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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, 2001.
[ ] 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 0-21806
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PLM EQUIPMENT GROWTH FUND VI
(Exact name of registrant as specified in its charter)
California 94-3135515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 Montgomery Street
Suite 1350, San Francisco, CA 94104
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 445-3201
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located at page 27.
Total number of pages in this report: 198
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, 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 8,750,000 limited partnership
units (the units) in PLM Equipment Growth Fund VI, a California limited
partnership (the Partnership, the Registrant, or EGF VI). The Partnership's
offering became effective on December 23, 1991. FSI, as General Partner, owns a
5% interest in the Partnership. The Partnership engages in the business of
investing in a diversified equipment portfolio consisting primarily of used,
long-lived, low-obsolescence capital equipment that is easily transportable by
and among prospective users.
The Partnership's primary objectives are:
(1) to invest in a diversified portfolio of low obsolescence equipment with
long lives and high residual values, at prices that the General Partner believes
to be below inherent values, and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by PLM International's
Credit Review Committee (the Committee), which is made up of members of PLM
International's senior management. In determining a lessee's creditworthiness,
the Committee considers, among other factors, the lessee's financial statements,
internal and external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flow 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 create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions; and
(4) to increase the Partnership's revenue base by reinvesting a portion of
its operating cash flow in additional equipment during the first six years of
the Partnership's operation in order to grow the size of its portfolio. Since
net income and distributions are affected by a variety of factors, including
purchase prices, lease rates, and costs and expenses, growth in the size of the
Partnership's portfolio does not necessarily mean that in all cases the
Partnership's aggregate net income and distributions will increase upon the
reinvestment of operating cash flow.
The offering of units of the Partnership closed on May 24, 1993. As of December
31, 2001, there were 7,781,898 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
As a result of amendments to the Partnership's Limited Partnership Agreement
made pursuant to a court approved class action settlement, the Partnership may
reinvest its cash flow, surplus cash, and equipment sale proceeds in additional
equipment, consistent with the objectives of the Partnership, until December 31,
2004.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio and the Partnership's proportional share of equipment
owned by unconsolidated special-purpose entities as of December 31, 2001 (in
thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
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Owned equipment held for operating leases:
7,289 Marine containers Various $ 18,896
2,845 Refrigerated marine containers Various 6,149
364 Pressurized tank railcars Various 10,728
180 Nonpressurized tank railcars Various 3,482
138 Covered hopper railcars Various 3,003
1 DC-9-82 Stage III commercial aircraft McDonnell Douglas 13,951
1 Portfolio of aircraft rotables Various 2,273
339 Dry piggyback trailers Stoughton 5,212
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Total owned equipment held for operating leases $ 63,694 (1)
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Equipment owned by unconsolidated special-purpose entities:
0.62 737-300 Stage III commercial aircraft Boeing $ 14,802 (2)
0.40 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,807 (3)
0.53 Product tanker Boelwerf-Temse 10,476 (2)
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Total investments in unconsolidated special-purpose entities $ 30,085 (1)
=============
(1) Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to
the date of purchase, and equipment acquisition fees paid to PLM
Transportation Equipment Corporation (TEC), or PLM Worldwide Management
Services (WMS).
(2) Jointly owned: EGF VI and an affiliated program.
(3) Jointly owned: EGF VI and two affiliated programs.
Equipment is generally leased under operating leases for a term of one to six
years except for the marine vessel which is usually leased for less than one
year. Some of the Partnership's marine containers are leased to operators of
utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. The remaining Partnership marine containers are based on a fixed
rate. Lease revenues for intermodal trailers are based on a per-diem lease in
the free running interchange with the railroads. Rents for all other equipment
are based on fixed rates.
The lessees of the equipment include but are not limited to: AAR Allen Group
International, Aero California Airline, American Airlines, Capital Leasing,
Cronos Containers, Domino Sugar Corp., Pluna-Lineas Aereas Uruguayas S.A., and
Tosco Refining Company.
(This space intentionally left blank)
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date,
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally the equipment owned or invested in by the Partnership is leased out on
an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in the five operating segments: marine
container leasing, railcar leasing, aircraft leasing, marine vessel leasing, and
intermodal trailer leasing. Each equipment leasing segment engages in short-term
to mid-term operating leases to a variety of customers except for the
Partnership's investment in two aircraft on a direct finance lease. The
Partnership's equipment and investments are primarily used to transport
materials and commodities, except for aircraft leased to passenger air carriers.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Containers
The Partnership's portfolio of marine containers is composed of two distinct
groups. During the early years of the Partnership's operation, the Partnership
acquired mixed fleets of five to seven year old standard and specialized
intermodal containers that were leased in revenue-sharing agreements. This older
equipment is now in excess of 12 years of age and is no longer suitable for use
in international commerce, either due to its specific physical condition, or the
lessees' preferences for newer equipment. As individual containers are returned
from their specific lessees, they are being marketed for sale on an "as is,
where is" basis. The market for such sales, although highly dependent upon the
specific location and type of container, has softened somewhat in the last year
primarily due to the worldwide recession. In addition to this overall softness
in residual values, the Partnership has continued to experience reduced residual
values on the sale of refrigerated containers, due primarily to technological
obsolescence associated with this equipment's refrigeration machinery.
More recently, the Partnership has acquired new standard dry cargo containers
and placed this equipment either on mid-term leases or into revenue-sharing
agreements. These investments were at the time opportunistically driven by the
historically low acquisition prices then available in the market. The
Partnership was able to acquire these containers in the $1,500 to $1,600 range
for a standard 20-foot container; historically, similar equipment had been sold
in the $2,000 range. During 2001 new container prices and market lease rates
have continued to decline. The primary reason for this decline is the worldwide
recession and attendant slowdown in exports to the United States, mostly from
the Far East. This trend was further exacerbated by the events of September 11,
2001. Those containers placed on mid-term leases are protected from these market
trends, whereas those containers in revenue-sharing agreements have seen reduced
earnings.
(2) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The US markets for natural gas are
industrial applications, residential use, electrical generation, commercial
applications, and transportation. Natural gas consumption is expected to grow
over the next few years as most new electricity generation capacity planned for
is expected to be natural gas fired. Within the fertilizer industry, demand is a
function of several factors, including the level of grain prices, status of
government farm subsidy programs, amount of farming acreage and mix of crops
planted, weather patterns, farming practices, and the value of the US dollar.
Population growth and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 5% in 2001 compared to
2000. Even with this decrease in industry-wide demand, the utilization of this
type of railcar within the Partnership continued to be in the 98% range through
2001.
(b) General-Purpose (Nonpressurized) Tank Cars
These railcars are used to transport bulk liquid commodities and chemicals not
requiring pressurization, such as certain petroleum products, liquefied asphalt,
lubricating oils, molten sulfur, vegetable oils, and corn syrup. The overall
health of the market for these types of commodities is closely tied to both the
US and global economies, as reflected in movements in the Gross Domestic
Product, personal consumption expenditures, retail sales, and currency exchange
rates. The manufacturing, automobile, and housing sectors are the largest
consumers of chemicals. Within North America, 2001 carloadings of the commodity
group that includes chemicals and petroleum products fell over 5% from 2000
levels. Utilization of the Partnership's nonpressurized tank cars decreased from
90% at the beginning of 2001 to 85% at year-end.
(c) Covered Hopper (Grain) Cars
Demand for covered hopper railcars, which are specifically designed to service
the grain industry, continued to experience weakness during 2001; carloadings
were down 2% compared to 2000 volumes. The US agribusiness industry serves a
domestic market that is relatively mature, the future growth of which is
expected to be consistent but modest. Most domestic grain rail traffic moves to
food processors, poultry breeders, and feedlots. The more volatile export
business, which accounts for approximately 30% of total grain shipments, serves
emerging and developing nations. In these countries, demand for protein-rich
foods is growing more rapidly than in the United States, due to higher
population growth, a rapid pace of industrialization, and rising disposable
income. Other factors contributing to the softness in demand for covered hopper
railcars are the large number of new railcars built during the last few years
and the improved utilization of covered hoppers by the railroads. As in 2000,
covered hopper railcars whose leases expired in 2001 were renewed at
considerably lower rental rates. Utilization of the Partnership's covered hopper
railcars decreased from 94% at the beginning of 2001 to 54% at year-end.
(3) Aircraft
(a) Commercial Aircraft
Prior to September 11, 2001, Boeing and Airbus Industries predicted that the
rate of growth in the demand for air transportation services would be relatively
robust for the next 20 years. Boeing's prediction was that the demand for
passenger services would grow at an average rate of about 5% per year and the
demand for cargo traffic would grow at about 6% per year during such period.
Airbus' numbers were largely the same at 5% and 6%, respectively. Neither
manufacturer has released new long-term predictions; however, both have
confirmed lower production rates as well as substantial reductions in their work
forces. Both manufacturers experienced significant reductions in the numbers of
new orders for the year 2001 (through the end of November), with Boeing
reporting 294 (as compared to 611 the previous year) and Airbus reporting 352
(as compared to 520 for the previous year).
Current Market: It is to be noted that, even prior to the events on September
11, 2001, the worldwide airline industry experienced negative traffic growth,
which in itself is unprecedented in peace time (it also happened during and
after the Gulf War). The tragic events of September 11, 2001 have resulted in an
unprecedented market situation for used commercial aircraft. The major carriers
in the US have grounded (or are in the process of grounding) approximately 20%
of their fleets, causing the imbalance between supply and demand for aircraft
seats to be exacerbated. In short, the market for used commercial aircraft is
more negatively impacted than ever and is in un-chartered territory. The
Partnership's portfolio of aircraft has been severely impacted.
The Partnership owns 40% of two DC-9 aircraft. These leases have been
renegotiated and the resulting incoming cash flow will be severely reduced. The
Partnership also owns one MD-82 aircraft, which is on long-term lease to a major
US carrier at above market rates, and 62% of one Boeing 737-300 aircraft, which
was placed on lease in late 2001.
(b) Rotables
The Partnership owns a package of aircraft components, or rotables, that are
used for MD-83 aircraft. Aircraft rotables are replacement spare parts that are
held in inventory by an airline. The types of rotables owned and leased by the
Partnership include avionics, replacement doors, control surfaces, pumps,
valves, and other comparable equipment. The rotable market softened considerably
in 2001 as a result of increased scrapping or parting out of aircraft.
(4) Marine Vessel - Product Tanker
The Partnership has an investment in a product tanker that operates in
international markets carrying a variety of commodity-type cargos. Demand for
commodity-based shipping is closely tied to worldwide economic growth patterns,
which can affect demand by causing changes in volume on trade routes. The
General Partner operates the Partnership's product tanker in the spot chartering
markets, carrying mostly fuel oil and similar petroleum distillates, an approach
that provides the flexibility to adapt to changes in market conditions.
The market for product tankers improved throughout most of 2001, with dramatic
improvements experienced in the first and second quarters; followed by softening
in the third and fourth quarters. The Partnership's product tanker has continued
to operate with very little idle time between charters, but at lower rates than
experienced earlier in the year.
(5) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past five years,
intermodal trailers have continued to be rapidly displaced by domestic
containers as the preferred method of transport for such goods. This
displacement occurs because railroads offer approximately 20% lower freight
rates on domestic containers compared to trailer rates. During 2001, demand for
intermodal trailers was much more volatile than historic norms. Unusually low
demand occurred over the second half of the year due to a rapidly slowing
economy and low rail freight rates for competing 53-foot domestic containers.
Due to the decline in demand, which occurred over the latter half of 2001,
shipments for the year within the intermodal trailer market declined
approximately 10% compared to the prior year. Average utilization of the entire
US intermodal fleet rose from 73% in 1998 to 77% in 1999, and then declined to
75% in 2000 and further declined to a record low of 63% in 2001.
The General Partner continued its aggressive marketing program in a bid to
attract new customers for the Partnership's intermodal trailers during 2001.
Even with these efforts, average utilization of the Partnership's intermodal
trailers for the year 2001 dropped 8% to approximately 73%, still 10% above the
national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to accelerate in the future. Overall, intermodal trailer shipments are
forecast to decline by 10% to 15% in 2002, compared to 2001, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 25,000 units in
surplus for 2002. For the Partnership's intermodal fleet, the General Partner
will continue to seek to expand its customer base while minimizing trailer
downtime at repair shops and terminals. Significant efforts will continue to be
undertaken to reduce maintenance costs and cartage costs.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in 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, governmental, 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 (US) Oil Pollution Act of 1990, which established
liability for operators and owners of marine vessels that create
environmental pollution. This regulation has resulted in higher oil
pollution liability insurance. The lessee of the equipment typically
reimburses the Partnership for these additional costs;
(2) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the US Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects to the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers; and
(3) the US Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous
materials which apply particularly to the Partnership's tank railcars. The
Federal Railroad Administration has mandated that effective July 1, 2000
all tank railcars must be re-qualified every ten years from the last test
date stenciled on each railcar to insure tank shell integrity. Tank shell
thickness, weld seams, and weld attachments must be inspected and repaired
if necessary to re-qualify the tank railcar for service. The average cost
of this inspection is $3,600 for jacketed tank railcars and $1,800 for
non-jacketed tank railcars, not including any necessary repairs. This
inspection is to be performed at the next scheduled tank test and every ten
years thereafter. The Partnership currently owns 374 jacketed tank railcars
and 170 non-jacketed tank railcars that will need re-qualification. To
date, a total of 77 tank railcars have been inspected with no significant
defects.
