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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26594
_______________________
PLM EQUIPMENT GROWTH & INCOME FUND VII
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3168838
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 CARILLON PARKWAY, SUITE 200
ST. PETERSBURG, FL 33716
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (727) 803-8200
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
----
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
CONDENSED BALANCE SHEETS
(in thousands of dollars, except unit amounts)
(unaudited)
June 30, December 31,
2002 2001
------ -------
ASSETS
Equipment held for operating leases, at cost $ 79,960 $ 79,955
Less accumulated depreciation (46,128) (42,910)
--------- ---------
Net equipment 33,832 37,045
Cash and cash equivalents 7,596 3,129
Restricted cash 96 75
Accounts receivable, less allowance for doubtful accounts
of $834 in 2002 and $306 in 2001 1,756 1,764
Investments in unconsolidated special-purpose entities 7,529 8,351
Deferred charges, net of accumulated amortization
of $383 in 2002 and $324 in 2001 171 229
Prepaid expenses and other assets 70 91
--------- ---------
Total assets $ 51,050 $ 50,684
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 240 $ 959
Due to affiliates 704 551
Lessee deposits and reserve for repairs 1,143 945
Notes payable 14,000 14,000
--------- ---------
Total liabilities 16,087 16,455
Partners' capital:
Limited partners (4,981,450 limited partnership units in 2002
and 5,041,936 in 2001) 34,963 34,229
General Partner -- --
--------- ---------
Total partners' capital 34,963 34,229
Total liabilities and partners' capital $ 51,050 $ 50,684
========= =========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
------ ------ ------ -----
REVENUES
Lease revenue $3,759 $4,128 $7,700 $8,119
Interest and other income 25 59 42 136
Net gain (loss) on disposition of equipment (1) 12 2 14
------- ------ ------ ------
Total revenues 3,783 4,199 7,744 8,269
EXPENSES
Depreciation and amortization 1,640 2,015 3,279 4,040
Repairs and maintenance 324 395 803 763
Equipment operating expense 422 414 866 786
Insurance expense 112 54 254 218
Management fees to affiliate 186 222 383 430
Interest expense 257 366 509 690
General and administrative expenses
to affiliates 96 111 164 295
Other general and administrative expenses 233 169 342 401
Provision for bad debts 283 1 529 24
------- ------ ------ ------
Total expenses 3,553 3,747 7,129 7,647
Equity in net income of unconsolidated
special-purpose entities 12 2,408 35 2,036
------- ------ ------ ------
Net income $ 242 $2,860 $ 650 $2,658
PARTNERS' SHARE OF NET INCOME
Limited partners $ 242 $2,860 $ 650 $2,532
General Partner -- -- -- 126
------- ------ ------ ------
Total $ 242 $2,860 $ 650 $2,658
------- ------ ------ ------
Net income per weighted-average
limited partnership unit $ 0.05 $ 0.54 $ 0.13 $ 0.48
------- ------ ------ ------
Cash distributions $ -- $ -- $ -- $1,422
------- ------ ------ ------
Cash distributions per weighted-average
limited partnership unit $ -- $ -- $ -- $ 0.24
======= ====== ====== ======
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM DECEMBER 31, 2000 TO JUNE 30, 2002
(in thousands of dollars)
(unaudited)
Limited General
Partners Partner Total
---------- --------- ------
Partners' capital as of December 31, 2000 $36,715 $ -- $36,715
Net income 2,021 126 2,147
Purchase of limited partnership units (3,211) -- (3,211)
Cash distribution (1,296) (126) (1,422)
-------- ------ --------
Partners' capital as of December 31, 2001 34,229 -- 34,229
Net income 650 -- 650
Canceled purchase of limited partnership units 84 -- 84
-------- ------ --------
Partners' capital as of June 30, 2002 $34,963 $ -- $34,963
======== ====== ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
(unaudited)
For the Six Months
Ended June 30,
2002 2001
------ -------
OPERATING ACTIVITIES
Net income $ 650 $ 2,658
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,279 4,040
Provision for bad debts 529 24
Net gain on disposition of equipment (2) (14)
Equity in net income from unconsolidated special-purpose entities (35) (2,036)
Changes in operating assets and liabilities:
Restricted cash (21) (17)
Accounts receivable (521) (228)
Prepaid expenses and other assets 21 32
Accounts payable and accrued expenses 59 (193)
Due to affiliates 153 (681)
Lessee deposits and reserve for repairs 198 237
------- --------
Net cash provided by operating activities 4,310 3,822
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized repairs (14) (8,011)
Investment in and equipment purchased and placed in
unconsolidated special purpose entities -- (86)
Distribution from unconsolidated special-purpose entities 857 1,455
Distribution from liquidation of unconsolidated special-purpose entities -- 5,293
Payments for acquisition fees to affiliate -- (134)
Payments for lease negotiation fees to affiliate -- (50)
Proceeds from disposition of equipment 8 42
------- --------
Net cash provided by (used in) investing activities 851 (1,491)
FINANCING ACTIVITIES
Canceled purchase of limited partnership units 84 --
Decrease in accounts payable and accrued expenses (778) --
Proceeds from short-term notes payable to affiliate -- 5,500
Payments of short-term notes payable to affiliate -- (5,500)
Cash distribution paid to limited partners -- (1,296)
