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 SEPTEMBER 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 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 ____
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 65,435 $ 97,404
Less accumulated depreciation (34,910) (46,578)
--------------------------------------
30,525 50,826
Equipment held for sale 1,802 --
--------------------------------------
Net equipment 32,327 50,826
Cash and cash equivalents 6,633 404
Restricted cash 200 219
Accounts receivable, less allowance for doubtful accounts
of $1,135 in 1999 and $251 in 1998 881 1,893
Investments in unconsolidated special-purpose entities 30,859 22,817
Deferred charges, net of accumulated amortization
of $275 in 1999 and $231 in 1998 227 293
Prepaid expenses and other assets 5 85
--------------------------------------
Total assets $ 71,132 $ 76,537
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 666 $ 657
Due to affiliates 510 1,318
Lessee deposits and reserve for repairs 1,442 1,530
Notes payable 23,000 23,000
--------------------------------------
Total liabilities 25,618 26,505
Minority interests -- 3,785
Partners' capital:
Limited partners (5,323,819 limited partnership units as of
September 30, 1999 and 5,334,211 as of December 31, 1998) 45,514 46,247
General Partner -- --
--------------------------------------
Total partners' capital 45,514 46,247
--------------------------------------
Total liabilities and partners' capital $ 71,132 $ 76,537
======================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 5,041 $ 4,559 $ 15,507 $ 12,727
Interest and other income 35 145 95 285
Net gain on disposition of equipment 153 3 157 35
--------------------------------------------------------------
Total revenues 5,229 4,707 15,759 13,047
--------------------------------------------------------------
Expenses
Depreciation and amortization 2,456 2,321 7,358 6,840
Repairs and maintenance 1,068 724 2,307 1,788
Equipment operating expense 674 724 2,174 1,512
Insurance expense 55 159 298 287
Management fees to affiliate 266 249 786 703
Interest expense 427 427 1,263 1,259
General and administrative expenses
to affiliates 156 174 537 544
Other general and administrative expenses 135 98 423 385
Provision for (recovery of) bad debts 181 (32) 897 11
--------------------------------------------------------------
Total expenses 5,418 4,844 16,043 13,329
--------------------------------------------------------------
Minority interests 23 44 114 89
Equity in net income (loss) of unconsolidated
special-purpose entities (767) (692) 7,133 7,259
--------------------------------------------------------------
Net income (loss) $ (933) $ (785) $ 6,963 $ 7,066
==============================================================
Partners' share of net income (loss)
Limited partners $ (1,059 ) $ (912) $ 6,585 $ 6,686
General Partner 126 127 378 380
--------------------------------------------------------------
Total $ (933 ) $ (785) $ 6,963 $ 7,066
Net income (loss) per weighted-average
limited partnership unit $ (0.20 ) $ (0.17) $ 1.24 $ 1.25
==============================================================
Cash distributions $ 2,522 $ 2,529 $ 7,571 $ 7,600
==============================================================
Cash distributions per weighted-average
limited partnership unit $ 0.45 $ 0.45 $ 1.35 $ 1.35
==============================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
( A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 1997 TO SEPTEMBER 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
Purchase 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 6,585 378 6,963
Purchase of limited partnership units (125) -- (125)
Cash distribution (7,193) (378) (7,571)
-------------------------------------------------------
Partners' capital as of September 30, 1999 $ 45,514 $ -- $ 45,514
=======================================================
</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)
For the Nine Months
<TABLE>
<CAPTION>
Ended September 30,
1999 1998
------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 6,963 $ 7,066
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 7,358 6,840
Net gain on disposition of equipment (157) (35)
Equity in net income from unconsolidated special-purpose entities (7,133) (7,259)
Changes in operating assets and liabilities:
Restricted cash (200) (6)
Accounts receivable, net 840 (300)
Prepaid expenses and other assets 5 10
Accounts payable and accrued expenses 88 204
Due to affiliates 202 97
Lessee deposits and reserve for repairs 283 (211)
