
that FSI is entitled to earn front-end fees (including acquisition and lease
negotiation fees) in excess of the compensatory limitations set forth in the
North American Securities Administrators Association, Inc.'s Statement of Policy
by judicial amendment to the partnership agreements for the Partnership and
Funds V and VI; (c) for a one-time redemption of up to
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
11. CONTINGENCIES (CONTINUED)
10% of the outstanding units of the Partnership and Funds V and VI at 80% of
such partnership's net asset value; and (d) for the deferral of a portion of
FSI's management fees. The equitable settlement also provides for payment of the
equitable class attorneys' fees from partnership funds in the event that
distributions paid to investors in the Partnership and Funds V and VI during the
extension period reach a certain internal rate of return.
Defendants will continue to deny each of the claims and contentions and admit no
liability in connection with the proposed settlements. The parties completed the
documentation of the monetary and equitable settlements in April 1999. The
monetary settlement remains subject to numerous conditions, including but not
limited to, notice to and certification of the monetary class for purposes of
the monetary settlement, and preliminary and final approval of the monetary
settlement by the Alabama district court. The equitable settlement remains
subject to numerous conditions, including but not limited to: (a) notice to the
current unitholders in the Partnership and Funds V and VI (the equitable class)
and certification of the equitable class for purposes of the equitable
settlement, (b) preparation, review by the Securities and Exchange Commission
(SEC), and dissemination to the members of the equitable class of solicitation
statements regarding the proposed extensions, (c) disapproval by less than 50%
of the limited partners in the Partnership and Funds V and VI of the proposed
amendments to the limited partnership agreements, (d) judicial approval of the
proposed amendments to the limited partnership agreements, and (e) preliminary
and final approval of the equitable settlement by the Alabama district court. If
the district court grants preliminary approval, notices to the monetary class
and equitable class will be sent following review by the SEC of the solicitation
statements to be prepared in connection with the equitable settlement. The
monetary settlement, if approved, will go forward regardless of whether the
equitable settlement is approved or not. The Company continues to believe that
the allegations of the Koch and Romei actions are completely without merit and
intends to continue to defend this matter vigorously if the monetary settlement
is not consummated.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
12. Restatement
The financial statements have been restated to reflect the consolidation of the
Partnership's majority interests in greater than 50% owned USPE's previously
reported under the equity method of accounting for the period ending March 31,
1999.
As a result of the consolidation, total assets, total liabilities, and minority
interests changed as of March 31, 1999 and December 31, 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- --------------------------
Total assets $ 73,190 $ 77,344 $ 72,174 $ 76,537
Total liabilities 26,374 26,868 25,927 26,505
Minority interests -- 3,660 -- 3,785
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
12. RESTATEMENT (CONTINUED)
Additionally, as a result of the consolidation, total revenues, total expenses,
minority interests, and equity in net income of USPEs changed for the three
months ended March 31, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- ------------------------
Total revenues $ 4,214 $ 5,285 $ 3,307 $ 4,072
Total expenses 3,604 4,863 3,325 4,155
Minority interests -- 37 -- 13
Equity in net income
of USPEs 2,575 2,726 5,660 5,712
Net income $ 3,185 $ 3,185 $ 5,642 $ 5,642
The consolidation of the Partnership's majority interests in USPE's did not
change partners' capital or net income.
(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 PLM EQUIPMENT GROWTH & INCOME FUND VII'S (THE PARTNERSHIP'S)
OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the three months ended March 31, 1999, when compared to the
same period of 1998. Gains or losses from the sale of equipment, interest and
other income, and certain expenses such as depreciation and amortization and
general and administrative expenses relating to the operating segments (see Note
8 to the financial statements), are not included in the owned equipment
operation discussion because they are indirect in nature and not a result of
operations, but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Three Months
Ended March 31,
1999 1998
----------------------------
Marine vessels $ 1,154 $ 1,113
Trailers 778 1,007
Railcars 551 534
Aircraft 500 392
Marine containers 458 --
Portable heaters 312 18
Modular buildings 5 15
Marine vessels: Marine vessel lease revenues and direct expenses were $2.3
million and $1.2 million, respectively, for the three months ended March 31,
1999, compared to $1.6 million and $0.4 million, respectively, during the same
period of 1998. Lease revenues and direct expenses increased during the first
quarter of 1999, when compared to the same period of 1998, due to a change in
the lease arrangement for the Partnership's marine vessels. During the first
quarter of 1998, the marine vessels were operating under bareboat charters in
which the lessee pays a flat lease rate and also pays for certain operating
expenses while on lease. During the first quarter of 1999, the marine vessels
were operating under a lease arrangement in which the lessee pays a higher lease
rate, however, the Partnership now pays for all operating expenses. The increase
in marine vessel contribution was due to the increase in the lease revenues
exceeding the increase in operating expenses.
