Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 2000.
[ ] 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 01-19203
-----------------------
PLM EQUIPMENT GROWTH FUND V
(Exact name of registrant as specified in its charter)
California 94-3104548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
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 on page 25.
Total number of pages in this report: __.
PART I
ITEM 1. BUSINESS
(A) Background
In November 1989, 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 10,000,000 limited partnership
units (the units) including 2,500,000 optional units, in PLM Equipment Growth
Fund V, a California limited partnership (the Partnership, the Registrant, or
EGF V). The Registration Statement also proposed offering an additional
1,250,000 Class B units through a reinvestment plan. The General Partner has
determined that it will not adopt this reinvestment plan for the Partnership.
The Partnership's offering became effective on April 11, 1990. 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 was formed to engage in the business of owning and managing a
diversified pool of used and new transportation-related equipment and certain
other items of equipment.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of low-obsolescence equipment with
long lives and high residual values which were purchased with the net proceeds
of the initial Partnership offering, supplemented by debt financing, and surplus
operating cash during the investment phase of the Partnership. All transactions
over $1.0 million must be approved by the PLMI Credit Review Committee (the
Committee) which is made up of members of PLMI's senior management. In
determining a lessee's creditworthiness, the Committee will consider, among
other factors, the lessee's financial statements, internal and external credit
ratings, and letters of credit;
(2) to generate sufficient net operating cash 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 selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or expected future benefits from continued ownership of a particular
asset. Proceeds from these sales, together with excess net operating cash flows
from operations (net cash provided by operating activities plus distributions
from unconsolidated special-purpose entities (USPEs) are used to repay the
Partnership's outstanding indebtedness and for distributions to the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining diversity, and constantly monitoring equipment markets.
The offering of units of the Partnership closed on December 23, 1991. As of
December 31, 2000, there were 9,065,911 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
Beginning in the Partnership's seventh year of operation, which commenced on
January 1, 1999, the General Partner stopped reinvesting cash flow. Surplus
funds, if any, less reasonable reserves, will be distributed to the partners. In
the ninth year of operations of the Partnership, which commenced on January 1,
2001, the General Partner intends to begin the dissolution and liquidation of
the Partnership in an orderly fashion, unless the Partnership is terminated
earlier upon sale of all of the equipment or by certain other events. Under
certain circumstances, however, the term of the Partnership may be extended. In
no event will the Partnership be extended beyond December 31, 2010.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio, equipment held for sale, and the cost of investments in
unconsolidated special-purpose entities as of December 31, 2000 (in thousands of
dollars):
TABLE 1
Units Type Manufacturer Cost
---------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
3 737-200 Stage II commercial aircraft Boeing $ 16,049
2 737-200A Stage III commercial aircraft Boeing 12,920
1 DC-9-32 Stage III commercial aircraft McDonnell Douglas 12,726
2 DHC-8-102 commuter aircraft DeHavilland 7,628
1 DHC-8-300 commuter aircraft DeHavilland 5,748
84 Sulphur tank railcars ACF/RTC 2,884
119 Covered hopper railcars Various 2,804
106 Anhydrous ammonia tank railcars GATX 2,483
72 Tank railcars Various 1,898
43 Mill gondola railcars Bethlehem Steel 1,219
493 Various marine containers Various 3,904
120 Refrigerated marine containers Various 2,341
147 Piggyback refrigerated trailers Oshkosh 2,245
-----------
Owned equipment held for operating leases 74,849
Owned equipment held for sale:
1 Product tanker Kaldnes M/V 16,276
-----------
Total owned equipment $ 91,125(1)
===========
Investments in unconsolidated special-purpose entities:
0.48 Product tanker Boelwerf-Temse $ 9,492(2)
0.50 Product tanker Kaldnes M/V 8,249(2)
0.25 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 3,005(3)
-----------
Total investments in unconsolidated special-purpose entities $ 20,746(1)
===========
(1) Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Partnership
borrowings. Includes costs capitalized, subsequent to the date of acquisition,
and equipment acquisition fees paid to PLM Transportation Equipment Corporation
(TEC), a wholly owned subsidiary of FSI, or PLM Worldwide Management Services
(WMS), a wholly owned subsidiary of PLM International. All equipment was used
equipment at the time of purchase, except 150 piggyback refrigerated trailers.
(2) Jointly owned: EGF V and an affiliated program.
(3) Jointly owned: EGF V and two affiliated programs.
Equipment is generally leased under operating leases for a term of one to six
years except for marine vessels operating on voyage charter or time charter
which are usually leased for less than one year. 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. Lease revenues for intermodal
trailers are based on a per-diem lease in the free running interchange with the
railroads. Lease revenues for trailers that operated in rental yards owned by
PLM Rental, Inc., were based on a fixed rate for a specific period of time,
usually short in duration. Rents for all other equipment are based on fixed
rates.
The lessees of the equipment include but are not limited to: Air Canada, Aero
California, Chevron USA, Husky Oil Operations, Coastal Chemical, Inc., Koch
Sulphur, Potash Corp., Kansas City Southern, Varig South America, and Aero
California.
(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 investment programs that lease the same
types of equipment.
(D) Demand
The Partnership currently operates in the following operating segments: aircraft
leasing, marine vessel leasing, railcar leasing, intermodal trailer leasing, and
marine container leasing. Each equipment leasing segment engages in short-term
to mid-term operating leases to a variety of customers. Except for those
aircraft leased to passenger air carriers, the Partnership's equipment and
investments are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Aircraft
(a) Commercial Aircraft
Both Boeing and Airbus Industries have predicted that the rate of growth in the
demand for air transportation services will be relatively robust for the next 20
years. Boeing has predicted that the demand for passenger services will grow at
an average rate of about 5% per year and the demand for cargo traffic will grow
at about 6.4% per year during that period. Such growth will require a
substantial increase in the numbers of commercial aircraft. According to Boeing,
as of the end of 1999, the world fleet of jet-powered commercial aircraft
included a total of approximately 13,670 airplanes. That total included 11,994
passenger aircraft with 50 seats or more and 1,676 freighter aircraft. Boeing
predicts that by the end of 2019 that fleet will grow to approximately 31,755
aircraft including 28,558 passenger aircraft with 50 seats or more and 3,197
freighter aircraft. To support this growth, Boeing received 502 new aircraft
orders in the first ten months of 2000 and Airbus received 427.
Airline economics will also require aircraft to be retained in active commercial
service for longer periods than previously expected. Consequently, the market
for environmentally acceptable and economically viable aircraft will continue to
be robust and such aircraft will command relatively high residual values. In
general, aircraft values have tended to grow at about 3% per year. Lease rates
should also grow at similar rates. However, such rates are subject to variation
depending on the state of the world economy and the resultant demand for air
transportation services.
The Partnership owns six commercial aircraft and 25% of two commercial aircraft
which were all on lease throughout 2000 and earning above market lease rates.
(b) Commuter Aircraft
Regional jets have been well received in the commuter market. This has resulted
in an increase in demand for regional jets at the expense of turboprops.
Turboprop manufacturers are cutting back on production due to reduced demand.
The uncertainty of the future market for turboprops has had an adverse effect on
turboprop lease rates and residual values.
The Partnership leases three commuter turboprops containing 37 to 50 seats.
These aircraft fly in North America, which continues to be the fastest-growing
market for commuter aircraft in the world. The Partnership's aircraft possess
unique performance capabilities, compared to other turboprops, which allow them
to readily operate at maximum payloads from unimproved surfaces, hot and high
runways, and short runways.
The Partnership's turboprops remained on lease throughout 2000 and their lease
rates were unaffected by the market conditions.
(2) Product Tankers
The Partnership owns a 1975-built 50,000 dead weight ton product tanker and has
investments in two similar product tankers that operate in international markets
carrying a variety of commodity-type cargoes. 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 tankers through a combination of spot and
period charters, an approach that provides the flexibility to adapt to changes
in market conditions, carrying mostly fuel oil and similar petroleum
distillates.
The market for product tankers improved throughout 2000, with dramatic
improvements experienced in the fourth quarter; and is expected to continue
strong throughout 2001. The strength in the charter market for tankers is
generally tied to overall economic activity, and in particular, the upturn in
activity seen in the Far East.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport liquefied petroleum gas (natural
gas) and anhydrous ammonia (fertilizer). The U.S. markets for natural gas are
industrial applications (46% of estimated demand in 2000), residential use
(21%), electricity generation (15%), commercial applications (15%), and
transportation (3%). 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, the status of government
farm subsidy programs, amount of farming acreage and mix of crops planted,
weather patterns, farming practices, and the value of the U.S. dollar.
Population growth and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of petroleum products
increased 3% and chemical products increased 1% in 2000, compared to 1999.
Consequently, demand for pressurized tank cars remained relatively constant
during 2000, with utilization of this type of railcar within the Partnership
remaining above 98%. While renewals of existing leases continue at similar
rates, some cars continue to be renewed for "winter only" terms of approximately
six months. As a result, there are many pressurized tank cars up for renewal in
the spring of 2001.
(b) General Purpose (Nonpressurized) Tank Railcars
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. This railcar
type continued to be in high demand during 2000. The overall health of the
market for these types of commodities is closely tied to both the U.S. 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, carloadings of petroleum products increased 3%
and chemical products increased 1% in 2000, compared to 1999 levels. Utilization
of the Partnership's nonpressurized tank cars remained above 98% during 2000.
(c) Covered Hopper (Grain) Railcars
Demand for covered hopper railcars, which are specifically designed to service
the grain industry, continued to experience weakness during 2000. The U.S.
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 feed lots.
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.
Within the United States, carloadings of grain products decreased 2% in 2000,
compared to 1999. Other factors contributing to the softness in demand for
covered hopper cars is the large number of new cars built during the last few
years and the improved utilization of covered hoppers by the railroads. As in
1999, covered hopper railcars whose leases expired in 2000, were renewed at
considerably lower rental rates.
