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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 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 0-21806
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PLM EQUIPMENT GROWTH FUND VI
(Exact name of registrant as specified in its charter)
California 94-3135515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Aggregate market value of voting stock: N/A
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An index of exhibits filed with this Form 10-K is located at page 28.
Total number of pages in this report: 83.
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (the units) in PLM Equipment Growth Fund VI, a California limited
partnership (the Partnership, the Registrant, or EGF VI). The Partnership's
offering became effective on December 23, 1991. FSI, as General Partner, owns a
5% interest in the Partnership. The Partnership engages in the business of
investing in a diversified equipment portfolio consisting primarily of used,
long-lived, low-obsolescence capital equipment that is easily transportable by
and among prospective users.
The Partnership's primary objectives are:
(1) to invest in a diversified portfolio of low obsolescence equipment with
long lives and high residual values, at prices that the General Partner believes
to be below inherent values, and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by PLM International's
Credit Review Committee (the Committee), which is made up of members of PLM
International's senior management. In determining a lessee's creditworthiness,
the Committee considers, among other factors, the lessee's financial statements,
internal and external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets, or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions; and
(4) to increase the Partnership's revenue base by reinvesting a portion of
its operating cash flow in additional equipment during the first six years of
the Partnership's operation in order to grow the size of its portfolio. Since
net income and distributions are affected by a variety of factors, including
purchase prices, lease rates, and costs and expenses, growth in the size of the
Partnership's portfolio does not necessarily mean that in all cases the
Partnership's aggregate net income and distributions will increase upon the
reinvestment of operating cash flow.
The offering of units of the Partnership closed on May 24, 1993. As of December
31, 2000, there were 8,189,465 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
January 1, 2000, 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 commences January 1,
2002, 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, 2011.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio, equipment held for sale, and the original 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:
9,383 Marine containers Various $ 18,973
2,910 Refrigerated marine containers Various 6,593
366 Pressurized tank railcars Various 10,698
180 Nonpressurized tank railcars Various 3,482
138 Covered hopper railcars Various 3,064
1 DC-9-82 Stage III commercial aircraft McDonnell Douglas 13,951
1 Portfolio of aircraft rotables Various 2,273
1 Container cargo carrier vessel O. C. Staalskibsvaerft A/F 8,040
341 Dry piggyback trailers Stoughton 5,258
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Owned equipment held for operating leases 72,332
Owned equipment held for sale:
1 737-200 Stage II commercial aircraft Boeing 5,406
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Total owned equipment $ 77,738(1)
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Investments in unconsolidated special-purpose entities:
0.62 737-300 Stage III commercial aircraft Boeing $ 14,150(2)
0.40 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,505(3)
0.53 Product tanker Boelwerf-Temse 10,476(2)
0.50 Container cargo feeder vessel O. C. Staalskibsvaerft A/F 4,004(2)
0.20 Handymax dry bulk carrier marine vessel Tsuneishi Shipbuilding Co., Ltd 3,553(2)
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Total investments in unconsolidated special-purpose entities $ 36,688(1)
=============
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(1) Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operations, and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to the
date of purchase, and equipment acquisition fees paid to PLM Transportation
Equipment Corporation (TEC), or PLM Worldwide Management Services (WMS).
(2) Jointly owned: EGF VI and an affiliated program.
(3) Jointly owned: EGF VI and two affiliated programs.
Equipment is generally leased under operating leases for a term of one to six
years except for marine vessels operating on voyage charter or time charter
which are usually leased for less than one year. Some of the Partnership's
marine containers are leased to operators of utilization-type leasing pools,
which include equipment owned by unaffiliated parties. In such instances,
revenues received by the Partnership consist of a specified percentage of
revenues generated by leasing the pooled equipment to sublessees, after
deducting certain direct operating expenses of the pooled equipment. The
remaining Partnership marine containers are based on a fixed rate. Lease
revenues for intermodal trailers are based on a per-diem lease in the free
running interchange with the railroads. 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: Aero California,
AAR Allen Group International, Domino Sugar Corp., Islandsflug HF., Tosco
Refining Company, Terra Nitrogen Corporation, Trans World Airlines, and Union
Carbide Corporation.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date,
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other programs that lease the same types of
equipment.
(D) Demand
The Partnership operates or operated in the following operating segments: marine
vessel leasing, marine container leasing, aircraft leasing, railcar leasing, and
intermodal trailer leasing. Each equipment leasing segment engages in short-term
to mid-term operating leases to a variety of customers. Except for 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) 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. In the last year, the Partnership has experienced
reduced residual values on the sale of refrigerated containers, due primarily to
technological obsolescence associated with this equipment's refrigeration
machinery.
More recently, the Partnership has acquired new standard dry cargo containers
and placed this equipment either on mid-term leases or into revenue-sharing
agreements. These investments have been opportunistically driven by the
historically low acquisition prices recently available in the market. The
Partnership has been able to acquire standard dry 20-foot containers in the
$1,500 to $1,600 range per container; several years ago, similar equipment was
being sold in the $2,000 range. The primary reason for this reduction in price
relates to excess capacity with Chinese manufacturers, whose factories
represent, in the aggregate, in excess of 90% of the worldwide container
building capacity, and competitive pricing decisions being made on their part,
with the apparent support of the Chinese government, in a desire to keep their
factories operating.
(2) Railcars
(a) Pressurized Tank Cars
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%), electrical generation (15%), commercial applications (15%), and
transportation (3%). Natural gas consumption is expected to grow over the next
few years as most new electrical 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, many of the Partnership's pressurized tank cars are up
for renewal in the spring of 2001.
(b) General-Purpose (Nonpressurized) Tank Cars
These railcars are used to transport bulk liquid commodities and chemicals not
requiring pressurization, such as certain petroleum products, liquefied asphalt,
lubricating oils, molten sulfur, vegetable oils and corn syrup. 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) Cars
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.
(3) 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% per year during that period. Such growth will require a substantial
increase in the number 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 a 40% interest in two DC-9s and one wholly owned MD-82 all
of which were on lease throughout 2000 at above market rates. It owns 62% of one
B737-300 that was placed on lease in 2000 at market rate. It also owns one off
lease B737-200 that is not Stage III compliant and was sold during February
2001.
(b) Rotables
The Partnership owns a package of aircraft components, or rotables, that are
used for MD-83s. Aircraft rotables are replacement spare parts that are held in
inventory by an airline. The types of rotables owned and leased by the
Partnership include avionics, replacement doors, control surfaces, pumps,
valves, and other comparable equipment. The rotable market remained stable in
2000.
(4) Marine Vessels
The Partnership owns or has investments in small to medium-sized dry bulk
vessels, product tankers, and container vessels, all of which 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 vessels through a combination of spot
and period charters, an approach that provides the flexibility to adapt to
changes in market conditions.
(a) Container and Container Feeder Vessels
The Partnership owns a 400 20-foot equivalent unit container marine vessel and
has an investment in a similar marine vessel, both of which performed poorly.
The market for marine vessels of this size continued to be very soft as it had
been in 1999. The market for significantly larger container marine vessels did
improve during 2000, but there was no corresponding improvement in the
smaller-sized marine vessels such as the two that the Partnership owns. In an
attempt to improve Partnership returns, both from a revenue perspective and the
ultimate sale of these assets, charters were signed with a Far East lessee and
the marine vessels were positioned from the Atlantic, where they had been
operating primarily on the spot market, to the Far East. This move has been
successful in that the Partnership has seen reliable earning from these charters
and increased sales interest.
(b) Product Tanker
The Partnership has an investment in a 1975-built 50,000 dead weight ton product
tanker that operates 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 tanker 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.
(c) Dry Bulk Vessel
The Partnership has an investment in a small to medium-sized dry bulk marine
vessel that operates 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 marine
vessel through a combination of spot and period charters, an approach that
provides the flexibility to adapt to changes in market conditions.
During 2000, the market for bulk carriers exhibited, as expected, seasonal
strengthening in the late winter, that continued strong through the summer, with
some weakness throughout the fall. The Partnership's dry bulk marine vessel was
sheltered, in part, from seasonal changes due to a long-term contractual
agreement that expired during 2000.
(5) Intermodal (Piggyback) Trailers
Intermodal trailers are used to transport a variety of dry goods by rail on
flatcars, usually for distances of over 400 miles. Over the past 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 81%, 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.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, governmental, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification 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 does not meet certain noise, aging, and corrosion
criteria. The Partnership has a Stage II aircraft that does not meet Stage
III requirements. This Stage II aircraft is scheduled to be sold;
(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 to the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers;
(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 315 non-jacketed tank
railcars and 231 jacketed tank railcars of which a total of 29 tank
railcars have been inspected to date and no defects have been discovered.
As of December 31, 2000, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest 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 $166.1 million through the third quarter of 1993, with proceeds from the debt
financing of $30.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at 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, 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.
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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 7,859 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 being inefficient vehicles for
the sale of limited partnership units. Presently, there is no public market for
the limited partnership units and none is likely to develop. To prevent the
units from being considered publicly traded and thereby to avoid taxation of the
Partnership as an association treated as a corporation under the Internal
Revenue Code, the limited partnership units will not be transferable without the
consent of the General Partner, which may be withheld in its absolute
discretion. The General Partner intends to monitor transfers of units in an
effort to ensure that they do not exceed the percentage or number permitted by
certain safe harbors promulgated by the Internal Revenue Service. A transfer may
be prohibited if the intended transferee is not a 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 November 24, 1995.
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 repurchased a
cumulative total of 128,782 units at a cost of $1.5 million. The General Partner
has decided that it would not purchase Partnership units under the terms of the
Partnership's limited partnership agreement during 2001. The General Partner may
purchase additional limited partnership units on behalf of the Partnership in
the future.