Minority interests (443) 2,326
-----------------------------
Net cash provided by operating activities 7,806 8,732
-----------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (8,211) (12,995)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities (8,974) (14,721)
Distributions from unconsolidated special-purpose entities 2,619 7,902
Distributions from liquidation of unconsolidated special-purpose entities 15,855 14,802
Payments of acquisition fees to affiliate (342) (584)
Payments of lease negotiation fees to affiliate (76) (129)
Proceeds from disposition of equipment 5,248 289
----------------------------
Net cash provided by (used in) investing activities 6,119 (5,436)
-----------------------------
Financing activities
Payments due to affiliates -- (5,092)
Cash received from affiliates -- 1,510
Cash distribution paid to limited partners (7,193) (7,220)
Cash distribution paid to General Partner (378) (380)
Purchase of limited partnership units (125) (512)
-----------------------------
Net cash used in financing activities (7,696) (11,694)
-----------------------------
Net increase (decrease) in cash and cash equivalents 6,229 (8,398)
Cash and cash equivalents at beginning of period 404 9,327
----------------------------
Cash and cash equivalents at end of period $ 6,633 $ 929
=============================
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
SEPTEMBER 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 September 30, 1999 and December 31, 1998, the statements
of operations for the three and nine months ended September 30, 1999 and 1998,
the statements of changes in partners' capital for the period from December 31,
1997 to September 30, 1999, and the statements of cash flows for the nine months
ended September 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 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. PURCHASE OF LIMITED PARTNERSHIP UNITS
In 1998, the Partnership agreed to purchase approximately 60,800 limited
partnership units in 1999 for an aggregate purchase price of up to $0.8 million.
During the nine months ended September 30, 1999, the Partnership had purchased
10,392 limited partnership units for $0.1 million. 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 and nine months ended September 30, 1999 and 1998, cash distributions
totaled $2.5 million and $7.6 million, respectively. Cash distributions to the
limited partners of $0.6 million and $0.5 million during the nine months ended
September 30, 1999 and 1998, respectively, were deemed to be a return of
capital.
Cash distributions related to the results from the third quarter of 1999, of
$1.4 million, will be paid during the fourth quarter of 1999.
5. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
The balance due to affiliates as of September 30, 1999 included $0.1 million due
to FSI and its affiliates for management fees and $0.4 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 1998 included $0.1 million due to FSI and its affiliates for
management fees and $1.2 million due to an affiliated USPE.
During the nine months ended September 30, 1999, $1.0 million in engine reserves
and security deposits were paid to an affiliated USPE and the amount due to
another affiliated USPE increased $0.2 million.
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 45 $ 82 $ 150 $ 242
Data processing and administrative
expenses 14 23 52 80
Insurance expense -- 3 -- --
</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 $1.4 million for equipment
acquisition and lease negotiation fees during the nine months ended September
30, 1999 and 1998, respectively.
6. EQUIPMENT
Owned equipment held for operating lease is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or fair value,
less cost to sell, and is subject to a pending contract for sale. The components
of owned equipment were as follows (in thousands of dollars):
September 30, December 31,
1999 1998
---------------------------------
Marine vessels $ 22,212 $ 39,977
Trailers 16,976 17,280
Railcars 9,677 10,084
Aircraft 9,297 15,933
Marine containers 7,273 9,957
Portable heaters -- 4,085
Modular buildings -- 88
----------- ------------
65,435 97,404
Less accumulated depreciation (34,910) (46,578)
----------- ------------
30,525 50,826
Equipment held for sale 1,802 --
----------- ------------
Net equipment $ 32,327 $ 50,826
=========== ============
As of September 30, 1999 and 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 $3.3 million as of
September 30, 1999 and December 31, 1998. As of September 30, 1999, one of the
two commuter aircraft that are off-lease, is held for sale.