Cash distribution paid to General Partner -- (126)
------- --------
Net cash used in financing activities (694) (1,422)
Net increase in cash and cash equivalents 4,467 909
Cash and cash equivalents at beginning of period 3,129 2,941
------- --------
Cash and cash equivalents at end of period $7,596 $ 3,850
======= ========
SUPPLEMENTAL INFORMATION
Interest paid $ 509 $ 690
======= ========
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Opinion of Management
-----------------------
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited condensed financial statements
contain all adjustments necessary, consisting primarily of normal recurring
accruals, to present fairly the unaudited condensed financial position of PLM
Equipment Growth & Income Fund VII (the Partnership) as of June 30, 2002 and
December 31, 2001, the unaudited condensed statements of income for the three
and six months ended June 30, 2002 and 2001, the unaudited condensed statements
of changes in partners' capital for the period from December 31, 2000 to June
30, 2002 and the unaudited condensed statements of cash flows for the six months
ended June 30, 2002 and 2001. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted from the accompanying condensed financial statements. For
further information, reference should be made to the financial statements and
notes thereto included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 2001, on file at the Securities and Exchange Commission.
2. Schedule of Partnership Phases
---------------------------------
The Partnership is currently in its investment phase during which the
Partnership uses a portion of the cash generated from operations and proceeds
from asset sales to purchase additional equipment. The General Partner believes
these acquisitions may cause the Partnership to generate additional earnings and
cash flow for the Partnership.
The Partnership may reinvest its cash flow, surplus cash and equipment sale
proceeds in additional equipment, consistent with the objectives of the
Partnership, until December 31, 2004. The Partnership will terminate on
December 31, 2013, unless terminated earlier upon sale of all equipment and by
certain other events.
3. Reclassification
----------------
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentations.
4. Cash Distributions
-------------------
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered a return of capital. For the three and six
months ended June 30, 2001, cash distributions totaled $-0- and $1.4 million,
respectively. No cash distributions were paid to the limited partners during
the three and six months ended June 30, 2002. None of the cash distributions
paid to the limited partners for the six months ended June 30, 2001 were deemed
to be a return of capital.
5. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of June 30, 2002 included $0.1 million due to
FSI and its affiliates for management fees and $0.6 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 2001 includes $0.2 million due to FSI and its affiliates for
management fees and $0.4 million due to affiliated USPEs.
The Partnership's proportional share of the affiliated expenses incurred by
USPEs during 2002 and 2001 is listed in the following table (in thousands of
dollars):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2002 2001 2002 2001
=================== ===================
Management fees $ 33 $ 37 $ 57 $ 96
Data processing and administrative expenses 10 21 17 62
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Transactions with General Partner and Affiliates(continued)
-----------------------------------------------------
These affiliate expenses reduced the Partnership's proportional share of the
equity interest in the income of USPEs.
The Partnership and USPEs accrued or paid FSI $0.3 million for equipment
acquisition and lease negotiation fees during the six months ended June 30,
2001. No fees were paid or accrued during the six months ended June 30, 2002.
6. Equipment
---------
Owned equipment held for operating leases is stated at cost. The components of
owned equipment were as follows (in thousands of dollars):
June 30, December 31,
2002 2001
------ -------
Marine containers $ 38,907 $ 38,915
Marine vessels 22,212 22,212
Rail equipment 9,615 9,602
Aircraft 5,483 5,483
Trailers 3,743 3,743
-------------- ---------
79,960 79,955
Less accumulated depreciation (46,128) (42,910)
-------------- ---------
Net equipment $ 33,832 $ 37,045
============== =========
As of June 30, 2002, all owned equipment in the Partnership's portfolio was on
lease except for 22 railcars. As of December 31, 2001, all owned equipment in
the Partnership's portfolio was on lease except for 8 railcars. The net book
value of the equipment off lease was $0.2 million as of June 30, 2002 and
December 31, 2001.
During the six months ended June 30, 2001, the Partnership purchased marine
containers for $8.0 million and paid acquisition fees of $0.1 million to FSI for
this purchase. No equipment was purchased during the six months ended June 30,
2002.
During the six months ended June 30, 2002, the Partnership disposed of marine
containers with a net book value of $6,000 for proceeds of $8,000. During the
six months ended June 30, 2001, the Partnership disposed of marine containers
with a net book value of $13,000 for proceeds of $27,000.
