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, 2000
[ ] 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 0-26594
-----------------------
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)
excutive 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,
2000 1999
-----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 67,018 $ 70,579
Less accumulated depreciation (35,291) (36,466)
--------------------------------------
Net equipment 31,727 34,113
Cash and cash equivalents 4,700 2,495
Restricted cash 19 111
Accounts receivable, less allowance for doubtful accounts
of $425 in 2000 and $382 in 1999 1,137 1,099
Investments in unconsolidated special-purpose entities 26,078 27,843
Deferred charges, net of accumulated amortization
of $141 in 2000 and $125 in 1999 234 251
Prepaid expenses and other assets 47 54
--------------------------------------
Total assets $ 63,942 $ 65,966
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,099 $ 1,267
Due to affiliates 671 560
Lessee deposits and reserve for repairs 931 1,392
Notes payable 20,000 20,000
--------------------------------------
Total liabilities 22,701 23,219
Partners' capital:
Limited partners (5,323,569 limited partnership units as of
March 31, 2000 and 5,323,819 as of December 31, 1999) 41,241 42,747
General Partner -- --
--------------------------------------
Total partners' capital 41,241 42,747
--------------------------------------
Total liabilities and partners' capital $ 63,942 $ 65,966
======================================
</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,
2000 1999
------------------------------
REVENUES
<S> <C> <C>
Lease revenue $ 3,657 $ 5,259
Interest and other income 41 40
Net gain (loss) on disposition of equipment 1,096 (14)
----------------------------
Total revenues 4,794 5,285
----------------------------
EXPENSES
Depreciation and amortization 1,437 2,293
Repairs and maintenance 480 631
Equipment operating expenses 449 746
Insurance expenses 68 135
Management fees to affiliate 201 282
Interest expense 368 413
General and administrative expenses to affiliates 238 190
Other general and administrative expenses 150 138
Provision for bad debts 51 35
-------------------------------
Total expenses 3,442 4,863
-------------------------------
Minority interests -- 37
Equity in net income (loss) of unconsolidated special-purpose entities (448) 2,726
------------------------------
Net income $ 904 $ 3,185
==============================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 778 $ 3,059
General Partner 126 126
------------------------------
Total $ 904 $ 3,185
==============================
Net income per weighted-average limited partnership unit $ 0.15 $ 0.57
==============================
Cash distribution $ 2,407 $ 2,526
==============================
Cash distribution per weighted-average
limited partnership unit $ 0.43 $ 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, 1998 TO MARCH 31, 2000
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1998 $ 46,247 $ -- $ 46,247
Net income 6,204 504 6,708
Purchase of limited partnership units (125) -- (125)
Cash distribution (9,579) (504) (10,083)
-------------------------------------------------------
Partners' capital as of December 31, 1999 42,747 -- 42,747
Net income 778 126 904
Purchase of limited partnership units (3) -- (3)
Cash distribution (2,281) (126) (2,407)
-------------------------------------------------------
Partners' capital as of March 31, 2000 $ 41,241 $ -- $ 41,241
=======================================================
</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,
2000 1999
------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 904 $ 3,185
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,437 2,293
Net (gain) loss on disposition of equipment (1,096) 14
Equity in net (income) loss from unconsolidated special-purpose entities 448 (2,726)
Changes in operating assets and liabilities:
Restricted cash 92 (50)
Accounts receivable, net (38) (404)
Prepaid expenses and other assets 7 (61)
Accounts payable and accrued expenses 316 239
Due to affiliates 96 179
Lessee deposits and reserve for repairs (461) (130)
Minority interests -- (125)
----------------------------
Net cash provided by operating activities 1,705 2,414
-----------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (937) (7,182)
Distribution from unconsolidated special-purpose entities 1,317 965
Distributions from liquidation of unconsolidated special-purpose entities -- 7,021
Payments of acquisition fees to affiliate -- (322)
Payments of lease negotiation fees to affiliate -- (72)
Proceeds from disposition of equipment 2,530 218
------------------------------
Net cash provided by investing activities 2,910 628
-----------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (2,281) (2,400)
Cash distribution paid to General Partner (126) (126)
Purchase of limited partnership units (3) (90)
-----------------------------
Net cash used in financing activities (2,410) (2,616)
-----------------------------
Net increase in cash and cash equivalents 2,205 426
Cash and cash equivalents at beginning of period 2,495 404
-----------------------------
Cash and cash equivalents at end of period $ 4,700 $ 830
==============================
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ --
==============================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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, 2000 and December 31, 1999, the statements of
income for the three months ended March 31, 2000 and 1999, the statements of
changes in partners' capital for the period from December 31, 1998 to March 31,
2000, and the statements of cash flows for the three months ended March 31, 2000
and 1999. 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, 1999, 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 into
additional equipment. Surplus cash, if any, 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 and by
certain other events.
