UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-55796
-----------------------
PLM EQUIPMENT GROWTH & INCOME FUND VII
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3168838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 102,110 $ 97,404
Less accumulated depreciation (49,657) (46,578)
--------------------------------------
Net equipment 52,453 50,826
Cash and cash equivalents 2,297 404
Restricted cash -- 219
Accounts receivable, less allowance for doubtful accounts
of $965 in 1999 and $251 in 1998 1,688 1,893
Investments in unconsolidated special-purpose entities 21,248 22,817
Deferred charges, net of accumulated amortization
of $296 in 1999 and $231 in 1998 305 293
Prepaid expenses and other assets 20 85
--------------------------------------
Total assets $ 78,011 $ 76,537
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 422 $ 657
Due to affiliates 533 1,318
Lessee deposits and reserve for repairs 1,473 1,530
Notes payable 23,000 23,000
--------------------------------------
Total liabilities 25,428 26,505
Minority Interests 3,609 3,785
Partners' capital:
Limited partners (5,324,319 limited partnership units as of
June 30, 1999 and 5,334,211 as of December 31, 1998) 48,974 46,247
General Partner -- --
--------------------------------------
Total partners' capital 48,974 46,247
--------------------------------------
Total liabilities and partners' capital $ 78,011 $ 76,537
======================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 5,207 $ 4,183 $ 10,466 $ 8,168
Interest and other income 20 87 60 140
Net gain (loss) on disposition of equipment 18 (1) 4 33
--------------------------------------------------------------
Total revenues 5,245 4,269 10,530 8,341
--------------------------------------------------------------
EXPENSES
Depreciation and amortization 2,609 2,243 4,902 4,520
Repairs and maintenance 608 526 1,239 1,064
Equipment operating expense 755 471 1,500 788
Insurance expense 108 66 243 128
Management fees to affiliate 239 232 521 454
Interest expense 423 422 836 832
General and administrative expenses
to affiliates 190 190 381 370
Other general and administrative expenses 149 156 287 287
Provision for bad debts 680 23 716 42
--------------------------------------------------------------
Total expenses 5,761 4,329 10,625 8,485
--------------------------------------------------------------
Minority interests 53 32 91 45
Equity in net income of unconsolidated
special-purpose entities 5,174 2,238 7,900 7,951
--------------------------------------------------------------
Net income $ 4,711 $ 2,210 $ 7,896 $ 7,852
PARTNERS' SHARE OF NET INCOME
Limited partners $ 4,585 $ 2,083 $ 7,644 $ 7,598
General Partner 126 127 252 254
--------------------------------------------------------------
Total $ 4,711 $ 2,210 $ 7,896 $ 7,852
==============================================================
Net income per weighted-average
limited partnership unit $ 0.86 $ 0.39 $ 1.43 $ 1.42
==============================================================
Cash distributions $ 2,523 $ 2,529 $ 5,049 $ 5,071
==============================================================
Cash distributions per weighted-average
limited partnership unit $ 0.45 $ 0.45 $ 0.90 $ 0.90
==============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31 TO JUND 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 51,062 $ -- $ 51,062
Net income 5,317 507 5,824
Repurchase of limited partnership units (512) -- (512)
Cash distribution (9,620) (507) (10,127)
-------------------------------------------------------
Partners' capital as of December 31, 1998 46,247 -- 46,247
Net income 7,644 252 7,896
Repurchase of limited partnership units (120) -- (120)
Cash distribution (4,797) (252) (5,049)
-------------------------------------------------------
Partners' capital as of June 30, 1999 $ 48,974 $ -- $ 48,974
=======================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 7,896 $ 7,852
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 4,902 4,520
Net gain on disposition of equipment (4) (33)
Equity in net income from unconsolidated special-purpose entities (7,900) (7,951)
Changes in operating assets and liabilities:
Restricted cash -- (2)
Accounts receivable, net 205 (215)
Prepaid expenses and other assets 65 (92)
Accounts payable and accrued expenses (235) (154)
Due to affiliates 185 53
Lessee deposits and reserve for repairs (57) (382)
Minority interests (176) (82)
-----------------------------
Net cash provided by operating activities 4,881 3,514
-----------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (7,777) (3,020)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities (8,974) (14,720)
Distribution from unconsolidated special-purpose entities 1,837 6,605
Distributions from liquidation of unconsolidated special-purpose entities 15,855 14,802
Payments of acquisition fees to affiliate (342) (135)
Payments of lease negotiation fees to affiliate (76) (30)
Proceeds from disposition of equipment 1,658 268
-----------------------------
Net cash provided by investing activities 2,181 3,770
-----------------------------
FINANCING ACTIVITIES
Payments due to affiliates -- (3,582)
Cash received from affiliates -- 1,511
Cash distribution paid to limited partners (4,797) (4,817)
Cash distribution paid to General Partner (252) (254)
Repurchase of limited partnership units (120) (513)
-----------------------------
Net cash used in financing activities (5,169) (7,655)
-----------------------------
Net increase (decrease) in cash and cash equivalents 1,893 (371)
Cash and cash equivalents at beginning of period 404 9,327
-----------------------------
Cash and cash equivalents at end of period $ 2,297 $ 8,956
==============================
SUPPLEMENTAL INFORMATION
Interest paid $ 836 $ 869
==============================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. OPINION OF MANAGEMENT
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth & Income Fund VII
(the Partnership) as of June 30, 1999 and December 31, 1998, the statements of
income for the three and six months ended June 30, 1999 and 1998, the statements
of changes in partners' capital for the period from December 31, 1997 to June
30, 1999, and the statements of cash flows for the six months ended June 30,
1999 and 1998. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K/A for the year ended December 31, 1998, on file at the Securities and
Exchange Commission.