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.2
million, respectively, for the three months ended March 31, 1999, compared to
$1.2 million and $0.2 million, respectively, during the same period of 1998. The
decrease in trailer contribution was due to lower utilization and the sale of
trailers during 1999 and 1998.
Railcars: Railcar lease revenues and direct expenses were $0.7 million and $0.1
million, respectively, for the three months ended March 31, 1999, compared to
$0.7 million and $0.2 million, respectively, during the same period of 1998. The
increase in railcar contribution during 1999 was due to an decrease in required
repairs during 1999 when compared to the same period of 1998.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$5,000, respectively, for the three months ended March 31, 1999, compared to
$0.5 million and $0.1 million, respectively, during the same period of 1998. The
increase in aircraft contribution was due to lower repairs to the commuter
aircraft that were off-lease during the three months ended March 31, 1999 and
1998.
Portable heaters: Lease revenues and direct expenses for portable heaters were
$0.3 million and $0, respectively, for the three months ended March 31, 1999,
compared to $18,000 and $0, respectively, during the same period of 1998. The
increase in portable heater contribution was due to the purchase of additional
equipment during 1999 and throughout 1998.
Marine containers: Lease revenues and direct expenses for marine containers were
$0.5 million and $0, respectively, for the three months ended March 31, 1999.
The increase in marine containers contribution was due entirely to the purchase
of equipment during March 1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $3.4 million for the three months ended March 31,
1999, a increase from $3.2 million for the same period in 1998. The $0.1 million
increase in indirect expenses was primary due to an increase in management fees
to affiliate due to higher lease revenues earned during 1999.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on disposition of equipment for the first quarter of 1999 totaled
$14,000, and resulted from the sale of a railcars, modular buildings and
trailers with an aggregate net book value of $0.2 million for proceeds of $0.2
million. The net gain on disposition of equipment for the first quarter of 1998
totaled $33,000, and resulted from the sale of trailers with a net book value of
$0.2 million for proceeds of $0.2 million.
(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,
1999 1998
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 2,700 $ 5,752
Mobile offshore drilling unit 48 22
Marine vessels (22) (62)
--------- ----------
Equity in net income of USPEs $ 2,726 $ 5,712
========= ==========
</TABLE>
Aircraft, rotable components, and aircraft engines: During the three months
ended March 31, 1999, lease revenues of $0.9 million and the gain from the sale
of the Partnership's interest in two trusts of $3.1 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.3
million. During the same period of 1998, lease revenues of $1.9 million and the
gain from the sale of the Partnership's interest in two trusts of $5.9 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $2.0 million. Lease revenues decreased $1.0 million due to the sale
of the Partnership's investment in two trusts containing ten commercial
aircraft, the sale of the Partnership's investment in two trusts that owned a
total of three 737-200A Stage II commercial aircraft, two stage II aircraft
engines, and a portfolio of aircraft rotables, and a lower lease rate earned on
certain equipment. The decrease in lease revenues caused by these sales was
offset, in part, by the purchase of two additional trusts each containing a
MD-82 commercial aircraft during 1998. The decrease in expenses of $0.7 million
was primarily due to lower depreciation expense relating to the sale of the
Partnership's interest in four trusts and the result of the double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned offset, in part, by the Partnership's
investment in two additional trusts during 1998.
Mobile offshore drilling unit: During the three months ended March 31, 1999 and
1998, lease revenues of $0.1 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.1 million. The increase in mobile
offshore drilling unit contribution is due to an increase in the lease rate
during 1999 and lower depreciation expense as a result of the double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned.