During September 1999, certain equipment in which the Partnership held a
majority ownership, was reclassified to investments in USPE's (see note 7).
<PAGE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
6. EQUIPMENT (CONTINUED)
During the nine months ended September 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 marine
containers by $0.6 million including acquisition fees of $20,000. All
acquisition fees were paid to FSI.
During the nine months ended September 30, 1999, the Partnership disposed of or
sold commercial aircraft, portable heaters, trailers, modular buildings, and
railcars with an aggregate net book value of $5.1 million for $5.2 million.
During the nine months ended September 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
In September 1999, the General Partner amended the corporate-by-laws of the
Partnership and any affiliated program's investments in USPE's that own an
interest greater than 50%. The amendment to the corporate-by-laws provides 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 regardless of the percentage
of ownership. 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 USPE's. As
such, although the Partnership may own a majority interest in a USPE, the
Partnership does not control its management and thus it is appropriate in the
future that the equity method of accounting be used. Accordingly, as of
September 30, 1999, the balance sheet reflects all investments in USPEs on an
equity basis.
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,
1999 1998
------------------------------
<S> <C> <C>
38% interest in a trust owning a Boeing 737-300 Stage III commercial
aircraft $ 8,350 $ --
75% interest in an entity owning marine containers 6,623 --
50% interest in a trust owning a MD-82 Stage III commercial aircraft 5,499 6,804
80% interest in an entity owning a dry bulk-carrier marine vessel 4,538 --
50% interest in a trust owning a MD-82 Stage III commercial aircraft 2,267 3,546
44% interest in an entity owning a dry bulk-carrier marine vessel 1,987 2,211
10% interest in an entity owning a mobile offshore drilling unit 1,274 1,450
50% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 145 222
24% interest in a trust that owned a Boeing 767-200ER Stage III
commercial aircraft 81 4,341
25% interest in a trust that owned four Boeing 737-200A Stage II
commercial aircraft 95 141
33% interest in two trusts that owned a total of three Boeing 737-200A
Stage II commercial aircraft, two stage II aircraft engines, and
a portfolio of aircraft rotables -- 4,102
------------- -------------
Net investments $ 30,859 $ 22,817
============= =============
</TABLE>
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
7. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (CONTINUED)
As of September 30, 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 $8.3 million. As of December 31, 1998, all jointly-owned
equipment in the Partnership's USPE portfolio was on lease.
During the nine months ended September 30, 1999, the General Partner sold the
Partnership's 33% interest in two trusts that owned a total of three Boeing
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 Boeing 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 nine months ended September 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 and lease negotiation fees of $0.4 million
that were paid to FSI for the purchase of this investment. The remaining
interest in this trust were purchased by an affiliated program.
8. Operating Segments
The Partnership operates or operated in five primary operating segments: marine
vessel leasing, trailer leasing, aircraft leasing, railcar leasing, and marine
container leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers.