As of December 31, 2001, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interests in entities that own equipment for leasing
purposes. As of December 31, 2001, 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 $166.1 million through the third quarter of 1993, with proceeds from the debt
financing of $30.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at 120 Montgomery Street, Suite
1350, San Francisco, California 94104. All office facilities are provided by FSI
without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
Two class action lawsuits which were filed against PLM International and various
of its wholly owned subsidiaries in January 1997 in the United States District
Court for the Southern District of Alabama, Southern Division (the court), Civil
Action No. 97-0177-BH-C (the Koch action), and June 1997 in the San Francisco
Superior Court, San Francisco, California, Case No. 987062 (the Romei action),
were fully resolved during the fourth quarter of 2001.
The named plaintiffs were individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), the Partnership (Fund VI),
and PLM Equipment Growth & Income Fund VII (Fund VII and collectively, the
Funds), each a California limited partnership for which PLMI's wholly owned
subsidiary, FSI, acts as the General Partner. The complaints asserted causes of
action against all defendants for fraud and deceit, suppression, negligent
misrepresentation, negligent and intentional breaches of fiduciary duty, unjust
enrichment, conversion, conspiracy, unfair and deceptive practices and
violations of state securities law. Plaintiffs alleged that each defendant owed
plaintiffs and the class certain duties due to their status as fiduciaries,
financial advisors, agents, and control persons. Based on these duties,
plaintiffs asserted liability against defendants for improper sales and
marketing practices, mismanagement of the Funds, and concealing such
mismanagement from investors in the Funds. Plaintiffs sought unspecified
compensatory damages, as well as punitive damages.
In February 1999, the parties to the Koch and Romei actions agreed to monetary
and equitable settlements of the lawsuits, with no admission of liability by any
defendant, and filed a Stipulation of Settlement with the court. The court
preliminarily approved the settlement in August 2000, and information regarding
the settlement was sent to class members in September 2000. A final fairness
hearing was held on November 29, 2000, and on April 25, 2001, the federal
magistrate judge assigned to the case entered a Report and Recommendation
recommending final approval of the monetary and equitable settlements to the
federal district court judge. On July 24, 2001, the federal district court judge
adopted the Report and Recommendation, and entered a final judgment approving
the settlements. No appeal has been filed and the time for filing an appeal has
expired.
The monetary settlement provides for a settlement and release of all claims
against defendants in exchange for payment for the benefit of the class of up to
$6.6 million, consisting of $0.3 million deposited by PLMI and the remainder
funded by an insurance policy. The final settlement amount of $4.9 million (of
which PLMI's share was approximately $0.3 million) was accrued in 1999, paid out
in the fourth quarter of 2001 and was determined based upon the number of claims
filed by class members, the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys, and the amount of the administrative costs incurred in
connection with the settlement.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, except for Fund IV, (b) the extension (until December 31,
2004) of the period during which FSI can reinvest the Funds' funds in additional
equipment, except for Fund IV, (c) an increase of up to 20% in the amount of
front-end fees (including acquisition and lease negotiation fees) that FSI is
entitled to earn in excess of the compensatory limitations set forth in the
North American Securities Administrator's Association's Statement of Policy;
except for Fund IV, (d) a one-time purchase by each of Funds V, VI and VII of up
to 10% of that partnership's outstanding units for 80% of net asset value per
unit as of September 30, 2000; and (e) the deferral of a portion of the
management fees paid, except for Fund IV, to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Fund funds in the event, if ever, that certain
performance thresholds have been met by the Funds. Following a vote of limited
partners resulting in less than 50% of the limited partners of each of Funds V,
VI and VII voting against such amendments and after final approval of the
settlement, each of the Funds' limited partnership agreements was amended to
reflect these changes. During the fourth quarter of 2001, the respective Funds
purchased limited partnership units from those equitable class members who
submitted timely requests for purchase. Fund VI agreed to purchase 489,344 of
its limited partnership units at a total cost of $2.8 million.
The Partnership, together with affiliates, has initiated litigation in various
official forums in the United States and India against two defaulting Indian
airline lessees 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 these airlines. In response to the Partnership's collection
efforts, the airline lessees filed counter-claims 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.
During 2001, an arbitration hearing was held between one India lessee and the
Partnership and the Partnership was awarded a settlement. The General Partner
and the lessee are in the process of negotiating the settlement in a manner that
benefits all parties involved. The General Partner did not accrue the settlement
in the December 31, 2001 financial statements because the likelihood of
collection of the settlement is remote. The General Partner will continue to try
to collect the full amount of the settlement.
During 2001, the General Partner decided to minimize its collection efforts from
the other India lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has no
apparent ability to pay.
The Partnership is involved as plaintiff or defendant in various other legal
actions incidental to its business. Management does not believe that any of
these actions will be material to the financial condition or results of
operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2001.
(This space intentionally left blank)
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
entitled to 5% of the cash distributions of the Partnership. The General Partner
is the sole holder of such interests. Net income is allocated to the General
Partner to the extent necessary to cause the General Partner's capital account
to equal zero. The remaining interests in the profits, losses, and cash
distributions of the Partnership are allocated to the limited partners. As of
December 31, 2001, there were 7,544 limited partners holding units in the
Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are viewed as being inefficient vehicles for the sale of
limited partnership units. Presently, there is no public market for the limited
partnership units and none is likely to develop.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of limited
Partnership units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not a US
citizen or if the transfer would cause any portion of the units of a "Qualified
Plan" as defined by the Employee Retirement Income Security Act of 1974 and
Individual Retirement Accounts to exceed the allowable limit.
As a result of the settlement in the Koch and Romei actions (see Note 10 to the
audited financial statements), the Partnership was required to purchase up to
10% of the Partnership's limited partnership units for 80% of the net asset
value per unit. During the fourth quarter 2001, the General Partner, on behalf
of the Partnership, agreed to purchase 489,344 limited partnership units for
$2.8 million. The cash for this purchase came from available cash.
(This space intentionally left blank)
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 weighted-average unit amounts)
2001 2000 1999 1998 1997
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Operating results:
Total revenues $ 13,409 $ 19,926 $ 50,209 $ 35,140 $ 39,576
Net gain on disposition of equipment 1,077 2,147 25,951 6,253 10,121
Loss on revaluation of equipment -- 374 3,567 4,276 --
Equity in net income (loss) of uncon-
solidated special-purpose entities (935) (1,904) (1,003) 6,465 3,336
Net income (loss) (1,006) 412 5,996 1,445 9,232
At year-end:
Total assets $ 48,711 $ 64,063 $ 78,204 $ 104,270 $ 121,551
Note payable 20,000 30,000 30,000 30,000 30,000
Total liabilities 22,232 32,441 33,183 38,022 39,006
Cash distribution $ 1,372 $ 13,794 $ 13,806 $ 15,226 $ 17,384
Cash distribution representing
a return of capital to the limited
partners $ 1,286 $ 13,104 $ 7,810 $ 13,781 $ 8,152
Per weighted-average limited partnership unit:
Net income (loss) $ (0.13) 1 $ (0.03) 1 $ 0.65 1$ 0.08 1$ 1.01 1
Cash distribution $ 0.16 $ 1.60 $ 1.60 $ 1.76 $ 2.00
Cash distribution representing
a return of capital $ 0.16 $ 1.60 $ 0.95 $ 1.68 $ 0.99
(1) After an increase of loss necessary to cause the General Partner's capital
account to equal zero of $0.1 million ($0.02 per weighted-average limited
partnership (LP) unit) in 2001 and $0.7 million ($0.08 per weighted-average
LP unit) in 2000, and after reduction of income necessary to cause the
General Partner's capital account to equal zero of $0.4 million ($0.04 per
weighted-average LP unit) in 1999, $0.7 million ($0.08 per weighted-average
LP unit) in 1998, and $0.4 million ($0.04 per weighted-average LP unit) in
1997.
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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 VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for Partnership equipment include supply and demand for similar or comparable
types of transport capacity, desirability of the equipment in the leasing
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, and various regulations
concerning the use of the equipment. Equipment that is idle or out of service
between the expiration of one lease and the assumption of a subsequent lease can
result in a reduction of contribution to the Partnership. The Partnership
experienced re-leasing or repricing activity in 2001 for its railcar, trailer,
marine vessel, aircraft, and marine container portfolios.
(a) Railcars: This equipment experienced significant re-leasing activity.
Lease rates in this market are showing signs of weakness and this has led to
lower utilization and lower contribution to the Partnership as existing leases
expire and renewal leases are negotiated.
(b) Trailers: The Partnership's trailer portfolio operates within
short-line railroad systems. The relatively short duration of most leases in
these operations exposes the trailers to considerable re-leasing activity.
(c) Marine vessel: The Partnership's investment in an entity owning a
marine vessel operated in the short-term leasing market. As a result of this,
the Partnership's partially owned marine vessel was remarketed during 2001
exposing it to re-leasing and repricing risk.
(d) Aircraft: This equipment also experienced re-leasing and repricing
activity. The Partnership's owned aircraft was re-leased during 2001 at a much
lower rate and the Partnership's investment in a trust owning two aircraft on a
direct finance lease will also see a decrease in revenues during 2002 due to the
lease being renegotiated in 2001 at a much lower rate. The Partnership's other
partially owned aircraft on an operating lease was re-leased during 2001 at
approximately the same rate that was in place during 2000.
(e) Marine containers: Some of the Partnership's marine containers are
leased to operators of utilization-type leasing pools and, as such, are highly
exposed to repricing activity.
(2) Equipment Liquidations
Liquidation of Partnership owned equipment and of investments in unconsolidated
special-purpose entities (USPEs), unless accompanied by an immediate replacement
of additional equipment earning similar rates (see Reinvestment Risk, below),
represents a reduction in the size of the equipment portfolio and may result in
a reduction of contribution to the Partnership.
During 2001, the Partnership disposed of owned equipment that included an
aircraft, a marine vessel, marine containers, trailers, and railcars for total
proceeds of $3.7 million. The Partnership also disposed of its interest in two
USPEs that each owned a marine vessel for proceeds of $2.3 million.
(3) Nonperforming Lessees
Lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the lease terms, can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 2001:
(i) Two former India lessees are having financial difficulties. The General
Partner has initiated litigation in various official forums in the United States
and India against the defaulting Indian airline lessees to recover damages for
failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. The total amount of $2.2 million due from these
lessees had been reserved for as a bad debt and was written off as it was
determined to be uncollectible based on the financial status of the lessees. The
Partnership has repossessed its property previously leased to these airlines
(see Note 10 to the audited financial statements).
(ii)Trans World Airlines (TWA), a former lessee, filed for bankruptcy
protection under Chapter 11 in January 2001. Upon the acquisition of TWA by
American Airlines (AA), the General Partner accepted an offer from AA to lease
the aircraft for 84 months at the current market rate.
(4) Reinvestment Risk
Reinvestment risk occurs when the Partnership cannot generate sufficient surplus
cash after fulfillment of operating obligations and distributions to reinvest in
additional equipment during the reinvestment phase of the Partnership, equipment
is disposed of for less than threshold amounts, proceeds from dispositions, or
surplus cash available for reinvestment cannot be reinvested at the threshold
lease rates, or proceeds from sales or surplus cash available for reinvestment
cannot be deployed in a timely manner.
Pursuant to the equitable settlement related to the Koch and Romei actions (see
Note 10 to the audited financial statements), the Partnership intends to
increase its equipment portfolio by investing surplus cash in additional
equipment, after fulfilling operating requirements, until December 31, 2004.
Additionally, during 2001, the Partnership paid PLM Financial Services, Inc.
(FSI or the General Partner) $0.8 million in acquisition and lease negotiation
fees related to equipment purchased during 1999. Depreciation and amortization
of $0.3 million, which represents the cumulative effect of depreciation and
amortization that should have been recorded from the purchase of equipment in
1999 until the equitable settlement, was recorded during 2001.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of while it was subject to lease agreements, or from the exercise of
purchase options in certain lease agreements. Equipment sales generally result
from evaluations by the General Partner that continued ownership of certain
equipment is either inadequate to meet Partnership performance goals, or that
market conditions, market values, and other considerations indicate it is the
appropriate time to sell certain equipment.
(5) Equipment Valuation
In accordance with the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
the General Partner reviews the carrying values of the Partnership's equipment
portfolio at least quarterly and whenever circumstances indicated that the
carrying value of an asset may not be recoverable due to expected future market
conditions. If the projected undiscounted cash flows and the fair market value
of the equipment was less than the carrying value of the equipment, a loss on
revaluation is recorded. During 2001, a USPE trust owning two Stage III
commercial aircraft on a direct finance lease reduced its net investment in the
finance lease receivable due to a series of lease amendments. The Partnership's
proportionate share of this writedown, which is included in equity in net income
(loss) of the USPE in the accompanying statement of income, was $1.6 million.
Reductions of $0.4 million and $3.6 million to the carrying value of owned
equipment were required during 2000 and 1999, respectively. No revaluations to
owned equipment were required in 2001 or partially owned equipment in 2000 and
1999.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144), which replaces SFAS No. 121. SFAS
No. 144 provides updated guidance concerning the recognition and measurement of
an impairment loss for certain types of long-lived assets, expands the scope of
a discontinued operation to include a component of an entity, and eliminates the
current exemption to consolidation when control over a subsidiary is likely to
be temporary. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001.
The Partnership will apply the new rules on accounting for the impairment or
disposal of long-lived assets beginning in the first quarter of 2002, and they
are not anticipated to have an impact on the Partnership's earnings or financial
position.