3. PURCHASE OF LIMITED PARTNERSHIP UNITS
In 1999, the Partnership agreed to purchase approximately 1,000 limited
partnership units in 2000 for an aggregate purchase price of up to $10,000.
During the three months ended March 31, 2000, the Partnership had purchased 250
limited partnership units for $3,000. The General Partner may purchase
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, 2000 and 1999, cash distributions totaled $2.4 million
and $2.5 million, respectively. Cash distributions of $1.5 million to the
limited partners during the three months ended March 31, 2000 were deemed to be
a return of capital. None of the cash distributions to the limited partners
during the three months ended March 31, 1999 were deemed to be a return of
capital.
Cash distributions related to the results from the first quarter of 2000, of
$1.4 million, will be paid during the second quarter of 2000.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of March 31, 2000 included $0.2 million due to
FSI and its affiliates for management fees and $0.5 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 1999 included $0.1 million due to FSI and its affiliates for
management fees and $0.5 million due to an affiliated USPE.
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million was payable as of March 31, 2000 and December 31, 1999.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
The Partnership's proportional share of the affiliated expenses incurred by
the USPEs during 2000 and 1999 is listed in the following table (in thousands of
dollars):
For the Three Months
Ended March 31,
2000 1999
---------------------------
Management fees $ 81 $ 59
Data processing and administrative
expenses 23 24
The Partnership and USPEs accrued or paid FSI $15,000 and $0.4 million for
equipment acquisition and lease negotiation fees during the three months ended
March 31, 2000 and 1999, respectively.
6. Equipment
The components of owned equipment were as follows (in thousands of dollars):
March 31, December 31,
2000 1999
---------------------------------
Marine vessels $ 22,212 $ 22,212
Trailers 16,809 16,895
Marine containers 12,856 12,498
Railcars 9,658 9,677
Aircraft 5,483 9,297
----------- ------------
67,018 70,579
Less accumulated depreciation (35,291) (36,466)
----------- ------------
Net equipment $ 31,727 $ 34,113
=========== ============
As of March 31, 2000, all owned equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for 16 railcars. As of December 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 a commuter
aircraft and ten railcars. The net book value of the equipment off lease was
$0.2 million and $1.5 million as of March 31, 2000 and December 31, 1999,
respectively.
During the three months ended March 31, 2000, the Partnership purchased marine
containers for $0.4 million including acquisition fees to FSI of $15,000 that
were accrued. The Partnership will pay for the marine containers and acquisition
fees during the second quarter of 2000.
During the three months ended March 31, 2000, the Partnership disposed of or
sold a commuter aircraft, a railcar, and trailers with an aggregate net book
value of $1.3 million for $2.4 million. 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.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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,
2000 1999
----------------------------------------
<S> <C> <C>
38% interest in a trust owning a Boeing 737-300 Stage III commercial
aircraft $ 7,623 $ 7,974
75% interest in an entity owning marine containers 6,206 6,656
50% interest in a trust owning a MD-82 Stage III commercial aircraft 4,733 5,066
80% interest in an entity owning a dry bulk-carrier marine vessel 3,977 4,224
44% interest in an entity owning a dry bulk-carrier marine vessel 1,802 1,917
50% interest in a trust owning a MD-82 Stage III commercial aircraft 1,578 1,808
50% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 98 122
25% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 64 79
24% interest in a trust that owned a Boeing 767-200ER Stage III
commercial aircraft (3) (3)
============ ==========
Net investments $ 26,078 $ 27,843
============ ==========
</TABLE>
As of March 31, 2000 and December 31, 1999, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease except for a Boeing 737-300 commercial
aircraft with a net investment value of $7.6 million and $8.0 million,
respectively.
