UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal quarter ended September 30, 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)
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 ____
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-----------------------------------
<S> <C> <C>
ASSETS
Equipment held for operating lease, at cost $ 71,658 $ 70,579
Less accumulated depreciation (33,265) (36,466)
--------------------------------------
Net equipment 38,393 34,113
Cash and cash equivalents 6,589 2,495
Restricted cash 36 111
Accounts receivable, less allowance for doubtful accounts
of $37 in 2000 and $382 in 1999 1,286 1,099
Investments in unconsolidated special-purpose entities 15,826 27,843
Deferred charges, net of accumulated amortization
of $176 in 2000 and $125 in 1999 296 251
Prepaid expenses and other assets 2 54
--------------------------------------
Total assets $ 62,428 $ 65,966
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 677 $ 1,267
Due to affiliates 1,207 560
Lessee deposits and reserve for repairs 1,183 1,392
Notes payable 20,000 20,000
--------------------------------------
Total liabilities 23,067 23,219
Partners' capital:
Limited partners (5,323,569 limited partnership units as of
September 30, 2000 and 5,323,819 as of December 31, 1999) 39,361 42,747
General Partner -- --
--------------------------------------
Total partners' capital 39,361 42,747
--------------------------------------
Total liabilities and partners' capital $ 62,428 $ 65,966
======================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 4,226 $ 5,041 $ 11,931 $ 15,507
Interest and other income 55 35 154 95
Net gain on disposition of equipment 2,520 153 3,605 157
--------------------------------------------------------------
Total revenues 6,801 15,690 15,759
--------------------------------------------------------------
Expenses
Depreciation and amortization 1,854 2,456 4,826 7,358
Repairs and maintenance 661 1,068 1,807 2,307
Equipment operating expense 483 674 1,343 2,174
Insurance expense 105 55 296 298
Management fees to affiliate 240 266 651 786
Interest expense 367 427 1,094 1,263
General and administrative expenses
to affiliates 263 156 719 537
Other general and administrative expenses 234 135 589 423
Provision for bad debts 44 181 113 897
--------------------------------------------------------------
Total expenses 4,251 5,418 11,438 16,043
--------------------------------------------------------------
Minority interests -- 23 -- 114
Equity in net income (loss) of unconsolidated
special-purpose entities 776 (767) (69) 7,133
--------------------------------------------------------------
Net income (loss) $ 3,326 $ (933) $ 4,183 $ 6,963
Partners' share of net income (loss)
Limited partners $ 3,200 $ (1,059) $ 3,805 $ 6,585
General Partner 126 126 378 378
--------------------------------------------------------------
Total $ 3,326 $ (933) $ 4,183 $ 6,963
==============================================================
Limited partners' net income (loss) per
weighted-average limited partnership unit $ 0.60 $ (0.20) $ 0.71 $ 1.24
==============================================================
Cash distributions $ 2,523 $ 2,522 $ 7,566 $ 7,571
==============================================================
Cash distributions per weighted-average
limited partnership unit $ 0.45 $ 0.45 $ 1.35 $ 1.35
==============================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
( A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1998 to September 30, 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 3,805 378 4,183
Purchase of limited partnership units (3) -- (3)
Cash distribution (7,188) (378) (7,566)
-------------------------------------------------------
Partners' capital as of September 30, 2000 $ 39,361 $ -- $ 39,361
=======================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
2000 1999
-----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,183 $ 6,963
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 4,826 7,358
Net gain on disposition of equipment (3,605) (157)
Equity in net (income) loss from unconsolidated special-purpose entities 69 (7,133)
Changes in operating assets and liabilities:
Restricted cash 75 (200)
Accounts receivable, net (164) 840
Prepaid expenses and other assets 52 5
Accounts payable and accrued expenses 337 88
Due to affiliates 262 202
Lessee deposits and reserve for repairs (209) 283
Minority interests -- (443)
----------------------------
Net cash provided by operating activities 5,826 7,806
----------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (10,823) (8,211)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities -- (8,974)
Distribution from unconsolidated special-purpose entities 3,827 2,619
Distribution from liquidation of unconsolidated special-purpose entities 2,433 15,855
Payments of acquisition fees to affiliate (125) (342)
Payments of lease negotiation fees to affiliate (28) (76)
Proceeds from disposition of equipment 10,554 5,248
--------------------------
Net cash provided by investing activities 5,837 6,119
---------------------------
FINANCING ACTIVITIES
Cash distribution paid to limited partners (7,188) (7,193)