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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 $ 19,926 $ 50,209 $ 35,140 $ 39,576 $ 36,356
Net gain on disposition of equipment 2,147 25,951 6,253 10,121 7,214
Loss on revaluation of equipment 374 3,567 4,276 -- --
Equity in net income (loss) of uncon-
solidated special-purpose entities (1,904) (1,003) 6,465 3,336 3,700
Net income 412 5,996 1,445 9,232 8,291
At year-end:
Total assets $ 64,063 $ 78,204 $ 104,270 $ 121,551 $ 123,441
Total liabilities 32,441 33,183 38,022 39,006 41,059
Note payable 30,000 30,000 30,000 30,000 31,286
Cash distribution $ 13,794 $ 13,806 $ 15,226 $ 17,384 $ 17,467
Cash distribution representing
a return of capital to the limited
partners $ 13,104 $ 7,810 $ 13,781 $ 8,152 $ 9,176
Per weighted-average limited partnership unit:
Net income (loss) $ (0.03)(1) $ 0.65(1) $ 0.08(1) $ 1.01(1) $ 0.89(1)
Cash distribution $ 1.60 $ 1.60 $ 1.76 $ 2.00 $ 2.00
Cash distribution representing
a return of capital $ 1.60 $ 0.95 $ 1.68 $ 0.99 $ 1.11
- ----------
(1) After reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.7 million ($0.08 per weighted-average depositary
unit) in 2000, $0.4 million ($0.04 per weighted-average depositary unit) in
1999, $0.7 million ($0.08 per weighted-average depositary unit) in 1998, $0.4
million ($0.04 per weighted-average depositary unit) in 1997, and $0.5 million
($0.05 per weighted-average depositary unit) in 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to re-pricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be re-marketed. 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 railcar,
trailer, marine vessel, aircraft, and marine container portfolios.
(a) Railcars: This equipment experienced significant re-leasing activity.
Lease rates in this market are showing signs of weakness and this has led to
lower utilization and lower contribution to the Partnership as existing leases
expire and renewal leases are negotiated.
(b) Trailers: The Partnership's trailer portfolio operates 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 49% of the
Partnership's trailers during 2000.
(c) Marine vessels: Certain of the Partnership's marine vessels operate in
the voyage charter market or the 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.
(d) Aircraft: Two of the Partnership's aircraft leases are due to expire
during 2001 exposing them to re-leasing and repricing risk. One of the
Partnership's Stage II commercial aircraft which is scheduled to be sold during
2001, was off lease during 2000.
(e) Marine containers: Some of the Partnership's marine containers are
leased to operators of utilization-type leasing pools and, as such, are highly
exposed to repricing activity. The increase in marine container contributions in
2000 compared to 1999 was due to equipment purchases. 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 a reduction of contribution to the
Partnership. During the year, the Partnership disposed of owned equipment that
included marine vessels, marine containers, trailers, and railcars for total
proceeds of $9.1 million. The Partnership also received additional sale proceeds
of $0.1 million from the sale of its interest in an entity that owned a mobile
offshore drilling unit during 1999.
(3) Nonperforming Lessees
Lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the lease terms, can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 2000:
(i) Two former India lessees are having financial difficulties. The General
Partner has initiated litigation in various official forums in India against the
defaulting Indian airline lessees to recover damages for failure to pay rent and
failure to maintain such property in accordance with relevant lease contracts.
During 2000, the total amount of $2.2 million due from these lessees which had
been previously reserved for as a bad debt, was written off as it was determined
to be uncollectible based on the financial status of the lessees. The
Partnership has repossessed its property previously leased to these airlines.
(ii)Trans World Airlines (TWA), a current lessee, filed for bankruptcy
protection under Chapter 11 in January 2001. As of December 31, 2000, TWA is
current with its lease payments. American Airlines (AA) has proposed an
acquisition of TWA that is being reviewed by the United States Justice
Department. Contingent upon AA's acquisition of TWA, the General Partner has
accepted an offer from AA to extend the existing leases up to 84 months at the
current market monthly rate.
(4) 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 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 $0.4 million and
$3.6 million to the carrying value of owned equipment were required during 2000
and 1999, respectively. Reductions of $4.3 million and $1.0 million to the
carrying value of owned equipment and partially owned equipment, respectively,
were required during 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 $166.1 million and permanent
debt financing of $30.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement. The Partnership's total outstanding indebtedness,
currently $30.0 million, can only be increased by a maximum of $5.0 million,
subject to specific covenants in existing debt agreements.
The Partnership relies on operating cash flow to meet its operating obligations
and to make cash distributions.
For the year ended December 31, 2000, the Partnership generated $12.1 million in
operating cash (net cash provided by operating activities plus non-liquidating
cash distributions from USPEs) to meet its operating obligations and make
distributions of $13.8 million to the partners, but also used undistributed
available cash from prior periods and asset sales proceeds of approximately $1.7
million.
Accounts receivable increased $0.6 million during 2000. The increase was due to
the reduction of the amount in the allowance for bad debts. The reduction was
caused by amounts the Partnership owes to the lessee being offset against
receivables due from the lessee which had been previously reserved for as a bad
debt.
Investments in USPEs decreased $6.6 million during 2000 due to the transfer of
the Partnership's interest in an entity that owned marine containers with a net
book value of $1.9 million to owned equipment, cash distributions of $2.8
million to the Partnership from the USPEs, and a $1.9 million loss that was
recorded from operations from its equity interests in USPEs.
Accounts payable decreased $0.9 million due to the payment of $0.9 million in
2000 for marine containers that were purchased in 1999 and included as accounts
payable at December 31, 1999.
Due to affiliates increased $0.5 million during 2000 due to an increase of $0.3
million due to an affiliated USPE for engine reserves and $0.2 million due to an
affiliated USPE for security deposits.
The Partnership entered into an agreement to issue a long-term note totaling
$30.0 million to two institutional investors in August 1993. The note bears
interest at a fixed rate of 6.7% per annum and has a final maturity in 2003.
Interest on the note is payable monthly. The note is scheduled to be repaid in
three principal payments of $10.0 million on November 17, 2001, 2002, and 2003.
The Partnership's wholly and partially owned equipment is used as collateral to
the note.
The Partnership's warehouse facility, which was shared with PLM Equipment Growth
& Income Fund VII, Professional Lease Management Income Fund I, LLC, and TEC
Acquisub, Inc., an indirect wholly owned subsidiary of the General Partner,
expired on September 30, 2000. The General Partner is currently negotiating with
a new lender for a $15.0 million warehouse credit facility with similar terms as
the facility that expired. The General Partner believes the facility will be
completed during the first half of 2001.
Pursuant to the terms of the limited partnership agreement, beginning December
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 for such units will be equal to 110% of the unrecovered
principal attributed to the units. Unrecovered principal is defined as the
excess of the capital contribution attributable to a unit over the distributions
from any source paid with respect to that unit. The General Partner has decided
that it would not purchase Partnership units under the terms of the
Partnership's limited partnership agreement 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.
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(D) Results of Operations - Year-to-Year Detailed Comparison
In September 1999, PLM Financial Services, Inc. (FSI or the General Partner),
amended the corporate-by-laws of certain USPEs in which the Partnership, or any
affiliated program, owns an interest greater than 50%. The amendment to the
corporate-by-laws provided that all decisions regarding the acquisition and
disposition of the investment as well as other significant business decisions of
that investment would be permitted only upon unanimous consent of the
Partnership and all the affiliated programs that have an ownership in the
investment (the Amendment). As such, although the Partnership may own a majority
interest in a USPE, the Partnership does not control its management and thus the
equity method of accounting was used after adoption of the Amendment. As a
result of the Amendment, as of September 30, 1999, all jointly owned equipment
in which the Partnership owned a majority interest, which had been consolidated,
was reclassified to investments in USPEs. Lease revenues and direct expenses for
jointly owned equipment in which the Partnership held a majority interest were
reported under the consolidation method of accounting during the nine months
ended September 30, 1999 and were included with the owned equipment operations.
For the three months ended December 31, 1999 and twelve months ended December
31, 2000, lease revenues and direct expenses for these entities are reported
under the equity method of accounting and are included with the operations of
the USPEs.
(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
---------------------------
Marine containers $ 4,686 $ 2,317
Railcars 3,281 3,722
Aircraft, aircraft engines, and components 2,722 3,649
Trailers 1,415 2,021
Marine vessels 1,276 3,527
Marine containers: Marine container lease revenues and direct expenses were $4.7
million and $20,000, respectively, for the year ended December 31, 2000,
compared to $2.3 million and $-0-, respectively, during the same period of 1999.
An increase in lease revenues of $2.2 million during the year ended December 31,
2000 was due to the purchase of marine containers during the second and fourth
quarters of 1999. In addition, lease revenues increased $0.2 million due to the
transfer of the Partnership's investment in an entity that owned marine
containers from a USPE to owned equipment during the third quarter 2000.
Railcars: Railcar lease revenues and direct expenses were $4.3 million and $1.0
million, respectively, for the year ended December 31, 2000, compared to $4.6
million and $0.8 million, respectively, during the same period of 1999. The
decrease in railcar lease revenues of $0.3 million was primarily due to the
increase in the number of off-lease railcars during the year ended December 31,
2000 when compared to the same period of 1999. The increase in direct expenses
of $0.2 million during the year ended December 31, 2000 was due to higher repair
costs when compared to the same period of 1999
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $2.8 million and $0.1 million, respectively, for the year ended
December 31, 2000, compared to $4.5 million and $0.8 million, respectively,
during the same period of 1999. A decrease in aircraft lease revenues of $1.6
million and direct expenses of $0.1 million was due to the sale of a Boeing
767-200ER Stage III commercial aircraft during 1999. An additional decrease of
$0.1 million in lease revenues was due to a Boeing 737-200 that was off-lease
during the year ended December 31, 2000 that was on-lease for one month 1999. A
decrease in direct expenses of $0.7 million during the year ended December 31,
2000, was due to repairs to the off-lease Boeing 737-200 during 1999 that were
not required during the same period of 2000.