(d) Mill Gondola Railcars
Mill gondola railcars are typically used to transport scrap steel for recycling
from steel processors to small steel mills called minimills. Demand for steel is
cyclical and moves in tandem with the growth or contraction of the overall
economy. Within the United States, carloadings for the commodity group that
includes scrap steel increased 1% in 2000, over 1999 volumes.
(4) 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 decade,
intermodal trailers have continued to be gradually displaced by domestic
containers as the preferred method of transport for such goods. This is caused
by railroads offering approximately 15% lower freight rates on containers
compared to trailers. During 2000, demand for intermodal trailers was more
volatile than historic norms. Slow demand occurred over the second half of the
year due to a slowing economy and continued customer concerns over rail service
problems associated with mergers in the rail industry. Due to the decline in
demand, which occurred over the latter half of 2000, overall shipments within
the intermodal trailer market declined more than expected for the year, or
approximately 10% compared to the prior year. Average utilization of the entire
U.S. intermodal fleet rose from 73% in 1998 to 77% in 1999 and then declined to
75% in 2000.
The General Partner further expanded its marketing program to attract new
customers for the Partnership's intermodal trailers during 2000. Even with these
efforts, average utilization for the Partnership's intermodal trailers for the
year 2000 dropped 1% to approximately 78%, still above the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to continue in the future. Overall, intermodal trailer shipments are
forecast to decline by 6% -10% in 2001, compared to the prior year, due to the
anticipated continued weakness of the overall economy. As such, the nationwide
supply of intermodal trailers is expected to have approximately 10,000 units in
surplus compared with demand for 2001. Maintenance costs have increased
approximately 20% due to improper repair methods performed by the railroads and
billed to owners. 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 also be
undertaken to reduce maintenance costs and cartage costs.
(5) Marine Containers
The Partnership's portfolio of containers is composed of two distinct groups of
containers. During the early years of the Partnership's operation, the
Partnership acquired mixed fleets of 5- to 7- year-old standard dry cargo
containers and specialized cargo containers that were leased in revenue-sharing
agreements. This older equipment is now in excess of twelve years of age, and is
generally 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 continued to be strong over the last several years, as it relates
to standard dry containers. The Partnership has in the last year experienced
reduced residual values on the sale of refrigerated containers, due primarily to
technological obsolescence associated with this equipment's refrigeration
machinery.
(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 governmental regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include:
(1) the United States (U.S.) 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 U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport
in the contiguous United States unless that aircraft has been shown to
comply with Stage III noise levels. The Partnership has Stage II aircraft
that do not meet Stage III requirements. These Stage II aircraft are
scheduled to be sold or re-leased in countries that do not require this
regulation;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects on the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo;
(4) the U.S. 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 a tank railcar for service. The average cost of
this inspection is $1,800 for non-jacketed tank railcars and $3,600 for
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 174 non-jacketed tank
railcars and 88 jacketed tank railcars of which a total of 2 tank railcars
have been inspected to date and no defects have been discovered.
As of December 31, 2000, the Partnership was 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, 2000, 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 $184.3 million through the first quarter of 1992, proceeds from the debt
financing of $38.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International, (the Company) and various of its wholly owned subsidiaries
are defendants in a class action lawsuit filed in January 1997 and which is
pending in the United States District Court for the Southern District of
Alabama, Southern Division (Civil Action No. 97-0177-BH-C) (the court). The
named plaintiffs are six individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI
(Fund VI), and PLM Equipment Growth & Income Fund VII (Fund VII), collectively
(the Funds), each a California limited partnership for which the Company's
wholly owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the General
Partner.
The complaint asserts causes of action against all defendants for fraud and
deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege 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 assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds. Plaintiffs
seek unspecified compensatory damages, as well as punitive damages.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No.987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices and violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company' s petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei action, as
discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. 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. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and August
30, 2000. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
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, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (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; (d) a one-time repurchase by
each of Fund V, Fund VI and Fund VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. Subject to final
court approval, these proposed changes would be made as amendments to each
Fund's limited partnership agreement if less than 50% of the limited partners of
each Fund vote against such amendments. 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. The equitable settlement class consists of all investors, limited
partners, assignees or unit holders who on August 30, 2000 held any units in
Fund V, Fund VI, and Fund VII, and their assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
The Company 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 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, 2000.
(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, 2000, there were 9,536 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 generally viewed as 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 limited
partnership 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 an U.S.
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.
The Partnership may redeem a certain number of units each year under the terms
of the Partnership's limited partnership agreement, beginning January 1, 1994.
If the number of units made available for purchase by limited partners in any
calendar year exceeds the number that can be purchased with reinvestment plan
proceeds, then the Partnership may, subject to certain terms and conditions,
redeem up to 2% of the outstanding units each year. The purchase price to be
offered by the Partnership for these units will be equal to 110% of the
unrecovered principal attributable to the units. The unrecovered principal for
any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid with
respect to the units. As of December 31, 2000, the Partnership has purchased a
cumulative total of 154,021 units at a cost of $1.6 million. The General Partner
has decided that it would not purchase Partnership units under the terms of the
Partnership's limited partnership agreement in 2001. The General Partner may
purchase additional units on behalf of the Partnership in the future.
(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)
2000 1999 1998 1997 1996
-------------------------------------------------------------------------
Operating results:
Total revenues $ 22,473 $ 20,768 $ 24,047 $ 41,123 $ 44,322
Net gain on disposition
of equipment 1,351 253 732 10,990 14,199
Loss on revaluation of equipment -- 2,899 -- -- --
Equity in net income (loss) of uncon-
solidated special-purpose entities 406 2,108 294 (264) (116)
Net income 3,994 1,302 2,370 7,921 12,441
At year-end:
Total assets $ 30,152 $ 46,083 $ 61,376 $ 82,681 $ 98,419
Total liabilities 8,706 19,077 26,970 35,958 46,123
Note payable 5,474 15,484 23,588 32,000 40,463
Cash distribution $ 9,544 $ 8,617 $ 12,008 $ 15,346 $ 18,083
Cash distribution representing
a return of capital to the limited
partners $ 5,550 $ 7,315 $ 9,638 $ 7,425 $ 5,642
Per weighted-average limited partnership unit:
Net income $ 0.39(1) $ 0.09(1) $ 0.20(1) $ 0.79(1) $ 1.26(1)
Cash distribution $ 1.00 $ 0.90 $ 1.26 $ 1.60 $ 1.87
Cash distribution representing
a return of capital $ 0.61 $ 0.81 $ 1.06 $ 0.81 $ 0.61
- ----------
(1)After reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.3 million ($0.03 per weighted-average depositary
unit) in 2000, $0.4 million ($0.05 per weighted-average depositary unit) in
1999, $0.5 million ($0.05 per weighted-average depositary unit) in 1998, $0.4
million ($0.04 per weighted-average depositary unit) in 1997, and $0.3
million ($0.03 per weighted-average depositary unit) in 1996.
(This space intentionally left blank)
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 V
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in the various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for 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 2000 primarily in its trailer,
marine vessels, railcar, aircraft, and marine container portfolios.
(a) Trailers: The Partnership's trailer portfolio operates or operated with
short-line railroad systems and in short-term rental facilities. The relatively
short duration of most leases in these operations exposes the trailers to
considerable re-leasing activity. Contributions from the Partnership's trailers
were lower in 2000 when compared to 1999 due to the sale of 76% of the
Partnership's trailers during 2000.
(b) Marine vessels: Certain of the Partnership's marine vessels operate in
the voyage charter and time charter market. Voyage charters and time charters
are usually short in duration and reflect the short-term demand and pricing
trends in the marine vessel market. As a result of this, certain of the
Partnership's marine vessels will be remarketed during 2001 exposing them to
re-leasing and repricing risk.
As of December 31, 2000, the Partnership reclassified a marine vessel with a net
book value of $1.3 million from equipment held for operating lease to equipment
held for sale. During February 2001, this marine vessel was sold.
(c) 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.
(d) Aircraft: One of the Partnership's aircraft whose lease expired during
1999 was re-leased during 2000 with a similar lease rate as was previously in
effect.
(e) Marine containers: All of the Partnership's marine containers are leased
to operators of utilization-type leasing pools and, as such, are highly exposed
to repricing activity. Market conditions were relatively constant during 2000.
(2) Equipment Liquidations
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio and may result in reductions of contributions to the
Partnership. During the year, the Partnership disposed of owned equipment that
included a marine vessel, marine containers, trailers, and railcars for total
proceeds of $7.2 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If the projected undiscounted future
cash flow and the fair market value of the equipment are less than the carrying
value of the equipment, a loss on revaluation is recorded. Reductions of $2.9
million to the carrying value of owned marine vessels were required during 1999.
No reductions were required to the carrying value of the equipment during either
2000 or 1998.
(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 $184.3 million and permanent
debt financing of $38.0 million. No further capital contributions from 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 make cash distributions to limited partners.
For the year ended December 31, 2000, the Partnership generated $12.7 million in
operating cash (net cash provided by operating activities plus non-liquidating
cash distributions from USPEs) to meet its operating obligations, make principal
debt payments, and pay distributions of $9.5 million to the partners.
During the year ended December 31, 2000, the Partnership purchased a hush-kit
for one of the Partnership's McDonnell Douglas DC-9 commercial aircraft for $2.7
million. The Partnership was required to install the hush-kit per the
Partnership's lease agreement for this aircraft.
Accounts receivable decreased $0.6 million during the year ended December 31,
2000 due to the timing of cash receipts.
Investments in USPEs decreased $1.4 million due to cash distributions of $1.8
million to the Partnership from the USPEs offset, in part, by income of $0.4
million that was recorded by the Partnership's from the USPEs during the year
ended December 31, 2000.
