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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal year ended
December 31, 1995.
[ ] 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 0-15436
PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2998816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 900, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
Securities registered pursuant to Section 12 (b) of
the Act:
Title of each class Name of each exchange on which registered
Limited Partnership Depositary Units American Stock Exchange
Securities registered pursuant to Section 12(g) ofthe Act: None
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of Limited Partnership Units held by
non-affiliates of the registrant as of March 14, 1996 was $37,591,775.
Indicate the number of units outstanding of each of the issuer's
classes of partnership units, as of the latest practicable date:
Class Outstanding at March 14, 1996
Limited Partnership Depositary Units: 5,785,350
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is located at page 44.
PART I
ITEM 1. BUSINESS
(A) Background
On January 28, 1986, PLM Financial Services, Inc. (FSI or the General Partner),
a wholly-owned subsidiary of PLM International, Inc. (PLM International), filed
a Registration Statement on Form S-1 with the Securities and Exchange Commission
with respect to a proposed offering of 6,000,000 limited partnership units (the
Units) in PLM Equipment Growth Fund, a California limited partnership (the
Partnership, the Registrant or EGF). The Partnership's offering became effective
on May 20, 1986. FSI, as General Partner, owns a 1% interest in the Partnership.
The Partnership was formed to engage in the business of owning and managing a
diversified pool of used and new transportation-related equipment and certain
other items of equipment. The Partnership's primary objectives are:
(i) to maintain a diversified portfolio of long-lived, low-obsolescence,
high-residual value equipment with the net proceeds of the initial partnership
offering, supplemented by debt financing if deemed appropriate by the General
Partner. The General Partner places the equipment on-lease or under other
contractual agreements with creditworthy lessees and operators of equipment;
(ii)to generate sufficient net operating cash flows from lease operations
to meet liquidity requirements and to generate cash distributions to the Limited
Partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(iii) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or expected future benefits from continual ownership of a particular
asset will not equal or exceed other equipment investment opportunities.
Proceeds from these sales, together with excess net operating cash flows from
operations are used for distributions to the partners or for repayment of
outstanding debt;
(iv)to preserve and protect the value of the portfolio through quality
management, maintaining diversity, and constantly monitoring equipment markets.
The offering of the Units of the Partnership closed on May 19, 1987. On
June 1, 1989, the Units of the Partnership began trading on the American Stock
Exchange. Thereupon, each Unitholder received a depositary receipt representing
ownership of the number of Units owned by such Unitholder. As of December 31,
1995, there were 5,810,150 depositary units (Depositary Units) outstanding. The
General Partner contributed $100 for its 1% general partner interest in the
Partnership.
It is anticipated that in the eleventh year of operations of the
Partnership, the General Partner will begin to liquidate the assets of the
Partnership in an orderly fashion, unless the Partnership is terminated earlier
upon sale of all of the Partnership's equipment or by certain other events.
During the third quarter of 1994, the reinvestment phase concluded; therefore,
cash flows and surplus funds, if any, may not be reinvested but are to be used
for the repayment of outstanding debt, or for distributions to Partners, except
to the extent used to maintain reasonable reserves.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership portfolio at December 31, 1995 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------------------------
Equipment held for operating leases:
0.50 Product tanker Kaldnes M/V 8,277
1 727 commercial aircraft Boeing 6,241
0.70 Metro III commuter aircraft Fairchild 2,131
0.50 Metro III commuter aircraft Fairchild 1,492
0.50 Aircraft engine CFM 56 General Electric 1,639
0.50 737 commercial aircraft Boeing 8,084
0.12 767 commercial aircraft Boeing 4,905
1 Aircraft engine General Electric 2,750
896 Tank railcars Various 22,276
21 Locomotives General Electric Motor Corp. 2,063
1,689 Various marine containers Various 3,341
427 Refrigerated marine containers Various 5,387
36 Dry storage trailers Various 121
224 Dry trailers Various 2,022
162 Dry piggyback trailers Various 2,253
172 Refrigerated trailers Various 5,312
48 Piggyback refrigerated trailers Various 995
-------------
Equipment held for operating
leases 79,289
Equipment held for sale:
7 Offshore supply vessels Various 9,262
0.55 Mobile offshore drilling unit Ingalls Ship Building 15,544
-------------
Total equipment $ 104,095
=============
Jointly owned: EGF (50%) and an affiliated partnership.
Jointly owned: EGF (70%) and an affiliated partnership.
Jointly owned: EGF (12%) and two affiliated partnerships.
Jointly owned: EGF (55%) and an affiliated partnership.
Includes proceeds from capital contributions, operations and Partnership
borrowings investing in equipment. Includes costs capitalized, subsequent
to the date of acquisitions, and equipment acquisition fees paid to PLM
Transportation Equipment Corporation, a wholly-owned subsidiary of FSI. All
equipment was used equipment at the time of purchase.
The equipment is generally leased under operating leases with terms of one
to six years. The Partnership's 50%-owned marine vessel and some of the
Partnership's marine containers are leased to operators of utilization-type
pools with equipment owned by unaffiliated parties. In such instances, revenues
received by the Partnership consist of a specified percentage of revenues
generated by leasing the pooled equipment to sublessees, after deducting certain
direct operating expenses of the pooled equipment.
At December 31, 1995, approximately 98% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International. Revenues collected
under short-term rental agreements with the rental yards' customers are
distributed monthly to the owners of the related equipment. Direct expenses
associated with the equipment and an allocation of other direct expenses of the
rental yard operations are billed to the Partnership.
The lessees of the equipment include, but are not limited to: Trans Ocean
Ltd., Petro Canada, Skywest Aviation Inc., and British Midlands Airways. As of
December 31, 1995, all of the equipment was either operating in short-term
rental facilities, on-lease, or under other contractual agreements, except 60
marine containers, one commuter aircraft 50%-owned by the Partnership, and one
aircraft engine.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the equipment. IMI has agreed to perform all services necessary to
manage the transportation equipment on behalf of the Partnership and to perform
or contract for the performance of all obligations of the lessor under the
Partnership's leases. In consideration for its services and pursuant to the
Partnership Agreement, IMI is entitled to a monthly management fee (refer to
Notes 1 and 2 to the Financial Statements).
(C) Competition
(1) Operating Leases vs. Full Payout Leases
Generally, the equipment owned by the Partnership is leased out on an operating
lease basis wherein the rents owed during the initial noncancelable term of the
lease are insufficient to recover the Partnership's purchase price of the
equipment. The short to mid-term nature of operating leases generally commands a
higher rental rate than the longer term, full payout leases and offers lessees
relative flexibility in their equipment commitment. In addition, the rental
obligation under an operating lease need not be capitalized on the lessee's
balance sheet.
The Partnership encounters considerable competition from lessors utilizing
full payout leases on new equipment, i.e., leases which have terms equal to the
expected economic life of the equipment. Full payout leases are written for
longer terms and for lower monthly rates than the Partnership offers. While some
lessees prefer the flexibility offered by a shorter term operating lease, other
lessees prefer the rate advantages possible with a full payout lease.
Competitors of the Partnership may write full payout leases at considerably
lower rates, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, and as a result, the Partnership may be at a
competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership also competes with equipment manufacturers who offer operating
leases and full payout leases. Manufacturers may provide ancillary services
which the Partnership cannot offer, such as specialized maintenance service
(including possible substitution of equipment), training, warranty services, and
trade-in privileges.
The Partnership competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, Greenbrier Leasing Company, Polaris Aircraft Leasing Corp., GPA
Group Plc., and other limited partnerships which lease the same types of
equipment.
(D) Demand
The Partnership invests in transportation-related capital equipment and in
"relocatable environments." "Relocatable environments" refer to capital
equipment constructed to be self-contained in function but transportable,
examples of which include a mobile offshore drilling unit and storage units. A
general distinction can be drawn between equipment used for the transport of
either materials and commodities or people. With the exception of aircraft
leased to passenger air carriers, the Partnership's equipment is used primarily
for the transport of materials.
The following describes the markets for the Partnership's equipment:
(1) Commercial Aircraft
International airlines are expected to post an aggregate $5.7 billion profit for
1995, an indication that the world air transport industry made a dramatic
turnaround during the year. While U.S. air traffic growth slowed during 1995,
capacity levels decreased, resulting in higher load factors, lower unit costs,
and improved yields. Worldwide, airlines took delivery of 517 commercial jets,
the lowest number since 1988. A continuing decrease in 1996 deliveries is
expected to improve the supply-demand balance.
Several factors have favorably impacted the market for "second generation"
commercial jets, the type owned by the Partnership, including Boeing 727s and
737-200s. In addition to fewer deliveries, the new generation of narrowbody
aircraft has as yet failed to produce any significant savings in carriers'
direct operating costs, and there are clear indications of further consolidation
within the U.S. and European markets. These trends, expected to continue through
1996, have led to increases in demand, rental rates, and market values for
"second generation" commercial aircraft.
The market for the Boeing 767-200ER was essentially firm in 1995, despite
the relatively soft widebody marketplace. The 767-200ER has the capability to
operate economically over medium to very long-range sectors where passenger
loads are too low for larger airplanes. The future market for these aircraft is
expected to be limited, but as these aircraft decline in value over time, their
economics and operating profile should keep them in reasonable demand.
The Partnership owns predominantly aircraft that are affected by the U.S.
Federal Aviation Administration (FAA) regulatory requirements. However, the bulk
of this equipment is on long-term leases in foreign markets and has been
commanding lease rates higher than those available in the U.S. Those aircraft
operating in the U.S. that are affected by the FAA regulatory requirements will
either be moved into foreign markets, as applicable, or remain on lease in the
U.S. maximizing what economic value is attainable until they must be retired
from service.
(2) Commuter/Regional Aircraft
In recent years, growth in the commuter/regional aircraft industry has outpaced
that of larger carriers. As larger operators have increasingly adopted a
regional hub concept, air traffic has grown among commuter/regional airlines
providing feeder service into these hubs. Many smaller communities served by
19-seat passenger aircraft do not generate sufficient air traffic to justify the
29 to 100-seat aircraft currently being acquired by larger operators. Recently,
however, the FAA implemented regulatory actions requiring 19-seat passenger
aircraft to come under the same operating rules as commercial jets. These
changes will significantly impact direct operating costs for such smaller
aircraft and will require the General Partner to remarket the Partnership's
Metro IIIs into international markets not affected by these regulations, a move
it has already undertaken due to the higher lease rates achievable in these
markets. Further, the industry-wide trend toward larger regional aircraft is
expected to have a negative impact on demand for 19-passenger aircraft in the
short term.
(3) Aircraft Engines
Most airlines maintain an inventory of spare engines in order to minimize
aircraft downtime due to engine maintenance and overhaul requirements.
The Partnership owns a 50%-interest in a stage III aircraft engine which
operates on Boeing 737 aircraft, and also owns a stage III aircraft engine which
operates on McDonnell Douglas DC 10-30 and
Airbus A300 series aircraft. Both engines meet the most stringent FAA regulatory
operating requirements and thus are not subject to regulatory obsolescence. Due
to diminishing demand for and increased retirement of DC 10-30 and Airbus A300
aircraft, demand for stage III engines that are compatible with these aircraft
is relatively weak. While this trend is expected to continue in the near future,
demand for Boeing 737-compatible stage III engines is relatively strong as 737s
remain the most widely-used aircraft in the world fleet.