Trailers: Trailer lease revenues and direct expenses were $2.1 million and $0.7
million, respectively, for the year ended December 31, 2000, compared to $2.8
million and $0.8 million, respectively, during the same period of 1999. The
decrease in lease revenues of $0.7 million and direct expenses of $0.1 million
was due to the sale of 49% of the Partnership's trailer fleet during the year
2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.6
million and $2.3 million, respectively, for the year ended December 31, 2000,
compared to $9.8 million and $6.3 million, respectively, during the same period
of 1999.
The September 30, 1999 Amendment that changed the accounting method of
majority-held equipment from the consolidation method of accounting to the
equity method of accounting impacted the reporting of lease revenues and direct
expenses of one marine vessel. As a result of the Amendment, during the year
ended December 31, 2000, lease revenues decreased $3.5 million and direct
expenses decreased $1.9 million when compared to the same period of 1999.
In addition, lease revenues declined $2.4 million and direct expenses declined
$1.1 million as a result of the sale of two of the Partnership's wholly owned
marine vessels during 2000 and 1999. Lease revenues declined an additional $0.3
million due to lower lease rates earned on two wholly owned marine vessels.
Direct expenses also decreased an additional $0.9 million on the two remaining
wholly owned marine vessels due to a decrease in repairs required during the
year ended December 31, 2000 when compared to the same period of 1999.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $13.4 million for the year ended December 31, 2000
decreased from $26.5 million for the same period in 1999. Significant variances
are explained as follows:
(i) A $8.1 million decrease in depreciation and amortization expenses from
1999 levels reflects the decrease of approximately $3.0 million caused by the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned, a decrease of $1.4 million
due to the sale of certain equipment during 2000 and 1999, and a decrease of
$4.8 million as a result of the Amendment which changed the accounting method
used for majority-held equipment from the consolidation method of accounting to
the equity method of accounting. These decreases were offset, in part, by an
increase of $1.0 million in depreciation and amortization expenses resulting
from the purchase of additional equipment during 1999 and an increase of $0.1
million from the transfer of the Partnership's interest in an entity that owned
marine containers from a USPE portfolio to owned equipment during 2000.
(ii)Loss on revaluation decreased $3.2 million during the year ended
December 31, 2000 when compared to the same period of 1999. During 2000, a loss
on revaluation of $0.4 million resulted from the reduction of the carrying value
of a Boeing 737-200 commercial aircraft to its estimated net realizable value.
During 1999, a loss on revaluation of $3.6 million was recorded for marine
vessels.
(iii) Provision for bad debts decreased $1.3 million during the year ended
December 31, 2000. The decrease resulted from the General Partner's evaluation
of the collectability of past due accounts receivables being lower by $0.7
million when compared to the same period of 1999 and the offset of a receivable
that had previously been reserved for as a bad debt offset against $0.6 million
due from the Partnership to this lessee.
(iv)A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2000 when
compared to the same period of 1999.
(v) A $0.1 million decrease in interest expense was due to a lower average
short-term borrowings outstanding during the year ended December 31, 2000 when
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 $2.1 million, and resulted from the sale of marine vessels,
marine containers, trailers, and railcars with an aggregate net book value of
$7.3 million, for proceeds of $9.1 million and unused drydocking reserves on
sold marine vessels of $0.3 million. The net gain on the disposition of owned
equipment for the year ended December 31, 1999 totaled $26.0 million, and
resulted from the sale of a marine vessel, marine containers, trailers, and
railcars, with an aggregate net book value of $7.9 million, for $9.3 million and
a Boeing 767-200ER Stage III commercial aircraft with a net book value of $15.6
million for $40.1 million which includes $3.6 million of unused engine reserves.
(d) Minority Interests
Minority interests decreased $7.9 million in the year ended December 31, 2000
when compared to the same period of 1999 due to the September 30, 1999 Amendment
that changed the accounting method of majority-held equipment from the
consolidation method of accounting to the equity method of accounting.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
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 Year
Ended December 31,
2000 1999
------------------------------
Mobile offshore drilling unit $ 85 $ 271
Marine containers 44 5
Marine vessels (548 ) (1,029 )
Aircraft (1,485 ) (250 )
------------ ------------
Equity in net loss of USPEs $ (1,904 ) $ (1,003 )
============ ============
Mobile offshore drilling unit: The Partnership's interest in an entity that
owned a mobile offshore drilling unit was sold during the fourth quarter of
1999. During the year ended December 31, 2000, additional sales proceeds of $0.1
million were paid to the entity. During the year ended December 31, 1999, lease
revenues of $1.2 million were offset by the loss of $0.3 million from the sale
of this entity and depreciation expense, direct expenses, and administrative
expenses of $0.6 million.
Marine containers: As of December 31, 2000, the Partnership's interest in an
entity that owned marine containers had been transferred to the Partnership's
owned equipment. As of December 31, 1999, the Partnership owned an interest in
an entity that owned marine containers. During the year ended December 31, 2000,
lease revenues of $0.3 million were offset by depreciation expense, direct
expenses, and administrative expenses of $0.2 million. During the year ended
December 31, 1999, lease revenues of $0.5 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.4 million. Marine
containers contribution increased $39,000 during the year ended December 31,
2000 when compared to the same period of 1999 due primarily to the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
Marine vessels: During the year ended December 31, 2000, lease revenues of $3.5
million were offset by depreciation expense, direct expenses, and administrative
expenses of $4.1 million. During the same period of 1999, lease revenues of $1.6
million were offset by depreciation expense, direct expenses, and administrative
expenses of $2.7 million.
An increase in marine vessel lease revenues of $1.9 million and depreciation
expense, direct expenses, and administrative expenses of $1.7 million during the
year ended December 31, 2000, was caused by the September 30, 1999 Amendment
that changed the accounting method of majority-held equipment from the
consolidation method of accounting to the equity method of accounting for one
marine vessel. The lease revenues and depreciation expense, direct expenses, and
administrative expenses for the majority-owned marine vessel were reported under
the consolidation method of accounting under Owned Equipment Operations during
the first nine months of the year ended December 31, 1999.
Marine vessel lease revenues decreased $0.1 million during the year ended
December 31, 2000 due to one marine vessel earning lower lease revenues due to a
four-week repositioning voyage during which the marine vessel did not earn any
lease revenues. In addition, as a result of the repositioning, direct expenses
also decreased an $0.2 million due to lower operating costs during the year
ended December 31, 2000 when compared to the same period of 1999. The decrease
in lease revenues caused by the repositioning, was off set by the other marine
vessel earning $0.1 million in additional lease revenues due to earning a higher
lease rate during all of 2000 when compared to the same period of 1999.
Aircraft: As of December 31, 2000 and 1999, the Partnership owned an interest in
two commercial aircraft on a direct finance lease and a Boeing 737-300
commercial aircraft. During the year ended December 31, 2000, revenues of $1.5
million were offset by depreciation expense, direct expenses, and administrative
expenses of $3.0 million. During the same period of 1999, revenues of $0.7
million were offset by direct expenses and administrative expenses of $1.0
million.
An increase in aircraft lease revenues of $0.9 million and depreciation expense,
direct expenses, and administrative expenses of $2.2 million during the year
ended December 31, 2000, was caused by the September 30, 1999 Amendment that
changed the accounting method of majority-held equipment from the consolidation
method of accounting to the equity method of accounting for a Boeing 737-300
commercial aircraft. The depreciation expense, direct expenses, and
administrative expenses for the majority owned Boeing 737-300 commercial
aircraft were reported under the consolidation method of accounting under Owned
Equipment Operations during the first nine months of the year ended December 31,
1999.
The increase in expenses caused by the investment in a trust owning a Boeing
737-300 was partially offset by a $0.1 million collection of an accounts
receivable that had previously been written-off as a bad debt. A similar event
did not occur during the same period of 1999.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 2000 was $0.4 million, compared to a net income of $6.0 million
during the same period of 1999. The Partnership's ability to operate assets,
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors. Therefore, the Partnership's performance in the year
ended December 31, 2000 is not necessarily indicative of future periods. In the
year ended December 31, 2000, the Partnership distributed $13.1 million to the
limited partners, or $1.60 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
(a) Owned Equipment Operations
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous consent of the Partnership and all the affiliated programs that
have an ownership in the investment (the Amendment). As such, although the
Partnership may own a majority interest in a USPE, the Partnership does not
control its management and thus the equity method of accounting will be used
after adoption of the amendment. As a result of the amendment, as of September
30, 1999, all jointly owned equipment in which the Partnership owned a majority
interest, which had been consolidated, was reclassified to investments in USPEs.
Lease revenues and direct expenses for jointly owned equipment in which the
Partnership held a majority interest were reported under the consolidation
method of accounting during the nine months ended September 30, 1999 and were
included with the owned equipment operations. For the three months ended
December 31, 1999, lease revenues and direct expenses for these entities are
reported under the equity method of accounting and are included with the
operations of the USPEs.
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 year
ended 1998.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
1999 1998
----------------------------
Railcars $ 3,722 $ 3,254
Aircraft, aircraft engines, and components 3,649 7,907
Marine vessels 3,527 4,640
Marine containers 2,317 911
Trailers 2,021 2,478
Railcars: Railcar lease revenues and direct expenses were $4.6 million and $0.8
million, respectively, for the year ended December 31, 1999, compared to $4.1
million and $0.9 million, respectively, for the same period of 1998. The
increase in railcar lease revenues was due to the purchase of a portfolio of
railcars during the fourth quarter of 1998. These railcars were on lease the
entire 1999 year compared to being on lease for less than two weeks in 1998.