The following tables present a summary of the operating segments for the three
and nine months ended September 30, 1999 and 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
Marine Marine
For the Three Months Ended Vessel Trailer Aircraft Railcar Container All
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
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 5,229
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 5,418
------------------------------------------------------------------------
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
========================================================================
<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
SEPTEMBER 30, 1999
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
For the Three Months Ended Vessel Trailer Aircraft Railcar Container All
September 30, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 1,902 $ 1,167 $ 505 $ 670 $ 67 $ 248 $ 4,559
Interest income and other -- -- -- -- -- 145 145
Gain on disposition of equipment -- 3 -- -- -- -- 3
------------------------------------------------------------------------
Total revenues 1,902 1,170 505 670 67 393 4,707
COSTS AND EXPENSES
Operations support 1,027 203 142 222 -- 13 1,607
Depreciation and amortization 828 481 503 218 142 149 2,321
Interest expense -- -- -- -- -- 427 427
Management fees to affiliate 94 70 25 49 3 8 249
General and administrative expenses 19 124 16 15 -- 98 272
Provision for (recovery of) bad 10 (20) -- (30) 8 (32)
debts
------------------------------------------------------------------------
Total costs and expenses 1,978 858 686 474 145 703 4,844
------------------------------------------------------------------------
Minority interests 24 -- -- -- 20 -- 44
Equity in net loss of USPEs 93 -- (806) -- -- 21 (692)
------------------------------------------------------------------------
Net income (loss) $ 41 $ 312 $ (987) $ 196 $ (58) $ (289) $ (785)
========================================================================
Total assets as of September 30, 1998 $ 19,893 $ 10,085 $ 27,654 $ 5,851 $ 9,978 $ 6,950 $ 80,411
========================================================================
Marine Marine
For the Nine Months Ended Vessel Trailer Aircraft Railcar Container All
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
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
========================================================================
<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
SEPTEMBER 30, 1999
8. OPERATING SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
Marine Marine
For the Nine Months Ended Vessel Trailer Aircraft Railcar Container All
September 30, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 5,033 $ 3,537 $ 1,516 $ 2,051 $ 67 $ 523 $ 12,727
Interest income and other -- -- -- -- -- 285 285
Gain on disposition of equipment -- 26 -- 9 -- -- 35
------------------------------------------------------------------------
Total revenues 5,033 3,563 1,516 2,060 67 808 13,047
COSTS AND EXPENSES
Operations support 2,145 607 261 540 -- 34 3,587
Depreciation and amortization 2,486 1,462 1,709 652 142 389 6,840
Interest expense -- -- -- -- -- 1,259 1,259
Management fees to affiliate 252 205 76 145 3 22 703
General and administrative expenses 88 373 58 49 -- 361 929
Provision for (recovery of) bad 10 29 2 (28) -- (2) 11
debts
------------------------------------------------------------------------
Total costs and expenses 4,981 2,676 2,106 1,358 145 2,063 13,329
------------------------------------------------------------------------
Minority interests 69 -- -- -- 20 -- 89
Equity in net income (loss) of USPEs 27 -- 7,174 -- -- 58 7,259
------------------------------------------------------------------------
Net income (loss) $ 148 $ 887 $ 6,584 $ 702 $ (58 $ (1,197) $ 7,066
========================================================================
Total assets as of September 30, 1998 $ 19,893 $ 10,085 $ 27,654 $ 5,851 $ 9,978 $ 6,950 $ 80,411
========================================================================
<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>
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. The Partnership had no borrowings
outstanding under the Committed Bridge Facility as of September 30, 1999. Among
the other eligible borrowers, PLM Equipment Growth Fund VI had borrowings of
$1.0 million and TEC Acquisub, Inc., an indirect wholly-owned subsidiary of PLM
International, Inc., had borrowings of $7.6 million under the Committed Bridge
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.
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, 1999 was 5,324,262 and 5,326,951,
respectively. The weighted-average number of Partnership units deemed
outstanding during the three and nine months ended September 30, 1998 was
5,334,211 and 5,343,769, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
11. CONTINGENCIES
PLM International Inc., (The Company) and various of its wholly-owned
subsidiaries are named as defendants in a lawsuit filed as a purported class
action in January 1997 in the Circuit Court of Mobile County, Mobile, Alabama,
Case No. CV-97-251 (the Koch action). 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 complaint
asserts eight causes of action against all defendants, as follows: fraud and
deceit, suppression, negligent misrepresentation, intentional breach of
fiduciary duty, negligent breach 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 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, and the court denied plaintiffs' motion to remand, which
denial was upheld on appeal. In December 1997, the court granted defendants
motion to compel arbitration of the named plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of each
Partnership. Plaintiffs appealed this decision, but in June 1998 voluntarily
dismissed their appeal pending settlement of the Koch action, as discussed
below.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No. 987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in certain California limited partnerships for which FSI acts as the
general partner, including the Funds. The complaint (as amended in August 1997)
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 constructive fraud. The plaintiff asserts a
claim for treble damages and violations of the California Securities Law of
1968.