Cash distribution paid to General Partner (378) (378)
Purchase of limited partnership units (3) (125)
----------------------------
Net cash used in financing activities (7,569) (7,696)
----------------------------
Net increase in cash and cash equivalents 4,094 6,229
Cash and cash equivalents at beginning of period 2,495 404
----------------------------
Cash and cash equivalents at end of period $ 6,589 $ 6,633
============================
SUPPLEMENTAL INFORMATION
Interest paid $ 727 $ 836
============================
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entities $ 5,688 $ --
============================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 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 September 30, 2000 and December 31, 1999, the statements
of operations for the three and nine months ended September 30, 2000 and 1999,
the statements of changes in partners' capital for the period from December 31,
1998 to September 30, 2000, and the statements of cash flows for the nine months
ended September 30, 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/A 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 eleventh 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 nine months ended September 30, 2000, the Partnership 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 each of the
three months ended September 30, 2000 and 1999, cash distributions totaled $2.5
million. For each of the nine months ended September 30, 2000 and 1999, cash
distributions totaled $7.6 million. Cash distributions of $3.2 million and $0.6
million to the limited partners during the nine months ended September 30, 2000
and 1999, respectively, were deemed to be a return of capital.
Cash distributions related to the results from the third quarter of 2000, of
$1.7 million, will be paid during the fourth quarter of 2000.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of September 30, 2000 included $0.2 million due
to FSI and its affiliates for management fees, $0.4 million due to FSI for
acquisition and lease negotiation fees, and $0.7 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 September 30, 2000 and December 31, 1999.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 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):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 62 $ 45 $ 230 $ 150
Data processing and administrative
expenses 15 14 56 52
</TABLE>
The Partnership and USPEs accrued or paid FSI $0.5 million and $0.8 million for
equipment acquisition and lease negotiation fees during the nine months ended
September 30, 2000 and 1999, respectively.
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of dollars):
September 30, December 31,
2000 1999
----------------------------------
Marine containers $ 30,605 $ 12,498
Marine vessels 22,212 22,212
Railcars 9,600 9,677
Aircraft 5,483 9,297
Trailers 3,758 16,895
----------- ------------
71,658
Less accumulated depreciation (33,265) (36,466)
----------- ------------
Net equipment $ 38,393 $ 34,113
=========== ============
As of September 30, 2000, all owned equipment in the Partnership's portfolio was
on lease except for 18 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 September 30, 2000 and December 31, 1999, respectively.
During the nine months ended September 30, 2000, the Partnership purchased
marine containers for $9.8 million and accrued or paid acquisition fees of $0.4
million to FSI. In addition, the General Partner transferred marine containers
with an original equipment cost of $7.9 million from the Partnership's USPE
portfolio to owned equipment.
During the nine months ended September 30, 2000, the Partnership disposed of a
commuter aircraft, trailers, marine containers, and railcars with an aggregate
net book value of $6.9 million for $10.5 million. During the nine months ended
September 30, 1999, the Partnership disposed of commercial aircraft, portable
heaters, trailers, modular buildings, and railcars with an aggregate net book
value of $5.1 million for $5.2 million.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 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>
September 30, December 31,
2000 1999
----------------------------------
<S> <C> <C>
38% interest in a trust owning a Boeing 737-300 Stage III commercial
aircraft $ 6,834 $ 7,974
50% interest in a trust owning a MD-82 Stage III commercial aircraft 4,079 5,066
80% interest in an entity owning a dry bulk-carrier marine vessel 3,631 4,224
50% interest in a trust owning a MD-82 Stage III commercial aircraft 1,126 1,808
44% interest in an entity that owned a dry bulk-carrier marine vessel 152 1,917
50% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 2 122
25% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 2 79
24% interest in a trust that owned a Boeing 767-200ER Stage III
commercial aircraft -- (3)
75% interest in an entity that owned marine containers -- 6,656
--------------- -----------
Net investments $ 15,826 $ 27,843
=============== ===========
</TABLE>
As of September 30, 2000, all jointly-owned equipment in the Partnership's USPE
portfolio was on lease. As of 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 $8.0 million.