Railcar contribution also increased due to lower repairs required during 1999
when compared to the same period of 1998.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $4.5 million and $0.8 million, respectively, for the year ended
December 31, 1999, compared to $9.1 million and $1.2 million, respectively,
during the same period of 1998. The decrease in aircraft lease revenues of $1.1
million was due to a Boeing 737-200 being off-lease during the entire year of
1999 that was on-lease for 10 months of 1998. Additionally, aircraft lease
revenues decreased $3.5 million due to the sale of a Boeing 767-200ER Stage III
commercial aircraft in June 1999. Direct expenses decreased $0.5 million due to
required repairs to the Boeing 737-200 and 767-200 in 1998 that were not
required in 1999.
Marine vessels: Marine vessel lease revenues and direct expenses were $9.8
million and $6.3 million, respectively, for the year ended December 31, 1999,
compared to $10.7 million and $6.1 million, respectively, during the same period
of 1998. The purchase of two marine vessels during 1998 and 1999 generated $2.2
million in additional lease revenues. During the end of 1998, two marine vessels
ended their existing lease with a lessee that was paying the Partnership a fixed
lease rate that was 70% above freight market rates in effect at that time. When
these two vessels went on voyage charter during the year of 1999, lease revenues
decreased $1.1 million due to a decline in the comparative lease rates.
Direct expenses from the two marine vessels purchased during 1999 and 1998
increased $1.1 million, while the existing marine vessels saw a decline of $0.3
million in repairs and maintenance due to fewer required repairs.
The September 30, 1999 Amendment which changed the accounting treatment of
majority-held equipment from the consolidation method of accounting to the
equity method of accounting affected the lease revenues and direct expenses of
one marine vessel. Lease revenues for the Partnership's majority-held marine
vessel decreased $2.0 million for the year ended December 31, 1999 when compared
to the same period of 1998. The decline in lease revenues of $1.3 million was
caused by a decline in lease rates and the decline of $0.7 million was caused by
the Amendment. Direct expenses for the Partnership's majority-held marine vessel
also decreased $0.6 million due to the Amendment.
Marine containers: Marine container lease revenues and direct expenses were $2.3
million and $-0-, respectively, for the year ended December 31, 1999, compared
to $0.9 million and $13,000, respectively, during the same period of 1998. The
increase in marine container lease revenues of $1.4 million was primarily due to
the purchase of a portfolio of marine containers during 1999 and the fourth
quarter of 1998, and an increase in marine container utilization. The marine
containers purchased during 1998 were on-lease the entire year of 1999 compared
to only one month of 1998.
Trailers: Trailer lease revenues and direct expenses were $2.8 million and $0.8
million, respectively, for the year ended December 31, 1999, compared to $3.3
million and $0.8 million, respectively, during the same period of 1998. During
1999, certain dry trailers transitioned 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 during the year ended December
31, 1999 when compared to the same period of 1998. In addition, the number of
trailers owned by the Partnership declined during 1999 and 1998 due to sales and
dispositions. The result of this declining fleet has been a decrease of
approximately $0.4 million in trailer contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $26.5 million for the year ended December 31, 1999
decreased from $30.9 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $4.1 million decrease in depreciation and amortization expenses from
1998 levels reflects the decrease of $5.9 million caused by the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned, a decrease of $2.2 million due to the sale of
certain equipment during 1999 and 1998, and a decrease of $0.8 million as a
result the Amendment. These decreases were offset in part, by an increase of
$4.8 million in depreciation and amortization expenses resulting from the
purchase of additional equipment during 1999.
(ii)Loss on revaluation of marine vessels and marine containers decreased
$0.7 million during the year ended December 31, 1999 when compared to the same
period of 1998. During 1999, a loss on revaluation of $3.6 million was recorded
for marine vessels compared to $4.1 million during the same period of 1998. A
loss on revaluation of $-0- during 1999 and $0.2 million during 1998 was
recorded for marine containers.
(iii) A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 1999 when
compared to the same period of 1998.
(iv)A $0.1 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(v) A $0.7 million increase in the provision for bad debts reflects the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 1999 totaled $26.0 million, and resulted from the sale of a marine vessel,
marine containers, trailers, and railcars, with an aggregate net book value of
$7.9 million, for $9.3 million. In addition, the Partnership also sold a
commercial aircraft with a net book value of $15.6 million for $40.1 million
which includes $3.6 million of unused engine reserves. The net gain on the
disposition of owned equipment for the year ended December 31, 1998 totaled $6.3
million, and resulted from the sale of a commercial aircraft, an aircraft
engine, marine containers, trailers, and railcars, with an aggregate net book
value of $6.1 million, for $12.4 million which included $1.4 million of unused
engine reserves.
(d) Minority interests
Minority interests increased $7.7 million in 1999 when compared to 1998
primarily due to the $24.4 million gain on the sale of the Partnership's
aircraft of which the minority's share of the gain was $8.8 million. The
increase caused by the sale was offset in part, by a decrease of $2.2 million in
the minority's share of lease revenues, and a decrease of $1.1 million in the
minority's share of direct and indirect expenses during the year ended December
31, 1999 when compared to the same period of 1998, as it relates to the
minority's percentage of ownership in these interests.
(e) Interest and other income
Interest and other income decreased $0.5 million in 1999 due to lower average
cash balances available for investments when compared to the same period of
1998.
(f) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1999 1998
----------------------------
Mobile offshore drilling unit $ 271 $ 243
Marine containers 5 (20)
Aircraft (250) 7,841
Marine vessels (1,029) (1,599)
------------ ------------
Equity in net income (loss) of USPEs $ (1,003) $ 6,465
============ ============
Mobile offshore drilling unit: During 1999 and as of December 31, 1998, the
Partnership owned an interest in an entity that owned a mobile offshore drilling
unit. During the year ended December 31, 1999, lease revenues of $1.2 million
were offset by the loss of $0.3 million from the sale of this entity and
depreciation expense, direct expenses, and administrative expenses of $0.6
million. During the same period of 1998, lease revenues of $1.2 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$1.0 million. Direct expenses from this equipment decreased $0.3 million during
1999, when compared to the same period of 1998, due to lower depreciation
expense caused by the double-declining balance method of depreciation. The
double-declining balance method of depreciation results in greater depreciation
in the first years an asset is owned.
Marine containers: As of December 31, 1999 and 1998, the Partnership owned an
interest in an entity that owns marine containers. During the year ended
December 31, 1999, lease revenues of $0.5 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.4 million. During
the same period of 1998, revenues of $0.1 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.1 million. The
Partnership purchased the interest in this entity during September 1998. The
year ended December 31, 1999 represents a full year of lease revenues,
depreciation expense, direct expenses, and administrative expenses when compared
to four months of revenues and expenses during the same period of 1998.
Aircraft: As of December 31, 1999, the Partnership owned an interest in two
commercial aircraft on a direct finance lease and an interest in a Boeing
737-300 commercial aircraft. As of December 31, 1998, the Partnership owned an
interest in two commercial aircraft on a direct finance lease. During the year
ended December 31, 1999, revenues of $0.7 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.0 million. During
the same period of 1998, revenues of $1.8 million and the gain of $6.9 million
from the sale of an interest in a trust that held four commercial aircraft, were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.8 million. The decrease in revenues of $1.0 million during the year ended
December 31, 1999, was due to the sale of the Partnership's investment in a
trust owning four commercial aircraft during 1998. The Partnership's investment
in a trust owning a Boeing 737-300 during 1999 did not generate any lease
revenues. The increase of $0.2 million in depreciation expense, direct expenses,
and administrative expenses was caused by the purchase of an interest in a
Boeing 737-300 during 1999.
Marine vessels: As of December 31, 1999, the Partnership owned an interest in
entities that own a total of three marine vessels. As of December 31, 1998, the
Partnership owned an interest in entities that own a total of two marine
vessels. During the year ended December 31, 1999, revenues of $1.6 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.7 million. During the same period of 1998, revenues of $1.5 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.1 million and a loss on the revaluation of a marine vessel of $1.0 million.
The increase in lease revenues of $0.1 million was primarily due to the
September 30, 1999 Amendment which changed the accounting treatment of
majority-held equipment from the consolidation method of accounting to the
equity method of accounting affected the lease revenues and direct expenses of
one marine vessel. The Amendment that caused lease revenues to increase $0.4
million for a marine vessel was offset in part, by a decrease of $0.2 million
earned on the two other marine vessels due to lower lease rates.
The increase in depreciation expense, direct expenses, and administrative
expenses of $0.6 million was primarily due to the September 30, 1999 Amendment.
The Amendment caused depreciation expense, direct expenses, and administrative
expenses to increase $1.0 million for one marine vessel. The increase in these
expenses was offset in part, by a decrease of $0.3 million from the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned. Repairs and maintenance to
the marine vessels also decreased $0.1 million during the year ended December
31, 1999, due to fewer repairs required when compared to the same period of
1998.
Additionally, there was no loss on the revaluation of marine vessels required
during the year ended December 31, 1999.
(g) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1999 was $6.0 million, compared to net income of $1.4 million
during the same period of 1998. The Partnership's ability to operate, and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the year ended
December 31, 1999 is not necessarily indicative of future periods. In the year
ended December 31, 1999, the Partnership distributed $13.1 million to the
limited partners, or $1.60 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in 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 (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment on lease to U.S.- domiciled lessees consists
of aircraft, trailers and railcars. During 2000, U.S. lease revenues accounted
for 31% of the total lease revenues of wholly and partially owned equipment
while this region reported net income of $3.5 million including a gain of $1.8
million from the sale of 49% of the Partnership's trailers.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars. During 2000, Canadian lease revenues accounted for 9% of
the total lease revenues of wholly and partially owned equipment, while this
region reported net income of $0.9 million.
