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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2000.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission file number 0-26594
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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
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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 ______
Aggregate market value of voting stock: N/A
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An index of exhibits filed with this Form 10-K is located on pages 27 and 28.
Total number of pages in this report: 112.
PART I
ITEM 1. BUSINESS
(A) Background
In December 1992, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 7,500,000 limited partnership
units (the units) in PLM Equipment Growth & Income Fund VII, a California
limited partnership (the Partnership, the Registrant, or EGF VII). The
Partnership's offering became effective on May 25, 1993. FSI, as General
Partner, owns a 5% interest in the Partnership. The Partnership engages in the
business of investing in a diversified equipment portfolio consisting primarily
of used, long-lived, low-obsolescence capital equipment that is easily
transportable by and among prospective users.
The Partnership's primary objectives are:
(1) to invest in a diversified portfolio of low-obsolescence equipment
having long lives and high residual values, at prices that the General Partner
believes to be below inherent values, and to place the equipment on lease or
under other contractual arrangements with creditworthy lessees and operators of
equipment. All transactions over $1.0 million must be approved by the PLMI
Credit Review Committee (the Committee), which is made up of members of PLMI's
senior management. In determining a lessee's creditworthiness, the Committee
will consider, among other factors, the lessee's financial statements, internal
and external credit ratings, and letters of credit;
(2) to generate cash distributions, which may be substantially tax-deferred
(i.e., distributions that are not subject to current taxation) during the early
years of the Partnership;
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions; and
(4) to increase the Partnership's revenue base by reinvesting a portion of
its operating cash flow in additional equipment during the first six years of
the Partnership's operation in order to grow the size of its portfolio. Since
net income and distributions are affected by a variety of factors, including
purchase prices, lease rates, and costs and expenses, growth in the size of the
Partnership's portfolio does not necessarily mean that the Partnership's
aggregate net income and distributions will increase upon the reinvestment of
operating cash flow.
The offering of units of the Partnership closed on April 25, 1995. As of
December 31, 2000, there were 5,323,569 limited partnership units outstanding.
The General Partner contributed $100 for its 5% general partner interest in the
Partnership.
Beginning in the Partnership's seventh year of operation, which commences
January 1, 2002, the General Partner will stop reinvesting cash flow into
additional equipment. Surplus funds, if any, less reasonable reserves, will be
distributed to the partners. In the ninth year of the operation, which commences
January 1, 2004, the General Partner intends to begin the dissolution and
liquidation of the Partnership in an orderly fashion, unless it is terminated
earlier upon sale of all of the equipment or by certain other events. Under
certain circumstances, however, the term of the Partnership may be extended,
although in no event will the Partnership be extended beyond December 31, 2013.
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio, and the cost of investments in unconsolidated
special-purpose entities as of December 31, 2000 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
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Owned equipment held for operating leases:
12,849 Marine containers Various $ 23,359
433 Refrigerated marine containers Various 7,240
2 Bulk carrier marine vessels Ishikawa Jima 22,212
323 Pressurized tank railcars Various 8,552
67 Woodchip gondola railcars National Steel 1,028
1 737-200 Stage II commercial aircraft Boeing 5,483
245 Dry piggyback trailers Various 3,758
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Total owned equipment held for operating leases $ 71,632(1)
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Investments in unconsolidated special-purpose entities:
0.38 737-300 Stage III commercial aircraft Boeing $ 9,072(2)
0.50 MD-82 Stage III commercial aircraft McDonnell Douglas 8,125(2)
0.50 MD-82 Stage III commercial aircraft McDonnell Douglas 7,132(2)
0.80 Bulk-carrier marine vessel Tsuneishi Zosen 14,212(2)
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Total investments in unconsolidated special-purpose entities $ 38,541(1)
============
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(1) Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Partnership
borrowings. Includes costs capitalized, and equipment acquisition fees paid
to PLM Transportation Equipment Corporation (TEC), or PLM Worldwide
Management Services (WMS).
(2) Jointly owned: EGF VII and an affiliated program.
Equipment is generally leased under operating leases for a term of one to six
years except for marine vessels operating on voyage charter or time charter
which are usually leased for less than one year. Some of the Partnership's
marine containers are leased to operators of utilization-type leasing pools,
which include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the pooled equipment to sublessees, after
deducting certain direct operating expenses of the pooled equipment. The
remaining Partnership marine containers are based of a fixed rate. Lease
revenues for intermodal trailers are based on a per-diem lease in the free
running interchange with the railroads. Lease revenues for trailers that
operated in rental yards owned by PLM Rental, Inc., were based on a fixed rate
for a specific period of time, usually short in duration. Rents for all other
equipment are based on fixed rates.
The lessees of the equipment include but are not limited to: Alcoa Inc., Aero
California, Amoco Canada Petroleum, Cronos Capital Corporation, Islandsflug HF,
Skeena Cellulose Inc., Trans World Airlines, and Varig South America.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short to mid-term nature of operating
leases generally commands a higher rental rate than longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers that offer operating
leases and full payout leases. Manufacturers may provide ancillary services that
the Partnership cannot offer, such as specialized maintenance services
(including possible substitution of equipment), training, warranty services, and
trade-in privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Aviation Services Corporation,
and other investment programs that may lease the same types of equipment.
(D) Demand
The Partnership currently operates in the following operating segments: marine
container, marine vessel leasing, railcar leasing, aircraft leasing, and
intermodal trailer leasing. Each equipment-leasing segment engages in short-term
to mid-term operating leases to a variety of customers. Except for those
aircraft leased to passenger air carriers, the Partnership's transportation
equipment is used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Containers
In 2000, the Partnership continued to take advantage of competitively priced new
marine containers by adding to its fleet. The Partnership has been able to
acquire standard dry 20-foot containers in the $1,500 to $1,600 range per marine
container; several years ago, similar equipment was being sold in the $2,000+
range. The primary reason for this reduction in price relates to excess capacity
with Chinese manufacturers, whose factories represent, in the aggregate, in
excess of 90% of the worldwide container building capacity, and competitive
pricing decisions being made on their part, with the apparent support of the
Chinese government, in a desire to keep their factories operating. Such newly
purchased equipment was either leased on mid-term leases or directly into
revenue-sharing agreements
(2) Marine Vessels
The Partnership owns or has investments in small to medium-sized dry bulk
vessels that operate in international markets carrying a variety of
commodity-type cargoes. Demand for commodity-based shipping is closely tied to
worldwide economic growth patterns, which can affect demand by causing changes
in volume on trade routes. The General Partner operates the Partnership's
vessels through a combination of spot and period charters, an approach that
provides the flexibility to adapt to changes in market conditions.
During 2000, the market for bulk carriers exhibited, as expected, seasonal
strengthening in the late winter that continued strong through the summer, with
some weakness throughout the fall. The partnerships marine vessels were
sheltered, in part, from seasonal changes due to their long-term contractual
agreements.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The United States (U.S.) markets for
natural gas are industrial applications (46% of estimated demand in 2000),
residential use (21%), electrical generation (15%), commercial applications
(15%), and transportation (3%). Natural gas consumption is expected to grow over
the next few years as most new electrical generation capacity planned for is
expected to be natural gas-fired. Within the fertilizer industry, demand is a
function of several factors, including the level of grain prices, the status of
government farm subsidy programs, amount of farming acreage and mix of crops
planted, weather patterns, farming practices, and the value of the U.S. dollar.
Population growth and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of petroleum products
increased 3% and chemicals increased 1% in 2000, compared to 1999. Consequently,
demand for pressurized tank cars remained relatively constant during 2000, with
utilization of this type of railcar within the Partnership remaining above 98%.
While renewals of existing leases continue at similar rates, some cars continue
to be renewed for "winter only" terms of approximately six months. As a result,
there are many pressurized tank cars up for renewal in the spring of 2001.
(b) Woodchip Gondola Railcars
These railcars are used to transport woodchips from sawmills to pulp mills,
where the woodchips are converted into pulp. Thus, demand for woodchip cars is
directly related to demand for paper, paper products, particleboard, and
plywood. In Canada, where the Partnership's woodchip railcars operate, in 2000,
carloadings of forest products increased 3% over 1999 levels.
Over the 2001-04 forecast period, U.S. market pulp suppliers should experience
increased global demand and a corresponding increase in domestic sales as
product shipments increase about 1.7% annually over these years.
(4) Commercial Aircraft
Both Boeing and Airbus Industries have predicted that the rate of growth in the
demand for air transportation services will be relatively robust for the next 20
years. Boeing has predicted that the demand for passenger services will grow at
an average rate of about 5% per year and the demand for cargo traffic will grow
at about 6% per year during that period. Such growth will require a substantial
increase in the numbers of commercial aircraft. According to Boeing, as of the
end of 1999, the world fleet of jet-powered commercial aircraft included a total
of approximately 13,670 airplanes. That total included 11,994 passenger aircraft
with 50 seats or more and 1,676 freighter aircraft. Boeing predicts that by the
end of 2019 that fleet will grow to approximately 31,755 aircraft including
28,558 passenger aircraft with 50 seats or more and 3,197 freighter aircraft. To
support this growth, Boeing received 502 new aircraft orders in the first ten
months of 2000 and Airbus received 427.
Airline economics will also require aircraft to be retained in active commercial
service for longer periods than previously expected. Consequently, the market
for environmentally acceptable and economically viable aircraft will continue to
be robust and such aircraft will command relatively high residual values. In
general, aircraft values have tended to grow at about 3% per year. Lease rates
should also grow at similar rates. However, such rates are subject to variation
depending on the state of the world economy and the resultant demand for air
transportation services.
The Partnership owns one B737-200 and 50% of two MD-82s all of which were on
lease throughout 2000 earning above market lease rates. The 38% owned B737-300
was placed on lease in 2000 at market rate.
(5) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past decade,
intermodal trailers have continued to be gradually displaced by domestic
containers as the preferred method of transport for such goods. This is caused
by railroads offering approximately 15% lower freight rates on containers
compared to trailers. During 2000, demand for intermodal trailers was more
volatile than historic norms. Slow demand occurred over the second half of the
year due to a slowing economy and continued customer concerns over rail service
problems associated with mergers in the rail industry. Due to the decline in
demand, which occurred over the latter half of 2000, overall, shipments within
the intermodal trailer market declined more than expected for the year, or
approximately 10% compared to the prior year. Average utilization of the entire
U.S. intermodal fleet rose from 73% in 1998 to 77% in 1999 and then declined to
75% in 2000.
The General Partner further expanded its marketing program to attract new
customers for the Partnership's intermodal trailers during 2000. Even with these
efforts, average utilization for the Partnership's intermodal trailers for the
year 2000 dropped 1% to approximately 80%, still above the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to continue in the future. Overall, intermodal trailer shipments are
forecast to decline by 6% -10% in 2001, compared to the prior year, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 10,000 units in
surplus compared with demand for 2001. Maintenance costs have increased
approximately 20% due to improper repair methods performed by the railroads and
billed to owners. For the Partnership's intermodal fleet, the General Partner
will continue to seek to expand its customer base while minimizing trailer
downtime at repair shops and terminals. Significant efforts will also be
undertaken to reduce maintenance costs and cartage costs.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in governmental regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include:
(1) the U.S. Oil Pollution Act of 1990, which established liability for
operators and owners of marine vessels that create environmental pollution.