2. SCHEDULE OF PARTNERSHIP PHASES
The Partnership is currently operating within the first six years of operation
in which the General Partner intends to reinvest a portion of cash flow and net
disposition proceeds in additional equipment. Beginning in the Partnership's
seventh year of operations, which commences on January 1, 2002, the General
Partner will stop reinvesting excess cash, if any, which, less reasonable
reserves, will be distributed to the partners. Beginning in the Partnership's
ninth year of operations, which commences on January 1, 2004, the General
Partner intends to begin an orderly liquidation of the Partnership's assets. The
General Partner anticipates that the liquidation of the assets will be completed
by the end of the Partnership's tenth year of operations. The Partnership will
terminate on December 31, 2013, unless terminated earlier upon sale of all
equipment or by certain other events.
3. REPURCHASE OF LIMITED PARTNERSHIP UNITS
In 1998, the Partnership agreed to repurchase approximately 60,800 limited
partnership units in 1999 for an aggregate purchase price of up to $0.8 million.
During the six months ended June 30, 1999, the Partnership had repurchased 9,892
limited partnership units for $0.1 million. The General Partner may repurchase
additional units in the future.
4. CASH DISTRIBUTIONS
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For each of the
three months ended June 30, 1999 and 1998, cash distributions totaled $2.5
million, for the six months ended June 30, 1999 and 1998, cash distributions
totaled $5.0 million and $5.1 million, respectively. None of the cash
distributions to the limited partners during the six months ended June 30, 1999
and 1998 were deemed to be a return of capital.
Cash distributions related to the results from the second quarter of 1999, of
$1.4 million, will be paid during the third quarter of 1999.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of June 30, 1999 included $0.2 million due to
FSI and its affiliates for management fees and $0.3 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 1998 included $0.1 million due to FSI and its affiliates for
management fees and $1.2 million due to an affiliated USPE.
During the six months ended June 30, 1999, $1.0 million in engine reserves and
security deposits were paid to an affiliated USPE.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES (CONTINUED)
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million and $45,000 was payable as of June 30, 1999 and December 31, 1998,
respectively.
The Partnership's proportional share of the affiliated expenses incurred by the
USPEs during 1999 and 1998 is listed in the following table (in thousands of
dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 46 $ 81 $ 105 $ 159
Data processing and administrative
expenses 15 25 38 58
Insurance expense -- 8 -- 10
</TABLE>
Transportation Equipment Indemnity Company, Ltd., an affiliate of the General
Partner and currently in liquidation, will no longer provide certain marine
insurance coverage as had been provided during 1998. These services will be
provided by an unaffiliated third party.
The Partnership and USPEs paid FSI $0.8 million and $1.0 million for equipment
acquisition and lease negotiation fees during the six months ended June 30, 1999
and 1998, respectively.
6. EQUIPMENT
The components of owned equipment were as follows (in thousands of dollars):
June 30, December 31,
1999 1998
----------------------------------
Marine vessels $ 39,977 $ 39,977
Trailers 17,106 17,280
Aircraft 13,112 15,933
Railcars 9,778 10,084
Marine containers 17,836 9,957
Portable heaters 4,301 4,085
Modular buildings -- 88
----------- ------------
102,110 97,404
Less accumulated depreciation (49,657) (46,578)
----------- ------------
Net equipment $ 52,453 $ 50,826
=========== ============
As of June 30, 1999, all owned equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for two commuter aircraft and six railcars. As of December
31, 1998, all owned equipment in the Partnership's portfolio was either on lease
or operating in PLM-affiliated short-term trailer rental facilities, except for
two commuter aircraft and three railcars. The net book value of the equipment
off lease was $3.0 million and $3.3 million as of June 30, 1999 and December 31,
1998, respectively.
During the six months ended June 30, 1999, the Partnership purchased a portfolio
of portable heaters for $0.2 million, including acquisition fees of $9,000, and
marine containers for $7.3 million, including acquisition fees of $0.3 million.
The Partnership also increased its majority interest in a portfolio of marine
containers by $0.6 million including acquisition fees of $20,000. All
acquisition fees were paid to FSI.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
6. EQUIPMENT (CONTINUED)
During the six months ended June 30, 1999, the Partnership disposed of or sold
commercial aircraft, railcars, modular buildings, and trailers with an aggregate
net book value of $1.7 million for $1.7 million. During the six months ended
June 30, 1998, the Partnership disposed of or sold trailers and a railcar with
an aggregate net book value of $0.2 million for $0.3 million.
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>
June 30, December 31,
1999 1998
------------------------------
<S> <C> <C>
38% interest in a trust owning a Boeing 737-300 Stage III commercial
aircraft $ 8,726 $ --
50% interest in a trust owning a MD-82 Stage III commercial aircraft 5,935 6,804
50% interest in a trust owning a MD-82 Stage III commercial aircraft 2,732 3,546
44% interest in an entity owning a dry bulk-carrier marine vessel 2,122 2,211
10% interest in an entity owning a mobile offshore drilling unit 1,332 1,450
50% interest in a trust that owned four 737-200A Stage II
commercial aircraft 172 222
24% interest in a trust that owned a 767-200ER Stage III commercial
aircraft 119 4,341
25% interest in a trust that owned four 737-200A Stage II commercial
aircraft 110 141
33% interest in two trusts that owned a total of three 737-200A Stage II
commercial aircraft, two stage II aircraft engines, and
a portfolio of aircraft rotables -- 4,102
------------ -----------
Net investments $ 21,248 $ 22,817
============ ===========
</TABLE>
As of June 30, 1999, all jointly-owned equipment in the Partnership's USPE
portfolio was on lease except for a commercial aircraft with a net book value of
$8.5 million. As of December 31, 1998, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
During the six months ended June 30, 1999, the General Partner sold the
Partnership's 33% interest in two trusts that owned a total of three 737-200A
Stage II commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables. The Partnership's interest in the trusts were sold for
proceeds of $7.0 million for its net investment of $4.0 million. The General
Partner also sold the Partnership's 24% interest in a 767-200ER Stage III
commercial aircraft. The Partnership's interest in this trust was sold for
proceeds of $9.6 million which includes $0.7 million of unused engine reserves
for its net investment of $3.8 million.