Accounts payable and accrued expenses decreased $0.3 million during the year
ended December 31, 2000 due to the timing of payments to vendors.
Lessee deposits and reserve for repairs decreased $0.1 million during the year
2000 resulting from the sale of a marine vessel. The balance of $0.1 million
remaining in dry docking reserves for this marine vessel was transferred to
additional sales proceeds.
During the twelve months ended December 31, 2000, the Partnership borrowed $4.5
million from the General Partner for a short-term loan and fully repaid the loan
to the General Partner. The General Partner charged the Partnership $0.1 million
in interest using prevailing market interest rates at the time of the loans.
The Partnership made the regularly scheduled principal payments of $7.5 million
and quarterly interest payments at a rate of LIBOR plus 1.2% per annum (8.0% at
December 31, 2000) to the lender of the senior loan during 2000. The Partnership
also paid the lender of the senior loan an additional $2.5 million from
equipment sale proceeds, as required by the loan agreement.
Pursuant to the terms of the limited partnership agreement, beginning January 1,
1994, if the number of units made available for purchase by limited partners in
any calendar year exceeds the number that can be purchased with reinvestment
plan proceeds, then the Partnership may, subject to certain terms and
conditions, redeem up to 2% of the outstanding limited partnership units each
year. The purchase price to be offered for such units will be equal to 110% of
the unrecovered principal attributed to the units. The unrecovered principal for
any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid with
respect to the units. As of December 31, 2000, the General Partner has decided
that it would not purchase any units during 2001. The General Partner may
purchase additional units on behalf of the Partnership in the future.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2000 and 1999
(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, when compared to the same
period of 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
----------------------------
Aircraft $ 7,782 $ 8,000
Marine vessels 2,774 2,332
Railcars 1,811 1,989
Trailers 1,213 1,857
Marine containers 405 694
Aircraft: Aircraft lease revenues and direct expenses were $8.1 million and $0.3
million, respectively, for the year ended December 31, 2000, compared to $8.2
million and $0.2 million, respectively, during the same period of 1999. Aircraft
lease revenues decreased $0.3 million due to a commercial aircraft being
off-lease for four months during the year ended December 31, 2000 that was
on-lease for year during the same period of 1999. This decrease in lease
revenues was partially offset by an increase of $0.2 million cause by the
re-lease of a commercial aircraft at a higher rate in 2000 than the lease that
was in place during 1999. Direct expenses increased $0.1 million during the year
ended December 31, 2000 due to required repairs to the off-lease commercial
aircraft. A similar expense was not required during the same period of 1999.
Marine vessels: Marine vessel lease revenues and direct expenses were $8.1
million and $5.3 million, respectively, for the year ended December 31, 2000,
compared to $6.2 million and $3.9 million, respectively, during the same period
of 1999.
The increase in marine vessel lease revenues of $1.9 million during the year
ended December 31, 2000 was due to one marine vessel that earned $3.8 million in
additional voyage lease revenues due to an increase in voyage lease rates
compared to the same period of 1999, offset in part, by a decrease of $1.9
million caused by another marine vessel that was off-lease for nine months
during the year ended December 31, 2000, compared to 1999, when it was on-lease
the entire year.
As a result of the additional voyages, direct expenses increased $1.4 million
during the year ended December 31, 2000 when compared to the same period of
1999.
Railcars: Railcar lease revenues and direct expenses were $2.4 million and $0.6
million, respectively, for the year ended December 31, 2000, compared to $2.5
million and $0.5 million, respectively, during the same period of 1999. The
decrease in railcar contribution was due a decrease in railcar lease revenues of
$0.1 million primarily due to lower re-lease rates earned on railcars whose
leases expired during 2000 and to an increase of $0.1 million in repairs to
certain railcars in 2000 that were not needed during 1999.
Trailers: Trailer lease revenues and direct expenses were $1.9 million and $0.7
million, respectively, for the year ended December 31, 2000, compared to $2.7
million and $0.9 million, respectively, during the same period of 1999. Trailer
contribution decreased $0.6 million during the year ended December 31, 2000 due
to the sale of 76% of the Partnership `s trailers during 2000.
Marine containers: Marine container lease revenues and direct expenses were $0.4
million and $7,000, respectively, for the year ended December 31, 2000, compared
to $0.7 million and $5,000, respectively, during the same period of 1999. The
number of marine containers owned by the Partnership has been declining due to
dispositions during 2000 and 1999 resulting in a decrease to marine container
contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $11.9 million for the year ended December 31, 2000
decreased from $16.1 million for the same period in 1999. Significant variances
are explained as follows:
(i) A loss on revaluation of $2.9 million was required during the year
ended December 31, 1999 to reduce the carrying value of a marine vessel to its
estimated fair market value. No revaluation of equipment was required during
2000.
(ii)A $1.1 million decrease in depreciation and amortization expenses from
1999 levels was caused by the double-declining balance method of depreciation
which results in greater depreciation in the first years an asset is owned.
(iii) A $0.3 million decrease in interest expense was due to a lower
average outstanding debt balance during the year ended December 31, 2000
compared to the same period of 1999.
(iv)A $0.1 million increase in general and administrative expenses was
primarily due to additional costs associated with the re-lease of a commercial
aircraft during 2000 and administrative costs compared to the same period of
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 $1.4 million, which resulted from the sale of a marine vessel,
marine containers, railcars, and trailers with a net book value of $6.0 million,
for proceeds of $7.2 million. Included in the 2000 net gain on disposition of
assets is the unused portion of marine vessel dry docking of $0.1 million. The
net gain on the disposition of owned equipment for the year ended December 31,
1999 totaled $0.3 million, which resulted from the sale of marine containers,
railcars, and trailers with an aggregate net book value of $0.6 million, for
proceeds of $0.9 million.
(d) Equity in Net Income (loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly owned assets accounted
for under the equity method of accounting is shown in the following table by
equipment type (in thousands of dollars):
For the Years
Ended December 31,
2000 1999
----------------------------
Aircraft, rotable components, and aircraft engines $ 384 $ 1,811
Marine vessels 22 297
----------------------------
Equity in net income of USPEs $ 406 $ 2,108
============================
Aircraft, rotable components, and aircraft engines: As of December 31, 2000 and
1999, the Partnership had an interest in an entity owning two commercial
aircraft on a direct finance lease. During the year ended December 31, 2000,
revenues of $0.4 million were offset by direct expenses and administrative
expenses of ($2,000). During the same period of 1999, revenues of $0.4 million
and the gain from the sale of the Partnership's interest in two trusts that
owned a total of three commercial aircraft, two aircraft engines, and a
portfolio of aircraft rotables of $1.6 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.2 million. Direct
expenses and administrative expenses decreased $0.2 million during the year
ended December 31, 2000 due to the sale of the Partnership's interest in two
trusts and the recovery of a $48,000 accounts receivable in 2000 that had
previously been reserved as a bad debt. A similar recovery did not occur during
the same period of 1999.
Marine vessels: As of December 31, 2000 and 1999, the Partnership owned an
interest in two entities owning a total of two marine vessels. During the year
ended December 31, 2000, lease revenues of $6.3 million were offset by
depreciation expense, direct expenses, and administrative expenses of $6.2
million. During the same period of 1999, lease revenues of $5.2 million and the
gain of $1.9 million from the sale of the Partnership's interest in an entity
owning a marine vessel were offset by depreciation expense, direct expenses, and
administrative expenses of $6.8 million.
Lease revenues increased $1.0 million during the year ended December 31, 2000
compared to the same period of 1999. The increase in lease revenues is due to
the following:
(i) One marine vessel that was on voyage charter during the year ended
December 31, 2000 and 1999, earned $2.0 million more in lease revenues due to an
increase in voyage lease rates when compared to the same period of 1999.
(ii)The other marine vessel, while on time charter during the year ended
December 31, 2000 and 1999, earned higher lease revenues of $0.1 million during
the year ended December 31, 2000. The increase of $0.1 million is due to this
marine vessel being on rent for a full 12 months during 2000. During the same
period of 1999, this marine vessel was in dry dock for over one month not
earning any revenues.
(iii) The sale of the Partnership's interest in a marine vessel during the
fourth quarter of 1999 caused lease revenues to also decrease $1.1 million
during the year ended December 31, 2000 compared to the same period of 1999.
Depreciation expense, direct expenses, and administrative expenses decreased
$0.6 million during the year ended December 31, 2000 when compared to the same
period of 1999. The sale of the Partnership's interest in a marine vessel during
the fourth quarter of 1999 caused depreciation expense, direct expenses, and
administrative expenses to decrease $1.2 million during the year ended December
31, 2000. This decrease was offset, in part, by an increase of $0.6 million in
certain direct expenses due to increased usage of a marine vessel during the
year ended December 31, 2000 when compared to the same period of 1999.
(e) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 2000 was $4.0 million, compared to net income of $1.3 million
during the same period in 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, and 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 $9.1 million to the limited
partners, or $1.00 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
(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, 1999, when compared to the same
period of 1998. The following table presents lease revenues less direct expenses
by segment (in thousands of dollars):
For the Years
Ended December 31,
1999 1998
----------------------------
Aircraft $ 8,000 $ 8,811
Marine vessels 2,332 2,777
Railcars 1,989 1,928
Trailers 1,857 2,150
Marine containers 694 1,206
Aircraft: Aircraft lease revenues and direct expenses were $8.2 million and $0.2
million, respectively, for the year ended December 31, 1999, compared to $8.9
million and $0.1 million, respectively, during the same period of 1998. The
decrease in aircraft lease revenues was due to the re-lease of two aircraft at a
lower lease rate than had been in place during 1998. The increase in direct
expenses of $0.1 was due to additional repairs required during 1999 that were
not required during the same period of 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $6.2
million and $3.9 million, respectively, for the year ended December 31, 1999,
compared to $7.5 million and $4.7 million, respectively, during the same period
of 1998. The decrease in marine vessel lease revenues of $1.3 million was
primarily due to one of the marine vessels earning $1.3 million less during the
year ended December 31, 1999 due to earning a lower lease rate when compared to
the lease rate that was in place during the same period of 1998. In addition,
this marine vessel was off lease in 1999 for nine weeks for required
dry-docking. This drydocking resulted in a loss of lease revenues of
approximately $0.5 million. The decrease in lease revenues was partially offset
by an increase in lease revenues of $0.6 million caused by the purchase of an
additional marine vessel during March of 1998. This marine vessel was on lease
the entire year of 1999 when compared to nine months of 1998.