This regulation has resulted in higher oil pollution liability insurance.
The lessee of the equipment typically reimburses the Partnership for these
additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that does not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person shall operate an aircraft to or from any
airport in the contiguous United States unless that airplane has been shown
to comply with Stage III noise levels. The Partnership has one Stage II
aircraft that does not meet Stage III requirements. The cost to install a
hushkit to meet quieter Stage III requirements is approximately $2.0
million, depending on the type of aircraft. Currently, the Partnership's
Stage II aircraft is operating in countries that do not require this
regulation;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects to the stratospheric ozone
layer and that are used extensively as refrigerants in refrigerated marine
cargo containers;
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous
materials which apply particularly to the Partnership's tank railcars. The
Federal Railroad Administration has mandated that effective July 1, 2000,
all tank railcars must be re-qualified every ten years from the last test
date stenciled on each railcar to insure tank shell integrity. Tank shell
thickness, weld seams, and weld attachments must be inspected and repaired
if necessary to re-qualify a tank railcar for service. The average cost of
this inspection is $1,800 for non-jacketed tank railcars and $3,600 for
jacketed tank railcars, not including any necessary repairs. This
inspection is to be performed at the next scheduled tank test and every ten
years thereafter. The Partnership currently owns 183 non-jacketed tank
railcars and 143 jacketed tank railcars of which a total of 2 tank railcars
have been inspected to date and no defects have been discovered.
As of December 31, 2000, the Partnership was in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in entities that own equipment for leasing
purposes. As of December 31, 2000, the Partnership owned a portfolio of
transportation and related equipment and investments in equipment owned by
unconsolidated special-purpose entities (USPEs), as described in Item 1, Table
1. The Partnership acquired equipment with the proceeds of the Partnership
offering of $107.4 million through the third quarter of 1995, proceeds from the
debt financing of $23.0 million, and by reinvesting a portion of its operating
cash flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International, (the Company) and various of its wholly owned subsidiaries
are defendants in a class action lawsuit filed in January 1997 and which is
pending in the United States District Court for the Southern District of
Alabama, Southern Division (Civil Action No. 97-0177-BH-C) (the court). The
named plaintiffs are six individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI
(Fund VI), and PLM Equipment Growth & Income Fund VII (Fund VII), collectively
(the Funds), each a California limited partnership for which the Company's
wholly owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the General
Partner.
The complaint asserts causes of action against all defendants for fraud and
deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds. Plaintiffs
seek unspecified compensatory damages, as well as punitive damages.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No.987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices and violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company' s petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei action, as
discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and August
30, 2000. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Fund V, Fund VI and Fund VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. Subject to final
court approval, these proposed changes would be made as amendments to each
Fund's limited partnership agreement if less than 50% of the limited partners of
each Fund vote against such amendments. The equitable settlement also provides
for payment of additional attorneys' fees to the plaintiffs' attorneys from Fund
funds in the event, if ever, that certain performance thresholds have been met
by the Funds. The equitable settlement class consists of all investors, limited
partners, assignees or unit holders who on August 30, 2000 held any units in
Fund V, Fund VI, and Fund VII, and their assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2000.
(This space intentionally left blank)
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
entitled to 5% of the cash distributions of the Partnership. The General Partner
is the sole holder of such interests. Net income is allocated to the General
Partner to the extent necessary to cause the General Partner's capital account
to equal zero. The remaining interests in the profits, losses, and cash
distributions of the Partnership are allocated to the limited partners. As of
December 31, 2000, there were 5,721 limited partners holding units in the
Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and, therefore, are generally viewed as inefficient vehicles for the
sale of limited partnership units. Presently, there is no public market for the
limited partnership units and none is likely to develop. To prevent the limited
partnership units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of limited
partnership units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not a U.S.
citizen or if the transfer would cause any portion of the units of a "Qualified
Plan" as defined by the Employee Retirement Income Security Act of 1974 and
Individual Retirement Accounts to exceed the allowable limit.
The Partnership may redeem a certain number of units each year under the terms
of the Partnership's limited partnership agreement, beginning October 25, 1997.
As of December 31, 2000, the Partnership had purchased a cumulative total of
46,728 limited partnership units at a cost of $0.6 million. The General Partner
has decided that it will not purchase any limited partnership units under the
redemption provision in 2001. The General Partner may purchase additional
limited partnership units under the remdemption provision on behalf of the
Partnership in the future.
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ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the Year Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
2000 1999 1998 1997 1996
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Operating results:
Total revenues $ 19,801 $ 20,849 $ 18,200 $ 17,885 $ 16,316
Net gain (loss) on disposition of
equipment 3,614 1,140 (31) 1,803 42
Equity in net income (loss) of uncon-
solidated special-purpose entities (621) 6,067 6,493 1,430 (797)
Net income (loss) 4,059 6,708 5,824 1,101 (2,976)
At year-end:
Total assets $ 56,208 $ 65,966 $ 76,537 $ 82,623 $ 89,852
Total liabilities 19,493 23,219 26,505 30,050 27,865
Notes payable 17,000 20,000 23,000 23,000 23,000
Cash distribution $ 10,088 $ 10,083 $ 10,127 $ 10,176 $ 10,178
Cash distribution representing
a return of capital to the limited
partners $ 6,029 $ 3,375 $ 4,303 $ 9,075 $ 9,669
Per weighted-average limited partnership unit:
Net income (loss) $ 0.67(1) $ 1.16(1) $ 0.99(1)$ 0.11(1) $ (0.65)(1)
Cash distribution $ 1.80 $ 1.80 $ 1.80 $ 1.80 $ 1.80
Cash distribution representing
a return of capital $ 1.13 $ 0.64 $ 0.81 $ 1.69 $ 1.80
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(1)After reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.3 million ($0.06 per weighted-average depositary
unit) in 2000, $0.2 million ($0.03 per weighted-average depositary unit) in
1999, $0.2 million ($0.04 per weighted-average depositary unit) in 1998, $0.5
million ($0.08 per weighted-average depositary unit) in 1997, and $0.7
million ($0.12 per weighted-average depositary unit) in 1996.
(This space intentionally left blank)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth & Income
Fund VII (the Partnership). The following discussion and analysis of operations
focuses on the performance of the Partnership's equipment in various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for Partnership equipment include supply and demand for similar or comparable
types of transport capacity, desirability of the equipment in the leasing
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, and various regulations
concerning the use of the equipment. Equipment that is idle or out of service
between the expiration of one lease and the assumption of a subsequent lease can
result in a reduction of contribution to the Partnership. The Partnership
experienced re-leasing or repricing activity in 2000 primarily in its railcar,
marine container, trailer, and marine vessel portfolios.
(a) Railcars: This equipment experienced significant re-leasing activity. Lease
rates in this market are showning signs of weakness and this has lead to lower
utilization and lower contribution to the Partnership as existing leases expire
and renewal leases are negotiated.
(b) Marine containers: Some of the Partnership's marine containers are leased to
operators of utilization-type leasing pools and, as such, are highly exposed to
repricing activity. The increase in marine container contribution in 2000
compared to 1999 was due to equipment purchases. Market conditions were
relatively constant during 2000.
(c) Trailers: The Partnership's trailer portfolio operates or operated with
short-line railroad systems and in short-term rental facilities. The relatively
short duration of most leases in these operations exposes the trailers to
considerable re-leasing activity. Contributions from the Partnership's trailers
were lower in 2000 when compared to 1999 due to the sale of 78% of the
Partnership's trailers during 2000.
(d) Marine vessels: Certain of the Partnership's marine vessels operated in the
voyage charter market. Voyage charters are usually short in duration and reflect
short-term demand and pricing trends in the marine vessel market. The
Partnership's other marine vessels have leases that are due to expire during
2001. As a result of this, certain of the Partnership's marine vessels will be
remarketed during 2001 exposing them to repricing and releasing risk.
(2) Equipment Liquidations
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs), unless accompanied by an immediate replacement
of additional equipment earning similar rates (see Reinvestment Risk, below),
represents a reduction in the size of the equipment portfolio and may result in
a reduction of contribution to the Partnership. During the year, the Partnership
disposed of owned equipment that included an aircraft, trailers, railcars, and
marine containers and disposed of an interest in a USPE entity that owned a
marine vessel for total proceeds of $13.0 million.
(3) Nonperforming Lessees
Lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the lease terms, can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. Trans World Airlines (TWA), the
current lessee of two partially owned trusts that own an MD-82 Stage III
commercial aircraft, filed for bankruptcy protection under Chapter 11 in January
2001. As of December 31, 2000, TWA had unpaid lease payments to the Trusts
totalling $0.8 million. American Airlines (AA) has proposed an acquisition of
TWA that is being reviewed by the United States Justice Department. The General
Partner has accepted an offer from AA to extend the existing leases 84 months at
a significantly reduced monthly rate.
(4) Reinvestment Risk
Reinvestment risk occurs when; the Partnership cannot generate sufficient
surplus cash after fulfillment of operating obligations and distributions to
reinvest in additional equipment during the reinvestment phase of Partnership,
equipment is disposed of for less than threshold amounts, proceeds from the
dispositions, or surplus cash available for reinvestment cannot be reinvested at
the threshold lease rates, or proceeds from sales or surplus cash available for
reinvestment cannot be deployed in a timely manner.
During the first seven years of its operations which end on December 31, 2001,
the Partnership intends to increase its equipment portfolio by investing surplus
cash in additional equipment, after fulfilling operating requirements and paying
distributions to the partners. Subsequent to the end of the reinvestment period,
the Partnership will continue to operate for an additional three years, then
begin an orderly liquidation over an anticipated two-year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of while it was subject to lease agreements, or from the exercise of
purchase options in certain lease agreements. Equipment sales generally result
from evaluations by the General Partner that continued ownership of certain
equipment is either inadequate to meet Partnership performance goals, or that
market conditions, market values, and other considerations indicate it is the
appropriate time to sell certain equipment.
During 2000, the Partnership purchased a portfolio of marine containers for
$10.2 million, including acquisition fees of $0.4 million. All acquisition fees
were paid to PLM Financial Services, Inc. (FSI).
(5) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions, for the purpose of assessing the
recoverability of the recorded amounts. If the projected undiscounted cash flows
and the fair market value of the equipment are less than the carrying value of
the equipment, a loss on revaluation is recorded. No reductions were required to
the carrying value of the equipment during 2000, 1999, or 1998.
(C) Financial Condition - Capital Resources, Liquidity, and Unit Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $107.4 million and permanent
debt financing of $23.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement. The debt agreement with the five institutional investors
of the senior notes requires the Partnership to maintain certain financial
covenants related to fixed-charge coverage and maximum debt.
The Partnership relies on operating cash flow to meet its operating obligations,
make cash distributions, and increase the Partnership's equipment portfolio with
any remaining available surplus cash.
For the year ended December 31, 2000, the Partnership generated $11.9 million in
operating cash (net cash provided by operating activities less minority
interests, plus non-liquidating cash distributions from USPEs) to meet its
operating obligations and make distributions of $10.1 million to the partners.
