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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal year ended
December 31, 1998.
[ ] 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
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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 800, San Francisco, CA 94105-1301
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
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 the voting stock: N/A.
Indicate the number of units outstanding of each of the issuer's classes of
depositary units as of the latest practicable date:
Class Outstanding at March 23, 1999
Limited partnership depositary units: 5,785,350
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is located on page 39.
Total number of pages in this report: 42.
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 or
PLMI), filed a Registration Statement on Form S-1 with the Securities and
Exchange Commission with respect to a proposed offering of 6,000,000 depositary
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 engages in the business of investing in a
diversified equipment portfolio consisting primarily of used, long-lived,
low-obsolescence capital equipment that is easily transportable by and among
prospective users.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of long-lived, low-obsolescence
high residual-value equipment which were purchased with the net proceeds of the
initial partnership offering, supplemented by debt financing, and surplus
operating cash duing the investment phase of the Partnership. All transactions
of over $1.0 million must be approved by the PLM International Credit Review
Committee (the Committee), which is made up of members of PLM International
Senior Management. In determining a lessee's creditworthiness, the Committee
will consider, among other factors, the lessee's financial statements, internal
and external credit ratings, and letters of credit;
(2) to generate 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;
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or that expected future benefits from continued ownership of a particular
asset will have an adverse affect on the Partnership. As the Partnerhsip is in
the liquidations phase, proceeds from these sales, together with excess net
operating cash flow from operations (net cash provided by operating activities
plus distributions from unconsolidated special-purpose entities (USPEs)), less
reasonable reserves to pay distributions to the partners;
(4) 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. As of
December 31, 1998, there were 5,758,728 depositary units outstanding. The
General Partner contributed $100 for its 1% general partner interest in the
Partnership. The General Partner delisted the Partnership's depositary units
from the American Stock Exchange (AMEX) on April 8, 1996. The last day for
trading on the AMEX was March 22, 1996.
Since the third quarter of 1994, the Partnership agreement has prohibited the
General Partner from reinvesting cash flows and surplus funds in equipment. All
future cash flows and surplus funds, if any, are to be used for distributions to
the limited partners, except to the extent used to maintain reasonable reserves.
On January 1, 1998, the Partnership entered its liquidation phase. The
liquidation phase will end on December 31, 2006, unless the Partnership is
terminated earlier upon sale of all of the equipment or by certain other events.
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership's portfolio, and the cost of investments in unconsolidated
special-purpose entities, as of December 31, 1998 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
862 Tank railcars Various $ 21,635
148 Over-the-road dry trailers Various 1,367
34 Over-the-road refrigerated trailers Various 1,054
3 Dry storage trailers Various 18
156 Refrigerated marine containers Various 2,039
---------------
Total owned equipment held for operating leases $ 26,113
===============
Investments in unconsolidated special-purpose entities:
0.50 737-200 Stage II commercial aircraft Boeing $ 8,084
0.50 Product tanker Kaldnes M/V 8,277
0.12 767-200ER Stage III commercial aircraft Boeing 4,905
---------------
Total investments in unconsolidated special-purpose entities $ 21,266
===============
Jointly owned: EGF (50%) and one affiliated program.
Jointly owned: EGF (12%) and two affiliated programs.
Includes proceeds from equipment and investments purchased with the capital
contributions, undistributed cash flow from operations, operations and
Partnership borrowings. Includes costs capitalized, subsequent to the date
of acquistion, 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 marine containers are leased to operators of
utilization-type leasing pools, that 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 railcars are based on mileage traveled or a fixed rate;
rents for all other equipment are based on fixed rates.
As of December 31, 1998, all of the Partnership's trailer equipment is operated
in rental yards owned and maintained by PLM Rental, Inc., the short-term trailer
rental subsidiary of PLM International doing business as PLM Trailer Leasing.
Revenues collected under short-term rental agreements with the rental yards'
customers are credited to the owners of the related equipment as received.
Direct expenses associated with the equipment are charged directly to the
Partnership. An allocation of indirect expenses of the rental yard operations is
charged to the Partnership monthly.
The lessees of the equipment include but are not limited to: Texaco, Cronos
Containers, Petro Canada, and SWR Brazil.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of 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 a lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, General Electric Capital Aviation Services Corporation, and other
investment programs that lease the same types of equipment.
(D) Demand for Equipment
The Partnership operates in the following equipment segments: aircraft leasing,
marine vessel leasing, marine container leasing, railcar leasing, and trailer
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers. Except for those aircraft leased to
passenger air carriers, the Partnership's equipment and investments are used to
transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Commercial Aircraft
The world's major airlines experienced a fourth consecutive year of profits,
showing a combined marginal net income (net income measured as a percentage of
revenue) of 6%, compared to the industry's historical annual rate of 1%.
Airlines recorded positive marginal net annual income of 2% in 1995, 4% in 1996,
6% in 1997, and 6% in 1998. The two factors that have led to this increase in
profitability are improvements in yield management systems and reduced operating
costs, particularly lowered fuel costs. These higher levels of profitability
have allowed many airlines to re-equip their fleets with new aircraft, resulting
in a record number of orders for manufacturers.
Major airlines increased their fleets from 7,181 aircraft in 1997 to 7,323 in
1998, which has resulted in more used aircraft available on the secondary
market. Despite these increases, the number of Stage II aircraft in these fleets
(similar to those owned by the Partnership) decreased by 26% from 1997 to 1998,
and sharper decreases are expected in 1999. This trend is due to Federal
Aviation Regulation section C36.5, which requires airlines to convert 100% of
their fleets to Stage III aircraft, which have lower noise levels than Stage II
aircraft, by the year 2000 in the United States and the year 2002 in Canada and
Europe. Stage II aircraft can be modified to Stage III with the installation of
a hushkit that significantly reduces engine noise. The cost of hushkit
installation is $1.5 million for the types of aircraft owned by the Partnership.
Orders for new aircraft have risen rapidly worldwide in recent years: 691 in
1995, 1,182 in 1996, 1,328 in 1997, and an estimated 1,500 in 1998. As a result
of this increase in orders, manufacturers have expanded their production, and
new aircraft deliveries have increased from 482 in 1995, 493 in 1996, and 674 in
1997, to an estimated 825 in 1998.
The industry now has in place two of the three conditions that led to financial
problems in the early 1990s: potential excess orders and record deliveries. The
missing element is a worldwide recession. Should a recession occur, the industry
will experience another period of excess aircraft capacity and surplus aircraft
on the ground.
The Partnership has a 50% investment in a 1981 Stage II Boeing 737-200 aircraft
and a 12% investment in a 1990 widebody Stage III Boeing 767-200ER. The latter
is a late-model aircraft with desirable high gross operating weights and the
most advanced-technology engines available. The aircraft is configured to carry
216 passengers in first, business, and tourist classes over 6,800 nautical
miles. All aircraft are scheduled to be sold in 1999.
(2) Marine Product Tanker
The Partnership owns or has investments in small to medium-sized product tankers
that trade in worldwide markets and carry commodity cargoes. Demand for
commodity shipping closely follows worldwide economic growth patterns, which can
alter demand by causing changes in volume on trade routes. The General Partner
operates the Partnership's vessels through spot and period charters, an
operating approach that the General Partner believes provides the flexibility to
adapt to changing market situations.
Product tanker markets experienced a year in which a fall in product trade
volume and an increase in total fleet size induced a decline in freight rates.
Charter rates for standard-sized product tankers averaged $10,139 per day in
1998, compared to $13,277 per day in 1997. The weakening in rates resulted
primarily from a decrease in product import levels to the United States and
Japan. Significantly lower crude oil prices worldwide induced higher volumes of
imports of crude oil to the United States, thereby lessening domestic demand for
refined products. Product trade in 1998 fell by an estimated 5% worldwide. The
crude oil trade, which is closely related to product trades, especially in
larger vessels, remained stable in 1998. Crude trade grew 1% in volume, led by
imports to Europe, which grew 6%.
Overall, the entire product tanker fleet grew only 1% in 1998. Supply growth in
1998 was moderated by high scrapping levels, especially of larger ships. In
1999, the fleet is expected to receive an additional 9% in capacity from newly
built deliveries, most of which will be in large tankers (above 80,000 dwt tons)
carrying crude products. Smaller tankers (below 80,000 dwt tons) are expected to
receive 7% in new deliveries over current fleet levels. While these new
deliveries represent a high percentage of the existing fleet, the tanker markets
are now beginning to feel the effects of the United States Oil Pollution Act of
1990. Under the act, older tankers are restricted from trading to the United
States once they exceed 25 years in age if they do not have double bottoms
and/or double hulls. Similar though somewhat less stringent restrictions are in
place in other countries with developed economies. The retirement of older,
noncomplying tankers may allow the fleet to absorb what would otherwise be an
excessive number of new orders in relation to current demand prospects. Given
that a large proportion of the current tanker fleet does not meet these
regulatory requirements, coupled with anticipated flat demand yet continuing
high delivery levels, charter rates for 1999 are not anticipated to increase
significantly from 1998 levels.