(C) Financial Condition - Capital Resources, Liquidity, and Unit Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $166.1 million and permanent
debt financing of $30.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement.
The Partnership relies on operating cash flow to meet its operating obligations
and to make cash distributions.
For the year ended December 31, 2001, the Partnership generated $8.8 million in
operating cash (net cash provided by operating activities plus non-liquidating
cash distributions from USPEs) to meet its operating obligations and make
distributions of $1.4 million to the partners.
During 2001, the Partnership disposed of owned equipment and of investments in
USPE's for aggregate proceeds of $6.0 million.
Pursuant to the equitable settlement related to the Koch and Romei actions (see
Note 10 to the audited financial statements), during 2001 the Partnership paid
FSI $0.8 million in acquisition and lease negotiation fees related to owned
marine containers and $0.6 million in acquisition and lease negotiation fees
related to partially owned aircraft purchased during 1999.
Accounts receivable decreased $0.6 million during 2001. The decrease of $0.6
million was caused by amounts the Partnership owes to the same lessee being
offset against receivables due.
Investments in USPEs decreased $5.9 million during 2001. The decrease of $5.9
million was due to a loss of $0.9 million recorded by the Partnership from the
USPEs, cash distributions of $3.3 million from the USPEs, and liquidating
distributions from USPEs of $2.3 million resulting from the sale of two entities
owning marine vessels. These decreases were offset in part, by a $0.6 million
additional investment in a USPE made by the Partnership.
Accounts payable increased $0.1 million during the year ended 2001. An increase
of $1.0 million was due to a debt prepayment penalty accrued at December 31,
2001. A similar accrual was not required at December 31, 2000. This increase was
offset, in part, by a decrease of $0.6 million caused by amounts the Partnership
owed to a lessee being offset against receivables due from the same lessee and a
$0.3 million decrease due to the timing of cash payments.
Due to affiliates increased $0.1 million during 2001 due to additional engine
reserves due to a USPE.
Lessee deposits and reserve for repairs decreased due to the reclassification of
$0.4 million in lessee deposits and repair for reserves to equipment sales
proceeds.
The Partnership made the regularly scheduled annual debt payment of $10.0
million to the lenders of the notes payable on November 13, 2001.
In the fourth quarter 2001, the General Partner, on behalf of the Partnership,
signed a commitment letter to refinance the Partnership's note payable. The
commitment is for a $30.0 million term loan facility with a maturity date of
five years after funding. The loan will call for equal quarterly principal plus
interest payments over the term of the loan. The note will bear interest at
either the floating rate of LIBOR plus 2.5% or the fixed rate of the lender's
cost of funds, as defined in the agreement, plus 2.5%. During January 2002,
$15.0 million was drawn under this loan and the existing note payable was
repaid. The General Partner anticipates that an additional $10.0 million will be
borrowed under this facility in 2002.
The Partnership will incur a prepayment penalty of approximately $1.0 million to
prepay the existing senior notes payable. This was accrued in the December 31,
2001 financial statements.
Debt placement fees increased $0.3 million due to fees paid in 2001 for the new
$30.0 million term loan that will replace the existing senior note payable in
2002.
As a result of the settlement in the Koch and Romei actions (see Note 10 to the
audited financial statements), the Partnership's redemption plan has been
terminated and the Partnership was required to purchase up to 10% of the
Partnership's limited partnership units for 80% of the net asset valued per
unit. During the fourth quarter 2001, the General Partner, on behalf of the
Partnership, funded $2.8 million to the agent to purchase 489,344 limited
partnership units. The cash for this purchase came from available cash.
In April 2001, PLM International, Inc. (PLMI) entered into a $15.0 million
warehouse facility, which is shared with the Partnership, PLM Equipment Growth &
Income Fund VII, and Professional Lease Management Income Fund I, LLC. During
December 2001, this facility was amended to lower the amount available to be
borrowed to $10.0 million. The facility provides for financing up to 100% of the
cost of the equipment. Outstanding borrowings by one borrower reduce the amount
available to each of the other borrowers under the facility. Individual
borrowings may be outstanding for no more than 270 days, with all advances due
no later than April 12, 2002. Interest accrues either at the prime rate or LIBOR
plus 2.0% at the borrower's option and is set at the time of an advance of
funds. Borrowings by the Partnership are guaranteed by PLMI. This facility
expires in April 2002. The General Partner believes it will be able to renew the
warehouse facility upon its expiration with terms similar to those in the
current facility.
As of March 25, 2002, the Partnership had no borrowings outstanding under this
facility and there were no other borrowings outstanding under this facility by
any other eligible borrower.
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.
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(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2001 and 2000
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2001, compared to 2000. Gains or
losses from the sale of equipment, interest and other income, and certain
expenses such as depreciation and amortization and general and administrative
expenses relating to the operating segments (see Note 5 of the audited financial
statements), are not included in the owned equipment operation discussion
because these expenses are indirect in nature and not a result of operations,
but the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
--------------------------
Marine containers $ 4,587 $ 4,686
Railcars 2,642 3,281
Aircraft, aircraft engines, and components 1,824 2,722
Trailers 383 1,415
Marine vessels 179 1,276
Marine containers: Marine container lease revenues and direct expenses were $4.6
million and $0.1 million, respectively, for the year ended December 31, 2001,
compared to $4.7 million and $20,000, respectively, during 2000. The decrease in
lease revenues of $0.1 million during the year ended December 31, 2001, was due
to lower marine container utilization compared to 2000.
Railcars: Railcar lease revenues and direct expenses were $3.8 million and $1.1
million, respectively, for the year ended December 31, 2001, compared to $4.3
million and $1.0 million, respectively, during 2000. Lease revenues decreased
$0.2 million due to lower re-lease rates earned on railcars whose leases expired
during 2001 and decreased $0.3 million due to the increase in the number of
railcars off-lease during 2001, compared to 2000. An increase in direct expenses
of $0.1 million was due to higher repairs during 2001, compared to 2000.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $1.8 million and $19,000, respectively, for the year ended
December 31, 2001, compared to $2.8 million and $0.1 million, respectively,
during 2000. Lease revenues were lower primarily due to the reduction of the
lease rate on an MD-82 as part of a new lease agreement.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and
$0.5 million, respectively, for the year ended December 31, 2001, compared to
$2.1 million and $0.7 million, respectively, during 2000. The decrease in
trailer contribution of $1.0 million was due to the sale of 49% of the
Partnership's trailers during 2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.5
million and $0.3 million, respectively, for the year ended December 31, 2001,
compared to $3.6 million and $2.3 million, respectively, during 2000. Decreases
in lease revenues of $3.1 million and direct expenses of $2.0 million during the
year ended December 31, 2001, compared to the same period in 2000, were due to
the sale of all of the Partnership's wholly owned marine vessels during 2001 and
2000.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $11.3 million for the year ended December 31, 2001
decreased from $13.4 million for the same period in 2000. Significant variances
are explained as follows:
(i) A $2.7 million decrease in depreciation and amortization expenses from
2000 levels reflects a decrease of $1.8 million due to the sale of certain
equipment during 2001 and 2000, and a $1.2 million decrease caused by the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
These decreases were offset, in part, by an increase of $0.2 million in
depreciation expenses resulting from the transfer of the Partnership's interest
in an entity that owned marine containers from the USPE portfolio to owned
equipment during 2000, and a $0.2 million increase in amortization expense
related to deferred charges.
(ii) A $0.4 million loss on revaluation of equipment during the year ended
December 31, 2000 resulted from the reduction of the carrying value of a Boeing
737-200 commercial aircraft to its estimated net realizable value. There was no
revaluation of wholly owned equipment required during 2001.
(iii) A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2001
compared to 2000.
(iv) A $0.7 million increase in general and administrative expenses during
the year ended December 31, 2001 was due to a $1.0 million debt prepayment
penalty in 2001. There was no similar penalty in 2000. An additional increase of
$0.2 million was due to higher professional costs. These increases were offset,
in part, by lower costs of $0.3 million compared to 2001 resulting from the sale
of 49% of the Partnership's trailers during 2000, and by a decrease of $0.2
million resulting from decreased allocations by the General Partner.
(v) A $0.7 million increase in the recovery of bad debts was due to the
collection of past due receivables during the year ended December 31, 2000 that
had been previously reserved for as a bad debt. A similar collection did not
occur in 2001.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 2001 totaled $1.1 million, and resulted from the sale of a Boeing 737-200
commercial aircraft, a marine vessel, trailers, railcars, and marine containers
with an aggregate net book value of $3.0 million, for proceeds of $3.7 million.
Included in the net gain on sale of the marine vessel was the unused portion of
marine vessel drydocking liability of $0.3 million. The net gain on the
disposition of owned equipment for the year ended December 31, 2000 totaled $2.1
million, and resulted from the sale of marine vessels, marine containers,
trailers, and railcars with an aggregate net book value of $7.3 million, for
proceeds of $9.1 million and unused drydocking reserves on sold marine vessels
of $0.3 million.
(d) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income (loss) generated from the operation of jointly owned assets accounted
for under the equity method of accounting. These entities are single purpose and
have no debt or other financial encumbrances. The following table presents
equity in net income (loss) by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
-----------------------------
Marine vessels $ 1,915 $ (548)
Aircraft (2,850) (1,485)
Other -- 129
------------ ------------
Equity in net loss of USPEs $ (935) $ (1,904)
============ ============
Marine vessels: During the year ended December 31, 2001, lease revenues of $5.6
million and the gain of $0.7 million from the sale of the Partnership's interest
in two entities that owned marine vessels were offset by depreciation expense,
direct expenses, and administrative expenses of $4.4 million. During 2000, lease
revenues of $3.5 million were offset by depreciation expense, direct expenses,
and administrative expenses of $4.1 million.
Marine vessel lease revenues increased $2.1 million during the year ended
December 31, 2001 compared to 2000 due to the following:
(i) Marine vessel lease revenues increased $1.8 million due to a marine
vessel switching from a fixed rate lease to a voyage charter lease during 2001.
Under a voyage charter lease, the marine vessel earns a higher lease rate;
however, certain direct expenses that were previously paid by the lessee are now
paid by the owner.
(ii)Lease revenues increased $0.9 million during the year ended December
31, 2001 due to one marine vessel being on lease the entire year of 2001, which
was in drydock and off-lease for nine weeks during 2000. During the drydock
period, the marine vessel did not earn any lease revenues.
(iii) These increases were offset, in part, by a $0.7 million decrease in
lease revenue due to the sale of two marine vessels in 2001 in which the
Partnership owned an interest.
Depreciation expense, direct expenses, and administrative expenses increased
$0.3 million during the year ended December 31, 2001 compared to 2000 due to the
following:
(i) A $1.0 million increase in direct expenses due to higher operating
expenses for one marine vessel that was on voyage charter during the year ending
December 31, 2001, that was on fixed rate lease during part of the same period
of 2000.
(ii)A $0.2 million increase in direct expenses due to a marine vessel being
on lease during the year of 2001 that was in dry dock and off-lease for nine
weeks in 2000.
(iii) A $0.1 million increase in management fees due to higher lease
revenue on partially owned marine vessels.
(iv) A $0.4 million decrease in depreciation expense due to a $0.3 million
decrease from the sale of two marine vessels in which the Partnership owned an
interest and a $0.2 million decrease due to the use of the double
declining-balance method of depreciation, which results in greater depreciation
in the first years an asset is owned.
(v) A $0.5 million decrease in direct expenses resulting from the sale of
two marine vessels in which the Partnership owned an interest.
Aircraft: As of December 31, 2001 and 2000, the Partnership owned an interest in
two commercial aircraft on a direct finance lease and an interest in a Boeing
737-300 commercial aircraft. During the year ended December 31, 2001, revenues
of $1.7 million were offset by depreciation expense, direct expenses, and
administrative expenses of $4.5 million. During 2000, revenues of $1.5 million
were offset by depreciation expense, direct expenses and administrative expenses
of $3.0 million.
Lease revenues increased $0.2 million during the year ended December 31, 2001
due to the Boeing 737-300 being on-lease the full year of 2001. This aircraft
was off-lease most of 2000.
Depreciation expense, direct expenses, and administrative expenses increased
$1.5 million during the year ended December 31, 2001 compared to 2000 due to:
(i) A $1.6 million loss on revaluation was recorded on the trust that owned
two commercial aircraft on a direct finance lease during the year ended December
31, 2001 which resulted from the reduction of the carrying value of the
Partnership's interest in the trust to its estimated net realizable value. There
were no revaluations to partially owned aircraft required during 2000.
(ii)A $0.1 million increase in amortization expense due to the amortization
of deferred charges.
(iii) A $0.1 million increase in bad debt expenses resulting from the
collection of an unpaid accounts receivable during 2000 that had been reserved
for as a bad debt in a previous year. A similar collection was not received
during 2001.
(iv) A $0.2 million decrease in depreciation expense due to the use of the
double declining-balance method of depreciation, which results in greater
depreciation in the first years an asset is owned.
(v) A $0.2 million decrease in repairs and maintenance was due to fewer
required repairs during the year ending 2001 for the trust owning a Boeing
737-300 compared to 2000.
(e) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss for the year ended
December 31, 2001 was $1.0 million, compared to a net income of $0.4 million
during 2000. The Partnership's ability to acquire, operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the year ended December 31,
2001 is not necessarily indicative of future periods. In the year ended December
31, 2001, the Partnership distributed $1.3 million to the limited partners, or
$0.16 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2000 and 1999
In September 1999, FSI amended the corporate-by-laws of certain USPEs in which
the Partnership, or any affiliated program, owns an interest greater than 50%.