Accounts receivable increased $0.4 million during 2000 due to the timing of cash
receipts.
Investments in USPEs decreased $13.2 million due to sale of the Partnership's
interest in an entity that owned a marine vessel with an investment book value
of $1.7 million for proceeds of $2.4 million, the transfer of the Partnership's
interest in an entity that owned marine containers with a net investment value
of $5.7 million to owned equipment, cash distributions of $4.4 million to the
Partnership from the USPEs, and a $0.6 million loss that was recorded from
operations from its equity interests in USPEs for 2000.
Accounts payable decreased $0.9 million during 2000 due to the payment of $0.9
million for marine containers that were purchased in 1999 and included as
accounts payable at December 31, 1999.
During 2000, due to affiliates increased $0.6 million resulting from the receipt
of additional deposits of $0.6 million that is due to affiliated USPEs for
engine reserves and security deposits.
During 2000, lessee deposits and reserve for deposits decreased $0.5 million.
Marine vessel dry docking reserves decreased $0.5 million due to the payment of
dry docking expenses of $0.9 million offset in part, by an increase in the
reserve for a marine vessel dry docking on another marine vessel of $0.4
million.
The Partnership made the annual debt payment of $3.0 million to the lenders of
the notes payable during 2000.
Pursuant to the terms of the limited partnership agreement, beginning in 1997,
the Partnership is obligated, at the sole discretion of the General Partner, to
redeem up to 2% of the outstanding limited partnership units each year. The
purchase price to be offered for such outstanding units will be equal to 105% of
the unrecovered principal attributed to the units. Unrecovered principal is
defined as the excess of the capital contribution attributable to the unit over
the distributions from any source paid with respect to that unit. The General
Partner will not be purchasing any limited partnership units under the
redemption provision in 2001. The General Partner may decide to purchase
additional limited partnership units on behalf of the Partnership in the future.
The Partnership's warehouse facility, which was shared with PLM Equipment Growth
Fund VI, Professional Lease Management Income Fund I, LLC, and TEC Acquisub,
Inc., an indirect wholly owned subsidiary of the General Partner, expired on
September 30, 2000. The General Partner is currently negotiating with a new
lender for a $15.0 million warehouse credit facility with similar terms as the
facility that expired. The General Partner believes the facility will be
completed during the first half of 2001.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(This space intentionally left blank)
(D) Results of Operations - Year-to-Year Detailed Comparison
In September 1999, PLM Financial Services, Inc. (FSI or the General Partner),
amended the corporate-by-laws of certain USPEs in which the Partnership, or any
affiliated program, owns an interest greater than 50%. The amendment to the
corporate-by-laws provided that all decisions regarding the acquisition and
disposition of the investment as well as other significant business decisions of
that investment would be permitted only upon unanimous consent of the
Partnership and all the affiliated programs that have an ownership in the
investment (the Amendment). As such, although the Partnership may own a majority
interest in a USPE, the Partnership does not control its management and thus the
equity method of accounting will be used after adoption of the Amendment. As a
result of the Amendment, as of September 30, 1999, all jointly owned equipment
in which the Partnership owned a majority interest, which had been consolidated,
was reclassified to investments in USPEs. Lease revenues and direct expenses for
jointly owned equipment in which the Partnership held a majority interest were
reported under the consolidation method of accounting during the nine months
ended September 30, 1999 and were included with the owned equipment operations.
For the three months ended December 31, 1999 and twelve months ended December
31, 2000, lease revenues and direct expenses for these entities are reported
under the equity method of accounting and are included with the operations of
the USPEs.
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2000 and 1999
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2000, when compared to the same
period of 1999. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 5 to
the audited financial statements), are not included in the owned equipment
operation discussion because they are indirect in nature and not a result of
operations, but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Years
Ended December 31,
2000 1999
---------------------------
Marine containers $ 3,906 $ 2,518
Marine vessels 2,681 3,880
Trailers 1,998 3,302
Railcars 1,927 2,090
Aircraft 1,053 642
Portable heaters and others -- 739
Marine containers: Lease revenues and direct expenses for marine containers were
$3.9 million and $20,000, respectively, for the year ended December 31, 2000,
compared to $2.5 million and $2,000, respectively, during the same period of
1999.
The September 30, 1999 Amendment that changed the accounting method of
majority-held equipment from the consolidation method of accounting to the
equity method of accounting impacted the reporting of lease revenues for marine
containers. As a result of the Amendment, during the year ended December 31,
2000, lease revenues decreased $1.3 million when compared to the same period of
1999. The decrease in lease revenues caused by the Amendment was offset by an
increase in marine containers lease revenues of $2.2 million caused by the
purchase of additional equipment during 1999 and 2000 and an increase of $0.6
million caused by the transfer of the Partnership's interest in an entity that
owned marine containers from a USPE to owned equipment during 2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $5.5
million and $2.8 million, respectively, for the year ended December 31, 2000,
compared to $7.8 million and $3.9 million, respectively, during the same period
of 1999.
The September 30, 1999 Amendment that changed the accounting method of majority
held equipment from the consolidation method of accounting to the equity method
of accounting impacted the reporting of lease revenues and direct expenses of
one marine vessel. As a result of the Amendment, during the year ended December
31, 2000, lease revenues decreased $1.8 million and direct expenses decreased
$1.4 million when compared to the same period of 1999.
In addition, a decline in lease revenues of $0.4 million was caused by the
required dry-docking of one of the Partnership's two wholly owned marine
vessels. During the dry-docking period, this marine vessel did not earn any
lease revenues. Marine vessel direct expenses also increased $0.4 million during
the year ended December 31, 2000 due to increases in repairs and maintenance of
$0.4 million and equipment operating expenses of $0.2 million. These increases
were offset, in part, by a decrease of $0.2 million in insurance expense.
Trailers: Trailer lease revenues and direct expenses were $2.9 million and $0.9
million, respectively, for the year ended December 31, 2000, compared to $4.2
million and $0.9 million, respectively, during the same period of 1999. The
decrease in trailer contribution was due to the sale of 78% of the Partnership's
trailers during 2000.
Railcars: Railcar lease revenues and direct expenses were $2.5 million and $0.5
million, respectively, for the year ended December 31, 2000, compared to $2.7
million and $0.6 million, respectively, during the same period of 1999. The
decrease in railcar lease revenues of $0.2 million was primarily due to lower
re-lease rates earned on railcars whose leases expired during 2000.
Aircraft: Aircraft lease revenues and direct expenses were $1.1 million and
$32,000, respectively, for the year ended December 31, 2000, compared to $1.5
million and $0.9 million, respectively, during the same period of 1999. The
decrease of $0.4 million in aircraft lease revenues was due to the sale of three
commercial aircraft during 1999 and a commuter aircraft during 2000. During the
year ended December 31, 1999, an off-lease commuter aircraft required repairs of
$0.9 million which were not required during the same period of 2000.
Portable heaters and others: The Partnership sold all the portable heaters and
others during September 1999.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $10.8 million for the year ended December 31, 2000
decreased from $14.0 million for the same period in 1999. Significant variances
are explained as follows:
(i) A $2.3 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of $0.7 million caused by the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned, a decrease of $1.3 million due to the sale of
equipment during 2000 and 1999, and a decrease of $2.1 million as a result of
the Amendment which changed the accounting method used for majority-held
equipment from the consolidation method of accounting to the equity method of
accounting. These decreases were offset, in part, by an increase of $1.4 million
in depreciation and amortization expenses resulting from the purchase of
additional equipment during 2000 and 1999 and an increase of $0.4 million
resulting from the transfer of the Partnership's interest in an entity that
owned marine containers from a USPE to owned equipment during 2000.
(ii)A $0.7 million decrease in the provision for bad debts was based on the
General Partner's evaluation of the collectability of receivables. During 1999,
the General Partner increased the provision for bad debts based on the
collectability of receivables due from the lessee of the portable heaters. A
similar provision did not have to be made during 2000.
(iii) A $0.2 million decrease in interest expense was due to a lower
average outstanding debt balance during 2000 when compared to the same period of
1999.
(iv)A $0.1 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2000 when
compared to the same period of 1999.
(v) A $0.1 million increase in administrative expenses was due to higher
costs associated with the transition of Partnership trailers and operations of
three new PLM short-term trailer rental facilities prior to the sale of these
facilities during 2000.
(c) Net Gain on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 2000
totaled $3.6 million, and resulted from the sale of a commuter aircraft,
railcars, marine containers, and trailers with an aggregate net book value of
$6.9 million for proceeds of $10.5 million. The net gain on disposition of
equipment for the year ended December 31, 1999 totaled $1.1 million, and
resulted from the sale of a commuter aircraft, commercial aircraft, portable
heaters, trailers, modular buildings, and railcars with an aggregate net book
value of $6.5 million for proceeds of $7.6 million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
2000 1999
------------------------------
Marine vessels $ 826 $ (192)
Marine containers 129 7
Mobile offshore drilling unit 29 92
Aircraft (1,605) 6,160
-------------- -----------
Equity in net income (loss) of USPEs $ (621) $ 6,067
============== ===========
Marine vessels: During the year ended December 31, 2000, lease revenues of $2.9
million and the gain from the sale of the Partnership's interest in an entity
that owned a marine vessel of $0.9 million were offset by depreciation expense,
direct expenses, and administrative expenses of $2.9 million. During the same
period of 1999, lease revenues of $1.4 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.6 million.
An increase in marine vessel lease revenues of $1.8 million and depreciation
expense, direct expenses, and administrative expenses of $1.6 million during the
year ended December 31, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority-held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority-owned marine vessel were reported under
the consolidation method of accounting for the first nine months under Owned
Equipment Operations during the year ended December 31, 1999.
The increase in marine vessel lease revenues and depreciation expense, direct
expenses, and administrative expenses caused by the Amendment, was off set in
part by lower lease revenues of $0.3 million and lower depreciation expense,
direct expenses, and administrative expenses of $0.2 million due to the sale of
a marine vessel during the third quarter of 2000.
Marine containers: During the year ended December 31, 2000, lease revenues of
$0.8 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.7 million. During the same period of 1999, lease
revenues of $0.3 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.3 million.
The increase in marine container lease revenues of $0.5 million and depreciation
expense, direct expenses, and administrative expenses of $0.3 million during the
year ended December 31, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority-held equipment from the
consolidation method of accounting to the equity method of accounting.
Mobile offshore drilling unit: The Partnership's interest in an entity owning a
mobile offshore drilling unit was sold during the fourth quarter of 1999. During
the year ended December 31, 2000, additional sale proceeds of $30,000 were
offset by administrative expenses of $1,000. During the year ended December 31,
1999, lease revenues of $0.4 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.2 million and the loss from the sale
of the Partnership's interest in an entity that owned the mobile offshore
drilling unit of $0.1 million.
Aircraft: During the year ended December 31, 2000, lease revenues of $2.7
million were offset by depreciation expense, direct expenses, and administrative
expenses of $4.3 million. During the same period of 1999, lease revenues of $2.6
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 $5.3 million.
Lease revenues increased $0.5 million due to a Boeing 737-300 being on-lease in
2000 that was off-lease during the same period of 1999. This increase in lease
revenues was partially offset by a decrease of $0.4 million in lease revenues
due to the sale of the Partnership's investment in a trust that owned a Boeing
767-200ER commercial aircraft during the second quarter 1999.