(3) Marine Containers
The marine container market began 1998 with industrywide utilization in the low
80% range. This percentage eroded somewhat during the year, while per diem
rental rates remained steady. One factor affecting the market was the
availability of historically low-priced marine containers from Asian
manufacturers. This trend is expected to remain in 1999, and will continue to
put pressure on economic results fleetwide.
The trend toward industrywide consolidation continued in 1998, as the U.S.
parent company of one of the industry's top ten container lessors announced that
it would be outsourcing the management of its container fleet
to a competitor. While this announcement has yet to be finalized, over the long
term, such industrywide consolidation should bring more rationalization to the
container leasing market and result in both higher fleetwide utilization and per
diem rates.
(4) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars transport primarily two chemicals: liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). Natural gas is used in a
variety of ways in businesses, electric plants, factories, homes, and now even
cars. The demand for fertilizer is driven by a number of factors, including
grain prices, the status of government farm subsidy programs, the amount of
farming acreage and mix of crops planted, weather patterns, farming practices,
and the value of the U.S. dollar.
In North America, 1998 carload originations of both chemicals and petroleum
products remained relatively constant, compared to 1997. The 98% utilization
rate of the Partnership's pressurized tank cars was consistent with this
statistic.
(b) Nonpressurized, General Purpose Tank Cars
Tank cars that do not require pressurization are used to transport a variety of
bulk liquid commodities and chemicals, including certain petroleum fuels and
products, liquified asphalt, lubricating and vegetable oils, molten surfur, and
corn syrup. The largest consumers of chemical products are the manufacturing,
automobile, and housing sectors. Because the bulk liquid industry is so diverse,
its overall health is reflected by such general indicators as changes in the
Gross Domestic Product, personal consumption expenditures, retail sales,
currency exchange rates, and national and international economic forecasts.
In North America, railcar loadings for the commodity group that includes
chemicals and petroleum products remained essentially unchanged, compared to
1997. The Partnership's general purpose cars continue to be in high demand, with
utilization over 98% in 1998.
(5) Trailers
(a) Over-the-Road Nonrefrigerated Trailers
The U.S. over-the-road nonrefrigerated (dry) trailer market continued to recover
in 1998, with a strong domestic economy resulting in heavy freight volumes. The
leasing outlook continues to be positive, as equipment surpluses of recent years
are being absorbed by a buoyant market. In addition to high freight volumes,
declining fuel prices have led to a strong trucking industry and improved
equipment demand.
The Partnership's nonrefrigerated van fleet experienced strong utilization
throughout 1998, with utilization rates remaining well above 70% throughout the
year.
(b) Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market remained strong in 1998
as freight levels improved and equipment oversupply was reduced. Many
refrigerated equipment users retired older trailers and consolidated their
fleets, making way for new, technologically improved units. Production of new
equipment is backlogged into the third quarter of 1999. In light of the current
tight supply of trailers available on the market, it is anticipated that
trucking companies and other refrigerated trailer users will look outside their
own fleets more frequently by leasing trailers on a short-term basis to meet
their equipment needs.
This leasing trend should benefit the Partnership, which makes most of its
trailers available for short-term leasing from rental yards owned and operated
by a PLM International subsidiary. The Partnership's utilization of refrigerated
trailers showed improvement in 1998, with utilization rates approaching 70%,
compared to 60% in 1997.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in 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 its 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 United States Oil Pollution Act of 1990, which established
liability for operators and owners of vessels and mobile offshore drilling units
that create environmental pollution. This regulation has resulted in higher oil
pollution liability insurance. The lessee of the equipment typically reimburses
the Partnership for these additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the U.S. that
do not meet certain noise, aging, and corrosion criteria. In addition, under
U.S. Federal Aviation Regulations, after December 31, 1999, no person may
operate an aircraft to or from any airport in the contiguous United States
unless that aircraft has been shown to comply with Stage III noise levels. The
Partnership has only one Stage II aircraft that does not meet Stage III
requirements. This aircraft is scheduled to be sold in 1999.
(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 and
over-the-road refrigerated trailers;
(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 railcars.
As of December 31, 1998, the Partnership is in compliance with the above
government regulations. Typically, costs related to extensive modifications are
passed on to the lessee of that equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased or interest in entities which own equipment. As of December 31,
1998, the Partnership owned a portfolio of transportation and related equipment
and investments in equipment owned by unconsolidated special-purpose entities
(USPEs), as described in Item 1, Table 1. The Partnership acquired equipment
with the proceeds of the Partnership offering of $100.0 million, proceeds from
debt financing of $23.0 million, and by reinvesting a portion of its operating
cash flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
The Partnership, together with affiliates, has initiated litigation in various
official forums in India against a defaulting Indian airline lessee to repossess
Partnership property and to recover damages for failure to pay rent and failure
to maintain such property in accordance with relevant lease contracts. The
Partnership has repossessed all of its property previously leased to such
airline, and the airline has ceased operations. In response to the Partnership's
collection efforts, the airline filed counterclaims against the Partnership in
excess of the Partnership's claims against the airline. The General Partner
believes that the airline's counterclaims are completely without merit, and the
General Partner will vigorously defend against such counterclaims.
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, 1998.
Part II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT
MATTERS
As of March 23, 1999, there were 5,785,350 depositary units outstanding. There
are 5,269 depositary unitholders of record as of the date of this report.
Several secondary markets facilitate sales and purchases of depositary units.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are generally viewed as inefficient vehicles for the
sale of depositary units. Presently, there is no public market for the units and
none is likely to develop.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferred
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of limited
partnership units in an effort to ensure that they do not exceed the number
permitted by certain safe harbors promulgated by the Internal Revenue Service. A
transfer may be prohibited if the intended transferee is not a U.S. citizen or
if the transfer would cause any portion of a "qualified plan" as defined by the
Employee Retirement Income Security Act of 1974 and Individual Retirement
Accounts to exceed the allowable limit.
On January 14, 1999, the General Partner for the Partnership announced that it
has begun recognizing transfers involving trading of units in the Partnership
for the 1999 calendar year. The Partnership is listed on the OTC Bulletin Board
under the symbol GFXPZ.
In making the announcement, the General Partner noted that, as in previous
years, it will continue to monitor the volume of such trades to ensure that the
Partnership remain in compliance with IRS Notice 88-75 and IRS Code Section
7704. These IRS regulations contain safe harbor provisions stipulating the
maximum number of partnership units that can be traded during a calendar year in
order for a partnership not to be deemed a publicly traded partnership for
income tax purposes.
Should the Partnership approach the annual safe harbor limitation later on in
1999, the General Partner will, at that time, cease to recognize any further
transfers involving trading of Partnership units. Transfers specifically
excluded from the safe harbor limitations, referred to in the regulations as
"transfers not involving trading," which include transfers at death, transfers
between family members, and transfers involving distributions from a qualified
retirement plan, will continue to be recognized by the General Partner
throughout the year.
Pursuant to the terms of the partnership agreement, the General Partner is
generally entitled to a 1% interest in the profits and losses and cash
distributions of the Partnership. The General Partner is the sole holder of such
interests. Special allocations of income are made to the General Partner equal
to the deficit balance, if any, in the capital account of the General Partner.
The General Partner's annual allocation of net income will generally be equal to
the General Partner's cash distributions paid during the current year. The
remaining interests in the profits and losses and cash distributions of the
Partnership are allocated to the limited partners. As of December 31, 1998,
there were 5,269 limited partners holding units in the Partnership.
The Partnership engaged in a plan to repurchase up to 250,000 depositary units.
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. During the first quarter of 1996,
the Partnership repurchased 24,800 depositary units at a total cost of $163,000.
There were no repurchases of depositary units in 1997 or 1998. As of December
31, 1998, the Partnership had purchased a cumulative total of 199,650 depositary
units at a cost of $2.6 million. The General Partner does not plan any future
repurchases of depositary units on behalf of the Partnership.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the years ended December 31,
(In thousands of dollars, except per weighted-average depositary unit amounts)
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
Operating results:
Total revenues $ 8,366 $ 12,462 $ 23,859 $ 23,575 $ 25,659
Net gain on disposition
of equipment 733 3,265 13,304 2,195 1,585
Loss on revaluation of
equipment -- -- -- -- 1,989
Equity in net income (loss) of
unconsolidated special-
purpose entities (895 ) (483 ) 8,728 -- --
Net income 1,807 5,685 23,847 4,234 75
At year-end:
Total assets $ 13,020 $ 20,006 $ 20,749 $ 39,061 $ 56,669
Total liabilities 693 1,308 1,331 24,727 32,606
Notes payable -- - - 23,000 28,000
Cash distribution $ 4,695 $ 6,405 $ 8,358 $ 13,549 $ 13,580
Special distribution $ 3,483 $ -- $ 10,242 $ -- $ --
Cash and special distribution
representing a return of capital
to the limited partners $ 6,397 $ 754 $ -- $ 9,351 $ 13,462
Per weighted-average depositary unit:
Net income (loss) $ 0.29 $ 0.97 $ 4.08 $ 0.70 $ (0.01)
Cash distribution $ 0.81 $ 1.10 $ 1.43 $ 2.30 $ 2.30
Special distribution $ 0.60 $ -- $ 1.75 $ -- $ --
Cash and special distribution
representing a return of capital $ 1.12 $ 0.13 $ -- $ 1.60 $ 2.30
- ----------------------------------
After reduction of $0.1 million ($0.01 per weighted-average depositary unit)
resulting from a special allocation to the General Partner relating to an
amendment to the partnership agreement. (see Note 1 to the financial
statements.)