In July 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 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 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. 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 $6.0 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
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
11. CONTINGENCIES (CONTINUED)
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 partnership funds 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
negotiation fees) up to 20% in excess of the compensatory limitations set forth
in the North American Securities Administrator's Association's Statement of
Policy; (c) for a one-time purchase 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 court, among other things, preliminarily approved the monetary and equitable
settlements in June 1999, and set a final fairness hearing for November 16,
1999. For settlement purposes, 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.
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 incidental to its business. Management does not believe that any of
these actions will be material to the financial condition of the Partnership.
12. RESTATEMENT
The financial statements, with the exception of the September 30, 1999 balance
sheet, 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 September 30, 1999.
As a result of the consolidation, total assets, total liabilities, and minority
interests changed as of December 31, 1998 as follows:
1998
As reported Amended
--------------------------
Total assets $ 72,174 $ 76,537
Total liabilities 25,927 26,505
Minority interests -- 3,785
<PAGE>
PLM EQUIPMENT GROWTH FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
12. RESTATEMENT (CONTINUED)
Additionally, as a result of the consolidation, total revenues, total expenses,
minority interests, and equity in net loss of USPEs changed for the three months
ended September 30, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- ---------------------------
Total revenues $ 4,132 $ 5,229 $ 3,948 $ 4,707
Total expenses 4,201 5,418 3,885 4,844
Minority interests -- 23 -- 44
Equity in net loss
of USPEs (864) (767) (848) (692)
Net loss $ (933) $ (933) $ (785) $ (785)
Total revenues, total expenses, minority interests, and equity in net income of
USPEs changed for the nine months ended September 30, 1999 and 1998 as follows:
1999 1998
As reported Amended As reported Amended
--------------------------- -------------------------
Total revenues $ 12,670 $ 15,759 $ 10,744 $ 13,047
Total expenses 12,380 16,043 10,600 13,329
Minority interests -- 114 -- 89
Equity in net income
of USPEs 6,673 7,133 6,922 7,259
Net income $ 6,963 $ 6,963 $ 7,066 $ 7,066
The consolidation of the Partnership's majority interests in USPE's did not
change partners' capital or net income.
In September 1999, the General Partner amended the corporate-by-laws of the
Partnership and any affiliated program's investments in USPE's that own an
interest greater than 50%. The amendment to the corporate-by-laws provides 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 regardless of the percentage
of ownership. 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 USPE's. As
such, although the Partnership may own a majority interest in a USPE, the
Partnership does not control its management and thus it is appropriate in the
future that the equity method of accounting be used. Accordingly, as of
September 30, 1999, the balance sheet reflects all investments in USPEs on an
equity basis.
(This space intentionally left blank)
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
COMPARISON OF PLM EQUIPMENT GROWTH & INCOME FUND VII'S (THE PARTNERSHIP'S)
OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 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
remained relatively the same during the three months ended September 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 September 30,
1999 1998
----------------------------
Marine vessels $ 1,163 875
Marine containers 845 67
Trailers 818 964
Railcars 528 448
Portable heaters 122 237
Modular buildings (7) 11
Aircraft (215) 363
Marine vessels: Marine vessel lease revenues and direct expenses were $2.1
million and $0.9 million, respectively, for the three months ended September 30,
1999, compared to $1.9 million and $1.0 million, respectively, during the same
period of 1998. Lease revenues increased during the third quarter of 1999, when
compared to the same period of 1998, due to a change in the lease arrangement
for one of the Partnership's three marine vessels. During part of the third
quarter of 1998, one of the three marine vessels was operating under a bareboat
charter in which the lessee pays a flat lease rate and also pays for certain
operating expenses while on lease. During the third quarter of 1999, this marine
vessel was 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 marine vessel
increased $0.3 when compared to the same period of 1998. Direct expenses
decreased $0.1 million during the three months ended September 30, 1999 due to
fewer repairs needed when compared to the same period of 1998. For the remaining
marine vessel in which the Partnership has a majority interest, lease revenues
decreased $0.1 million due to lower lease rates and direct expenses remained
relatively the same for both periods.
