Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 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)
September 30, December 31,
2002 2001
===============================
ASSETS
Equipment held for operating leases, at cost . . . . . . . . . $ 79,868 $ 79,955
Less accumulated depreciation. . . . . . . . . . . . . . . . . (47,705) (42,910)
--------------- --------------
Net equipment. . . . . . . . . . . . . . . . . . . . . . . . 32,163 37,045
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . 10,114 3,129
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . 258 75
Accounts receivable, less allowance for doubtful accounts
of $1,060 in 2002 and $306 in 2001 . . . . . . . . . . . . 1,663 1,764
Investments in unconsolidated special-purpose entities . . . . 7,187 8,409
Deferred charges, net of accumulated amortization
of $413 in 2002 and $324 in 2001 . . . . . . . . . . . . . 141 229
Prepaid expenses and other assets. . . . . . . . . . . . . . . 151 91
--------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . $ 51,677 $ 50,742
=============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses. . . . . . . . . . . . . $ 488 $ 959
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . 782 609
Lessee deposits and reserve for repairs. . . . . . . . . . . . 1,236 945
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . 14,000 14,000
--------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . 16,506 16,513
--------------- --------------
Commitments and contingencies
Partners' capital:
Limited partners (4,981,450 limited partnership units in 2002
and 5,041,936 in 2001) . . . . . . . . . . . . . . . . . . 35,171 34,229
General Partner. . . . . . . . . . . . . . . . . . . . . . . . -- --
--------------- --------------
Total partners' capital. . . . . . . . . . . . . . . . . . . 35,171 34,229
--------------- --------------
Total liabilities and partners' capital. . . . . . . . . $ 51,677 $ 50,742
=============== ==============
See accompanying notes to unaudited condensed financial statements.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
CONDENSED STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
=========================================
REVENUES
Lease revenue. . . . . . . . . . . . . . . . . $ 3,820 $ 4,001 $ 11,520 $ 12,120
Interest and other income. . . . . . . . . . . 32 50 74 186
Gain on disposition of equipment . . . . . . . 44 8 46 22
--------- --------- -------- --------
Total revenues . . . . . . . . . . . . . . 3,896 4,059 11,640 12,328
--------- --------- -------- --------
EXPENSES
Depreciation and amortization. . . . . . . . . 1,638 2,015 4,917 6,055
Repairs and maintenance. . . . . . . . . . . . 500 502 1,303 1,265
Equipment operating expense. . . . . . . . . . 435 450 1,301 1,236
Insurance expense. . . . . . . . . . . . . . . 120 136 374 353
Management fees to affiliate . . . . . . . . . 188 213 571 642
Interest expense . . . . . . . . . . . . . . . 254 316 763 1,006
General and administrative expenses
to affiliates. . . . . . . . . . . . . . 22 68 186 362
Other general and administrative expenses. . . 380 169 722 571
Provision for (recovery of) bad debts. . . . . 235 (10) 764 15
--------- --------- -------- --------
Total expenses . . . . . . . . . . . . . . 3,772 3,859 10,901 11,505
--------- --------- -------- --------
Equity in net income (loss) of unconsolidated
special-purpose entities . . . . . . . . 84 (339) 119 1,696
--------- --------- -------- --------
Net income (loss). . . . . . . . . . . . . . . $ 208 $ (139) $ 858 $ 2,519
========= ========= ======== ========
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners . . . . . . . . . . . . . . . $ 208 $ (139) $ 858 $ 2,393
General Partner. . . . . . . . . . . . . . . . -- -- -- 126
--------- --------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . $ 208 $ (139) $ 858 $ 2,519
========= ========= ======== ========
Net income (loss) per weighted-average
limited partnership unit . . . . . . . . . $ 0.04 $ (0.03) $ 0.17 $ 0.45
========= ========= ======== ========
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 SEPTEMBER 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 . . . . . . . . . . . . . . . . . . 858 -- 858
Canceled purchase of limited partnership units 84 -- 84
---------- --------- --------
Partners' capital as of September 30, 2002 . $ 35,171 $ -- $35,171
========== ========= ========
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 Nine Months
Ended September 30,
2002 2001
==================
OPERATING ACTIVITIES
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 858 $ 2,519
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 4,917 6,055
Provision for bad debts . . . . . . . . . . . . . . . . . . . . 764 15
Gain on disposition of equipment. . . . . . . . . . . . . . . . . . . . (46) (22)
Equity in net income of unconsolidated special-purpose entities . . . . (119) (1,696)
Changes in operating assets and liabilities:
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . (183) (23)
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . (663) (328)
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . (60) 69
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 307 158
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 173 (554)
Lessee deposits and reserve for repairs . . . . . . . . . . . . . . . 291 263
--------- --------
Net cash provided by operating activities . . . . . . . . . . . . . 6,239 6,456
--------- --------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements . . . . . (13) (8,014)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities . . . . . . . . . . . . . . . -- (86)
Distribution from unconsolidated special-purpose entities . . . . . . . . 1,341 1,992
Distribution from liquidation of unconsolidated special-purpose entities. -- 5,292
Payments for acquisition fees to affiliate. . . . . . . . . . . . . . . . -- (366)
Payments for lease negotiation fees to affiliate. . . . . . . . . . . . . -- (82)
Proceeds from disposition of equipment. . . . . . . . . . . . . . . . . . 112 56
--------- --------
Net cash provided by (used in) investing activities . . . . . . . . 1,440 (1,208)
--------- --------
FINANCING ACTIVITIES
Canceled purchase of limited partnership units. . . . . . . . . . . . . . 84 --
Payment for limited partnership units . . . . . . . . . . . . . . . . . . (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 . . . . . . . . . . . . . . . . 6,985 3,826
Cash and cash equivalents at beginning of period. . . . . . . . . . . . . 3,129 2,941
--------- --------
Cash and cash equivalents at end of period. . . . . . . . . . . . . . . . $10,114 $ 6,767
========= ========
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 September 30, 2002
and December 31, 2001, the unaudited condensed statements of operations for the
three and nine months ended September 30, 2002 and 2001, the unaudited condensed
statements of changes in partners' capital for the period from December 31, 2000
to September 30, 2002 and the unaudited condensed statements of cash flows for
the nine months ended September 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 cash generated from operations and proceeds from asset
dispositions 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
disposition 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.