After reduction of $41,000 ($0.01 per weighted-average depositary unit)
resulting from a special allocation to the General Partner relating to an
amendment to the partnership agreement. (see Note 1 to the financial
statements.)
After reduction of $0.1 million ($0.02 per weighted-average depositary
unit) resulting from a special allocation to the General Partner relating
to an amendment to the partnership agreement. (see Note 1 to the financial
statements.)
After reduction of $0.1 million ($0.02 per weighted-average depositary
unit) resulting from a special allocation to the General Partner relating
to an amendment to the partnership agreement. (see Note 1 to the financial
statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund (the
Partnership). The following discussion and analysis of operations focuses on the
performance of the Partnership's equipment in the various segments in which it
operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations -- Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for the Partnership's equipment include, but are not limited to, supply and
demand for similar or comparable types of transport capacity, desirability of
the equipment in the leasing market, market conditions for the particular
industry segment in which the equipment is to be leased, overall economic
conditions, and various regulations concerning the use of the equipment.
Equipment that is idle or out of service between the expiration of a lease and
the assumption of a subsequent lease can result in a reduction of contribution
to the Partnership. The Partnership experienced re-leasing activity or repricing
exposure in 1998 primarily in its aircraft, trailer, container, and railcar
portfolios.
(a) Aircraft: Aircraft contribution decreased from 1997 to 1998 due to
repair and maintenance expenses required on an aircraft in which the Partnership
owns a 50% interest remaining off-lease for all of 1997 and 1998. This aircraft
was on lease until the third quarter of 1996. In addition, one aircraft was sold
during the first quarter of 1998. The remaining aircraft investment was on lease
for the entire year.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities. The relatively short duration of most leases in these
operations exposes the trailers to considerable re-leasing activity.
Contributions from the Partnership's trailers that operated in short-term rental
facilities and the short-line railroad system from 1997 to 1998 decreased due to
the sale of trailers.
(c) Railcars: The majority of the Partnership's railcar equipment remained
on lease throughout the year, and thus was not adversely affected by re-leasing
and repricing exposure.
(d) Marine containers: All of the Partnership's marine container portfolio
is operated in utilization-based leasing pools and, as such, is highly exposed
to repricing activity. The Partnership saw lower re-lease rates and lower
utilization on the remaining marine containers fleet during 1998.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment and investment in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio and will result in reduction of contributions to the
Partnership. 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 lease terms can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1998:
(a) Liquidations: During 1998, the Partnership disposed of owned equipment
and interest in a USPE for proceeds of $3.0 million.
(b) Nonperforming Lessees: In 1996, the General Partner repossessed an
aircraft owned by a trust in which the Partnership has a 50% interest, due to
the lessee's inability to pay outstanding receivables. This aircraft remained
off lease throughout 1997 and 1998. In addition, an aircraft lessee was unable
to continue paying its obligations to the Partnership. This aircraft remained
off-lease in 1997 and 1998. As payment for these past-due receivables, the
Partnership was given an 18% interest in an entity that owns a Boeing 727
aircraft. The fair market value of the Partnership's interest in this aircraft
approximates its outstanding receivable from the lessee. This aircraft was sold
at its approximate net book value in the first quarter of 1998.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board (FASB) Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's portfolio at least quarterly in relation to expected future market
conditions for the purpose of assessing the recoverability of the recorded
amounts. If the projected undiscounted future lease revenue plus residual values
are less than the carrying values of the equipment, a loss on revaluation is
recorded. No reductions to the carrying value of equipment were required in
1998, 1997, or 1996.
As of December 31, 1998, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including the Partnership's
interest in USPEs owned by the Partnership, to be $28.0 million. This estimate
is based on recent market transactions for equipment similar to the
Partnership's equipment portfolio and the Partnership's interest in equipment
owned by USPEs. Ultimate realization of fair market value by the Partnership may
differ substantially from the estimate due to specific market conditions,
technological obsolescence, and government regulations, among other factors that
the General Partner cannot accurately predict.
(C) Financial Condition -- Capital Resources and Liquidity
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 the limited partners are permitted under the
terms of the limited partnership agreement. The Partnership currently has no
debt obligations. As the Partnership entered its liquidation phase in 1998, it
is prohibited from incurring and new debt. 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, 1998, the Partnership generated $4.0 million in
operating cash (net cash provided by operating activities, plus non-liquidating
cash distributions from USPEs) to meet its operating obligations, but used
undistributed available cash from prior periods of $4.2 million to maintain the
current level of distributions and to make a special distribution to the
partners.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating expenses, and asset-specific insurance expenses) on owned
equipment decreased during the year ended December 31, 1998, compared to the
same period of 1997. Certain expenses such as depreciation and amortization and
general and administrative expenses relating to the operating segments (see Note
5 to the audited financial statements), are not included in the owned equipment
operation discussion because these expenses are more indirect in nature, not a
result of operations but more the result of owning a portfolio of equipment. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years Ended
December 31,
1998 1997
----------------------------
Rail equipment $ 4,064 $ 4,497
Trailers 866 1,222
Marine containers 231 791
Aircraft and aircraft engines -- 249
Rail equipment: Rail equipment lease revenues and direct expenses were $6.0
million and $1.9 million, respectively, for the year ended December 31, 1998,
compared to $6.2 million and $1.7 million, respectively, for the same period of
1997. Direct revenues decreased due to the sale of railcars during the preceding
twelve months. Direct expenses on railcars increased due to increased repairs
required on certain of the railcars in the fleet during 1998, which were not
needed during 1997.
Trailers: Trailer lease revenues and direct expenses were $1.2 million and $0.3
million, respectively, for the year ended December 31, 1998, compared to $1.7
million and $0.5 million, respectively, for the same period of 1997. The number
of trailers owned by the Partnership has declined due to sales and dispositions
of the trailers during 1998 and 1997. The result of this declining fleet is a
decrease in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $3,000, respectively, for the year ended December 31, 1998, compared
to $0.8 million and $5,000, respectively, for the same period of 1997. The
number of marine containers owned by the Partnership has declined due to sales
and dispositions of containers during 1998 and 1997. The result of this
declining fleet is a decrease in marine container contribution.
Aircraft: The Partnership had zero revenues and direct expenses from aircraft
for the year ended December 31, 1998, compared to $0.3 million and $6,000,
respectively, for the same period of 1997. There was no aircraft contribution in
1998 due to the disposition of the last aircraft in the Partnership in the third
quarter of 1997.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $3.5 million for the year ended December 31, 1998,
decreased from $4.1 million for the same period of 1997. The decrease is due
primarily to a $0.5 million decrease in depreciation expense from 1997 levels
resulting from the sale of certain assets during 1998 and 1997, and a $0.1
million decrease in bad debt expense due to bad debt expense recorded in 1997
related to a former aircraft lessee.
(c) Net Gain on Disposition of Owned Equipment
The net gain on disposition of owned equipment for 1998 totaled $0.7 million,
and resulted from the sale of marine containers, railcars, aircraft, and
trailers, with an aggregate net book value of $1.2 million, for aggregate
proceeds of $1.9 million. For 1997, gain on sales totaled $3.3 million, and
resulted from the sale of marine containers, trailers, railcars, and an aircraft
with an aggregate net book value of $0.9 million, for aggregate proceeds of $4.2
million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Year
Ended December 31,
1998 1997
----------------------------------------------------------------------------------------------------
Marine vessel $ 428 $ 12
Aircraft (1,323 ) (495 )
====================================================================================================
Equity in net loss of USPEs $ (895 ) $ (483 )
====================================================================================================
Marine vessel: As of December 31, 1998 and 1997, the Partnership had an interest
in an entity that owns a marine vessel. The Partnership's share of marine vessel
revenues and expenses was $2.6 million and $2.2 million for 1998, compared to
$2.5 million and $2.5 million, respectively, for 1997. Marine vessel
contribution increased due to a refund received during 1998 from Transportation
Equipment Company, Ltd. and an affiliate of the General Partner, related to
lower claims from the insured Partnership and other insured affiliated
partnerships.