Marine containers: Lease revenues and direct expenses for marine containers were
$0.8 million and $0, respectively, for the three months ended September 30,
1999, compared to $0.1 million and $0, respectively, during the same period of
1998. The increase in marine containers contribution was due to the purchase of
additional equipment in March 1999.
Trailers: Trailer lease revenues and direct expenses were $1.1 million and $0.2
million, respectively, for the three months ended September 30, 1999, compared
to $1.2 million and $0.2 million, respectively, during the same period of 1998.
Trailer lease revenues decreased $0.1 million during the three months ended
September 30, 1999 primarily due to lower utilization revenues earned on certain
trailers. Additionally, equipment sales during the past 12 months caused lease
revenues to decrease $40,000 when compared to the same period of 1998.
Railcars: Railcar lease revenues and direct expenses were $0.7 million and $0.1
million, respectively, for the three months ended September 30, 1999, compared
to $0.7 million and $0.2 million, respectively, during the same period of 1998.
The increase in railcar contribution during 1999 was due to lower direct
expenses to certain railcars in the fleet during the three months ended
September 30, 1999 when compared to the same period of 1998.
Portable heaters: Lease revenues and direct expenses for portable heaters were
$0.1 million and $0, respectively, for the three months ended September 30,
1999, compared to $0.2 million and $0, respectively, during the same period of
1998. The decrease in portable heater contribution was due to the sale of all
this equipment during the three months ended September 30, 1999.
Aircraft: Aircraft lease revenues and direct expenses were $0.3 million and $0.5
million, respectively, for the three months ended September 30, 1999, compared
to $0.5 million and $0.1 million, respectively, during the same period of 1998.
The decrease in aircraft lease revenues was due to the sale of a commercial
aircraft during the second quarter of 1999. Direct expenses increased $0.4
million during the three months ended September 30, 1999 due to required repairs
to the off-lease commuter aircraft.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.6 million for the three months ended September 30,
1999 increased from $3.2 million for the same period in 1998. Significant
variances are explained as follows:
(i) A $0.2 million increase in the provision for bad debts based on the
General Partner's evaluation of the collectability of receivables due,
primarily, from a lessee that was leasing portable heaters.
(ii)A $0.1 million increase in depreciation and amortization expenses from
1998 levels reflecting an increase of $0.6 million due to the purchase of
additional equipment during 1999 and 1998 offset in part, by a decrease of $0.5
million due to the double-declining balance method of depreciation which results
in greater depreciation in the first years an asset is owned.
(C) Net Gain on Disposition of Owned Equipment
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. The net gain on disposition of equipment for the third quarter
of 1998 totaled $3,000, and resulted from the sale of a trailer with an
aggregate net book value of $3,000 for proceeds of $6,000.
(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 September 30,
1999 1998
--------------------------
Mobile offshore drilling unit $ 47 $ 21
Marine vessels (1) 93
Aircraft, rotable components, and aircraft engines (813) (806)
---------- ----------
Equity in net loss of USPEs $ (767) $ (692)
========== ==========
Mobile offshore drilling unit: During the three months ended September 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 $19,000 due to increased lease rates during 1999 and lower
expenses of $7,000 primarily due to 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 September 30, 1999, revenues of
$0.3 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.3 million. During the same period of 1998,
revenues of $0.3 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.2 million. The decrease in marine vessel
revenues of $0.1 million was due to lower lease rates earned. Depreciation
expense, direct expenses, and administrative expenses remained relative the same
for both periods.