7. Investments in Unconsolidated Special-Purpose Entities
----------------------------------------------------------
The Partnership owns equipment jointly with affiliated programs. These are
single purpose entities that do not have any debt or other financial
encumbrances. The net investments in USPEs include the following jointly-owned
equipment and related assets and liabilities (in thousands of dollars):
June 30, December 31,
2002 2001
========= =========
38% interest in a trust owning a stage III commercial aircraft $ 5,090 $5,564
50% interest in a trust owning a stage III commercial aircraft 2,494 2,845
80% interest in an entity that owned a dry bulk-carrier marine vessel (14) (14)
50% interest in a trust owning a stage III commercial aircraft (41) (44)
----------- --------
Net investments $ 7,529 $8,351
=========== ========
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Investments in Unconsolidated Special-Purpose Entities (continued)
----------------------------------------------------------
As of June 30, 2002 and December 31, 2001, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
8. Operating Segments
-------------------
The Partnership operates in five primary operating segments: marine vessel
leasing, trailer leasing, aircraft leasing, railcar leasing, and marine
container leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
For the three months ended Vessel Trailer Aircraft Railcar Container
June 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 1,319 $ 124 $ 272 $ 532 $ 1,512 $ -- $ 3,759
Interest income and other -- -- -- -- -- 25 25
Loss on disposition of equipment -- -- -- -- (1) -- (1)
-------- --------- ---------- -------- ----------- --------- --------
Total revenues 1,319 124 272 532 1,511 25 3,783
COSTS AND EXPENSES
Operations support 604 87 2 133 17 15 858
Depreciation and amortization 310 52 -- 119 1,152 7 1,640
Interest expense -- -- -- -- -- 257 257
Management fees to affiliate 66 7 -- 37 76 -- 186
General and administrative expenses 18 27 9 20 -- 255 329
Provision for (recovery of) bad debts -- -- 272 11 -- -- 283
-------- --------- ---------- -------- ----------- --------- --------
Total costs and expenses 998 173 283 320 1,245 534 3,553
-------- --------- ---------- -------- ----------- --------- --------
Equity in net loss of USPEs 5 -- 7 -- -- -- 12
-------- --------- ---------- -------- ----------- --------- --------
Net income (loss) $ 326 $ (49) $ (4) $ 212 $ 266 $ (509) $ 242
Total assets as of June 30, 2002 $ 5,129 $ 870 $ 7,726 $ 3,323 $ 26,049 $ 7,953 $51,050
======== ========= ========== ======== =========== ========= ========
Marine Marine
For the three months ended Vessel Trailer Aircraft Railcar Container
June 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 2 Total
REVENUES
Lease revenue $ 1,433 $ 138 $ 272 $ 601 $ 1,684 $ -- $ 4,128
Interest income and other -- -- 33 -- -- 26 59
Gain on disposition of equipment -- 1 -- -- 11 -- 12
-------- --------- ---------- -------- ----------- --------- --------
Total revenues 1,433 139 305 601 1,695 26 4,199
COSTS AND EXPENSES
Operations support 615 83 (2) 131 19 17 863
Depreciation and amortization 309 53 154 135 1,358 6 2,015
Interest expense -- -- -- -- -- 366 366
Management fees to affiliate 72 7 13 45 85 -- 222
General and administrative expenses 21 34 7 12 -- 206 280
Provision for (recovery of) bad debts -- -- -- 1 -- -- 1
-------- --------- ---------- -------- ----------- --------- --------
Total costs and expenses 1,017 177 172 324 1,462 595 3,747
-------- --------- ---------- -------- ----------- --------- --------
Equity in net loss of USPEs 1,929 -- 479 -- -- -- 2,408
-------- --------- ---------- -------- ----------- --------- --------
Net income (loss) $ 2,345 $ (38) $ 612 $ 277 $ 233 $ (569) $ 2,860
======== ========= ========== ======== =========== ========= ========
1 Includes certain assets not identifiable to a specific segment such as cash,
certain restricted cash and accounts receivable, deferred charges and prepaid
expenses. Also includes interest income and costs not identifiable to a
particular segment, such as interest expense, and certain amortization, general
and administrative and operations support expenses.