Aircraft: As of December 31, 1998 and 1997, the Partnership had an interest in
two entities that own a total of two commercial aircraft. The Partnership's
share of aircraft revenues and expenses were $0.6 million and $1.9 million,
respectively, for the year ended December 31, 1998, compared to $0.7 million and
$1.2 million, respectively, for the same period of 1997. The Partnership's 50%
interest in an entity that owns a commercial aircraft was off lease during 1998
and 1997. Direct expenses in this entity increased due to required repairs on
this aircraft. The Partnership's remaining 12% interest in an entity that owns a
commercial aircraft had an increase in contribution primarily due to lower
depreciation expense.
(e) Net Income
As a result of the foregoing, the Partnership's net income of $1.8 million for
the year ended December 31, 1998, decreased from net income of $5.7 million
during the same period of 1997. The Partnership's ability to operate and
liquidate assets and re-lease those assets whose leases expire is subject to
many factors, and the Partnership's performance in the year ended December 31,
1998 is not necessarily indicative of future periods. In 1998, the Partnership
distributed $8.1 million to the limited partners, or $1.41 per weighted-average
depositary unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1997 and 1996
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operations, and asset-specific insurance expenses) on owned equipment
decreased during the year ended 1997 when compared to 1996. The following table
presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Years Ended
December 31,
1997 1996
----------------------------
Rail equipment $ 4,497 $ 4,547
Trailers 1,222 1,299
Marine containers 791 1,276
Aircraft and aircraft engines 249 472
Marine vessels -- 162
Rail equipment: Rail equipment lease revenues and direct expenses were $6.2
million and $1.7 million, respectively, for 1997, compared to $6.4 million and
$1.9 million, respectively, during 1996. During 1997 and 1996, the Partnership
sold 37 railcars, resulting in lower revenues and expenses in 1997 compared to
1996.
Trailers: Trailer lease revenues and direct expenses were $1.7 million and $0.5
million, respectively, for 1997, compared to $1.8 million and $0.5 million,
respectively, during 1996. The trailer net contribution decreased due to the
sale of trailers during 1996 and 1997.
Marine containers: Marine container lease revenues and direct expenses were $0.8
million and $5,000, respectively, for 1997, compared to $1.3 million and $8,000,
respectively, during 1996. The number of marine containers owned by the
Partnership has been declining over the past twelve months due to sales and
dispositions.
Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were
$0.3 million and $6,000, respectively, for 1997, compared to $0.5 million and
$16,000, respectively, during 1996. Aircraft contribution decreased in 1997 due
to the disposition of the last aircraft in the Partnership during the third
quarter of 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were zero for
1997, compared to $0.2 million and a credit of $22,000, respectively, during
1996. The decrease in marine vessel contribution from 1996 to 1997 was due to
the sale of all vessels during 1996.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.1 million for 1997 decreased from $6.3 million in
1996. The significant variances are explained as follows:
(i) A $1.0 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996.
(ii)A $0.9 million decrease in interest expense was due to repayment of the
Partnership's outstanding debt in 1996.
(iii) A $0.2 million decrease in management fees to affiliate was due to a
decrease in the Partnership's operating cash flows. Management fees are based on
the greater of (a) 10% of cash flows, or (b) 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) Net Gain on Disposition of Owned Equipment
Net gain on disposition of owned equipment for 1997 totaled $3.3 million, which
resulted from the sale or disposal of marine containers, trailers, railcars, and
an aircraft, with an aggregate net book value of $0.9 million, for aggregate
proceeds of $4.2 million. For 1996, the $13.3 million net gain on disposition of
owned equipment resulted mainly from the sale of vessels with a net book value
of $2.3 million, for proceeds of $13.4 million. The remaining gain resulted from
the sale or disposal of marine containers, trailers, railcars, locomotives, and
an aircraft engine, with an aggregate net book value of $2.3 million, for
aggregate proceeds of $4.5 million.
(d) Interest and Other Income
Interest and other income decreased $0.1 million during 1997, when compared to
1996, due primarily to lower average cash balances available during the year for
investments.
(e) Equity in Net Income (Loss) of USPEs
Net income (loss) generated from the operation of jointly-owned assets, and is
accounted for under the equity method (see Note 4 to the financial statements),
as follows (in thousands of dollars):
For the Years Ended
December 31,
1997 1996
----------------------------
Marine vessel $ 12 $ 247
Aircraft and aircraft engines (495 ) 468
Mobile offshore drilling unit -- 8,013
===================================================================================================
Equity in net income (loss) of USPEs $ (483 ) $ 8,728
===================================================================================================
Marine vessel: The Partnership's share of marine vessel revenues and expenses
was $2.5 million and $2.5 million, respectively, for 1997, compared to $2.2
million and $2.0 million, respectively, for 1996. During 1997 and 1996, the
Partnership owned a 50% investment in a marine vessel. The decrease in net
income in 1997 resulted from higher insurance expense, which was partially
offset by higher lease rates during 1997, compared to 1996.
Aircraft and aircraft engines: The Partnership's share of aircraft revenues and
expenses was $0.7 million and $1.2 million, respectively, for 1997, compared to
$2.5 million and $2.0 million, respectively, for 1996. As of December 31, 1997,
the Partnership owned 50%, 18%, and 12% interests in commercial aircraft. The
Partnership liquidated its 70% and 50% investments in commuter aircraft and its
50% investment in an aircraft engine during 1996 as a result of the General
Partner's sale of the assets. The loss of $0.5 million related to the
Partnership's 50% investment in a commercial aircraft. This aircraft was off
lease during 1997, although it had been on lease for six months in 1996. The
Partnership's remaining 18% and 12% investments in commercial aircraft operated
at essentially breakeven during 1997.
Mobile offshore drilling unit: The Partnership's share of mobile offshore
drilling unit revenues and expenses was zero for 1997, compared to $8.8 million
and $0.8 million, respectively, during 1996. The Partnership liquidated its 55%
investment in the mobile offshore drilling unit during July 1996 as a result of
the General Partner's sale of the asset.
(f) Net Income
As a result of the foregoing, the Partnership's net income of $5.7 million for
the year ended December 31, 1997, decreased from net income of $23.8 million
during 1996. The Partnership's ability to operate and liquidate assets, secure
leases, and re-lease those assets whose leases expire is subject to many
factors, and the Partnership's performance during the year ended December 31,
1997 is not necessarily indicative of future periods. During 1997, the
Partnership distributed $6.3 million to the limited partners, or $1.10 per
depositary unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes that these risks are
minimal or has implemented strategies to control the risks. Currency risks are
at a minimum because all invoicing, with the exception of a small number of
railcars operating in Canada, is conducted in U.S. dollars. Political risks are
minimized by avoiding operations in countries that do not have a stable judicial
system and established commercial business laws. Credit support strategies for
lessees range from letters of credit supported by U.S. banks to cash deposits.
Although these credit support mechanisms generally allow the Partnership to
maintain its lease yield, there are risks associated with slow-to-respond
judicial systems when legal remedies are required to secure payment or repossess
equipment. Economic risks are inherent in all international markets and the
General Partner strives to minimize this risk with market analysis prior to
committing equipment to a particular geographic area. Refer to Note 6 to the
financial statements for information on the revenues, income (loss), and net
book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as equipment is
sold in various equipment markets and geographic areas. An explanation of the
current relationships is presented below.
During 1998, the Partnership's equipment on lease to United States-domiciled
lessees accounted for 21% of the lease revenues generated by wholly and
partially-owned equipment while the net income accounted for $0.1 million for
the Partnership's total net income of $1.8 million. In 1998, the Partnership
generated $0.9 million in gains from disposition of trailers and railcars that
were operated in the United States.
The Partnership's equipment leased to Canadian-domiciled lessees consists of
railcars. During 1998, lease revenues in Canada accounted for 47% of total lease
revenues of wholly and partially-owned equipment, while the net income accounted
for $3.4 million for the Partneship's total net income of $1.8 million.
The Partnership's 50% investment in a marine vessel and various marine
containers, which were leased in various regions throughout 1998, accounted for
27% of the lease revenues generated by wholly and partially-owned equipment,
while the net income accounted for $0.5 million for the Partnership's total net
income of $1.8 million. The Partnership's 50% investment in a marine vessel
earned lease revenues of $2.6 million in 1998 and generated $0.4 million in net
income. The Partnership's marine containers earned $0.2 million in lease
revenues and generated a $0.1 million in net income. Marine container lease
revenue is expected to decline in the future, as the Partnership has sold and
will continue to sell marine containers.
The Partnership has a 12% investment in a commercial aircraft that operates in
South America, which accounted for 6% of the lease revenues generated by wholly
and partially-owned equipment, while the net income accounted for $0.2 million
of the Partnership's total net income of $1.8 million. This aircraft is on lease
until 1999 and is expected to generate higher net profit in the future as
depreciation charges decline.