No cash distributions were paid to the limited partners during the three and
nine months ended September 30, 2002. For the three and nine months ended
September 30, 2001, cash distributions totaled $-0- and $1.4 million,
respectively.
5. Transactions with General Partner and Affiliates
-----------------------------------------------------
The balance due to affiliates as of September 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.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. Transactions with General Partner and Affiliates(continued)
-----------------------------------------------------
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 Nine Months
Ended September 30, Ended September 30,
2002 2001 2002 2001
======================================
Management fees. . . . . . . . . . $ 28 $ 27 $ 86 $ 123
Data processing and administrative
expenses. . . . . . . . . . . . 1 17 19 88
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 $0.5 million for equipment
acquisition and lease negotiation fees during the nine months ended September
30, 2001. No fees were paid or accrued during the nine months ended September
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):
September 30, December 31,
2002 2001
===============================
Marine containers . . . . . . $ 38,815 $ 38,915
Marine vessels. . . . . . . . 22,212 22,212
Rail equipment. . . . . . . . 9,615 9,602
Aircraft. . . . . . . . . . . 5,483 5,483
Trailers. . . . . . . . . . . 3,743 3,743
--------------- --------------
79,868 79,955
Less accumulated depreciation (47,705) (42,910)
--------------- --------------
Net equipment . . . . . . $ 32,163 $ 37,045
=============== ==============
As of September 30, 2002, all owned equipment in the Partnership's portfolio was
on lease except for 77 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 $0.8 million as of September 30, 2002 and
$0.2 million as of December 31, 2001.
No equipment was purchased during the nine months ended September 30, 2002.
During the nine months ended September 30, 2001, the Partnership purchased
marine containers for $8.0 million and paid acquisition fees of $0.4 million to
FSI for this purchase.
During the nine months ended September 30, 2002, the Partnership disposed of
marine containers with a net book value of $0.1 million for proceeds of $0.1
million. During the nine months ended September 30, 2001, the Partnership
disposed of marine containers with a net book value of $19,000 for proceeds of
$41,000.
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. Ownership interest is based on the Partnership's contribution
towards the cost of the equipment in the USPEs. The Partnership's
proportional share of
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Investments in Unconsolidated Special-Purpose Entities (continued)
----------------------------------------------------------
equity and income (loss) in each entity is not necessarily the same as its
ownership interest. The primary reason for this difference has to do with
certain fees such as management and acquisition and lease negotiation fees
varying among the owners of the USPEs.
The tables below set forth 100% of the assets, liabilities, and equity of the
entities in which the Partnership has an interest and the Partnership's
proportional share of equity in each entity as of September 30, 2002 and
December 31, 2001 (in thousands of dollars):
. TWA . TWA Boeing
S/N 49183 . MD-82 737-300
As of September 30, 2002. . . . . . . . . Trust1 Trust2 Trust3 Total
- -----------------------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $ -- $ 4,542 $ 12,973
Receivables -- -- 1,682
Other assets -- -- 3
--------- ------- --------
Total assets $ -- $ 4,542 $ 14,658
========= ======= ========
Liabilities
Due to affiliates $ 6 $ 6 $ --
Lessee deposits and reserve for repairs -- -- 1,659
--------- ------- --------
Total liabilities 6 6 1,659
--------- ------- --------
Equity (6) 4,536 12,999
--------- ------- --------
Total liabilities and equity $ -- $ 4,542 $14,658
========= ======= ========
Partnership's share of equity $ -- $ 2,314 $ 4,873 $ 7,187
========= ======= ======== =======
TWA TWA Boeing
S/N 49183 . MD-82 737-300
As of December 31, 2001 . . . . . . . . . Trust1 Trust2 Trust3 Total
- ------------------------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $ -- $ 5,590 $ 14,768
Receivables -- -- 1,078
Other assets -- -- 12
Total assets $ -- $ 5,590 $ 15,858
========= ======= ========
Liabilities
Accounts payable $ 7 $ 7 $ 70
Due to affiliates 5 16 20
Lessee deposits and reserve for repairs -- -- 1,027
Total liabilities 12 23 1,117
--------- ------- --------
Equity (12) 5,567 14,741
Total liabilities and equity $ -- $ 5,590 $ 15,858
========= ======= ========
Partnership's share of equity $ -- $ 2,845 $ 5,564 $ 8,409
========= ======= ======== =======
1 The Partnership owns a 50% interest of the TWA S/N 49183 Trust that owns
an MD-82 stage III commercial aircraft.