The decrease in expenses of $1.0 million was primarily due to lower depreciation
expense. The sale of the Partnership's interest in three trusts during 1999
caused depreciation expense to decrease $0.4 million. Depreciation expense
decreased an additional $1.4 million as the result of the double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned. The decreases were offset, in part, by the
Partnership's investment in an additional trust during the second quarter of
1999 which increased depreciation expense $0.4 million. The decrease in
depreciation expense was partially offset by an increase in repairs and
maintenance of $0.4 million to the Boeing 737-300 which were not required during
the same period of 1999.
(e) Net Income
As a result of the foregoing, the Partnership had a net income of $4.1 million
for the year ended December 31, 2000, compared to a net income of $6.7 million
during the same period of 1999. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors. Therefore, the Partnership's performance in
the year ended December 31, 2000 is not necessarily indicative of future
periods. In the year ended December 31, 2000, the Partnership distributed $9.6
million to the limited partners, or $1.80 per weighted-average limited
partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous consent of the Partnership and all the affiliated programs that
have an ownership in the investment (the Amendment). As such, although the
Partnership may own a majority interest in a USPE, the Partnership does not
control its management and thus the equity method of accounting will be used
after adoption of the Amendment. As a result of the Amendment, as of September
30, 1999, all jointly owned equipment in which the Partnership owned a majority
interest, which had been consolidated, was reclassified to investments in USPEs.
Lease revenues and direct expenses for jointly owned equipment in which the
Partnership held a majority interest were reported under the consolidation
method of accounting during the nine months ended September 30, 1999 and were
included with the owned equipment operations. For the three months ended
December 31, 1999, lease revenues and direct expenses for these entities are
reported under the equity method of accounting and are included with the
operations of the USPEs.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
increased during the year ended December 31, 1999, when compared to the same
period of 1998.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
1999 1998
---------------------------
Marine vessels $ 3,880 $ 3,363
Trailers 3,302 3,819
Marine containers 2,518 513
Railcars 2,090 2,000
Portable heaters 736 764
Aircraft 642 1,712
Modular buildings 3 47
Marine vessels: Marine vessel lease revenues and direct expenses were $7.8
million and $3.9 million, respectively, for the year ended December 31, 1999,
compared to $7.1 million and $3.7 million, respectively, during the same period
of 1998. During virtually all of the year ended December 31, 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 year ended December 31, 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 $1.7 million from the new lease arrangement
exceeding the increase in operating expenses caused by the new lease arrangement
of $1.0 million.
The September 30, 1999 Amendment changed the accounting method of majority-held
equipment from the consolidation method of accounting to the equity method of
accounting. This impacted the reporting of lease revenues and direct expenses of
one marine vessel. Lease revenues for the Partnership's majority-held marine
vessel decreased $1.1 million for the year ended December 31, 1999 when compared
to the same period of 1998. The decline in lease revenues of $0.4 million was
caused by a decline in lease rates and a decline of $0.7 million due to the
Amendment. Direct expenses for the Partnership's majority-held marine vessel
also decreased $0.6 million due to the Amendment.
Trailers: Trailer lease revenues and direct expenses were $4.2 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $4.7
million and $0.9 million, respectively, during the same period of 1998. Trailer
lease revenues decreased $0.5 million during the year ended December 31, 1999
primarily due to lower lease revenues earned on the Partnership's over-the-road
dry trailers caused by the transition of these trailers to a PLM short-term
rental facility specializing in this type of trailer. Additionally, equipment
sales during the past 12 months caused lease revenues to decrease $0.1 million.
Direct expenses increased $0.1 million during the year ended December 31, 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
$2.5 million and $2,000, respectively, for the year ended December 31, 1999,
compared to $0.5 million and $0, respectively, during the same period of 1998.
The increase in marine container lease revenues was due to the purchase of
additional equipment in March 1999.
Railcars: Railcar lease revenues and direct expenses were $2.7 million and $0.6
million, respectively, for the year ended December 31, 1999, compared to $2.7
million and $0.7 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 year ended December 31, 1999 when
compared to the same period of 1998.
Portable heaters: Portable heaters lease revenues and direct expenses were $0.7
million and $0, respectively, for the year ended December 31, 1999, compared to
$0.8 million and $0, respectively, during the same period of 1998. The decrease
in portable heater contribution was due to the sale of this equipment during the
third quarter of 1999.
Aircraft: Aircraft lease revenues and direct expenses were $1.5 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $2.0
million and $0.3 million, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to higher repairs of $0.6 million
needed to the commuter aircraft during 1999 when compared to the same period of
1998. In addition, aircraft lease revenues were $0.5 million lower due to the
sale of three commercial aircraft in June 1999.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $14.0 million for the year ended December 31, 1999,
increased from $13.4 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.9 million increase was due to an 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 $0.2 million increase in administrative expenses was due to higher
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(iii) A $0.4 million decrease in depreciation and amortization expenses
from 1998 levels reflects the decrease of $1.4 million caused by the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned, a decrease of $0.3 million
due to the sale of certain equipment during 1999 and 1998, and a decrease of
$0.7 million as a result of the Amendment which changed the accounting method
used for majority-held equipment from the consolidation method of accounting to
the equity method of accounting. These decreases were offset in part, by an
increase of $1.9 million in depreciation and amortization expenses resulting
from the purchase of additional equipment during 1999.
(c) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on disposition of equipment for the year ended December 31, 1999
totaled $1.1 million, and resulted from the sale of commercial aircraft,
portable heaters, trailers, modular buildings, and railcars with an aggregate
net book value of $6.5 million for proceeds of $7.6 million. The net loss on
disposition of equipment for the year ended December 31, 1998 totaled $31,000,
and resulted from the sale of trailers, modular buildings, and a railcar, with
an aggregate net book value of $0.4 million, for proceeds of $0.3 million.
(d) Minority interests
A $43,000 decrease in minority interest income was due to a decrease in lease
revenues of $0.2 million and direct and indirect expenses of $0.4 million during
1999 when compared to the same period of 1998, as it relates to the minority's
percentage of ownership in these interests.
(e) 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 Years
Ended December 31,
1999 1998
------------------------
Aircraft, rotable components, and aircraft engines $ 6,160 $ 6,390
Mobile offshore drilling unit 92 82
Marine containers 7 --
Marine vessels (192) 21
---------- ---------
Equity in net income of USPEs $ 6,067 $ 6,493
========== =========
Aircraft, rotable components, and aircraft engines: During the year ended
December 31, 1999, lease revenues of $2.6 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 $5.3
million. During the same period of 1998, lease revenues of $5.8 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 $8.2 million. Lease revenues decreased $3.5 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 in June 1999 did not generate any lease revenues since
it has been off-lease since its purchase. The decrease in depreciation expense,
direct expenses, and administrative expenses of $2.8 million was primarily due
to lower depreciation expense of $2.4 million resulting from the Partnership's
sale of it's investment in five trusts during 1999 and 1998, $1.4 million caused
by the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned, partially offset by the
Partnership's investment in an additional trust during 1999 which increased
depreciation expense $1.0 million.
Mobile offshore drilling unit: During the year ended December 31, 1999, lease
revenues of $0.4 million were offset by the loss from the sale of the
Partnership's interest in this entity of $0.1 million and by depreciation
expense, direct expenses, and administrative expenses of $0.2 million. During
the same period of 1998, lease revenues of $0.4 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.3
million. The increase in the contribution from this equipment was the result of
lower depreciation expense caused by the double-declining balance method of
depreciation offset by the loss from the sale of this entity.
Marine containers: The September 30, 1999 Amendment that changed the accounting
method of majority-held equipment from the consolidation method of accounting to
the equity method of accounting, affected the lease revenues and direct expenses
of marine containers for the year ended December 31, 1999. During the year ended
December 31, 1999, lease revenues of $0.3 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.3 million. Marine
container lease revenues and depreciation expense, direct expenses, and
administrative expenses for the year ending December 31, 1998, were reported
under the consolidation method of accounting under Owned Equipment Operations.
Marine vessels: During the year ended December 31, 1999, lease revenues of $1.4
million were offset by depreciation expense, direct expenses, and administrative
expenses of $1.6 million. During the same period of 1998, lease revenues of $1.1
million were offset by depreciation expense, direct expenses, and administrative
expenses of $1.1 million. Marine vessel lease revenues increased $0.5 million
during the year ended December 31, 1999, due to the Amendment dated September
30, 1999 which change the accounting treatment of majority-held equipment from
the consolidation method of accounting to the equity method of accounting. The
increase in lease revenues caused by the Amendment was partially offset by a
decrease of $0.3 million caused lower lease rates earned on the existing marine
vessel. The increase in expenses of $0.5 million was primarily due to the
Amendment. The increase in expenses of $0.6 million caused by the Amendment was
partially offset by a decrease in expenses of the remaining marine vessel due to
lower depreciation expense of $0.1 million caused by the use of the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
(f) Net Income
As a result of the foregoing, the Partnership had net income of $6.7 million for
the year ended December 31, 1999, compared to net income of $5.8 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 year
ended December 31, 1999 is not necessarily indicative of future periods. In the
year ended December 31, 1999, the Partnership distributed $9.6 million to the
limited partners, or $1.80 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a particular geographic area. Refer to Note 6 to the audited financial
statements for information on the lease revenues, net income (loss), and net
book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to U.S.-domiciled lessees consists of aircraft, trailers, and railcars.
During 2000, U.S. lease revenues accounted for 24% of the total lease revenues
of wholly and partially owned equipment while this region reported a net income
of $3.3 million including a gain of $2.5 million from the sale of trailers. The
net income was due primarily to the sale of 78% of the Partnership's owned
trailers.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to Canadian-domiciled lessees consists of railcars. During 2000, Canadian
lease revenues accounted for 10% of the total lease revenues of wholly- and
partially-owned equipment while this region reported a net income of $1.2
million.
The Partnership's investments in equipment owned by a USPEs on lease to a lessee
domiciled in Iceland consists of an aircraft. During 2000, Icelandic lease
revenues accounted for 2% of the total lease revenues of wholly and partially
owned equipment while this region reported a net loss of $1.4 million. The
primary reasons for this loss were due to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned, repairs and maintenance to the aircraft during 2000 and the aircraft
being off-lease for the first six months of 2000.
The Partnership's owned equipment on lease to a South American-domiciled lessee
consists of an aircraft. During 2000, South American lease revenues accounted
for 5% of the total lease revenues of wholly and partially owned equipment while
this region reported a net income of $0.3 million.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels and marine
containers. During 2000, lease revenues for these operations accounted for 59%
of the total lease revenues of wholly and partially owned equipment while this
region reported a net income of $2.7 million.
(F) Inflation
Inflation had no significant impact on the Partnership's operations during 2000,
1999, or 1998.
(G) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K 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-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(H) Outlook for the Future
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 upon many factors,
such as specific market conditions and economic activity, technological
obsolescence, and government or other regulations. The unpredictability of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continually monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General Partner
may make an evaluation to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return. Alternatively, the General Partner may make a
determination to enter those equipment markets in which it perceives
opportunities to profit from supply/demand instabilities or other market
imperfections.