(F) Effects of Year 2000
It is possible that the General Partner's currently installed computer systems,
software products and other business systems, or the Partnership's vendors,
service providers and customers, working either alone or in conjunction with
other software and systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000, without error or interruption (a
problem commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications, and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition and results of
operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000-compliant or Year 2000-compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal year 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year
2000-compliant have not been material. Also, the General Partner believes the
future costs allocable to the Partnership to become Year 2000-compliant will not
be material.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of its leased equipment
portfolio will have an adverse material impact on its financial statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position and results of
operations from the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and develop a contingency plan if the General Partner determines
that third-party non-compliance will have a material adverse effect on the
Partnership's business, financial position or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems due to the Year 2000 problems. The General
Partner anticipates these plans will be completed by September 30, 1999.
(G) Accounting Pronouncements
In June 1998, the Financial Acounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Insutruments and Hedging Activities", which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognized those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of December 31, 1998,
the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 1998,
1997, or 1996.
(I) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(J) Outlook for the Future
Since the Partnerhsip entered its orderly liquidation phase in the first quarter
of 1998, the General Partner is seeking to selectively re-lease or sell assets
as the existing leases expire. Sale decisions will cause the operating
performance of the Partnership to decline over the remainder of its life.
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredicability of these factors, or of
their occurrence, makes it difficult for the General Partner to clearly define
trends or influences that may impact the performance of the Partnership's
equipment. The General Partner continually monitors both the equipment markets
and the performance of the Partnership's equipment in these markets. The General
Partner may decide to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return.
The Partnership intends to use excess cash flow from operations to satisfy its
operating requirements, and to pay cash distributions to the investors.
(1) Repricing
Certain of the Partnership's aircraft, marine vessels, railcars, containers and
trailers will be remarketed in 1999 as existing leases expire, exposing the
Partnership to some repricing risk/opportunity. Additionally, the General
Partner may elect to sell certain underperforming equipment or equipment whose
continued operation may become prohibitively expensive. In either case, the
General Partner intends to re-lease or sell equipment at prevailing market
rates; however, the General Partner cannot predict these future rates with any
certainty at this time, and cannot accurately assess the effect of such activity
on future Partnership performance. The proceeds from the sold or liquidated
equipment will be distributed to the limited partners, or held for operating
reserves.
(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 United States and
internationally, cannot be predicted with accuracy, and preclude the General
Partner from determining the impact of such changes on Partnership operations,
or sale of equipment. Under U.S. Federal Aviation Regulations, after December
31, 1999, no person may operate an aircraft to or from any airport in the
contiguous United States unless that aircraft has been shown to comply with
Stage III noise levels. The Partnership is scheduled to sell its remaining Stage
II aircraft in 1999.
(3) Distributions
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 during the liquidation phase of the Partnership. During this time, the
Partnership will use operating cash flow and proceeds from the sale of equipment
to meet its operating obligations and make distributions to the partners.
Although the General Partner intends to maintain a sustainable level of
distributions prior to final liquidation of the Partnership, actual Partnership
performance and other considerations may require adjustments to then-existing
distribution levels. In the long term, changing market conditions and used
equipment values preclude the General Partner from accurately determining the
impact of future re-leasing activity and equipment sales on partnership
performance and liquidity.
Since the Partnership has entered the active liquidation phase 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 may be reduced, significant asset sales
may result in potential special distributions to unitholders.
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 on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL
AND PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
Name Age Position
- ---------------------------------------- ------------------ -------------------------------------------------------
Robert N. Tidball 60 Chairman of the Board, Director, President, and Chief
Executive Officer, PLM International, Inc.; Director,
PLM Financial Services, Inc.; Vice President, PLM
Railcar Management Services, Inc.; President, PLM
Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 52 Director and Senior Vice President, PLM
International, Inc.; Director and President, PLM
Financial Services, Inc.; President, PLM
Transportation Equipment Corporation; President, PLM
Railcar Management Services, Inc.
Warren G. Lichtenstein 33 Director, PLM International, Inc.
Howard M. Lorber 50 Director, PLM International, Inc.
Harold R. Somerset 63 Director, PLM International, Inc.
Robert L. Witt 58 Director, PLM International, Inc.
J. Michael Allgood 50 Vice President and Chief Financial Officer, PLM
International, Inc. and PLM Financial Services, Inc.
Robin L. Austin 52 Vice President, Human Resources, PLM International,
Inc. and PLM Financial Services, Inc.
Stephen M. Bess 52 President, PLM Investment Management, Inc.; Vice
President and Director, PLM Financial Services, Inc.
Richard K Brock 36 Vice President and Corporate Controller, PLM
International, Inc. and PLM Financial Services, Inc.
James C. Chandler 50 Vice President, Planning and Development, PLM
International, Inc. and PLM Financial Services, Inc.
Susan C. Santo 36 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Janet M. Turner 42 Vice President, Investor Relations and Corporate
Communications, PLM International, Inc. and PLM
Investment Management, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. 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, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
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 of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
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 Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. 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 of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree 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.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services, Inc. in December 1992. Between July 1991 and October
1992, Mr. Allgood was a consultant to various private and public-sector
companies and institutions specializing in financial operations 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.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. 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 Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Corporate Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
James C. Chandler became Vice President, Planning and Development of PLM
International in April 1996. From 1994 to 1996 Mr. Chandler worked as a
consultant to public companies, including PLM, in the formulation of business
growth strategies. Mr. Chandler was Director of Business Development at Itel
Corporation from 1987 to 1994, serving with both the Itel Transportation Group
and Itel Rail.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
Janet M. Turner became Vice President of Investor Services of PLM International
in 1994, having previously served as Vice President of PLM Investment
Management, Inc. since 1990. Before 1990, Ms. Turner held the positions of
manager of systems development and manager of investor relations at the Company.
Prior to joining PLM in 1984, she was a financial analyst with The
Toronto-Dominion Bank in Toronto, Canada.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
(This space intentionally left
blank.)
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1998.
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 subject to certain special
allocations of income. In addition to its General Partner interest, FSI
owned 1,500 units in the Partnership at December 31, 1998. As of December
31, 1998, 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 3, below, sets forth, as of the date of this report, the amount and
percentage 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 3
Name Depositary Units Percent of Units
Robert N. Tidball 400 *
All directors and officers
As a group (1 person) 400 *
* Less than 1%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1998, management fees paid or accrued to IMI were $0.5 million.
During 1998, the Partnership reimbursed FSI or its affiliates $0.4 million
for administrative services and data processing expenses performed on
behalf of the Partnership.
During 1998, the USPEs paid or accrued the following fees to FSI or its
affiliates (based on the Partnership's proportional share of ownership):
management fees, $0.1 million and administrative and data processing
services, $26,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(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.
24. 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 23, 1999 PLM EQUIPMENT GROWTH FUND
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
----------------------------
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
----------------------------
Richard K Brock
Vice President and
Corporate Controller
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
*_______________________
Robert N. Tidball Director , FSI March 23, 1999
*_______________________
Douglas P. Goodrich Director , FSI March 23, 1999
*_______________________
Stephen M. Bess Director , FSI March 23, 1999
* Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
- ----------------------
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 25
Balance sheets as of December 31, 1998 and 1997 26
Statements of income for the years ended
December 31, 1998, 1997, and 1996 27
Statements of changes in partners' capital for the years
ended December 31, 1998, 1997, and 1996 28
Statements of cash flows for the years ended
December 31, 1998, 1997, and 1996 29
Notes to financial statements 30-38
All financial statement schedules have been omitted, because the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund (the Partnership) listed in the accompanying index to financial statements.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We have conducted our audits in accordance with 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.
As described in Note 1 to the financial statements, PLM Equipment Growth Fund,
in accordance with the limited partnership agreement, entered its liquidation
phase on January 1, 1998 and has commenced an orderly liquidation of the
Partnership assets. The Partnership will terminate on December 31, 2006, unless
terminated earlier upon sale of all equipment or by certain other events.