2 The Partnership owns a 50% interest in the TWA MD-80 Trust that owns an
MD-82 stage III commercial aircraft.
3 The Partnership owns a 38% interest in the Boeing 737-300 Trust that owns
a Boeing stage III commercial aircraft.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
7. Investments in Unconsolidated Special-Purpose Entities (continued)
----------------------------------------------------------
The tables below set forth 100% of the revenues, gain on disposition of
equipment, direct and indirect expenses, and net income (loss) of the entities
in which the Partnership has an interest, and the Partnership's proportional
share of income (loss) in each entity for the three and nine months ended
September 30, 2002 and 2001 (in thousands of dollars):
TWA TWA Boeing
For the three months ended . . . . . . S/N 49183 MD-82 737-300
September 30, 2002 . . . . . . . Trust1 Trust2 Trust 3 Other Total
- --------------------------------------------------------------------------------
Revenues $ 315 $ 315 $ 465 $ --
Less: Direct expenses -- -- 12 (18)
Indirect expenses 18 368 651 --
------ ------ ------- ------
Net income (loss) $ 297 $ (53) $ (198) $ 18
====== ====== ======= ======
Partnership's share of net income (loss) $ 187 $ (32) $ (85) $ 14 $ 84
====== ====== ======= ====== =====
TWA TWA Boeing Pacific
For the three months ended. . . S/N 49183 MD-82 737-300 Source
September 30, 2001. . . Trust1 Trust2 Trust 3 Partnership4 Total
- ------------------------------------------------------------------------------
Revenues $ 315 $ 315 $ 605 $ (2)
Less: Direct expenses 7 8 16 38
Indirect expenses 476 516 980 7
------- ------- ------- --------
Net loss $ (168) $ (209) $ (391) $ (47)
======= ======= ======= ========
Partnership's share of net loss $ (92) $ (111) $ (99) $ (37) $ (339)
======= ======= ======= ======== =======
TWA TWA Boeing Pacific
For the nine months ended . . S/N 49183 MD-82 737-300 Source
September 30, 2002. . Trust1 Trust2 Trust3 Partnership4 Other Total
- ------------------------------------------------------------------------------------
Revenues $ 945 $ 945 $1,395 $ -- $ 73
Less: Direct expenses (1) -- 28 (18) --
Indirect expenses 60 1,111 2,103 2 --
------- ------- ------- ----- -----
Net income (loss) $ 886 $ (166) $(736) $ 16 $ 73
======= ======= ======= ===== =====
Partnership's share of
Net income (loss) $ 481 $ (98) $(309) $ 13 $ 32 $ 119
======= ======= ======= ===== ===== =====
TWA TWA Boeing Pacific
For the nine months ended. . . . . S/N 49183 MD-82 737-300 Source
September 30, 2001 . . . . Trust1 Trust2 Trust3 Partnership4 Other Total
- --------------------------------------------------------------------------------------
Revenues $ 1,162 $ 2,810 $ 1,405 $ 921 $ 10
Gain on disposition of equipment -- -- -- 2,595 --
Less: Direct expenses 17 19 931 565 24
Indirect expenses 1,418 1,522 2,515 448 9
------- ------- -------- ------- -----
Net income (loss) $ (273) $ 1,269 $(2,041) $2,503 $(23)
======= ======= ======== ======= =====
Partnership's share of
Net income (loss) $ (157) $ 616 $ (759) $2,006 $(10) $1,696
======= ======= ======== ======= ===== ======
As of September 30, 2002 and December 31, 2001, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease. `
1 The Partnership owns a 50% interest of the TWA S/N 49183 Trust that owns
an MD-82 stage III commercial aircraft.
2 The Partnership owns a 50% interest in the TWA MD-82 Trust that owns an
MD-82 stage III commercial aircraft.
3 The Partnership owns a 38% interest in the Boeing 737-300 Trust that owns
a Boeing stage III commercial aircraft.
4 The Partnership owned an 80% interest in the Pacific Source Partnership
that owned a handymax dry bulk carrier.