(4) Marine Containers
The container market ended 1994 with expectations that the strengthening market
experienced late in the year would continue into 1995. Such was not the case as
the usual seasonal slowdown during the post-Christmas time period extended
longer than expected, and utilization in 1995 did not achieve 1994 levels. While
per diem rates increased somewhat by summertime, they did not fully recover from
the 8-12% decrease experienced during the preceding two years. Aggressive
pricing by several major leasing companies attempting to capture greater market
share is expected to put further pressure on refrigerated container utilization
and per diem rates. On the secondary markets, there continues to be significant
increases in supply as primary operators dispose of large numbers of older
equipment. Since the Partnership owns predominately older containers, it will
continue to be impacted by these industry trends.
During 1996, major leasing companies are expected to reduce purchases of
new equipment in response to soft market conditions. This anticipated reduction
in supply should lead to a strengthening in utilization and per diem rates later
in the year as demand catches up to supply.
(5) Railcars
Nearly all the major railroads reported substantial revenue increases during
1995. As additional industry consolidation is expected in 1996, these mergers
should produce further operating efficiencies leading to continued increases in
revenues and profits. Car loadings rose approximately 3% during 1995 with
chemicals, metals, and grain experiencing the largest gains. Car demand for
liquefied petroleum gas and liquid fertilizer service was also strong throughout
the year.
The Partnership's fleet experienced almost 100% utilization during 1995.
The few cars out of service were undergoing scheduled maintenance or repair. The
General Partner believes rates are at the top of the cycle for all types of cars
owned by the Partnership. With demand continuing high, rental rates for most
types of cars owned by the Partnership are expected to remain relatively strong
during 1996.
On the supply side, industry experts predict approximately 55,000 new car
builds and 40,000 retirements for a net gain of about 1.2% in the total U.S.
fleet during 1996. While car builders are still busy, orders are not coming in
as rapidly as in the last two years, so it is likely additions will not
significantly outpace retirements this year.
(6) Marine Vessels
The Partnership's vessels operate primarily in spot charter operations. In
contrast to longer-term, fixed-rate time charter or bareboat charters, this
operating approach provides greater flexibility in response to changes in demand
and, the General Partner believes, has the potential to achieve a higher average
return over the period the vessel is owned.
Over the first half of 1995, freight rates for small to medium-sized dry
bulk vessels, the type owned by the Partnership, continued the improvement begun
in late 1994. The Baltic Freight Index (an industry standard index for dry
freight rates) hit an all-time high in May 1995. Although this index later
declined, it ended 1995 at a level slightly higher than the year before. In
1996, freight rates are expected to hold at current levels, with some
improvement possible over the latter half of the year. On the supply side,
newbuilding orders for the classes of vessels owned by the Partnership are at
nearly the same levels as in 1995. On a long-term basis, the level of scrappings
and retirements will be influenced by market freight rates which are not
expected to grow at more than a moderate level. Another factor which affects the
volume of newbuilding is government subsidy policies, particularly in those
countries which are members of the Organization for Economic Cooperation and
Development (OECD). While the OECD nations did not come to a firm agreement
regarding ship building subsidies in 1995, it appears that in 1996 and beyond,
subsidies should decline, reducing newbuilding levels.
(7) Mobile Offshore Drilling Units (Rigs)
Demand for offshore drilling services utilizing jack-up rigs increased slightly
in 1995 over the prior two years due principally to continued demand for U.S.
natural gas and improved returns from international oil drilling. Utilization
and day rates have been bolstered by a continued decline in the supply of rigs.
In 1995, 7 of the 264 rigs in service were retired from the active drilling
fleet and only 1 rig was added. Another factor contributing to stronger contract
day rates has been the continued consolidation in rig ownership through
corporate mergers and rig acquisitions by larger market players. This
consolidation has had a recognizable effect on stabilizing day rates in times of
low utilization and increasing day rates faster in times of increasing
utilization.
Demand in the U.S. Gulf of Mexico, the largest market for jack-up rigs, is
expected to continue at existing levels, while demand in international markets,
primarily the North Sea and offshore India, should increase. On a long-term
basis, overall demand is expected to continue at the present level and supply
should continue to decline as older rigs are retired. The overall effect of
these trends should be increased utilization, day rates, and rig market values
as demand and supply reach equilibrium. Some industry experts predict that by
the year 2000, day rates will increase to levels which will induce limited
building of new rigs.
(8) Intermodal Trailers
After three robust years, growth in the intermodal trailer market was flat in
1995. This lack of growth resulted from several factors including a lackluster
domestic economy, environmental issues, the peso devaluation, a new teamsters
agreement allowing more aggressive pricing, and consolidation among U.S.
railroads. Industry experts believe these factors may lead to an improved
balance in supply and demand and encourage suppliers to retire older, obsolete
equipment in 1996. The Partnership's piggyback trailer fleet, with an average
age of 7 years compared to the industry norm of 10 years, experienced better
utilization than that of its competitors, averaging near 80% during 1995.
Expansion and utilization levels in the intermodal market are anticipated to
improve in 1996 and trailer loadings are expected to increase 3-4% per year
throughout the rest of the decade.
(9) Over-the-Road Dry Trailers
The over-the-road dry trailer market remained strong in 1995 due to record
freight movements and equipment utilization. The General Partner achieved
excellent utilization levels in 1995 averaging over 85%. Current levels show
some signs of softening demand in comparison to the record-setting levels of
1994, when users encountered backlogs of up to 18 months for new equipment
delivery. While new production is expected to decline over the next few years,
this should not dramatically affect utilization levels, as plenty of older,
obsolete equipment needs to be retired.
The General Partner continues to transfer trailers with expiring lease
terms to the short-term trailer rental facilities operated by PLM Rental, Inc.
The General Partner believes the strong performance of units in these rental
facilities reflects the demand for short-term leases mentioned above and expects
this trend to continue as long as the current shortage of trailers exists.
(10) Over-the-Road Refrigerated Trailers
After a record year in 1994, demand for refrigerated trailers softened in 1995.
This softened demand affected overall performance in 1995. Adverse weather
conditions reduced the volume of fresh fruit and produce available, so
refrigerated equipment operators focused on hauling generic freight, adding to
the dry freight market while reducing capacity and demand in
temperature-controlled markets.
Heavy consolidation in the trucking industry induced carriers to work off
excess equipment inventory from 1994 levels. However, inventory is expected to
return to more normal levels in 1996 and continue throughout the rest of the
decade, as excess capacity is retired, newer refrigeration technology standards
become more defined, and environmentally-damaging refrigerants are phased out of
service.
(E) Government Regulations
The use, maintenance, and ownership of equipment is regulated by federal, state,
local, and/or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations which may
require the removal from service or extensive modification of such equipment to
meet these regulations at considerable cost to the Partnership. Such regulations
include (but are not limited to):
(1) the U.S. Oil Pollution Act of 1990 (which established liability for
operators and owners of vessels, mobile offshore drilling units, etc. that
create environmental pollution);
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990
(which limits or eliminates the operation of commercial aircraft in the U.S.
that do not meet certain noise, aging, and corrosion criteria);
(3) the Montreal Protocol on Substances That Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990 (which call for the control and
eventual replacement of substances that have been found to cause or contribute
significantly to harmful effects on the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers,
over-the-road trailers, etc.);
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
(which regulate the classification of and packaging requirements for hazardous
materials and which apply particularly to the Partnership's tank cars).
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased for leasing purposes. At December 31, 1995, the Partnership
owned a portfolio of transportation equipment as described in Part I, Table 1.
The Partnership maintains its principal office at One Market, Steuart
Street Tower, Suite 900, San Francisco, California 94105-1301. All office
facilities are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1995.
Part II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT
MATTERS
The Partnership's Depositary Units began trading (under the ticker symbol GFX)
on June 1, 1989, on the American Stock Exchange (AMEX). As of March 14, 1996,
there were 5,785,350 Depositary Units outstanding. There are approximately 8,800
Depositary Unitholders of record as of the date of this report. Under the
Internal Revenue Code (the Code) the Partnership is classified as a Publicly
Traded Partnership. The Code treats all Publicly Traded Partnerships as
corporations if they remain publicly traded after December 31, 1997. Treating
the Partnership as a corporation will mean the Partnership itself will become a
taxable, rather than a "flow through" entity. As a taxable entity, the income of
the Partnership will be subject to federal taxation at both the partnership
level and at the investor level to the extent that income is distributed to an
investor. In addition, the General Partner believes that the trading price of
the Depositary Units may be distorted when the Partnership begins the final
liquidation of the underlying equipment portfolio. In order to avoid taxation of
the Partnership as a corporation and to prevent unfairness to Unitholders, the
General Partner has requested to delist the Partnership's Depositary Units from
the AMEX prior to March 29, 1996. The last day for trading on the AMEX will be
March 22, 1996. While the Partnership's Depositary Units will no longer be
publicly traded on a national stock exchange, the General Partner will continue
to manage the equipment of the Partnership and prepare and distribute quarterly
and annual reports and Forms 10-Q and 10-K in accordance with the Securities and
Exchange Commission requirements. In addition, the General Partner will continue
to provide pertinent tax reporting forms and information to Unitholders. The
General Partner anticipates that following delisting, an informal market for the
Partnership's units may develop in the secondary marketplace similar to that
which currently exists for non-publicly traded partnerships.
Pursuant to the terms of the Partnership Agreement, the General Partner is
generally entitled to a 1% interest in the profits and losses and distributions
of the Partnership. The General Partner also is entitled to a special allocation
of any gains from sale of the Partnership's assets during the liquidation phase
in an amount sufficient to eliminate any negative balance in the General
Partner's capital account.
Table 2, below, sets forth the high and low reported prices of the
Partnership's Depositary Units for 1995 and 1994 as reported by the AMEX as well
as cash distributions paid per Depositary Unit.
TABLE 2
Cash
Distributions
Paid Per
Reported Trade Depositary
Prices Unit
-----------------------------------------
Calendar Period High Low
1995
1st Quarter $ 12.63 $ 10.50 $ 0.575
2nd Quarter $ 12.75 $ 11.00 $ 0.575
3rd Quarter $ 12.00 $ 9.31 $ 0.575
4th Quarter $ 9.50 $ 6.63 $ 0.575
1994
1st Quarter $ 16.38 $ 14.13 $ 0.575
2nd Quarter $ 16.38 $ 14.00 $ 0.575
3rd Quarter $ 15.25 $ 14.00 $ 0.575
4th Quarter $ 15.38 $ 12.25 $ 0.575
The Partnership has engaged in a plan to repurchase up to 250,000
Depositary Units. During the first, second, third, and fourth quarters of 1993,
the Partnership repurchased 7,500, 30,500, 29,000, and 16,503 Depositary Units
at a total cost of $109,000, $444,000, $423,000, and $249,000, respectively.
During the first, second, third, and fourth quarters of 1994, the Partnership
repurchased 3,600, 3,000, 2,500 and 2,600 Depositary Units at a total cost of
$53,000, $44,000, $37,000, and $34,000, respectively. During the first, second,
and fourth quarters of 1995, the Partnership repurchased 11,900, 16,147 and
10,000 Depositary Units at a total cost of $140,000, $194,000, and $80,000,
respectively. As of December 31, 1995, the Partnership had purchased a
cumulative total of 174,850 Depositary Units at a cost of $2.5 million. During
the period from January 1, 1996 to March 14, 1996, the Partnership repurchased
24,800 Depositary Units at a total cost of $163,000.