Direct expenses decreased $0.8 million during the year ended 1999 when compared
to the same period of 1998. A decrease of $1.2 million in direct expenses was
due to not having any operating costs while this marine vessel was in drydock as
well as having lower repairs and maintenance due to the drydocking. The decrease
in direct expenses was partially offset by an increase in insurance expense of
$0.5 million. The increase in insurance was caused by a $0.3 million
loss-of-hire insurance refund received during 1998 from Transportation Equipment
Indemnity Company, Ltd., an affiliate of the General Partner, due to lower
claims from the insured Partnership. The Partnership did not receive a refund
during 1999. Additionally, the 1999 lease agreement with one marine vessel
lessee requires that the Partnership is responsible for the premiums on
insurance coverage when compared to 1998, during which the lessee was
responsible for the premiums on certain insurance coverage.
Railcars: Railcar lease revenues and direct expenses were $2.5 million and $0.5
million, respectively, for the year ended December 31, 1999, compared to $2.5
million and $0.6 million, respectively, during the same period of 1998. Railcar
lease revenues remained relatively the same for both years. Direct expenses
decreased $0.1 million due to fewer required repairs to certain railcars during
1999 than were required during 1998.
Trailers: Trailer lease revenues and direct expenses were $2.7 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $2.8
million and $0.7 million, respectively, during the same period of 1998. During
the year ended December 31, 1999, certain dry trailers were in the process of
transitioning to a new PLM-affiliated short-term rental facility specializing in
this type of trailer causing lease revenues for this group of trailers to
decrease $0.1 million when compared to the same period of 1998. Trailer repairs
and maintenance increased $0.2 million primarily due to required repairs during
1999 that were not needed during the same period of 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.7
million and $5,000, respectively, for the year ended December 31, 1999, compared
to $1.2 million and $11,000, respectively, during the same period of 1998. A
decrease of approximately $0.3 million in lease revenues was caused by a
worldwide increase in available marine containers which has lead to a decline in
lease rates. In addition, the number of marine containers owned by the
Partnership has been declining due to sales and dispositions during 1999 and
1998. This declining fleet has also resulted in a decrease of approximately $0.2
million in marine container contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $16.1 million for the year ended December 31, 1999
increased from $15.9 million for the same period in 1998. Significant variances
are explained as follows:
(i) Loss on revaluation increased $2.9 million during the year ended
December 31, 1999 and resulted from the Partnership reducing the carrying value
of a marine vessel to its estimated fair market value. No revaluation of
equipment was required during 1998.
(ii)A $1.9 million decrease in depreciation and amortization expenses from
1998 levels was caused primarily by the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(iii) A $0.7 million decrease in interest expense was due to a lower
average outstanding debt balance when compared to 1998.
(iv)A $0.1 million decrease in management fees to an affiliate was due to
lower lease revenues.
(c) Interest and Other Income
Interest and other income decreased $0.2 million during the year ended December
31, 1999 when compared to the same period of 1998 due primarily to lower average
cash balances available for investment.
(d) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1999 totaled $0.3 million, which resulted from the sale of marine containers,
railcars, and trailers with an aggregate net book value of $0.6 million, for
proceeds of $0.9 million. The net gain on the disposition of equipment for the
year ended December 31, 1998 totaled $0.7 million, which resulted from the sale
of an aircraft, marine containers, railcars, and trailers, with an aggregate net
book value of $8.0 million, for proceeds of $8.7 million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1999 1998
----------------------------
Aircraft, rotable components, and aircraft engines $ 1,811 $ 446
Marine vessels 297 (152)
----------------------------
Equity in net income of USPEs $ 2,108 $ 294
============================
Aircraft, rotable components, and aircraft engines: As of December 31, 1999 the
Partnership had an interest in an entity owning two DC-9 Stage III commercial
aircraft on a direct finance lease. As of December 31, 1998, the Partnership had
an interest in two trusts that owned a total of three Boeing 737-200A Stage II
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables
(the Two Trusts), and an interest in an entity owning two DC-9 Stage III
commercial aircraft on a direct finance lease. During the year ended December
31, 1999, revenues of $0.4 million and the gain from the sale of the
Partnership's interest in the Two Trusts of $1.6 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.2
million. During the same period of 1998, revenues of $1.2 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.8
million. Revenues decreased $0.8 million and depreciation expense, direct
expenses, and administrative expenses decreased $0.6 million due to the sale of
the Partnership's investment in the Two Trusts.
Marine vessels: As of December 31, 1999, the Partnership owned an interest in
two entities owning a total of two marine vessels. As of December 31, 1998, the
Partnership owned an interest in three entities owning a total of three marine
vessels. During the year ended December 31, 1999, lease revenues of $5.2 million
and the gain of $1.9 million from the sale of the Partnership's interest in an
entity owning a marine vessel were offset by depreciation expense, direct
expenses, and administrative expenses of $6.8 million. During the same period of
1998, lease revenues of $6.4 million were offset by depreciation expense, direct
expenses, and administrative expenses of $6.6 million.
The decrease in lease revenues of $1.2 million was primarily due to lower lease
rates earned on the Partnership's investments in entities that own marine
vessels.
Depreciation expense, direct expenses, and administrative expenses increased
$0.2 million during the year ended December 31, 1999 when compared to the same
period of 1998. The following changes occurred:
(i) Marine operating expenses increased $1.2 million during 1999 when
compared to 1998. An increase in marine operating expenses of $0.9 million was
due to one marine vessel that switched to a voyage charter during 1999 that was
on a time charter during 1998. Also, the other marine vessel that was on voyage
charter during 1999 and 1998, had an increase of $0.5 million in marine
operating expenses during 1999. This marine vessel was with the same charterer
the entire year of 1998, when this marine vessel changed to a different
charterer, the new charterer charged the Partnership higher operating expenses.
Marine operating expenses for the remaining marine vessel that was sold
decreased $0.1 million during the year ended December 31, 1999 when compared to
the same period of 1998;
(ii)Insurance expense increased $0.3 million during 1999 when compared to
1998. During 1999, the marine vessel entities had increased insurance premiums
of $0.2 million on certain insurance coverage that it was now responsible for
when compared to 1998, during which the lessee was responsible for the premiums
on these insurance coverage. Additionally, the marine vessel entities received a
$0.1 million loss-of-hire insurance refund during 1998 from TEI, due to lower
claims from the insured entities. These marine vessel entities did not receive a
refund during 1999.
(iii) Repairs and maintenance decreased $0.8 million due to fewer
repairsrequired;
(iv)Depreciation expense decreased $0.4 million resulting from the use of
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned;
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1999 was $1.3 million, compared to net income of $2.4 million
during the same period in 1998. The Partnership's ability to operate assets,
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the year ended
December 31, 1999 is not necessarily indicative of future periods. In the year
ended December 31, 1999, the Partnership distributed $8.1 million to the limited
partners, or $0.90 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 U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets, and the General
Partner strives to minimize this risk with market analysis prior to committing
equipment to a particular geographic area. Refer to Note 6 to the 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 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 to either redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's equipment on lease to U.S. domiciled lessees consisted of
trailers, railcars, and aircraft. During 2000, U.S. lease revenues accounted for
16% of the total lease revenues of wholly- and partially-owned equipment while
this region reported net income of $2.1 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consisted of railcars and aircraft. During 2000, Canadian lease revenues
accounted for 16% of the total lease revenues of wholly- and partially-owned
equipment and recorded net income of $2.5 million.
The Partnership's owned equipment on lease to a South American-domiciled lessee
consisted of an aircraft during 2000 and accounted for 11% of the total lease
revenues of wholly- and partially-owned equipment, and recorded a net income of
$0.6 million.
The Partnership's owned equipment on lease to a Caribbean-domiciled lessee
consisted of an aircraft and during 2000 accounted for 2% of the total lease
revenues of wholly- and partially-owned equipment, and recorded a net loss of
$0.6 million.
The Partnership's owned equipment and its ownership share in USPEs on lease to a
Mexican-domiciled lessee consisted of aircraft and accounted for 1% of the total
lease revenues of wholly- and partially-owned equipment consisted of a
commercial aircraft and two aircraft on a direct finance lease, and recorded a
net loss of $0.1 million.
The Partnership's owned equipment and its ownership share in USPEs on lease to
lessees in the rest of the world consisted of marine vessels and marine
containers. During 2000, lease revenues for these lessees accounted for 54% of
the total lease revenues of wholly- and partially-owned equipment and recorded a
net income of $1.3 million.
(F) Inflation
Inflation had no significant impact on the Partnership's operations during 2000,
1999, or 1998.
(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
Since the Partnership is in its liquidation phase, the General Partner will be
seeking to selectively sell or re-lease assets as the existing leases expire.
Sale decisions will cause the operating performance of the Partnership to
decline over the remainder of its life.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The 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.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay principal and interest on debt, and pay cash
distributions to the partners.
Factors affecting the Partnership's contribution during the year 2001 and beyond
include:
1. The cost of new marine containers has been at historic lows for the past
several years which has caused downward pressure on per diem lease rates.
Recently, the cost of marine containers has started to increase which, if this
trend continues, should translate into rising per diem lease rates. However,
some of the Partnership's refrigerated marine containers have become
delaminated. This condition lowers the demand for these marine containers which
has lead to declining lease rates and lower utilization on containers with this
problem.