For the nine months ended September 30, 2000, all jointly-owned equipment was
accounted for under the equity method of accounting. For the nine months ended
September 30, 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.
During the nine months ended September 30, 2000, the General Partner sold the
Partnership's interest in an entity that owned a dry bulk-carrier marine vessel.
The Partnership's interest in this trust was sold for proceeds of $2.4 million
for its investment of $1.7 million. The General Partner also transferred the
Partnership's interest in an entity that owned marine containers to owned
equipment.
8. OPERATING SEGMENTS
The Partnership operates 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)
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
8. OPERATING SEGMENTS (CONTINUED)
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Marine Marine
For the quarter ended Vessel Trailer Aircraft Railcar Container
September 30, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,472 $ 898 $ 271 $ 610 $ 975 $ -- $ 4,226
Interest income and other -- -- -- -- -- 55 55
Gain (loss) on disposition of -- 2,521 -- (2 ) 1 -- 2,520
equipment
------------------------------------------------------------------------
Total revenues 1,472 3,419 271 608 976 55 6,801
COSTS AND EXPENSES
Operations support 807 323 2 105 2 10 1,249
Depreciation and amortization 341 313 154 156 884 6 1,854
Interest expense -- -- -- -- -- 367 367
Management fees to affiliate 74 52 13 52 49 -- 240
General and administrative expenses 19 230 3 14 -- 231 497
Provision for (recovery of) bad -- 57 -- (13) -- -- 44
debts
------------------------------------------------------------------------
Total costs and expenses 1,241 975 172 314 935 614 4,251
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 897 -- (141) -- 20 -- 776
------------------------------------------------------------------------
Net income (loss) $ 1,128 $ 2,444 $ (42) $ 294 $ 61 $ (559) $ 3,326
========================================================================
Total assets as of September 30, 2000 $ 11,166 $ 1,304 $ 12,644 $ 4,388 $ 26,056 $ 6,870 $ 62,428
========================================================================
Marine Marine
For the quarter ended Vessel Trailer Aircraft Railcar Container
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other(2) Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 2,095 $ 1,052 $ 271 $ 663 $ 845 $ 115 $ 5,041
Interest income and other -- -- -- -- -- 35 35
Gain (loss) on disposition of -- 14 -- (1) -- 140 153
equipment
------------------------------------------------------------------------
Total revenues 2,095 1,066 271 662 845 290
COSTS AND EXPENSES
Operations support 932 234 486 135 -- 10 1,797
Depreciation and amortization 690 388 344 183 738 113 2,456
Interest expense -- -- -- -- -- 427 427
Management fees to affiliate 104 52 17 46 43 4 266
General and administrative expenses 20 105 13 14 9 130 291
Provision for bad debts -- 75 -- 15 -- 91 181
------------------------------------------------------------------------
Total costs and expenses 1,746 854 860 393 790 775
------------------------------------------------------------------------
Minority interests 25 -- -- -- (2) -- 23
Equity in net income (loss) of USPEs (1) -- (813) -- -- 47 (767)
------------------------------------------------------------------------
Net income (loss) $ 373 $ 212 $ (1,402) $ 269 $ 53 $ (438) $ (933)
========================================================================
Total assets as of September 30, 1999 $ 15,347 $ 8,465 $ 20,945 $ 4,950 $ 13,088 $ 8,337 $ 71,132
========================================================================
</TABLE>
(1) Includes interest income and costs not identifiable to a particular
segment, such as, interest expense, certain amortization, general and
administrative, and operations support expenses.