Aircraft, rotable components, and aircraft engines: During the three months
ended September 30, 1999, lease revenues of $0.5 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.3
million. During the same period of 1998, lease revenues of $1.2 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.0 million. Lease revenues decreased $0.7 million due to the sale of the
Partnership's investment in a trust owning a Boeing 767-200ER commercial
aircraft and the sale of the Partnership's investment in two trusts that owned a
total of three Boeing 737-200A Stage II commercial aircraft, two stage II
aircraft engines, and a portfolio of aircraft rotables. The Partnership's
interest in a trust owning a Boeing 737 which was purchased in 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 three 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 an increase of $0.4 million in depreciation expense from the
Partnership's investment in an additional trust during 1999.
(E) Net Loss
As a result of the foregoing, the Partnership had net loss of $0.9 million for
the three months ended September 30, 1999, compared to net loss of $0.8 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 third quarter of 1999 is not necessarily indicative of future periods. In
the third 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 NINE MONTHS ENDED
SEPTEMBER 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 nine months ended September 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 Nine Months
Ended September 30,
1999 1998
----------------------------
Marine vessels $ 3,187 2,888
Trailers 2,398 2,930
Marine containers 2,111 67
Railcars 1,575 1,511
Aircraft 750 1,255
Portable heaters 736 486
Modular buildings 3 37
Marine vessels: Marine vessel lease revenues and direct expenses were $6.3
million and $3.1 million, respectively, for the nine months ended September 30,
1999, compared to $5.0 million and $2.1 million, respectively, during the same
period of 1998. During virtually all of the nine months ended September 30,
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 nine months ended September 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 $1.8 million from the
new lease arrangement exceeding the increase in operating expenses of $1.0
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 $0.5 million during the nine months ended September 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 nine months ended
September 30, 1999 and 1998.
Trailers: Trailer lease revenues and direct expenses were $3.1 million and $0.7
million, respectively, for the nine months ended September 30, 1999, compared to
$3.5 million and $0.6 million, respectively, during the same period of 1998.
Trailer lease revenues decreased $0.3 million during the nine months ended
September 30, 1999 primarily due to lower utilization revenues earned on the
Partnership's over-the-road dry trailers. Additionally, equipment sales during
the past 12 months caused lease revenues to decrease $0.1 million. Direct
expenses increased $0.1 million during the nine months ended September 30, 1999
due to higher repair and maintenance expenses when compared to the same period
of 1998.
Marine containers: Lease revenues and direct expenses for marine containers were
$2.1 million and $0, respectively, for the nine months ended September 30, 1999,
compared to $0.1 million and $0, respectively, during the same period of 1998.
The increase in marine containers contribution was due to the purchase of
additional equipment in March 1999.
Railcars: Railcar lease revenues and direct expenses were $2.0 million and $0.4
million, respectively, for the nine months ended September 30, 1999, compared to
$2.1 million and $0.5 million, respectively, during the same period of 1998. The
increase in rail equipment contribution was due to lower direct expenses to
certain railcars in the fleet during the nine months ended September 30, 1999
when compared to the same period of 1998.
Aircraft: Aircraft lease revenues and direct expenses were $1.2 million and $0.5
million, respectively, for the nine months ended September 30, 1999, compared to
$1.5 million and $0.3 million, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to higher repairs of $0.2 million
needed to the commuter aircraft during 1999 when compared to the same period of
1998. In addition, aircraft lease revenues were $0.3 million lower due to the
sale of three commercial aircraft in June 1999.
Portable heaters: Portable heaters lease revenues and direct expenses were $0.7
million and $0, respectively, for the nine months ended September 30, 1999,
compared to $0.5 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. (See related discussion under indirect expenses.)
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $11.3 million for the nine months ended September 30,
1999, increased from $9.7 million for the same period in 1998. Significant
variances are explained as follows:
(i) A $0.9 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 a lessee that was leasing portable heaters.
(ii)A $0.5 million increase in depreciation and amortization expenses from
1998 levels reflecting an increase of $1.9 million due to the purchase of
additional equipment during 1999 and 1998 offset in part, by a decrease of $1.4
million due to the double-declining balance method of depreciation which results
in greater depreciation in the first years an asset is owned.