2 Includes interest income and costs not identifiable to a particular segment,
such as interest expense, and certain amortization, general and administrative
and operations support expenses.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
8. Operating Segments (continued)
-------------------
Marine Marine
For the six months ended Vessel Trailer Aircraft Railcar Container
June 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 2,624 $ 319 $ 543 $ 1,144 $ 3,070 $ -- $7,700
Interest income and other -- -- -- -- -- 42 42
Loss on disposition of equipment -- -- -- -- 2 -- 2
-------- --------- ---------- --------- ---------- --------- ------
Total revenues 2,624 319 543 1,144 3,072 42 7,744
COSTS AND EXPENSES
Operations support 1,397 185 4 271 35 31 1,923
Depreciation and amortization 620 104 -- 237 2,304 14 3,279
Interest expense -- -- -- -- -- 509 509
Management fees to affiliate 131 16 -- 82 154 -- 383
General and administrative expenses 31 54 7 42 -- 372 506
Provision for (recovery of) bad debts -- 10 543 (24) -- -- 529
-------- --------- ---------- --------- ---------- --------- ------
Total costs and expenses 2,179 369 554 608 2,493 926 7,129
-------- --------- ---------- --------- ---------- --------- ------
Equity in net income of USPEs 31 -- 4 -- -- -- 35
-------- --------- ---------- --------- ---------- --------- ------
Net income (loss) $ 476 $ (50) $ (7) $ 536 $ 579 $ (884) $ 650
======== ========= ========== ========= ========== ========= ======
Marine Marine
For the six months ended Vessel Trailer Aircraft Railcar Container
June 30, 2001 Leasing Leasing Leasing Leasing Leasing Other 1 Total
REVENUES
Lease revenue $ 2,896 $ 308 $ 543 $ 1,212 $ 3,160 $ -- $8,119
Interest income and other -- -- 33 -- -- 103 136
Gain on disposition of equipment -- 1 -- -- 13 -- 14
-------- --------- ---------- --------- ---------- --------- ------
Total revenues 2,896 309 576 1,212 3,173 103 8,269
COSTS AND EXPENSES
Operations support 1,211 146 2 294 37 77 1,767
Depreciation and amortization 619 105 308 270 2,725 13 4,040
Interest expense -- -- -- -- -- 690 690
Management fees to affiliate 145 16 27 84 158 -- 430
General and administrative expenses 35 56 11 28 -- 566 696
Provision for (recovery of) bad debts -- (3) -- 19 8 -- 24
-------- --------- ---------- --------- ---------- --------- ------
Total costs and expenses 2,010 320 348 695 2,928 1,346 7,647
-------- --------- ---------- --------- ---------- --------- ------
Equity in net income of USPEs 2,036 -- -- -- -- -- 2,036
-------- --------- ---------- --------- ---------- --------- ------
Net income (loss) $ 2,922 $ (11) $ 228 $ 517 $ 245 $ (1,243) $2,658
======== ========= ========== ========= ========== ========= ======
9. Net Income Per Weighted-Average Limited Partnership Unit
--------------------------------------------------------------
Net income per weighted-average limited partnership unit was computed by
dividing net income attributable to limited partners by the weighted-average
number of limited partnership units deemed outstanding during the period. The
weighted-average number of limited partnership units deemed outstanding during
the three and six months ended June 30, 2002 was 4,981,450 and 4,991,809,
respectively. The weighted-average number of limited partnership units deemed
outstanding during the three and six months ended June 30, 2001 was 5,323,569.
1 Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain amortization, general and
administrative and operations support expenses.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
10. Limited Partnership Units
---------------------------
During 2001, the General Partner agreed to purchase 351,290 limited partnership
units and paid or accrued $3.2 million to the purchasing agent for this
purchase.
The purchasing agent purchased 60,486 units during the six months ended June 30,
2002 and 281,633 units as of December 31, 2001, which is reflected as a
reduction in Partnership units. Under the terms of the purchase agreement, only
the units held by the owner on the date of the agreement were eligible to be
purchased. The General Partner has not been able to purchase the remaining
9,171 units due to the eligible owners selling the units in the open market.
The General Partner has determined that the remaining units will not be
purchased and has received a $0.1 million refund from the purchasing agent.
11. Subsequent Event
-----------------
In July 2002, PLM International, Inc. (PLMI), the parent company of FSI, reached
an agreement with the lenders of the $10.0 million warehouse facility to extend
the expiration date of the facility to June 30, 2003. The warehouse facility is
shared by the Partnership, PLM Equipment Growth Fund V, PLM Equipment Growth
Fund VI, and Professional Lease Management Income Fund I, LLC and Acquisub LLC,
a wholly owned subsidiary of PLMI. The facility provides for financing up to
100% of the cost of the equipment. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the facility.
Individual borrowings may be outstanding for no more than 270 days, with all
advances due no later than June 30, 2003. Interest accrues either at the prime
rate or LIBOR plus 2.0% at the borrower's option and is set at the time of an
advance of funds. Borrowings by the Partnership are guaranteed by PLMI. The
Partnership is not liable for the advances made to the other borrowers.