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, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/S/ KPMG LLP
- -------------------------
SAN FRANCISCO, CALIFORNIA
March 12, 1999
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
1998 1997
----------------------------------
Assets
Equipment held for operating leases, at cost $ 26,113 $ 33,019
Less accumulated depreciation (20,862 ) (24,885 )
-----------------------------------------------------------------------------------------------------------------
Net equipment 5,251 8,134
Cash and cash equivalents 3,289 4,585
Accounts receivable, less allowance for doubtful accounts
of $161 in 1998 and $212 in 1997 305 920
Due from affiliate -- 353
Investments in unconsolidated special-purpose entities 4,149 5,983
Prepaid expenses and other assets 26 31
---------------------------------
Total assets $ 13,020 $ 20,006
=================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 131 $ 735
Due to affiliates 525 529
Lessee deposits and reserve for repairs 37 44
---------------------------------
Total liabilities 693 1,308
---------------------------------
Partners' capital (deficit):
Limited partners (5,785,350 depositary units as of
December 31, 1998 and 1997) 12,327 18,887
General Partner -- (189 )
---------------------------------
Total partners' capital 12,327 18,698
---------------------------------
Total liabilities and partners' capital $ 13,020 $ 20,006
=================================
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 weighted-average unit amounts)
1998 1997 1996
--------------------------------------------
Revenues
Lease revenue $ 7,393 $ 8,956 $ 10,187
Interest and other income 240 241 368
Net gain on disposition of equipment 733 3,265 13,304
-------------------------------------------
Total revenues 8,366 12,462 23,859
-------------------------------------------
Expenses
Depreciation and amortization 1,820 2,276 3,267
Repairs and maintenance 2,213 2,164 2,405
Insurance expense to affiliate (45 ) -- 1
Other insurance expenses 40 61 73
Management fees to affiliate 505 535 739
Interest expense -- -- 945
General and administrative expenses to affiliate 422 641 708
Other general and administrative expenses 704 527 468
Provision for bad debts 5 90 134
-------------------------------------------
Total expenses 5,664 6,294 8,740
-------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (895 ) (483 ) 8,728
-------------------------------------------
Net income $ 1,807 $ 5,685 $ 23,847
===========================================
Partners' share of net income
Limited partners $ 1,536 $ 5,587 $ 23,609
General Partner 271 98 238
-------------------------------------------
Total $ 1,807 $ 5,685 $ 23,847
===========================================
Net income per weighted-average depositary unit $ 0.29 $ 0.97 $ 4.08
===========================================
Cash distribution $ 4,695 $ 6,405 $ 8,358
Special distribution 3,483 -- 10,242
------------------------------------------------------------------------------------------------------------------
Total distribution $ 8,178 $ 6,405 $ 18,600
==================================================================================================================
Per weighted-average depositary unit:
Cash distribution $ 0.81 $ 1.10 $ 1.43
Special distribution 0.60 -- 1.75
------------------------------------------------------------------------------------------------------------------
Total distribution $ 1.41 $ 1.10 $ 3.18
===========================================
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, 1998, 1997, and 1996
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------
Partners' capital (deficit) as of December 31, 1995 $ 14,609 $ (275 ) $ 14,334
Net income 23,609 238 23,847
Repurchase of depositary units (163 ) -- (163 )
Cash distribution (8,274 ) (84 ) (8,358 )
Special distribution (10,140 ) (102 ) (10,242 )
------------------------------------------------
Partners' capital (deficit) as of December 31, 1996 19,641 (223 ) 19,418
Net income 5,587 98 5,685
Cash distribution (6,341 ) (64 ) (6,405 )
---------------------------------------------------------------------------------------------------------------
Partners' capital (deficit) as of December 31, 1997 18,887 (189 ) 18,698
Net income 1,536 271 1,807
Cash distribution (4,648 ) (47 ) (4,695 )
Special distribution (3,448 ) (35 ) (3,483 )
---------------------------------------------------------------------------------------------------------------
Partners' capital (deficit) as of December 31, 1998 $ 12,327 $ -- $ 12,327
================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
1998 1997 1996
--------------------------------------------
Operating activities
Net income $ 1,807 $ 5,685 $ 23,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,820 2,276 3,267
Net gain on disposition of equipment (733 ) (3,265 ) (13,304 )
Equity in net (income) loss from unconsolidated special-
purpose entities 895 483 (8,728 )
Changes in operating assets and liabilities:
Restricted cash -- 60 187
Accounts receivable, net 613 (219 ) 344
Due from affiliate 353 (353 ) --
Prepaid expenses and other assets 5 3 (50 )
Accounts payable and accrued expenses (604 ) 278 (208 )
Due to affiliates (4 ) 408 21
Lessee deposits and reserve for repairs (7 ) (649 ) (209 )
-------------------------------------------------
Net cash provided by operating activities 4,145 4,707 5,167
-------------------------------------------------
Investing activities
Payments for capital improvements (108 ) (116 ) (62 )
Investment in unconsolidated special-purpose
entities (721) (831 ) --
Liquidation of investment in equipment placed in
unconsolidated special-purpose entities 1,101 150 17,525
Distribution from unconsolidated special-purpose entities 557 1,049 1,521
Proceeds from disposition of equipment 1,908 4,167 17,917
-------------------------------------------------
Net cash provided by investing activities 2,737 4,419 36,901
-------------------------------------------------
Financing activities
Principal repayments under note payable -- -- (23,000 )
Decrease in restricted cash -- -- 85
Cash distribution paid to limited partners (4,648 ) (6,341 ) (8,274 )
Cash distribution paid to General Partner (47 ) (64 ) (84 )
Special distribution paid to limited partners (3,448 ) - (10,140 )
Special distribution paid to General Partner (35 ) - (102 )
Repurchases of depositary units -- - (163 )
-------------------------------------------------
Net cash used in financing activities (8,178 ) (6,405 ) (41,678 )
-------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,296 ) 2,721 390
Cash and cash equivalents at beginning of year 4,585 1,864 1,474
-------------------------------------------------
Cash and cash equivalents at end of year $ 3,289 $ 4,585 $ 1,864
=================================================
Supplemental information
Interest paid $ -- $ -- $ 958
=================================================
Receipt of interest in unconsolidated special-purpose entity in
settlement of receivables $ -- $ 281 $ --
=================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation
Organization
PLM Equipment Growth Fund, a California limited partnership (the
Partnership) was formed on January 28, 1986. The Partnership engages
primarily in the business of owning, leasing, or otherwise investing in
predominantly used transportation and related equipment. The Partnership
commenced significant operations in August 1986. PLM Financial Services,
Inc. (FSI) is the General Partner of the Partnership. 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 limited partnership
agreement, the General Partner may no longer reinvest cash flows and
surplus funds in equipment. All future cash flows and surplus funds, if
any, are to be used for distributions to partners, except to the extent
used to maintain reasonable reserves. The Partnership began the
liquidation phase of the Partnership in January 1998.
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 subject to certain special
allocations (see Net Income (Loss) and Distributions Per Depositary Unit,
below). The General Partner is entitled to a subordinated 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.
The accompanying 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, 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, sells 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 programs.
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.
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance or declining balance method,
based upon estimated useful lives of 15 to 18 years for railcars, and 12
years for marine containers, trailers, aircraft, and the marine vessel.
The depreciation method converts to straight line when annual depreciation
expense using the straight-line method exceeds that calculated by the
accelerated method.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation (continued)
Transportation Equipment
In accordance with the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" (SFAS 121). The General
Partner reviews the carrying value of the Partnership's equipment at
least quarterly in relation to expected future market conditions for the
purpose of assessing recoverability of the recorded amounts. If projected
undiscounted future lease revenue plus residual values are less than the
carrying value of the equipment, a loss on revaluation is recorded. No
reductions to the carrying value of equipment were required during 1998,
1997 or 1996.
Investments in Unconsolidated Special-Purpose Entities
The Partnership has interests in unconsolidated special-purpose entities
that own transportation equipment. These interests are accounted for using
the equity method.
The Partnership's investment in unconsolidated special-purpose entities
includes acquisition and lease negotiation fees paid by the Partnership to
TEC, a wholly-owned subsidiary of FSI. The Partnership's interest in
USPE's is managed by IMI. The Partnership's equity interest in net income
(loss) of unconsolidated special-purpose entities is reflected net of
management fees paid or payable to IMI and the amortization of acquisition
and lease negotiation fees paid to TEC.
Repairs and Maintenance
Repair and maintenance cost to railcars and the trailer equipment operated
in rental yards owned and maintained by PLM Rental, Inc., the short-term
trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing, are usually the obligation of the Partnership.
Maintenance costs of most of the other equipment are the obligation of the
lessee. If they are not covered by the lessee, they are generally charged
against operations as incurred. The reserve accounts are included in the
balance sheet as lessee deposits and reserve for repairs.
Net Income (Loss) and Distributions Per Depositary Unit
The net income (loss) of the Partnership is generally allocated 99% to the
limited partners and 1% to the General Partner. Special allocations of
income are made to the General Partner equal to the deficit balance, if
any, in the capital account of the General Partner. Cash distributions of
the Partnership are generally allocated 99% to the limited partners and 1%
to the General Partner and may include amounts in excess of net income.
The General Partner received a special allocation of income in the amount
of $0.1 million in 1998 and $41,000 in 1997. No special allocation was
received in 1996. The General Partner received an additional allocation of
income of $0.2 million in 1998 to adjust their capital account to zero in
accordance with the Partnership agreements. The limited partners' net
income (loss) is allocated among the limited partners based on the number
of limited partnership units owned by each limited partner and on the
number of days of the year each limited partner is in the Partnership.