During the six months ended June 30, 1999, the Partnership purchased an interest
in a trust owning a Boeing 737-300 Stage III commercial aircraft for $9.0
million including acquisition fees of $0.4 million that was paid to FSI for the
purchase of this equipment. The remaining interest in this trust was purchased
by an affiliated program.
8. OPERATING SEGMENTS
The Partnership operates or operated in six primary operating segments: marine
vessel leasing, trailer leasing, aircraft leasing, railcar leasing, marine
container leasing, and portable heater leasing. Each
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
8. OPERATING SEGMENTS (CONTINUED)
equipment leasing segment engages in short-term to mid-term operating leases to
a variety of customers.
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 June 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,925 $ 1,050 $ 469 $ 648 $ 809 $ 306 $ 5,207
Interest income and other -- -- -- -- -- 20 20
Gain on disposition of equipment -- 4 2 12 -- -- 18
------------------------------------------------------------------------
Total revenues 1,925 1,054 471 660 809 326 5,245
Costs and expenses
Operations support 1,055 247 5 153 -- 11 1,471
Depreciation and amortization 691 400 345 184 822 167 2,609
Interest expense -- -- -- -- -- 423 423
Management fees to affiliate 97 54 20 46 41 (19) 239
General and administrative expenses 30 141 12 14 5 137 339
Provision for (recovery of) bad -- 52 -- (5) -- 633 680
debts
------------------------------------------------------------------------
Total costs and expenses 1,873 894 382 392 868 1,352 5,761
------------------------------------------------------------------------
Minority interests 52 -- -- -- 1 -- 53
Equity in net income (loss) of USPEs -- -- 5,124 -- -- 50 5,174
------------------------------------------------------------------------
Net income (loss) $ 104 $ 160 $ 5,213 $ 268 $ (58) $ (976) $ 4,711
========================================================================
Total assets as of June 30, 1999 $ 17,689 $ 8,583 $ 22,593 $ 5,113 $ 16,482 $ 7,551 $ 78,011
========================================================================
<FN>
<F1>
- -------------------
1 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues and expenses such as operations support,
depreciation and amortization, management fees, general and administrative
expenses from portable heaters and modular buildings and aggregate net income
(loss) from an investment in an entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Marine
Vessel Trailer Aircraft Railcar All
For the quarter ended June 30, 1998 Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,575 $ 1,170 $ 505 $ 691 $ 242 $ 4,183
Interest income and other -- -- -- -- 87 87
Gain (loss) on disposition of -- (10) -- 9 -- (1)
equipment
-------------------------------------------------------------
Total revenues 1,575 1,160 505 700 329 4,269
COSTS AND EXPENSES
Operations support 674 211 6 161 11 1,063
Depreciation and amortization 829 483 572 217 142 2,243
Interest expense -- -- 4 -- 418 422
Management fees to affiliate 78 67 25 50 12 232
General and administrative expenses 35 130 31 16 134 346
Provision for (recovery of) bad -- 44 2 (28) 5 23
debts
-------------------------------------------------------------
Total costs and expenses 1,616 935 640 416 722 4,329
-------------------------------------------------------------
Minority interests 32 -- -- -- -- 32
Equity in net income (loss) of USPEs (4) -- 2,228 -- 14 2,238
-------------------------------------------------------------
Net income (loss) $ (13 )$ 225 $ 2,093 $ 284 $ (379 )$ 2,210
=============================================================
Total assets as of June 30, 1998 $ 20,945 $ 10,490 $ 29,987 $ 6,063 $ 14,770 $ 82,255
=============================================================
<FN>
<F1>
- ----------------------
1 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues and expenses such as operations support,
depreciation and amortization, management fees, general and administrative
expenses from portable heaters and modular buildings and aggregate net income
(loss) from an investment in an entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
For the six months ended Vessel Trailer Aircraft Railcar Container All
June 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 4,229 $ 2,032 $ 974 $ 1,340 $ 1,267 $ 624 $ 10,466
Interest income and other -- -- -- -- -- 60 60
Gain (loss) on disposition of -- 8 2 (30) -- 24 4
equipment
------------------------------------------------------------------------
Total revenues 4,229 2,040 976 1,310 1,267 708 10,530
COSTS AND EXPENSES
Operations support 2,204 452 10 293 -- 23 2,982
Depreciation and amortization 1,381 790 690 372 1,329 340 4,902
Interest expense -- -- -- -- -- 836 836
Management fees to affiliate 212 108 45 95 63 (2) 521
General and administrative expenses 50 254 20 28 10 306 668
Provision for (recovery of) bad -- 94 -- (9) -- 631 716
debts
------------------------------------------------------------------------
Total costs and expenses 3,847 1,698 765 779 1,402 2,134 10,625
------------------------------------------------------------------------
Minority interests 90 -- -- -- 1 -- 91
Equity in net income (loss) of USPEs (22) -- 7,824 -- -- 98 7,900
------------------------------------------------------------------------
Net income (loss) $ 450 $ 342 $ 8,035 $ 531 $ (134) $ (1,328) $ 7,896
========================================================================
Total assets as of June 30, 1999 $ 17,689 $ 8,583 $ 22,593 $ 5,113 $ 16,482 $ 7,551 $ 78,011
========================================================================
<FN>
<F1>
- -----------------------
1 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues and expenses such as operations support,
depreciation and amortization, management fees, general and administrative
expenses from portable heaters and modular buildings and aggregate net income
(loss) from an investment in an entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Marine
For the six months ended Vessel Trailer Aircraft Railcar All
June 30, 1998 Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C>
Lease revenue $ 3,131 $ 2,370 $ 1,011 $ 1,381 $ 275 $ 8,168
Interest income and other -- -- -- -- 140 140
Gain on disposition of equipment -- 24 -- 9 -- 33
-------------------------------------------------------------
Total revenues 3,131 2,394 1,011 1,390 415 8,341
Costs and expenses
Operations support 1,117 404 119 318 22 1,980
Depreciation and amortization 1,658 981 1,206 435 240 4,520
Interest expense -- -- 4 -- 828 832
Management fees to affiliate 157 135 50 97 15 454
General and administrative expenses 69 249 41 32 266 657
Provision for (recovery of) bad -- 49 2 2 (11) 42
debts
-------------------------------------------------------------
Total costs and expenses 3,001 1,818 1,422 884 1,360 8,485
-------------------------------------------------------------
Minority interests 45 -- -- -- -- 45
Equity in net income (loss) of USPEs (66) -- 7,980 -- 37 7,951
-------------------------------------------------------------