For the three months ended March 31, 2000, all jointly-owned equipment was
accounted for under the equity method of accounting. For the three months ended
March 31, 1999, certain jointly-owned equipment of which the Partnership had a
controlling interest greater than 50% was accounted for under the consolidation
method of accounting.
8. OPERATING SEGMENTS
The Partnership operates or operated in five primary operating segments: marine
vessel leasing, trailer leasing, aircraft leasing, railcar leasing, and marine
container 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, 2000
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, 2000 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,259 $ 878 $ 271 $ 648 $ 601 $ -- $ 3,657
Interest income and other -- -- -- -- -- 41 41
Gain (loss) on disposition of -- (20) 1,117 (1) -- -- 1,096
equipment
------------------------------------------------------------------------
Total revenues 1,259 858 1,388 647 601 41 4,794
COSTS AND EXPENSES
Operations support 649 222 9 105 2 10 997
Depreciation and amortization 341 317 199 157 417 6 1,437
Interest expense -- -- -- -- -- 368 368
Management fees to affiliate 63 48 14 46 30 -- 201
General and administrative expenses 10 196 3 19 -- 160 388
Provision for bad debts -- 44 -- 7 -- -- 51
------------------------------------------------------------------------
Total costs and expenses 1,063 827 225 334 449 544 3,442
------------------------------------------------------------------------
Equity in net income (loss) of USPEs (108) -- (393) -- 54 (1) (448)
------------------------------------------------------------------------
Net income (loss) $ 88 $ 31 $ 770 $ 313 $ 206 $ (504) $ 904
========================================================================
Total assets as of March 31, 2000 $ 13,789 $ 7,813 $ 15,046 $ 4,561 $ 17,715 $ 5,018 $ 63,942
========================================================================
Marine Marine
Vessel Trailer Aircraft Railcar Container All
For the quarter ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F2>2 Total
1999
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
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
========================================================================
<FN>
- -------------------------
<F1>
1 Includes interest income and costs not identifiable to a particular segment,
such as, interest expense, and certain general and administrative and operations
support expenses. Also includes expenses from an investment in an entity that
owned a mobile offshore drilling unit.
<F2>
2 Includes interest income and costs not identifiable to a particular segment,
such as interest expense, and certain general and administrative and operations
support expenses. Also includes lease revenues from modular buildings, portable
heaters, and aggregate net income from an investment in an entity that owned a
mobile offshore drilling unit.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
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 June 30, 2000. As of March 31, 2000, no eligible borrower had
any outstanding borrowings under the short-term Committed Bridge Facility.
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, 2000 and 1999 was 5,323,734 and 5,331,432, respectively.
11. CONTINGENCIES
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action in January
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251
(the Koch action). The named plaintiffs are six individuals who invested in PLM
Equipment Growth Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM
Equipment Growth Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII
(Fund VII) (the Funds), each a California limited partnership for which the
Company's wholly-owned subsidiary, FSI, acts as the General Partner. The
complaint asserts causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches of
fiduciary duty, unjust enrichment, conversion, and conspiracy. 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 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) (the court) based on the court's
diversity jurisdiction. In December 1997, the court granted defendants motion to
compel arbitration of the named plaintiffs' claims, based on an agreement to
arbitrate contained in the limited partnership agreement of each Partnership.