(C) Net Gain on Disposition of Owned Equipment
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. The net gain on
disposition of equipment for the nine months ended September 30, 1998 totaled
$35,000, and resulted from the sale of trailers and a railcar with an aggregate
net book value of $0.2 million for $0.3 million.
(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,
1999 1998
------------------------
Aircraft, rotable components, and aircraft engines $ 7,011 $ 7,174
Mobile offshore drilling unit 144 58
Marine vessels (22) 27
--------- --------
Equity in net income of USPEs $ 7,133 $ 7,259
========= ========
Aircraft, rotable components, and aircraft engines: During the nine months ended
September 30, 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. During the same period of 1998, lease revenues of $4.5 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 $6.1 million. Lease revenues decreased $2.5 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 lease
revenues of $0.3 million resulting from the Partnership's investment in an
additional trust during May 1998. The Partnership's purchase of an interest in a
trust owning a Boeing 737 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 $2.2 million was primarily due to 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 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. During the same period of
1998, lease revenues of $0.3 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 nine months ended September 30, 1999, lease revenues
of $0.6 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.7 million. During the same period of 1998, lease
revenues of $0.8 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.8 million. Marine vessel lease revenues
decreased during the nine months ended September 30, 1999, due to a lower lease
rate earned. The decrease in expenses was primarily due to lower depreciation
expense caused by the use of the double-declining balance method of depreciation
and lower direct expenses.
(E) Net Income
As a result of the foregoing, the Partnership had net income of $7.0 million for
the nine months ended September 30, 1999, compared to net income of $7.1 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 nine months ended September 30, 1999 is not necessarily indicative of future
periods. In the nine months ended September 30, 1999, 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, 1999, the Partnership generated
operating cash of $10.4 million (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for nine months ended
September 30, 1999 of approximately $7.6 million) to the partners.
During the nine months ended September 30, 1999, the Partnership sold or
disposed of owned equipment and investments in USPEs and received aggregate
proceeds of $21.1 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 increased its majority interest in 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 nine
months ended September 30, 1999 when compared to December 31, 1998. The decrease
in lessee deposits and reserve for repairs was the result of the
reclassification of $0.3 million of drydocking reserves for the majority held
interest in a marine vessel to a USPE. The decrease was partially offset by
additional reserves needed for aircraft engine repair and marine vessel
dry-docking. Additionally, the Partnership received security deposits of $0.2
million from the buyer and a potential buyer of two commuter aircraft, one of
which is currently held for sale.
During the nine months ended September 30, 1999, due to affiliates decreased
$0.8 million of which $1.0 million was paid to an affiliated USPE and the amount
due to another affiliated USPE increased $0.2 million. Of the $1.0 million
returned to the affiliated USPE, $0.7 million was unused engine reserves that
were added to sales proceeds and $0.2 million in security deposits were applied
against outstanding account receivables.
The General Partner has entered into a short-term joint $24.5 million credit
facility. As of October 28, 1999, TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $0.9 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 September 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 have been tested and appear to be to be compliant.
As of September 30, 1999, the costs incurred and allocated to the Partnership to
become Year 2000 compliant have not been material and the General Partner 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, 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 in the fourth quarter of 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 September 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
September 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 one of its
commuter aircraft.
2. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk marine vessels. The market has
stabilized and is expected to improve over the next 2-3 years in the absence of
new additional orders.
3. Railcar loading in North America have continued to be high, however a
softening in the market is expected in the last quarter of 1999, which may lead
to lower utilization and lower contribution to the Partnership as existing
leases expire and renewal leases are negotiated.
4. 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, payment of 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 nine months ended September 30, 1999, 60% 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 may 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 26, 2000 By: /s/ Richard K Brock
-----------------------------------
Richard K Brock
Vice President and
Corporate Controller
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