Net income (loss) $ 109 $ 576 $ 7,569 $ 506 $ (908 )$ 7,852
=============================================================
Total assets as of June 30, 1998 $ 20,945 $ 10,490 $ 29,987 $ 6,063 $ 14,770 $ 82,255
=============================================================
<FN>
<F1>
- ---------------------------
1 Includes interest income and costs not identifiable to a particular segment,
such as general and administrative, interest expense, and certain operations
support. Also includes lease revenues and expenses such as operations support,
depreciation and amortization, management fees, general and administrative
expenses from portable heaters and modular buildings and aggregate net income
(loss) from an investment in an entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
9. DEBT
The General Partner has entered into a short-term, joint $24.5 million credit
facility (the Committed Bridge Facility) on behalf of the Partnership that is
due to expire on December 14, 1999. Among the other eligible borrowers, TEC
Acquisub, Inc., an indirect wholly-owned subsidiary of PLM International, Inc.,
had borrowings of $10.4 million under the short-term joint, $24.5 million credit
facility as of June 30, 1999. No other eligible borrower had any outstanding
borrowings.
The General Partner believes it will be able to renew the Committed Bridge
Facility upon its expiration with similar terms as those in the current
Committed Bridge Facility.
10. NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing net
income attributable to limited partners by the weighted-average number of
Partnership units deemed outstanding during the period. The weighted-average
number of Partnership units deemed outstanding during the three and six months
ended June 30, 1999 was 5,326,080 and 5,328,374, respectively. The
weighted-average number of Partnership units deemed outstanding during the three
and six months ended June 30, 1998 was 5,339,379 and 5,348,627, 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 on January
22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their own
and on behalf of all class members similarly situated, are six individuals who
invested in certain California limited partnerships for which the Company's
wholly-owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the general
partner, including 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). The state court ex parte
certified the action as a class action (i.e., solely upon plaintiffs' request
and without the Company being given the opportunity to file an opposition). The
complaint asserts eight causes of action against all defendants, as follows:
fraud and deceit, suppression, negligent misrepresentation and suppression,
intentional breach of fiduciary duty, negligent breach of fiduciary duty, unjust
enrichment, conversion, and conspiracy. Additionally, plaintiffs allege a cause
of action against PLM Securities Corp. for breach of third party beneficiary
contracts in violation of the National Association of Securities Dealers rules
of fair practice. Plaintiffs allege that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial advisors,
agents, and control persons. Based on these duties, plaintiffs assert liability
against defendants for improper sales and marketing practices, mismanagement of
the Funds, and concealing such mismanagement from investors in the Funds.
Plaintiffs seek unspecified compensatory and recissory damages, as well as
punitive damages, and have offered to tender their limited partnership units
back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction, following which plaintiffs filed a motion to remand the
action to the state court. Removal of the action automatically nullified the
state court's ex parte certification of the class. In September 1997, the court
denied plaintiffs' motion to remand the action to state court and dismissed
without prejudice the individual claims of the California plaintiff, reasoning
that he had been fraudulently joined as a plaintiff. In October 1997, defendants
filed a motion to compel arbitration of plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of each
Fund, and to stay further proceedings pending the outcome of such arbitration.
Notwithstanding plaintiffs' opposition, the court granted defendants' motion in
December 1997.
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
11. CONTINGENCIES (CONTINUED)
Following various unsuccessful requests that the court reverse, or otherwise
certify for appeal, its order denying plaintiffs' motion to remand the case to
state court and dismissing the California plaintiff's claims, plaintiffs filed
with the U.S. Court of Appeals for the Eleventh Circuit a petition for a writ of
mandamus seeking to reverse the court's order. The Eleventh Circuit denied
plaintiffs' petition in November 1997, and further denied plaintiffs subsequent
motion in the Eleventh Circuit for a rehearing on this issue. Plaintiffs also
appealed the court's order granting defendants' motion to compel arbitration,
but in June 1998 voluntarily dismissed their appeal pending settlement of the
Koch action, as discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The plaintiff is an investor in Fund V, and filed the
complaint on her own behalf and on behalf of all class members similarly
situated who invested in certain California limited partnerships for which FSI
acts as the general partner, including the Funds. The complaint alleges the same
facts and the same nine causes of action as in the Koch action, plus five
additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et seq.
for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. In October 1997, the district court denied the Company's
petition to compel arbitration, but in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off calendar and the district court has dismissed the petition
pending settlement of the Romei action, as discussed below. The state court
action continues to be stayed pending such resolution. In connection with her
opposition to the petition to compel arbitration, plaintiff filed an amended
complaint with the state court in August 1997, alleging two new causes of action
for violations of the California Securities Law of 1968 (California Corporations
Code Sections 25400 and 25500) and for violation of California Civil Code
Sections 1709 and 1710. Plaintiff also served certain discovery requests on
defendants. Because of the stay, no response to the amended complaint or to the
discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding related to the settlement of those actions (the monetary
settlement), following which the parties agreed to an additional equitable
settlement (the equitable settlement). The terms of the monetary settlement and
the equitable settlement are contained in a Stipulation of Settlement that was
filed with the court on February 12, 1999. On June 14, 1999, the parties amended
the stipulation and revised certain exhibits, and requested that the court set a
preliminary approval hearing on the monetary settlement and equitable
settlement.