(This space intentionally left blank)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(I) RESULTS OF OPERATIONS
Comparison of the PLM Equipment Growth & Income Fund VII's (the Partnership's)
- --------------------------------------------------------------------------------
Operating Results for the Three Months Ended June 30, 2002 and 2001
- ------------------------------------------------------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the three months ended June 30, 2002 compared to the same
period of 2001. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as management fees to affiliate, depreciation
and amortization and general and administrative expenses relating to the
operating segments (see Note 8 to the unaudited condensed financial statements),
are not included in the owned equipment operation discussion because they are
indirect in nature and not a result of operations, but the result of owning a
portfolio of equipment. The following table presents lease revenues less direct
expenses by segment (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
===================
Marine containers $1,495 $1,665
Marine vessels 715 818
Railcars 399 470
Aircraft 270 274
Trailers 37 55
Marine containers: Lease revenues and direct expenses for marine containers
were $1.5 million and $17,000 respectively, for the three months ended June 30,
2002, compared to $1.7 million and $19,000, respectively, during the same period
of 2001. The decrease in lease revenues of $0.2 million during the second
quarter of 2002 compared to the same period of 2001 was due to lower lease rates
earned on the Partnership's marine containers.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.3
million and $0.6 million, respectively, for the three months ended June 30,
2002, compared to $1.4 million and $0.6 million, respectively, during the same
period of 2001. The decrease in lease revenues of $0.1 million during the
second quarter of 2002 compared to the same period of 2001 was due to lower
lease rates earned on the Partnership's marine vessels.
Railcars: Railcar lease revenues and direct expenses were $0.5 million and
$0.1 million, respectively, for the three months ended June 30, 2002, compared
to $0.6 million and $0.1 million, respectively, during the same period of 2001.
The decrease in lease revenues of $0.1 million during the second quarter of 2002
compared to 2001 was due to lower lease rates earned on the Partnership's
railcars.
Aircraft: Aircraft lease revenues and direct expenses were $0.3 million and
$2,000, respectively, for the three months ended June 30, 2002, compared to $0.3
million and $(2,000), respectively, during the same period of 2001.
Trailers: Trailer lease revenues and direct expenses were $0.1 million and
$0.1 million, respectively, for the three months ended June 30, 2002 and 2001.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.7 million for the three months ended June 30, 2002
decreased from $2.9 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $0.4 million decrease in depreciation and amortization expenses
from 2001 levels reflects the decrease of approximately $0.2 million caused by
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned and a decrease of $0.2 million
resulting from certain assets being fully depreciated during 2001;
(ii) A $0.1 million decrease in interest expense was due to a lower
average outstanding debt balance in the second quarter of 2002 compared to the
same period of 2001;
(iii) A $0.3 million increase in the provision for bad debts was based on
PLM Financial Services, Inc. (FSI or the General Partner's) evaluation of the
collectability of receivables compared to 2001. The provision for bad debt
recorded in the second quarter of 2002 of $0.3 million was primarily related to
one aircraft lessee.
(C) Interest and Other Income
Interest and other income decreased $34,000 due to a decrease in the interest
rate earned on cash balances.
(D) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs)
Equity in net income of USPEs represents the Partnership's share of the net
income generated from the operation of jointly owned assets accounted for under
the equity method of accounting. These entities are single purpose and have no
debt or other financial encumbrances. The following table presents equity in
net income by equipment type (in thousands of dollars):
For the Three Months
Ended June 30,
2002 2001
==================
Aircraft $ 7 $ 479
Marine vessel 5 1,929
----- ------
Equity in net income of USPEs $12 $2,408
===== ======
Aircraft: As of June 30, 2002 and 2001, the Partnership owned an interest in
entities that owned three commercial aircraft. During the three months ended
June 30, 2002, lease revenues of $0.5 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.5 million. During
the same period of 2001, lease revenues of $0.5 million and other income of $0.8
million were offset by depreciation expense, direct expenses, and administrative
expenses of $0.8 million.
Other income decreased $0.8 million during the three months ended June 30, 2002
when compared to the same period of 2001, due to the recognition of an engine
reserve liability as income upon termination of the previous lease agreement
during 2001. A similar event did not occur during the same period of 2002.
The decrease in depreciation expense of $0.2 million was the result of the
double declining-balance method of depreciation which results in greater
depreciation in the first years an asset is owned and by $0.2 million in lower
depreciation expense resulting from one aircraft being fully depreciated during
2001.
Marine vessel: As of June 30, 2002 and 2001, the Partnership had sold its
interest in an entity that owned a marine vessel. During the three months ended
June 30, 2002, the Partnership's interest in an entity that owned a marine
vessel received an insurance settlement of $5,000. During the same period of
2001, lease revenues of $0.2 million and the gain of $2.1 million from the sale
of the Partnership's interest in an entity that owned a marine vessel were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.4 million.
The decrease in marine vessel contribution was due to the sale of the
Partnership interest in an entity that owned a marine vessel during 2001.