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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
September 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 1,335 $ 133 $ 271 $ 506 $ 1,575 $ -- $ 3,820
Interest income and other. . . . . . . -- -- -- -- -- 32 32
Loss on disposition of equipment . . . -- -- -- -- 44 -- 44
--------- --------- ---------- --------- ----------- ---------- -------
Total revenues. . . . . . . . . . . 1,335 133 271 506 1,619 32 3,896
--------- --------- ---------- --------- ----------- ---------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . 720 124 2 176 17 16 1,055
Depreciation and amortization. . . . . 310 53 -- 118 1,150 7 1,638
Interest expense . . . . . . . . . . . -- -- -- -- -- 254 254
Management fees to affiliate . . . . . 67 8 -- 36 77 -- 188
General and administrative expenses. . 19 29 7 33 -- 314 402
Provision for (recovery of) bad debts. -- -- 238 (3) -- -- 235
--------- --------- ---------- --------- ----------- ---------- -------
Total costs and expenses . . . . . 1,116 214 247 360 1,244 591 3,772
--------- --------- ---------- --------- ----------- ---------- -------
Equity in net loss of USPEs. . . . . . . 14 -- 70 -- -- -- 84
--------- --------- ---------- --------- ----------- --------- --------
Net income (loss). . . . . . . . . . . . $ 233 $ (81) $ 94 $ 146 $ 375 $ (559) $ 208
========= ========= ========== ========= =========== ========= ========
Total assets as of September 30, 2002. . $ 4,854 $ 810 $ 7,598 $ 3,341 $ 24,593 $ 10,481 $51,677
========= ========= ========== ========= =========== ========= ========
.. . . . . . . . . . . . . . . . . . . Marine . Marine
For the three months ended . . . . . . . Vessel Trailer Aircraft Railcar Container
September 30, 2001. . . . . . . Leasing Leasing Leasing Leasing Leasing Other 2 Total
- ---------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 1,425 $ 165 $ 271 $ 582 $ 1,558 $ -- $ 4,001
Interest income and other. . . . . . . -- -- -- -- -- 50 50
Gain on disposition of equipment . . . -- -- -- -- 8 -- 8
--------- --------- ---------- --------- ----------- --------- --------
Total revenues. . . . . . . . . . . 1,425 165 271 582 1,566 50 4,059
--------- --------- ---------- --------- ----------- --------- --------
COSTS AND EXPENSES
Operations support . . . . . . . . . . 837 82 3 134 16 16 1,088
Depreciation and amortization. . . . . 311 52 102 136 1,405 9 2,015
Interest expense . . . . . . . . . . . -- -- -- -- -- 316 316
Management fees to affiliate . . . . . 71 8 14 41 79 -- 213
General and administrative expenses. . 38 37 -- 17 -- 145 237
Provision for (recovery of) bad debts. -- -- -- (1) (9) -- (10)
--------- --------- ---------- --------- ----------- --------- --------
Total costs and expenses . . . . . 1,257 179 119 327 1,491 486 3,859
--------- --------- ---------- --------- ----------- --------- --------
Equity in net loss of USPEs. . . . . . . (37) -- (302) -- -- -- (339)
--------- --------- ---------- --------- ----------- --------- --------
Net income (loss). . . . . . . . . . . . $ 131 $ (14) $ (150) $ 255 $ 75 $ (436) $ (139)
========= ========= ========== ========= =========== ========= ========
1 Includes certain assets not identifiable to a specific segment such as
cash, certain restricted cash, 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 nine months ended Vessel Trailer Aircraft Railcar Container
September 30, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 3,959 $ 452 $ 814 $ 1,650 $ 4,645 $ -- $11,520
Interest income and other. . . . . . . -- -- -- -- -- 74 74
Loss on disposition of equipment . . . -- -- -- -- 46 -- 46
-------- --------- ---------- --------- ---------- --------- -------
Total revenues. . . . . . . . . . . 3,959 452 814 1,650 4,691 74 11,640
-------- --------- ---------- --------- ---------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . 2,117 309 6 447 52 47 2,978
Depreciation and amortization. . . . . 930 157 -- 355 3,454 21 4,917
Interest expense . . . . . . . . . . . -- -- -- -- -- 763 763
Management fees to affiliate . . . . . 198 24 -- 118 231 -- 571
General and administrative expenses. . 50 83 14 75 -- 686 908
Provision for (recovery of) bad debts. -- 10 781 (27) -- -- 764
Total costs and expenses . . . . . 3,295 583 801 968 3,737 1,517 10,901
-------- --------- ---------- --------- ---------- --------- -------
Equity in net income of USPEs. . . . . . 45 -- 74 -- -- -- 119
-------- --------- ---------- --------- ---------- --------- -------
Net income (loss). . . . . . . . . . . . $ 709 $ (131) $ 87 $ 682 $ 954 $ (1,443) $ 858
======== ========= ========== ========= ========== ========= =======
.. . . . . . . . . . . . . . . . . . . Marine . Marine
For the nine months ended. . . . . . . . Vessel Trailer Aircraft Railcar Container
September 30, 2001. . . . . . . Leasing Leasing Leasing Leasing Leasing Other 1 Total
- --------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 4,321 $ 473 $ 814 $ 1,794 $ 4,718 $ -- $12,120
Interest income and other. . . . . . . -- -- 33 -- -- 153 186
Gain on disposition of equipment . . . -- 1 -- -- 21 -- 22
-------- --------- ---------- --------- ---------- --------- -------
Total revenues. . . . . . . . . . . 4,321 474 847 1,794 4,739 153 12,328
-------- --------- ---------- --------- ---------- --------- -------
COSTS AND EXPENSES
Operations support . . . . . . . . . . 2,048 227 5 428 53 93 2,854
Depreciation and amortization. . . . . 930 157 410 406 4,130 22 6,055
Interest expense . . . . . . . . . . . -- -- -- -- -- 1,006 1,006
Management fees to affiliate . . . . . 216 24 41 125 236 -- 642
General and administrative expenses. . 73 93 11 45 -- 711 933
Provision for (recovery of) bad debts. -- (3) -- 18 -- -- 15
-------- --------- ---------- --------- ---------- --------- -------
Total costs and expenses . . . . . 3,267 498 467 1,022 4,419 1,832 11,505
-------- --------- ---------- --------- ---------- --------- -------
Equity in net income of USPEs. . . . . . 1,998 -- (302) -- -- -- 1,696
-------- --------- ---------- --------- ---------- --------- -------
Net income (loss). . . . . . . . . . . . $ 3,052 $ (24) $ 78 $ 772 $ 320 $ (1,679) $ 2,519
======== ========= ========== ========= ========== ========= =======
9. Net Income (Loss) Per Weighted-Average Limited Partnership Unit
----------------------------------------------------------------------
Net income (loss) per weighted-average limited partnership unit was computed by
dividing net income (loss) 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 nine months ended September 30, 2002 was
4,981,450 and 4,988,318, respectively. The weighted-average number of limited
partnership units deemed outstanding during the three and nine months ended
September 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 281,633 units as of December 31, 2001 and an
additional 60,486 units during the nine months ended September 30, 2002, which
is reflected as a reduction in limited 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. Debt
----
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, 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 September 30, 2002, there were no outstanding borrowings on this facility
by any of the eligible borrowers.