2. Railcar loadings in North America have continued to be high, however a
softening in the market has lead to lower utilization and lower contribution to
the Partnership as existing leases expire and renewal leases are negotiated.
Several other factors may affect the Partnership's operating performance in the
year 2001 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 Risk
Certain portions of the Partnership's railcar, marine container, marine vessel,
and trailer portfolios will be remarketed in 2001 as existing leases expire,
exposing the Partnership to considerable repricing risk/opportunity.
Additionally, the Partnership entered its liquidation phase on January 1, 2001
and has commenced an orderly liquidation of the Partnership's assets. In either
case, the General Partner intends to 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.
(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 accuracy, and preclude the General Partner from determining the impact of
such changes on Partnership operations or sale of equipment. Under U.S. Federal
Aviation Regulations, after December 31, 1999, no person may operate an aircraft
to or from any airport in the contiguous United States unless that aircraft has
been shown to comply with Stage III noise levels. The Partnership's Stage II
aircraft are scheduled to be sold or re-leased in countries that do not require
this regulation. Furthermore, 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 a tank railcar for service.
The average cost of this inspection is $1,800 for non-jacketed tank railcars and
$3,600 for 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 174 non-jacketed tank railcars
and 88 jacketed tank railcars of which a total of 2 tank railcars have been
inspected with no reportable defects.
(3) Distributions
During the active liquidation phase, the Partnership will use operating cash
flow and proceeds from the sale of equipment to meet its operating obligations,
make principal and interest payments on its debt, and make distributions to the
partners. Although the General Partner intends to maintain a sustainable level
of distributions prior to final liquidation of the Partnership, actual
Partnership performance and other considerations may require adjustments to
then-existing distribution levels. In the long term, changing market conditions
and used equipment values preclude the General Partner from accurately
determining the impact of future re-leasing activity and equipment sales on
Partnership performance and liquidity.
Since the Partnership has entered the active liquidation phase, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations will continue to become progressively smaller as assets
are sold. Although distribution levels may be reduced, significant asset sales
may result in special distributions to unitholders.
The Partnership's permanent debt obligation began to mature in February 1997.
The General Partner believes that sufficient cash flow from operations and
equipment sales will be available in the future for repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of interest rate and
currency risk. The Partnership's senior secured note is a variable rate debt.
The Partnership estimates a 1% increase or decrease in the Partnership's
variable rate debt would result in an increase or decrease, respectively, in
interest expense of $34,000 in 2001 and $-0- thereafter. The Partnership
estimates a 2% increase or decrease in the Partnership's variable rate debt
would result in an increase or decrease, respectively, in interest expense of
$68,000 in 2001 and $-0- thereafter.
During 2000, 84% of the Partnership's total lease revenues from wholly- and
partially-owned equipment came from non-United States-domiciled lessees. Most of
the Partnership's leases require payment in United States (U.S.) currency. If
these lessees currency devalues against the U.S. dollar, the lessees could
potentially encounter difficulty in making the U.S. dollar-denominated lease
payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed on 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
None.
(This space intentionally left blank)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
As of the filing date of this report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
- ------------------- ----- ------------------------------------------------------
Stephen M. Bess 55 President, PLM Financial Services, Inc.,
PLM Investment Management, Inc. and
PLM Transportation Equipment Corporation
Richard K Brock 38 Vice President and Chief Financial Officer,
PLM Financial Services, Inc.,
PLM Investment Management, Inc. and
PLM Transportation Equipment Corporation
Susan C. Santo 38 Vice President, Secretary, and General Counsel,
PLM Financial Services, Inc.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess has served as President of PLM Investment Management, Inc., an
indirect wholly owned subsidiary of PLM International, since August 1989, and as
an executive officer of certain other of PLM International's subsidiaries or
affiliates since 1982.
Richard K Brock was appointed a Director of PLM Financial Services, Inc. in
October 1, 2000. Mr. Brock was appointed as Vice President and Chief Financial
Officer of PLM International and PLM Financial Services, Inc. in January 2000,
having served as Acting Chief Financial Officer since June 1999 and as Vice
President and Corporate Controller of PLM International and PLM Financial
Services, Inc. since June 1997. Prior to June 1997, Mr. Brock served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994.
Susan C. Santo was appointed a Director of PLM Financial Services, Inc., a
subsidiary of PLM International, in October 1, 2000. Ms. Santo was appointed as
Vice President, Secretary, and General Counsel of PLM International and PLM
Financial Services, Inc. in November 1997. She has worked as an attorney for PLM
International and PLM Financial Services, Inc. since 1990 and served as its
Senior Attorney from 1994 until her appointment as General Counsel.
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, 2000.
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), cash
available for distributions, and net disposition proceeds of the
Partnership. As of December 31, 2000, 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 officer or
director of the General Partner and its affiliates own any limited
partnership units of the Partnership as of December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 2000, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees, $1.0 million and administrative and
data processing services performed on behalf of the Partnership, $0.8
million.
During 2000, the Partnership's proportional share of ownership in USPEs
paid or accrued the following fees to FSI or its affiliates: management
fees, $0.3 million; and administrative and data processing services,
$0.1 million.
(This space intentionally left blank.)
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 10K:
a. Montgomery Partnership
b. TAP Trust
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form
S-1 (Reg. No. 33-32258), which became effective with the
Securities and Exchange Commission on April 11, 1990.
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. 33-32258), which
became effective with the Securities and Exchange Commission on
April 11, 1990.
10.2 Loan Agreement, amended and restated as of September 26, 1996
regarding Senior Notes due November 8, 1999. Incorporated by
reference to the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 18, 1997.
10.3 Amendment No. 1 to the Amended and Restated $38,000,000 Loan
Agreement, dated as of December 29, 1997. Incorporated by
reference to the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1998.
10.4 Amendment No. 2 to the Amended and Restated $38,000,000 Loan
Agreement, dated as of August 2, 2000. Incorporated by reference
to the Partnership's Quarterly Report on Form 10-Q filed with
the Securities and Exchange Commission on November 10, 2000.
24. Powers of Attorney.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Montgomery Partnership.
99.2 TAP Trust.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 14, 2001 PLM EQUIPMENT GROWTH FUND V
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Stephen M. Bess
-----------------------------------
Stephen M. Bess
President and Director
By: /s/ Richard K Brock
-----------------------------------
Richard K Brock
Vice President and
Chief Financial 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
*
- ------------------------
Stephen M. Bess Director, FSI March 14, 2001
*
- ------------------------
Richard K Brock Director, FSI March 14, 2001
*
- ------------------------
Susan C. Santo Director, FSI March 14, 2001
*Susan Santo, by signing her name hereto, does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
- --------------------------------
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
PAGE
Independent auditors' report 28
Balance sheets as of December 31, 2000 and 1999 29
Statements of income for the years ended
December 31, 2000, 1999, and 1998 30
Statements of changes in partners' capital for the
years ended December 31, 2000, 1999, and 1998 31
Statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 32
Notes to financial statements 33-44
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.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund V:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund V (the Partnership), as listed in the accompanying index to financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with 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.