(E) Net Income
As a result of the foregoing, the Partnership had a net income of $0.2 million
for the three months ended June 30, 2002, compared to net income of $2.9 million
during the same period of 2001. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases and re-lease those assets whose leases
expire is subject to many factors. Therefore, the Partnership's performance in
the second quarter of 2002 is not necessarily indicative of future periods.
Comparison of the Partnership's Operating Results for the Six Months Ended June
- --------------------------------------------------------------------------------
30, 2002 and 2001
- --------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the six
months ended June 30, 2002 compared to the same period of 2001. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Six Months
Ended June 30,
2002 2001
==================
Marine containers $3,035 $3,123
Marine vessels 1,227 1,685
Railcars 873 918
Aircraft 539 541
Trailers 134 162
Marine containers: Lease revenues and direct expenses for marine containers
were $3.1 million and $35,000 respectively, for the six months ended June 30,
2002, compared to $3.2 million and $37,000, respectively, during the same period
of 2001. A decrease in lease revenues of $0.1 million was due to lower lease
rates earned on the Partnership's marine containers.
Marine vessels: Marine vessel lease revenues and direct expenses were $2.6
million and $1.4 million, respectively, for the six months ended June 30, 2002,
compared to $2.9 million and $1.2 million, respectively, during the same period
of 2001. The decrease in lease revenues of $0.3 million during the six months
ended June 30, 2002 compared to 2001 was due to lower lease rates earned on the
Partnership's marine vessels. The increase in direct expenses of $0.2 million
was caused by higher repair and operating costs to one of the owned marine
vessels during 2002 compared to 2001.
Railcars: Railcar lease revenues and direct expenses were $1.1 million and
$0.3 million, respectively, for the six months ended June 30, 2002, compared to
$1.2 million and $0.3 million, respectively, during the same period of 2001.
The decrease in lease revenues of $0.1 million during the six months ended June
30, 2002 compared to 2001 was due to lower lease rates earned on the
Partnership's railcars.
Aircraft: Aircraft lease revenues and direct expenses were $0.5 million and
$4,000, respectively, for the six months ended June 30, 2002, compared to $0.5
million and $2,000, respectively, during the same period of 2001.
Trailers: Trailer lease revenues and direct expenses were $0.3 million and
$0.2 million, respectively, for the six months ended June 30, 2002, compared to
$0.3 million and $0.1 million, respectively, during the same period of 2001.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $5.2 million for the six months ended June 30, 2002
decreased from $5.9 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $0.8 million decrease in depreciation and amortization expenses
from 2001 levels reflects the decrease of approximately $0.5 million caused by
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned and a decrease of $0.3 million
resulting from certain assets being fully depreciated during 2001;
(ii) A $0.2 million decrease in general and administrative expenses
during the six months ended June 30, 2002 was due to lower professional costs;
(iii) A $0.2 million decrease in interest expense was due to a lower
average outstanding debt balance in the six months ended June 30, 2002 compared
to the same period of 2001; and
(iv) A $0.5 million increase in the provision for bad debts was based on
the General Partner's evaluation of the collectability of receivables compared
to 2001. The provision for bad debt recorded in the six months ended June 30,
2002 of $0.2 million was primarily related to one aircraft lessee.
(C) Interest and Other Income
Interest and other income decreased $0.1 million due to a one time insurance
settlement of $36,000 received during the six months ended June 30, 2001. A
similar settlement was not received during the same period of 2002.
Additionally, interest income decreased $0.1 million due to a decrease in the
interest rate earned on cash balances.
(D) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for the six months ended June 30,
2002 totaled $2,000 and resulted from the sale of marine containers with a net
book value of $6,000 for $8,000. The net gain on disposition of owned equipment
for the six months ended June 30, 2001 totaled $14,000 and resulted from the
sale of a marine containers with an aggregate net book value of $12,000 for
$27,000.
(E) Equity in Net Income of Unconsolidated Special-Purpose Entities (USPEs)
Equity in net income of USPEs represents the Partnership's share of the net
income generated from the operation of jointly owned assets accounted for under
the equity method of accounting. These entities are single purpose and have no
debt or other financial encumbrances. The following table presents equity in
net income by equipment type (in thousands of dollars):
For the Six Months
Ended June 30,
2002 2001
=================
Marine vessel $31 $2,036
Aircraft 4 --
----- ------
Equity in net income of USPEs $35 $2,036
===== ======
Marine vessel: As of June 30, 2002 and 2001, the Partnership had sold its
interest in an entity that owned a marine vessel. During the six months ended
June 30, 2002, revenues of $32,000 were offset by administrative expenses of
$1,000. During the six months ended June 30, 2002, the Partnership's interest
in an entity that owned a marine vessel received an insurance settlement of
$32,000. During the same period of 2001, lease revenues of $0.7 million and the
gain of $2.1 million from the sale of the Partnership's interest in an entity
that owned a marine vessel were offset by depreciation expense, direct expenses,
and administrative expenses of $0.8 million.