12. Commitments and Contingencies
-------------------------------
In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned
subsidiary of FSI, arranged for the lease or purchase of a total of 1,050
pressurized tank railcars by (i) partnerships and managed programs in which FSI
serves as the general partner or manager and holds an ownership interest
(Program Affiliates) or (ii) partnerships or managed programs in which FSI
provides management services but does not hold an ownership interest or third
parties (Non-Program Affiliates). These railcars will be delivered over the
next three years. A leasing company affiliated with the manufacturer will
acquire approximately 70% of the railcars and lease them to a Non-Program
Affiliate. The remaining approximately 30% will either be purchased by other
third parties to be managed by PLMI, or by the Program Affiliates. An affiliate
of TEC will manage the leased and purchased railcars. Neither TEC nor its
affiliate will be liable for these railcars. TEC estimates that the total value
of purchased railcars will not exceed $26.0 million with one third of the
railcars being purchased in each of 2002, 2003, and 2004. Although the General
Partner has neither determined which Program Affiliates will purchase the
railcars nor the timing of any purchases, it is possible the Partnership may
purchase some of the railcars.
13. Accounting Pronouncements
--------------------------
In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement
of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS
No. 145"). The provisions of SFAS No. 145 are effective for fiscal years
beginning after May 15, 2002. As permitted by the pronouncement, the
Partnership has elected early adoption of SFAS No. 145 and, accordingly, if the
Partnership has a loss on extinguishment of long-term debt, it will be reported
as a loss in "Other general and administrative expenses".
PLM EQUIPMENT GROWTH & INCOME FUND VII
(A LIMITED PARTNERSHIP)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
13. Accounting Pronouncements (continued)
--------------------------
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment". The Partnership has
historically accrued legally mandated maintenance such as marine vessel
dry-docking and aircraft engine maintenance over the periods prior to the
required maintenance date. If the SOP is adopted as proposed, the Partnership
and USPEs would reverse all previously accrued maintenance reserves. If this
proposed change were in effect at September 30, 2002, the Partnership and USPEs
would have been required to reverse maintenance reserves of approximately $1.6
million. Maintenance reserves will change in 2002 as maintenance is performed
and past maintenance reserves are depleted and additional reserves are recorded.
If adopted in its present form, charges related to this proposed change would be
taken in the first quarter of 2003 and would be reported as a cumulative effect
of an accounting change, in the statements of operations.
(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 September 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 September 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, general and administrative expenses, and provision for
(recovery of) bad debts 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 September 30,
2002 2001
======================
Marine containers $ 1,558 $ 1,542
Marine vessels. . 615 588
Railcars. . . . . 330 448
Aircraft. . . . . 269 268
Trailers. . . . . 9 83
Marine containers: Lease revenues and direct expenses for marine containers
were relatively the same at $1.6 million and $17,000 respectively, for the three
months ended September 30, 2002, compared to $1.6 million and $16,000,
respectively, during the same period of 2001.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.3
million and $0.7 million, respectively, for the three months ended September 30,
2002, compared to $1.4 million and $0.8 million, respectively, during the same
period of 2001. The decrease in lease revenues of $0.1 million during the third
quarter of 2002 compared to the same period of 2001 was due to lower lease rates
earned on the Partnership's marine vessels. Direct expenses decreased $0.1
million during the third quarter of 2002 resulting from lower repairs and
maintenance.
Railcars: Railcar lease revenues and direct expenses were $0.5 million and
$0.2 million, respectively, for the three months ended September 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 third
quarter of 2002 compared to 2001 was due to an increase in the number of
off-lease railcars.