ITEM 6. SELECTED FINANCIAL DATA
Table 3, below, lists selected financial data for the Partnership:
TABLE 3
For the years ended December 31,
(thousands of dollars, except per unit amounts)
1995 1994 1993 1992 1991
--------------------------------------------------------------------------------
Operating results:
Total revenues $ 23,575 $ 25,659 $ 24,278 $ 27,470 $ 44,596
Net gain (loss) on
disposition of equipment 2,195 1,585 838 (194) 8,956
Loss on revaluation of
equipment -- 1,989 1,380 7,934 167
Net income (loss) 4,234 75 1,725 (7,492) 9,204
At year-end:
Total assets $ 40,547 $ 56,669 $ 70,482 $ 82,196 $ 109,690
Total liabilities 26,213 32,606 32,746 31,201 36,897
Notes payable 23,000 28,000 28,000 28,000 28,000
Cash distributions $ 13,549 $ 13,580 $ 13,760 $ 13,830 $ 13,885
Cash distributions which
represent a return of capital $ 9,351 $ 13,462 $ 12,042 $ 13,692 $ 4,694
Per Depositary Unit:
Net income (loss) $ 0.701 $ (0.01) $ 0.27 $ (1.27) $ 1.52
Cash distributions $ 2.30 $ 2.30 $ 2.30 $ 2.30 $ 2.30
Cash distributions which
represent a return of capital $ 1.61 $ 2.30 $ 2.06 $ 2.30 $ 0.79
After reduction of income of $129 ($0.02 per Depositary Unit) in 1995, $117
($0.02 per Depositary Unit) in 1994, $128 ($0.02 per Depositary Unit) in
1993, $158 ($0.03 per Depositary Unit) in 1992, and $60 ($0.01 per
Depositary Unit) in 1991 representing special allocations to the General
Partner resulting from an amendment to the Partnership Agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to the Financial Statements of PLM Equipment Growth Fund (the
Partnership). The following discussion and analysis of operations focuses on the
performance of the Partnership's equipment in various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
The analysis is organized in the following manner:
- - Results of Operations - Year Over Year Summary and Factors Affecting
Performance
- - Financial Condition - Capital Resources, Liquidity, and Distributions
- - Outlook for the Future
- - Results of Operations - Year to Year Detail Comparison
(A) Results of Operations
(1) Year Over Year Summary
The Partnership's net operating contribution before depreciation, amortization,
gain/loss on sales, and loss on revaluation declined by approximately 2% in 1995
from 1994. Reductions in operating contribution generated by the Partnership's
aircraft, marine container, and marine vessel portfolios resulted due to sales
of equipment during 1995. Aircraft operating contribution also decreased due to
lease turnover. The decrease in operating contribution was partially offset by
lower operating expenses from the mobile offshore drilling unit from 1994 when
the Partnership incurred the repositioning and upgrade costs associated with
moving the rig to the Gulf of Mexico from the Indian Ocean. While lease turnover
occurred in the Partnership's railcar and trailer portfolios, the net effect of
such re-leases on Partnership income was relatively small. Interest expense
increased as the base rate of interest on the Partnership's floating rate debt
rose.
(2) Factors Affecting Performance
(a) Re-leasing Activity and Repricing Exposure to Current Economic
Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, various regulations
concerning the use of the equipment, and others. The Partnership experienced
repricing exposure in 1995 primarily in its aircraft, marine vessel, marine
container, and rig portfolios.
(i) Aircraft: Aircraft contribution decreased from 1994 to 1995. Sales
of one commercial aircraft and one commuter aircraft, and the remarketing of a
commuter aircraft and an aircraft engine resulted in a decrease in the year over
year net contribution. For a more thorough discussion of market conditions and
those factors impacting lease rates for aircraft, see the section in "Demand" on
aircraft.
(ii) Marine Vessels: In 1995, one of the Partnership's marine vessels
(owned 50% by the Partnership) was sold, resulting in a decrease in net
operating income. The remaining Partnership marine vessel (owned 50% by the
Partnership) operated in a "spot" or "voyage" charter market. Spot and voyage
charters are usually of short duration, and reflect the short-term demand and
pricing trends in the vessel market. Spot and voyage rates were higher on
average in 1995 than those experienced in 1994. For a more thorough discussion
of market conditions and those factors impacting rates for marine vessels, see
the section in "Demand" on marine vessels.
(iii) Marine Containers: The majority of the Partnership's marine
container portfolio is operated in utilization-based leasing pools and as such
is highly exposed to repricing activity. Overall, marine container net
contribution in 1995 declined from 1994 levels, due to changes in market rates
and to the reduction in marine containers in service, as 396 of the
Partnership's marine container fleet were disposed of during the year. For a
more thorough discussion of market conditions and those factors impacting rates
for marine containers, see the section in "Demand" on marine containers.
(iv) Mobile Offshore Drilling Unit (Rig): In the beginning of 1994, the
Partnership's 55%-owned rig was moved from the Indian Ocean to the Gulf of
Mexico. The primary lease term expired in February 1995 with options to extend
the lease at the existing lease rates for six-month periods. Demand requirements
for natural gas remained constant during 1995 causing the lessee to exercise its
option to extend the lease in February and again in August. As a result, the rig
did not experience any adverse effects to the repricing exposure at the end of
the option periods. For a more thorough discussion of market conditions and
those factors impacting rates for rigs, see the section in "Demand" on Mobile
Offshore Drilling Units (Rigs).
(v) Other Equipment: While market conditions and other factors may have
had some impact on lease rates in markets in which the Partnership owns the
remainder of its equipment portfolio, the majority of this equipment remained
on-lease throughout the year, and thus was unaffected. See "Demand" for a
discussion of conditions in these equipment areas.
(b) Equipment Liquidations and Off-lease Time
Liquidation of Partnership equipment, unless accompanied by an immediate
replacement of additional equipment earning similar rates (see below in
"Reinvestment Risk"), represents a reduction in the size of the equipment
portfolio, and may result in reduction of net contributions to the Partnership.
Similarly, equipment that is idle or out of service between the expiration of
one lease and the assumption of a subsequent one can result in a reduction of
net contribution to the Partnership, though this may be difficult to quantify
given the myriad of possibilities of re-lease and rate scenarios. Finally,
lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the leases can
result not only in reductions in net contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession, legal fees, etc.
(i) Liquidations: During 1995, the Partnership sold its 50%-interest in
a marine vessel, 396 marine containers, 1 commercial aircraft, 1 commuter
aircraft, 45 trailers, and 18 railcars. A portion of the proceeds from the sale
of this equipment was used to repay $5.0 million of the Partnership's original
outstanding debt. As no additional equipment was purchased in 1995, these
disposals represent a permanent reduction in the Partnership's equipment
portfolio.
(ii) Off-lease Time: During the second quarter of 1995, one of the
Partnership's aircraft engines went off-lease. During the fourth quarter of
1995, the lease of the Partnership's 70%-owned commuter aircraft expired. Both
the aircraft engine and the commuter aircraft are presently being marketed for
sale or re-lease. In 1995, the Partnership experienced a decline in the net
contribution from this equipment as compared to 1994.
(c) Reinvestment Risk
Reinvestment risk occurs when 1) the Partnership cannot generate sufficient
surplus cash after fulfillment of operating obligations and distributions to
reinvest in additional equipment during the reinvestment phase of Partnership
operations; 2) equipment is sold or liquidated for less than threshold amounts;
3) proceeds from sales, losses, or surplus cash available for reinvestment
cannot be reinvested at threshold lease rates; or 4) proceeds from sales,
losses, or surplus cash available for reinvestment cannot be deployed in a
timely manner.
During the first seven years of operations, the Partnership invested
surplus cash in additional equipment after fulfilling operating requirements and
paying distributions to the partners. Subsequent to the end of the reinvestment
period during the third quarter of 1994, the Partnership will continue to
operate for an additional two years, then begin an orderly liquidation over an
anticipated two-year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed during the time it is subject to lease agreements, or the exercise of
purchase options written into certain lease agreements. Equipment sales
generally result from evaluations by the General Partner that continued
ownership of certain equipment is either inadequate to meet Partnership
performance goals, or that market conditions, market values, and other
considerations indicate it is the appropriate time to sell certain equipment.
During 1995, the Partnership received proceeds of approximately $7.1
million from the liquidation or sale of 396 marine containers, 18 railcars, 45
trailers, 1 commercial aircraft, 1 commuter aircraft, and 1 of the Partnership's
50%-owned marine vessels. The General Partner reinvested approximately $47,000
in capital improvements, but did not purchase any additional equipment in 1995.
In 1995, sales proceeds of $5.0 million were used to pay down a portion of the
Partnership's $28.0 million original debt obligation.
The Partnership entered the eighth full year of operations during the third
quarter of 1994. Pursuant to section 2.02 (p) of the Limited Partnership
Agreement, surplus funds (as defined in the above mentioned Agreement) are no
longer being reinvested.
(d) Equipment Valuation and Write-downs
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1995. The Partnership adopted SFAS 121 during 1995,
the effect of which was not material as the method previously employed by the
Partnership was consistent with SFAS 121. In accordance with SFAS 121, the
General Partner reviews the carrying value of its equipment portfolio at least
annually in relation to expected future market conditions for the purpose of
assessing the recoverability of the recorded amounts. If the projected future
lease revenue plus residual values are less than the carrying value of the
equipment, a loss on revaluation is recorded. There were no reductions made to
the carrying value of equipment during 1995. The carrying value of two
commercial aircraft and one aircraft engine were reduced by approximately $1.7
million and $0.3 million, respectively, in 1994. The implicit impact of such
reductions is anticipated future lower sales proceeds.
As of December 31, 1995, the General Partner estimated the current fair
market value of the Partnership's equipment portfolio to be approximately $76.8
million.
(B) Financial Condition - Capital Resources, Liquidity, and Distributions
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from original partners are permitted under the
terms of the Partnership's Limited Partnership Agreement. The Partnership's
total outstanding indebtedness is currently $23.0 million. The Partnership
relies on operating cash flows to meet its operating obligations and to make
cash distributions to the Limited Partners.
For the year ended December 31, 1995, the General Partner generated
sufficient operating revenues to meet its operating obligations, but used
undistributed available cash from prior periods of approximately $3.7 million to
maintain the current level of distributions (total 1995 of $13.5 million) to the
partners. During the year, the General Partner sold equipment for approximately
$7.1 million and paid down a net $5.0 million of its debt obligation.
(C) Outlook for the Future
Several factors may affect the Partnership's operating performance in 1996 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
(1) Repricing and Reinvestment Risk
Certain of the Partnership's aircraft, marine vessels, railcars, and trailers
will be remarketed in 1996 as existing leases expire, exposing the Partnership
to considerable repricing risk/opportunity. Additionally, the General Partner
may select to sell certain underperforming equipment, or equipment whose
continued operation may become prohibitively expensive. In either case, the
General Partner intends to re-lease or sell equipment at prevailing market
rates; however, the General Partner cannot predict these future rates with any
certainty at this time and cannot accurately assess the effect of such activity
on future Partnership performance. Proceeds from sold or liquidated equipment
cannot subsequently be used for investment in additional equipment; therefore,
such sales will result in a smaller equipment portfolio and may result in a
reduction in contributions.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels into U.S. ports
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the U.S. and internationally,
cannot be predicted with any accuracy, and preclude the General Partner from
determining the impact of such changes on Partnership operations or sale of
equipment.