The decrease in marine vessel contribution was due to the sale of the
Partnership's interest in an entity that owned a marine vessel during 2001.
Aircraft: As of June 30, 2002 and 2001, the Partnership owned an interest in
entities that owned three commercial aircraft. During the six months ended June
30, 2002, lease revenues of $1.0 million were offset by depreciation expense,
direct expenses, and administrative expenses of $1.0 million. During the same
period of 2001, lease revenues of $1.2 million and other income of $0.8 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $2.0 million.
Lease revenues decreased $0.2 million due to the leases for two commercial
aircraft in the trusts being renegotiated at a lower rate. This decrease was
offset, in part, by an increase of $0.1 million earned by the trust owning a
Boeing 737-300 commercial aircraft due to a new lease going into effect at a
higher rate. Other income decreased $0.8 million during the six months ended
June 30, 2002 due to the recognition of an engine reserve liability as income
upon termination of the previous lease agreement during 2001. A similar event
did not occur during the same period of 2002.
The decrease in expenses of $1.0 million was due to required repairs and
maintenance of $0.3 million to the Boeing 737-300 that were not required during
2002, by $0.2 million in lower depreciation expense as the result of the double
declining-balance method of depreciation which results in greater depreciation
in the first years an asset is owned, and by $0.4 million in lower depreciation
expense resulting from one aircraft being fully depreciated during 2001.
(F) Net Income
As a result of the foregoing, the Partnership had a net income of $0.7 million
for the six months ended June 30, 2002, compared to net income of $2.7 million
during the same period of 2001. 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 six months ended June 30, 2002 is not necessarily indicative of future
periods.
(II) CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record a
loss on revaluation. Likewise, if the net book value of the asset was reduced
by an amount greater than the economic value has deteriorated, the Partnership
may record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: On a regular basis, the General Partner
reviews the carrying value of its equipment and investments in USPEs to
determine if the carrying value of the assets may not be recoverable due to
current economic conditions. This requires the General Partner to make
estimates related to future cash flows from each asset as well as the
determination if the deterioration is temporary or permanent. If these
estimates or the related assumptions change in the future, the Partnership may
be required to record additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Reserves for repairs: The Partnership accrues for legally required repairs to
equipment such as dry docking for marine vessels and engine overhauls to
aircraft engines over the period prior to the required repairs. The amount that
is reserved is based on the General Partner's expertise in each equipment
segment, the past history of such costs for that specific piece of equipment and
discussions with independent, third party equipment brokers. If the amount
reserved for is not adequate to cover the cost of such repairs or if the repairs
must be performed earlier than the General Partner estimated, the Partnership
would incur additional repair and maintenance or equipment operating expenses.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are made
after consultation with outside counsel. If estimates of potential losses
increase or the related facts and circumstances change in the future, the
Partnership may be required to record additional litigation expense.
(III) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 2002, the Partnership generated operating cash
of $5.2 million (net cash provided by operating activities plus non-liquidating
distributions from USPEs) to meet its operating obligations, pay debt and
interest payments and maintain working capital reserves.
During the six months ended June 30, 2002, the Partnership disposed of marine
containers for proceeds of $8,000.
Accounts receivable decreased $8,000 in the six months ended June 30, 2002.
This decrease was due to increase in the allowance for bad debts of $0.5 million
due to the General Partner's evaluation of the collectibility of accounts
receivable. This decrease was partially offset by an increase of $0.5 million
during the six months ended June 30, 2002 due to the timing of cash receipts.
Investments in USPEs decreased $0.8 million during the six months ended June 30,
2002 due to cash distributions of $0.9 million from the USPEs to the Partnership
offset, in part, by $35,000 in income that was recorded by the Partnership for
its equity interests in the USPEs.
Accounts payable decreased $0.7 million during the six months ended June 30,
2002. The decrease was due to the payment of $0.8 million due to the purchasing
agent that was accrued at December 31, 2001 resulting from the purchase of
Partnership units offset, in part, by an increase of $0.1 million due to the
timing of cash payments.
During the six months ended June 30, 2002, lessee deposits and reserve for
repairs increased $0.2 million due to an increase in the reserve for marine
vessel dry docking.
The Partnership is scheduled to make an annual debt payment of $3.0 million to
the lenders of the notes payable on December 31, 2002. The cash for this
payment will come from operations and proceeds from equipment dispositions.
In July 2002, PLM International, Inc. (PLMI), the parent company of FSI, reached
an agreement with the lenders of the $10.0 million warehouse facility to extend
the expiration date of the facility to June 30, 2003. The warehouse facility is
shared by the Partnership, PLM Equipment Growth Fund V, PLM Equipment Growth
Fund VI, and Professional Lease Management Income Fund I, LLC and Acquisub LLC,
a wholly owned subsidiary of PLMI. The facility provides for financing up to
100% of the cost of the equipment. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the facility.