The Partnership's owned equipment that was on lease to lessees domiciled in
Europe consists of a portfolio of aircraft rotables. Lease revenues in this
region accounted for 2% of the total lease revenues of wholly and partially
owned equipment, while this region reported net income of $0.1 million.
The Partnership's investment in equipment owned by a USPE on lease to a lessee
domiciled in Iceland consists of an aircraft. During 2000, Icelandic lease
revenues accounted for 4% of the total lease revenues of wholly and partially
owned equipment while this region reported net loss of $2.1 million. The primary
reasons for this loss were due to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned, repairs and maintenance to the aircraft during 2000, and the aircraft
being off-lease for the first six months of 2000.
The Partnership's owned equipment that was on lease to lessees domiciled in
India consists of aircraft. No lease revenues were reported in this region while
this region reported net loss of $0.5 million. The primary reason for the loss
was due to the $0.4 million loss recorded on the revaluation of this aircraft to
it's estimated carrying value.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels and marine
containers. During 2000, lease revenues from these operations accounted for 55%
of the total lease revenues of wholly and partially owned equipment, while
reporting net income from these operations of $0.7 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 holding or passive liquidation phase, the
General Partner will be seeking to selectively re-lease or sell assets as the
existing leases expire. Sale decisions will cause the operating performance of
the Partnership to decline over the remainder of its life.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent upon many factors,
such as specific market conditions and economic activity, technological
obsolescence, and government or other regulations. The unpredictability of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continuously monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General Partner
may make an evaluation to reduce the Partnership's exposure to those equipment
markets in which it determines that it cannot operate equipment and achieve
acceptable rates of return.
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.
Other factors affecting the Partnership's contribution during the year 2001 and
beyond include:
(i) Railcar loadings in North America have continued to be high, however a
softening in the market has led to lower utilization and lower contribution to
the Partnership as existing leases expire and renewal leases are negotiated.
(ii) The cost of new marine containers has been at historic lows for the past
several years which has caused downward pressure on per diem lease rates.
Recently, the cost of marine containers have started to increase which, if this
trend continues, should translate into rising per diem lease rates.
(iii) Marine vessel bulk-carrier freight rates are dependent upon the overall
condition of the international economy. Three of the Partnership's marine
vessels have leases that will expire during 2001. Freight rates earned by the
Partnership's other marine vessel began to increase during the later half of
2000 and, in the absence of new additional orders, would be expected to continue
to show improvement and stabilize over the next one to two years.
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 aircraft, 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 General Partner may select to sell certain
underperforming equipment or equipment whose continued operation may become
prohibitively expensive. In either case, the General Partner intends to re-lease
or sell equipment at prevailing market rates; however, the General Partner
cannot predict these future rates with any certainty at this time and cannot
accurately assess the effect of such activity on future Partnership performance.
(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 U.S. and internationally, cannot be predicted with any
accuracy and preclude the General Partner from determining the impact of such
changes on Partnership operations, purchases, 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 U.S. unless that aircraft has
been shown to comply with Stage III noise levels. The Partnership has a Stage II
aircraft that does not meet Stage III requirements. This Stage II aircraft is
scheduled to be sold. 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 315 non-jacketed tank railcars
and 231 jacketed tank railcars of which a total of 29 tank railcars have been
inspected with no reportable defects.
(I) Distribution Levels
Pursuant to the limited partnership agreement, the Partnership stopped
reinvesting in additional equipment beginning in its seventh year of operation,
which commenced on January 1, 2000. The General Partner intends to pursue a
strategy of selectively re-leasing equipment to achieve competitive returns, or
selling equipment that is underperforming or whose operation becomes
prohibitively expensive, in the period prior to the final liquidation of the
Partnership. During this time, the Partnership will use operating cash flow and
proceeds from the sale of equipment to meet its operating obligations and make
distributions to the partners. Although the General Partner intends to maintain
a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing distribution levels. In the long term, changing
market conditions and used-equipment values may preclude the General Partner
from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainty
at this time.
The General Partner will evaluate the level of distributions the Partnership can
sustain over extended periods of time and, together with other considerations,
may adjust the level of distributions accordingly. In the long term, the
difficulty in predicting market conditions precludes the General Partner from
accurately determining the impact of changing market conditions on liquidity or
distribution levels.
The Partnership's permanent debt obligation begins to mature in November 2001.
The General Partner believes that sufficient cash flow 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 currency devaluation
risk. During 2000, 69% 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 in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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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,
Director of PLM Financial Services, Inc.
Richard K Brock 38 Vice President and Chief Financial Officer,
PLM Financial Services, Inc.,
PLM Investment Management, Inc. and
PLM Transportation Equipment Corporation,
Director of PLM Financial Services, Inc.
Susan C. Santo 38 Vice President, Secretary, and General Counsel,
PLM Financial Services, Inc.,
Director of 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 executive
officer or director of the General Partner and its affiliates owned
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, $0.7 million.
During 2000, the Partnership's proportional share of ownership in
USPEs paid or accrued the following fees to FSI or its affiliates
(based on the Partnership's proportional share of ownership):
management fees, $0.3 million; administrative and data processing
services, $46,000.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1.Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form
10-K.
2.Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as Exhibits of this
Annual Report on Form 10-K:
a. Canadian Air Trust #3
b. Spear Partnership
c. Boeing 737-200 Trust S/N 24700
(B) Financial Statement Schedules
Schedule II Valuation Accounts
All other financial statement schedules have been omitted, as the
required information is not pertinent to the registrant or is not
material, or because the information required is included in the
financial statements and notes thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Partnership, incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which became
effective with the Securities and Exchange Commission on December 23,
1991.
10.2 Note Agreement, dated as of August 1, 1993, regarding $30.0 million
in 6.7% senior notes due November 17, 2003, incorporated by reference
to the Partnership's Annual Report on Form 10-K dated December 31,
1993 filed with the Securities and Exchange Commission on March 25,
1994.
24. Powers of Attorney.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Canadian Air Trust #3.
99.2 Spear Partnership
99.3 Boeing 737-200 Trust S/N 24700
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 22, 2001 PLM EQUIPMENT GROWTH FUND VI
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 22, 2001
*_______________________
Richard K Brock Director, FSI March 22, 2001
*_______________________
Susan C. Santo Director, FSI March 22, 2001
*Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
- --------------------------------
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
PAGE
----
Independent auditors' report 31
Balance sheets as of December 31, 2000 and 1999 32
Statements of income for the years ended
December 31, 2000, 1999, and 1998 33
Statements of changes in partners' capital for the
years ended December 31, 2000, 1999, and 1998 34
Statements of cash flows for the years ended
December 31, 2000, 1999, and 1998 35
Notes to financial statements 36-49
Independent auditors' report on financial statement schedule 50
Schedule II Valuation Accounts 51
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund VI (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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund VI as
of December 31, 2000 and 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 VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
2000 1999
-----------------------------------
ASSETS
Equipment held for operating leases $ 67,292 $ 85,318
Less accumulated depreciation (36,829) (39,250)
-----------------------------------
30,463 46,068
Equipment held for sale 1,042 --
-----------------------------------
Net equipment 31,505 46,068
Cash and cash equivalents 9,226 2,669
Accounts receivable, less allowance for doubtful accounts of
$402 in 2000 and $2,416 in 1999 1,979 1,397
Investments in unconsolidated special-purpose entities 21,106 27,736
Lease negotiation fees to affiliate, less accumulated
amortization of $178 in 2000 and $175 in 1999 56 156
Debt issuance costs, less accumulated amortization
of $106 in 2000 and $91 in 1999 46 61
Debt placement fees to affiliate, less accumulated
amortization of $104 in 2000 and $89 in 1999 44 59
Prepaid expenses and other assets 101 58
-----------------------------------
Total assets $ 64,063 $ 78,204
===================================
Liabilities and partners' capital
Liabilities
Accounts payable and accrued expenses $ 1,171 $ 2,106
Due to affiliates 821 342
Lessee deposits and reserve for repairs 449 735
Note payable 30,000 30,000
-----------------------------------
Total liabilities 32,441 33,183
-----------------------------------
Partners' capital
Limited partners (limited partnership units of 8,189,465 and
8,191,718 as of December 31, 2000 and 1999, respectively) 31,622 45,021
General Partner -- --
-----------------------------------
Total partners' capital 31,622 45,021
-----------------------------------
Total liabilities and partners' capital $ 64,063 $ 78,204
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(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 $ 17,526 $ 23,988 $ 28,122
Interest and other income 253 270 765
Net gain on disposition of equipment 2,147 25,951 6,253
------------------------------------------------
Total revenues 19,926 50,209 35,140
------------------------------------------------
EXPENSES
Depreciation and amortization 8,927 17,001 21,085
Repairs and maintenance 1,956 4,183 5,114
Equipment operating expenses 2,034 3,974 3,507
Insurance expense to affiliate -- -- (231)
Other insurance expenses 195 642 605
Management fees to affiliate 963 1,261 1,538
Interest expense 2,029 2,108 2,061
General and administrative expenses
to affiliates 659 850 1,007
Other general and administrative expenses 1,193 1,084 1,046
Loss on revaluation of equipment 374 3,567 4,276
(Recovery of) provision for bad debts (720) 591 (75)
------------------------------------------------
Total expenses 17,610 35,261 39,933
------------------------------------------------
Minority interests -- (7,949) (227)
Equity in net income (loss) of unconsolidated
special-purpose entities (1,904) (1,003) 6,465
------------------------------------------------
Net income $ 412 $ 5,996 $ 1,445
================================================