The Partnership intends to use excess cash flow, if any, after payment of
operating expenses, pay principal and interest on debt, and cash distributions
to the partners to acquire additional equipment during the first six years of
Partnership operations which ends on December 31, 2001. The General Partner
believes that these acquisitions may cause the Partnership to generate
additional earnings and cash flow for the Partnership.
Factors affecting the Partnership's contribution in 2001 and beyond include:
1. Marine vessel bulk-carrier freight rates are dependent upon the overall
condition of the international economy. Two of the Partnership's marine vessels
have leases that will expire during 2001. Freight rates earned by the
Partnership's other marine vessel began to increase during the later half of
2000 and, in the absence of new additional orders, would be expected to continue
to show improvement and stabilize over the next one to two years.
2. Railcar loadings in North America have continued to be high, however a
softening in the market has lead to lower utilization and lower contribution to
the Partnership as existing leases expire and renewal leases are negotiated.
Several other factors may affect the Partnership's operating performance in 2001
and beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
(1) Repricing and Reinvestment Risk
Certain of the Partnership's aircraft, marine vessels, marine containers,
railcars, and trailers will be remarketed in 2001 as existing leases expire,
exposing the Partnership to some repricing risk/opportunity. Additionally, the
General Partner may elect to sell certain underperforming equipment or equipment
whose continued operation may become prohibitively expensive. In either case,
the General Partner intends to re-lease or sell equipment at prevailing market
rates; however, the General Partner cannot predict these future rates with any
certainty at this time, and cannot accurately assess the effect of such activity
on future Partnership performance. The proceeds from the sold or liquidated
equipment will be redeployed to purchase additional equipment, as the
Partnership is in its reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels in U.S. ports,
resulting from implementation of the U.S. Oil Pollution Act of 1990. Under U.S.
Federal Aviation Regulations, after December 31, 1999, no person shall operate
an aircraft to or, from any airport in the contiguous United States unless that
airplane has been shown to comply with Stage III noise levels. The Partnership's
Stage II aircraft is currently leased in a country that does not require this
regulation. Ongoing changes in the regulatory environment, both in the United
States and internationally, cannot be predicted with accuracy, and preclude the
General Partner from determining the impact of such changes on Partnership
operations, purchases, or sale of equipment. Furthermore, the Federal Railroad
Administration has mandated that effective July 1, 2000, all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Partnership currently owns 183
non-jacketed tank railcars and 143 jacketed tank railcars of which a total of 2
tank railcars have been inspected with no reportable defects.
(I) Additional Capital Resources and Distribution Levels
The Partnership's initial contributed capital was composed of the proceeds from
its initial offering of $107.4 million, supplemented by permanent debt in the
amount of $23.0 million. The General Partner has not planned any expenditures,
nor is it aware of any contingencies that would cause it to require any
additional capital to that mentioned above. The Partnership intends to rely on
operating cash flow to meet its operating obligations, make cash distributions
to limited partners, make debt payments, and increase the Partnership's
equipment portfolio with any remaining surplus cash available.
Pursuant to the limited partnership agreement, the Partnership will cease to
reinvest surplus cash in additional equipment beginning in its seventh year of
operations, which commences on January 1, 2002. Prior to that date, the General
Partner intends to continue its strategy of selectively redeploying equipment to
achieve competitive returns. By the end of the reinvestment period, the General
Partner intends to have assembled an equipment portfolio capable of achieving a
level of operating cash flow for the remaining life of the Partnership
sufficient to meet its obligations and sustain a predictable level of
distributions to the partners.
The General Partner will evaluate the level of distributions the Partnership can
sustain over extended periods of time and, together with other considerations,
may adjust the level of distributions accordingly. In the long term, the
difficulty in predicting market conditions precludes the General Partner from
accurately determining the impact of changing market conditions on liquidity or
distribution levels.
The Partnership's permanent debt obligation began to mature in December 1999.
The General Partner believes that sufficient cash flow will be available in the
future for repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 2000, 76% of the Partnership's total lease revenues from wholly-
and partially-owned equipment came from non-United States-domiciled lessees.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the filing date of this report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- --------------------- ----- ----------------------------------------------------
Stephen M. Bess 55 President, PLM Financial Services, Inc., PLM
Investment Management, Inc. and PLM Transportation
Equipment Corporation
Richard K Brock 38 Vice President and Chief Financial Officer, PLM
Financial Services, Inc., PLM Investment Management,
Inc. and PLM Transportation Equipment Corporation
Susan C. Santo 38 Vice President, Secretary, and General Counsel, PLM
Financial Services, Inc.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess has served as President of PLM Investment Management, Inc., an
indirect wholly owned subsidiary of PLM International, since August 1989, and as
an executive officer of certain other of PLM International's subsidiaries or
affiliates since 1982.
Richard K Brock was appointed a Director of PLM Financial Services, Inc. in
October 1, 2000. Mr. Brock was appointed as Vice President and Chief Financial
Officer of PLM International and PLM Financial Services, Inc. in January 2000,
having served as Acting Chief Financial Officer since June 1999 and as Vice
President and Corporate Controller of PLM International and PLM Financial
Services, Inc. since June 1997. Prior to June 1997, Mr. Brock served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994.
Susan C. Santo was appointed a Director of PLM Financial Services, Inc., a
subsidiary of PLM International, in October 1, 2000. Ms. Santo was appointed as
Vice President, Secretary, and General Counsel of PLM International and PLM
Financial Services, Inc. in November 1997. She has worked as an attorney for PLM
International and PLM Financial Services, Inc. since 1990 and served as its
Senior Attorney from 1994 until her appointment as General Counsel.
The directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain allocations of income), cash
available for distributions, and net disposition proceeds of the
Partnership. As of December 31, 2000, no investor was known by the
General Partner to beneficially own more than 5% of the limited
partnership units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates owned any
limited partnership units of the Partnership as of December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 2000, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees, $0.9 million; equipment acquisition
fees, $0.4 million; and lease negotiation fees, $0.1 million. The
Partnership reimbursed FSI or its affiliates $0.8 million for
administrative and data processing services performed on behalf of the
Partnership during 2000.
During 2000, the USPEs paid or accrued the following fees to FSI or its
affiliates (based on the Partnership's proportional share of
ownership): management fees, $0.3 million, and administrative and data
processing services, $0.1 million.
(This space intentionally left blank)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as Exhibits of this
Annual Report on Form 10-K:
a. Boeing 767
b. Canadian Air Trust #2
c. Canadian Air Trust #3
d. TAP Trust
e. TWA Trust S/N 49183
f. Boeing 737-200 Trust S/N 24700
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-55796), which became effective with the Securities and
Exchange Commission on May 25, 1993.
4.1 First Amendment to the Third Amendment and Restated Partnership
Agreement, dated May 28, 1993.
4.2 Second Amendment to the Third Amendment and Restated Partnership
Agreement, dated January 21, 1994.
4.3 Third Amendment to the Third Amendment and Restated Partnership
Agreement, dated March 25, 1999.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-55796), which became
effective with the Securities and Exchange Commission on May 25, 1993.
10.2 NoteAgreement, dated as of December 1, 1995, regarding $23.0 million
of 7.27% senior notes due December 21, 2005. Incorporated by reference
to the Partnership's Annual Report on Form 10-K dated December 31,
1995 filed with the Securities and Exchange Commission on March 20,
1996.
24. Powers of Attorney.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Boeing 767.
99.2 Canadian Air Trust #2.
99.3 Canadian Air Trust #3.
99.4 TAP Trust.
99.5 TWA Trust S/N 49183.
99.6 Boeing 737-200 Trust S/N 24700.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 14, 2001 PLM EQUIPMENT GROWTH & INCOME FUND VII
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Stephen M. Bess
-------------------------
Stephen M. Bess
President and Director
By: /s/ Richard K Brock
-------------------------
Richard K Brock
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*_______________________
Stephen M. Bess Director, FSI March 14, 2001
*_______________________
Richard K Brock Director, FSI March 14, 2001
*_______________________
Susan C. Santo Director, FSI March 14, 2001
*Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
- --------------------------------
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 31
Balance sheets as of December 31, 2000 and 1999 32
Statements of income for the years ended
December 31, 2000, 1999, and 1998 33
Statements of changes in partners' capital for the
years ended December 31, 2000, 1999, and 1998 34
Statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 35
Notes to financial statements 36-48
All other financial statement schedules have been omitted, as the required
information is not pertinent to the Registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth & Income Fund VII:
We have audited the accompanying financial statements of PLM Equipment Growth &
Income Fund VII (the Partnership), as listed in the accompanying index to
financial statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth & Income
Fund VII as of December 31, 2000 and 1999, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
2000 1999
-----------------------------------
ASSETS
Equipment held for operating leases, at cost $ 71,632 $ 70,579
Less accumulated depreciation (35,114) (36,466)
-----------------------------------
Net equipment 36,518 34,113
Cash and cash equivalents 2,941 2,495
Restricted cash 194 111
Accounts receivable, less allowance for doubtful accounts of
$27 in 2000 and $382 in 1999 1,502 1,099
Investments in unconsolidated special-purpose entities 14,689 27,843
Lease negotiation fees to affiliate, less accumulated
amortization of $80 in 2000 and $21 in 1999 138 99
Debt issuance costs, less accumulated amortization
of $129 in 2000 and $104 in 1999 126 152
Prepaid expenses and other assets 100 54
-----------------------------------
Total assets $ 56,208 $ 65,966
===================================
LIABILITIES, MINORITY INTERESTS, AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 411 $ 1,267
Due to affiliates 1,182 560
Lessee deposits and reserve for repairs 900 1,392
Notes payable 17,000 20,000
-----------------------------------
Total liabilities 19,493 23,219
-----------------------------------
Partners' capital
Limited partners (limited partnership units of 5,323,569 and
5,323,819 as of December 31, 2000 and 1999, respectively) 36,715 42,747
General Partner -- --
-----------------------------------
Total partners' capital 36,715 42,747
-----------------------------------
Total liabilities, minority interest, and partners' capital $ 56,208 $ 65,966
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS, EXCEPT WEIGHTED-AVERAGE UNIT AMOUNTS)
2000 1999 1998
-----------------------------------------------
REVENUES
Lease revenue $ 15,870 $ 19,432 $ 17,851
Interest and other income 317 277 380
Net gain (loss) on disposition of equipment 3,614 1,140 (31)
-----------------------------------------------
Total revenues 19,801 20,849 18,200
-----------------------------------------------
EXPENSES
Depreciation and amortization 6,723 9,013 9,461
Repairs and maintenance 2,189 3,121 2,590
Equipment operating expenses 1,847 2,629 2,637
Insurance expenses 308 563 449
Management fees to affiliate 858 982 978
Interest expense 1,454 1,672 1,668
General and administrative expenses to affiliates 824 925 762
Other general and administrative expenses 816 602 573
Provision for (recovery of) bad debts 102 815 (92)
-----------------------------------------------
Total expenses 15,121 20,322 19,026
-----------------------------------------------
Minority interests -- 114 157
Equity in net income (loss) of unconsolidated
special-purpose entities (621) 6,067 6,493
-----------------------------------------------
Net income $ 4,059 $ 6,708 $ 5,824
===============================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 3,555 $ 6,204 $ 5,317
General Partner 504 504 507
-----------------------------------------------
Total $ 4,059 $ 6,708 $ 5,824