(2) Includes interest income and costs not identifiable to a particular
segment, such as interest expense, certain amortization, general and
administrative, and operations support expenses. Also includes lease
revenues and expenses from modular buildings, portable heaters, and
aggregate net income from an investment in an entity that owned a mobile
offshore drilling unit.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
For the nine months ended Vessel Trailer Aircraft Railcar Container
September 30, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ -------- --------- -------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 4,155 $ 2,694 $ 814 $ 1,861 $ 2,407 $ -- $ 11,931
Interest income and other -- -- -- -- -- 154 154
Gain (loss) on disposition of -- 2,462 1,118 (3) 28 -- 3,605
equipment
------------------------------------------------------------------------
Total revenues 4,155 5,156 1,932 1,858 2,435 154 15,690
COSTS AND EXPENSES
Operations support 2,183 813 28 386 6 30 3,446
Depreciation and amortization 1,023 944 507 470 1,863 19 4,826
Interest expense -- -- -- -- -- 1,094 1,094
Management fees to affiliate 208 149 41 133 120 -- 651
General and administrative expenses 51 604 9 60 -- 584 1,308
Provision for (recovery of) bad debts -- 128 -- (15) -- -- 113
------------------------------------------------------------------------
Total costs and expenses 3,465 2,638 585 1,034 1,989 1,727 11,438
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 756 -- (953) -- 129 (1) (69)
------------------------------------------------------------------------
Net income (loss) $ 1,446 $ 2,518 $ 394 $ 824 $ 575 $ (1,574) $ 4,183
========================================================================
Total assets as of September 30, 2000 $11,166 $ 1,304 $12,644 $ 4,388 $26,056 $ 6,870 $ 62,428
========================================================================
Marine Marine
For the nine months ended Vessel Trailer Aircraft Railcar Container
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other(2) Total
------------------------------------ -------- --------- -------- --------- -------- --------- ----------
Lease revenue $ 6,324 $ 3,084 $ 1,246 $ 2,003 $ 2,111 $ 739 $ 15,507
Interest income and other -- -- -- -- 1 94 95
Gain (loss) on disposition of -- 22 2 (31) -- 164 157
equipment
------------------------------------------------------------------------
Total revenues 6,324 3,106 1,248 1,972 2,112 997 15,759
COSTS AND EXPENSES
Operations support 3,137 686 496 428 -- 32 4,779
Depreciation and amortization 2,072 1,178 1,034 554 2,066 454 7,358
Interest expense -- -- -- -- -- 1,263 1,263
Management fees to affiliate 316 160 62 141 106 1 786
General and administrative expenses 70 358 34 41 19 438 960
Provision for bad debts -- 170 -- 6 -- 721 897
------------------------------------------------------------------------
Total costs and expenses 5,595 2,552 1,626 1,170 2,191 2,909 16,043
------------------------------------------------------------------------
Minority interests 116 -- -- -- (2) -- 114
Equity in net income (loss) of USPEs (22) -- 7,011 -- -- 144 7,133
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 823 $ 554 $ 6,633 $ 802 $ (81) $ (1,768) $ 6,963
========================================================================
Total assets as of September 30, 1999 $15,347 $ 8,465 $20,945 $ 4,950 $13,088 $ 8,337 $ 71,132
========================================================================
</TABLE>
(1) Includes interest income and costs not identifiable to a particular
segment, such as, interest expense, certain amortization, general and
administrative, and operations support expenses. Also includes expenses
from an investment in an entity that owned a mobile offshore drilling unit.
(2) Includes interest income and costs not identifiable to a particular
segment, such as interest expense, certain amortization, general and
administrative, and operations support expenses. Also includes lease
revenues and expenses from modular buildings, portable heaters, and
aggregate net income from an investment in an entity that owned a mobile
offshore drilling unit.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
9. DEBT
The Partnership's warehouse facility, which was shared with PLM Equipment Growth
Fund VI, Professional Lease Management Income Fund I, LLC, and TEC Acquisub,
Inc., an indirect wholly-owned subsidiary of the General Partner, expired on
September 30, 2000. The General Partner is currently negotiating with a new
lender for a $15.0 million warehouse credit facility with similar terms as the
facility that expired. The General Partner believes the facility will be
completed during the fourth quarter of 2000.
10. NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) 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
and nine months ended September 30, 2000 was 5,323,569 and 5,323,624,
respectively. The weighted-average number of Partnership units deemed
outstanding during the three and nine months ended September 30, 1999 was
5,324,262 and 5,326,951, respectively.
11. CONTINGENCIES
PLM International (the Company) and various of its wholly owned subsidiaries are
defendants in a class action lawsuit filed in January 1997 and which is pending
in the United States District Court for the Southern District of Alabama,
Southern Division (Civil Action No. 97-0177-BH-C) (the court). 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.
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.