Individual borrowings may be outstanding for no more than 270 days, with all
advances due no later than June 30, 2003. Interest accrues either at the prime
rate or LIBOR plus 2.0% at the borrower's option and is set at the time of an
advance of funds. Borrowings by the Partnership are guaranteed by PLMI. The
Partnership is not liable for the advances made to the other borrowers.
As of August 13, 2002, no eligible borrower has any outstanding borrowings.
(IV) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance during the
remainder of 2002 and beyond, including changes in the markets for the
Partnership's equipment and changes in the regulatory environment in which that
equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
Other factors affecting the Partnership's contribution during the remainder of
2002 and beyond include:
(1) The cost of new marine containers have been at historic lows for the
past several years which has caused downward pressure on per diem lease rates
for this type of equipment;
(2) Railcar loadings in North America for the six months ended June 30, 2002
were below those of 2001. This decrease has led to lower utilization and lower
contribution to the Partnership as existing leases expire and renewal leases are
negotiated;
(3) Marine vessel freight rates are dependent upon the overall condition of
the international economy. Freight rates earned by the Partnership's marine
vessel began to decrease during the latter half of 2001 and continued through
the first six months of 2002. This trend is expected to continue during the
latter half of 2002 or until international economies stabilize and begin to
improve;
(4) Industry wide utilization of inter-modal trailers decreased 12% during
the six months ended June 30, 2002 compared to 2001. This has led to lower
utilization of the Partnership's trailers as existing leases expire and may lead
to lower utilization during the remainder of 2002; and
(5) The airline industry began to see lower passenger travel during 2001.
The tragic events on September 11, 2001 worsened the situation. As a result of
this and the general turmoil in the airline industry, the Partnership has had to
renegotiate leases on its owned aircraft during 2001 that will result in a
decrease in revenues during 2002.
In addition, these events have had a negative impact on the fair market value of
the Partnership's owned and partially owned aircraft. Although no revaluations
were required during 2002 to these aircraft, the General Partner does not expect
these aircraft values to return to their previous value in the foreseeable
future.
During 2001, the lessee of a Stage II Boeing 737-200 commercial aircraft
notified the General Partner of its intention to return this aircraft. The
lessee is located in Brazil, a country currently experiencing economic
difficulty. As of June 30, 2002, the lessee has not remitted ten lease payments
due to the Partnership. The Partnership has a security deposit from this lessee
that could be used to pay a portion of the amount due. During October 2001, the
General Partner sent a notification of default to the lessee. The lease, with
an expiration date of October 2002, has certain return condition requirements
for each aircraft. The General Partner has recorded an allowance for bad debts
for the amount due less the security deposit and is uncertain of the
collectibility of this receivable.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may decide to reduce the Partnership's exposure to
equipment markets in which it determines it cannot operate equipment to achieve
acceptable rates of return. Alternatively, the General Partner may make a
determination to enter equipment markets in which it perceives opportunities to
profit from supply/demand instabilities or other market imperfections.
The Partnership may reinvest its cash flow, surplus cash, and equipment sale
proceeds in additional equipment, consistent with the objectives of the
Partnership, until December 31, 2004. The General Partner believes that these
acquisitions may cause the Partnership to generate additional earnings and cash
flow for the Partnership. Surplus funds, if any, less reasonable reserves, may
be distributed to the partners. The Partnership will terminate on December 31,
2013, unless terminated earlier upon sale of all equipment and by certain other
events.
(V) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 2002, 84% 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 (US) currency. If these lessees' currency devalues against the US
dollar, the lessees could potentially encounter difficulty in making the US
dollar denominated lease payments.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
10.1 Third amendment to the Warehouse Credit Agreement, dated July 11, 2002.
(b) Reports on Form 8-K
----------------------
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH & INCOME FUND VII
By:PLM Financial Services, Inc.
General Partner
Date: August 13, 2002 By:/s/ Stephen M. Bess
----------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
CERTIFICATION
The undersigned hereby certifies, in his capacity as an officer of the General
Partner of PLM Equipment Growth & Income Fund VII (the Partnership), that the
Quarterly Report of the Partnership on Form 10-Q for the period ended June 30,
2002, fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934 and that the information contained in such report fairly
presents, in all material respects, the financial condition of the Partnership
at the end of such period and the results of operations of the Partnership for
such period.
PLM EQUIPMENT GROWTH & INCOME FUND VII
By:PLM Financial Services, Inc.
General Partner
Date: August 13, 2002 By:/s/ Stephen M. Bess
---------------------
Stephen M. Bess
President and
Current Chief Accounting Officer
Date: August 13, 2002 By:/s/ James A. Coyne
---------------------
James A. Coyne
Chief Financial Officer