Partners' share of net income (loss)
Limited partners $ (278) $ 5,305 $ 666
General Partner 690 691 779
------------------------------------------------
Total $ 412 $ 5,996 $ 1,445
================================================
Limited partner's net income (loss) per
weighted-average limited partnership unit $ (0.03) $ 0.65 $ 0.08
================================================
Cash distribution $ 13,794 $ 13,806 $ 15,226
================================================
Cash distribution per weighted-average
limited partnership unit $ 1.60 $ 1.60 $ 1.76
================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 2000, 1999, and 1998
(in thousands of dollars)
Limited General
Partners Partner Total
-----------------------------------------------------
Partners' capital as of December 31, 1997 $ 67,152 $ -- $ 67,152
Net income 666 779 1,445
Purchase of limited partnership units (417) -- (417)
Cash distribution (14,447) (779) (15,226)
-----------------------------------------------------
Partners' capital as of December 31, 1998 52,954 -- 52,954
Net income 5,305 691 5,996
Purchase of limited partnership units (123) -- (123)
Cash distribution (13,115) (691) (13,806)
-----------------------------------------------------
Partners' capital as of December 31, 1999 45,021 -- 45,021
Net income (loss) (278) 690 412
Purchase of limited partnership units (17) -- (17)
Cash distribution (13,104) (690) (13,794)
-----------------------------------------------------
Partners' capital as of December 31, 2000 $ 31,622 $ -- $ 31,622
=====================================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
2000 1999 1998
-----------------------------------------
OPERATING ACTIVITIES
Net income $ 412 $ 5,996 $ 1,445
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 8,927 17,001 21,085
Loss on revaluation of equipment 373 3,567 4,276
Net gain on disposition of equipment (2,147) (25,951) (6,253)
Equity in net (income) loss from unconsolidated special-purpose
entities 1,904 1,003 (6,465)
Changes in operating assets and liabilities:
Accounts receivable, net (578) 3,237 (1,316)
Prepaid expenses and other assets (43) (79) 91
Accounts payable and accrued expenses (49) 85 283
Due to affiliates 479 (70) (430)
Lessee deposits and reserve for repairs 59 (1,232) 863
Minority interests -- 1,268 (2,099)
-----------------------------------------
Net cash provided by operating activities 9,337 4,825 11,480
-----------------------------------------
Investing activities
Payments for purchase of equipment and capitalized repairs (955) (42,883) (31,739)
Investments in and equipment purchased and placed in
unconsolidated special-purpose entities -- (147) (3,778)
Distribution from unconsolidated special-purpose entities 2,760 2,318 3,425
Distribution from liquidation of unconsolidated special-purpose
entities 88 3,504 16,679
Payments of acquisition fees to affiliate -- (825) (1,486)
Payments for equipment acquisition deposits -- -- (668)
Principal payments received on direct finance lease -- 60 102
Payments of lease negotiation fees to affiliate -- (67) (330)
Proceeds from disposition of equipment 9,138 45,839 10,936
-----------------------------------------
Net cash provided by (used in) investing activities 11,031 7,799 (6,859)
-----------------------------------------
Financing activities
Proceeds from short-term note payable 600 4,712 --
Payments of short-term note payable (600) (4,712) --
Proceeds from short-term loan from affiliate -- 400 --
Payment of short-term loan to affiliate -- (400) --
Cash distribution paid to limited partners (13,104) (13,115) (14,447)
Cash distribution paid to General Partner (690) (691) (779)
Purchase of limited partnership units (17) (123) (417)
-----------------------------------------
Net cash used in financing activities (13,811) (13,929) (15,643)
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 6,557 (1,305) (11,022)
Cash and cash equivalents at beginning of year 2,669 3,974 14,996
-----------------------------------------
Cash and cash equivalents at end of year $ 9,226 $ 2,669 $ 3,974
=========================================
Supplemental information
Interest paid $ 2,029 $ 2,108 $ 2,018
=========================================
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entities $ 1,878 $ -- $ --
=========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. Basis of Presentation
ORGANIZATION
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991 to engage in the business of owning,
leasing or otherwise investing in primarily used transportation and related
equipment. PLM Financial Services, Inc. (FSI) is the General Partner of the
Partnership. FSI is a wholly owned subsidiary of PLM International, Inc. (PLM
International).
Beginning in the Partnership's seventh year of operations, which commenced on
January 1, 2000, the General Partner stopped reinvesting excess cash. Surplus
cash, less reasonable reserves, will be distributed to the Partners. Beginning
in the Partnership's ninth year of operations, which commences on January 1,
2002, the General Partner intends to begin an orderly liquidation of the
Partnership's assets. The Partnership will terminate on December 31, 2011,
unless terminated earlier upon sale of all equipment or by certain other events.
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 also entitled to receive a subordinated incentive fee after
the limited partners receive a minimum return on, and a return of, their
invested capital.
The General Partner has determined that it will not adopt a reinvestment plan
for the Partnership. Beginning November 24, 1995, 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 repurchased 2,253,
14,621, and 40,925 limited partnership units for $17,000, $0.1 million, and $0.4
million, respectively.
The General Partner has decided that it will 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 of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of
transportation equipment under agreements with investor programs, and is a
general partner of other programs.
ACCOUNTING FOR LEASES
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
ACCOUNTING FOR LEASES (CONTINUED)
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 is
changed 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. Major expenditures that are
expected to extend the useful lives or reduce future operating expenses of
equipment are capitalized and amortized over the estimated remaining life of the
equipment. Debt issuance costs and debt placement fees are amortized over the
term of the loan (see Note 7).
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" (SFAS 121), 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 $0.4
million and $3.6 million to the carrying value of owned equipment were required
during 2000 and 1999, respectively. Reductions of $4.3 million and $1.0 million
to the carrying value of owned equipment and partially owned equipment,
respectively, were required during 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. As of December 31, 2000 and 1999, the
Partnership owned a majority interest in two such entities. Prior to September
30, 1999, the Partnership controlled the management of these entities and thus
they were consolidated into the Partnership's financial statements. On September
30, 1999, the corporate-by-laws of these entities were changed to require a
unanimous vote by all owners on major business decisions. Thus, from September
30, 1999 forward, the Partnership no longer controlled the management of these
entities, and the accounting method for the entities was changed from the
consolidation method to the equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly owned subsidiary of
FSI and WMS is a wholly owned subsidiary of PLM International. The Partnership's
interest in USPEs are managed by IMI. The Partnership's equity interest
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (CONTINUED)
in the net income (loss) of USPEs is reflected net of management fees paid or
payable to IMI and the amortization of acquisition and lease negotiation fees
paid to TEC or WMS.
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are accrued as incurred. 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. 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 (LOSS) AND DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT
Net income is allocated to the General Partner to the extent necessary to cause
the General Partner's capital account to equal zero. The limited partners' net
income (loss) is allocated among the limited partners based on the number of
limited partnership units owned by each limited partner and on the number of
days of the year each limited partner is in the Partnership.
Cash distributions of the Partnership are allocated 95% to the limited partners
and 5% to the General Partner and may include amounts in excess of net income.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $13.1 million, $7.8
million, and $13.8 million in 2000, 1999, and 1998, respectively, were deemed to
be a return of capital.
Cash distributions related to the fourth quarter of 2000 of $1.4 million, and
1999 and 1998 of $2.0 million, were paid during the first quarter of 2001, 2000,
and 1999, respectively.
NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the year. The
weighted-average number of Partnership units deemed outstanding during the years
ended December 31, 2000, 1999, and 1998 was 8,189,891, 8,196,209, and 8,216,475,
respectively.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
1. BASIS OF PRESENTATION (CONTINUED)
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
market value due to the short-term nature of the investments.
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 2000, 1999, and 1998.
RECLASSIFICATION
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 1999 and 1998 presentation.
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 to either 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, and (c) 7%
of the gross lease revenues attributable to equipment for which IMI provides
both management and additional services relating to the continued and active
operation of program equipment, such as on-going marketing and re-leasing of
equipment, hiring or arranging for the hiring of crew or operating personnel for
equipment, and similar services. Partnership management fees payable were $0.1
million and $0.2 million as of December 31, 2000 and 1999, respectively. The
Partnership's proportional share of USPE management fees 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 during 2000 and $0.2 million
during 1999 and 1998. The Partnership reimbursed FSI $0.7 million, $0.9 million,
and $1.0 million in 2000, 1999, and 1998, respectively, for data processing and
administrative expenses directly attributable to the Partnership. The
Partnership's proportional share of USPE data processing and administrative
expenses reimbursed to FSI was $46,000, $43,000, and $0.1 million during 2000,
1999, and 1998, respectively
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's proportional share of USPE marine
insurance coverage paid to TEI was $7,000 during 1998. No premiums for owned
equipment or partially owned equipment were paid to TEI during 2000, 1999, or
1998. 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 $0.2 million loss-of-hire insurance refund from TEI due to lower
claims from the insured Partnership and other insured affiliated programs.
Debt placement fees were paid to the General Partner in an amount equal to 1% of
the Partnership's long-term borrowings, less any costs paid to unaffiliated
parties related to obtaining the borrowing.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Partnership and USPEs paid or accrued equipment acquisition and lease
negotiation fees of $0.4 million and $1.9 million during 1999 and 1998,
respectively, to FSI, TEC, and WMS. No equipment acquisition or lease
negotiation fees were accrued during 2000
The Partnership owned certain equipment in conjunction with affiliated programs
during 2000, 1999, and 1998 (see Note 4).
The Partnership had borrowings from the General Partner from time to time and
was charged market interest rates effective at the time of the borrowing. During
1999 the Partnership borrowed $0.4 million from the General Partner for five
days and paid a total of $421 in interest to the General Partner. There were no
similar borrowings during 2000 or 1998.
The balance due to affiliates as of December 31, 2000 includes $0.1 million due
to FSI and its affiliates for management fees and $0.7 million due to 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 $0.2 million due
to a USPE.