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
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
11. CONTINGENCIES (CONTINUED)
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 August 30, 2000. 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 fund'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 Fund's limited partnership
agreement if less than 50% of the limited partners of each Fund vote against
such amendments. The equitable settlement also provides for payment of
additional attorneys' fees to the plaintiffs' attorneys from the Funds 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 August 30, 2000 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
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including disapproval of the proposed amendments to the fund partnership
agreements by less than 50% of the limited partners in one or more of Funds V,
VI, and VII, judicial approval of the proposed amendments and final approval of
the equitable settlement by the court following a final fairness hearing. A
final fairness hearing has been scheduled for November 29, 2000. 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 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)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
In September 1999, PLM Financial Services, Inc. (FSI or the General Partner),
amended the corporate-by-laws of certain unconsolidated special-purpose entities
(USPEs) in which PLM Equipment Growth & Income Fund VII (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 and
nine months ended September 30, 1999 and were included with the owned equipment
operations. For the three and nine and months ended September 30, 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.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(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 September 30, 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 September 30,
2000 1999
----------------------------
Marine containers $ 973 $ 845
Marine vessels 665 1,163
Trailers 575 818
Railcars 505 528
Aircraft 269 (215)
Portable heaters -- 122
Modular buildings -- (7)
Marine containers: Lease revenues and direct expenses for marine containers were
$1.0 million and $2,000 respectively, for the three months ended September 30,
2000, compared to $0.8 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 impacted the reporting of lease revenues for marine containers. As
a result of the Amendment, during the three months ended September 30, 2000,
lease revenues decreased $0.5 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 $0.4 million caused by the purchase of
additional equipment during 1999 and 2000. In addition, lease revenues also
increased $0.2 million during the third quarter 2000 due to the transfer of the
Partnership's investment in an entity that owned marine containers from a USPE
to owned equipment.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.5
million and $0.8 million, respectively, for the three months ended September 30,
2000, compared to $2.1 million and $0.9 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
September 30, 2000, lease revenues decreased $0.6 million and direct expenses
decreased $0.4 million when compared to the same period of 1999.
Marine vessel direct expenses increased $0.3 million during the three months
ended September 30, 2000 due to increases in repairs and maintenance of $0.1
million, equipment operating expenses of $0.1 million, and insurance expense of
$0.1 million when compared to the same period of 1999.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and $0.3
million, respectively, for the three months ended September 30, 2000, compared
to $1.1 million and $0.2 million, respectively, during the same period of 1999.
A decrease in trailer lease revenues of $0.2 million was due to lower
utilization.
Railcars: Railcar lease revenues and direct expenses were $0.6 million and $0.1
million, respectively, for the three months ended September 30, 2000, compared
to $0.7 million and $0.1 million, respectively, during the same period of 1999.
A decrease in railcar lease revenues of $27,000 was due to an increase in the
number of off-lease railcars during the three months ended September 30, 2000
when compared to the same period of 1999 and a decrease of $21,000 was due to
lower re-lease rates earned on existing railcars whose leases expired during
2000.
Aircraft: Aircraft lease revenues and direct expenses were $0.3 million and
$2,000, respectively, for the three months ended September 30, 2000, compared to
$0.3 million and $0.5 million, respectively, during the same period of 1999.
During the three months ended September 30, 1999, an off-lease commuter aircraft
required repairs of $0.5 million which were not required during the same period
of 2000.
Portable heaters: The Partnership sold all the portable heaters during September
1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.0 million for the three months ended September 30,
2000 decreased from $3.6 million for the same period in 1999. Significant
variances are explained as follows:
(i) A $0.6 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of $0.4 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 $0.1 million due to the sale of
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 $0.4 million
in depreciation and amortization expenses resulting from the purchase of
additional equipment during 2000 and 1999 and an increase of $0.2 million
resulting from the transfer of the Partnership's interest in an entity that
owned marine containers from a USPE to owned equipment during 2000.
(ii) A $0.1 million decrease in the provision for bad debts based on the
General Partner's evaluation of the collectability of receivables when compared
to the same period of 1999. During 1999, the General Partner increased the
provision for bad debt based on the collectability of receivables due from the
lessee of the portable heaters. A similar provision did not have to be made
during 2000.
(iii) A $0.1 million decrease in interest expense was due to a lower
average outstanding debt balance in the third quarter of 2000 when compared to
the same period of 1999.