Plaintiffs appealed this decision, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
In June 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 Fund V, and filed the
complaint on her own behalf and on behalf of all class members similarly
situated who invested in the Funds. The complaint alleges the same facts and the
same causes of action as in the Koch action, plus additional causes of action
against all of the defendants, including alleged unfair and deceptive practices
and violations of state securities law. In July 1997, defendants filed a
petition (the petition) in federal district court under the Federal Arbitration
Act seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
11. CONTINGENCIES (CONTINUED)
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and June 29,
1999. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Funds V, VI and VII of up to 10% of that partnership's outstanding units
for 80% of net asset value per unit; and (e) the deferral of a portion of the
management fees paid to an affiliate of FSI until, if ever, certain performance
thresholds have been met by the Funds. Subject to final court approval, these
proposed changes would be made as amendments to each Partnership's limited
partnership agreement if less than 50% of the limited partners of each
Partnership vote against such amendments. The limited partners will be provided
the opportunity to vote against the amendments by following the instructions
contained in solicitation statements that will be mailed to them after being
filed with the Securities and Exchange Commission. The equitable settlement also
provides for payment of additional attorneys' fees to the plaintiffs' attorneys
from Partnership funds in the event, if ever, that certain performance
thresholds have been met by the Funds. The equitable settlement class consists
of all investors, limited partners, assignees or unit holders who on June 29,
1999 held any units in Funds V, VI, and VII, and their assigns and successors in
interest.
The court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. 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 has initiated litigation in various official forums in India
against the defaulting Indian airline lessees to repossess Partnership property
and to recover damages for failure to pay rent and failure to maintain such
property in accordance with relevant lease contracts. The Partnership has
repossessed its property previously leased to such airline, and the airline has
ceased operations. In response to the Partnership's collection efforts, the
airline filed counter-claims against the Partnership in excess of the
Partnership's claims against the airline. The General Partner believes that the
airlines' counterclaims are completely without merit, and the General Partner
will vigorously defend against such counterclaims. The General Partner believes
the likelihood of an unfavorable outcome from the counterclaims is remote.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
11. CONTINGENCIES (CONTINUED)
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
(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, 2000 and 1999
In September 1999, the General Partner amended the corporate-by-laws of certain
unconsolidated special-purpose entities (USPEs) in which the Partnership, or any
affiliated program, owns an interest greater than 50%. The amendment to the
corporate-by-laws provided that all decisions regarding the acquisition and
disposition of the investment as well as other significant business decisions of
that investment would be permitted only upon unanimous consent of the
Partnership and all the affiliated programs that have an ownership in the
investment (the Amendment). As such, although the Partnership may own a majority
interest in a USPE, the Partnership does not control its management and thus the
equity method of accounting will be used after adoption of the Amendment. As a
result of the Amendment, as of September 30, 1999, all jointly owned equipment
in which the Partnership owned a majority interest, which had been consolidated,
were reclassified to investments in USPEs. Lease revenues and direct expenses
for jointly owned equipment in which the Partnership held a majority interest
were reported under the consolidation method of accounting during the three
months ended March 31, 1999 and were included with the owned equipment
operations. For the three months ended March 31, 2000, lease revenues and direct
expenses for these entities are reported under the equity method of accounting
and are included with the operations of the USPEs.
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the three months ended March 31, 2000, when compared to the
same period of 1999. 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,
2000 1999
----------------------------
Trailers $ 656 778
Marine vessels 610 1,154
Marine containers 599 458
Railcars 543 551
Aircraft 262 500
Portable heaters -- 312
Modular buildings -- 5
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.2
million, respectively, for the three months ended March 31, 2000, compared to
$1.0 million and $0.2 million, respectively, during the same period of 1999. A
decrease in trailer lease revenues of $0.1 million was due to lower utilization
and $18,000 was due to the sale of trailers during 2000 and 1999.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.3
million and $0.6 million, respectively, for the three months ended March 31,
2000, compared to $2.3 million and $1.2 million, respectively, during the same
period of 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting impacted the reporting of lease revenues and direct expenses of
one marine vessel. As a result of the Amendment, during the three months ended
March 31, 2000, lease revenues decreased $0.6 million and direct expenses
decreased $0.5 million when compared to the same period of 1999.