3. EQUIPMENT
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
Equipment Held for Operating Leases 2000 1999
----------------------------------------------------- --------------------------------
Marine containers $ 25,566 $ 24,691
Aircraft, aircraft engines and components 16,224 21,630
Rail equipment 17,244 17,284
Trailers 5,258 11,713
Marine vessels 3,000 10,000
---------------------------------
67,292 85,318
Less accumulated depreciation (36,829) (39,250)
--------------------------------
30,463 46,068
Equipment held for sale 1,042 --
---------------------------------
Net equipment $ 31,505 $ 46,068
=================================
Revenues are earned under operating leases. A portion of the Partnership's
marine containers are leased to operators of utilization-type leasing pools that
include equipment owned by unaffiliated parties. In such instances, revenues
earned by the Partnership consist of a specified percentage of the total
revenues generated by leasing the pooled equipment to sublessees after deducting
certain direct operating expenses of the pooled equipment. The Partnership's
marine vessels are operating either on a voyage charter or a time charter which
are usually leased for less than one year. Lease revenues for trailers operating
with short-line railroad systems are based on a per-diem lease in the free
running railroad interchange. 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.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. During 2000, the General Partner reduced
the carrying value of the off-lease Boeing 737-200 commercial aircraft by $0.4
million to the equipment's estimated realizable value. During 1999, reductions
to the carrying value of marine vessels of $3.6 million were required.
As of December 31, 2000, all owned equipment in the Partnership's portfolio was
on lease except for a Boeing 737-200 Stage II commercial aircraft and 48
railcars with a net book value of $1.5 million. As of
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
3. EQUIPMENT (CONTINUED)
December 31, 1999, all owned equipment in the Partnership's portfolio was on
lease or operating in PLM-affiliated short-term trailer rental facilities,
except for a Boeing 737-200 Stage II commercial aircraft and 20 railcars with a
net book value of $2.0 million.
During 2000 the Partnership paid $0.9 million for marine containers that were
purchased in 1999 that was included as an accrued expense on the December 31,
1999 balance sheet. The General Partner also transferred marine containers with
an original equipment cost of $2.6 million from the Partnership's USPE portfolio
to owned equipment.
During 1999, the Partnership purchased a marine vessel for $7.0 million,
including acquisition fees of $0.3 million paid to FSI for the purchase of this
equipment. Additionally, the Partnership purchased a portfolio of marine
containers for $15.1 million of which no fees were paid to FSI. The Partnership
has reached certain fee limitations, per the partnership agreement, that can be
paid to FSI.
As of December 31, 2000, a Boeing 737-200 commercial aircraft was held for sale
at the lower of the equipment's depreciated cost or fair value, less cost to
sell, and is subject to a pending contract for sale.
During 2000, the Partnership disposed of marine vessels, marine containers,
trailers, and railcars, with an aggregate net book value of $7.3 million, for
$9.1 million. Included in the 2000 net gain on disposition of assets is the
unused portion of marine vessel drydocking of $0.3 million. During 1999, the
Partnership disposed of a marine vessel, marine containers, trailers, and
railcars, with an aggregate net book value of $7.9 million, for $9.3 million.
The Partnership also sold its majority interest in a Boeing 767-200ER Stage III
commercial aircraft with a net book value of $15.6 million for proceeds of $40.1
million which includes $3.6 million of unused engine reserves.
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 $8.4 million in 2001, $3.0 million in 2002, $1.0 million
in 2003, $0.6 million in 2004, $0.5 million in 2005, and $0.3 million
thereafter. Per diem and short-term rentals consisting of utilization rate lease
payments included in lease revenues amounted to $5.7 million in 2000, $4.4
million in 1999, and $4.0 million in 1998.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership owns equipment jointly with affiliated programs.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owned an interest
greater than 50%. The amendment to the corporate-by-laws provided that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous consent of the Partnership and all the affiliated programs that
have an ownership in the investment. As such, although the Partnership may own a
majority interest in a USPE, the Partnership does not control its management and
thus the equity method of accounting will be used after adoption of the
amendment. As a result of the amendment, as of September 30, 1999, all jointly
owned equipment in which the Partnership owned a majority interest, which had
been consolidated, were reclassified to investments in USPEs. Accordingly, as of
December 31, 2000 and 1999, the balance sheet reflects all investments in USPEs
on an equity basis.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES (CONTINUED)
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
------------------------------
62% interest in a trust owning a commercial stage III aircraft $ 10,316 $ 12,574
53% interest in an entity owning a product tanker 5,467 6,482
40% interest in a trust owning two commercial stage III aircraft
on a direct finance lease 3,592 4,055
20% interest in an entity owning a handymax dry bulk carrier 877 1,065
50% interest in an entity owning a container feeder vessel 854 1,178
25% interest in an entity owning marine containers -- 2,211
Other -- 171
----------- -----------
Net investments $ 21,106 $ 27,736
=========== ===========
As of December 31, 2000, all jointly-owned equipment in the Partnership's USPE
portfolio was on lease. As of December 31, 1999, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease except for a Boeing 737-300
commercial aircraft with a net investment value of $12.6 million.
During 2000, the General Partner transferred the Partnership's interest in an
entity that owned marine containers to owned equipment.
During 1999, the Partnership purchased an interest in a trust owning a Boeing
737-300 Stage III commercial aircraft for $14.0 million including acquisition
fees of $0.1 million that were paid to FSI for the purchase of this investment
and increased its investment in a trust owning marine containers by $0.1 million
on which no fees were paid to FSI. The remaining interest in these trusts was
purchased by an affiliated program.
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the year ended December 31 (in
thousands of dollars):
2000 1999 1998
Net Net Net
Total Interest of Total Interest of Total Interest of
USPEs Partnership USPEs Partnership USPEs Partnership
--------------------------- --------------------------- -------------------------
Net investments $ 42,176 $ 21,106 $ 59,692 $ 27,736 $ 34,801 $ 14,200
Lease revenues 10,950 4,628 10,395 3,224 12,215 3,782
Net income (loss) (2,460) (1,904) (867) (1,003) 22,183 6,465
5. Operating Segments
The Partnership operates primarily in five operating segments: aircraft leasing,
marine container leasing, marine vessel leasing, trailer leasing, and railcar
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of interest expense, general and
administrative expenses, and certain other expenses. The segments are managed
separately due to different business strategies for each operation.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
5. Operating Segments (continued)
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing Other(1) Total
------------------------------------ --------- --------- -------- --------- --------- --------- ----------
REVENUES
Lease revenue $ 2,778 $ 4,706 $ 3,625 $ 2,130 $ 4,287 $ -- $ 17,526
Interest income and other -- -- -- -- -- 253 253
Gain (loss) on disposition of -- (45) 382 1,785 25 -- 2,147
equipment
-------------------------------------------------------------------------
Total revenues 2,778 4,661 4,007 3,915 4,312 253 19,926
COSTS AND EXPENSES
Operations support 56 20 2,349 715 1,006 39 4,185
Depreciation and amortization 2,347 3,348 1,348 563 1,280 41 8,927
Interest expense -- -- -- -- -- 2,029 2,029
Management fees to affiliate 157 235 181 121 269 -- 963
General and administrative expenses 337 13 65 461 116 860 1,852
Loss on revaluation of equipment 374 -- -- -- -- -- 374
Recovery of bad debts (655) -- -- (6) (59) -- (720)
-------------------------------------------------------------------------
Total costs and expenses 2,616 3,616 3,943 1,854 2,612 2,969 17,610
-------------------------------------------------------------------------
Equity in net income (loss) of USPEs (1,485) 44 (548) -- -- 85 (1,904)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) $ (1,323) $ 1,089 $ (484) $ 2,061 $ 1,700 $ (2,631) $ 412
=========================================================================
Total assets as of December 31, 2000 $ 18,502 $ 18,015 $ 9,078 $ 1,725 $ 7,782 $ 8,961 $ 64,063
=========================================================================
(1) Includes interest income and costs not identifiable to a particular segment,
such as interest expense, and certain amortization, general and administrative,
and operations support expenses. Also includes sale proceeds from an investment
in an entity that owned a mobile offshore drilling unit.