(3) Additional Capital Resources and Distribution Levels
The Partnership's initial contributed capital was comprised of the proceeds from
its initial offering, supplemented later by permanent debt initially in the
amount of $28.0 million. During 1996, the General Partner repaid the original
$28.0 million debt obligation and entered into a new $23.0 million debt
obligation. The General Partner has not planned any expenditures, nor is it
aware of any contingencies, that would cause it to require any additional
capital other than that mentioned above.
Principal payments on the Partnership's permanent debt obligation of $7.0
million and $6.0 million are due March 31, 1996, and December 31, 1997,
respectively, with the remaining unpaid principal balance due on December 31,
1998. In addition, the debt obligation requires that the greater of 45% of the
fair market value of the equipment or 60% of the net sales proceeds from the
sale of equipment be deposited in a joint escrow account to be used to pay down
the debt. On January 31, 1996, the Partnership sold its seven offshore supply
vessels for $13.4 million. Proceeds from the sale will be used to make the $7.0
million principal payment due on March 31, 1996, and a $4.4 million special cash
distribution was made to Unitholders. The General Partner intends to continue to
use proceeds from sales of equipment to repay the debt and to make distributions
to Unitholders, mainly during the liquidation phase of the Partnership.
Pursuant to the Limited Partnership Agreement, the Partnership has ceased
to reinvest in additional equipment. The General Partner will pursue a strategy
of selectively re-leasing equipment to achieve competitive returns, or selling
equipment that is underperforming or whose operation becomes prohibitively
expensive, in the period prior to the final liquidation of the Partnership.
As of the first quarter of 1996, the cash distribution rate has been
reduced to more closely reflect current and expected net cash flows from
operations. Continued weak market conditions in certain equipment sectors and
equipment sales have reduced overall lease revenues in the Partnership to the
point where reductions in distribution levels are now necessary. In addition,
with the onset of the equipment liquidation phase of the Partnership in 1997,
the size of the Partnership's remaining equipment portfolio, and, in turn, the
amount of net cash flows from operations, will continue to become progressively
smaller as assets are sold. Although distribution levels will be reduced,
significant asset sales may result in potential special distributions to
Unitholders.
(D) Results of Operations - Year to Year Detail Comparison
Comparison of the Partnership's Operating Results for the Years Ended December
31, 1995 and 1994
(A) Revenues
Total revenues of $23.6 million for the year ended December 31, 1995, decreased
from $25.7 million in 1994. The decrease in 1995 revenues was primarily
attributable to lower recorded operating lease revenues compared to 1994.
(1) Lease revenues decreased to $20.6 million for the year ended December
31, 1995, from $23.4 million in 1994. The following table lists lease revenues
earned by equipment type (in thousands):
For the year ended December 31,
1995 1994
-------------------------------
Railcars $ 6,791 $ 7,002
Marine vessels 5,507 6,015
Aircraft and aircraft engines 2,621 4,021
Trailers 2,455 2,376
Marine containers 1,659 1,832
Mobile offshore drilling unit 1,588 2,112
===============================
$ 20,621 $ 23,358
===============================
The decrease in 1995 lease revenues resulted from:
(a) A $1.4 million decrease in aircraft and aircraft engine lease revenue
resulting from the sale of two commercial aircraft in June of 1994, the sale of
one commercial aircraft and one commuter aircraft in June of 1995, and the
remarketing of a commuter aircraft and an aircraft engine in 1995;
(b) A $0.5 million decrease in mobile offshore drilling unit (rig) lease
revenue due to a reduced re-lease rate as a result of the rig's repositioning to
the Gulf of Mexico during 1994 in order to capture greater long-term
opportunity;
(c) A $0.5 million decrease in marine vessel lease revenue resulting from
the sale of one of the Partnership's 50%-owned marine vessels during the second
quarter of 1995 and due to the drydocking of the Partnership's other 50%-owned
marine vessel during December of 1995;
(d) A $0.2 million decrease in marine container lease revenue resulting
from the sale of 396 marine containers during 1995 and the sale of 566 marine
containers during 1994;
(e) A $0.2 million decrease in railcar lease revenue resulting from the
sale of 57 railcars during 1994 and 18 railcars during 1995.
(2) Net gain on disposition of equipment for the year ended December 31,
1995, totaled $2.2 million from the sale or disposal of 1 of the Partnership's
50%-owned marine vessels, 396 marine containers, 1 commercial aircraft, 1
commuter aircraft, 45 trailers, and 18 railcars, with an aggregate net book
value of $5.2 million for aggregate proceeds of $7.1 million. Included in the
gain on sale of the marine vessel is the unused portion of accrued drydocking of
$0.3 million. During 1994, the Partnership had a $1.6 million net gain on the
disposition of equipment which resulted from the sale or disposition of 2
commercial aircraft, 5 barges, 566 marine containers, 57 railcars, and 48
trailers which had an aggregate net book value of $1.5 million for proceeds of
$3.1 million.
(B) Expenses
Total expenses for the year ended December 31, 1995, of $19.3 million decreased
from $25.6 million in 1994. The decrease in 1995 was primarily attributable to
lower depreciation and amortization, repairs and maintenance, management fees to
affiliate, and marine equipment operating expenses, in addition to no loss on
revaluation of equipment, no repositioning expenses, and no losses on legal
settlements, offset partially by higher interest and bad debt expense.
(1) Direct operating expenses (defined as repairs and maintenance,
insurance expenses, marine equipment operating expenses, and repositioning
expense) decreased to $5.6 million in year ended December 31, 1995, from $7.5
million in 1994. The decrease resulted from:
(a) A $0.9 million decrease in charges related to the repositioning of the
mobile offshore drilling unit from the Indian ocean to the Gulf of Mexico during
1994. There were no similar charges in 1995;
(b) A $0.8 million decrease in repairs and maintenance expenses due mainly
to upgrade costs expensed in 1994 related to the Partnership's 55%-owned mobile
offshore drilling unit. There were no similar charges in 1995;
(c) A $0.2 million decrease in marine equipment operating expenses due to
the sale of one of the Partnership's 50%-owned marine vessels during the second
quarter of 1995, offset partially by an increase in marine operating expenses
due to one of the Partnership's marine vessels transferring in June 1994 from a
"time" charter, where the lessee is responsible for most operating costs, into a
voyage charter where all "voyage" costs are paid by the Partnership.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, general and administrative expenses,
and bad debt expense) were $13.7 million in 1995 compared to $15.4 in 1994. The
decrease in indirect operating expenses resulted primarily from:
(a) A $1.8 million decrease in depreciation and amortization expense from
1994 levels primarily due to the sale of certain assets during 1995 and 1994;
(b) A $0.4 million decrease in management fees to affiliate due to a
decrease in the Partnership's operating cash flows. Management fees are based on
the greater of i)10% of "Cash Flows," or ii)1/12 of 1/2% of the net book value
of the equipment portfolio subject to reduction in certain events described in
the Limited Partnership Agreement;
(c) A $0.3 million increase in interest expense resulting from an increase
in the floating rate of interest on the Partnership's debt.
(3) There was no loss on revaluation of equipment recorded during 1995.
During the year ended December 31, 1994, the Partnership recorded a $2.0 million
loss on revaluation of equipment resulting from the $1.0 million and $0.7
million reductions in carrying values of two commercial aircraft to their
estimated net realizable values and from the $0.3 million reduction in the
carrying value of one aircraft engine to its estimated net realizable value.
(4) Loss on a legal settlement of $0.7 million was recorded by the
Partnership during 1994. The settlement involved a dispute with one of the
Partnership's marine vessel charterers over the ability of the marine vessel to
trade to Cuba on charterer's instructions. There were no similar charges in
1995.
(C) Net Income
As a result of the foregoing, the Partnership's net income of $4.2 million for
the year ended December 31, 1995, increased from net income of $0.1 million in
1994. The Partnership's ability to operate and liquidate assets, secure leases,
and re-lease those assets whose leases expire during the duration of the
Partnership, is subject to many factors and the Partnership's performance for
the year ended December 31, 1995, is not necessarily indicative of future
periods. In the year ended December 31, 1995, the Partnership distributed $13.4
million to the Limited Partners, or $2.30 per Depositary Unit.
Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1994, and 1993
(A) Revenues
Total revenues of $25.7 million for the year ended December 31, 1994 increased
from $24.3 million in 1993.
(1) Lease revenues increased to $23.4 million for the year ended December
31, 1994, from $23.2 million in 1993. The following table lists lease revenues
earned by equipment type (in thousands):
For the year ended December 31,
1994 1993
-------------------------------
Railcars $ 7,002 $ 7,384
Marine vessels 6,015 5,201
Aircraft and aircraft engines 4,021 3,963
Trailers 2,376 2,196
Marine containers 1,832 2,393
Mobile offshore drilling unit 2,112 2,108
===============================
$ 23,358 $ 23,245
===============================
The increase in 1994 lease revenues was primarily attributable to:
(a) A $0.8 million increase in marine vessel revenue resulting from one of
the Partnership's marine vessels transferring from bareboat charter into a
marine vessel pool which earns higher daily rates but also assumes all
operational costs;
(b) A $0.2 million increase in trailer lease revenue resulting from the
purchase in 1993 and 1994 of additional trailers which were placed in the rental
yard facilities;
(c) A $0.1 million increase in aircraft and aircraft engine revenue
resulting from higher utilization rates in 1994;
(d) A $0.6 million decrease in marine container lease revenue resulting
from marine container dispositions and lower lease and utilization rates;
(e) A $0.4 million decrease in railcar lease revenue resulting from the
sale of 224 railcars at the end of the first quarter of 1993 and 57 railcars
throughout 1994.
(2) Interest and other income of $0.7 million for 1994 increased $0.5
million from 1993 due to $0.5 million in settlements received in 1994 for damage
claims involving three of the Partnership's marine vessels.
(3) Net gain on the disposition of equipment of $1.6 million during 1994,
resulted from the sale or disposition of 2 commercial aircraft, 5 barges, 566
marine containers, 57 railcars, and 48 trailers with an aggregate net book value
of $1.5 million for proceeds of $3.1 million.
During 1993, the Partnership had a $0.8 million net gain on the disposition
of equipment which resulted from the sale or disposition of 1 marine vessel, 914
marine containers, 224 railcars, and 97 trailers with an aggregate net book
value of $3.0 million for proceeds of $3.8 million.
(B) Expenses
Total expenses of $25.6 million for the year ended December 31, 1994, increased
from $22.6 million in 1993. The increase in 1994 was primarily attributable to
higher marine operating expenses, repositioning expense, a loss on a legal
settlement, loss on revaluation of equipment, and interest expense, partially
offset by lower depreciation and amortization, repairs and maintenance,
insurance, and other general and administrative expenses.