In addition, a decline in lease revenues of $0.4 million was caused by the
required dry-docking of one of the Partnership's two wholly-owned marine
vessels. During the dry-docking period, this marine vessel did not earn any
lease revenues.
Marine containers: Lease revenues and direct expenses for marine containers were
$0.6 million and $0, respectively, for the three months ended March 31, 2000,
compared to $0.5 million and $0, respectively, during the same period of 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting also impacted the reporting of lease revenues for marine
containers. As a result of the Amendment, during the three months ended March
31, 2000, lease revenues decreased $0.4 million when compared to the same period
of 1999. The decrease in lease revenues caused by the Amendment was offset by an
increase in marine containers lease revenues of $0.5 million caused by the
purchase of additional equipment during 1999.
Railcars: Railcar lease revenues and direct expenses were $0.6 million and $0.1
million, respectively, for the three months ended March 31, 2000, compared to
$0.7 million and $0.1 million, respectively, during the same period of 1999. The
decrease in railcar lease revenues of $44,000 was due to the increase in the
number of railcars that are not on lease during the three months ended March 31,
2000 when compared to the same period of 1999.
Aircraft: Aircraft lease revenues and direct expenses were $0.3 million and
$9,000, respectively, for the three months ended March 31, 2000, compared to
$0.5 million and $5,000, respectively, during the same period of 1999. The
decrease of $0.2 million in aircraft lease revenues was due to the sale of three
commercial aircraft during 1999.
Portable heaters: The Partnership sold all the portable heaters during September
1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $2.4 million for the three months ended March 31,
2000, a decrease from $3.4 million for the same period in 1999. Significant
variances are explained as follows:
(i) A $0.9 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of $0.2 million caused by the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned, a decrease of $0.3 million due to the sale of
certain equipment during 2000 and 1999, and a decrease of $0.7 million as a
result of the Amendment which changed the accounting method used for majority
held equipment from the consolidation method of accounting to the equity method
of accounting. These decreases were offset in part, by an increase of $0.3
million in depreciation and amortization expenses resulting from the purchase of
additional equipment during 2000 and 1999.
(ii)A $0.1 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the quarter ended March 31, 2000 when
compared to the same period of 1999.
(iii) A $45,000 decrease in interest expense was due to a lower average
outstanding debt balance in the first quarter of 2000 when compared to the same
period of 1999
(iv)A $0.1 million increase in administrative expenses was due to higher
costs associated with three additional PLM short-term rental facilities that
specialize in dry trailers.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment for the first quarter of 2000 totaled
$1.1 million, and resulted from the sale of a commuter aircraft, a railcar, and
trailers with an aggregate net book value of $1.3 million for proceeds of $2.4
million. 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.
(D) 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 of dollars):
For the Three Months
Ended March 31,
2000 1999
----------------------------
Marine containers $ 54 $ --
Mobile offshore drilling unit (1) 48
Marine vessels (108) (22)
Aircraft (393) 2,700
=========== =========
Equity in net income (loss) of USPEs $ (448) $ 2,726
Marine containers: The September 30, 1999 Amendment that changed the accounting
method of majority held equipment from the consolidation method of accounting to
the equity method of accounting, affected the lease revenues and direct expenses
of marine containers for the three months ended March 31, 2000 when compared to
the same period of 1999. During the three months ended March 31, 2000, lease
revenues of $0.3 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.3 million. Marine container lease revenues and
depreciation expense, direct expenses, and administrative expenses for the same
period of 1999, were reported under the consolidation method of accounting under
Owned Equipment Operations.
Mobile offshore drilling unit: The Partnership's interest in an entity owning a
mobile offshore drilling unit was sold during the fourth quarter of 1999. During
the three months ended March 31, 1999, lease revenues of $0.1 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.1 million.
Marine vessels: During the three months ended March 31, 2000, lease revenues of
$0.7 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.9 million. During the same period of 1999, 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 lease revenues of $0.6 million and depreciation
expense, direct expenses, and administrative expenses of $0.6 million during the
three months ended March 31, 2000, was caused by the September 30, 1999
Amendment that changed the accounting method of majority held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority owned marine vessel were reported under
the consolidation method of accounting under Owned Equipment Operations during
the three months ended March 31, 1999.