Cash distributions are recorded when paid and may include amounts in
excess of net income. An operating cash distribution of $1.0 million
($0.172 per depositary unit) was declared on January 25, 1999 and paid on
February 12, 1999 to the unitholders of record as of December 31, 1998.
Special distributions in 1998 were $3.5 million. Special distributions are
typically made from the proceeds of the sale of equipment. No special
distributions were paid to partners in 1997. The special distributions
paid to partners in 1996 were $10.2 million. Cash distributions to
investors in excess of net income are considered a return of capital. Cash
distributions to limited partners of $6.4 million in 1998 were deemed to
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. Basis of Presentation (continued)
Net Income Per Weighted-Average Depositary Unit
be a return of capital. Cash distributions to limited partners of $0.8
million in 1997 were deemed to be a return of capital. No cash
distributions in 1996 were deemed to be a return of capital.
Net income per weighted-average depositary unit was computed by dividing
net income attributable to limited partners by the weighted-average number
of depositary units deemed outstanding during the period. The
weighted-average number of depositary units deemed outstanding during the
years ended December 31, 1998, 1997, and 1996 were 5,785,350, 5,785,350,
and 5,787,545, respectively.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents. The carrying amount of cash
equivalents approximates fair market value due to the short-term nature of
the investments.
Comprehensive Income
During 1998, the Partnership adopted Financial Accounting Standards Board
Statement No. 130, "Reporting Comprehensive Income," which requires
enterprises report, by major component and in total, all changes in equity
from nonowner sources. The Partnership's net income (loss) is equal to
comprehensive income for the years ended December 31, 1998, 1997, and
1996.
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 attributable to either owned equipment or interests in
equipment owned by the USPEs equal to the greater of (a) 10% of cash flows
or (b) 1/12 of 1/2% of the book value of the equipment portfolio, subject
to a reduction in certain events, as described in the limited partnership
agreement. Partnership management fees of $39,000 and $0.1 million were
payable to IMI as of December 31, 1998 and 1997. The Partnership's
proportional share of USPE management fees of $3,000 and $10,000 was
payable as of December 31, 1998 and 1997, respectively. The Partnership's
proportional share of USPE management fee expense was $0.1 million and
$0.2 million during 1998 and 1997 and $0.2 million in 1996. Additionally,
the Partnership reimbursed FSI and its affiliates $0.4 million, $0.6
million, and $0.7 million for administrative services and data processing
expenses performed on behalf of the Partnership in 1998, 1997, and 1996,
respectively. The Partnership's proportional share of USPE administrative
and data processing expenses was $26,000, $49,000 and $0.1 million million
during 1998, 1997, and 1996, respectively.
The Partnership paid $1,000 in 1996 to Transportation Equipment Indemnity,
Company, Ltd. (TEI), a wholly-owned subsidiary of PLM, which provides
marine insurance coverage and other insurance brokerage services. No fees
were paid to TEI in 1998 or 1997 for wholly-owned equipment. The
Partnership's proportional share of USPE marine insurance coverage paid to
TEI was $0 in 1998 and $0.2 million during 1997 and 1996. A substantial
portion of these amounts was 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.
During 1998, TEI did not provide the same level of insurance coverage as
had been provided during the previous years. PLMI plans to liquidate TEI
in 1999.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
3. Equipment
As of December 31, 1998, all of the Partnership's trailer equipment was in
rental facilities operated by PLM Rental, Inc., an affiliate of the
General Partner doing business as PLM Trailer Leasing. Revenues collected
under short-term rental agreements with the rental yards' customers are
credited to the owners of the related equipment as received. Direct
expenses associated with the equipment are charged directly to the
Partnership. An allocation of indirect expenses of the rental yard
operations is charged to the Partnership monthly. The components of owned
equipment as of December 31, 1998 and 1997 are as follows (in thousands of
dollars):
Equipment held for operating leases 1998 1997
-----------------------------------------------------------------------------------------
Rail equipment $ 21,635 $ 21,948
Trailers 2,439 7,628
Marine containers 2,039 3,443
---------------------------------
26,113 33,019
Less accumulated depreciation (20,862 ) (24,885 )
---------------------------------
Net equipment $ 5,251 $ 8,134
=================================
Revenues are earned by placing the equipment under operating leases that
are generally billed monthly or quarterly. All of the Partnership's marine
containers are leased to operators of utilization-type leasing pools,
which include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all
other equipment are based on fixed rates.
As of December 31, 1998, all owned equipment in the Partnership's
portfolio was on lease or operating in PLM-affiliated short-term trailer
rental facilities, except for 23 marine containers and 5 railcars with an
aggregate net book value of $23,000. As of December 31, 1997, the
Partnership had 24 marine containers and 3 railcars off lease with an
aggregate net book value of $20,000.
The General Partner, on behalf of the Partnership, incurred approximately
$0.1 million in 1998, 1997, and 1996 in capital improvements, but did not
purchase any additional equipment, in accordance with the limited
partnership agreement.
During 1998, the Partnership sold marine containers, trailers, railcars,
and an aircraft, with a net book value of $1.2 million, for $1.9 million.
During 1997, the Partnership sold or disposed of marine containers,
trailers, railcars, and an aircraft, with a net book value of $0.9
million, for $4.2 million.
All leases for owned and partially-owned equipment are being accounted for
as operating leases. Future minimum rentals under noncancelable leases for
owned and partially-owned equipment as of December 31, 1998, and during
each of the next five years and thereafter, are approximately $4.4 million
in 1999, $2.1 million in 2000, $800,000 in 2001, $150,000 in 2002, and
$30,000 thereafter. Contingent rentals based upon utilization for owned
and partially-owned equipment were approximately $0.3 million, $0.8
million, and $1.2 million in 1998, 1997, and 1996, respectively.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
4. Investments in Unconsolidated Special-Purpose Entities (continued)
An aircraft lessee encountered financial difficulties in 1996. The General
Partner established reserves against these receivables due to the
determination that ultimate collection of these rents was uncertain. As
payment for these past due receivables, the Partnership was given an 18%
interest in an entity that owns a Boeing 727 aircraft. In 1997, the
Partnership contributed $0.8 million to this entity. These funds were used
to make capital repairs to prepare the aircraft for sale. This aircraft was
sold at its approximate net book value in the first quarter of 1998. The
fair market value of the Partnership's interest in this aircraft
approximated the outstanding receivable from this lessee.
During 1997, the Partnership liquidated an aircraft engine from its 50%
investment in an entity that owned a commercial aircraft and an aircraft
engine, for a gain of $0.2 million.
The Partnership's 50% investment in a commercial aircraft, included in the
investments in unconsolidated special-purpose entities, was off lease as of
December 31, 1998 and 1997.
The following summarizes the financial information for the special-purpose
entities and the Partnership's interest therein as of and for the years
ended December 31, 1998 and 1997 (in thousands of dollars):
1998 1997 1996
------ ------ ------
Net Interest Net Interest Net
Total of Total of Total Interest of
USPEs Partnership USPEs Partnership USPEs Partnership
-------------------------------- ---------------------------- -------------------------------
Net investments $ 22,096 $ 4,149 $ 31,664 $ 5,983 $ 31,608 $ 6,553
Revenues 10,300 3,200 9,610 2,935 11,872 4,156
Net income (loss) (934 ) (895 ) (666 ) (483 ) 15,453 8,728
5. Operating Segments
The Partnership currently operates in five primary operating segments:
trailer leasing, railcar leasing, aircraft leasing, marine vessel leasing,
and marine container leasing. Each equipment leasing segment engage in
short-term to mid-term operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on
profit or loss from operations before allocation of general and
administrative expenses, interest expense and certain other expenses. The
segments are managed separately due to different business strategies for
each operation.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
5. Operating Segments (continued)
The following tables present a summary of the operating segments (in
thousands of dollars):
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
Revenues
Lease revenue $ -- $ 234 $ -- $ 1,203 $ 5,956 $ -- $ 7,393
Interest income and other -- -- -- -- 62 178 240
Gain (loss) on disposition of (57 ) (1 ) -- 630 161 -- 733
equipment
-------------------------------------------------------------------------
Total revenues (57 ) 233 -- 1,833 6,179 178 8,366
Costs and expenses
Operations support -- 4 (45 ) 337 1,892 20 2,208
Depreciation and amortization -- 166 -- 317 1,337 -- 1,820
Interest expense -- -- -- -- -- 1,110 1,110
General and administrative expenses 17 4 5 289 206 -- 521
Provision for bad debts -- -- -- 20 (15 ) -- 5
-------------------------------------------------------------------------
Total costs and expenses 17 174 (40 ) 963 3,420 1,130 5,664
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (1,323) -- 428 -- -- -- (895 )
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ (1,397) $ 59 $ 468 $ 870 $ 2,759 $ (952 ) $ 1,807
=========================================================================
As of December 31, 1998
Total assets $ 2,564 $ 574 $ 1,585 $ 561 $ 4,116 $ 3,620 $ 13,020
=========================================================================
Includes interest income and costs not identifiable to a particular segment
such as general and administrative, interest expense, and certain
operations support expenses.