The monetary settlement provides for stipulating to a class for settlement
purposes, and a settlement and release of all claims against defendants and
third party brokers in exchange for payment for the benefit of the class of up
to $6.0 million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the class, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the court. The Company will pay up to $0.3 million
of the monetary settlement, with the remainder being funded by an insurance
policy. The equitable settlement provides, among other things: (a) for the
extension of the operating lives of Funds V, VI, and VII by judicial amendment
to each of their partnership agreements, such that FSI, the general partner of
each such partnership, be permitted to reinvest cash flow, surplus partnership
funds, or retained proceeds in additional equipment into the year 2004, and will
liquidate the Funds' equipment in 2006; (b) that FSI is entitled to earn
front-end fees (including acquisition and lease
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
11. CONTINGENCIES (CONTINUED)
negotiation fees) up to 20% in excess of the compensatory limitations set forth
in the North American Securities Administrators Association, Inc. Statement of
Policy by judicial amendment to the partnership agreements for Funds V, VI, and
VII; (c) for a one-time repurchase of up to 10% of the outstanding units of
Funds V, VI, and VII by the respective partnership at 80% of such partnership's
net asset value; and (d) for the deferral of a portion of FSI's management fees
until such time as certain performance thresholds have, if ever, been met by the
Funds. The equitable settlement also provides for payment of the equitable class
attorneys' fees from partnership funds in the event, if ever, that distributions
paid to investors in Funds V, VI, and VII during the extension period reach a
certain internal rate of return. Defendants will continue to deny each of the
claims and contentions and admit no liability in connection with the monetary
and equitable settlements.
The preliminary approval hearing was set for and occurred on June 25, 1999. On
June 29, 1999, the court entered orders, among other things, granting
preliminary approval of the monetary and equitable settlements, conditionally
certifying the monetary and equitable settlement classes, providing for a final
fairness hearing on November 16, 1999, approving the form and content of the
notices to be sent to the monetary class and the equitable class, and staying
all claims, counterclaims, and crossclaims by the monetary and equitable classes
against defendants pending the court's consideration of the fairness of the
monetary and equitable settlements at the final fairness hearing. The monetary
settlement class (the monetary 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 equitable settlement class (the equitable 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.
On June 29, 1999 the court also entered an order preliminarily approving as to
form and substance the form of solicitation statement that is to be distributed
to limited partners of Funds V, VI, and VII in connection with the equitable
settlement, following clearance by and with such changes necessary to comply
with the comments, if any, of the Securities and Exchange Commission (SEC) in
its review and clearance procedures. The monetary and equitable class notices
will be sent to the monetary and equitable classes, respectively, following
clearance by the SEC of the solicitation statement.
The monetary settlement remains subject to certain conditions, including but not
limited to notice to the monetary class for purposes of the monetary settlement
and final approval of the monetary settlement by the court following a final
fairness hearing. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) notice to the equitable class, (b)
review and clearance by the SEC, and dissemination to the members of the
equitable class, of solicitation statements regarding the proposed extensions,
(c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII
of the proposed amendments to the limited partnership agreements, (d) judicial
approval of the proposed amendments to the limited partnership agreements, and
(e) final approval of the equitable settlement by the court following a final
fairness hearing. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. The Company
continues to believe that the allegations of the Koch and Romei actions are
completely without merit and intends to continue to defend this matter
vigorously if the monetary settlement is not consummated.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition of the Company.
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
12. RESTATEMENT
The financial statements have been restated to reflect the consolidation of the
Partnership's majority interests in greater than 50% owned USPE's previously
reported under the equity method of accounting for the period ending June 30,
1999.
As a result of the consolidation, total assets, total liabilities, and minority
interests changed as of June 30, 1999 and December 31, 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- --------------------------
Total assets $ 73,870 $ 78,011 $ 72,174 $ 76,537
Total liabilities 24,896 25,428 25,927 26,505
Minority interests -- 3,609 -- 3,785
Additionally, as a result of the consolidation, total revenues, total expenses,
minority interests, and equity in net income of USPEs changed for the three
months ended June 30, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- ---------------------------
Total revenues $ 4,324 $ 5,245 $ 3,489 $ 4,269
Total expenses 4,575 5,761 3,389 4,329
Minority interests -- 53 -- 32
Equity in net income
of SPEs 4,962 5,174 2,110 2,238
Net income $ 4,711 $ 4,711 $ 2,210 $ 2,210
Total revenues, total expenses, minority interests, and equity in net income of
USPEs changed for the six months ended June 30, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- -------------------------
Total revenues $ 8,538 $ 10,530 $ 6,796 $ 8,341
Total expenses 8,180 10,625 6,714 8,485
Minority interests -- 91 -- 45
Equity in net income
of USPEs 7,538 7,900 7,770 7,951
Net income $ 7,896 $ 7,896 $ 7,852 $ 7,852
The consolidation of the Partnership's majority interests in USPE's did not
change partners' capital or net income.