Aircraft: During the three months ended March 31, 2000, lease revenues of $0.5
million were offset by depreciation expense, direct expenses, and administrative
expenses of $0.9 million. During the same period of 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. Lease revenues decreased $0.3 million
due to the sale of the Partnership's investment in a trust that owned a
767-200ER commercial aircraft during the second quarter 1999. The decrease in
expenses of $0.4 million was primarily due to lower depreciation expense. The
sale of the Partnership's interest in three trusts during 1999 caused
depreciation expense to decrease $0.3 million. Depreciation expense decreased an
additional $0.3 million as the result of the double declining-balance method of
depreciation which results in greater depreciation in the first years an asset
is owned. The decreases were offset, in part, by the Partnership's investment in
an additional trust during the second quarter of 1999 which increase
depreciation expense $0.3 million.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $0.9 million
for the three months ended March 31, 2000, compared to a net income of $3.2
million during the same period of 1999. 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 2000 is not necessarily indicative of future
periods. In the first quarter of 2000, the Partnership distributed $2.3 million
to the limited partners, or $0.43 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 2000, the Partnership generated operating
cash of $3.0 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, 2000 of approximately $2.4 million) to the partners.
During the three months ended March 31, 2000, the Partnership sold or disposed
of wholly-owned equipment and received aggregate proceeds of $2.5 million.
The Partnership purchased marine containers for $0.4 million including accrued
acquisition fees of $15,000 million to PLM Financial Services, Inc., (FSI or the
General Partner), a wholly-owned subsidiary of PLM International, Inc., for this
equipment.
During the three months ended March 31, 2000, due to affiliates increased $0.1
million. During the three months ended March 31, 2000, the Partnership received
an additional deposit of $0.1 million that is due to an affiliated USPE for
engine reserves.
During the three months ended March 31, 2000, prepaid engine reserves and
security deposits decreased $0.5 million. Marine vessel dry docking reserves
decreased $0.4 million due to the payment of dry docking expenses reserved for a
marine vessel and security deposits decreased $0.1 million due to the
reclassification of a deposit towards the purchase of a commuter aircraft to
sales proceeds.
The Partnership is scheduled to make an annual debt payment of $3.0 million to
the lenders of the notes payable on December 29, 2000.
The General Partner has entered into a short-term joint $24.5 million credit
facility. As of May 5, 2000, no eligible borrower had any outstanding
borrowings. The General Partner believes it will be able to renew the Committed
Bridge Facility upon its June 30, 2000 expiration with similar terms as those in
the current Committed Bridge Facility.
(III) EFFECTS OF YEAR 2000
To date, the Partnership has not experienced any material Year 2000 (Y2K) issues
with either its internally developed software or purchased software. In
addition, to date, the Partnership has not been impacted by any Y2K problems
that may have impacted our customers and suppliers. The amount allocated to the
Partnership by the General Partner related to Y2K issues has not been material.
The General Partner continues to monitor its systems for any potential Y2K
issues.
(IV) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 2000 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.
Factors affecting the Partnership's contribution during the remainder of 2000
and beyond include:
1. The Partnership is experiencing difficulty in leasing a commercial aircraft
in which the Partnership has a partial interest.
2. Depressed economic conditions in Asia during most of 1999 led to low freight
rates for dry bulk marine vessels. As Asia began its economic recovery later in
1999 freight rates began to increase and, in the absence of new additional
orders, this market would be expected to continue to show improvement and
stabilize over the next one to two years.
3. Railcar loadings in North America have continued to be high, however a
softening in the market is expected which may lead to lower utilization and
lower contribution to the Partnership as existing leases expire and renewal
leases are negotiated.
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.
(V) 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.
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, 2000, 71% 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: May 5, 2000 By: /s/ Richard K Brock
-----------------------------------
Richard K Brock
Vice President and
Chief Financial Officer
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<PERIOD-END> MAR-31-2000
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