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Other Total
------------------------------------ ------- ------- ------- ------- ------- ---- -----
Revenues
Lease revenue $ 255 $ 796 $ -- $ 1,745 $ 6,160 $ -- $ 8,956
Interest income and other -- 17 -- 19 94 111 241
Gain (loss) on disposition of 1,589 1,548 -- 97 31 -- 3,265
equipment
-------------------------------------------------------------------------
Total revenues 1,844 2,361 -- 1,861 6,285 111 12,462
Costs and expenses
Operations support 6 5 -- 523 1,663 29 2,226
Depreciation and amortization -- 380 -- 601 1,296 -- 2,277
General and administrative expenses 20 3 18 367 189 1,105 1,702
Provision for bad debts (83 ) 1 6 12 153 -- 89
-------------------------------------------------------------------------
Total costs and expenses (57 ) 389 24 1,503 3,301 1,134 6,294
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (495 ) -- 12 -- -- -- (483 )
-------------------------------------------------------------------------
=========================================================================
Net income (loss) $ 1,406 $ 1,972 $ (12 )$ 358 $ 2,984 $ (1,023 ) $ 5,685
=========================================================================
As of December 31, 1997
Total assets $ 4,736 $ 1,190 $ 1,246 $ 1,516 $ 5,428 $ 5,890 $ 20,006
=========================================================================
Includes interest income and costs not identifiable to a particular segment
such as general and administrative, interest expense, and certain
operations support expenses.
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
5. Operating Segments (continued)
Marine Marine
Aircraft Container Vessel MODU Trailer Railcar All
For the Year Ended December 31, 1996 Leasing Leasing Leasing Leasing Leasing Leasing Other Total
------------------------------------ ------- ------- ------- ------- ------- ------- ---- -----
Revenues
Lease revenue $ 488 $ 1,241 $ 139 $ -- $1,869 $ 6,450 $ -- $ 10,187
Interest income and other 50 1 -- (6 ) -- -- 323 368
Gain (loss) on disposition of (16 ) 419 11,142 -- 50 1,723 (14 ) 13,304
equipment
-------------------------------------------------------------------------------------
Total revenues 522 1,661 11,281 (6 ) 1,919 8,173 309 23,859
Costs and expenses
Operations support 15 6 (22 ) -- 527 1,903 43 2,472
Depreciation and amortization 360 606 41 -- 770 1,335 155 3,267
Interest expense -- -- -- -- -- -- 945 945
General and administrative expenses 24 11 (1 ) 18 356 225 1,289 1,922
Provision for bad debts 75 1 -- -- 66 (8 ) -- 134
-------------------------------------------------------------------------------------
Total costs and expenses 474 624 18 18 1,719 3,455 2,432 8,740
-------------------------------------------------------------------------------------
Equity in net income (loss) of USPEs 799 -- 247 8,006 -- -- (324 ) 8,728
-------------------------------------------------------------------------------------
=====================================================================================
Net income (loss) $ 847 $ 1,037 $ 11,510 $ 7,982 $ 200 $ 4,718 $ (2,447 )$ 23,847
=====================================================================================
As of December 31, 1996
Total assets $ 4,463 $ 2,252 $ 2,090 $ -- 2,301 $ 6,645 $ 2,998 $ 20,749
=====================================================================================
Includes interest income and costs not identifiable to a particular segment
such as general and administrative, interest expense, and certain
operations support expenses. Also includes income from an investment in an
entity owning a mobile offshore drilling unit.
6. Geographic Information
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are
not material.
The Partnership leases or leased its aircraft, railcars, mobile offshore
drilling unit, and trailers to lessees domiciled in six geographic
regions: Canada, the United States, South America, Europe, Australia, and
Asia. Marine equipment is leased to multiple lessees in different regions
who operate the marine equipment worldwide.
The following table sets forth lease revenue information by region for the
years ended December 31, as follows (in thousands of dollars):
Owned Equipment Investments in USPEs
--------------------------------------------------------------------------------------
Region 1998 1997 1996 1998 1997 1996
------------------------------------------------------------------------------------------------------------
United States $ 2,173 $ 7,283 $ 3,383 $ -- $ -- $ 879
South America -- -- -- 616 -- 590
Canada 4,986 877 5,381 -- -- --
Asia -- -- -- -- -- 441
Australia -- -- -- -- -- 27
Europe -- -- -- -- 590 104
Rest of the world 234 796 1,423 2,584 2,345 2,115
======================================================================================
Lease Revenues $ 7,393 $ 8,956 $ 10,187 $ 3,200 $ 2,935 $ 4,156
======================================================================================
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
6. Geographic Location (continued)
The following table sets forth income (loss) information by region for the
years ended December 31, 1998, 1997, and 1996 (in thousands of dollars):
Owned Equipment Investments in USPEs
---------------------------------------------------------------------------------------
Region 1998 1997 1996 1998 1997 1996
-------------------------------------------------------------------------------------------------------------
United States $ 145 $ 1,468 $ 935 $ -- $ -- $ 8,264
South America -- -- -- 158 25 (62 )
Canada 3,409 3,774 3,570 -- -- --
Asia -- -- (175 ) (1,481 ) (520 ) (695 )
Australia -- -- -- -- -- 259
Europe -- -- -- -- -- 715
Rest of the world 100 1,949 12,223 428 12 247
---------------------------------------------------------------------------------------
Regional
Income (loss) 3,654 7,191 16,553 (895 ) (483 ) 8,728
Administrative
and other (952 ) (1,023 ) (1,434 ) -- -- --
---------------------------------------------------------------------------------------
=======================================================================================
Net income (loss) $ 2,702 $ 6,168 $ 15,119 $ (895 ) $ (483 ) $ 8,728
=======================================================================================
The net book value of these assets at December 31, 1998, 1997, and 1996
are as follows (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------------ ------------------------------------------
Region 1998 1997 1996 1998 1997 1996
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
United States $ 1,233 $ 2,234 $ 3,147 $ -- $ -- $ --
South America -- -- -- 2,064 3,495 2,774
Canada 3,445 4,710 5,800 -- -- --
Asia -- -- -- 498 1,241 1,689
Europe -- -- -- -- -- --
Rest of the world 573 1,190 2,252 1,587 1,247 2,090
========================================================================================
Net book value $ 5,251 $ 8,134 $ 11,199 $ 4,149 $ 5,983 $ 6,553
========================================================================================
7. Concentrations of Credit Risk
The Partnership's only customer that accounted for 10% or more of the
total consolidated revenues for the owned equipment and partially owned
equipment during 1998 and 1997 was Texaco (14% in 1998 and 20% in 1997).
In 1996, Electricite et Eaux de Madagascar purchased a mobile offshore
drilling unit from the Partnership and the gain from the sale accounted
for 24% of total consolidated revenues from wholly and partially owned
equipment during 1996.
As of December 31, 1998 and 1997, the General Partner believes the
Partnership had no other significant concentrations of credit risk that
could have a material adverse effect on the Partnership.
8. 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.
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
8. Income Taxes (continued)
As of December 31, 1998, there were temporary differences of approximately
$15.5 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 and the tax treatment of underwriting commissions and
syndication costs.
9. Contingencies
The Partnership, together with affiliates, has initiated litigation in
various official forums in India against a defaulting Indian airline lessee
to repossess Partnership property and to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant
lease contracts. The Partnership has repossessed all of its property
previously leased to such airline, and the airline has ceased operations.
In response to the Partnership's collection efforts, the airline filed
counterclaims against the Partnership in excess of the Partnership's claims
against the airline. The General Partner believes that the airline's
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims.
10. Subsequent Event
On January 14, 1999, the General Partner for the Partnership announced
that it has begun recognizing transfers involving trading of units in the
Partnership for the 1999 calendar year. The Partnership is listed on the
OTC Bulletin Board under the symbol GFXPZ.
In making the announcement, the General Partner noted that, as in previous
years, it will continue to monitor the volume of such trades to ensure
that the Partnership remain in compliance with IRS Notice 88-75 and IRS
Code Section 7704. These IRS regulations contain safe harbor provisions
stipulating the maximum number of partnership units that can be traded
during a calendar year in order for a partnership not to be deemed a
publicly traded partnership for income tax purposes.
Should the Partnership approach the annual safe harbor limitation later on
in 1999, the General Partner will, at that time, cease to recognize any
further transfers involving trading of Partnership units. Transfers
specifically excluded from the safe harbor limitations, referred to in the
regulations as "transfers not involving trading," which include transfers
at death, transfers between family members, and transfers involving
distributions from a qualified retirement plan, will continue to be
recognized by the General Partner throughout the year.
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.
24. Powers of Attorney 40-42
- ----------------------------------
* Incorporated by reference. See page 23 of this report.