The amendment to the corporate-by-laws provided that all decisions regarding the
acquisition and disposition of the investment as well as other significant
business decisions of that investment would be permitted only upon unanimous
consent of the Partnership and all the affiliated programs that have an
ownership in the investment (the Amendment). As such, although the Partnership
may own a majority interest in a USPE, the Partnership does not control its
management and thus the equity method of accounting was used after adoption of
the Amendment. As a result of the Amendment, as of September 30, 1999, all
jointly owned equipment in which the Partnership owned a majority interest,
which had been consolidated, was reclassified to investments in USPEs. Lease
revenues and direct expenses for jointly owned equipment in which the
Partnership held a majority interest were reported under the consolidation
method of accounting during the year ended December 31, 1999 and were included
with the owned equipment operations. For the three months ended December 31,
1999 and twelve months ended December 31, 2000, lease revenues and direct
expenses for these entities are reported under the equity method of accounting
and are included with the operations of the USPEs.
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2000, compared to 1999. Gains or
losses from the sale of equipment, interest and other income, and certain
expenses such as depreciation and amortization and general and administrative
expenses relating to the operating segments (see Note 5 to the audited financial
statements), are not included in the owned equipment operation discussion
because they are indirect in nature and not a result of operations, but the
result of owning a portfolio of equipment. The following table presents lease
revenues less direct expenses by segment (in thousands of dollars):
For the Years
Ended December 31,
2000 1999
---------------------------
Marine containers $ 4,686 $ 2,317
Railcars 3,281 3,722
Aircraft, aircraft engines, and components 2,722 3,649
Trailers 1,415 2,021
Marine vessels 1,276 3,527
Marine containers: Marine container lease revenues and direct expenses were $4.7
million and $20,000, respectively, for the year ended December 31, 2000,
compared to $2.3 million and $-0-, respectively, during 1999. An increase in
lease revenues of $2.2 million during the year ended December 31, 2000 was due
to the purchase and lease of marine containers during the second and fourth
quarters of 1999. In addition, lease revenues increased $0.2 million due to the
transfer of marine containers owned by a USPE to owned equipment during the
third quarter 2000.
Railcars: Railcar lease revenues and direct expenses were $4.3 million and
$1.0 million, respectively, for the year ended December 31, 2000, compared to
$4.6 million and $0.8 million, respectively, during 1999. The decrease in
railcar lease revenues of $0.3 million was primarily due to the increase in the
number of off-lease railcars during the year ended December 31, 2000 compared to
1999. The increase in direct expenses of $0.2 million during the year ended
December 31, 2000 was due to higher repair costs compared to 1999.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $2.8 million and $0.1 million, respectively, for the year ended
December 31, 2000, compared to $4.5 million and $0.8 million, respectively,
during 1999. A decrease in aircraft lease revenues of $1.6 million and direct
expenses of $0.1 million was due to the sale of a Boeing 767-200ER Stage III
commercial aircraft during 1999. An additional decrease of $0.1 million in lease
revenues was due to a Boeing 737-200 that was off-lease during the year ended
December 31, 2000 but was on-lease for one month 1999. A decrease in direct
expenses of $0.7 million during the year ended December 31, 2000, was due to
repairs to the off-lease Boeing 737-200 during 1999 that were not required
during 2000.
Trailers: Trailer lease revenues and direct expenses were $2.1 million and $0.7
million, respectively, for the year ended December 31, 2000, compared to $2.8
million and $0.8 million, respectively, during 1999. The decrease in lease
revenues of $0.7 million and direct expenses of $0.1 million was due to the sale
of 49% of the Partnership's trailer fleet during the year 2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.6
million and $2.3 million, respectively, for the year ended December 31, 2000,
compared to $9.8 million and $6.3 million, respectively, during 1999.
The September 30, 1999 Amendment that changed the accounting method of
majority-held equipment from the consolidation method of accounting to the
equity method of accounting impacted the reporting of lease revenues and direct
expenses of one marine vessel. As a result of the Amendment, during the year
ended December 31, 2000, lease revenues decreased $3.5 million and direct
expenses decreased $1.9 million compared to 1999.
In addition, lease revenues declined $2.4 million and direct expenses declined
$1.1 million as a result of the sale of two of the Partnership's wholly owned
marine vessels during 2000 and 1999. Lease revenues declined an additional $0.3
million due to lower lease rates earned on two wholly owned marine vessels.
Direct expenses also decreased an additional $0.9 million on the two remaining
wholly owned marine vessels due to a decrease in repairs required during the
year ended December 31, 2000 compared to 1999.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $13.4 million for the year ended December 31, 2000
decreased from $26.5 million for the same period in 1999. Significant variances
are explained as follows:
(i) A $8.1 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of approximately $3.0 million caused by the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned, a decrease of $1.4 million
due to the sale of certain equipment during 2000 and 1999, and a decrease of
$4.8 million as a result of the Amendment which changed the accounting method
used for majority-held equipment from the consolidation method of accounting to
the equity method of accounting. These decreases were offset, in part, by an
increase of $1.0 million in depreciation and amortization expenses resulting
from the purchase of additional equipment during 1999 and an increase of $0.1
million from the transfer of the Partnership's interest in an entity that owned
marine containers from a USPE portfolio to owned equipment during 2000.
(ii)Loss on revaluation decreased $3.2 million during the year ended
December 31, 2000 compared to 1999. During 2000, a loss on revaluation of $0.4
million resulted from the reduction of the carrying value of a Boeing 737-200
commercial aircraft to its estimated net realizable value. During 1999, a loss
on revaluation of $3.6 million was recorded for marine vessels.
(iii) Provision for bad debts decreased $1.3 million during the year ended
December 31, 2000. The decrease resulted from the General Partner's evaluation
of the collectability of past due accounts receivable being lower by $0.7
million compared to 1999 and the offset of a receivable that had previously been
reserved for as a bad debt offset against $0.6 million due from the Partnership
to this lessee.
(iv)A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2000
compared to 1999.
(v) A $0.1 million decrease in interest expense was due to a lower average
short-term borrowings outstanding during the year ended December 31, 2000
compared to 1999.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 2000 totaled $2.1 million, and resulted from the sale of marine vessels,
marine containers, trailers, and railcars with an aggregate net book value of
$7.3 million, for proceeds of $9.1 million and unused drydocking reserves on
sold marine vessels of $0.3 million. The net gain on the disposition of owned
equipment for the year ended December 31, 1999 totaled $26.0 million, and
resulted from the sale of a marine vessel, marine containers, trailers, and
railcars, with an aggregate net book value of $7.9 million, for $9.3 million and
a Boeing 767-200ER Stage III commercial aircraft with a net book value of $15.6
million for $40.1 million which includes $3.6 million of unused engine reserves.
(d) Minority Interests
Minority interests decreased $7.9 million in the year ended December 31, 2000
compared to 1999 due to the September 30, 1999 Amendment that changed the
accounting method of majority-held equipment from the consolidation method of
accounting to the equity method of accounting.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of USPEs represents the Partnership's share of the
net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method of accounting. These entities are single purpose and
have no debt or other financial encumbrances. The following table presents
equity in net income (loss) by equipment type (in thousands of dollars):
For the Year
Ended December 31,
2000 1999
-----------------------------
Mobile offshore drilling unit $ 85 $ 271
Marine containers 44 5
Marine vessels (548) (1,029)
Aircraft (1,485) (250)
------------ ------------
Equity in net loss of USPEs $ (1,904) $ (1,003)
============ ============
Mobile offshore drilling unit: The Partnership's interest in an entity that
owned a mobile offshore drilling unit was sold during the fourth quarter of
1999. During the year ended December 31, 2000, additional sales proceeds of $0.1
million were paid to the entity. During the year ended December 31, 1999, lease
revenues of $1.2 million were offset by the loss of $0.3 million from the sale
of this entity and depreciation expense, direct expenses, and administrative
expenses of $0.6 million.
Marine containers: As of December 31, 2000, the Partnership's interest in an
entity that owned marine containers had been transferred to the Partnership's
owned equipment. As of December 31, 1999, the Partnership owned an interest in
an entity that owned marine containers. During the year ended December 31, 2000,
lease revenues of $0.3 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.2 million. During the year ended
December 31, 1999, lease revenues of $0.5 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.4 million. Marine
containers contribution increased $39,000 during the year ended December 31,
2000 compared to 1999 due primarily to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
Marine vessels: During the year ended December 31, 2000, lease revenues of $3.5
million were offset by depreciation expense, direct expenses, and administrative
expenses of $4.1 million. During 1999, lease revenues of $1.6 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.7 million.
An increase in marine vessel lease revenues of $1.9 million and depreciation
expense, direct expenses, and administrative expenses of $1.7 million during the
year ended December 31, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority-held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority-owned marine vessel were reported under
the consolidation method of accounting under Owned Equipment Operations during
the first nine months of the year ended December 31, 1999.
Marine vessel lease revenues decreased $0.1 million during the year ended
December 31, 2000 due to one marine vessel earning lower lease revenues due to a
four-week repositioning voyage during which the marine vessel did not earn any
lease revenues. In addition, as a result of the repositioning, direct expenses
also decreased an $0.2 million due to lower operating costs during the year
ended December 31, 2000 compared to 1999. The decrease in lease revenues caused
by the repositioning was offset by the other marine vessel earning $0.1 million
in additional lease revenues due to earning a higher lease rate during all of
2000 compared to 1999.
Aircraft: As of December 31, 2000 and 1999, the Partnership owned an interest in
two commercial aircraft on a direct finance lease and a Boeing 737-300
commercial aircraft. During the year ended December 31, 2000, revenues of $1.5
million were offset by depreciation expense, direct expenses, and administrative
expenses of $3.0 million. During 1999, revenues of $0.7 million were offset by
direct expenses and administrative expenses of $1.0 million.
An increase in aircraft lease revenues of $0.9 million and depreciation expense,
direct expenses, and administrative expenses of $2.0 million during the year
ended December 31, 2000, was caused by the September 30, 1999 Amendment that
changed the accounting method of majority-held equipment from the consolidation
method of accounting to the equity method of accounting for a Boeing 737-300
commercial aircraft. The depreciation expense, direct expenses, and
administrative expenses for the majority owned Boeing 737-300 commercial
aircraft were reported under the consolidation method of accounting under Owned
Equipment Operations during the first nine months of the year ended December 31,
1999.
The increase in expenses caused by the investment in a trust owning a Boeing
737-300 was partially offset by a $0.1 million collection of an accounts
receivable that had previously been written-off as a bad debt. A similar event
did not occur during 1999.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 2000 was $0.4 million, compared to a net income of $6.0 million
during 1999. The Partnership's ability to operate assets, liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the year ended December 31,
2000 is not necessarily indicative of future periods. In the year ended December
31, 2000, the Partnership distributed $13.1 million to the limited partners, or
$1.60 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in US 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 US banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a particular geographic area. Refer to Note 6 to the audited financial
statements for information on the lease revenues, net income (loss), and net
book value of equipment in various geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment on lease to US - domiciled lessees consists of
aircraft, trailers and railcars. During 2001, US lease revenues accounted for
27% of the total lease revenues of wholly and jointly owned equipment while this
region reported net income of $0.9 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars. During 2001, Canadian lease revenues accounted for 6% of
the total lease revenues of wholly and jointly owned equipment, while this
region reported net income of $0.5 million.
The Partnership's owned equipment that was on lease to lessees domiciled in
Europe consists of a portfolio of aircraft rotables. Lease revenues in this
region accounted for 2% of the total lease revenues of wholly and jointly owned
equipment, while this region reported net income of $0.1 million.
The Partnership's investment in equipment owned by a USPE that was on lease to a
lessee domiciled in Iceland consists of an aircraft. During 2001, Icelandic
lease revenues accounted for 6% of the total lease revenues of wholly and
jointly owned equipment while this region reported net loss of $1.5 million. The
primary reasons for this loss were due to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
The Partnership's investment in equipment owned by a USPE on lease to a lessee
domiciled in South America consists of an aircraft. South American lease
revenues accounted for 1% of the total lease revenues of wholly and jointly
owned equipment while this region reported net loss of $0.1 million. The primary
reasons for this loss were due to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
The Partnership's owned equipment that was on lease to lessees domiciled in
India consisted of aircraft. No lease revenues were reported in this region
while this region reported net income of $0.2 million. The primary reason for
this region reporting income resulted from a gain of $0.5 million from the sale
of an aircraft.
The Partnership's ownership share in a USPE on lease to a Mexican-domiciled
lessee consisted of two aircraft on a direct finance lease. No operating lease
revenues were reported in this region while this region reported net loss of
$1.2 million. The primary reason for the net loss was due to the $1.6 million
loss recorded on the revaluation of the direct finance lease to its estimated
carrying value in 2001.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels and marine
containers. During 2001, lease revenues from these operations accounted for 58%
of the total lease revenues of wholly and jointly owned equipment, while
reporting net income from these operations of $3.8 million.
(F) Inflation
Inflation had no significant impact on the Partnership's operations during 2001,
2000, or 1999.
(G) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(H) Outlook for the Future
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent upon many factors,
such as specific market conditions and economic activity, technological
obsolescence, and government or other regulations. The unpredictability of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continuously monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General Partner
may make an evaluation to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return. Alternatively, the General Partner may make a
determination to enter those markets in which it perceives opportunities to
profit from supply and demand instabilities, or other market imperfections.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay principal and interest on debt, pay cash
distributions to the partners, and acquire additional equipment until December
31, 2004. Additionally, the Partnership intends to use its new $30.0 million
term loan facility to repay the existing note payable and purchase additional
equipment.