(iv) A $0.2 million increase in general and administrative expenses was due
to $0.1 million increase in costs associated with the transition of trailers
into and the operations of three new PLM short-term trailer rental facilities
and an increase of $49,000 in the costs associated with professional services
during the three months ended September 30, 2000 when compared to the same
period of 1999.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the third quarter of 2000 totaled
$2.5 million, and resulted from the sale of trailers, railcars, and marine
containers with an aggregate net book value of $5.5 million for proceeds of $8.0
million. The net gain on disposition of equipment for the third quarter of 1999
totaled $0.2 million, and resulted from the sale of trailers, railcars, and all
of the portable heaters with an aggregate net book value of $3.4 million for
proceeds of $3.6 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 September 30,
2000 1999
----------------------------
Marine vessels $ 897 $ (1)
Marine containers 20 --
Mobile offshore drilling unit -- 47
Aircraft (141) (813)
---------- -----------
Equity in net income (loss) of USPEs $ 776 $ (767)
========== ===========
Marine vessels: During the three months ended September 30, 2000, lease revenues
of $0.6 million and the gain from the sale of the Partnership's interest in an
entity that owned a marine vessel of $0.9 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.6 million. During
the same period of 1999, lease revenues of $0.3 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.3
million.
An increase in marine vessel lease revenues of $0.5 million and depreciation
expense, direct expenses, and administrative expenses of $0.5 million during the
three months ended September 30, 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 September 30, 1999.
The increase in marine vessel lease revenues and depreciation expense, direct
expenses, and administrative expenses caused by the Amendment, were off set in
part by lower lease revenues of $0.2 million and lower depreciation expense,
direct expenses, and administrative expenses of $0.1 million due to the sale of
a marine vessel during the third quarter of 2000.
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 September 30, 2000 when compared
to the same period of 1999. During the three months ended September 30, 2000,
lease revenues of $0.1 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.1 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 September 30, 1999, lease revenues of $0.1 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.1 million.
Aircraft: During the three months ended September 30, 2000, lease revenues of
$0.8 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.9 million. During the same period of 1999, lease
revenues of $0.5 million were offset by depreciation expense, direct expenses,
and administrative expenses of $1.3 million. Lease revenues increased $0.3
million due to a Boeing 737-300 being on-lease in the third quarter of 2000 that
was off-lease during the same period of 1999. The decrease in expenses of $0.4
million was primarily due to lower depreciation expense as the 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 (Loss)
As a result of the foregoing, the Partnership had a net income of $3.3 million
for the three months ended September 30, 2000, compared to a net loss of $0.9
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 third quarter of 2000 is not necessarily indicative of future
periods. In the third quarter of 2000, the Partnership distributed $2.4 million
to the limited partners, or $0.45 per weighted-average limited partnership unit.
COMPARISON OF THE PARTNERSHIP'S OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999
(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 nine months ended September 30, 2000, when compared to the
same period of 1999. The following table presents lease revenues less direct
expenses by segment (in thousands of dollars):
For the Nine Months
Ended September 30,
2000 1999
----------------------------
Marine containers $ 2,401 $ 2,111
Marine vessels 1,972 3,187
Trailers 1,881 2,398
Railcars 1,475 1,575
Aircraft 786 750
Portable heaters -- 736
Modular buildings -- 3
Marine containers: Lease revenues and direct expenses for marine containers were
$2.4 million and $6,000, respectively, for the nine months ended September 30,
2000, compared to $2.1 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 impacted the reporting of lease revenues for marine containers. As
a result of the Amendment, during the nine months ended September 30, 2000,
lease revenues decreased $1.3 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 $1.4 million caused by the purchase of
additional equipment during 1999 and 2000 and an increase of $0.2 million caused
by the transfer of the Partnership's interest in an entity that owned marine
containers from a USPE to owned equipment during 2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $4.2
million and $2.2 million, respectively, for the nine months ended September 30,
2000, compared to $6.3 million and $3.1 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 nine months ended
September 30, 2000, lease revenues decreased $1.8 million and direct expenses
decreased $1.4 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 vessel direct expenses also increased $0.4 million during
the nine months ended September 30, 2000 due to increases in repairs and
maintenance of $0.2 million, equipment operating expenses of $0.1 million, and
insurance expense of $0.1 million.