===============================================
Limited partners' net income per
weighted-average limited partnership unit $ 0.67 $ 1.16 $ 0.99
===============================================
Cash distribution $ 10,088 $ 10,083 $ 10,127
===============================================
Cash distribution per weighted-average
limited partnership unit $ 1.80 $ 1.80 $ 1.80
===============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS)
Limited General
Partners Partner Total
--------------------------------------------------
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 6,204 504 6,708
Purchase of limited partnership units (125) -- (125)
Cash distribution (9,579) (504) (10,083)
--------------------------------------------------
Partners' capital as of December 31, 1999 42,747 -- 42,747
Net income 3,555 504 4,059
Purchase of limited partnership units (3) -- (3)
Cash distribution (9,584) (504) (10,088)
--------------------------------------------------
Partners' capital as of December 31, 2000 $ 36,715 $ -- $ 36,715
==================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
2000 1999 1998
--------------------------------------------
OPERATING ACTIVITIES
Net income $ 4,059 $ 6,708 $ 5,824
Adjustments to reconcile net income
to net cash provided by (used in ) operating activities:
Depreciation and amortization 6,723 9,013 9,461
Net (gain) loss on disposition of equipment (3,614) (1,140) 31
Equity in net (income) loss from unconsolidated
special-purpose entities 621 (6,067) (6,493)
Changes in operating assets and liabilities:
Restricted cash (83) (111) (28)
Accounts receivable, net (388) 608 (938)
Prepaid expenses and other assets (46) (44) (57)
Accounts payable and accrued expenses 70 (237) 15
Due to affiliates 623 251 315
Lessee deposits and reserve for repairs (492) 233 (293)
Minority interests -- (443) 2,274
--------------------------------------------
Net cash provided by operating activities 7,473 8,771 10,111
--------------------------------------------
Investing activities
Payments for purchase of equipment and capitalized repairs (10,729) (11,855) (13,465)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities -- (8,975) (14,721)
Distribution from unconsolidated special-purpose entities 4,411 3,382 8,958
Payments of acquisition fees to affiliate (440) (567) (605)
Payments of lease negotiation fees to affiliate (98) (126) (134)
Distributions from liquidation of unconsolidated special-purpose
entities 2,433 17,043 14,802
Proceeds from disposition of equipment 10,487 7,626 352
--------------------------------------------
Net cash provided by (used in) investing activities 6,064 6,528 (4,813)
--------------------------------------------
Financing activities
Payments due to affiliates -- -- (5,092)
Cash received from affiliates -- -- 1,510
Cash distribution paid to limited partners (9,584) (9,579) (9,620)
Cash distribution paid to General Partner (504) (504) (507)
Purchase of limited partnership units (3) (125) (512)
Principal payments on notes payable (3,000) (3,000) --
--------------------------------------------
Net cash used in financing activities (13,091) (13,208 (14,221)
--------------------------------------------
Net increase (decrease) in cash and cash equivalents 446 2,091 (8,923)
Cash and cash equivalents at beginning of year 2,495 404 9,327
--------------------------------------------
Cash and cash equivalents at end of year $ 2,941 $ 2,495 $ 404
============================================
Supplemental information
Interest paid $ 1,454 $ 1,672 $ 1,705
============================================
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entities $ 5,688 $ -- $ --
============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth & Income Fund VII, a California limited partnership (the
Partnership), was formed on December 2, 1992 to engage in the business of
owning, leasing, or otherwise investing in predominately used transportation and
related equipment. PLM Financial Services, Inc. (FSI) is the General Partner of
the Partnership. FSI is a wholly owned subsidiary of PLM International, Inc.
(PLM International).
Beginning in the Partnership's seventh year of operations, which commences on
January 1, 2002, the General Partner will stop purchasing additional equipment.
Surplus cash, if any, less reasonable reserves, will be distributed to the
partners. Beginning in the Partnership's ninth year of operations, which
commences on January 1, 2004, the General Partner intends to begin an orderly
liquidation of the Partnership's assets. The Partnership will terminate on
December 31, 2013, unless terminated earlier upon sale of all equipment or by
certain other events.
FSI manages the affairs of the Partnership. Cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner to the extent
necessary to cause the General Partner's capital account to equal zero. The
General Partner is also entitled to receive a subordinated incentive fee after
the limited partners receive a minimum return on, and a return of, their
invested capital.
The partnership agreement includes a redemption provision. Beginning in the 31st
month of operations, which was October 1997, the Partnership may, at the General
Partner's sole discretion, redeem up to 2% of the outstanding units each year.
The purchase price to be offered by the Partnership for outstanding units will
be equal to 105% of the unrecovered principal attributed to the units.
Unrecovered principal is defined as the excess of the capital contributions from
any source paid with respect to a unit. For the years ended December 31, 2000,
1999, and 1998, the Partnership purchased 250, 10,392, and 36,086 limited
partnership units for $3,000, $0.1 million, and $0.5 million, respectively.
The Partnership will not purchase any units under the redemption provision in
2001. The General Partner may purchase additional limited partnership units on
behalf of the Partnership in the future.
These financial statements have been prepared on the accrual basis of accounting
in accordance with accounting principles generally accepted in the United States
of America. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
OPERATIONS
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary
of the FSI. IMI receives a monthly management fee from the Partnership for
managing the equipment (see Note 2). FSI, in conjunction with its subsidiaries,
sells equipment to investor programs and third parties, manages pools of
equipment under agreements with investor programs, and is a general partner of
other programs.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
ACCOUNTING FOR LEASES
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life. Rental payments are
recorded as revenue over the lease term as earned in accordance with Statement
of Financial Accounting Standards No. 13, "Accounting for Leases" (SFAS 13).
Lease origination costs are capitalized and amortized over the term of the
lease.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for other equipment. The depreciation method is changed to
straight line when annual depreciation expense using the straight-line method
exceeds that calculated by the double-declining balance method. Acquisition fees
and certain other acquisition costs have been capitalized as part of the cost of
the equipment. Lease negotiation fees are amortized over the initial equipment
lease term. Major expenditures that are expected to extend the useful lives or
reduce future operating expenses of equipment are capitalized and amortized over
the estimated remaining life of the equipment. Debt issuance costs are amortized
over the term of the related loan (see Note 7).
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121), the General Partner reviews the carrying value of
the Partnership's equipment at least quarterly, and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions, for the purpose of assessing
recoverability of the recorded amounts. If projected undiscounted future cash
flows and the fair market value of the equipment are less than the carrying
value of the equipment, a loss on revaluation is recorded. No reductions to the
carrying value of equipment were required during 2000, 1999, and 1998.
Equipment held for operating leases is stated at cost.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has interests in unconsolidated special-purpose entities (USPEs)
that own transportation equipment. As of December 31, 2000, the Partnership owns
a majority interest in one such entity. As of December 31, 1999, the Partnership
owned a majority interest in two such entities. Prior to September 30, 1999, the
Partnership controlled the management of these entities and thus they were
consolidated into the Partnership's financial statements. On September 30, 1999,
the corporate-by-laws of these entities were changed to require a unanimous vote
by all owners on major business decisions. Thus, from September 30, 1999
forward, the Partnership no longer controlled the management of these entities,
and the accounting method for the entities was changed from the consolidation
method to the equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly owned subsidiary of
FSI and WMS is a wholly owned subsidiary of PLM International. The Partnership's
interest in USPEs are managed by IMI. The Partnership's equity interest in the
net income (loss) of USPEs is reflected net of management fees paid or payable
to IMI and the amortization of acquisition and lease negotiation fees paid to
TEC or WMS.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are accrued as incurred. Costs
associated with marine vessel dry-docking are estimated and accrued ratably over
the period prior to such dry-docking. If a marine vessel is sold and there is a
balance in the dry-docking reserve account for that marine vessel, the balance
in the reserve account is reclassified to gain on sale. Maintenance costs of
aircraft and marine containers are the obligation of the lessee. To meet the
maintenance requirements of certain aircraft airframes and engines, reserve
accounts are prefunded by the lessee over the period of the lease based on the
number of hours this equipment is used, times the estimated rate to repair this
equipment. If repairs exceed the amount prefunded by the lessee, the Partnership
has the obligation to fund and accrue the difference. If an aircraft is sold and
there is a balance in the reserve account for repairs to that aircraft, the
balance in the reserve account is reclassified as additional sales proceeds. The
aircraft reserve accounts and marine vessel dry-docking reserve accounts are
included in the balance sheet as lessee deposits and reserve for repairs.
NET INCOME AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Net income is allocated to the General Partner to the extent necessary to cause
the General Partner's capital account to equal zero. Cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner and may include amounts in excess of net income. The limited
partners' net income and cash distributions are allocated among the limited
partners based on the number of limited partnership units owned by each limited
partner and on the number of days of the year each limited partner is in the
Partnership.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $6.0 million, $3.3
million, and $4.3 million for the years ended December 31, 2000, 1999, and 1998,
respectively, were deemed to be a return of capital.
Cash distributions relating to the fourth quarter of 2000, 1999, and 1998, of
$1.4 million for each year, were paid during the first quarter of 2001, 2000,
and 1999, respectively.
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 year. The weighted-average
number of Partnership units deemed outstanding during the years ended December
31, 2000, 1999, and 1998 was 5,323,610, 5,326,161, and 5,341,360, respectively.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
market value due to the short-term nature of the investments.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. BASIS OF PRESENTATION (continued)
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 2000, 1999, and 1998.
RESTRICTED CASH
As of December 31, 2000 and 1999, restricted cash represented lessee security
deposits held by the Partnership.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
An officer of PLM Securities Corp., a wholly owned subsidiary of the General
Partner, contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI, subject to certain reductions, receives a
monthly management fee attributable to either owned equipment or interests in
equipment owned by the USPEs equal to the lesser of (i) the fees that would be
charged by an independent third party for similar services for similar equipment
or (ii) the sum of (A) for that equipment for which IMI provides only basic
equipment management services, (a) 2% of the gross lease revenues, as defined in
the agreement, attributable to equipment that is subject to full payout net
leases and (b) 5% of the gross lease revenues attributable to equipment that is
subject to operating leases, and (B) for that equipment for which IMI provides
supplemental equipment management services, 7% of the gross lease revenues
attributable to such equipment. Partnership management fees payable were $0.1
million as of December 31, 2000 and 1999. The Partnership's proportional share
of USPE management fees of $0.2 million and $0.1 million were payable as of
December 31, 2000 and 1999, respectively. The Partnership's proportional share
of USPE management fee expense was $0.3 million, $0.2 million, $0.3 million
during 2000, 1999, and 1998 respectively. The Partnership reimbursed FSI $0.8
million during 2000, $0.9 million during 1999, and $0.8 million during 1998 for
data processing expenses and other administrative services performed on behalf
of the Partnership. The Partnership's proportional share of USPE data processing
and administrative expenses reimbursed to FSI during 2000, 1999, and 1998, was
$0.1 million for each year.