<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 JUNE 30, 1999 AND 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the three months ended June 30, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 8 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses 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 June 30,
1999 1998
----------------------------
Marine vessels $ 870 $ 901
Marine containers 809 --
Trailers 803 959
Railcars 495 529
Aircraft 464 499
Portable heaters 301 231
Modular buildings 5 11
Marine vessels: Marine vessel lease revenues and direct expenses were $1.9
million and $1.1 million, respectively, for the three months ended June 30,
1999, compared to $1.6 million and $0.7 million, respectively, during the same
period of 1998. Lease revenues and direct expenses increased during the second
quarter of 1999, when compared to the same period of 1998, due to a change in
the lease arrangement for two of the Partnership's three marine vessels. During
the second quarter of 1998, two of the three marine vessels were operating under
bareboat charters in which the lessee pays a flat lease rate and also pays for
certain operating expenses while on lease. During the second quarter of 1999,
these two marine vessels were operating under a lease arrangement in which the
lessee pays a higher lease rate, however, the Partnership now pays for all
operating expenses. As a result of the change in lease arrangement, lease
revenues for the two marine vessels increased $0.6 million and direct expenses
increased $0.5 million during 1999, when compared to the same period of 1998.
For the remaining marine vessel in which the Partnership has a majority
interest, lease revenues decreased $0.3 million due to lower lease rates and
direct expenses decreased $0.1 million due to lower repairs and maintenance.
Marine containers: Lease revenues and direct expenses for marine containers were
$0.8 million and $0, respectively, for the three months ended June 30, 1999. The
increase in marine containers contribution was due to the purchase of this
equipment during March 1999.
Trailers: Trailer lease revenues and direct expenses were $1.0 million and $0.2
million, respectively, for the three months ended June 30, 1999, compared to
$1.2 million and $0.2 million, respectively, during the same period of 1998. The
decrease in trailer contribution was due to primarily to lower utilization of
the over-the-road dry trailers during the three months ended June 30, 1999 when
compared to the same period of 1998.
Railcars: Railcar lease revenues and direct expenses were $0.6 million and $0.2
million, respectively, for the three months ended June 30, 1999, compared to
$0.7 million and $0.2 million, respectively, during the same period of 1998. The
small decrease in railcar contribution during 1999 was due to sale of railcar
equipment during 1999. These railcars were on lease during the three months
ended June 30, 1998 when compared to the same period of 1999.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$5,000, respectively, for the three months ended June 30, 1999, compared to $0.5
million and $6,000, respectively, during the same period of 1998. The decrease
in aircraft contribution was due to lower lease revenues of $36,000 earned on
one of the three commercial aircraft that was sold during June 1999.
Portable heaters: Lease revenues and direct expenses for portable heaters were
$0.3 million and $0, respectively, for the three months ended June 30, 1999,
compared to $0.2 million and $0, respectively, during the same period of 1998.
The increase in portable heater contribution was due to the purchase of
additional equipment during 1999 and throughout 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.3 million for the three months ended June 30, 1999
increased from $3.3 million for the same period in 1998. Significant variances
are explained as follows:
(i) an increase of $0.7 million in the provision for bad debts based on the
General Partner's evaluation of the collectability of receivables due,
primarily, from certain lessees that are currently leasing portable heaters.
(ii)A $0.4 million increase in depreciation and amortization expenses from
1998 levels primarily reflects the purchase of certain assets during 1999 and
1998 offset, in part, by the double-declining balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment for the second quarter of 1999 totaled
$18,000, and resulted from the sale of a railcar, commercial aircraft, and
trailers with an aggregate net book value of $1.4 million for proceeds of $1.4
million. The net loss on disposition of equipment for the second quarter of 1998
totaled $1,000, and resulted from the sale of trailers and a railcar with an
aggregate net book value of $47,000 for proceeds of $46,000.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Three Months
Ended June 30,
1999 1998
-------------------------
Aircraft, rotable components, and aircraft engines $ 5,124 $ 2,228
Mobile offshore drilling unit 50 14
Marine vessels - (4)
--------------------------
Equity in net income of USPEs $ 5,174 $ 2,238
==========================
Aircraft, rotable components, and aircraft engines: During the three months
ended June 30, 1999, lease revenues of $0.6 million and the gain from the sale
of the Partnership's interest in a trust of $5.8 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.3
million. During the same period of 1998, lease revenues of $1.4 million and the
gain from the sale of the Partnership's interest in a trust of $2.8 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.0 million. Lease revenues decreased $0.9 million due to the sale of the
Partnership's investment in a trust owning a 767-200ER commercial aircraft, the
sale of the Partnership's investment in two trusts containing ten commercial
aircraft, the sale of the Partnership's investment in two trusts that owned a
total of three 737-200A Stage II commercial aircraft, two stage II aircraft
engines, and a portfolio of aircraft rotables. The decrease in lease revenues
caused by these sales was offset, in part, by $0.1 million in additional lease
revenues from the purchase of a trust owning MD-82 commercial aircraft during
May 1998. The Partnership's purchase of an interest in a trust owning a Boeing
737 during 1999 did not generate any lease revenues since it was off-lease. The
decrease in expenses of $0.7 million was primarily due to lower depreciation
expense of $0.5 million relating to the sale of the Partnership's interest in
five trusts and $0.5 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 offset, in part, by $0.2 million from the Partnership's
investment in an additional trust during 1999.
Mobile offshore drilling unit: During the three months ended June 30, 1999 and
1998, lease revenues of $0.1 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.1 million. The increase in mobile
offshore drilling unit contribution is primarily due to an increase in lease
revenue of $17,000 due to increased lease rates during 1999 and lower
depreciation expense of $14,000 as a result of the double declining-balance
method of depreciation which results in greater depreciation in the first years
an asset is owned.