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 $ 4,481 $ 2,317 $ 9,849 $ 2,790 $ 4,551 $ -- $ 23,988
Interest income and other 33 -- 12 (2) 47 180 270
Gain (loss) on disposition of 24,414 93 1,670 (195) (31) -- 25,951
equipment
-------------------------------------------------------------------------
Total revenues 28,928 2,410 11,531 2,593 4,567 180 50,209
COSTS AND EXPENSES
Operations support 832 -- 6,322 769 829 47 8,799
Depreciation and amortization 6,970 2,217 5,559 755 1,470 30 17,001
Interest expense 15 -- -- -- -- 2,093 2,108
Management fees 196 116 481 160 308 -- 1,261
General and administrative expenses 388 11 149 546 73 767 1,934
Loss on revaluation of equipment -- -- 3,567 -- -- -- 3,567
Provision for bad debts 485 -- -- 22 84 -- 591
-------------------------------------------------------------------------
Total costs and expenses 8,886 2,344 16,078 2,252 2,764 2,937 35,261
-------------------------------------------------------------------------
Minority interests (8,225) -- 276 -- -- -- (7,949)
Equity in net income (loss) of USPEs (250) 5 (1,029) -- -- 271 (1,003)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net income (loss) $ 11,567 $ 71 $ (5,300) $ 341 $ 1,803 $ (2,486) $ 5,996
=========================================================================
Total assets as of December 31, 1999 $ 22,940 $ 21,811 $ 17,353 $ 4,208 $ 8,870 $ 3,022 $ 78,204
=========================================================================
(1) Includes interest income and costs not identifiable to a particular segment,
such as interest expense, and certain amortization, general and administrative,
and operations support expenses. Also includes sale proceeds from an investment
in an entity that owned a mobile offshore drilling unit.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
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 $ 9,098 $ 923 $ 10,695 $ 3,295 $ 4,111 $ -- $ 28,122
Interest income and other 20 89 65 10 20 561 765
Gain (loss) on disposition of 5,594 582 19 51 12 (5) 6,253
equipment
------------------------------------------------------------------------
Total revenues 14,712 1,594 10,779 3,356 4,143 556 35,140
COSTS AND EXPENSES
Operations support 1,191 12 6,055 817 857 63 8,995
Depreciation and amortization 11,938 712 6,090 1,040 1,273 32 21,085
Interest expense 43 -- -- -- -- 2,018 2,061
Management fee to affiliate 453 46 535 216 288 -- 1,538
General and administrative expenses 420 30 209 604 67 723 2,053
Loss on revaluation of equipment -- 183 4,093 -- -- -- 4,276
Provision for (recovery of) bad (83) -- -- 22 (14) -- (75)
debts
------------------------------------------------------------------------
Total costs and expenses 13,962 983 16,982 2,699 2,471 2,836 39,933
------------------------------------------------------------------------
Minority interests (469) -- 242 -- -- -- (227)
Equity in net income (loss) of USPEs 7,841 (20) (1,599) -- -- 243 6,465
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) $ 8,122 $ 591 $ (7,560) $ 657 $ 1,672 $ (2,037) $ 1,445
========================================================================
Total assets as of December 31, 1998 $ 34,704 $ 9,267 $ 32,957 $ 4,824 $ 10,913 $ 11,605 $ 104,270
========================================================================
(1)Includes interest income and costs not identifiable to a particular segment,
such as interest expense, certain amortization, general and administrative, and
operations support expenses. Also includes income from an investment in an
entity that owned a mobile offshore drilling unit.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in seven geographic regions: United States, South America, Canada,
Mexico, Europe, Iceland, and India. Marine vessels and marine containers are
leased or were leased to multiple lessees in different regions that operate
worldwide.
(This space intentionally left blank)
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
6. Geographic Information (continued)
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domiciles of
the lessees as of and for the years ended December 31, (in thousands of
dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 2000 1999 1998 2000 1999 1998
---------------------------- ------------------------------------- -------------------------------------
United States $ 6,921 $ 8,540 $ 9,126 $ -- $ -- $ --
South America -- 1,643 5,130 -- -- --
Canada 1,896 1,201 988 -- -- 986
Europe 378 378 -- -- -- --
Iceland -- -- -- 865 -- --
India -- 60 1,260 -- -- --
Rest of the world 8,331 12,166 11,618 3,763 3,224 2,796
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
Lease revenues $ 17,526 $ 23,988 $ 28,122 $ 4,628 $ 3,224 $ 3,782
===================================== =====================================
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 $ 3,481 $ (312) $ (3,494) $ -- $ (627) $ --
South America -- 15,719 801 36 (185) --
Canada 873 370 324 7 25 7,191
Mexico -- -- -- 614 537 651
Europe 57 23 -- -- -- --
Iceland -- -- -- (2,142) -- --
India (487) (1,839) 4,980 -- -- --
Rest of the world 1,109 (4,205) (5,354) (419) (753) (1,377)
------------------------------------- -------------------------------------
Regional income (loss) 5,033 9,756 (2,743) (1,904) (1,003) 6,465
Administrative and other (2,717) (2,757) (2,277) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ 2,316 $ 6,999 $ (5,020) $ (1,904) $ (1,003) $ 6,465
===================================== =====================================
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 $ 8,399 $ 13,378 $ 22,048 $ -- $ 12,589 $ --
South America -- -- 16,834 -- -- --
Canada 1,876 1,873 1,889 -- 156 279
Mexico -- -- -- 3,592 4,055 4,435
Europe 1,137 1,490 -- -- -- --
Iceland -- -- -- 10,316 -- --
India -- 1,736 2,084 -- -- --
Rest of the world 19,051 27,591 36,647 7,198 10,936 9,486
------------------------------------- -------------------------------------
------------------------------------- -------------------------------------
30,463 46,068 79,502 21,106 27,736 14,200
Equipment held for sale 1,042 -- -- -- -- --
------------------------------------- -------------------------------------
Net book value $ 31,505 $ 46,068 $ 79,502 $ 21,106 $ 27,736 $ 14,200
===================================== =====================================
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
7. NOTE PAYABLE
In August 1993, the Partnership entered into an agreement to issue a long-term
note totaling $30.0 million to two institutional investors. The note bears
interest at a fixed rate of 6.7% per annum and has a final maturity in 2003.
Interest on the note is payable monthly. The note is scheduled to be repaid in
three principal payments of $10.0 million on November 17, 2001, 2002, and 2003.
The agreement requires the Partnership to maintain certain financial covenants
related to fixed-charge coverage. Proceeds from the sale of the note were used
to fund equipment acquisitions. The Partnership's wholly and partially owned
equipment is used as collateral to the note.
The General Partner estimates, based on recent transactions, that the fair
market value of the $30.0 million fixed-rate note is $29.1 million.
The Partnership's warehouse facility, which was shared with PLM Equipment Growth
& Income Fund VII, Professional Lease Management Income Fund I, LLC, and TEC
Acquisub, Inc., an indirect wholly owned subsidiary of the General Partner,
expired on September 30, 2000. The General Partner is currently negotiating with
a new lender for a $15.0 million warehouse credit facility with similar terms as
the facility that expired. The General Partner believes the facility will be
completed during the first half of 2001.
8. CONCENTRATIONS OF CREDIT RISK
No single lessee accounted for more than 10% of the consolidated revenues for
the owned equipment and partially owned equipment during 2000, 1999, and 1998.
In 1999, however, AAR Allen Group International purchased a commercial aircraft
from the Partnership and the gain from the sale accounted for 49% of total
consolidated revenues. In 1998, Triton Aviation Services, Ltd. purchased a
commercial aircraft from the Partnership and the gain from the sale accounted
for 16% of total consolidated revenues of 1998.
As of December 31, 2000, 1999, and 1998, the General Partner believed the
Partnership had no other significant concentrations of credit risk that could
have a material adverse effect on the Partnership.
9. INCOME TAXES
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 2000, the financial statement carrying amount of assets and
liabilities was approximately $34.1 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods, equipment reserves, provisions for bad debts, lessees'
prepaid deposits, and the tax treatment of underwriting commissions and
syndication costs.
10. CONTINGENCIES
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.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
10. CONTINGENCIES (CONTINUED)
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.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
10. CONTINGENCIES (CONTINUED)
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.
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 $ 4,706 $ 4,716 $ 6,070 $ 4,434 $ 19,926
Net income (loss) (612) (487) 880 631 412
Per weighted-average limited partnership unit:
Net income (loss) $ (0.10) $ (0.08) $ 0.09 $ 0.06 $ (0.03)
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 $ 7,031 $ 30,588 $ 5,815 $ 6,775 $ 50,209
Net income (loss) (871) 13,997 (2,269) (4,861) 5,996
Per weighted-average limited partnership unit:
Net income (loss) $ (0.13) $ 1.69 $ (0.30) $ (0.61) $ 0.65
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000
12. SUBSEQUENT EVENTS
Trans World Airlines (TWA), a current lessee, filed for bankruptcy protection
under Chapter 11 in January 2001. As of December 31, 2000, TWA is current with
its lease payments. American Airlines (AA) has proposed an acquisition of TWA
that is being reviewed by the United States Justice Department. Contingent upon
AA's acquisition of TWA, the General Partner has accepted an offer from AA to
extend the existing leases up to 84 months at the current market monthly rate.
During February 2001, the Partnership sold a Boeing 737-200 commercial aircraft
with a net book value of $1.0 million for $1.5 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.
(This space intentionally left blank)
Independent Auditors' Report
The Partners
PLM Equipment Growth Fund VI:
Under date of March 12, 2001, we reported on the balance sheets of PLM Equipment
Growth Fund VI as of December 31, 2000 and 1999, and the related statements of
income, changes in partners' capital, and cash flows for each of the years in
the three-year period ended December 31, 2000, as contained in the 2000 annual
report to stockholders. These financial statements and our report thereon are
included in the annual report on Form 10-K for the year 2000. In connection with
our audits of the aforementioned financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Partnership's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
San Francisco, CA
March 12, 2001
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
Valuation and Qualifying Accounts
Year Ended December 31, 2000, 1999, and 1998
(in thousands of dollars)
Additions
Balance at Charged to Balance at
Beginning of Cost and Close of
Year Expense Deductions Year
---------------- ---------------- -------------- -------------
Year Ended December 31, 2000
Allowance for Doubtful Accounts $ 2,416 $ -- $ (2,014) $ 402
======================================================================
Year Ended December 31, 1999
Allowance for Doubtful Accounts $ 1,930 $ 595 $ (109) $ 2,416
======================================================================
Year Ended December 31, 1998
Allowance for Doubtful Accounts $ 2,524 $ -- $ (594) $ 1,930
======================================================================
PLM EQUIPMENT GROWTH FUND VI
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10. 1 Management Agreement between Partnership and *
PLM Investment Management, Inc.
10. 2 Note Agreement, dated as of August 1, 1993, regarding *
$30.0 million in 6.7% senior notes due November 17, 2003.
24. Powers of Attorney. 43-55
Financial Statements required under
Regulation S-X Rule 3-09:
99. 1 Canadian Air Trust #3. 56-64
99. 2 Spear Partnership. 65-74
99. 3 Boeing 737-200 Trust S/N 24700. 75-83
- --------
* Incorporated by reference. See page 28 of this report.