Marine vessels: During the three months ended March 31, 1999 and 1998, lease
revenues of $0.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.2 million. The increase in marine vessel
contribution was lower depreciation expense as a result of the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $3.2 million
for the three months ended March 31, 1999, compared to a net income of $5.6
million during the same period of 1998. 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. Therefore, the Partnership's
performance in the first quarter of 1999 is not necessarily indicative of future
periods. In the first quarter of 1999, 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, 1999, the Partnership generated operating
cash of $3.4 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for three months ended March
31, 1999 of approximately $2.5 million) to the partners.
During the three months ended March 31, 1999, PLM Financial Services, Inc. (FSI
or the General Partner), a wholly-owned subsidiary of PLM International, Inc.,
sold or disposed of Partnership owned equipment and investments in USPEs and
received aggregate proceeds of $7.2 million.
The Partnership purchased a portfolio of portable heaters for $0.2 million and
marine containers for $7.0 million and paid acquisition and lease negotiation
fees of $0.4 million to FSI for this equipment.
As of March 31, 1999, $1.4 million in engine reserves and security deposits was
due to an affiliated USPE.
The General Partner has entered into a short-term joint $24.5 million credit
facility. As of April 30, 1999, TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $14.8 million and PLM
Equipment Growth Fund VI had borrowings of $3.7 million under the short-term
joint $24.5 million credit facility. No other eligible borrower had any
outstanding borrowings. The General Partner believes it will be able to renew
the Committed Bridge Facility upon its expiration with similar terms as those in
the current Committed Bridge Facility.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or the Partnership's vendors,
service providers, and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000 without error or interruption (a
problem commonly known as the "Year 2000" or "Y2K" problem). Since the
Partnership relies substantially on the General Partner's software systems,
applications, and control devices in operating and monitoring significant
aspects of its business, any Year 2000 problem suffered by the General Partner
could have a material adverse effect on the Partnership's business, financial
condition, and results of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000-compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the end of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. Also, the General Partner believes the future
cost allocable to the Partnership to become Year 2000 compliant will not be
material.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of its leased equipment
portfolio will have an adverse material impact on its financial statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or the General Partner to control, including the extent to which
third parties can address the Year 2000 problem. The General Partner is
communicating with vendors, services providers, and customers in order to assess
the Year 2000 compliance readiness of such parties and the extent to which the
Partnership is vulnerable to any third-party Year 2000 issues. There can be no
assurance that the software systems of such parties will be converted or made
Year 2000 compliant in a timely manner. Any failure by the General Partner or
such other parties to make their respective systems Year 2000 compliant could
have a material adverse effect on the business, financial position, and results
of operations from the Partnership. The General Partner will make an ongoing
effort to recognize and evaluate potential exposure relating to third-party Year
2000 noncompliance, and will develop a contingency plan if the General Partner
determines that third-party noncompliance will have a material adverse effect on
the Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems due to the Year 2000 problems. The General
Partner anticipates these plans will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities", (SFAS No. 133) which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of March 31, 1999,
the General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1999 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
equipment markets in which it determines it cannot operate equipment to 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
operating expenses, pay principal and interest on debt, and cash distributions
to the partners, 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.
<PAGE>
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q/A
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/A should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q/A. The Partnership's actual results could differ materially
from those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the three months ended March 31, 1999, 65% of the Partnership's
total lease revenues from wholly- and partially-owned equipment came from
non-United States domiciled lessee's. Most of the Partnership's leases require
payment in United States (U.S.) currency. If these lessees currency devalues
against the U.S. dollar, the lessees could potentially encounter difficulty in
making the U.S. dollar denominated lease payments.
<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: January 25, 2000 By: /s/ Richard K Brock
-------------------------
Richard K Brock
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,099
<SECURITIES> 0
<RECEIVABLES> 2,583
<ALLOWANCES> (286)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 104,438
<DEPRECIATION> (48,601)
<TOTAL-ASSETS> 77,344
<CURRENT-LIABILITIES> 0
<BONDS> 23,000
0
0
<COMMON> 0
<OTHER-SE> 46,816
<TOTAL-LIABILITY-AND-EQUITY> 77,344
<SALES> 0
<TOTAL-REVENUES> 5,285
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,415
<LOSS-PROVISION> 35
<INTEREST-EXPENSE> 413
<INCOME-PRETAX> 3,185
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,185
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,185
<EPS-BASIC> 0.57
<EPS-DILUTED> 0.57
</TABLE>