Trailers: Trailer lease revenues and direct expenses were $2.7 million and $0.8
million, respectively, for the nine months ended September 30, 2000, compared to
$3.1 million and $0.7 million, respectively, during the same period of 1999. The
decrease in trailer lease revenues was due to lower utilization. The increase in
direct expenses was due to higher repair costs during the nine months ended
September 30, 2000, when compared to the same period of 1999.
Railcars: Railcar lease revenues and direct expenses were $1.9 million and $0.4
million, respectively, for the nine months ended September 30, 2000, compared to
$2.0 million and $0.4 million, respectively, during the same period of 1999. The
decrease in railcar lease revenues of $0.1 million was primarily due to lower
re-lease rates earned on existing railcars whose leases expired during 2000.
Aircraft: Aircraft lease revenues and direct expenses were $0.8 million and
$28,000, respectively, for the nine months ended September 30, 2000, compared to
$1.2 million and $0.5 million, respectively, during the same period of 1999. The
decrease of $0.4 million in aircraft lease revenues was due to the sale of three
commercial aircraft during 1999 and a commuter aircraft during 2000. During the
nine months ended September 30, 1999, an off-lease commuter aircraft required
repairs of $0.5 million which were not required during the same period of 2000.
Portable heaters: The Partnership sold all the portable heaters during September
1999.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses were $8.0 million for the nine months ended September
30, 2000 decreased from $11.3 million for the same period in 1999. Significant
variances are explained as follows:
(i) A $2.5 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of $0.7 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 $0.8 million due to the sale of
equipment during 2000 and 1999, and a decrease of $2.1 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 $0.8 million
in depreciation and amortization expenses resulting from the purchase of
additional equipment during 2000 and 1999 and an increase of $0.2 million
resulting from the transfer of the Partnerships interest in an entity that
owned marine containers from a USPE to owned equipment during 2000.
(ii) A $0.8 million decrease in the provision for bad debts based on the
General Partner's evaluation of the collectability of receivables. During 1999,
the General Partner increased the provision for bad debt based on the
collectability of receivables due from the lessee of the portable heaters. A
similar provision did not have to be made during 2000.
(iii)A $0.2 million decrease in interest expense was due to a lower
average outstanding debt balance in the third quarter of 2000 when compared to
the same period of 1999.
(iv) A $0.1 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the quarter ended September 30, 2000
when compared to the same period of 1999.
(v) A $0.3 million increase in administrative expenses was due to higher
costs associated with the transition of Partnership
trailers and operations of three new PLM short-term trailer rental facilities.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the nine months ended September 30,
2000 totaled $3.6 million, and resulted from the sale of a commuter aircraft,
railcars, marine containers, and trailers with an aggregate net book value of
$6.9 million for proceeds of $10.5 million. The net gain on disposition of
equipment for the nine months ended September 30, 1999 totaled $0.2 million, and
resulted from the sale of commercial aircraft, portable heaters, trailers,
modular buildings, and railcars with an aggregate net book value of $5.1 million
for proceeds of $5.2 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 Nine Months
Ended September 30,
2000 1999
----------------------------
Marine vessels $ 756 $ (22 )
Marine containers 129 --
Mobile offshore drilling unit (1 ) 144
Aircraft (953 ) 7,011
---------- -----------
Equity in net income (loss) of USPEs $ (69 ) $ 7,133
========== ===========
Marine vessels: During the nine months ended September 30, 2000, lease revenues
of $2.2 million and the gain from the sale of the Partnership's interest in an
entity that owned a marine vessel of $0.9 million were offset by depreciation
expense, direct expenses, and administrative expenses of $2.4 million. During
the same period of 1999, lease revenues of $0.6 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.7
million.
The increase in marine vessel lease revenues of $1.7 million and depreciation
expense, direct expenses, and administrative expenses of $1.7 million during the
nine months ended September 30, 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 nine months ended September 30, 1999.
The increase in marine vessel lease revenues and depreciation expense, direct
expenses, and administrative expenses caused by the Amendment, were off set in
part by lower lease revenues of $0.2 million and lower depreciation expense,
direct expenses, and administrative expenses of $27,000 due to the sale of a
marine vessel during the third quarter of 2000.
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 nine months ended September 30, 2000 when compared
to the same period of 1999. During the nine months ended September 30, 2000,
lease revenues of $0.8 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.7 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 nine months ended September 30, 1999, lease revenues of $0.4 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.2 million.