Factors affecting the Partnership's contribution during the year 2002 and beyond
include:
(i) Railcar loadings in North America have weakened over the past year. During
2001, utilization and lease rates decreased. Railcar contribution may decrease
in 2002 as existing leases expire and renewal leases are negotiated.
(ii) The cost of new marine containers has been at historic lows for the past
several years which has caused downward pressure on per diem lease rates.
(iii) Marine vessel freight rates are dependent upon the overall condition of
the international economy. Freight rates earned by the Partnership's marine
vessel began to decrease during the later half of 2001. This trend is expected
to continue during the first half of 2002.
(iv) The airline industry began to see lower passenger travel during 2001. The
tragic events on September 11, 2001 worsened the situation. As a result of this
and general uncertainty in the airline industry, the Partnership has had to
renegotiate leases on its owned aircraft and partially owned aircraft on a
direct finance lease during 2001 that will result in a decrease in revenues
during 2002.
Several other factors may affect the Partnership's operating performance in the
year 2002 and beyond, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
(1) Repricing and Reinvestment Risk
Certain portions of the Partnership's aircraft, railcar, marine container,
marine vessel, and trailer portfolios will be remarketed in 2002 as existing
leases expire, exposing the Partnership to considerable repricing
risk/opportunity. Additionally, the General Partner may select to sell certain
underperforming equipment or equipment whose continued operation may become
prohibitively expensive. In either case, the General Partner intends to re-lease
or sell equipment at prevailing market rates; however, the General Partner
cannot predict these future rates with any certainty at this time and cannot
accurately assess the effect of such activity on future Partnership performance.
The proceeds from the sold or liquidated equipment will be redeployed to
purchase additional equipment, as the Partnership is in its reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with any accuracy and preclude the General Partner from determining the impact
of such changes on Partnership operations, purchases, or sale of equipment.
The US Department of Transportation's Hazardous Materials Regulations regulates
the classification and packaging requirements of hazardous materials and apply
particularly to Partnership's tank railcars. The Federal Railroad Administration
has mandated that effective July 1, 2000 all tank railcars must be re-qualified
every ten years from the last test date stenciled on each railcar to insure tank
shell integrity. Tank shell thickness, weld seams, and weld attachments must be
inspected and repaired if necessary to re-qualify the tank railcar for service.
The average cost of this inspection is $3,600 for jacketed tank railcars and
$1,800 for non-jacketed tank railcars, not including any necessary repairs. This
inspection is to be performed at the next scheduled tank test and every ten
years thereafter. The Partnership currently owns 374 jacketed tank railcars and
170 non-jacketed tank railcars that will need re-qualification. As of December
31, 2001, a total of 77 tank railcars have been inspected with no significant
defects.
(I) Distribution Levels and Additional Capital Resources
Pursuant to the amended limited partnership agreement, the Partnership will
cease to reinvest surplus cash in additional equipment beginning on January 1,
2005. Prior to that date, the General Partner intends to continue its strategy
of selectively redeploying equipment to achieve competitive returns, or selling
equipment that is underperforming or whose operation becomes prohibitively
expensive. During this time, the Partnership will use operating cash flow,
proceeds from the sale of equipment, and additional debt to meet its operating
obligations, make distributions to the partners, and acquire additional
equipment. In the long term, changing market conditions and used-equipment
values may preclude the General Partner from accurately determining the impact
of future re-leasing activity and equipment sales on Partnership performance and
liquidity. Consequently, the General Partner cannot establish future
distribution levels with any certainty at this time.
The Partnership's permanent debt obligation began to mature in November 2001. In
the fourth quarter 2001, the General Partner, on behalf of the Partnership,
signed a commitment letter to refinance the Partnership's note payable. The
commitment is for a $30.0 million term loan facility with a maturity date of
five years after funding. The loan will call for equal quarterly principal plus
interest payments over the term of the loan.
The General Partner believes that sufficient cash flow will be available in the
future for repayment of debt and to meet Partnership operating cash flow
requirements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 2001, 73% of the Partnership's total lease revenues from wholly and
jointly owned equipment came from non-United States domiciled lessees. Most of
the Partnership's leases require payment in US currency. If these lessees'
currency devalues against the US dollar, the lessees could potentially encounter
difficulty in making the US dollar denominated lease payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the General Partner announced that the Partnership
had engaged Deloitte & Touche LLP as the Partnership's auditors and
had dismissed KPMG LLP. KPMG LLP issued unqualified opinions on the
1999 and 2000 financial statements. During 1999, 2000 and the
subsequent interim period preceding such dismissal, there were no
disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Gary D. Engle 52 Director, PLM Financial Services, Inc., PLM Investment
Management Inc., and PLM Transportation Equipment Corp.
James A. Coyne 41 Director and Secretary, PLM Financial Services Inc., PLM
Investment Management, Inc., and PLM Transportation Equipment
Corp.
Stephen M. Bess 55 President and Director, PLM Financial Services, Inc., PLM
Investment Management Inc., and PLM Transportation Equipment
Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in February
2001. He is a director and President of MILPI. Since November 1997, Mr. Engle
has been Chairman and Chief Executive Officer of Semele Group Inc. ("Semele"), a
publicly traded company. Mr. Engle is President and Chief Executive Officer of
Equis Financial Group ("EFG"), which he joined in 1990 as Executive Vice
President. Mr. Engle purchased a controlling interest in EFG in December 1994.
He is also President of AFG Realty, Inc.
James A. Coyne was appointed a Director and Secretary of PLM Financial Services
Inc. in April 2001. He was appointed a director of PLM International, Inc in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Financial Services, Inc. in
October 2000. He was appointed President and Chief Executive Officer of PLM
International, Inc. in October 2000. 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.
He 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.
The directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM Financial Services, Inc., PLM
Transportation Equipment Corp., or PLM Investment Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain allocations of income), and
distributions. As of December 31, 2001, no investor was known by the
General Partner to beneficially own more than 5% of the limited
partnership units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates owned
any limited partnership units of the Partnership as of December 31,
2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 2001, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees, $0.6 million; and administrative
and data processing services performed on behalf of the Partnership,
$0.4 million.
During 2001, the Partnership's proportional share of ownership in
USPEs paid or accrued the following fees to FSI or its affiliates
(based on the Partnership's proportional share of ownership):
management fees, $0.3 million; administrative and data processing
services, $0.2 million.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as Exhibits of this
Annual Report on Form 10-K:
a. Aero California Trust (A Trust)
b. Lion Partnership
c. Boeing 737-200 Trust S/N 24700
(B) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the registrant or is not
material, or because the information required is included in the
financial statements and notes thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Partnership, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991.
4.1 Second Amendment to the Amended and Restated Limited Partnership
Agreement dated August 24, 2001.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which became
effective with the Securities and Exchange Commission on December 23,
1991.
10.2 Note Agreement, dated as of August 1, 1993, regarding $30.0 million in
6.7% senior notes due November 17, 2003, incorporated by reference to
the Partnership's Annual Report on Form 10-K dated December 31, 1993
filed with the Securities and Exchange Commission on March 25, 1994.
10.3 Note Agreement, dated as of December 21, 2001, regarding $30.0 million
term loan notes due December 21, 2006.
10.4 Warehousing Credit Agreement dated as of April 13, 2001, incorporated
by reference to the Partnership's Form 10-Q dated March 31, 2001 filed
with the Securities and Exchange Commission on May 9, 2001.
10.5 First Amendment to Warehousing Credit Agreement, dated as of December
21, 2001.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Aero California Trust (A Trust)
99.2 Lion Partnership
99.3 Boeing 737-200 Trust S/N 24700
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 25, 2002 PLM EQUIPMENT GROWTH FUND VI
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Stephen M. Bess
-----------------------------------
Stephen M. Bess
President and Current Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
/s/ Gary D. Engle
- ------------------------------------
Gary D. Engle Director, FSI March 25, 2002
/s/ James A. Coyne
- ------------------------------------
James A. Coyne Director, FSI March 25, 2002
/s/ Stephen M. Bess
- ------------------------------------
Stephen M. Bess Director, FSI March 25, 2002
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' reports 30-31
Balance sheets as of December 31, 2001 and 2000 32
Statements of operations for the years ended
December 31, 2001, 2000, and 1999 33
Statements of changes in partners' capital for the
years ended December 31, 2001, 2000, and 1999 34
Statements of cash flows for the years ended
December 31, 2001, 2000, and 1999 35
Notes to financial statements 36-49
Independent auditors' reports on financial statement schedule 50-51
Schedule II Valuation and Qualifying Accounts 52
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund VI
(the "Partnership"), as of December 31, 2001, and the related statements of
operations, changes in partners' capital, and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2001, and
the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying balance sheet of PLM Equipment Growth Fund VI
("the Partnership") as of December 31, 2000 and the related statements of
operations, changes in partners' capital and cash flows for each of the years in
the two-year period ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund VI as
of December 31, 2000, and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
2001 2000
-----------------------------------
ASSETS
Equipment held for operating leases $ 63,694 $ 67,292
Less accumulated depreciation (40,487) (36,829)
-----------------------------------
23,207 30,463
Equipment held for sale -- 1,042
-----------------------------------
Net equipment 23,207 31,505
Cash and cash equivalents 8,051 9,226
Restricted cash 425 --
Accounts receivable, less allowance for doubtful accounts of
$380 in 2001 and $402 in 2000 1,394 1,979
Investments in unconsolidated special-purpose entities 15,202 21,106
Lease negotiation fees to affiliate, less accumulated
amortization of $310 in 2001 and $178 in 2000 75 56
Debt issuance costs, less accumulated amortization
of $152 in 2001 and $106 in 2000 -- 46
Debt placement fees to affiliate, less accumulated
amortization of $148 in 2001 and $104 in 2000 280 44
Prepaid expenses and other assets 77 101
-----------------------------------
Total assets $ 48,711 $ 64,063
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 1,276 $ 1,171
Due to affiliates 926 821
Lessee deposits and reserve for repairs 30 449
Note payable 20,000 30,000
-----------------------------------
Total liabilities 22,232 32,441
-----------------------------------
Commitments and contingencies
Partners' capital
Limited partners (limited partnership units of 7,781,898 and
8,189,465 as of December 31, 2001 and 2000, respectively) 26,479 31,622
General Partner -- --
-----------------------------------
Total partners' capital 26,479 31,622
-----------------------------------
Total liabilities and partners' capital $ 48,711 $ 64,063
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
2001 2000 1999
------------------------------------------------
REVENUES
Lease revenue $ 11,669 $ 17,526 $ 23,988
Interest and other income 663 253 270
Net gain on disposition of equipment 1,077 2,147 25,951
------------------------------------------------
Total revenues 13,409 19,926 50,209
------------------------------------------------
EXPENSES
Depreciation and amortization 6,234 8,927 17,001
Repairs and maintenance 1,550 1,956 4,183
Equipment operating expenses 494 2,034 3,974
Insurance expenses 119 195 642
Management fees to affiliate 645 963 1,261
Interest expense 1,926 2,029 2,108
General and administrative expenses to affiliates 440 659 850
Other general and administrative expenses 2,087 1,193 1,084
Loss on revaluation of equipment -- 374 3,567
(Recovery of) provision for bad debts (15) (720) 591
------------------------------------------------
Total expenses 13,480 17,610 35,261
------------------------------------------------
Minority interests -- -- (7,949)
------------------------------------------------
Equity in net loss of unconsolidated
special-purpose entities (935) (1,904) (1,003)
------------------------------------------------
Net income (loss) $ (1,006) $ 412 $ 5,996
================================================
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners $ (1,092) $ (278) $ 5,305
General Partner 86 690 691
------------------------------------------------
Total $ (1,006) $ 412 $ 5,996
================================================
Limited partner's net income (loss) per
weighted-average limited partnership unit $ (0.13) $ (0.03) $ 0.65
================================================
Cash distribution $ 1,372 $ 13,794 $ 13,806
================================================
Cash distribution per weighted-average
limited partnership unit $ 0.16 $ 1.60 $ 1.60
================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 2001, 2000, and 1999
(in thousands of dollars)
Limited General
Partners Partner Total
----------------------------------------------------
Partners' capital as of December 31, 1998 $ 52,954 $ -- $ 52,954
Net income 5,305 691 5,996
Purchase of limited partnership units (123) -- (123)
Cash distribution (13,115) (691) (13,806)
----------------------------------------------------
Partners' capital as of December 31, 1999 45,021 -- 45,021
Net income (loss) (278) 690 412
Purchase of limited partnership units (17) -- (17)
Cash distribution (13,104) (690) (13,794)
----------------------------------------------------
Partners' capital as of December 31, 2000 31,622 -- 31,622
Net income (loss) (1,092) 86 (1,006)
Purchase of limited partnership units (2,765) -- (2,765)
Cash distribution (1,286) (86) (1,372)
----------------------------------------------------
Partners' capital as of December 31, 2001 $ 26,479 $ -- $ 26,479
====================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
2001 2000 1999
-----------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ (1,006) $ 412 $ 5,996
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 6,234 8,927 17,001
Loss on revaluation of equipment -- 373 3,567
Net gain on disposition of equipment (1,077) (2,147) (25,951)
Equity in net loss from unconsolidated special-purpose entities 935 1,904 1,003
Changes in operating assets and liabilities:
Restricted cash (425) -- --
Accounts receivable, net 588 (578) 3,237
Prepaid expenses and other assets 24 (43) (79)
Accounts payable and accrued expenses 145 (49) 85
Due to affiliates 105 479 (70)
Lessee deposits and reserve for repairs (119) 59 (1,232)
Minority interests -- -- 1,268
-----------------------------------------
Net cash provided by operating activities 5,404 9,337 4,825
-----------------------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized repairs (2) (955) (42,883)
Investments in, and equipment purchased and placed in,
unconsolidated special-purpose entities (632) -- (147)
Distribution from unconsolidated special-purpose entities 3,346 2,760 2,318
Distribution from liquidation of unconsolidated special-purpose
entities 2,254 88 3,504
Payments of acquisition fees to affiliate (678) -- (825)
Principal payments received on direct finance lease -- -- 60
Payments of lease negotiation fees to affiliate (150) -- (67)
Proceeds from disposition of equipment 3,711 9,138 45,839
-----------------------------------------
Net cash provided by investing activities 7,849 11,031 7,799
-----------------------------------------
FINANCING ACTIVITIES
Payment of note payable (10,000) -- --
Payment of debt placement fees (280) -- --
Proceeds from short-term note payable -- 600 4,712
Payments of short-term note payable -- (600) (4,712)
Proceeds from short-term loan from affiliate -- -- 400
Payment of short-term loan to affiliate -- -- (400)
Cash distribution paid to limited partners (1,286) (13,104) (13,115)
Cash distribution paid to General Partner (86) (690) (691)
Purchase of limited partnership units (2,776) (17) (123)
-----------------------------------------
Net cash used in financing activities (14,428) (13,811) (13,929)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (1,175) 6,557 (1,305)
Cash and cash equivalents at beginning of year 9,226 2,669 3,974
-----------------------------------------
Cash and cash equivalents at end of year $ 8,051 $ 9,226 $ 2,669
=========================================
SUPPLEMENTAL INFORMATION
Interest paid $ 1,954 $ 2,029 $ 2,108
=========================================
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entities $ -- $ 1,878 $ --
=========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991 to engage in the business of owning,
leasing or otherwise investing in primarily used transportation and related
equipment. PLM Financial Services, Inc. (FSI) is the General Partner of the
Partnership. FSI is a wholly owned subsidiary of PLM International, Inc. (PLM
International or PLMI).