Aircraft: Aircraft lease revenues and direct expenses were relatively the
same at $0.3 million and $2,000, respectively, for the three months ended
September 30, 2002, compared to $0.3 million and $3,000, 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 September 30, 2002,
compared to $0.2 million and $0.1 million, respectively, during the same period
of 2001. The decrease in lease revenues of $32,000 during the third quarter of
2002 was due to the Partnership earning lower lease rates on its trailers.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $2.7 million for the three months ended September 30,
2002 decreased from $2.8 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 third quarter of 2002 compared to the
same period of 2001;
(iii) A $0.2 million increase in the provision for bad debts was based
on PLM Financial Service's, Inc. (FSI's or the General Partner's) evaluation of
the collectability of receivables compared to 2001. The provision for bad debt
recorded in the third quarter of 2002 primarily related to one aircraft lessee;
(iv) A $0.2 million increase in general and administrative expenses due
to an increase in administrative services costs during 2002.
(C) Interest and Other Income
Interest and other income decreased $18,000 due to a decrease in the interest
rate earned on cash balances.
(D) Gain on Disposition of Owned Equipment
The gain on disposition of owned equipment for the third quarter of 2002 totaled
$44,000, and resulted from the sale of marine containers with a net book value
of $0.1 million for proceeds of $0.1 million. The gain on disposition of owned
equipment for the third quarter of 2001 totaled $8,000, and resulted from the
sale of marine containers with a net book value of $5,000 for proceeds of
$14,000.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income or loss 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 (loss) by equipment type (in thousands of
dollars):
For the Three Months
Ended September 30,
2002 2001
=================
Aircraft . . . . . . . . . . . . . . . $ 70 $ (302)
Marine vessel. . . . . . . . . . . . . 14 (37)
------- --------
Equity in net income (loss) of USPEs $ 84 $ (339)
======= ========
Aircraft: As of September 30, 2002 and 2001, the Partnership owned an interest
in entities that owned three commercial aircraft. During the three months ended
September 30, 2002, the Partnership's share of lease revenues of $0.5 million
were offset by the Partnership's share of depreciation expense, direct expenses,
and administrative expenses of $0.4 million. During the same period of 2001,
the Partnership's share of lease revenues of $0.5 million were offset by the
Partnership's share of depreciation expense, direct expenses, and administrative
expenses of $0.8 million.
The decrease in depreciation expense of $0.4 million was caused by a decrease of
$0.2 million resulting from 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 September 30, 2002 and 2001, the Partnership had sold its
interest in an entity that owned a marine vessel. During the three months ended
September 30, 2002, the Partnership's interest in an entity that owned a marine
vessel wrote-off certain operating expenses that were previously accrued for
$14,000. During the same period of 2001, the Partnership's share of direct
expenses and administrative expenses of $37,000 was the result of the
underaccrual of expenses in previous periods.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership had a net income of $0.2 million
for the three months ended September 30, 2002, compared to net loss of $0.1
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 third quarter of 2002 is not necessarily indicative of future
periods.
Comparison of the Partnership's Operating Results for the Nine Months Ended
- --------------------------------------------------------------------------------
September 30, 2002 and 2001
- -------------------------------
(A) Owned Equipment Operations
Lease revenues less direct expenses on owned equipment decreased during the nine
months ended September 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 Nine Months
Ended September 30,
2002 2001
====================
Marine containers $ 4,593 $ 4,665
Marine vessels. . 1,842 2,273
Railcars. . . . . 1,203 1,366
Aircraft. . . . . 808 809
Trailers. . . . . 143 246
Marine containers: Lease revenues and direct expenses for marine containers
were $4.6 million and $0.1 million respectively, for the nine months ended
September 30, 2002, compared to $4.7 million and $0.1 million, 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 $4.0
million and $2.1 million, respectively, for the nine months ended September 30,
2002, compared to $4.3 million and $2.0 million, respectively, during the same
period of 2001. The decrease in lease revenues of $0.4 million during the nine
months ended September 30, 2002 compared to 2001 was due to lower lease rates
earned on the Partnership's marine vessels. The increase in direct expenses of
$0.1 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 $1.7 million and
$0.4 million, respectively, for the nine months ended September 30, 2002,
compared to $1.8 million and $0.4 million, respectively, during the same period
of 2001. The decrease in lease revenues of $0.1 million during the nine months
ended September 30, 2002 compared to 2001 was due to an increase in the number
of off-lease railcars.
Aircraft: Aircraft lease revenues and direct expenses were $0.8 million and
$6,000, respectively, for the nine months ended September 30, 2002, compared to
$0.8 million and $5,000, respectively, during the same period of 2001.
Trailers: Trailer lease revenues and direct expenses were $0.5 million and
$0.3 million, respectively, for the nine months ended September 30, 2002,
compared to $0.5 million and $0.2 million, respectively, during the same period
of 2001. The decrease in the contribution from trailers of $0.1 million was the
result of lower lease revenues of $21,000 caused by lower lease rates earned on
the Partnership's trailers and an increase of $0.1 million in higher repairs and
maintenance.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $7.9 million for the nine months ended September 30,
2002 decreased from $8.7 million for the same period in 2001. Significant
variances are explained as follows:
(i) A $1.1 million decrease in depreciation and amortization expenses
from 2001 levels reflects the decrease of approximately $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 and a decrease of $0.4 million
resulting from certain assets being fully depreciated during 2001;
(ii) A $0.2 million decrease in interest expense was due to a lower
average outstanding debt balance in the nine months ended September 30, 2002
compared to the same period of 2001; and
(iii) A $0.1 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the nine months ended September 30,
2002 compared to the same period of 2001;
(iv) A $0.7 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 nine months ended September
30, 2002 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 and a one-time dividend of $33,000 that was earned during
the nine months ended September 30, 2001. Similar revenues were not earned
during the same period of 2002. Additionally, interest income decreased $45,000
due to a lower interest rate earned on cash balances.