Aircraft: During the nine months ended September 30, 2000, lease revenues of
$2.0 million were offset by depreciation expense, direct expenses, and
administrative expenses of $2.9 million. During the same period of 1999, lease
revenues of $2.0 million and the gain from the sale of the Partnership's
interest in three trusts of $8.9 million were offset by depreciation expense,
direct expenses, and administrative expenses of $3.9 million.
Lease revenues decreased $0.4 million due to the sale of the Partnership's
investment in a trust that owned a Boeing 767-200ER commercial aircraft during
the second quarter 1999. This decrease in lease revenues was partially off set
by an increase of $0.4 million in lease revenues due to a Boeing 737-300 being
on-lease in 2000 that was off-lease during the same period of 1999.
The decrease in expenses of $1.0 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 $0.4 million. Depreciation expense
decreased an additional $1.1 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 increased depreciation expense $0.5 million.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $4.2 million
for the nine months ended September 30, 2000, compared to a net income of $7.0
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 nine months ended September 30, 2000 is not necessarily
indicative of future periods. In the nine months ended September 30, 2000, the
Partnership distributed $7.2 million to the limited partners, or $1.35 per
weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 2000, the Partnership generated
operating cash of $9.7 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 nine months ended
September 30, 2000 of approximately $7.6 million) to the partners.
During the nine months ended September 30, 2000, the Partnership sold or
disposed of wholly-owned equipment and received aggregate proceeds of $10.5
million.
The Partnership purchased marine containers for $10.2 million including
acquisition fees of $0.4 million to the General Partner for this equipment.
During the nine months ended September 30, 2000, the General Partner transferred
the Partnership's investment in an entity that owned marine containers to the
Partnership's owned equipment. The original equipment cost of the marine
containers transferred to owned equipment was $7.9 million.
Accounts receivable increased $0.2 million during the nine months ended
September 30, 2000 due to the timing of cash receipts.
Investments in USPEs decreased $12.0 million due to sale of the Partnership's
interest in an entity that owned a marine vessel with an investment book value
of $1.7 million for proceeds of $2.4 million, the transfer of the Partnership's
interest in an entity that owned marine containers with a net book value of $5.7
million to owned equipment, cash distributions of $3.6 million to the
Partnership from the USPEs, and a $0.1 million loss that was recorded from
operations from its equity interests in USPEs for the nine months ended
September 30, 2000.
Accounts payable decreased $0.7 million during the nine months ended September
30, 2000 due to the payment of $0.9 million for marine containers that were
purchased in 1999 and included as a payable at December 31, 1999 and $0.3
million increase of trade payables.
During the nine months ended September 30, 2000, due to affiliates increased
$0.6 million resulting from the receipt an additional deposit of $0.2 million
that is due to an affiliated USPE for engine reserves, an increase of $0.4
million due to FSI for acquisition and lease negotiation fees, and an increase
of $50,000 due to PLM Investment Management Inc., an affiliate of the General
Partner, for management fees.
During the nine months ended September 30, 2000, lessee deposits and reserve for
deposits decreased $0.2 million. Marine vessel dry docking reserves decreased
$0.2 million due to the payment of dry docking expenses of $0.5 million offset
in part, by an increase in the reserve for a marine vessel dry docking of $0.3
million.
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 Partnership's warehouse facility, which was shared with PLM Equipment Growth
Fund VI, Professional Lease Management Income Fund I, LLC, and TEC Acquisub,
Inc., an indirect wholly-owned subsidiary of the General Partner, expired on
September 30, 2000. Borrowings under this facility by the other eligible
borrowers reduced the amount available to be borrowed by the Partnership. All
borrowings under this facility were guaranteed by the General Partner. The
General Partner is currently negotiating with a new lender for a $15.0 million
warehouse credit facility with similar terms as the facility that expired. The
General Partner believes the facility will be completed during the fourth
quarter of 2000.
(III) 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. 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.
2. 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.
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 eleventh year of operations. The Partnership will terminate on
December 31, 2013, unless terminated earlier upon sale of all equipment and by
certain other events.
(IV) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 2000, 74% 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.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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: November 10, 2000 By: /s/ Richard K Brock
Richard K Brock
Vice President and
Chief Financial Officer