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, which provided marine insurance coverage and other insurance
brokerage services to the Partnership during 1998, was liquidated during the
first quarter of 2000. The Partnership paid $49,000, in 1998 to TEI. No premiums
for owned equipment or partially owned equipment were paid to TEI in 2000 or
1999. A substantial portion of the amount paid to TEI was then paid to
third-party reinsurance underwriters or was placed in risk pools managed by TEI
on behalf of affiliated programs and PLM International, which provided threshold
coverages on marine vessel loss of hire and hull and machinery damage. All
pooling arrangement funds were either paid out to cover applicable losses or
refunded pro rata by TEI. The Partnership's proportional share of a refund of
$14,000 was received during 1998, from lower loss-of-hire insurance claims from
the insured USPEs and other insured affiliated programs.
The Partnership and USPEs paid or accrued lease negotiation and equipment
acquisition fees of $0.5 million, $1.1 million, and $1.5 million, during 2000,
1999, and 1998, respectively, to TEC and WMS.
TEC will also be entitled to receive an equipment liquidation fee equal to the
lesser of (i) 3% of the sales price of equipment sold on behalf of the
Partnership or (ii) 50% of the "Competitive Equipment Sale Commission," as
defined in the agreement, if certain conditions are met. In certain
circumstances, the General Partner will be entitled to a monthly re-lease fee
for re-leasing services following the expiration of the initial lease, charter,
or other contract for certain equipment equal to the lesser of (a) the fees that
PLM Equipment Growth & Income Fund VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (continued)
would be charged by an independent third party for comparable services for
comparable equipment or (b) 2% of gross lease revenues derived from such
re-lease, provided, however, that no re-lease fee shall be payable if such
re-lease fee would cause the combination of the equipment management fee paid to
IMI and the re-lease fee with respect to such transaction to exceed 7% of gross
lease revenues.
The Partnership owned certain equipment in conjunction with affiliated
partnerships during 2000, 1999, and 1998 (see Note 4).
The balance due to affiliates as of December 31, 2000 includes $0.1 million due
to FSI and its affiliates for management fees and $1.0 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1999 includes $0.1
million due to FSI and its affiliates for management fees and $0.5 million due
to affiliated USPEs.
3. EQUIPMENT
The components of owned equipment as of December 31 are as follows (in thousands
of dollars):
Equipment Held for Operating Leases 2000 1999
----------------------------------------------------- -------------------------------
Marine containers $ 30,599 $ 12,498
Marine vessels 22,212 22,212
Rail equipment 9,580 9,677
Aircraft 5,483 9,297
Trailers 3,758 16,895
-------------------------------
71,632 70,579
Less accumulated depreciation (35,114) (36,466)
-------------------------------
Net equipment $ 36,518 $ 34,113
===============================
Revenues are earned by placing the equipment under operating leases. The
Partnership's marine vessels are operating either on a voyage charter or a time
charter which are usually leased for less than one year. Some of the
Partnership's marine containers are leased to operators of utilization-type
leasing pools, which include equipment owned by unaffiliated parties. In such
instances, revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the pooled equipment to sublessees,
after deducting certain direct operating expenses of the pooled equipment. The
remaining Partnership marine containers are based on a fixed rate. Lease
revenues for trailers operating with short-line railroad systems are based on a
per-diem lease in the free running railroad interchange. Lease revenues for
trailers that operated in rental yards owned by PLM Rental, Inc., were based on
a fixed rate for a specific period of time, usually short in duration. Rents for
all other equipment are based on fixed rates.
As of December 31, 2000, all owned equipment was on lease except for 23
railcars. As of December 31, 1999 all owned equipment in the Partnership's
portfolio was on lease or operating in PLM-affiliated short-term trailer rental
yards, except for a commuter aircraft and ten railcars. The net book value of
the equipment off lease was $0.2 million and $1.5 million as of December 31,
2000 and 1999, respectively.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
3. EQUIPMENT (continued)
During 2000, the Partnership purchased marine containers for $10.2 million
including acquisition fees of $0.4 million paid to FSI and paid $0.9 million
related to an accrual for marine containers that were purchased in 1999. In
addition, the General Partner transferred marine containers with an original
equipment cost of $7.9 million from the Partnership's USPE portfolio to owned
equipment. During 1999, the Partnership purchased a portfolio of portable
heaters for $0.2 million, including acquisition fees of $9,000, and marine
containers for $12.5 million, including acquisition fees of $0.5 million.
During 2000, the Partnership disposed of a commuter aircraft, trailers, marine
containers, and railcars with an aggregate net book value of $6.9 million for
$10.5 million. During 1999, the Partnership disposed of a commuter aircraft,
commercial aircraft, portable heaters, trailers, modular buildings, and railcars
with an aggregate net book value of $6.5 million for $7.6 million.
All wholly and partially owned equipment on lease is accounted for as operating
leases. Future minimum rent under noncancelable operating leases as of December
31, 2000 for this equipment during each of the next five years are approximately
$12.4 million in 2001, $6.6 million in 2002, $4.1 million in 2003, $3.7 million
in 2004, $2.6 million in 2005, and $1.6 million thereafter. Per diem and
short-term rentals consisting of utilization rate lease payments included in
lease revenues amounted to $6.2 million in 2000, $4.2 million in 1999, and $4.7
million in 1998.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (USPEs)
The Partnership owns equipment jointly with affiliated programs.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous consent of the Partnership and all the affiliated programs that
have an ownership in the investment. As such, although the Partnership may own a
majority interest in a USPE, the Partnership does not control its management and
thus the equity method of accounting will be used after adoption of the
amendment. As a result of the amendment, as of September 30, 1999, all jointly
owned equipment in which the Partnership owned a majority interest, which had
been consolidated, was reclassified to investments in USPEs. Accordingly, as of
December 31, 2000 and 1999, the balance sheet reflects all investments in USPEs
on an equity basis.
The net investment in USPEs includes the following jointly owned equipment (and
related assets and liabilities) as of December 31 (in thousands of dollars):
2000 1999
---------------------------------
38% interest in a trust owning a Boeing 737-300 Stage III commercial
aircraft $ 6,497 $ 7,974
50% interest in a trust owning an MD-82 Stage III commercial aircraft 3,751 5,066
80% interest in an entity owning a dry bulk-carrier marine vessel 3,482 4,224
50% interest in a trust owning an MD-82 Stage III commercial aircraft 900 1,808
44% interest in an entity that owned a dry bulk-carrier marine vessel 59 1,917
75% interest in an entity that owned marine containers -- 6,656
Other -- 198
---------------- -----------
Net investments $ 14,689 $ 27,843
================ ===========
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (continued)
As of December 31, 2000, all jointly owned equipment in the Partnership's USPE
portfolio was on lease. As of December 31, 1999, all jointly owned equipment in
the Partnership's USPE portfolio was on lease except for a Boeing 737-300
commercial aircraft with a net investment of $8.0 million.
During 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. The Partnership also increased its
interest in marine containers by $0.5 million including acquisition and lease
negotiation fees of $24,000. All fees were paid to FSI. The remaining interest
was purchased by an affiliated program.
During 2000, the General Partner sold the Partnership's interest in an entity
that owned a dry bulk-carrier marine vessel for $2.4 million for its net
investment of $1.7 million, and received additional sales proceeds of $30,000
from the 1999 sale of a mobile offshore drilling unit. The General Partner also
transferred the Partnership's interest in an entity that owned marine containers
to owned equipment.
During 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 for proceeds
of $7.1 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 for proceeds of $9.6 million which includes $0.7 million of unused
engine reserves for its net investment of $3.8 million and the Partnership's 10%
interest in a mobile offshore drilling unit for proceeds of $1.2 million for its
net investment of $1.3 million
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the year ended December 31 (in
thousands of dollars):
2000 1999 1998
Net Interest Net Interest Net Interest
Total of Total of Total of
USPEs Partnership USPEs Partnership USPEs Partnership
--------------------------- --------------------------- ---------------------------
Net Investments $ 30,411 $ 14,689 $ 53,037 $ 27,843 $ 70,189 $ 22,817
Lease revenues 10,841 6,300 12,908 4,638 23,461 7,233
Net income (loss) (1,557) (621) 31,725 6,067 19,463 6,493
5. OPERATING SEGMENTS
The Partnership operates or operated in six primary operating segments: aircraft
leasing, modular building leasing, portable heater leasing, marine vessel
leasing, trailer leasing, and railcar leasing. Each equipment leasing segment
engages in short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of general and administrative expenses,
interest expense, and certain general and administrative, operations support,
and other expenses. The segments are managed separately due to the utilization
of different business strategies for each operation.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. OPERATING SEGMENTS (continued)
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
--------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 1,085 $ 3,925 $ 5,519 $ 2,878 $ 2,463 $ -- $ 15,870
Interest income and other -- -- -- -- -- 317 317
Gain on disposition of equipment 1,118 33 -- 2,462 1 -- 3,614
------------------------------------------------------------------------
Total revenues 2,203 3,958 5,519 5,340 2,464 317 19,801
COSTS AND EXPENSES
Operations support 32 20 2,838 880 536 38 4,344
Depreciation and amortization 661 3,050 1,364 996 626 26 6,723
Interest expense -- -- -- -- -- 1,454 1,454
Management fees to affiliate 54 196 276 157 175 -- 858
General and administrative expenses 13 -- 57 655 88 827 1,640
Provision for (revovery of) bad -- -- -- 123 (21) -- 102
debts
------------------------------------------------------------------------
Total costs and expenses 760 3,266 4,535 2,811 1,404 2,345 15,121
------------------------------------------------------------------------
Equity in net income (loss) of USPEs (1,605) 129 826 -- -- 29 (621)
------------------------------------------------------------------------
Net income (loss) $ (162) $ 821 $ 1,810 $ 2,529 $ 1,060 $ (1,999) $ 4,059
========================================================================
Total assets as of December 31, 2000 $ 11,807 $ 25,176 $ 10,551 $ 1,254 $ 4,116 $ 3,304 $ 56,208
========================================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other(2) Total
--------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 1,517 $ 2,520 $ 7,763 $ 4,228 $ 2,665 $ 739 $ 19,432
Interest income and other 29 1 -- -- 31 216 277
Gain (loss) on disposition of 977 -- -- 30 (31) 164 1,140
equipment
------------------------------------------------------------------------
Total revenues 2,523 2,521 7,763 4,258 2,665 1,119 20,849
COSTS AND EXPENSES
Operations support 875 2 3,883 926 575 52 6,313
Depreciation and amortization 1,318 2,449 2,481 1,557 735 473 9,013
Interest expense -- -- -- -- -- 1,672 1,672
Management fees to affiliate 76 140 388 185 186 7 982
General and administrative expenses 44 19 75 719 58 612 1,527
Provision for bad debts -- -- -- 201 20 594 815
------------------------------------------------------------------------
Total costs and expenses 2,313 2,610 6,827 3,588 1,574 3,410 20,322
------------------------------------------------------------------------
Minority interests -- (2) 116 -- -- -- 114
Equity in net income (loss) of USPEs 6,160 7 (192) -- -- 92 6,067
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 6,370 $ (84) $ 860 $ 670 $ 1,091 $ (2,199) $ 6,708
========================================================================