As described in Note 1 to the financial statements, the Partnership, in
accordance with the limited partnership agreement, entered its liquidation phase
on January 1, 2001 and has commenced an orderly liquidation of the Partnership
assets. The Partnership will terminate on December 31, 2010, unless terminated
earlier upon sale of all equipment or by certain other events.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund V as
of December 31, 2000 and 1999 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
2000 1999
-----------------------------------
Assets
Equipment held for operating leases, at cost $ 74,849 $ 102,326
Less accumulated depreciation (58,086) (72,847)
-----------------------------------
16,763 29,479
Equipment held for sale 1,309 --
-------------------------------------------------------------------------------------------------------------------
Net equipment 18,072 29,479
Cash and cash equivalents 1,799 4,188
Restricted cash 445 441
Accounts receivable, less allowance for doubtful accounts of
$34 in 2000 and $47 in 1999 1,578 2,187
Investments in unconsolidated special-purpose entities 8,189 9,633
Lease negotiation fees to affiliate, less accumulated
amortization of $17 in 2000 and $64 in 1999 7 53
Debt issuance costs, less accumulated amortization
of $110 in 2000 and $84 in 1999 23 48
Prepaid expenses and other assets 39 54
-----------------------------------
Total assets $ 30,152 $ 46,083
===================================
Liabilities and partners' capital
Liabilities
Accounts payable and accrued expenses $ 245 $ 501
Due to affiliates 259 304
Lessee deposits and reserve for repairs 2,728 2,788
Note payable 5,474 15,484
-----------------------------------
Total liabilities 8,706 19,077
-----------------------------------
Partners' capital
Limited partners (limited partnership units of 9,065,911 and
9,067,911 as of December 31, 2000 and 1999, respectively) 21,446 27,006
General Partner -- --
-----------------------------------
Total partners' capital 21,446 27,006
-----------------------------------
Total liabilities and partners' capital $ 30,152 $ 46,083
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands of dollars, except weighted-average unit amounts)
2000 1999 1998
-------------------------------------------
Revenues
Lease revenue $ 20,918 $ 20,276 $ 22,911
Interest and other income 204 239 404
Net gain on disposition of equipment 1,351 253 732
-------------------------------------------
Total revenues 22,473 20,768 24,047
-------------------------------------------
Expenses
Depreciation and amortization 8,178 9,322 11,237
Repairs and maintenance 1,781 1,535 2,291
Equipment operating expenses 4,984 3,275 3,763
Insurance expense to affiliate -- -- (214)
Other insurance expenses 206 642 259
Management fees to affiliate 1,013 1,027 1,133
Interest expense 1,013 1,288 1,950
General and administrative expenses to affiliates 776 914 974
Other general and administrative expenses 879 659 593
Loss on revaluation of equipment -- 2,899 --
Provision for bad debts 55 13 27
-------------------------------------------
Total expenses 18,885 21,574 22,013
-------------------------------------------
Minority interests -- -- 42
Equity in net income of unconsolidated
special-purpose entities 406 2,108 294
-------------------------------------------
Net income $ 3,994 $ 1,302 $ 2,370
===========================================
Partners' share of net income
Limited partners $ 3,517 $ 824 $ 1,796
General Partner 477 478 574
-------------------------------------------
Total $ 3,994 $ 1,302 $ 2,370
===========================================
Limited partners' net income per
weighted-average limited partnership unit $ 0.39 $ 0.09 $ 0.20
===========================================
Cash distribution $ 9,544 $ 8,617 $ 12,008
===========================================
Cash distribution per weighted-average limited
partnership unit $ 1.00 $ 0.90 $ 1.26
===========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 2000, 1999, and 1998
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------
Partners' capital as of December 31, 1997 $ 44,086 $ -- $ 44,086
Net income 1,796 574 2,370
Purchase of limited partnership units (42) -- (42)
Cash distribution (11,434) (574) (12,008)
---------------------------------------------------
Partners' capital as of December 31, 1998 34,406 -- 34,406
Net income 824 478 1,302
Purchase of limited partnership units (85) -- (85)
Cash distribution (8,139) (478) (8,617)
---------------------------------------------------
Partners' capital as of December 31, 1999 27,006 -- 27,006
Net income 3,517 477 3,994
Purchase of limited partnership units (10) -- (10)
Cash distribution (9,067) (477) (9,544)
---------------------------------------------------
Partners' capital as of December 31, 2000 $ 21,446 $ -- $ 21,446
===================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
2000 1999 1998
---------------------------------------------
Operating activities
Net income $ 3,994 $ 1,302 $ 2,370
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,178 9,322 11,237
Loss on revaluation of equipment -- 2,899 --
Net gain on disposition of equipment (1,351) (253) (732)
Equity in net income of unconsolidated
special-purpose entities (406) (2,108) (294)
Changes in operating assets and liabilities:
Restricted cash (4) (333) 3
Accounts receivable, net 609 1,001 158
Prepaid expenses and other assets 15 27 33
Accounts payable and accrued expenses (256) (92) (1,244)
Due to affiliates (45) (35) (138)
Minority interest -- -- (2,637)
Lessee deposits and reserve for repairs 87 338 806
---------------------------------------------
Net cash provided by operating activities 10,821 12,068 9,562
---------------------------------------------
Investing activities
Proceeds from disposition of equipment 7,183 860 8,717
Payments for purchase of equipment and capitalized repairs (2,679) (1,256) (9,485)
Distribution from liquidation of unconsolidated
special-purpose entity -- 7,354 --
Distribution from unconsolidated special-purpose entities 1,850 265 4,130
Payments of acquisition fees to affiliate -- (56) (468)
Payments of lease negotiation fees to affiliate -- (13) (104)
---------------------------------------------
Net cash provided by investing activities 6,354 7,154 2,790
---------------------------------------------
Financing activities
Proceeds from short-term note payable -- -- 3,950
Payments of short-term note payable -- -- (3,950)
Payments of note payable (10,010) (8,104) (8,412)
Proceeds from short-term loan from affiliate 4,500 3,200 1,981
Payment of short-term loan to affiliate (4,500) (3,200) (1,981)
Cash distribution paid to General Partner (477) (478) (574)
Cash distribution paid to limited partners (9,067) (8,139) (11,434)
Purchase of limited partnership units (10) (85) (42)
---------------------------------------------
Net cash used in financing activities (19,564) (16,806) (20,462)
---------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,389) 2,414 (8,110)
Cash and cash equivalents at beginning of year 4,188 1,774 9,884
---------------------------------------------
Cash and cash equivalents at end of year $ 1,799 $ 4,188 $ 1,774
=============================================
Supplemental information
Interest paid $ 1,083 $ 1,348 $ 2,047
=============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund V, a California limited partnership (the Partnership),
was formed on November 14, 1989 to engage in the business of owning, leasing, or
otherwise investing in predominately 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).
Beginning in the Partnership's seventh year of operations, which commenced on
January 1, 1999, the General Partner stopped reinvesting excess cash. Beginning
in the Partnership's ninth year of operations which commenced on January 1,
2001, the General Partner began an orderly liquidation of the Partnership's
assets. The Partnership will be terminated by December 31, 2010, unless
terminated earlier upon the sale of all equipment or by certain other events.
Surplus cash, less reasonable reserves, will be distributed to the partners.
FSI manages the affairs of the Partnership. 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. The
General Partner is entitled to subordinated incentive fees equal to 5% of cash
available for distribution and 5% of net disposition proceeds (as defined in the
partnership agreement), which are distributed by the Partnership after the
limited partners have received a certain minimum rate of return.
The General Partner has determined that it will not adopt a reinvestment plan
for the Partnership. If the number of units made available for purchase by
limited partners in any calendar year exceeds the number that can be purchased
with reinvestment plan proceeds, then the Partnership may redeem up to 2% of the
outstanding units each year, subject to certain terms and conditions. The
purchase price to be offered by the Partnership for these units will be equal to
110% of the unrecovered principal attributable to the units. The unrecovered
principal for any unit will be equal to the excess of (i) the capital
contribution attributable to the unit over (ii) the distributions from any
source paid with respect to the units. For the years ended December 31, 2000,
1999, and 1998, the Partnership had purchased 2,000, 13,117, and 5,580 limited
partnership units for $10,000, $0.1 million, and $42,000, respectively.
The General Partner has decided that it would not purchase any units under the
redemption plan in 2001. The General Partner may purchase additional units on
behalf of the Partnership in the future.
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, 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 owned by 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 the investor programs, and is a general partner of other
programs.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
ACCOUNTING FOR LEASES
The Partnership's leasing operations consists primarily 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 No. 13, "Accounting for Leases" (SFAS 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 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 annual depreciation expense using the straight-line method
exceeds that calculated by the double-declining balance method. Acquisition fees
and certain other acquisition costs have been capitalized as part of the cost of
the equipment. Lease negotiation fees are amortized over the initial equipment
lease term. Debt issuance costs are amortized over the term of the related loan
(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.
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment at least quarterly and whenever circumstances indicate
that the carrying value of an asset may not be recoverable in relation to
expected future market conditions for the purpose of assessing recoverability of
the recorded amounts. If projected undiscounted future 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. Reductions of $2.9 million to the carrying
value of a marine vessel was required during 1999. No reductions to the carrying
value of equipment were required during 2000 or 1998.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 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.
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has interests in unconsolidated special-purpose entities (USPEs)
that own transportation equipment. These interests are accounted for using 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
interest 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 and WMS.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are accrued as incurred.
Certain costs associated with marine vessel dry-docking are estimated and
accrued ratably over the period prior to such dry-docking. If a marine vessel is
sold and there is a balance in the dry-docking reserve account for that marine
vessel, the balance in the reserve account is included as additional sales
proceeds. 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 has the obligation to fund and accrue
the difference. In certain instances, if the 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 sales proceeds. The aircraft
reserve accounts and marine vessel dry-docking reserve accounts are included in
the balance sheet as lessee deposits and reserve for repairs.
NET INCOME 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.
Cash distributions of the Partnership are generally allocated 95% to the limited
partners and 5% to the General Partner and may include amounts in excess of net
income. The limited partners' net income is allocated among the limited partners
based on the number of limited partnership units owned by each limited partner
and on the number of days of the year each limited partner is in the
Partnership.
Cash distributions are recorded when paid. 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 $5.5 million, $7.3
million, and $9.6 million in 2000, 1999, and 1998, respectively, were deemed to
be a return of capital.
Cash distributions related to the fourth quarter of $1.6 million in 2000, 1.7
million in 1999, and $1.4 million in 1998, were paid during the first quarter of
2001, 2000, and 1999, respectively.
NET INCOME PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income per weighted-average Partnership unit was computed by dividing net
income 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, 2000, 1999, and 1998, was 9,066,391, 9,071,929, and 9,082,093, respectively.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of one year or less as cash
equivalents. The carrying amount of cash equivalents approximates fair market
value due to the short-term nature of the investments.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 2000, 1999, and 1998.
RESTRICTED CASH
As of December 31, 2000 and 1999, restricted cash represented lessee security
deposits held by the Partnership.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
An officer of PLM Securities Corp., a wholly owned subsidiary of the General
Partner, contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI, subject to certain reductions, receives a
monthly management fee attributable either to owned equipment or interests in
equipment owned by the USPEs equal to the lesser of (i) the fees 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, or (c) 7%
of the gross lease revenues attributable to equipment, if any, that is subject
to per diem leasing arrangements and thus is operated by the Partnership.
Partnership management fees of $0.2 million were payable as of December 31, 2000
and 1999. The Partnership's proportional share of USPE management fee expense of
$0.1 million was payable as of December 31, 2000 and 1999. The Partnership's
proportional share of USPE management fee expense was $0.3 million, $0.3 million
and $0.4 million during 2000, 1999, and 1998, respectively. The Partnership
reimbursed FSI for data processing and administrative expenses directly
attributable to the Partnership in the amount of $0.8 million, $0.9 million, and
$1.0 million during 2000, 1999, and 1998, respectively. The Partnership's
proportional share of USPE data processing and administrative expenses
reimbursed to FSI was $0.1 million during 2000, 1999, and 1998. Debt placement
fees were paid to FSI in an amount equal to 1% of the Partnership's long-term
borrowings during 1991.