(1) Direct operating expenses (defined as repairs and maintenance,
insurance expenses, marine equipment operating expenses, and repositioning
expense) increased to $7.5 million in 1994 from $5.2 million in 1993. The
increase resulted from:
(a) An increase of $1.8 million in marine equipment operating expenses due
to one of the Partnership's 50%-owned marine vessels transferring from bareboat
charter, where the lessee is responsible for most operating costs, into a marine
vessel pool where the Partnership is responsible for all operating costs which
are allocated on a pro-rata basis within the pool;
(b) During the year ended December 31, 1994, the Partnership recorded a
$0.9 million expense resulting from the repositioning of its 55%-owned mobile
offshore drilling unit from the Indian Ocean to the Gulf of Mexico. A similar
expense was not recorded in 1993;
(c) A decrease of $0.3 million in repairs and maintenance expenses
resulting primarily from a decrease in marine vessel repairs due to the sale of
1 of the Partnership's 50%-owned marine vessels in the second quarter of 1993
and the sale of 57 railcars throughout 1994, offset partially by an increase in
expenses related to the repositioning of the Partnership's 55%-owned mobile
offshore drilling unit;
(d) A decrease of $0.1 million in insurance expense resulting from a refund
of $0.1 million from an insurance pool which the Partnership's marine vessels
participate in due to lower than estimated claims in the pool.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, bad debt expense, and general and
administrative expenses) decreased to $15.4 million in 1994 from $16.0 million
in 1993. The decrease resulted from:
(a) A decrease of $0.8 million in depreciation and amortization expense
reflecting the Partnership's use of the double-declining depreciation method,
and the sale of certain assets during 1993 and 1994;
(b) A decrease of $0.1 million in general and administrative expense due to
decreased office and administrative costs;
(c) An increase of $0.4 million in interest expense resulting from an
increase in the floating rate of interest on the Partnership's debt.
(3) Loss on revaluation of equipment was recorded during the year ended
December 31, 1994, resulting from the $1.0 million and $0.7 million reductions
in carrying values of two commercial aircraft to their estimated net realizable
values and from the $0.3 million reduction in the carrying value of one aircraft
engine to its estimated net realizable value. For the year ended December 31,
1993, the Partnership recorded a $1.4 million loss on revaluation of equipment
resulting from the $0.2 and $1.2 million reductions in carrying values of 50
pulpwood cars and the Partnership's 50% interest in 1 marine vessel,
respectively, to their estimated net realizable values.
(4) Loss on a legal settlement of $0.7 million was recorded by the
Partnership during the year ended December 31, 1994. The settlement involved a
dispute with one of the Partnership's marine vessel charterers over the ability
of the marine vessel to trade to Cuba on charterer's instructions. There were no
similar charges in 1993.
(C) Net Income
As a result of the foregoing, the Partnership's net income was $0.1 million in
1994, compared to $1.7 million in 1993. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the duration of the Partnership, is subject to many factors, and the
Partnership's performance in 1994 is not necessarily indicative of future years.
In 1994, the Partnership distributed $13.5 million to the Limited Partners, or
$2.30 per Depositary Unit.
Geographic Information
The Partnership operates its equipment in international markets. As such, the
Partnership is exposed to a variety of currency, political, credit, and economic
risks. Currency risks are at a minimum because all invoicing, with the exception
of a small number of railcars operating in Canada, is conducted in U.S. dollars.
Political risks are minimized generally through the avoidance of operations in
countries that do not have a stable judicial system and established commercial
business laws. Credit support strategies for lessees range from letters of
credit supported by U.S. banks to cash deposits. Although these credit support
mechanisms generally allow the Partnership to maintain its lease yield, there
are risks associated with slow-to-respond judicial systems when legal remedies
are required to secure payment or repossess equipment. Economic risks are
inherent in all international markets and the General Partner strives to
minimize this risk with market analysis prior to committing equipment to a
particular geographic area. Refer to the notes to the financial statements for
information on the revenues, income, and assets in various geographic regions.
Inflation
There was no significant impact on the Partnership's operations as a result of
inflation during 1995, 1994, or 1993.
Trends
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. In 1995, market conditions, supply and demand equilibrium,
and other factors varied in several markets. In the container and refrigerated
over-the-road trailer markets, oversupply conditions, industry consolidations,
and other factors resulted in falling rates and lower returns. In the dry
over-the-road trailer markets, strong demand and a backlog of new equipment
deliveries produced high utilization and returns. The marine vessel, railcar,
and mobile offshore drilling unit markets could be generally categorized by
increasing rates as the demand for equipment is increasing faster than new
additions net of retirements. These different markets have had individual
effects on the performance of Partnership equipment - in some cases resulting in
declining performance, and in others, in improved performance.
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,
governmental or other regulations, and others. 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 continuously monitors both
the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may make an evaluation to reduce the
Partnership's exposure to equipment markets in which it determines that it
cannot operate equipment and achieve acceptable rates of return. Alternatively,
the General Partner may make a determination to enter equipment markets in which
it perceives opportunities to profit from supply-demand instabilities or other
market imperfections.
The Partnership intends to use cash flows from operations to satisfy its
operating requirements, pay loan principal on debt, and pay cash distributions
to the investors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14 of this Annual Report.
Table 4, below, is a summary of the results of operations on a quarterly
basis for the Partnership for the years ended December 31, 1995 and 1994:
TABLE 4
Three months ended:
(thousands of dollars, except unit amounts)
1995 March 31 June 30 Sept. 30 Dec. 31
----------------------------------------------------------------------------------------------------------------------
Total revenues $ 6,740 $ 6,444 $ 5,562 $ 4,829
Net gain on disposition
of equipment $ 643 $ 1,148 $ 256 $ 148
Net income (loss) $ 1,603 $ 1,827 $ 940 $ (136)
Net income (loss) per Depositary Unit $ 0.27 $ 0.31 $ 0.15 $ (0.03)
Cash distributions $ 3,397 $ 3,391 $ 3,380 $ 3,381
Cash distributions per Depositary Unit $ 0.575 $ 0.575 $ 0.575 $ 0.575
Number of Depositary Units at end
of quarter 5,836,297 5,820,150 5,820,150 5,810,150
During the quarter ended December 31, 1995, one of the Partnership's
50%-owned marine vessels was drydocked, utilization of trailers was down,
and the Partnership recorded additional bad debt expense of $0.2 million.
TABLE 4
Three months ended:
(thousands of dollars, except per unit amounts)
1994 March 31 June 30 Sept. 30 Dec. 31
------------------------------------------------------------------------------------------------------------------------
Total revenues $ 5,888 $ 5,577 $ 6,177 $ 8,017
Net (loss) gain on disposition
of equipment $ (96) $ (94) $ 562 $ 1,213
Loss on revaluation of equipment $ -- $ 960 $ -- $ 1,029
Net income (loss) $ 1,531 $ (530) $ (389) $ (537)
Net income (loss) per Depositary Unit $ 0.26 $ (0.10) $ (0.07) $ (0.10)
Cash distributions $ 3,385 $ 3,400 $ 3,398 $ 3,397
Cash distributions per Depositary Unit $ 0.575 $ 0.575 $ 0.575 $ 0.575
Number of Depositary Units at end
of quarter 5,853,897 5,853,197 5,848,997 5,848,197
Includes a gain from the sale of two railcars, 209 marine containers, and
three barges which had an aggregate net book value of $0.3 million and sold
for $0.8 million. Includes a gain from the sale of one commercial aircraft
with related engine reserves of $0.7 million, and from a $0.3 million
increase in lease revenues for both the marine vessels and the rig.
During the quarter ended June 30, 1994, the Partnership reduced the
carrying value of one commercial aircraft by $1.0 million to its estimated
net realizable value and sold the aircraft.
During the quarter ended December 31, 1994, the Partnership reduced the
carrying value of one commercial aircraft by $0.7 million and one aircraft
engine by $0.3 million to their estimated net realizable values.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank.)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
As of the date of this Annual Report, the directors and executive officers of
PLM International (and key executive officers of its subsidiaries) are as
follows:
Name Age Position
-------------------------------------- ------------------ -------------------------------------------------------
J. Alec Merriam 60 Director, Chairman of the Board, PLM International,
Inc.; Director, PLM Financial Services, Inc.
Allen V. Hirsch 42 Director, Vice Chairman of the Board, Executive Vice
President of PLM International, Inc.; Director and
President, PLM Financial Services, Inc.; President,
PLM Securities Corp., and PLM Transportation
Equipment Corporation.
Walter E. Hoadley 79 Director, PLM International, Inc.
Robert L. Pagel 59 Director, Chairman of the Executive Committee, PLM
International, Inc.; Director, PLM Financial
Services, Inc.
Harold R. Somerset 61 Director, PLM International, Inc.
Robert N. Tidball 57 Director, President and Chief Executive Officer, PLM
International, Inc.
J. Michael Allgood 47 Vice President and Chief Financial Officer, PLM
International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 49 President, PLM Investment Management, Inc.; Vice
President, PLM Financial Services, Inc.
David J. Davis 39 Vice President and Corporate Controller, PLM
International and PLM Financial Services, Inc.
Frank Diodati 41 President, PLM Railcar Management Services Canada
Limited.
Douglas P. Goodrich 49 Senior Vice President, PLM International,
PLM Transportation Equipment Corporation;
President PLM Railcar Management Services, Inc.
Steven O. Layne 41 Vice President, PLM Transportation Equipment
Corporation.
Stephen Peary 47 Senior Vice President, General Counsel and Secretary,
PLM International, Inc. and PLM Financial Services, Inc.;
Vice President, PLM Investment Management, Inc., PLM Transportation
Equipment Corporation, PLM Securities Corp.
Thomas L. Wilmore 53 Vice President, PLM Transportation Equipment
Corporation; Vice President, PLM Railcar Management
Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM
International in September 1990, having served as a director since February
1988. In October 1988, he became a member of the Executive Committee of the
Board of Directors of PLM International. From 1972 to 1988, Mr. Merriam was
Executive Vice President and Chief Financial Officer of Crowley Maritime
Corporation, a San Francisco area-based company engaged in maritime shipping and
transportation services. Previously, he was Chairman of the Board and Treasurer
of LOA Corporation of Omaha, Nebraska and served in various financial positions
with Northern Natural Gas Company, also of Omaha.
Allen V. Hirsch became Vice Chairman of the Board and a Director of PLM
International in April 1989. He is an Executive Vice President of PLM
International and President of PLM Securities Corp. Mr. Hirsch became the
President of PLM Financial Services, Inc. in January 1986 and President of PLM
Investment Management, Inc. and PLM Transportation Equipment Corporation in
August 1985, having served as a Vice President of PLM Financial Services, Inc.
and Senior Vice President of PLM Transportation Equipment Corporation beginning
in August 1984, and as a Vice President of PLM Transportation Equipment
Corporation beginning in July 1982 and of PLM Securities Corp. from July 1982 to
October 1, 1987. He joined PLM, Inc. in July 1981, as Assistant to the Chairman.
Prior to joining PLM, Inc., Mr. Hirsch was a Research Associate at the Harvard
Business School. From January 1977 through September 1978, Mr. Hirsch was a
consultant with the Booz, Allen and Hamilton Transportation Consulting Division,
leaving that employment to obtain his master's degree in business
administration.
Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September, 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988.
Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since
1981. He was Executive Vice President and Chief Economist for the Bank of
America from 1968 to 1981, and Chairman of the Federal Reserve Bank of
Philadelphia from 1962 to 1966. Dr. Hoadley served as a Director of Transcisco
Industries, Inc. from 1988 through August of 1995.
Robert L. Pagel was appointed Chairman of the Executive Committee of the
Board of Directors of PLM International in September 1990, having served as a
director since February 1988. In October 1988 he became a member of the
Executive Committee of the Board of Directors of PLM International. From June
1990 to April 1991, Mr. Pagel was President and Co-Chief Executive Officer of
The Diana Corporation, a holding company traded on the New York Stock Exchange.
He is the former President and Chief Executive Officer of FanFair Corporation
which specializes in sports fans' gift shops. He previously served as President
and Chief Executive Officer of Super Sky International, Inc., a publicly traded
company, located in Mequon, Wisconsin, engaged in the manufacture of skylight
systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the
brokerage and financial industries. Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.