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner to the extent
necessary to cause the General Partner's capital account to equal zero (see Net
Income (Loss) and Distributions Per Limited Partnership Unit below). The General
Partner is also entitled to receive a subordinated incentive fee as defined in
the limited Partnership agreement after the limited partners receive a minimum
return on, and a return of, their invested capital.
Pursuant to the equitable settlement related to the Koch and Romei actions (see
Note 10), the Partnership phases have been amended and a one-time purchase by
the Partnership of up to 10% of the outstanding Partnership units for 80% of net
asset value per unit has been approved. The amendment extends the period in
which the Partnership will be able to reinvest its cash flow, surplus cash, and
equipment sale proceeds into additional equipment until December 31, 2004.
During that time, the General Partner may purchase additional equipment,
consistent with the objectives of the Partnership, and the amount of front-end
fees that FSI may earn has been increased 20% (including acquisition and lease
negotiation fees). The amendment also extends the Partnership's termination date
to December 31, 2011, unless terminated earlier upon the sale of all equipment
or by certain other events. As a result of the equitable settlement, the
Partnership's redemption plan has been terminated and the General Partner has
agreed to purchase 489,344 units and, as of December 31, 2001, has paid or
accrued $2.8 million to the purchasing agent for this purchase.
As of December 31, 2001, the purchasing agent purchased 407,565 units, which is
reflected as a reduction in Partnership units. The purchasing agent also
purchased an additional 54,933 during January 2002. The General Partner expects
the remaining 26,846 units to be purchased during the remainder of 2002.
Under the former redemption plan, for the years ended December 31, 2001, 2000,
and 1999, the Partnership had purchased 2; 2,253; and 14,621 limited partnership
units for $22, $17,000, and $0.1 million, respectively.
ESTIMATES
These financial statements have been prepared on the accrual basis of accounting
in accordance with accounting principles generally accepted in the United States
of America. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
OPERATIONS
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with investor programs, and is a general partner of other
programs.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
ACCOUNTING FOR LEASES (continued)
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life. Rental payments are
recorded as revenue over the lease term as earned in accordance with Statement
of Financial Accounting Standards (SFAS) No. 13, "Accounting for Leases" (SFAS
No. 13). Lease origination costs are capitalized and amortized over the term of
the lease. Periodically, the Partnership leases equipment with lease terms that
qualify for direct finance lease classification, as required by SFAS No. 13.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for all other equipment. The depreciation method changes
to straight line when the annual depreciation expense using the straight-line
method exceeds that calculated by the double-declining balance method.
Acquisition fees have been capitalized as part of the cost of the equipment.
Lease negotiation fees are amortized over the initial equipment lease term.
Major expenditures that are expected to extend the useful lives or reduce future
operating expenses of equipment are capitalized and amortized over the estimated
remaining life of the equipment. Debt issuance costs and debt placement fees are
amortized over the term of the loan using the straight-line method that
approximates the effective interest method (see Note 7). Major expenditures that
are expected to extend the useful lives or reduce future operating expenses of
equipment are capitalized and amortized over the remaining life of the
equipment.
Pursuant to the equitable settlement (see Note 10), during 2001 the Partnership
paid additional acquisition and lease negotiation fees of $0.8 million to FSI on
equipment purchased in 1999. Depreciation and amortization of $0.3 million,
which represents the cumulative effect of depreciation and amortization that
should have been recorded from the purchase of equipment in 1999 until the
equitable settlement, was recorded during 2001.
TRANSPORTATION EQUIPMENT
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121).
Equipment held for sale is stated at the lower of the equipment's depreciated
cost or fair value, less cost to sell, and is subject to a pending contract for
sale.
In accordance with SFAS No. 121, the General Partner reviews the carrying values
of the Partnership's equipment portfolio at least quarterly and whenever
circumstances indicate that the carrying value of an asset may not be
recoverable due to expected future market conditions. If the projected
undiscounted cash flows and the fair market value of the equipment are less than
the carrying value of the equipment, a loss on revaluation is recorded. During
2001, a unconsolidated special-purpose entity (USPE) trust owning two Stage III
commercial aircraft on a direct finance lease reduced its net investment in the
finance lease receivable due to a series of lease amendments. The Partnership's
proportionate share of this writedown, which is included in equity in net income
(loss) of the USPE in the accompanying statement of income, was $1.6 million.
Reductions of $0.4 million and $3.6 million to the carrying value of owned
equipment were required during 2000 and 1999, respectively. No revaluations to
owned equipment were required in 2001 or to partially owned equipment in 2000
and 1999.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144),
which replaces SFAS No. 121. SFAS No. 144 provides updated guidance concerning
the recognition and measurement of an impairment loss for certain types of
long-lived assets, expands the scope of a discontinued operation to include a
component
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
TRANSPORTATION EQUIPMENT (continued)
of an entity, and eliminates the current exemption to consolidation when control
over a subsidiary is likely to be temporary. SFAS No. 144 is effective for
fiscal years beginning after December 15, 2001.
The Partnership will apply the new rules on accounting for the impairment or
disposal of long-lived assets beginning in the first quarter of 2002, and they
are not anticipated to have an impact on the Partnership's earnings or financial
position.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has interests in USPEs that own transportation equipment. These
are single purpose entities that do not have any debt or other financial
encumbrances and are accounted for using the equity method. As of December 31,
2001 and 2000, the Partnership owned a majority interest in two such entities.
Prior to September 30, 1999, the Partnership controlled the management of these
entities and thus they were consolidated into the Partnership's financial
statements. On September 30, 1999, the corporate by-laws of these entities were
changed to require a unanimous vote by all owners on major business decisions.
Thus, from September 30, 1999 forward, the Partnership no longer controlled the
management of these entities, and the accounting method for the entities was
changed from the consolidation method to the equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly owned subsidiary of
FSI and WMS is a wholly owned subsidiary of PLM International. The Partnership's
interests in USPEs are managed by IMI. The Partnership's equity interest in the
net income (loss) of USPEs is reflected net of management fees paid or payable
to IMI and the amortization of acquisition and lease negotiation fees paid to
TEC or WMS.
REPAIRS AND MAINTENANCE
Repairs and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are charged against operations
as incurred. Costs associated with marine vessel drydocking are estimated and
accrued ratably over the period prior to such drydocking. If a marine vessel is
sold and there is a balance in the drydocking reserve account for that marine
vessel, the balance in the reserve account is included as additional gain on
disposition. Maintenance costs of aircraft and marine containers are the
obligation of the lessee. To meet the maintenance requirements of certain
aircraft airframes and engines, reserve accounts are prefunded by the lessee
over the period of the lease based on the number of hours this equipment is
used, times the estimated rate to repair this equipment. If repairs exceed the
amount prefunded by the lessee, the Partnership may have the obligation to fund
and accrue the difference. If an aircraft is sold and there is a balance in the
reserve account for repairs to that aircraft, the balance in the reserve account
is reclassified as additional gain on disposition. The aircraft reserve accounts
and marine vessel drydocking reserve accounts are included in the balance sheets
as lessee deposits and reserve for repairs.
NET INCOME (LOSS) AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Special allocations of income are made to the General Partner to the extent
necessary to cause the capital account balance of the General Partner to be zero
as of the close of such year. 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.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (continued)
NET INCOME (LOSS) AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT (continued)
Cash distributions of the Partnership are allocated 95% to the limited partners
and 5% to the General Partner and may include amounts in excess of net income.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $1.3 million, $13.1
million, and $7.8 million in 2001, 2000, and 1999, respectively, were deemed to
be a return of capital.
Cash distributions related to the fourth quarter 2000 of $1.5 million, and 1999
of $2.0 million, were paid during the first quarter of 2001 and 2000,
respectively. There were no cash distributions related to the fourth quarter
2001 paid during the first quarter of 2002.
NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the year. The
weighted-average number of Partnership units deemed outstanding during the years
ended December 31, 2001, 2000, and 1999 was 8,186,114; 8,189,891; and 8,196,209,
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.
RESTRICTED CASH
As of December 31, 2001, restricted cash consists of bank accounts or short-term
investments that are primarily subject to withdrawal restrictions per loan and
other legally binding agreements.
COMPREHENSIVE INCOME
The Partnership's comprehensive income is equal to net income for the years
ended December 31, 2001, 2000, and 1999.
NEW ACCOUNTING STANDARDS
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the FASB. SFAS No. 142 changes the accounting for goodwill
and other intangible assets determined to have an indefinite useful life from an
amortization method to an impairment-only approach. Amortization of applicable
intangible assets will cease upon adoption of this statement. The Partnership is
required to implement SFAS No. 142 on January 1, 2002 and it has not yet
determined the impact, if any, this statement will have on its financial
position or results of operations.
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, subject to certain reductions, receives
a monthly management fee attributable to either owned equipment or interests in
equipment owned by the USPEs equal to the lesser of (i) the fees
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (continued)
that would be charged by an independent third party for similar services for
similar equipment or (ii) the sum of (a) 5% of the gross lease revenues
attributable to equipment that is subject to operating leases, (b) 2% of the
gross lease revenues, as defined in the agreement, that is subject to full
payout net leases, and (c) 7% of the gross lease revenues attributable to
equipment for which IMI provides both management and additional services
relating to the continued and active operation of program equipment, such as
on-going marketing and re-leasing of equipment, hiring or arranging for the
hiring of crew or operating personnel for equipment, and similar services. The
Partnership reimbursed FSI $0.4 million, $0.7 million, and $0.9 million in 2001,
2000, and 1999, respectively, for data processing and administrative expenses
directly attributable to the Partnership.
The Partnership's proportional share of USPEs management fees to affiliate were
$0.3 million during 2001 and 2000 and $0.2 million during 1999, and the
Partnership's proportional share of administrative and data processing expenses
to affiliate were $0.2 million, $46,000, and $43,000 during 2001, 2000, and
1999, respectively. Both of these affiliate expenses reduced the Partnership's
proportional share of the equity interest in income in USPEs.
Debt placement fees were paid to the General Partner in an amount equal to 1% of
the Partnership's long-term borrowings, less any costs paid to unaffiliated
parties related to obtaining the borrowing.
The Partnership and the USPEs paid or accrued equipment acquisition and lease
negotiation fees to FSI in the amount of $1.5 million and $0.4 million during
2001 and 1999, respectively. No equipment acquisition or lease negotiation fees
were accrued during 2000.
TEC will also be entitled to receive an equipment liquidation fee equal to the
lesser of (i) 3% of the sales price of equipment sold on behalf of the
Partnership or (ii) 50% of the "Competitive Equipment Sale Commission," as
defined in the agreement, if certain conditions are met.
The Partnership owned certain equipment in conjunction with affiliated programs
during 2001, 2000, and 1999 (see Note 4).
The Partnership had borrowings from the General Partner from time to time and
was charged market interest rates effective at the time of the borrowing. During
1999 the Partnership borrowed $0.4 million from the General Partner for five
days and paid a total of $421 in interest to the General Partner. There were no
similar borrowings during 2001 or 2000.
The balance due to affiliates as of December 31, 2001 includes $0.1 million due
to FSI and its affiliates for management fees and $0.8 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 2000 includes $0.1
million due to FSI and its affiliates for management fees and $0.7 million due
to a USPE.