Transportation Equipment Indemnity Company Ltd. (TEI), an affiliate of the
General Partner, which provided marine insurance coverage and other insurance
brokerage services to the Partnership during 1998, was liquidated during the
first quarter of 2000. The Partnership paid $0.1 million in 1998 to TEI. The
Partnership's proportional share of USPE marine insurance coverage paid to TEI
was $47,000 during 1998. No premiums for owned equipment or partially owned
equipment were paid to TEI during 2000 or 1999. A substantial portion of any
amount paid to TEI was then paid to third-party reinsurance underwriters or
placed in risk pools managed by TEI on behalf of affiliated programs and PLM
International, which provide threshold coverages on marine vessel loss of hire
and hull and machinery damage. All pooling arrangement funds are either paid out
to cover applicable losses or refunded pro rata by TEI. Also, during 1998, the
Partnership and the USPEs received a $0.4 million loss-of-hire insurance refund
from TEI due to lower claims from the insured Partnership and other insured
affiliated programs.
The Partnership and the USPEs paid or accrued lease negotiation and equipment
acquisition fees of $-0- million, $0.1 million, and $0.6 million to TEC in 2000,
1999, and 1998, respectively.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Partnership owned certain equipment in conjunction with affiliated programs
during 2000, 1999, and 1998 (see Note 4).
The Partnership borrowed a total of $4.5 million, $3.2 million, and $2.0 million
from the General Partner for a period of time during 2000, 1999, and 1998,
respectively. The General Partner charged the Partnership market interest rates
for the time the loan was outstanding. Total interest paid to the General
Partner was $0.1 million, $15,000, and $3,000 during 2000, 1999, and 1998,
respectively.
The balance due to affiliates as of December 31, 2000 includes $0.2 million due
to FSI and its affiliates for management fees and $0.1 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1999 includes $0.2
million due to FSI and its affiliates for management fees and data processing
services, and $0.1 million due to affiliated USPEs.
3. EQUIPMENT
The components of owned equipment as of December 31 were as follows (in
thousands of dollars):
Equipment Held for Operating Leases 2000 1999
------------------------------------------------------ ------------------------------------
Aircraft $ 55,071 $ 52,402
Rail equipment 11,288 11,328
Marine containers 6,245 9,075
Trailers 2,245 9,245
Marine vessels -- 20,276
------------------------------------
74,849 102,326
Less accumulated depreciation (58,086) (72,847)
------------------------------------
16,763 29,479
Equipment held for sale 1,309 --
------------------------------------
Net equipment $ 18,072 $ 29,479
====================================
Revenues are earned under operating leases. In most cases, lessees are invoiced
for equipment leases on a monthly basis. All equipment invoiced monthly are
based on a fixed rate. The Partnership's marine containers are leased to
operators of utilization-type leasing pools that include equipment owned by
unaffiliated parties. In such instances, revenues received by the Partnership
consist of a specified percentage of revenues generated by leasing the pooled
equipment to sublessees, after deducting certain direct operating expenses of
the pooled equipment. Rental revenues for trailers are based on a per-diem lease
in the free running interchange with the railroads. Lease revenues for trailers
that operated in rental yards owned by PLM Rental, Inc., were based on a fixed
rate for a specific period of time, usually short in duration. The Partnership's
marine vessel is leased to various lessees on a voyage charter basis for a
specific trip.
As of December 31, 2000, all owned equipment was on lease except for 6 railcars
with a net book value of $26,000. As of December 31, 1999, all owned equipment
was on lease or operating in PLM-affiliated short-term trailer rental yards.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. During 1999, reductions to the carrying
value of marine vessels of $2.9 million were required. No reductions to the
carrying value were required during 2000.
As of December 31, 2000, the Partnership reclassified a marine vessel with a net
book value of $1.3 million from equipment held for operating lease to equipment
held for sale. During February 2001, this marine vessel was sold.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. EQUIPMENT (CONTINUED)
During 2000, the Partnership purchased a hush-kit for one of the Partnership's
McDonnell Douglas DC-9 commercial aircraft for $2.7 million. During 1999, the
Partnership purchased a hush-kit for one of the Partnership's Boeing 737-200
commercial aircraft for $1.3 million, including acquisition fees of $0.1 million
paid to FSI for the purchase of this equipment. The Partnership was required to
install these hush-kits per the lease agreement for this equipment.
During 2000, the Partnership disposed of a marine vessel, marine containers,
trailers, and railcars with an aggregate net book value of $6.0 million, for
$7.2 million. Included in the 2000 net gain on disposition of assets is the
unused portion of marine vessel drydocking of $0.1 million. During 1999, the
Partnership disposed of marine containers, railcars, and trailers with an
aggregate net book value of $0.6 million, for $0.9 million. In addition, during
1999, the Partnership recorded a revaluation loss on two marine vessels of $2.9
million.
All wholly- and partially-owned equipment on lease is accounted for as operating
leases, except for two partially owned commercial aircraft on a finance lease.
Future minimum rentals under noncancelable operating leases, as of December 31,
2000, for wholly- and partially-owned equipment during each of the next five
years are approximately $8.3 million in 2001, $6.5 million in 2002, $3.2 million
in 2003, $2.2 million in 2004, and $0.3 million in 2005. Per diem and short-term
rentals consisting of utilization rate lease payments included in lease revenues
amounted to approximately $13.9 million, $9.2 million, and $12.2 million in
2000, 1999, and 1998, respectively.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership owns equipment jointly with affiliated programs.
The net investments in USPEs include the following jointly owned equipment (and
related assets and liabilities) as of December 31 (in thousands of dollars):
2000 1999
--------------------------
48% interest in an entity owning a product tanker $ 4,961 $ 5,885
25% interest in two commercial aircraft on direct finance lease 2,245 2,535
50% interest in an entity owning a product tanker 983 1,333
50% interest in an entity that owned a bulk carrier -- (120)
---------- -----------
Net investments $ 8,189 $ 9,633
========== ===========
As of December 31, 2000 and 1999, all jointly owned equipment in the
Partnership's USPE portfolio was on lease.
During 1999, the General Partner sold the Partnership's 17% interest in two
trusts that owned a total of three Boeing 737-200A Stage II commercial aircraft,
two Stage II aircraft engines, and a portfolio of aircraft rotables and its 50%
interest in an entity owning a marine vessel. The Partnership's interest in
these trusts and this entity was sold for proceeds of $7.4 million for its net
investment of $3.9 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):
2000 1999 1998
Net Interest Net Interest Net Interest
Total of Total of Total of
USPEs Partnership USPEs Partnership USPEs Partnership
--------------------------- --------------------------- ---------------------------
Net Investments $ 21,434 $ 8,189 $ 25,000 $ 9,633 $ 44,678 $ 15,144
Lease revenues 12,433 6,107 10,347 5,068 12,317 7,194
Net income 1,682 406 11,039 2,108 2,151 294
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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.
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, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
Revenues
Lease revenue $ 8,063 $ 412 $ 8,123 $ 1,944 $ 2,376 $ -- $ 20,918
Interest income and other 9 -- 15 -- -- 180 204
Gain on disposition of equipment -- 189 79 1,054 29 -- 1,351
------------------------------------------------------------------------
Total revenues 8,072 601 8,217 2,998 2,405 180 22,473
------------------------------------------------------------------------
Costs and expenses
Operations support 281 7 5,349 731 565 38 6,971
Depreciation and amortization 5,377 451 1,283 464 542 61 8,178
Interest expense -- -- -- -- -- 1,013 1,013
Management fees 279 20 406 117 191 -- 1,013
General and administrative expenses 165 -- 48 452 70 920 1,655
Provision for bad debts -- -- -- 51 4 -- 55
------------------------------------------------------------------------
Total costs and expenses 6,102 478 7,086 1,815 1,372 2,032 18,885
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 384 -- 22 -- -- -- 406
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 2,354 $ 123 $ 1,153 $ 1,183 $ 1,033 $ (1,852) $ 3,994
========================================================================
Total assets as of December 31, $ 15,860 $ 946 $ 7,852 $ 742 $ 2,891 $ 1,861 $ 30,152
2000
========================================================================
(1) Includes certain interest income and costs not identifiable to a particular
segment, such as interest expense and certain amortization, general and
administrative and operations support expenses.
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
Revenues
Lease revenue $ 8,162 $ 699 $ 6,214 $ 2,727 $ 2,474 $ -- $ 20,276
Interest income and other 59 13 6 -- 28 133 239
Gain (loss)on disposition of -- 249 -- (16) 20 -- 253
equipment
------------------------------------------------------------------------
Total revenues 8,221 961 6,220 2,711 2,522 133 20,768
------------------------------------------------------------------------
Costs and expenses
Operations support 162 5 3,882 870 485 48 5,452
Depreciation and amortization 5,264 590 2,063 666 600 139 9,322
Interest expense -- -- -- -- -- 1,288 1,288
Management fees 334 35 311 171 176 -- 1,027
General and administrative expenses 67 -- 35 628 52 791 1,573
Loss on revaluation -- -- 2,899 -- -- -- 2,899
Provision for (recovery of) bad -- (4) -- 29 (12) -- 13
debts
------------------------------------------------------------------------
Total costs and expenses 5,827 626 9,190 2,364 1,301 2,266 21,574
------------------------------------------------------------------------
Equity in net income of USPEs 1,811 -- 297 -- -- -- 2,108
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 4,205 $ 335 $ (2,673) $ 347 $ 1,221 $ (2,133) $ 1,302
========================================================================
Total assets as of $ 18,690 $ 1,854 $ 13,515 $ 3,821 $ 3,420 $ 4,783 $ 46,083
December31, 1999
========================================================================
(1) Includes certain interest income and costs not identifiable to a particular
segment, such as interest expense and certain amortization, general and
administrative and operations support expenses.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
5. OPERATING SEGMENTS (CONTINUED)
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
Revenues
Lease revenue $ 8,903 $ 1,217 $ 7,478 $ 2,817 $ 2,496 $ -- $ 22,911
Interest income and other 45 11 74 -- 25 249 404
Gain (loss) on disposition of (82) 665 -- 144 5 -- 732
equipment
------------------------------------------------------------------------
Total revenues 8,866 1,893 7,552 2,961 2,526 249 24,047
------------------------------------------------------------------------
Costs and expenses
Operations support 92 11 4,701 667 568 60 6,099
Depreciation and amortization 6,846 846 1,894 809 695 147 11,237
Interest expense -- -- -- -- -- 1,950 1,950
Management fees to affiliate 343 60 372 186 172 -- 1,133
General and administrative expenses 75 1 54 632 48 757 1,567
Provision for (recovery of) bad -- -- -- 30 (3) -- 27
debts
------------------------------------------------------------------------
Total costs and expenses 7,356 918 7,021 2,324 1,480 2,914 22,013
------------------------------------------------------------------------
Minority interest 42 -- -- -- -- -- 42
Equity in net income (loss) of USPEs 446 -- (152) -- -- -- 294
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 1,998 $ 975 $ 379 $ 637 $ 1,046 $ (2,665) $ 2,370
========================================================================
Total assets as of $ 24,765 $ 3,281 $ 22,112 $ 4,052 $ 4,060 $ 3,106 $ 61,376
December 31, 1998
========================================================================
(1) Includes certain interest income and costs not identifiable to a particular
segment, such as interest expense and certain amortization, general and
administrative and operations support expenses.