Harold R. Somerset was elected to the Board of Directors of PLM
International in July 1994. From February 1988 to December 1993, Mr. Somerset
was President and Chief Executive Officer of California & Hawaiian Sugar
Corporation (C&H), a recently-acquired subsidiary of Alexander & Baldwin, Inc.
Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve. Between 1972 and 1984, Mr. Somerset served in various
capacities with Alexander & Baldwin, Inc., a publicly-held land and agriculture
company headquartered in Honolulu, Hawaii, including Executive Vice President -
Agricultures, Vice President, General Counsel and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and in marine engineering
from the U.S. Naval Academy. Mr. Somerset also serves on the Boards of Directors
for various other companies and organizations, including Longs Drug Stores,
Inc., a publicly-held company headquartered in Maryland.
Robert N. Tidball was appointed President and Chief Executive Officer of
PLM International in March 1989. At the time of his appointment, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989 and a member of the Executive Committee of the
Board of Directors of PLM International in September 1990. Mr. Tidball was
elected President of PLM Railcar Management Services, Inc. in January 1986. Mr.
Tidball was Executive Vice President of Hunter Keith, Inc., a Minneapolis-based
investment banking firm, from March 1984 to January 1986. Prior to Hunter Keith,
Inc., he was Vice President, a General Manager and a Director of North American
Car Corporation, and a Director of the American Railcar Institute and the
Railway Supply Association.
J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM International in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings Plc of London where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served
as a First Vice President with American Express Bank, Ltd. In February 1978, Mr.
Allgood founded and until June 1981, served as a director of Trade Projects
International/Philadelphia Overseas Finance Company, a joint venture with
Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served
in various capacities with Citibank, N.A.
Stephen M. Bess was appointed President of PLM Investment Management, Inc.
in August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc., beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corp., a manufacturer of computer peripheral
equipment, from October 1975 to November 1978.
David J. Davis was appointed Vice President and Controller of PLM
International in January 1994. From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms, including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located in San Francisco. Between May 1978 and April 1989, Mr. Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.
Frank Diodati was appointed President of PLM Railcar Management Services
Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.
Douglas P. Goodrich was appointed Senior Vice President of PLM
International in March 1994. Mr. Goodrich has also served as Senior Vice
President of PLM Transportation Equipment Corporation since July 1989, and as
President of PLM Railcar Management Services, Inc. since September 1992 having
been a Senior Vice President since June 1987. Mr. Goodrich was an Executive Vice
President of G.I.C. Financial Services Corporation, a subsidiary of Guardian
Industries Corp. of Chicago, Illinois from December 1980 to September 1985.
Steven O. Layne was appointed Vice President, PLM Transportation Equipment
Corporation's Air Group in November 1992. Mr. Layne was its Vice President,
Commuter and Corporate Aircraft beginning in July 1990. Prior to joining PLM,
Mr. Layne was the Director, Commercial Marketing for Bromon Aircraft
Corporation, a joint venture of General Electric Corporation and the Government
Development Bank of Puerto Rico. Mr. Layne is a major in the United States Air
Force Reserves and senior pilot with 13 years of accumulated service.
Stephen Peary became Vice President, Secretary, and General Counsel of PLM
International in February 1988 and Senior Vice President in March 1994. Mr.
Peary was Assistant General Counsel of PLM Financial Services, Inc. from August
1987 through January 1988. Previously, Mr. Peary was engaged in the private
practice of law in San Francisco. Mr. Peary is a graduate of the University of
Illinois, Georgetown University Law Center, and Boston University (Masters of
Taxation Program).
Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation
Equipment Corporation, in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987, he was President and Co-Owner of Guardian Industries Corp., Chicago,
Illinois, and between December 1980 and July 1985, Mr. Wilmore was an Executive
Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr.
Wilmore also served as Vice President of Sales for Gould Financial Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.
The directors of the General Partner are elected for a one-year term or
until their successors are elected and qualified. There are no family
relationships between any director or any executive officer of the General
Partner.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership has no
pension, profit-sharing, retirement, or similar benefit plan in effect as of
December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 1% interest in the profits
and losses and distributions of the Partnership. At December 31, 1995, no
investor was known by the General Partner to beneficially own more than 5% of
the Depositary Units of the Partnership.
(b) Security Ownership of Management
Table 5, below, sets forth, as of the date of this report, the amount and
percent of the Partnership's outstanding Depositary Units beneficially owned by
each of the directors and executive officers and all directors and executive
officers as a group of the General Partner and its affiliates:
TABLE 5
Name Depositary Units Percent of Units
Allen V. Hirsch 600 *
Robert N. Tidball 400 *
J. Alec Merriam 1,000 *
All directors and officers
as a group (3 people) 2,000 *
* Represents less than one percent of outstanding Depositary Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1995, management fees to IMI were $1.3 million. During 1995, the
Partnership reimbursed FSI or its affiliates $0.9 million for administrative
services and data processing expenses performed on behalf of the Partnership.
The Partnership paid Transportation Equipment Indemnity Company Ltd. (TEI), a
wholly-owned, Bermuda-based subsidiary of PLM International, $0.2 million for
insurance coverages during 1995, which amounts were paid substantially to third
party reinsurance underwriters or placed in risk pools managed by TEI on behalf
of affiliated partnerships and PLM International which provide threshold
coverages on marine vessel loss of hire and hull and machinery damage. All
pooling arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI.
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions With Promoters
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report.
(b) Reports on Form 8-K
None.
(c) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form
S-1 (Reg. No. 33-2834) which became effective with the
Securities and Exchange Commission on May 20, 1986.
4.1 Amendment, dated November 18, 1991, to Limited Partnership
Agreement of Partnership.
10.1 Management Agreement between the Partnership and PLM Investment
Management, Inc. Incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-2834) which
became effective with the Securities and Exchange Commission on
May 20, 1986.
10.2 $23,000,000 Loan Agreement, dated as of September 1, 1995.
Incorporated by reference to the Partnership's Quarterly Report
on Form 10-Q filed with the Securities and Exchange Commission
on November 13, 1995.
25. Powers of Attorney.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has
signed on behalf of the Partnership by duly authorized officers.
Dated: March 20, 1996 PLM EQUIPMENT GROWTH FUND
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: *____________________
Allen V. Hirsch
President
By: /s/ David J. Davis
------------------------
David J. Davis
Vice President and
Corporate Controller
* Stephen Peary, by signing his name hereto, does sign this document on behalf
of the person indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary
-----------------
Stephen Peary
Attorney-in-Fact
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*_______________________
Allen V. Hirsch Director - FSI March 20, 1996
*_______________________
J. Alec Merriam Director - FSI March 20, 1996
*_______________________
Robert L. Pagel Director - FSI March 20, 1996
* Stephen Peary, by signing his name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Stephen Peary
- -------------------
Stephen Peary
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of Independent Auditors ............................................ 31
Balance sheets at December 31, 1995 and 1994 .............................. 32
Statements of income for the years ended
December 31, 1995, 1994, and 1993 ...................................... 33
Statements of changes in partners' capital for the years
ended December 31, 1995, 1994, and 1993 ................................ 34
Statements of cash flows for the years ended
December 31, 1995, 1994, and 1993 ...................................... 35
Notes to financial statements .......................................... 36-43
All financial statement schedules have been omitted as the required information
is not pertinent to the Registrant or is not material, or because the
information required is included in the financial statements and notes thereto.
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund:
We have audited the financial statements of PLM Equipment Growth Fund as listed
in the accompanying index. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for each of the years in the three year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
SAN FRANCISCO, CALIFORNIA
March 14, 1996
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except per unit amounts)
ASSETS
1995 1994
----------------------------------
Equipment held for operating leases, at cost $ 79,289 $ 119,123
Less accumulated depreciation (53,109) (69,122)
----------------------------------
26,180 50,001
Equipment held for sale 10,165 --
----------------------------------
Net equipment 36,345 50,001
Cash and cash equivalents 1,851 2,542
Restricted cash 332 1,952
Accounts receivable, less allowance for doubtful
accounts of $346 in 1995 and $203 in 1994 1,663 1,919
Prepaid expenses and other assets 201 210
Deferred charges, net of accumulated amortization
of $443 in 1995 and $381 in 1994 155 45
----------------------------------
Total assets $ 40,547 $ 56,669
==================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,603 $ 1,921
Due to affiliates 132 230
Security deposits 247 518
Prepaid deposits and reserve for repairs 1,231 1,937
Notes payable 23,000 28,000
----------------------------------
Total liabilities 26,213 32,606
Partners' capital (deficit):
Limited Partners (5,810,150 Depositary Units at December 31,
1995, and 5,848,197 at December 31, 1994) 14,609 24,374
General Partner (275) (311)
----------------------------------
Total partners' capital 14,334 24,063
----------------------------------
Total liabilities and partners' capital $ 40,547 $ 56,669
==================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF INCOME
For the years ended December 31,
(in thousands of dollars, except per unit amounts)
1995 1994 1993
--------------------------------------------
Revenues:
Lease revenue $ 20,621 $ 23,358 $ 23,245
Interest and other income 759 716 195
Net gain on disposition of equipment 2,195 1,585 838
--------------------------------------------
Total revenues 23,575 25,659 24,278
Expenses:
Depreciation and amortization 8,547 10,349 11,188
Management fees to affiliate 1,318 1,695 1,742
Repairs and maintenance 2,787 3,541 3,817
Interest expense 2,021 1,693 1,325
Insurance expense to affiliate 214 112 208
Other insurance expense 382 465 457
Marine equipment operating expenses 2,261 2,482 731
General and administrative expenses
to affiliates 921 647 502
Other general and administrative expenses 623 942 1,159
Bad debt expense 267 76 44
Loss on revaluation of equipment -- 1,989 1,380
Repositioning expense -- 879 --
Loss on legal settlement -- 714 --
--------------------------------------------
--------------------------------------------
Total expenses 19,341 25,584 22,553
--------------------------------------------
Net income $ 4,234 $ 75 $ 1,725
============================================
Partners' share of net income:
Limited Partners $ 4,063 $ (43) $ 1,580
General Partner 171 118 145
============================================
Total $ 4,234 $ 75 $ 1,725
============================================
Net income (loss) per Depositary Unit (5,810,150 Units - 1995;
5,848,197 - 1994; 5,859,897 - 1993) $ 0.70 $ (0.01) $ 0.27
============================================
Cash distributions $ 13,549 $ 13,580 $ 13,760
============================================
Cash distribution per Depositary Unit $ 2.30 $ 2.30 $ 2.30
============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 1995, 1994, and 1993
(in thousands)
Limited General
Partners Partner Total
------------------------------------------------------
Partners' capital (deficit) at
December 31, 1992 $ 51,314 $ (318) $ 50,996
Repurchase of Depositary Units (1,225) -- (1,225)
Net income 1,580 145 1,725
Cash distributions (13,622) (138) (13,760)
------------------------------------------------------
Partners' capital (deficit) at
December 31, 1993 38,047 (311) 37,736
Repurchase of Depositary Units (168) -- (168)
Net (loss) income (43) 118 75
Cash distributions (13,462) (118) (13,580)
------------------------------------------------------
Partners' capital (deficit) at
December 31, 1994 24,374 (311) 24,063
Repurchase of Depositary Units (414) -- (414)
Net income 4,063 171 4,234
Cash distributions (13,414) (135) (13,549)
------------------------------------------------------
Partners' capital (deficit) at
December 31, 1995 $ 14,609 $ (275) $ 14,334
======================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31,
(thousands of dollars)
1995 1994 1993
------------------------------------------
Operating activities:
Net income $ 4,234 $ 75 $ 1,725
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 8,547 10,349 11,188
Net gain on disposition of equipment (2,195) (1,585) (838)
Loss on revaluation of equipment -- 1,989 1,380
Changes in operating assets and liabilities:
Accounts receivable, net 256 (67) (48)
Prepaid expenses and other assets 9 (14) 39
Deferred charges (172) -- --
Restricted cash 272 289 (2,823)
Due to/from affiliates (98) 304 79
Accounts payable and accrued expenses (47) 315 666
Security deposits (271) (290) 110
Prepaid deposits and reserve for repairs (706) 255 768
------------------------------------------
Net cash provided by operating activities 9,829 11,620 12,246
------------------------------------------
Investing activities:
Payments for capital improvements and
equipment purchases (47) (1,915) (7,023)
Return of equipment acquisition deposits -- -- 50
Proceeds from disposition of equipment 7,142 3,082 3,761
------------------------------------------
Net cash provided by (used in) investing activities 7,095 1,167 (3,212)
------------------------------------------
Financing activities:
Principal repayment on note payable (28,000) -- --
Proceeds from notes payable 23,000 -- --
Decrease (increase) in restricted cash 1,348 (53) 1,541
Cash distributions paid to partners (13,549) (13,580) (13,759)
Repurchases of Depositary Units (414) (168) (1,225)
------------------------------------------
Net cash used in financing activities (17,615) (13,801) (13,443)
------------------------------------------
Net decrease in cash and cash equivalents (691) (1,014) (4,409)
Cash and cash equivalents at beginning of year 2,542 3,556 7,965
------------------------------------------
Cash and cash equivalents at end of year $ 1,851 $ 2,542 $ 3,556
==========================================
Supplemental information:
Interest paid $ 2,123 $ 1,553 $ 1,325
==========================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation
Organization
PLM Equipment Growth Fund, a California limited partnership (the
Partnership) was formed on January 28, 1986. The Partnership engages in
the business of owning and leasing primarily used transportation
equipment. The Partnership commenced significant operations in August
1986. Depositary Units evidencing limited partner ownership interests in
the Partnership trade on the American Stock Exchange under the symbol
"GFX." PLM Financial Services, Inc. (FSI) is the General Partner. FSI is a
wholly-owned subsidiary of PLM International, Inc. (PLM International).