(D) Gain on Disposition of Owned Equipment
The gain on disposition of owned equipment for the nine months ended September
30, 2002 totaled $46,000 and resulted from the sale of marine containers with a
net book value of $0.1 million for $0.1 million. The gain on disposition of
equipment for the nine months ended September 30, 2001 totaled $22,000, and
resulted from the sale of marine containers with an aggregate net book value of
$19,000 for proceeds of $41,000.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income or loss 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 Nine Months
Ended September 30,
2002 2001
=====================
Aircraft. . . . . . . . . . . . $ 74 $ (302)
Marine vessel . . . . . . . . . 45 1,998
------- ---------
Equity in net income of USPEs $ 119 $ 1,696
======= =========
Aircraft: As of September 30, 2002 and 2001, the Partnership owned an interest
in trusts that owned three commercial aircraft. During the nine months ended
September 30, 2002, the Partnership's share of lease revenues of $1.5 million
were offset by the Partnership's share of depreciation expense, direct expenses,
and administrative expenses of $1.4 million. During the same period of 2001,
the Partnership's share of lease revenues of $1.7 million and other income of
$0.8 million were offset by the Partnership's share of depreciation expense,
direct expenses, and administrative expenses of $2.8 million.
Lease revenues decreased $0.2 million due to the leases for two commercial
aircraft in the trusts being renegotiated at a lower rate. Other income
decreased $0.8 million during the nine months ended September 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 $1.4 million was due to required repairs and
maintenance of $0.3 million to the Boeing 737-300 that were not required during
2002, $0.7 million in lower depreciation expense resulting from one aircraft
being fully depreciated during 2001, and $0.3 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.
Marine vessel: As of September 30, 2002 and 2001, the Partnership had sold its
interest in an entity that owned a marine vessel. During the nine months ended
September 30, 2002, the Partnership's share of income of $45,000 was the result
of an insurance settlement of $32,000 and a reduction in administrative expenses
of $13,000. During the same period of 2001, the Partnership's share of lease
revenues of $0.7 million and the Partnership's share of 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 the Partnership's share of 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.
(F) Net Income
As a result of the foregoing, the Partnership had a net income of $0.9 million
for the nine months ended September 30, 2002, compared to net income of $2.5
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 nine months ended September 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 AND LIQUIDITY
For the nine months ended September 30, 2002, the Partnership generated
operating cash of $7.6 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 nine months ended September 30, 2002, the Partnership disposed of
marine containers for proceeds of $0.1 million.
Restricted cash increased during the nine months ended September 30, 2002 due to
the deposit of $0.2 million into an escrow account related to collection efforts
from an aircraft lessee.
Accounts receivable decreased $0.1 million in the nine months ended September
30, 2002. This decrease was due to increase in the allowance for bad debts of
$0.8 million due to the General Partner's evaluation of the collectibility of
accounts receivable. This decrease was partially offset by an increase of $0.7
million during the nine months ended September 30, 2002 due to the timing of
cash receipts.
Investments in USPEs decreased $1.2 million during the nine months ended
September 30, 2002 due to cash distributions of $1.3 million from the USPEs to
the Partnership offset, in part, by $0.1 million in income that was recorded by
the Partnership for its equity interests in the USPEs.
Accounts payable decreased $0.5 million during the nine months ended September
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 $0.3 million
due to the timing of cash payments.
During the nine months ended September 30, 2002, lessee deposits and reserve for
repairs increased $0.3 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) 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,
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 November 13, 2002, the Partnership had no borrowings outstanding under
this facility and there were no other borrowings outstanding under this facility
by any other eligible borrower.
In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned
subsidiary of FSI, arranged for the lease or purchase of a total of 1,050
pressurized tank railcars by (i) partnerships and managed programs in which FSI
serves as the general partner or manager and holds an ownership interest
(Program Affiliates) or (ii) partnerships or managed programs in which FSI
provides management services but does not hold an ownership interest or third
parties (Non-Program Affiliates). These railcars will be delivered over the
next three years. A leasing company affiliated with the manufacturer will
acquire approximately 70% of the railcars and lease them to a Non-Program
Affiliate. The remaining approximately 30% will either be purchased by other
third parties to be managed by PLMI, or by the Program Affiliates. An affiliate
of TEC will manage the leased and purchased railcars. Neither TEC nor its
affiliate will be liable for these railcars. TEC estimates that the total value
of purchased railcars will not exceed $26.0 million with one third of the
railcars being purchased in each of 2002, 2003, and 2004. Although the General
Partner has neither determined which Program Affiliates will purchase the
railcars nor the timing of any purchases, it is possible the Partnership may
purchase some of the railcars.
(IV) ACCOUNTING PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board (FASB) adopted Statement
of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" ("SFAS
No. 145"). The provisions of SFAS No. 145 are effective for fiscal years
beginning after May 15, 2002. As permitted by the pronouncement, the
Partnership has elected early adoption of SFAS No. 145 and, accordingly, if the
Partnership has a loss on extinguishment of long-term debt, it will be reported
as a loss in "Other general and administrative expenses".