3. EQUIPMENT
The components of owned equipment as of December 31 are as follows (in thousands
of dollars):
Equipment Held for Operating Leases 2001 2000
- ------------------------------------------------------ -------------------------------
Marine containers $ 25,045 $ 25,566
Rail equipment 17,213 17,244
Aircraft, aircraft engines, and components 16,224 16,224
Trailers 5,212 5,258
Marine vessel -- 3,000
---------------------------------
63,694 67,292
Less accumulated depreciation (40,487) (36,829)
-------------------------------
23,207 30,463
Equipment held for sale -- 1,042
---------------------------------
Net equipment $ 23,207 $ 31,505
=================================
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
3. EQUIPMENT (continued)
Revenues are earned under operating leases. A portion of 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
earned by the Partnership consist of a specified percentage of the total
revenues generated by leasing the pooled equipment to sublessees after deducting
certain direct operating expenses of the pooled equipment. The remaining
Partnership marine containers are based on a fixed rate. Lease revenues for
trailers operating with short-line railroad systems are based on a per-diem
lease in the free running railroad interchange. Rents for all other equipment
are based on fixed rates.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS No. 121. During 2000, the General Partner
reduced the carrying value of the off-lease Boeing 737-200 commercial aircraft
by $0.4 million to the equipment's estimated realizable value. No revaluations
of wholly owned equipment were required in 2001 or 1999.
As of December 31, 2000, the Boeing 737-200 commercial aircraft was held for
sale at the lower of the equipment's depreciated cost or fair value, less cost
to sell, and was subject to a pending contract for sale. No equipment was held
for sale as of December 31, 2001.
As of December 31, 2001, all owned equipment in the Partnership's portfolio was
on lease except for 118 railcars with a net book value of $1.2 million. As of
December 31, 2000, all owned equipment in the Partnership's portfolio was on
lease except for a Boeing 737-200 Stage II commercial aircraft and 48 railcars
with a net book value of $1.5 million.
Pursuant to the equitable settlement related to the Koch and Romei actions (see
Note 10), during 2001 the Partnership paid FSI $0.8 million in acquisition and
lease negotiation fees related to marine containers purchased during 1999.
During 2000 the Partnership paid $0.9 million for marine containers that
were purchased in 1999 that was included as an accrued expense on the December
31, 1999 balance sheet. The General Partner also transferred marine containers
with an original equipment cost of $2.6 million from the Partnership's USPE
portfolio to owned equipment.
During 2001, the Partnership disposed of a Boeing 737-200 commercial
aircraft that was held for sale at December 31, 2000, a marine vessel, marine
containers, railcars, and trailers with an aggregate net book value of $3.0
million, for proceeds of $3.7 million. Included in the net gain on sale of the
marine vessel was the unused portion of marine vessel drydocking liability of
$0.3 million. During 2000, the Partnership disposed of marine vessels, marine
containers, trailers, and railcars, with an aggregate net book value of $7.3
million, for $9.1 million. Included in the 2000 net gain on disposition of
assets is the unused portion of marine vessel drydocking of $0.3 million.
All wholly and jointly owned equipment on lease is accounted for as
operating leases, except for two jointly owned commercial aircraft on a direct
finance lease. Future minimum rentals under noncancelable operating leases as of
December 31, 2001, for wholly and jointly owned equipment during each of the
next five years are approximately $6.9 million in 2002; $4.6 million in 2003;
$4.0 million in 2004; $2.5 million in 2005; $1.6 million in 2006; and $1.9
million thereafter. Per diem and short-term rentals consisting of utilization
rate lease payments included in lease revenues amounted to $6.5 million in 2001,
$5.7 million in 2000, and $4.4 million in 1999.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership owns equipment jointly with affiliated programs. These are
single purpose entities that do not have any debt or other financial
encumbrances.
In September 1999, the General Partner amended the corporate by-laws of certain
USPEs in which the Partnership, or any affiliated program, owned an interest
greater than 50%. The amendment to the corporate by-laws provided that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous
EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES continued)
consent of the Partnership and all the affiliated programs that have an
ownership in the investment. As such, although the Partnership may own a
majority interest in a USPE, the Partnership does not control its management and
thus the equity method of accounting will be used after adoption of the
amendment. Accordingly, the balance sheets reflect all investments in USPEs on
an equity basis.
The net investments in USPEs include the following jointly owned equipment and
related assets and liabilities as of December 31 (in thousands of dollars):
2001 2000
------------------------------
62% interest in a trust owning a commercial stage III aircraft $ 9,176 $ 10,316
53% interest in an entity owning a product tanker 4,679 5,467
40% interest in a trust owning two commercial stage III aircraft
on a direct finance lease 1,368 3,592
20% interest in an entity that owned a handymax dry-bulk carrier (2) 877
50% interest in an entity that owned a container feeder vessel (19) 854
----------- ----------
Net investments $ 15,202 $ 21,106
=========== ==========
As of December 31, 2001 and 2000, all jointly owned equipment in the
Partnership's USPE portfolio was on lease.
Pursuant to the equitable settlement related to the Koch and Romei actions (see
Note 10), during 2001 the Partnership increased its investment in a trust owning
a commercial stage III aircraft by paying FSI $0.6 million in additional
acquisition and lease negotiation fees.
During 2001, a trust owning two commercial stage III aircraft on a direct
finance lease in which the Partnership has an interest, reduced its net
investment in the finance lease receivable due to a series of lease amendments.
The Partnership's proportionate share of the writedown, which is included in
equity in net loss of USPEs in the accompanying statements of operations, was
$1.6 million.
During 2001, the General Partner sold the Partnership's 20% interest in an
entity that owned a handymax dry-bulk carrier marine vessel and its 50% interest
in an entity that owned a container feeder marine vessel. The Partnership's
interest in these entities was sold for proceeds of $2.3 million for its net
investment of $1.8 million. Included in the net gain on sale of these entities
was the unused portion of marine vessel drydocking liability of $0.2 million.
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the years ended December 31 (in
thousands of dollars):
2001 2000 1999
Net Net Net
Total Interest Total Interest Total Interest
USPEs of USPEs of USPEs of
Partnership Partnership Partnership
-------------------------- -------------------------- --------------------------
Net investments $ 27,038 $ 15,202 $ 42,176 $ 21,106 $ 59,692 $ 27,736
Lease revenues 12,939 6,645 10,950 4,628 10,395 3,224
Net loss (184) (935) (2,460) (1,904) (867) (1,003)
5. OPERATING SEGMENTS
The Partnership operates primarily in five operating segments: aircraft leasing,
marine container leasing, marine vessel leasing, trailer leasing, and railcar
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of interest expense, general and
administrative expenses, and certain other expenses. The segments are managed
separately due to different business strategies for each operation.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
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, Leasing Leasing Leasing Leasing Leasing Other (1) Total
2001
------------------------------------ --------- --------- -------- --------- --------- --------- -----------
REVENUES
Lease revenue $ 1,843 $ 4,649 $ 515 $ 872 $ 3,790 $ -- $ 11,669
Interest and other income 40 -- 73 -- 10 540 663
Gain on disposition of equipment 516 57 488 8 8 -- 1,077
------------------------------------------------------------------------
Total revenues 2,399 4,706 1,076 880 3,808 540 13,409
------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 19 62 336 489 1,148 109 2,163
Depreciation and amortization 1,448 3,125 102 293 1,072 194 6,234
Interest expense -- -- -- -- -- 1,926 1,926
Management fees to affiliate 76 232 26 44 267 -- 645
General and administrative expenses 257 2 48 149 147 1,924 2,527
Provision for (recovery of) bad 46 7 -- (13) (55) -- (15)
debts
------------------------------------------------------------------------
Total costs and expenses 1,846 3,428 512 962 2,579 4,153 13,480
------------------------------------------------------------------------
Equity in net income (loss) of USPEs (2,850) -- 1,915 -- -- -- (935)
------------------------------------------------------------------------
Net income (loss) $ (2,297) $ 1,278 $ 2,479 $ (82) $ 1,229 $ (3,613) $ (1,006)
========================================================================
Total assets as of December 31, 2001 $ 11,565 $ 15,373 $ 4,658 $ 1,414 $ 6,782 $ 8,919 $ 48,711
========================================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, Leasing Leasing Leasing Leasing Leasing Other (2) Total
2000
------------------------------------ --------- --------- -------- --------- --------- --------- ----------
REVENUES
Lease revenue $ 2,778 $ 4,706 $ 3,625 $ 2,130 $ 4,287 $ -- $ 17,526
Interest and other income -- -- -- -- -- 253 253
Gain (loss) on disposition of -- (45) 382 1,785 25 -- 2,147
equipment
-------------------------------------------------------------------------
Total revenues 2,778 4,661 4,007 3,915 4,312 253 19,926
-------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 56 20 2,349 715 1,006 39 4,185
Depreciation and amortization 2,347 3,348 1,348 563 1,280 41 8,927
Interest expense -- -- -- -- -- 2,029 2,029
Management fees to affiliate 157 235 181 121 269 -- 963
General and administrative expenses 337 13 65 461 116 860 1,852
Loss on revaluation of equipment 374 -- -- -- -- -- 374
Recovery of bad debts (655) -- -- (6) (59) -- (720)
-------------------------------------------------------------------------
Total costs and expenses 2,616 3,616 3,943 1,854 2,612 2,969 17,610
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (1,485) 44 (548) -- -- 85 (1,904)
-------------------------------------------------------------------------
Net income (loss) $ (1,323) $ 1,089 $ (484) $ 2,061 $ 1,700 $ (2,631) $ 412
=========================================================================
Total assets as of December 31, 2000 $ 18,502 $ 18,015 $ 9,078 $ 1,725 $ 7,782 $ 8,961 $ 64,063
=========================================================================
(1) Includes certain assets not identifiable to a specific segment such as
cash, accounts receivable, lease negotiation fees, debt placement fees, and
prepaid expenses. Also includes interest income and costs not identifiable
to a particular segment, such as interest expense, and certain
amortization, general and administrative, and operations support expenses.
(2) Includes certain assets not identifiable to a specific segment such as
cash, accounts receivable, lease negotiation fees, debt placement fees, and
prepaid expenses. Also includes interest income and costs not identifiable
to a particular segment, such as interest expense, and certain
amortization, general and administrative, and operations support expenses.
Also includes gain on sale from an investment in an entity that owned a
mobile offshore drilling unit.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
5. OPERATING SEGMENTS (continued)
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other (3) Total
------------------------------------ --------- --------- -------- --------- --------- --------- ----------
REVENUES
Lease revenue $ 4,481 $ 2,317 $ 9,849 $ 2,790 $ 4,551 $ -- $ 23,988
Interest and other income 33 -- 12 (2) 47 180 270
Gain (loss) on disposition of 24,414 93 1,670 (195) (31) -- 25,951
equipment
-------------------------------------------------------------------------
Total revenues 28,928 2,410 11,531 2,593 4,567 180 50,209
-------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 832 -- 6,322 769 829 47 8,799
Depreciation and amortization 6,970 2,217 5,559 755 1,470 30 17,001
Interest expense 15 -- -- -- -- 2,093 2,108
Management fees to affiliate 196 116 481 160 308 -- 1,261
General and administrative expenses 388 11 149 546 73 767 1,934
Loss on revaluation of equipment -- -- 3,567 -- -- -- 3,567
Provision for bad debts 485 -- -- 22 84 -- 591
-------------------------------------------------------------------------
Total costs and expenses 8,886 2,344 16,078 2,252 2,764 2,937 35,261
-------------------------------------------------------------------------
Minority interests (8,225) -- 276 -- -- -- (7,949)
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (250) 5 (1,029) -- -- 271 (1,003)
-------------------------------------------------------------------------
Net income (loss) $ 11,567 $ 71 $ (5,300) $ 341 $ 1,803 $ (2,486) $ 5,996
=========================================================================
(3) Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain amortization, general and
administrative, and operations support expenses. Also includes income from
an investment in an entity that owned a mobile offshore drilling unit.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in seven geographic regions: the United States, South America, Canada,
Mexico, Europe, Iceland, and India. Marine vessels and marine containers are
leased or were leased to multiple lessees in different regions that operate
worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domiciles of
the lessees as of and for the years ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- -------------------------------------
Region 2001 2000 1999 2001 2000 1999
---------------------------- ------------------------------------- -------------------------------------
United States $ 4,977 $ 6,921 $ 8,540 $ -- $ -- $ --
South America -- -- 1,643 96 -- --
Canada 1,150 1,896 1,201 -- -- --
Europe 378 378 378 -- -- --
Iceland -- -- -- 1,014 865 --
India -- -- 60 -- -- --
Rest of the world 5,164 8,331 12,166 5,535 3,763 3,224
------------------------------------- -------------------------------------
Lease revenues $ 11,669 $ 17,526 $ 23,988 $ 6,645 $ 4,628 $ 3,224
===================================== =====================================
EQUIPMENT GROWTH FUND
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
6. GEOGRAPHIC INFORMATION (continued)
The following table sets forth net income (loss) information by region for the
owned equipment and investments in USPEs for the years ended December 31 (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- -------------------------------------
Region 2001 2000 1999 2001 2000 1999
- ------------------------------- ------------------------------------- -------------------------------------
United States $ 877 $ 3,481 $ (312) $ -- $ -- $ (627)
South America -- -- 15,719 (147) 36 (185)
Canada 505 873 370 -- 7 25
Mexico -- -- -- (1,159) 614 537
Europe 122 57 23 -- -- --
Iceland -- -- -- (1,544) (2,142) --
India 195 (487) (1,839) -- -- --
Rest of the world 1,843 1,109 (4,205) 1,915 (419) (753)
------------------------------------- -------------------------------------
Regional income (loss) 3,542 5,033 9,756 (935) (1,904) (1,003)
Administrative and other (3,613) (2,717) (2,757) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ (71) $ 2,316 $ 6,999 $ (935 ) $ (1,904 ) $ (1,003)
===================================== =====================================
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
-------------------------- -----------------------------
Region 2001 2000 2001 2000
---------------------------- ------------------------ -------------------------
United States $ 5,915 8,399 $ -- $ --
South America -- -- 9,176 --
Canada 1,791 1,876 -- --
Mexico -- -- 1,368 3,592
Europe 958 1,137 -- --
Iceland -- -- -- 10,316
India -- 1,042 -- --
Rest of the world 14,543 19,051 4,658 7,198
------------------------ -------------------------
Net book value $ 23,207 31,505 $ 15,202 $ 21,106
======================== =========================
7. DEBT
In August 1993, the Partnership entered into an agreement to issue a long-term
note totaling $30.0 million to two institutional investors. The note bears
interest at a fixed rate of 6.7% per annum and had a final maturity in 2003.