Marine vessels: During the three months ended June 30, 1999, lease revenues of
$0.2 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.2 million. During the same period of 1998, lease
revenues of $0.3 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.3 million. Lease revenues decreased $0.1
million due to lower lease rates. Operating expenses decreased $0.1 million due
to lower repairs and maintenance and lower operating costs when compared to the
same period of 1998.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $4.7 million for
the three months ended June 30, 1999, compared to net income of $2.2 million
during the same period of 1998. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors. Therefore, the Partnership's performance in
the second quarter of 1999 is not necessarily indicative of future periods. In
the second quarter of 1999, 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 SIX MONTHS ENDED JUNE
30, 1999 AND 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the six months ended June 30, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 8 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses 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 Six Months
Ended June 30,
1999 1998
----------------------------
Marine vessels $ 2,025 2,014
Trailers 1,580 1,966
Marine containers 1,267 --
Rail equipment 1,047 1,063
Aircraft 964 892
Portable heaters 614 249
Modular buildings 10 26
Marine vessels: Marine vessel lease revenues and direct expenses were $4.2
million and $2.2 million, respectively, for the six months ended June 30, 1999,
compared to $3.1 million and $1.1 million, respectively, during the same period
of 1998. During the six months ended June 30, 1998, two of the Partnership's
marine vessels were operating under bareboat charters in which the lessee pays a
flat lease rate and also pays for certain operating expenses while on lease.
During the six months ended June 30, 1999, these two marine vessels were
operating under a lease arrangement in which the lessee pays a higher lease
rate, however, the Partnership now pays for all operating expenses. The increase
in marine vessel contribution from these two marine vessels was due to the
increase in the lease revenues of $1.5 million from the new lease arrangement
exceeding the increase in operating expenses of $1.1 million. The remaining
marine vessel, of which the Partnership has a majority interest, earned a lower
lease rate that caused lease revenues for this marine vessel to decrease $0.4
million during the six months ended June 30, 1999 when compared to the same
period of 1998. Direct expenses for this marine vessel remained relatively the
same for both periods during the six months ended June 30, 1999 and 1998.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.5
million, respectively, for the six months ended June 30, 1999, compared to $2.4
million and $0.4 million, respectively, during the same period of 1998. The
decrease in trailer contribution of was primarily due to lower utilization
revenues earned on the Partnership's over-the-road dry trailers.
Marine containers: Lease revenues and direct expenses for marine containers were
$1.3 million and $0, respectively, for the six months ended June 30, 1999. The
increase in marine containers contribution was due to the purchase of this
equipment during March 1999.
Rail equipment: Rail equipment lease revenues and direct expenses were $1.3
million and $0.3 million, respectively, for the six months ended June 30, 1999,
compared to $1.4 million and $0.3 million, respectively, during the same period
of 1998. The decrease in rail equipment contribution was due to the sale of
railcars during the first quarter of 1999.
Aircraft: Aircraft lease revenues and direct expenses were $1.0 million and
$10,000, respectively, for the six months ended June 30, 1999, compared to $1.0
million and $0.1 million, respectively, during the same period of 1998. The
increase in aircraft contribution was due to lower repairs of $0.1 million
needed to the commuter aircraft during 1999 when compared to the same period of
1998. In addition, aircraft lease revenues were $37,000 lower caused by the sale
of three commercial aircraft during June 1999.
Portable heaters: Portable heaters lease revenues and direct expenses were $0.6
million and $0, respectively, for the six months ended June 30, 1999, compared
to $0.2 million and $0, respectively, during the same period of 1998. The
increase in portable heater contribution was due to the purchase of additional
equipment during the latter half of 1998 and the first quarter of 1999.
Modular buildings: Modular building lease revenues and direct expenses were
$10,000 and $0, respectively, for the six months ended June 30, 1999, compared
to $26,000 and $0, respectively, during the same period of 1998. The primary
reason for the decrease in lease revenues and direct expenses was the sale of
virtually all of this equipment during 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $7.6 million for the six months ended June 30, 1999,
increased from $6.5 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.7 million increase due to the increase in the provision for bad
debts based on the General Partner's evaluation of the collectability of
receivables due, primarily, from certain lessees that are currently leasing
portable heaters.
(ii)A $0.4 million increase in depreciation and amortization expenses from
1998 levels primarily reflects the increase of $1.3 million caused by the
purchase of marine containers during 1999 and 1998 offset in part, by a decrease
of approximately $0.9 million caused by the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(iii) A $0.1 million increase in management fees to affiliate was due to
higher lease revenues.
(C) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the six months ended June 30, 1999
totaled $4,000, and resulted from the sale of commercial aircraft, trailers,
modular buildings, and railcars with an aggregate net book value of $1.7 million
for proceeds of $1.7 million. The net gain on disposition of equipment for the
six months ended June 30, 1998 totaled $33,000, and resulted from the sale of
trailers and a railcar with an aggregate net book value of $0.2 million for $0.3
million.
<PAGE>
(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 Six Months
Ended June 30,
1999 1998
------------------------
Aircraft, rotable components, and aircraft engines $ 7,824 $ 7,980
Mobile offshore drilling unit 98 37
Marine vessels (22) (66)
------------------------
Equity in net income of USPEs $ 7,900 $ 7,951
========================
Aircraft, rotable components, and aircraft engines: During the six months ended
June 30, 1999, lease revenues of $1.5 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 $2.6
million. During the same period of 1998, lease revenues of $3.3 million and the
gain from the sale of the Partnership's interest in two trusts of $8.8 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $4.1 million. Lease revenues decreased $2.1 million due to the sale
of the Partnership's investment in five trusts during 1999 and 1998. The
decrease in lease revenues caused by these sales was partially offset by $0.3
million as a result of the Partnership's investment in an additional trust
during May 1998. The Partnership's investment in an additional trust during June
1999 did not generate any lease revenues since it was off-lease. The decrease in
depreciation expense, direct expenses, and administrative expenses of $1.5
million was due primarily lower depreciation expense resulting from the
Partnership's sale of it's investment in five trusts during 1999 and 1998
partially offset, by the Partnership's investment in an additional trust during
1999.
Mobile offshore drilling unit: During the six months ended June 30, 1999, lease
revenues of $0.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.1 million. During the same period of 1998,
lease revenues of $0.2 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.2 million. The increase in the
contribution from this equipment was the result of an increase in the monthly
lease rate and lower depreciation expense caused by the double-declining balance
method of depreciation.