The Partnership will terminate on December 31, 2006, unless terminated
earlier upon sale of all equipment or by certain other events. Since the
third quarter of 1994, and in accordance with the Partnership agreement,
the General Partner has stopped reinvesting excess cash and is using these
funds, if any, for the repayment of outstanding debt and for distributions
to the Partners. Beginning in the Partnership's eleventh year of
operation, the General Partner intends to begin an orderly liquidation of
the Partnership's assets.
FSI manages the affairs of the Partnership. The net income (loss) and
distributions of the Partnership are generally allocated 99% to the
Limited Partners and 1% to the General Partner (see Net Income (Loss) and
Distributions per Depositary Unit, below). The General Partner is entitled
to an incentive fee equal to 15% of "Surplus Distributions" as defined in
the Limited Partnership Agreement remaining after the Limited Partners
have received a certain minimum rate of return.
These financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
This requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operations
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of FSI. IMI receives a monthly management fee from the
Partnership for managing the equipment (see Note 2). FSI, in conjunction
with its subsidiaries, syndicates investor programs, sells transportation
equipment to investor programs and third parties, manages pools of
transportation equipment under agreements with the investor programs, and
is a General Partner of other Limited Partnerships.
Accounting for Leases
The Partnership's leasing operations generally consist of operating
leases. Under the operating lease method of accounting, the leased asset
is recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. Lease origination
costs are capitalized and amortized over the term of the lease.
Translation of Foreign Currency Transactions
The Partnership is a domestic partnership, however, a limited number of
the Partnership's transactions are denominated in a foreign currency. The
Partnership's asset and liability accounts denominated in a foreign
currency were translated into U.S. dollars at the rates in effect at the
balance sheet dates, and revenue and expense items were translated at
average rates during the year. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are
not material.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation (continued)
Depreciation and Amortization
Depreciation of equipment held for operating leases is computed on 150%
declining balance, or 200% declining balance method based upon estimated
useful lives of 9 to 12 years for aircraft, 15 to 18 years for railcars,
and 12 years for marine containers, trailers, marine vessels, and the
mobile offshore drilling unit. Both accelerated depreciation methods
convert to straight line when annual depreciation expense using the
straight line method exceeds that calculated by the accelerated method.
Acquisition fees have been capitalized as part of the cost of the
equipment. Lease negotiation fees are amortized over the initial equipment
lease term. Debt placement fees and issuance costs are amortized over the
term of the loan for which they were paid. Major expenditures which are
expected to extend the useful lives or reduce future operating expenses
for equipment are capitalized.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is
effective for years beginning after December 15, 1995. The Partnership
adopted SFAS 121 during 1995, the effect of which was not material as the
method previously employed by the Partnership was consistent with SFAS
121. In accordance with SFAS 121, the General Partner reviews the carrying
value of its equipment portfolio at least annually in relation to expected
future market conditions for the purpose of assessing the recoverability
of the recorded amounts. If the projected future lease revenue plus
residual values are less than the carrying value of the equipment, a loss
on revaluation is recorded.
Equipment held for operating leases is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or
estimated net realizable value and is subject to a pending contract for
sale.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are
not covered by the lessee, they are charged against operations as
incurred. To meet the maintenance obligations of certain aircraft
airframes and engines, escrow accounts are prefunded by the lessees.
Estimated costs associated with marine vessel drydockings are accrued and
charged to income ratably over the period prior to such drydocking. The
reserve accounts are included in the balance sheet as prepaid deposits and
reserve for repairs.
Net Income (Loss) and Distributions per Depositary Unit
The net income (loss) and distributions of the Partnership are generally
allocated 99% to the Limited Partners and 1% to the General Partner. The
Limited Partners' net income (loss) and distributions are allocated among
the Limited Partners based on the number of Depositary Units owned by each
Limited Partner. The General Partner received a special allocation of
income in the amount of $129,000 in 1995, $117,000 in 1994, and $128,000
in 1993 resulting from a 1991 amendment to the Partnership Agreement.
Cash distributions are recorded when paid. Cash distributions of $3.4
million ($0.575 per Depositary Unit) were declared on December 11, 1995,
and paid on February 15, 1996, to the unitholders of record as of December
31, 1995. Cash distributions to investors in excess of net income are
considered to represent a return of capital on a Generally Accepted
Accounting Principles (GAAP) basis. Cash distributions to Limited Partners
of $9.4 million, $13.5 million, and $12.0 million in 1995, 1994, and 1993,
respectively, were deemed to be a return of capital.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
1. Basis of Presentation (continued)
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. The carrying amount of cash
equivalents approximates fair market value due to the short-term nature of
the investments.
Restricted Cash
Lessee security deposits held by the Partnership are considered restricted
cash. In addition, restricted cash includes the Partnership's joint escrow
account deposits required by the Partnership's loan (see Note 4) to be the
greater of 45% of the fair market value of sold equipment or 60% of the
net sales proceeds.
Reclassifications
Certain amounts in the 1994 and 1993 financial statements have been
reclassified to conform to the 1995 presentation.
2. General Partner and Transactions with Affiliates
An officer of FSI contributed $100 of the Partnership's initial capital.
Under the equipment management agreement, IMI receives a monthly
management fee equal to the greater of (i) 10% of "Cash Flows," or (ii)
1/12 of 1/2% of the book value of the equipment portfolio subject to
reduction in certain events described in the Limited Partnership
Agreement. Management fees of $0.1 million and $0.2 million were payable
to IMI as of December 31, 1995 and 1994, respectively. Additionally, the
Partnership reimbursed FSI and its affiliates $0.9 million for
administrative services and data processing expenses performed on behalf
of the Partnership in 1995 ($0.6 million in 1994 and $0.5 million in
1993).
The Partnership paid $0.2 million, $0.1 million, and $0.2 million in
1995, 1994, and 1993, respectively, to Transportation Equipment Indemnity,
Company, Ltd. (TEI) which provides marine insurance coverage for
Partnership equipment and other insurance brokerage services to the
Partnership. TEI is an affiliate of the General Partner. A substantial
portion of these amounts were paid to third party reinsurance underwriters
or placed in risk pools managed by TEI on behalf of affiliated
partnerships and PLM International which provide threshold coverages on
marine vessel loss of hire and hull and machinery damage. All pooling
arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI.
As of December 31, 1995, approximately 99% of the Partnership's trailer
equipment has been transferred into rental facilities operated by an
affiliate of the General Partner. Revenues collected under short-term
rental agreements with rental facilities' customers are distributed
monthly to the owners of the related equipment. Direct expenses associated
with the equipment and an allocation of indirect expenses of the rental
yard operations are billed to the Partnership.
The Partnership jointly owns certain equipment in conjunction with
affiliated partnerships. In 1995, this equipment included two commuter
aircraft, two commercial aircraft, one product tanker, one aircraft
engine, and one mobile offshore drilling unit.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3. Equipment
The components of equipment at December 31, 1995 and 1994, are as follows
(in thousands):
Equipment held for operating leases: 1995 1994
------------------------------------
----------------------------------
Railcar equipment $ 24,339 $ 23,641
Marine containers 8,728 9,819
Marine vessels 8,277 22,264
Aircraft and aircraft engines 27,242 36,721
Trailers 10,703 11,134
Mobile offshore drilling unit -- 15,544
----------------------------------
79,289 119,123
Less accumulated depreciation (53,109) (69,122)
----------------------------------
26,180 50,001
Equipment held for sale 10,165 --
----------------------------------
Net equipment $ 36,345 $ 50,001
==================================
Equipment held for sale at December 31, 1995, included seven offshore
supply vessels for sale for $13.4 million with a net book value of $2.3
million, and a 55%-owned mobile offshore drilling unit for sale for $17.3
million with a net book value of $7.9 million, both subject to pending
contracts for sale. As of December 31, 1994, there was no equipment held
for sale.
Revenues are earned by placing the equipment under operating leases
which are billed monthly or quarterly. Some of the Partnership's marine
vessels and marine containers are leased to operators of utilization-type
leasing pools which include equipment owned by unaffiliated parties. In
such instances revenues received by the Partnership consist of a specified
percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the
pooled equipment.
Rents for other equipment are based on fixed rates.
As of December 31, 1995, all equipment in the Partnership's portfolio
was on-lease or operating in PLM-affiliated short-term trailer rental
facilities, except 60 marine containers, 1 commuter aircraft 50%-owned by
the Partnership, and 1 aircraft engine off-lease with an aggregate net
book value of $0.1 million, $0.3 million, and $1.3 million, respectively.
At December 31, 1994, the Partnership had 96 marine containers off-lease,
with an aggregate net book value of $0.3 million.
The General Partner reinvested approximately $47,000 in capital
improvements but did not purchase any additional equipment in 1995, in
accordance with the Partnership agreement. During 1994, the Partnership
purchased a capital improvement for the mobile offshore drilling unit for
$1.0 million and 40 refrigerated trailers for $0.9 million.