6. Geographic Information
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, mobile offshore
drilling unit, and trailers to lessees domiciled in six geographic regions:
United States, Canada, South America, Caribbean, Europe, and Mexico. Marine
vessels and marine containers are 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 domicile of
the lessee as of and for the years ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- ----------------------------------
Region 2000 1999 1998 2000 1999 1998
-------------------------- ------------------------------------- -----------------------------------
United States $ 4,390 6,271 $ 7,109 $ -- $ -- $ --
Canada 4,223 4,081 4,096 -- -- --
South America 3,011 3,011 3,011 -- -- --
Caribbean 444 -- -- -- -- --
Mexico 315 -- -- -- -- --
Europe -- -- -- -- -- 780
Rest of the world 8,535 6,913 8,695 6,107 5,068 6,414
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
Lease revenues $ 20,918 20,276 $ 22,911 $ 6,107 $ 5,068 $ 7,194
===================================== =====================================
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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 2000 1999 1998 2000 1999 1998
-------------------------- ------------------------------------- -----------------------------------
United States $ 2,089 $ 1,594 $ 2,199 $ -- $ (2) $ --
Canada 2,504 1,599 1,555 -- -- --
South America 639 858 (478) -- -- --
Caribbean (606) -- -- -- -- --
Mexico (439) -- -- 384 336 407
Europe -- -- -- -- 1,477 39
Rest of the world 1,255 (2,635) 1,505 22 297 (152)
------------------------------------- -------------------------------------
Regional income (loss) 5,442 1,416 4,781 406 2,108 294
Administrative and other (1,854) (2,222) (2,705) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ 3,588 $ (806) $ 2,076 $ 406 $ 2,108 $ 294
===================================== =====================================
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- ----------------------------------
Region 2000 1999 1998 2000 1999 1998
-------------------------- ------------------------------------- -----------------------------------
United States $ 4,579 $ 9,287 $ 11,670 $ -- $ -- $ --
Canada 6,047 9,641 10,467 -- -- --
South America 3,089 3,004 5,008 -- -- --
Mexico 2,334 -- -- 2,245 2,535 2,772
Europe -- -- -- -- -- 2,059
Rest of the world 714 7,547 13,659 5,944 7,098 10,313
------------------------------------- ------------------------------------
16,763 29,479 40,804 8,189 9,633 15,144
Equipment held for sale 1,309 -- -- -- -- --
------------------------------------- ------------------------------------
Net book value $ 18,072 $ 29,479 $ 40,804 $ 8,189 $ 9,633 $ 15,144
===================================== ====================================
7. DEBT
In November 1991, the Partnership borrowed $38.0 million under a nonrecourse
loan agreement. The loan currently is secured by certain marine containers, a
marine vessel, and five aircraft owned by the Partnership. The note payable is
scheduled to mature on December 31, 2001.
During August 2000, the existing senior loan agreement was amended and restated
to change the quarterly principal payment date from the 45th day of each quarter
to the last business day of each quarter. The note is scheduled to be repaid in
four principal payments of $1.4 million during 2001.
The Partnership made the regularly scheduled principal payments of $7.5 million
and $7.7 million to the lender of the senior loan during 2000 and 1999,
respectively, and quarterly interest payments at a rate of LIBOR plus 1.2% per
annum (8.0% at December 31, 2000 and 7.3% at December 31, 1999). The Partnership
also paid the lender of the senior loan an additional $2.5 million and $0.5
million from equipment sale proceeds, as required by the loan agreement during
2000 and 1999, respectively .
8. CONCENTRATIONS OF CREDIT RISK
For the years ended December 31, 2000, 1999, and 1998, the Partnership's
customers that accounted for 10% or more of the total consolidated revenues for
the owned equipment and partially owned equipment were Varig South America (10%
in 2000 and 1999) and Canadian Airlines International (10% in 1998).
As of December 31, 2000, 1999, and 1998, the General Partner believes the
Partnership had no other significant concentrations of credit risk that could
have a material adverse effect on the Partnership.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
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, 2000, the financial statement carrying amount of assets and
liabilities was approximately $41.8 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
PLM International, (the Company) and various of its wholly owned subsidiaries
are defendants in a class action lawsuit filed in January 1997 and which is
pending in the United States District Court for the Southern District of
Alabama, Southern Division (Civil Action No. 97-0177-BH-C) (the court). The
named plaintiffs are six individuals who invested in PLM Equipment Growth Fund
IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM Equipment Growth Fund VI
(Fund VI), and PLM Equipment Growth & Income Fund VII (Fund VII), collectively
(the Funds), each a California limited partnership for which the Company's
wholly owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the General
Partner.
The complaint asserts causes of action against all defendants for fraud and
deceit, suppression, negligent misrepresentation, negligent and intentional
breaches of fiduciary duty, unjust enrichment, conversion, and conspiracy.
Plaintiffs allege 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 assert liability against
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds. Plaintiffs
seek unspecified compensatory damages, as well as punitive damages.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No.987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices and violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company' s petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei action, as
discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. 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. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees,
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
10. CONTINGENCIES (CONTINUED)
or unit holders who purchased or received by way of transfer or assignment any
units in the Funds between May 23, 1989 and August 30, 2000. The monetary
settlement, if approved, will go forward regardless of whether the equitable
settlement is approved or not.
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, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (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; (d) a one-time repurchase by
each of Fund V, Fund VI and Fund VII of up to 10% of that partnership's
outstanding units for 80% of net asset value per unit; and (e) the deferral of a
portion of the management fees paid to an affiliate of FSI until, if ever,
certain performance thresholds have been met by the Funds. Subject to final
court approval, these proposed changes would be made as amendments to each
Fund's limited partnership agreement if less than 50% of the limited partners of
each Fund vote against such amendments. 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. The equitable settlement class consists of all investors, limited
partners, assignees or unit holders who on August 30, 2000 held any units in
Fund V, Fund VI, and Fund VII, and their assigns and successors in interest.
The court preliminarily approved the monetary and equitable settlements in
August 2000, and information regarding each of the settlements was sent to class
members in September 2000. The monetary settlement remains subject to certain
conditions, including final approval by the court following a final fairness
hearing. The equitable settlement remains subject to certain conditions,
including judicial approval of the proposed amendments and final approval of the
equitable settlement by the court following a final fairness hearing.
A final fairness hearing was held on November 29, 2000 and the parties await the
court's decision. The Company continues to believe that the allegations of the
Koch and Romei actions are completely without merit and intends to continue to
defend this matter vigorously if the monetary settlement is not consummated.
The Company 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 of the Partnership.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
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 $ 5,770 $ 6,012 $ 6,394 $ 4,297 $ 22,473
Net income 667 1,526 1,592 209 3,994
Per weighted-average limited partnership unit:
Net income (loss) $ 0.06 $ 0.16 $ 0.17 $ 0.00 $ 0.39
The following is a summary of the quarterly results of operations for the years
ended December 31, 1999 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
-----------------------------------------------------------------------------------------
Operating results:
Total revenues $ 4,939 $ 5,461 $ 5,208 $ 5,160 $ 20,768
Net income (loss) 2,095 758 (200) (1,351) 1,302
Per weighted-average limited partnership unit:
Net income (loss) $ 0.22 $ 0.07 $ (0.04) $ (0.16) $ 0.09
12. SUBSEQUENT EVENTS
During February 2001, the Partnership sold a marine vessel with a net book value
of $1.3 million for $2.6 million which was held for sale at December 31, 2000.
In February 2001, PLM International, the parent of the General Partner,
announced that MILPI Acquisition Corp. (MILPI) completed its cash tender offer
for the outstanding common stock of PLM International. To date, MILPI has
acquired 83% of the common shares outstanding. MILPI will complete its
acquisition of PLM International by effecting a merger of PLM International into
MILPI under Delaware law. The merger is expected to be completed after MILPI
obtains approval of the merger by PLM International's shareholders pursuant to a
special shareholders' meeting which is expected to be held during the first half
of 2001.
PLM EQUIPMENT GROWTH FUND V
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10.1 Management Agreement between the Partnership and *
PLM Investment Management, Inc.
10.2 Amended and Restated $38,000,000 Loan Agreement, *
dated as of September 26, 1996.
10.3 Amendment No. 1 to the Amended and Restated $38,000,000 *
Loan Agreement, dated as of December 29, 1997.
10.4 Amendment No. 2 to the Amended and Restated $38,000,000
Loan Agreement, dated as of August 2, 2000. *
24. Powers of Attorney. 46-48
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Montgomery Partnership. 49-58
99.2 TAP Trust. 59-67
* Incorporated by reference. See page 25 of this report.