Marine vessels: During the six months ended June 30, 1999, lease revenues of
$0.4 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.4 million. During the same period of 1998, lease
revenues of $0.5 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.6 million. Marine vessel lease revenues
decreased during the six months ended June 30, 1999, due to a lower lease rate.
The decrease in depreciation expense, direct expenses, and administrative
expenses was due primarily to lower repairs and maintenance and lower operating
expenses during the six months ended June 30, 1999 when compared to the same
period of 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income for the six months
ended June 30, 1999 and 1998 was $7.9 million. The Partnership's ability to
acquire, operate, and liquidate assets, secure leases, and re-lease those assets
whose leases expire is subject to many factors, and the Partnership's
performance in the six months ended June 30, 1999 is not necessarily indicative
of future periods. In the six months ended June 30, 1999, the Partnership
distributed $4.8 million to the limited partners, or $0.90 per weighted-average
limited partnership unit.
<PAGE>
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 1999, the Partnership generated operating cash
of $6.7 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 six months ended June 30, 1999 of
approximately $5.0 million) to the partners.
During the six months ended June 30, 1999, the Partnership sold or disposed
owned equipment and investments in USPEs and received aggregate proceeds of
$18.4 million which include $0.7 million of unused engine reserves.
The Partnership purchased a portfolio of portable heaters for $0.2 million, and
marine containers for $7.0 million and paid acquisition and lease negotiation
fees of $0.4 million to PLM Financial Services, Inc. (FSI or the General
Partner), a wholly-owned subsidiary of PLM International, Inc., for this
equipment. The Partnership also increased its majority interest in a portfolio
of marine containers by $0.6 million and paid acquisition and lease negotiation
fees of $24,000. The Partnership also purchased an investment in a trust owning
a Boeing 737 Stage III commercial aircraft for $8.6 million and paid acquisition
fees of $0.4 million to FSI for this investment.
Lessee deposits and reserve for repairs decreased $0.1 million during the six
months ended June 30, 1999 when compared to December 31, 1998. Lessee prepaid
deposits decreased $0.2 million while reserves for aircraft engine repair and
marine vessel dry-docking increased $0.2 million.
During the six months ended June 30, 1999, due to affiliates decreased $0.8
million of which, $1.0 million was paid to an affiliated USPE. Of the $1.0
million returned to the USPE, $0.7 million was unused engine reserves that were
added to sales proceeds, $0.2 million in security deposits were used to pay
outstanding account receivables, and the remaining $33,000 was returned to the
lessee. The decrease of $1.0 million was offset in part, by an increase of $0.2
million in the amount due to an affiliated USPE for engine reserves.
The current lessee of all the Partnership's portable heaters has fallen in
arrears of the lease payments. The General Partner had to reserve $0.6 million
as a reserve for bad debt for this lessee. The General Partner is currently in
negotiations with the lessee to work out a repayment schedule or plan to collect
the past due amounts from the lessee.
The General Partner has entered into a short-term joint $24.5 million credit
facility. As of July 30, 1999, TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $17.3 million under the
short-term joint $24.5 million credit facility. No other eligible borrower had
any outstanding borrowings. The General Partner believes it will be able to
renew the Committed Bridge Facility upon its expiration with similar terms as
those in the current Committed Bridge Facility.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of the Partnership's
vendors, service providers, and customers, working either alone or in
conjunction with other software or systems, may not accept input of, store,
manipulate, and output dates on or after January 1, 2000 without error or
interruption, a possibility commonly known as the "Year 2000" or "Y2K" problem.
As the Partnership relies substantially on the General Partner's software
systems, applications and control devices in operating and monitoring
significant aspects of its business, any Year 2000 problem suffered by the
General Partner could have a material adverse effect on the Partnership's
business, financial condition and results of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of June 30, 1999, the General Partner has completed inventory,
assessment, remediation and testing stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems will be fully tested September by 30, 1999 and are expected to be
compliant.
As of June 30, 1999, the costs incurred and allocated to the Fund to become Year
2000 compliant have not been material and does not anticipate any additional
Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance were surveyed to determine Year 2000 status.
The General Partner has received satisfactory responses to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. Failure by the General
Partner or such other parties to make their respective systems Year 2000
compliant could have a material adverse effect on the business, financial
position, and results of operations of the Partnership. The General Partner has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would have a material adverse effect on the
Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenarios primarily anticipate a) an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. The General
Partner is evaluating whether there are additional scenarios, which have not
been identified. Contingency planning will encompass strategies up to and
including manual processes. The General Partner anticipates that these plans
will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities", (SFAS No. 133) which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of June 30, 1999, the
General Partner is reviewing the effect this standard will have on the
Partnership's financial statements.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
June 30, 1999, the General Partner is reviewing the effect SFAS No. 133 will
have on the Partnership's financial statements.
<PAGE>
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The 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.
Other factors affecting the Partnership's contribution in 1999 and beyond
include:
1. The Partnership is experiencing difficulty in releasing or selling two of its
commuter aircraft.
2. The decrease in demand for available marine containers has lead to declining
lease rates.
3. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk vessels. The market has stabilized
and is expected to improve over the next 2-3 years in the absence of new
additional orders.
4. Railcar loading in North America have continued to be high, however a
softening in the market is expected in the second half of 1999, which may lead
to lower utilization and lower contribution to the Partnership.
5. The Partnership's over-the-road dry trailers are currently in transition to
new PLM-affiliated short-term rental facilities specializing in this type of
trailer. The movement of these trailers to a new location will cause a temporary
reduction in lease revenues.
The Partnership intends to use excess cash flow, if any, after payment of
operating expenses, pay principal and interest on debt, redemption payment of
limited partnership units, 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.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q/A
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-Q/A should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-Q/A. The Partnership's actual results could differ materially
from those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 1999, 59% 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.
(this space intentionally left blank)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Date: January 25, 2000 By: /s/ Richard K Brock
-----------------------------------
Richard K Brock
Vice President and
Corporate Controller
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