During 1995, the Partnership sold or disposed of 396 marine containers,
1 commercial aircraft, 1 commuter aircraft, 45 trailers, the Partnership's
50%-interest in 1 marine vessel, and 18 railcars with a net book value of
$5.2 million for $7.1 million. Included in the gain on sale of the
Partnership's 50%-interest in one marine vessel is the unused portion of
accrued drydocking of $0.3 million. During 1994, the Partnership sold or
disposed of two commercial aircraft with an aggregate net book value of
$0.4 million net of engine reserves of $0.7 million for proceeds of $1.1
million. During 1994, the Partnership also sold or disposed of 5 barges,
566 marine containers, 57 railcars, and 48 trailers with an aggregate net
book value of $1.1 million for proceeds of $2.0 million.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3. Equipment (continued)
There were no reductions to the carrying value of equipment made during
1995. During 1994, the Partnership reduced the carrying value of a
commercial aircraft by $1.0 million to its estimated net realizable value,
and the aircraft was sold in the second quarter of 1994. During 1994, the
Partnership also reduced the carrying value of one commercial aircraft by
$0.7 million, and one aircraft engine by $0.3 million, to their estimated
net realizable values of $1.3 million and $1.6 million, respectively.
All leases are being accounted for as operating leases. Future minimum
rentals under noncancelable leases at December 31, 1995, during each of
the next five years and thereafter are approximately $9.2 million - 1996;
$6.7 million - 1997; $5.1 million - 1998; $3.4 million - 1999; $0.9
million - 2000, and $39,000 - thereafter. Contingent rentals based upon
utilization were approximately $2.2 million, $2.6 million, and $3.1
million in 1995, 1994, and 1993, respectively.
The Partnership owns certain equipment which is leased and operated
internationally. All leases relating to this equipment were denominated in
U.S. dollars.
The Partnership leases its aircraft, railcars, mobile offshore drilling
unit and trailers to lessees domiciled in five geographic regions: North
America, South America, Europe, Australia and Asia. Marine vessels and
marine containers are leased to multiple lessees in different regions who
operate the marine vessels and marine containers worldwide. The tables
below set forth geographic information about the Partnership's equipment
grouped by domicile of the lessee as of and for the years ended December
31, 1995, 1994 and 1993 (in thousands):
Revenues: Region 1995 1994 1993
--------------------------------------------
Marine vessels Various $ 5,507 $ 6,015 $ 5,201
Marine containers Various 1,659 1,832 2,393
Mobile offshore drilling unit North America 1,588 1,398 --
Asia -- 714 2,108
Railcars North America 6,791 7,002 7,384
Trailers North America 2,455 2,376 2,196
Aircraft North America 684 839 1,431
Asia 756 756 756
Europe 73 840 840
South America 590 590 --
Australia 160 178 59
Aircraft engines Europe 238 238 239
Asia 120 580 638
============================================
Total revenues $ 20,621 $ 23,358 $ 23,245
============================================
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
3. Equipment (continued)
The following table sets forth indentifiable income (loss) information by
equipment type by region for the years ended December 31, 1995, 1994 and 1993
(in thousands):
Net income (loss): Region 1995 1994 1993
--------------------------------------------
Marine vessels Various $ 1,637 $ 1,220 $ (280)
Marine containers Various 1,119 1,084 1,302
Mobile offshore drilling unit North America (84) (1,444) --
Asia -- (74) (180)
Railcars North America 3,729 2,842 3,363
Trailers North America 357 185 488
Aircraft North America 222 (693) (145)
Asia (109) 122 (145)
Europe (18) (349) 124
South America (175) (266) --
Australia 17 40 (177)
Aircraft engines Europe 56 39 (26)
Asia (186) (173) 382
--------------------------------------------
Total identifiable income 6,565 2,533 4,706
Other net loss not identifiable (2,331) (2,458) (2,981)
============================================
Total net income $ 4,234 $ 75 $ 1,725
============================================
The net book value of these assets at December 31, 1995, 1994, and 1993
is as follows (in thousands):
Region 1995 1994 1993
--------------------------------------------
Marine vessels Various $ 2,710 $ 8,226 $ 10,024
Marine containers Various 3,066 4,183 5,855
Mobile offshore drilling unit North America -- 9,510 --
Asia -- -- 10,254
Railcars North America 8,679 10,641 12,348
Trailers North America 3,253 4,266 4,401
Aircraft North America 457 2,182 4,153
Asia 2,225 2,677 3,046
Europe -- 1,320 7,171
South America 3,359 4,031 --
Australia 345 463 555
Aircraft engines Europe 747 896 999
Asia 1,339 1,606 2,292
--------------------------------------------
Total equipment held for
operating leases 26,180 50,001 61,098
Marine vessel held for sale Various 2,298 -- --
Mobile offshore drilling unit held
for sale North America 7,867 -- --
Aircraft held for sale North America -- -- 1,316
--------------------------------------------
Total equipment $ 36,345 $ 50,001 $ 62,414
============================================
There were no lessees accounting for 10% or more of total revenues
during 1995 or 1994. The only lessee accounting for 10% or more of the
total revenues during 1993 was Scanports Shipping (11%).
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
4. Notes Payable
Debt borrowings of the Partnership are as follows:
1995 1994
----------------------------------
Notes payable to insurance companies, bearing interest
at LIBOR plus 1.35% per annum (7.04% at December 31, 1995)
payable quarterly in arrears. $ 23,000,000 $ --
Note payable to a bank, bearing interest at LIBOR plus
1.25% per annum (7.25% at December 31, 1994) payable
quarterly, principal refinanced on September 27,
1995. -- 28,000,000
----------------------------------
Total notes payable $ 23,000,000 $ 28,000,000
==================================
The Partnership closed a $23.0 million adjustable rate senior secured
note with a syndicate of insurance companies on September 27, 1995. The
proceeds from this borrowing and existing cash were used to repay the
existing $28.0 million note. Principal payments of $7.0 million and $6.0
million are due March 31, 1996, and December 31, 1997, respectively, with
the remaining unpaid principal balance due on December 31, 1998. Quarterly
interest payments are due beginning December 31, 1995. Interest on the
debt is equal to LIBOR plus 1.35% per annum and adjusts quarterly. The
facility is secured by all of the Partnership's assets and requires, upon
the sale of equipment, that the greater of 45% of the fair market value of
the equipment or 60% of the net sales proceeds be deposited in a joint
escrow account to be used to pay down the debt. The debt limits additional
borrowings and specifies covenants relating to fixed charge coverage. The
Partnership paid a facility fee of $172,000 to the lender in connection
with this credit facility. The General Partner sold its seven offshore
supply vessels on January 31, 1996, and intends to use a portion of the
sales proceeds of $13.4 million to satisfy the March 31, 1996, $7.0
million principal payment. (See Note 8)
The General Partner believes that the book value of the notes payable
approximates fair value due to the variable interest rate.
The previous $28,000,000 facility was unsecured and nonrecourse,
limited additional borrowings and specified covenants related to tangible
net worth, collateral coverage, and ratios for market value and
composition of the equipment owned by the Partnership. The facility
required the Partnership to deposit proceeds realized on the sale or
disposal of equipment into a joint escrow account where the funds could be
used for the purchase of additional equipment, or reduce on a pro-rata
basis the outstanding balance of the Partnership's debt. At December 31,
1994, $1.4 million of these proceeds were held by the Partnership as
restricted cash. Upon refinancing, the amounts in the joint escrow account
were used, along with existing cash and the new loan proceeds, to pay down
the debt.
5. Income Taxes
The Partnership is not subject to income taxes as any income or loss is
included in the tax returns of the individual Partners. Accordingly, no
provision for income taxes has been made in the financial statements of
the Partnership.
As of December 31, 1995, there were temporary differences of
approximately $10.5 million between the financial statement carrying
values of certain assets and liabilities and the federal income tax bases
of such assets and liabilities, primarily due to differences in
depreciation methods and equipment reserves.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
6. Repurchase of Depositary Units
The Partnership has engaged in a program to repurchase up to 250,000
Depositary Units. During the year ended December 31, 1995, the Partnership
had repurchased 38,047 Depositary Units at a cost of $414,000. As of
December 31, 1995, the Partnership had repurchased a total of 174,850
Depositary Units at a cost of $2.5 million.
7. Future Delisting of Partnership Units
The Partnership's Depositary Units began trading (under the ticker symbol
GFX) on June 1, 1989, on the American Stock Exchange (AMEX). As of March
14, 1996, there were 5,785,350 Depositary Units outstanding. There are
approximately 8,800 Depositary Unitholders of record as of the date of
this report. Under the Internal Revenue Code (the Code) the Partnership is
classified as a Publicly Traded Partnership. The Code treats all Publicly
Traded Partnerships as corporations if they remain publicly traded after
December 31, 1997. Treating the Partnership as a corporation will mean the
Partnership itself will become a taxable, rather than a "flow through"
entity. As a taxable entity, the income of the Partnership will be subject
to federal taxation at both the partnership level and at the investor
level to the extent that income is distributed to an investor. In
addition, the General Partner believes that the trading price of the
Depositary Units may be distorted when the Partnership begins the final
liquidation of the underlying equipment portfolio. In order to avoid
taxation of the Partnership as a corporation and to prevent unfairness to
Unitholders, the General Partner has requested to delist the Partnership's
Depositary Units from the AMEX on March 29, 1996. The last day for trading
on the AMEX will be March 22, 1996. While the Partnership's Depositary
Units will no longer be publicly traded on a national stock exchange, the
General Partner will continue to manage the equipment of the Partnership
and prepare and distribute quarterly and annual reports and Forms 10-Q and
10-K in accordance with the Securities and Exchange Commission
requirements. In addition, the General Partner will continue to provide
pertinent tax reporting forms and information to Unitholders. The General
Partner anticipates that following delisting, an informal market for the
Partnership's units may develop in the secondary marketplace similar to
that which exists for non-publicly traded partnerships.
8. Subsequent Events
On January 31, 1996, the Partnership sold its seven offshore supply
vessels for $13.4 million. The net book value of these vessels at December
31, 1995, was $2.3 million, resulting in a gain on the sale of $11.1
million. The vessels were included in assets held for sale at December 31,
1995.
On February 1, 1996, the Partnership declared a special cash
distribution of $4.4 million, equivalent to $0.75 per outstanding
Depositary Unit, which was paid February 29, 1996, to unitholders of
record as of February 8, 1996. Proceeds from the sale of the seven
offshore supply vessels on January 31, 1996, were used to make the
distribution. The balance of the sale proceeds will be used to repay a
portion of the Partnership's outstanding debt and to maintain working
capital reserves.
On March 11, 1996, the Partnership declared quarterly distributions of
$0.289 per outstanding depositary unit, payable May 15, 1996 to
Unitholders of record as of March 29, 1996.
As of February 21, 1996, the Partnership entered into a signed
Memorandum of Agreement to sell its 55%-owned mobile offshore drilling
unit (rig) for $17.3 million. The net book value of the 55%-owned rig at
December 31, 1995 was $7.9 million. The rig was included in assets held
for sale at December 31, 1995.
PLM EQUIPMENT GROWTH FUND
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant *
4.1 Amendment to Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Registrant and PLM Investment *
Management, Inc.
10.2 $23,000,000 Loan Agreement, dated as of September 1, 1995 *
25. Powers of Attorney 45-47
* Incorporated by reference. See page 27 of this report.