Total assets as of December 31, 1999 $ 17,488 $ 18,001 $ 14,611 $ 8,137 $ 4,796 $ 2,933 $ 65,966
========================================================================
- ----------
(1) Includes interest income and costs not identifiable to a particular
segment, such as, interest expense, certain amortization, general and
administrative, and operations support expenses. Also includes gain from
the sale from an investment in an entity that owned a mobile offshore
drilling unit. 2 Includes interest income and costs not identifiable to a
particular segment, such as, interest expense, certain amortization,
general and administrative, and operations support expenses. Also includes
lease revenues and gain from the sale of modular buildings and portable
heaters and net income from an investment in an entity that owned a mobile
offshore drilling unit.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
5. Operating Segments (continued)
Portable Marine
Aircraft Heater Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other(3) Total
--------- --------- --------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 2,021 $ 764 $ 7,078 $ 4,685 $ 2,742 $ 561 $ 17,851
Interest income and other -- -- -- -- 20 360 380
Gain (loss) on disposition of -- -- -- (12) 9 (28) (31)
equipment
------------------------------------------------------------------------
Total revenues 2,021 764 7,078 4,673 2,771 893 18,200
COSTS AND EXPENSES
Operations support 309 -- 3,715 866 742 44 5,676
Depreciation and amortization 2,212 525 3,312 1,935 870 607 9,461
Interest expense 4 -- -- -- -- 1,664 1,668
Management fees to affiliate 101 38 354 272 195 18 978
General and administrative expenses 70 (15) 142 527 72 539 1,335
Provision for (recovery of) bad 2 -- -- 45 (30) (109) (92)
debts
------------------------------------------------------------------------
Total costs and expenses 2,698 548 7,523 3,645 1,849 2,763 19,026
------------------------------------------------------------------------
Minority interests -- -- 137 -- -- 20 157
Equity in net income of USPEs 6,390 -- 21 -- -- 82 6,493
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 5,713 $ 216 $ (287) $ 1,028 $ 922 $ (1,768) $ 5,824
========================================================================
Total assets as of December 31, 1998 $ 25,510 $ 3,570 $ 19,104 $ 9,258 $ 5,645 $ 13,450 $ 76,537
- ----------
(3) Includes interest income and costs not identifiable to a particular
segment, such as, interest expense, certain amortization, general and
administrative, and operations support expenses. Also includes lease
revenues and direct expenses of marine containers and modular buildings,
loss from the sale of modular buildings, and aggregate net income from an
investment in an entity that owned a mobile offshore drilling unit.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, portable heaters, modular
buildings, railcars, and trailers to lessees domiciled in five geographic
regions: the United States, Canada, Iceland, South America, and Europe. Marine
vessels, marine containers, and the mobile offshore drilling unit are leased to
multiple lessees in different regions that operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs, grouped by domicile of
the lessee as of and for the years ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 3,152 $ 6,719 $ 6,826 $ 2,124 $ 2,124 $ 1,783
Canada 2,188 1,345 1,413 -- -- 1,151
Iceland -- -- -- 530 -- --
South America 1,085 1,085 2,021 -- 394 1,231
Europe -- -- -- -- -- 1,560
Rest of the world 9,445 10,283 7,591 3,646 2,120 1,508
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
Lease revenues $ 15,870 $ 19,432 $ 17,851 $ 6,300 $ 4,638 $ 7,233
===================================== =====================================
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
6. GEOGRAPHIC INFORMATION (continued)
The following table sets forth net income (loss) information by region for the
owned equipment and investments in USPEs for the years ended December 31 (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 3,511 $ (419) $ 479 $ (220) $ (2,636) $ (3,272)
Canada 1,196 523 372 9 32 9,273
Iceland -- -- -- (1,407) -- --
South America 326 1,734 588 13 5,811 311
Europe -- -- -- -- 2,953 78
Rest of the world 1,676 962 (369) 984 (93) 103
------------------------------------- -------------------------------------
Regional income 6,709 2,800 1,070 (621) 6,067 6,493
Administrative and other (2,029) (2,159) (1,739) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ 4,680 $ 641 $ (669) $ (621) $ 6,067 $ 6,493
===================================== =====================================
The net book value of these assets as of December 31, are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 2,582 $ 11,218 $ 19,248 $ 4,651 $ 14,847 $ 10,350
Canada 2,503 2,371 2,554 -- 201 363
Iceland -- -- -- 6,497 -- --
South America 410 1,026 3,061 -- (3) 4,341
Europe -- -- -- -- -- 4,102
Rest of the world 31,023 19,498 25,963 3,541 12,798 3,661
------------------------------------- -------------------------------------
Net book value $ 36,518 $ 34,113 $ 50,826 $ 14,689 $ 27,843 $ 22,817
7. DEBT
In December 1995, the Partnership entered into an agreement to issue long-term
notes totaling $23.0 million to five institutional investors. The notes bear
interest at a fixed rate of 7.27% per annum and have a final maturity in 2005.
During 1995, the Partnership paid lender fees of $0.2 million in connection with
this loan. The Partnership's wholly and partially owned equipment is used as
collateral to the notes.
Interest on the notes is payable semiannually. The notes will be repaid in five
principal payments of $3.0 million on December 31, 1999, 2000, 2001, 2002, and
2003 and in two principal payments of $4.0 million on December 31, 2004 and
2005. The agreement requires the Partnership to maintain certain financial
covenants related to fixed-charge coverage and maximum debt. Proceeds from the
notes were used to fund additional equipment acquisitions.
The General Partner estimates, based on recent transactions, that the fair value
of the $17.0 million fixed-rate note is $15.2 million.
The Partnership made the regularly scheduled principal payments and semiannual
interest payments to the lenders of the notes during 2000.
The Partnership's warehouse facility, which was shared with PLM Equipment Growth
Fund VI, Professional Lease Management Income Fund I, LLC, and TEC Acquisub,
Inc., an indirect wholly owned
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
7. DEBT (continued)
subsidiary of the General Partner, expired on September 30, 2000. The General
Partner is currently negotiating with a new lender for a $15.0 million warehouse
credit facility with similar terms as the facility that expired. The General
Partner believes the facility will be completed during the first half of 2001.
8. CONCENTRATIONS OF CREDIT RISK
No single Partnership lessee accounted for 10% or more of the total consolidated
revenues for the owned equipment and partially owned equipment during the past
three years ended December 31, 2000, 1999 or 1998. In 1999, however, AAR Allen
Group International purchased a commercial aircraft from the Partnership and the
gain from the sale accounted for 17% of total revenues from wholly- and
partially-owned equipment during 1999. In 1998, Triton Aviation Services, Ltd.
purchased three commercial aircraft from the Partnership and the gain from the
sale accounted for 26% of total revenues from wholly- and partially-owned
equipment during 1998.
As of December 31, 2000 and 1999, the General Partner believed the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
9. INCOME TAXES
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2000, the financial statement carrying amount of assets and
liabilities was approximately $35.8 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods, equipment reserves, provisions for bad debts, lessees'
prepaid deposits, and the tax treatment of underwriting commissions and
syndication costs.
10. CONTINGENCIES
PLM International, (the Company) and various of its wholly owned subsidiaries
are defendants in a class action lawsuit filed in January 1997 and which is
pending in the United States District Court for the Southern District of
Alabama, Southern Division (Civil Action No. 97-0177-BH-C) (the court). The
named plaintiffs are six individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI
(Fund VI), and PLM Equipment Growth & Income Fund VII (Fund VII), collectively
(the Funds), each a California limited partnership for which the Company's
wholly owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the General
Partner.
The complaint asserts causes of action against all defendants for fraud and
deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds. Plaintiffs
seek unspecified compensatory damages, as well as punitive damages.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No.987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
10. CONTINGENCIES (continued)
and violations of state securities law. In July 1997, defendants filed a
petition (the petition) in federal district court under the Federal Arbitration
Act seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company' s petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below. The state court action continues to be stayed
pending such resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and August
30, 2000. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Fund V, Fund VI and Fund VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. Subject to final
court approval, these proposed changes would be made as amendments to each
Fund's limited partnership agreement if less than 50% of the limited partners of
each Fund vote against such amendments. The equitable settlement also provides
for payment of additional attorneys' fees to the plaintiffs' attorneys from Fund
funds in the event, if ever, that certain performance thresholds have been met
by the Funds. The equitable settlement class consists of all investors, limited
partners, assignees or unit holders who on August 30, 2000 held any units in
Fund V, Fund VI, and Fund VII, and their assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition of the Partnerhsip.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
11. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the years
ended December 31, 2000 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
-----------------------------------------------------------------------------------------
Operating results:
Total revenues $ 4,794 $ 4,095 $ 6,801 $ 4,111 $ 19,801
Net income (loss) 904 (47) 3,326 (124) 4,059
Per weighted-average
limited partnership unit:
Net income (loss) $ 0.15 $ (0.03) $ 0.60 $ (0.05) $ 0.67
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
-----------------------------------------------------------------------------------------
Operating results:
Total revenues $ 5,285 $ 5,245 $ 5,229 $ 5,090 $ 20,849
Net income (loss) 3,185 4,711 (933) (255) 6,708
Per weighted-average limited
partnership unit:
Net income (loss) $ 0.57 $ 0.86 $ (0.20) $ (0.07) $ 1.16
12. SUBSEQUENT EVENTS
Trans World Airlines (TWA), a current lessee, filed for bankruptcy protection
under Chapter 11 in January 2001. As of December 31, 2000, TWA currently has
unpaid lease payments to the Partnership outstanding totalling $0.8 million.
American Airlines (AA) has proposed an acquisition of TWA that is being reviewed
by the United States Justice Department. The General Partner and AA are
currently in the process of negotiating an equitable settlement for all
parties..
In February 2001, PLM International, the parent of the General Partner,
announced that MILPI Acquisition Corp. (MILPI) completed its cash tender offer
for the outstanding common stock of PLM International. To date, MILPI has
acquired 83% of the common shares outstanding. MILPI will complete its
acquisition of PLM International by effecting a merger of PLM International into
MILPI under Delaware law. The merger is expected to be completed after MILPI
obtains approval of the merger by PLM International's shareholders pursuant to a
special shareholders' meeting which is expected to be held during the first half
of 2001.
PLM EQUIPMENT GROWTH & INCOME FUND VII
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
4.1 First Amendment to the Third Amendment and Restated
Limited Partnership Agreement 50-51
4.2 Second Amendment to the Third Amendment and Restated
Limited Partnership Agreement 52-53
4.3 Third Amendment to the Third Amendment and Restated
Limited Partnership Agreement 54-55
10.1 Management Agreement between Partnership and PLM
Investment Management, Inc. *
10.2 Note Agreement, dated as of December 1, 1995, regarding
$23.0 million of 7.27% senior notes due December 21, 2005. *
24. Powers of Attorney. 56-58
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Boeing 767. 59-67
99.2 Canadian Air Trust #2. 68-76
99.3 Canadian Air Trust #3. 77-85
99.4 TAP Trust. 86-94
99.5 TWA Trust S/N 49183. 95-103
99.6 Boeing 737-200 Trust S/N 24700. 103-112
* Incorporated by reference. See pages 27 and 28 of this report.