Interest on the note was payable monthly. The note was scheduled to be repaid in
three principal payments of $10.0 million on November 17, 2001, 2002, and 2003.
The agreement required the Partnership to maintain certain financial covenants
related to fixed-charge coverage. Proceeds from the sale of the note were used
to fund equipment acquisitions. The Partnership's wholly and jointly owned
equipment is used as collateral to the note.
The General Partner estimates, based on recent transactions, that the fair
market value of the $20.0 million fixed-rate note is $19.5 million.
In the fourth quarter of 2001, the General Partner, on behalf of the
Partnership, signed a commitment letter to refinance the Partnership's note
payable. The commitment is for a $30.0 million term loan facility with a
maturity date of five years after funding. The loan will call for equal
quarterly principal plus interest payments over the term of the loan. The note
will bear interest at the floating rate of LIBOR plus 2.5% or a fixed rate of
the lenders cost of funds plus 2.5% at the option of the Partnership. The
Partnership will incur a prepayment penalty of $1.0 million to prepay the
existing senior note payable and a debt placement fee of $0.3 million payable to
the new lender. These amounts were accrued in the December 31, 2001 financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
7. DEBT (continued)
In April 2001, PLM International entered into a $15.0 million warehouse
facility, which is shared with the Partnership, PLM Equipment Growth & Income
Fund VII, and Professional Lease Management Income Fund I, LLC. During December
2001, this facility was amended to lower the amount available to be borrowed to
$10.0 million. The facility provides for financing up to 100% of the cost of the
equipment. Outstanding borrowings by one borrower reduce the amount available to
each of the other borrowers under the facility. Individual borrowings may be
outstanding for no more than 270 days, with all advances due no later than April
12, 2002. Interest accrues either at the prime rate or LIBOR plus 2.0% at the
borrower's option and is set at the time of an advance of funds. Borrowings by
the Partnership are guaranteed by PLMI. This facility expires in April 2002. The
General Partner believes it will be able to renew the warehouse facility upon
its expiration with terms similar to those in the current facility.
As of December 31, 2001, the Partnership had no borrowings outstanding under
this facility and there were no other borrowings outstanding under this facility
by any other eligible borrower.
8. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of the consolidated revenues for
the owned equipment and jointly owned equipment during 2001, 2000, and 1999. In
1999, however, AAR Allen Group International purchased a commercial aircraft
from the Partnership and the gain from the sale accounted for 49% of total
consolidated revenues.
As of December 31, 2001 and 2000, the General Partner believed the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
9. INCOME TAXES
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2001, the financial statement carrying amount of assets and
liabilities was approximately $27.1 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods, equipment reserves, provisions for bad debts, lessees'
prepaid deposits, and the tax treatment of underwriting commissions and
syndication costs.
10. CONTINGENCIES
Two class action lawsuits which were filed against PLM International and various
of its wholly owned subsidiaries in January 1997 in the United States District
Court for the Southern District of Alabama, Southern Division (the court), Civil
Action No. 97-0177-BH-C (the Koch action), and June 1997 in the San Francisco
Superior Court, San Francisco, California, Case No. 987062 (the Romei action),
were fully resolved during the fourth quarter 2001.
The named plaintiffs were individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), the Partnership (Fund VI),
and PLM Equipment Growth & Income Fund VII (Fund VII and collectively, the
Funds), each a California limited partnership for which PLMI's wholly owned
subsidiary, FSI, acts as the General Partner. The complaints asserted causes of
action against all defendants for fraud and deceit, suppression, negligent
misrepresentation, negligent and intentional breaches of fiduciary duty, unjust
enrichment, conversion, conspiracy, unfair and deceptive practices, and
violations of state securities law. Plaintiffs alleged that each defendant owed
plaintiffs and the class certain duties due to their status as fiduciaries,
financial advisors, agents, and control persons. Based on these duties,
plaintiffs asserted liability against defendants for improper sales and
marketing practices, mismanagement of the Funds, and concealing such
mismanagement from investors in the Funds. Plaintiffs sought unspecified
compensatory damages, as well as punitive damages.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
10. CONTINGENCIES (continued)
In February 1999 the parties to the Koch and Romei actions agreed to monetary
and equitable settlements of the lawsuits, with no admission of liability by any
defendant, and filed a Stipulation of Settlement with the court. The court
preliminarily approved the settlement in August 2000, and information regarding
the settlement was sent to class members in September 2000. A final fairness
hearing was held on November 29, 2000, and on April 25, 2001, the federal
magistrate judge assigned to the case entered a Report and Recommendation
recommending final approval of the monetary and equitable settlements to the
federal district court judge. On July 24, 2001, the federal district court judge
adopted the Report and Recommendation, and entered a final judgment approving
the settlements. No appeal has been filed and the time for filing an appeal has
expired.
The monetary settlement provides for a settlement and release of all claims
against defendants in exchange for payment for the benefit of the class of up to
$6.6 million, consisting of $0.3 million deposited by PLMI and the remainder
funded by an insurance policy. The final settlement amount of $4.9 million (of
which PLMI's share was approximately $0.3 million) was accrued in 1999, paid out
in the fourth quarter of 2001 and was determined based upon the number of claims
filed by class members, the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys, and the amount of the administrative costs incurred in
connection with the settlement.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, except for Fund IV; (b) the extension (until December 31,
2004) of the period during which FSI can reinvest the Funds' funds in additional
equipment, except for Fund IV; (c) an increase of up to 20% in the amount of
front-end fees (including acquisition and lease negotiation fees) that FSI is
entitled to earn in excess of the compensatory limitations set forth in the
North American Securities Administrator's Association's Statement of Policy,
except for Fund IV; (d) a one-time purchase by each of Funds V, VI, and VII of
up to 10% of that partnership's outstanding units for 80% of net asset value per
unit as of September 30, 2000; and (e) the deferral of a portion of the
management fees paid, except for Fund IV, to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Fund funds in the event, if ever, that certain
performance thresholds have been met by the Funds. Following a vote of limited
partners resulting in less than 50% of the limited partners of each of Funds V,
VI, and VII voting against such amendments and after final approval of the
settlement, each of the Funds' limited partnership agreements was amended to
reflect these changes. During the fourth quarter of 2001 the respective Funds
purchased limited partnership units from those equitable class members who
submitted timely requests for purchase. Fund VI agreed to purchase 489,344 of
its limited partnership units at a total cost of $2.8 million.
The Partnership, together with affiliates, has initiated litigation in various
official forums in the United States and India against two defaulting Indian
airline lessees 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 these airlines. In response to the Partnership's collection
efforts, the airline lessees filed counter-claims 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.
During 2001, an arbitration hearing was held between one India lessee and the
Partnership and the Partnership was awarded a settlement. The General Partner
and the lessee are in the process of negotiating the settlement in a manner that
benefits all parties involved. The General Partner did not accrue the settlement
in the December 31, 2001 financial statement because the likelihood of
collection of the settlement is remote. The General Partner will continue to try
to collect the full amount of the settlement.
During 2001, the General Partner decided to minimize its collection efforts from
the other India lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has no
apparent ability to pay.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
10. CONTINGENCIES (continued)
The Partnership is involved as plaintiff or defendant in various other legal
actions incidental to its business. Management does not believe that any of
these actions will be material to the financial condition or results of
operations of the Partnership.
11. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a summary of the quarterly results of operations for the year
ended December 31, 2001 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 4,250 $ 3,555 $ 2,789 $ 2,815 $ 13,409
Net income (loss) 475 1,212 (1,559) (1,134) (1,006)
Per weighted-average limited partnership unit:
Net income (loss) $ 0.05 $ 0.15 $ (0.19) $ (0.14) $ (0.13)
The following is a list of the major events that affected the Partnership's
performance during 2001:
(i) In the first quarter of 2001, the Partnership sold a commercial
aircraft, marine containers, and a trailer for a total gain of $0.5 million;
(ii)In the second quarter of 2001, the Partnership sold a marine vessel and
marine containers for a total gain of $0.5 million and its interest in two
entities owning marine vessels for a total gain of $0.7 million;
(iii)In the third quarte of 2001, the Partnership accrued $1.1 million
debt prepayment penalty related to the Partnerships note payable; and
(iv)In the fourth quarter o 2001, the Partnership recorded a $1.6 million
loss on revaluation on the trust that owned two commercial aircraft on a direct
finance lease.
The following is a summary of the quarterly results of operations for the year
ended December 31, 2000 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
------------------------------------------------------------------------------------------
Operating results:
Total revenues $ 4,706 $ 4,716 $ 6,070 $ 4,434 $ 19,926
Net income (loss) (612) (487) 880 631 412
Per weighted-average limited partnership unit:
Net income (loss) $ (0.10) $ (0.08) $ 0.09 $ 0.06 $ (0.03)
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
11. QUARTERLY RESULTS OF OPERATIONS (unaudited)
The following is a list of the major events that affected the Partnership's
performance during 2000:
(i) In the third quarter of 2000, the Partnership sold marine containers,
trailers, and a railcar for a total gain of $1.8 million and recorded a $0.4
million loss on revaluation to a commercial aircraft; and
(ii)In the fourth quarter of 2000, the Partnership sold a marine vessel and
marine containers for a total gain of $0.4 million.
12. SUBSEQUENT EVENT
During January 2002, the Partnership prepaid the $20.0 million note payable
outstanding on December 31, 2001 and related $1.0 million prepayment penalty.
Concurrent with this payment, the Partnership borrowed $15.0 million under the
new $30.0 million term loan facility. The $15.0 million facility loan bears
interest at rates between 4.375% and 4.9375%. The loans made in January 2002
were based on three and twelve month LIBOR and will be adjusted to market rates
at the end of the LIBOR term. All loans under this facility are repaid over five
years with equal principal plus interest payments. The General Partner
anticipates that the Partnership will borrow an additional $15.0 million under
this facility in 2002 (see Note 7).
(This space intentionally left blank)
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the financial statements of PLM Equipment Growth Fund VI (the
"Partnership") as of December 31, 2001, and for the year then ended, and have
issued our report thereon dated March 8, 2002; such report is included elsewhere
in this Form 10-K. Our audit also included the financial statement schedule of
PLM Equipment Growth Fund VI, listed in Item 14. This financial statement
schedule is the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audit. In our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 8, 2002
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
Under date of March 2, 2001, we reported on the balance sheet of PLM Equipment
Growth Fund VI as of December 31, 2000, and the related statements of
operations, changes in partners' capital, and cash flows for each of the years
in the two-year period ended December 31, 2000, as contained in the 2001 annual
report to the partners. These financial statements and our report thereon are
included in the annual report on Form 10-K for the year ended December 31, 2001.
In connection with our audits of the aforementioned financial statements, we
also audited the related financial statement schedule for each of the years in
the two-year ended December 31, 2000. This financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein for each of the years in
the two-year period ended December 31, 2000.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
Valuation and Qualifying Accounts
Years Ended December 31, 2001, 2000, and 1999
(in thousands of dollars)
Additions
Balance at Charged to Balance at
Beginning of Cost and Close of
Year Expense Deductions Year
---------------- ---------------- -------------- -------------
Year Ended December 31, 2001
Allowance for Doubtful Accounts $ 402 $ (15) $ (7) $ 380
======================================================================
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 2,416 $ -- $ (2,014) $ 402
======================================================================
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 1,930 $ 595 $ (109) $ 2,416
======================================================================
PLM EQUIPMENT GROWTH FUND VI
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
4. 1 Second Amendment to the Amended and Restated Limited Partnership 54-57
Agreement
10. 1 Management Agreement between Partnership and *
PLM Investment Management, Inc.
10. 2 Note Agreement, dated as of August 1, 1993, regarding *
$30.0 million in 6.7% senior notes due November 17, 2003.
10. 3 Note Agreement, dated as of December 21, 2001, regarding $30.0 million
term loan notes due December 21, 2006. 58-157
10. 4 Warehousing Credit Agreement dated as of April 13, 2001. *
10. 5 First Amendment to Warehousing Credit Agreement, dated as of December
21, 2001. 158-166
Financial Statements required under Regulation S-X Rule 3-09:
99. 1 Aero California Trust (A Trust). 167-176
99. 2 Lion Partnership. 177-186
99. 3 Boeing 737-200 Trust S/N 24700. 187-198
- --------
* Incorporated by reference. See page 27 of this report.