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued an exposure draft of a proposed
statement of position ("SOP") entitled "Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment". The Partnership has
historically accrued legally mandated maintenance such as marine vessel
dry-docking and aircraft engine maintenance over the periods prior to the
required maintenance date. If the SOP is adopted as proposed, the Partnership
and USPEs would reverse all previously accrued maintenance reserves. If this
proposed change were in effect at September 30, 2002, the Partnership and USPEs
would have been required to reverse maintenance reserves of approximately $1.6
million. Maintenance reserves will change in 2002 as maintenance is performed
and past maintenance reserves are depleted and additional reserves are recorded.
If adopted in its present form, charges related to this proposed change would be
taken in the first quarter of 2003 and would be reported as a cumulative effect
of an accounting change, in the statements of operations.
(V) 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 has been at historic lows for the past
several years, which has caused downward pressure on per diem lease rates for
this type of equipment. Starting in 2003 and continuing through 2004, a
significant number of the Partnership's marine containers currently on a fixed
rate lease will be switching to a lease based on utilization. The General
Partner anticipates that this will result in a significant decrease in lease
revenues;
(2) Railcar freight loadings in the United States and Canada decreased 1%
and 3%, respectively, through the first nine months of 2002. There has been,
however, a recent increase for some of the commodities that drive demand for
those types of railcars owned by the Partnership. It will be some time,
however, before this translates into new leasing demand by shippers since most
shippers have idle railcars in their fleets;
(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 nine 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) Utilization of intermodal trailers owned by the Partnership decreased
15% in the nine months ended September 30, 2002 compared to the nine months
ended September 30, 2001. This decline was similar to the decline in
industry-wide utilization. As the Partnership's trailers are smaller than many
shippers prefer, the General Partner expects continued declines in utilization
over the next few years. Additionally, one of the major shippers that leased
the Partnership's trailers has entered bankruptcy. While the Partnership did
not have any outstanding receivables from the company, its bankruptcy may cause
a further decline in performance of the trailer fleet in the future; and
(5) The airline industry began to see lower passenger travel during 2001.
The events of September 11, 2001, along with a recession in the United States
have continued to adversely affect the market demand for both new and used
commercial aircraft and to significantly weaken the financial position of most
major domestic airlines. As a result of this, the Partnership has had to
renegotiate leases on its owned aircraft during 2001 that will result in a
decrease in revenues during 2002. The General Partner believes that there is a
significant oversupply of commercial aircraft available and that this oversupply
will continue for some time.
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 to return to their September 11, 2001 values.
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 experiencing severe economic difficultly.
As of September 30, 2002, the lessee was thirteen lease payments in arrears 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 the aircraft. The General Partner recorded an allowance for bad debts for
the amount due less the security deposit. During October 2002, the General
Partner reached an agreement with the lessee of this aircraft for the past due
lease payments. In order to give the lessee an incentive to make timely
payments in accordance with the agreement, the General Partner gave the lessee a
discount on the total amount due. If the lessee fails to comply with the
payment schedule in the agreement, the discount provision will be waived and the
full amount again becomes payable. The lessee made an initial payment during
October 2002, to be followed by 23 equal monthly installments beginning in
November 2002. Unpaid outstanding amounts will accrue interest at a rate of 5%.
Due to the uncertainty of ultimate collection, the General Partner will continue
to fully reserve the unpaid outstanding balance from this lessee.
(6) The General Partner has seen an increase in its insurance premiums on
its equipment portfolio and is finding it more difficult to find an insurance
carrier with which to place the coverage. Premiums for aircraft have increased
over 50% and for other types of equipment the increases have been over 25%. The
increase in insurance premiums caused by the increased rate will be partially
mitigated by the reduction in the value of the Partnership's equipment portfolio
caused by the events of September 11, 2001 and other economic factors. The
General Partner has also experienced an increase in the deductible required to
obtain coverage. This may have a negative impact on the Partnership in the
event of an insurance claim.
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.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the nine months ended September 30, 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.
ITEM 4. CONTROLS AND PROCEDURES
-------------------------
Within the 90-day period prior to the filing of this report, evaluations were
carried out under the supervision and with the participation of the General
Partner's management, including its President and Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon those evaluations, the President and Chief Financial Officer
concluded that the design and operation of these disclosure controls and
procedures were effective. No significant changes have been made in the
Partnership's internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluations.
(This space intentionally left blank)
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-------------------------------------
(a) Exhibits
--------
1. November 2002 purchase agreement between PLM Transportation Equipment
Corp., Inc. and Trinity Tank Car, Inc.
2. Settlement Agreement between PLM Worldwide Leasing Corp. and Varig S.A.
dated October 11, 2002.
(b) Reports on Form 8-K
----------------------
None.
(This space intentionally left blank)
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth & Income Fund VII.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
- ------
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
1. I have reviewed this quarterly report on Form 10-Q of PLM Equipment
Growth & Income Fund VII.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this quarterly report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH & INCOME FUND VII
By: PLM Financial Services, Inc.
General Partner
Date: November 13, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial 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 September
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: November 13, 2002 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
Date: November 13, 2002 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer