Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.
[ ] 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
_______________________
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.)
5 3RD STREET SOUTH, SUITE 200
ST. PETERSBURG, FL 33701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (727) 803-1800
_______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----
Aggregate market value of voting stock: N/A
---
An index of exhibits filed with this Form 10-K is located at page 28.
Total number of pages in this report: 100.
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;
(2) to generate sufficient net operating cash flow from lease
operations to meet liquidity requirements and to generate cash distributions to
the 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 investment phase
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, 2002, there were 7,730,965 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
The Partnership is currently in its investment phase during which the
Partnership uses cash generated from operations and proceeds from asset
dispositions to purchase additional equipment. The General Partner believes
these acquisitions may cause the Partnership to generate additional earnings and
cash flow for the Partnership. The Partnership may reinvest its cash flow,
surplus cash and equipment disposition proceeds in additional equipment,
consistent with the objectives of the Partnership, until December 31, 2004. The
Partnership will terminate on December 31, 2011, unless terminated earlier upon
the sale of all of the equipment or by certain other events.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio and the Partnership's proportional share of equipment
owned by unconsolidated special-purpose entities as of December 31, 2002 (in
thousands of dollars):
TABLE 1
-------
Units. . . Type Manufacturer . . . . Cost
- ------------------------------------------------------------------------------
Owned equipment held for operating leases:
7,065. . . Marine containers Various $ 18,276
2,802. . . Refrigerated marine containers Various 5,947
357. . . . Pressurized tank railcars Various 10,582
179. . . . Nonpressurized tank railcars Various 3,464
137. . . Covered hopper railcars Various 2,981
1. . . . . DC-9-82 Stage III commercial aircraft McDonnell Douglas 13,951
1. . . . . Portfolio of aircraft rotables Various 2,273
339. . . . Intermodal trailers Stoughton 5,212
----------
Total owned equipment held for operating leases $ 62,686 1
==========
Equipment owned by unconsolidated special-purpose entities:
0.62 . . . 737-300 Stage III commercial aircraft Boeing $ 14,802 2
0.40 . . . Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,807 3
0.53 . . . .Product tanker Boelwerf-Temse 10,476 2
----------
Total investments in unconsolidated special-purpose entities $ 30,085 1
==========
Equipment is generally leased under operating leases for a term of one to six
years except for the marine vessel which is usually leased for less than one
year. Some of the Partnership's marine containers are leased to operators of
utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. The remaining Partnership marine container leases are based on a
fixed rate. Lease revenues for intermodal trailers are based on a per-diem
lease in the free running interchange with the railroads. Rents for all other
equipment are based on fixed rates.
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), a wholly owned subsidiary of FSI, or PLM Worldwide
Management Services (WMS), a wholly owned subsidiary of PLM International.
2 Jointly owned: EGF VI and an affiliated program.
3 Jointly owned: EGF VI and two affiliated programs.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date,
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally the equipment owned or invested in by the Partnership is leased out on
an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment.
In addition, the rental obligation under an operating lease need not be
capitalized on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in the five operating segments: marine
container leasing, railcar leasing, aircraft leasing, marine vessel leasing, and
intermodal trailer leasing. Each equipment leasing segment engages in
short-term to mid-term operating leases to a variety of customers except for the
Partnership's investment in a trust owning two commercial aircraft that are on a
direct finance lease. The Partnership's equipment and investments are primarily
used to transport materials and commodities, except for aircraft leased to
passenger air carriers.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Containers
Marine containers are used to transport a variety of types of cargo. They
typically travel on marine vessels but may also travel on railroads loaded on
certain types of railcars and highways loaded on a trailer.
The Partnership acquired new standard dry cargo containers from 1998 to 2000
that were placed on mid-term leases and into revenue-sharing agreements. The
marine containers that were placed into revenue-sharing agreements experienced a
decrease in lease rates of approximately 15% during 2002. The decrease in lease
rates on these marine containers was partially offset by an increase in
utilization. At the beginning of the year, utilization averaged approximately
70% but increased to 85% by year-end. Average lease rates and utilization in
2003 are expected to marginally improve compared to 2002.
The Partnership's marine containers that were originally placed on mid-term
leases in 1998 and 1999 that came off lease in 2001 and 2002 were placed into
revenue-sharing agreements. As the market for marine containers is considerably
softer than the period during which they were placed on mid-term leases, lease
revenue on these containers decreased up to 40% when the original mid-term
leases expired.
The Partnership also has a total of 231 dry, refrigerated and other specialized
containers that are in excess of 13 years of age, that are 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 is highly
dependent upon the specific location and type of container. The Partnership has
continued to experience reduced residual values on the sale of refrigerated
containers primarily due to technological obsolescence associated with this
equipment's refrigeration machinery.
(2) Railcars
(a) Pressurized Tank Cars
Pressurized tank railcars are used to transport liquefied petroleum gas (LPG)
and anhydrous ammonia (fertilizer). The North American markets for LPG include
industrial applications, residential use, electrical generation, commercial
applications, and transportation. LPG consumption is expected to grow over the
next few years as most new electricity generation capacity is expected to be gas
fired. Within any given year, consumption is particularly influenced by the
severity of winter temperatures.
Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, status of government farm subsidy programs,
amount of farming acreage and mix of crops planted, weather patterns, farming
practices, and the value of the United States (US) dollar. Population growth
and dietary trends also play an indirect role.
On an industry-wide basis, North American carloadings of the commodity group
that includes petroleum and chemicals decreased over 2% in 2002 after a 5%
decline in 2001. Even with this further decrease in industry-wide demand, the
utilization of pressurized tank railcars across the Partnership was in the 85%
range during the year. The desirability of the railcars in the Partnership is
affected by the advancing age of this fleet and related corrosion issues on foam
insulated railcars.
(b) General-Purpose (Nonpressurized) Tank Cars
General purpose tank railcars are used to transport bulk liquid commodities and
chemicals not requiring pressurization, such as certain petroleum products,
liquefied asphalt, lubricating oils, molten sulfur, vegetable oils, and corn
syrup. The overall health of the market for these types of commodities is
closely tied to both the US and global economies, as reflected in movements in
the Gross Domestic Product, personal consumption expenditures, retail sales, and
currency exchange rates. The manufacturing, automobile, and housing sectors are
the largest consumers of chemicals. Within North America, 2002 carloadings of
the commodity group that includes chemicals and petroleum products reversed
previous declines and rose 4% after a fall of 5% during 2001. Utilization of
the Partnership's nonpressurized tank railcars has been increasing reflecting
this market condition and presently stands at about 75%.
(c) Covered Hopper (Grain) Cars
Demand for covered hopper railcars, which are specifically designed to service
the grain industry, continued to experience weakness during 2002; carloadings
were down 3% when compared to 2001 volumes. There has been a consistent pattern
of decline IN THE NUMBER OF CARLOADINGS over the last several years.
The US agribusiness industry serves a domestic market that is relatively mature,
the future growth of which is expected to be consistent but modest. Most
domestic grain rail traffic moves to food processors, poultry breeders, and
feedlots. The more volatile export business, which accounts for approximately
30% of total grain shipments, serves emerging and developing nations. In these
countries, demand for protein-rich foods is growing more rapidly than in the US,
due to higher population growth, a rapid industrialization pace, and rising
disposable income.
Other factors contributing to the softness in demand for covered hopper railcars
are the large number of new railcars built in the late 1990s and the more
efficient utilization of covered hoppers by the railroads. As in prior years,
any covered hopper railcars that were leased were done so at considerably lower
rental rates.
Many of the Partnership's cars are smaller and thus less desirable than those
currently being built. Because of this factor, the lack of any prospect for
improvement in car demand, and the large number of idle cars throughout the
industry, the Partnership has sold a number of these cars. As a result,
utilization rose to 70% at the end of 2002.
(3) Aircraft
(a) Commercial Aircraft
The Partnership owns 100% of one MD-82 aircraft, which is on long-term lease to
a major US carrier at above market rates, and 62% of one Boeing 737-300
aircraft, which was placed on lease in late 2001. The Partnership also owns 40%
of two DC-9 aircraft. This lease has been renegotiated and the resulting
incoming cash flow was severely reduced.
Since the terrorist events of September 11, 2001, the commercial aviation
industry has experienced significant losses that escalated with a weakened
economy. This in turn has led to the bankruptcy filing of two of the largest
airlines in the United States, and to an excess supply of commercial aircraft.
The current state of the aircraft industry, with significant excess capacity for
both new and used aircraft continues to be extremely weak, and is expected by
the General Partner to remain weak.
The decrease in value of the Partnership's aircraft since September 11, 2001
will have a negative impact on the ability of the Partnership to achieve its
original objectives as lower values will also result in significantly lower
lease rates than the Partnership has been able to achieve for these assets in
the past.
(b) Rotables
The Partnership owns a package of aircraft components, or rotables, that are
used for MD-83 aircraft. Aircraft rotables are replacement spare parts that are
held in inventory by an airline. The types of rotables owned and leased by the
Partnership include avionics, replacement doors, control surfaces, pumps,
valves, and other comparable equipment. The market for the MD-83 spare parts
continued to dwindle during 2002 due to decreased demand for the aircraft type
and the increased scrapping and part-out of the aircraft type. The rotables
package is due to come off-lease during the 1st quarter of 2003 and no
replacement lessee has yet been identified. The General Partner expects to sell
the rotables in 2003.
(4) Marine Vessel - Product Tanker
The Partnership has an investment in a double-hull product tanker that operates
in international markets carrying a variety of commodity-type cargos. Demand
for commodity-based shipping is closely tied to worldwide economic growth
patterns, which can affect demand by causing changes in volume on trade routes.
The General Partner operates the Partnership's product tanker in the spot
chartering markets, carrying mostly fuel oil and similar petroleum distillates,
an approach that provides the flexibility to adapt to changes in market
conditions.
The market for product tankers was weak throughout most of 2002 with lower than
anticipated rates. The Partnership's product tanker, built in 1985, has
continued to operate with very little idle time between charters. Rates,
however, have continued to be softer throughout the year when compared to rates
experienced in 2001. In the fourth quarter of 2002 and into 2003, freight rates
for the Partnership's marine vessel started to increase due to an increase in
oil prices caused by political instability in the Middle East.
(5) Intermodal 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 seven years,
intermodal trailers have continued to be rapidly displaced by domestic
containers as the preferred method of transport for such goods. This
displacement occurs because railroads offer approximately 20% lower wholesale
freight rates on domestic containers compared to intermodal trailers. During
2002, demand for intermodal trailers was much more depressed than historic
norms. Unusually low demand occurred over the first half of the year due to a
rapidly slowing economy and low rail freight rates for 53-foot domestic
containers. Due to the decline in demand, shipments for the year within the
intermodal pool trailer market declined approximately 10% compared to the prior
year. Average utilization of the entire US intermodal trailer pool fleet
declined from 77% in 1999 to 75% in 2000 to 63% in 2001 and further declined to
a record low of 50% in 2002.
The General Partner continued its aggressive marketing program in a bid to
attract new customers for the Partnership's intermodal trailers during 2002.
The largest trailer customer, Consolidated Freightways, abruptly shut down their
operations and declared bankruptcy during 2002. This situation was largely
offset by extensive efforts with other carriers to increase market share. Even
with these efforts, average utilization of the Partnership's intermodal trailers
for the year 2002 dropped 12% from 2001 to approximately 61%, still 11% above
the national average.
The trend towards using domestic containers instead of intermodal trailers is
expected to accelerate in the future. Due to the anticipated continued weakness
of the overall economy, intermodal trailer shipments are forecast to decline by
10% to 15% in 2003, compared to 2002. As such, the nationwide supply of
intermodal trailers is expected to have approximately 27,000 units in surplus
for 2003. The maintenance costs have increased approximately 12% from 2001 due
to improper repair methods performed by the railroads' vendors and billed to
owners.
The General Partner will continue to seek to expand its customer base and
undertake significant efforts to reduce cartage and maintenance costs, such as
minimizing trailer downtime at repair shops and terminals.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, governmental, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification of such equipment to
meet these regulations, at considerable cost to the Partnership. Such
regulations include but are not limited to:
(1) in 2004, new maritime and port security laws that have already been
passed by US Congress and International Maritime Organizations are scheduled to
be implemented. The United States Coast Guard is currently holding hearings
with international shipping industry representatives to discuss the
implementation of the new code and regulations, which are to apply to all
shipping, ports and terminals both in the US and abroad. The new regulations are
aimed at improving security aboard marine vessels. These regulations may
require additional security equipment being added to marine vessels as well as
additional training being provided to the crew. The final code, which is
expected to have a significant impact on the industry, will apply to all ships
over 500 dead weight tons that include those owned by the Partnership. The
requirements of these new regulations have to be met by July 2004. The deadline
for compliance by ports is planned to be 2005. As the methodology of how these
regulations will be applied is still being determined, the General Partner is
unable to determine the impact on the Partnership at this time;
(2) the Montreal Protocol on Substances that Deplete the Ozone Layer and the
US Clean Air Act Amendments of 1990, which call for the control and eventual
replacement of substances that have been found to cause or contribute
significantly to harmful effects to the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers; and
(3) the US Department of Transportation's Hazardous Materials Regulations
regulates the classification and packaging requirements of hazardous materials
which apply particularly to the Partnership's tank railcars. The Federal
Railroad Administration has mandated that effective July 1, 2000 all tank
railcars must be re-qualified every ten years from the last test date stenciled
on each railcar to insure tank shell integrity. Tank shell thickness, weld
seams, and weld attachments must be inspected and repaired if necessary to
re-qualify the tank railcar for service. The average cost of this inspection is
$3,600 for jacketed tank railcars and $1,800 for non-jacketed tank railcars, not
including any necessary repairs. This inspection is to be performed at the next
scheduled tank test and every ten years thereafter. The Partnership currently
owns 282 jacketed tank railcars and 179 non-jacketed tank railcars. As of
December 31, 2002, 42 jacketed tank railcars and 13 non-jacketed tank railcars
of the fleet will need to be re-qualified in 2003 or 2004.
During the fourth quarter of 2002, the Partnership reduced the net book value of
84 owned tank railcars in its railcar fleet to their fair value of $2,000 per
railcar, and recorded a $0.7 million impairment loss. The impairment was caused
by a general recall due to a manufacturing defect allowing extensive corrosion
of the railcars' internal lining. Repairing the railcars was determined to be
cost prohibitive. The fair value of railcars with this defect was determined by
using industry expertise. These railcars were off lease.
As of December 31, 2002, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
----------
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interests in entities that own equipment for leasing
purposes. As of December 31, 2002, 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 235 3rd Street South, Suite
200, St. Petersburg, FL 33701.
ITEM 3. LEGAL PROCEEDINGS
------------------
The Partnership, together with affiliates, initiated litigation in various
official forums in the United States and India against two defaulting Indian
airline lessees to repossess Partnership property and to recover damages for
failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. In response to the Partnership's collection efforts,
the airline lessees filed counter-claims against the Partnership one of which
was in excess of the Partnership's claims against the airline. The General
Partner believes that the airline's counterclaims are completely without merit,
and the General Partner will vigorously defend against such counterclaims.
During 2001, an arbitration hearing was held between one Indian lessee and the
Partnership and the arbitration panel issued an award to the Partnership. The
Partnership initiated proceedings in India to collect on the arbitration award
and has recently been approached again by the lessee to discuss a negotiated
settlement of the Partnership's collection action. The General Partner did not
accrue the arbitration award in the December 31, 2002 financial statements
because the likelihood of collection of the award is remote. The General
Partner will continue to try to collect the full amount of the settlement.
During 2001, the General Partner decided to minimize its collection efforts from
the other Indian lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has no
apparent ability to pay.
The Partnership is involved as plaintiff or defendant in various legal actions
incidental to its business. Management does not believe that any of these
actions will be material to the financial condition or results of operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 2002.
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, 2002, there were 7,459 limited partners holding units in the
Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are viewed as being inefficient vehicles for the sale of
limited partnership units. Presently, there is no public market for the limited
partnership units and none is likely to develop.
To prevent the units from being considered publicly traded and thereby to avoid
taxation of the Partnership as an association treated as a corporation under the
Internal Revenue Code, the limited partnership units will not be transferable
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of
limited partnership units in an effort to ensure that they do not exceed the
percentage or number permitted by certain safe harbors promulgated by the
Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not a United States 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.
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)
2002 2001 2000 1999 1998
----------------------------------------------------
Operating results:
Total revenues . . . . . . . . . . . . $ 9,882 $ 13,409 $ 19,926 $50,209 $ 35,140
Gain on disposition of equipment . . . 203 1,077 2,192 26,177 6,258
Loss on disposition of equipment . . . -- -- 45 226 5
Loss on impairment of equipment. . . . 769 -- 374 3,567 4,276
Equity in net income (loss) of uncon-
solidated special-purpose entities . (921) (935) (1,904) (1,003) 6,465
Net income (loss). . . . . . . . . . . (1,096) 13 412 5,996 1,445
At year-end:
Total assets . . . . . . . . . . . . . $ 41,184 $ 48,792 $ 64,063 $78,204 $104,270
Notes payable. . . . . . . . . . . . . 12,750 20,000 30,000 30,000 30,000
Total liabilities. . . . . . . . . . . 14,608 21,294 32,441 33,183 38,022
Cash distribution. . . . . . . . . . . . $ -- $ 1,372 $ 13,794 $13,806 $ 15,226
Cash distribution representing
a return of capital to the limited
partners . . . . . . . . . . . . . . . $ -- $ 1,286 $ 13,104 $ 7,810 $ 13,781
Per weighted-average
limited partnership unit:
Net income (loss). . . . . . . . . . . . $(0.14)1 $(0.01)1 $(0.03)1 $ 0.65 1 $ 0.08 1
Cash distribution. . . . . . . . . . . . $ -- $ 0.16 $ 1.60 $ 1.60 $ 1.76
Cash distribution representing
a return of capital. . . . . . . . . . $ -- $ 0.16 $ 1.60 $ 0.95 $ 1.68
1 After an increase of loss necessary to cause the General Partner's capital
account to equal zero of $0.1 million ($0.01 per weighted-average limited
partnership (LP) unit) in 2002, $0.1 million ($0.01 per weighted-average LP
unit) in 2001 and $0.7 million ($0.08 per weighted-average LP unit) in 2000, and
after reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.4 million ($0.04 per weighted-average LP unit) in
1999, and $0.7 million ($0.08 per weighted-average LP unit) in 1998 (see Note 1
to the financial statements).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------------
RESULTS OF OPERATIONS
-------------------
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic
Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for Partnership equipment include supply and demand for similar or comparable
types of transport capacity, desirability of the equipment in the leasing
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, and various regulations
concerning the use of the equipment. Equipment that is idle or out of service
between the expiration of one lease and the assumption of a subsequent lease can
result in a reduction of contribution to the Partnership. The Partnership
experienced re-leasing or repricing activity in 2002 for its railcar, trailer,
marine vessel, 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 on per diem
leases with short-line railroad systems. The relatively short duration of these
leases in these operations exposes the trailers to considerable re-leasing and
repricing activity.
(c) Marine vessel: The Partnership's investment in an entity owning a
marine vessel operated in the short-term leasing market. As a result of this,
the Partnership's partially owned marine vessel was remarketed during 2002
exposing it to re-leasing and repricing risk.
(d) 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. Starting in 2002 and continuing through 2006, a
significant number of the Partnership's marine containers currently on a fixed
rate lease will be switching to a lease based on utilization. PLM Financial
Services, Inc. (FSI or the General Partner) anticipates that this will result in
a significant decrease in lease revenue.
(2) Equipment Liquidations
Liquidation of Partnership owned equipment and of investments in unconsolidated
special-purpose entities (USPEs), unless accompanied by an immediate replacement
of additional equipment earning similar rates (see Reinvestment Risk, below),
represents a reduction in the size of the equipment portfolio and may result in
a reduction of contribution to the Partnership.
During 2002, the Partnership disposed of owned equipment that included marine
containers and railcars for total proceeds of $0.5 million.
(3) Nonperforming Lessees
Lessees not performing under the terms of their leases, either by not paying
rent, not maintaining or operating the equipment in accordance with the
conditions of the leases, or other possible departures from the lease terms, can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees.
Two former Indian lessees are having financial difficulties. The General
Partner initiated litigation in various official forums in the United States and
India against the defaulting Indian airline lessees to recover damages for
failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. The total amount of $2.2 million due from these
lessees had been reserved for as a bad debt in 1997 and was written off as it
was determined to be uncollectible based on the financial status of the lessees.
The Partnership has repossessed its property previously leased to these airlines
(see Note 10 to the financial statements).
(4) Reinvestment Risk
Reinvestment risk occurs when the Partnership cannot generate sufficient surplus
cash after fulfillment of operating obligations to reinvest in additional
equipment during the reinvestment phase of the Partnership, equipment is
disposed of for less than threshold amounts, proceeds from dispositions, or
surplus cash available for reinvestment cannot be reinvested at the threshold
lease rates, or proceeds from sales or surplus cash available for reinvestment
cannot be deployed in a timely manner.
The Partnership intends to increase its equipment portfolio by investing surplus
cash in additional equipment, after fulfilling operating requirements, until
December 31, 2004.
Other non-operating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of while it was subject to lease agreements, or from the exercise of
purchase options in certain lease agreements. Equipment sales generally result
from evaluations by the General Partner that continued ownership of certain
equipment is either inadequate to meet Partnership performance goals, or that
market conditions, market values, and other considerations indicate it is the
appropriate time to sell certain equipment.
(5) Equipment Valuation
In accordance with the Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121),
the General Partner reviewed the carrying values of the Partnership's equipment
portfolio at least quarterly and whenever circumstances indicated that the
carrying value of an asset may not be recoverable due to expected future market
conditions. If the projected undiscounted cash flows and the fair value of the
equipment was less than the carrying value of the equipment, an impairment loss
was recorded.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144), which replaces SFAS No. 121. In
accordance with SFAS No. 144, the Partnership evaluates long-lived assets for
impairment whenever events or circumstances indicate that the carrying values of
such assets may not be recoverable. Losses for impairment are recognized when
the undiscounted cash flows estimated to be realized from a long-lived asset are
determined to be less than the carrying value of the asset and the carrying
amount of long-lived assets exceed its fair value. The determination of fair
value for a given investment requires several considerations, including but not
limited to, income expected to be earned from the asset, estimated sales
proceeds, and holding costs excluding interest. The Partnership applied the new
rules on accounting for the impairment or disposal of long-lived assets
beginning January 1, 2002.
The estimate of the fair value for the Partnership's owned and partially
equipment is based on the opinion of the Partnership's equipment managers using
data, reasoning, and analysis of prevailing market conditions of similar
equipment, from recent purchases, independent third party valuations and
discounted cash flows. The events of September 11, 2001, along with the change
in general economic conditions in the United States, have continued to adversely
affect the market demand for both new and used commercial aircraft and weakened
the financial position of several airlines. Aircraft condition, age, passenger
capacity, distance capability, fuel efficiency, and other factors influence
market demand and market values for passenger jet aircraft.
The Partnership has recorded write-downs of certain owned aircraft and certain
partially owned aircraft, representing impairment to the carrying value. During
2000, the downturn in the United States economy indicated to the General Partner
that an impairment may exist with certain of the equipment owned or partially
owned by the Partnership. Based on the equipment fair value determined by
unaffiliated Partnership equipment managers, a $0.4 million reduction to the
carrying value of owned aircraft equipment was required. During 2001, a USPE
owning two Stage III commercial aircraft on a direct finance lease reduced its
net investment in the finance lease receivable due to a series of lease
amendments. The Partnership's proportionate share of this write-down, which is
included in equity in net income (loss) of the USPE in the Partnership's 2001
statement of operations, was $1.6 million. During 2002, the bankruptcy of a
major US airline and subsequent increase in off-lease aircraft indicated to the
General Partner that an impairment to the aircraft portfolio may exist. The
General Partner determined the fair value of the aircraft and aircraft rotables
based on the valuation given by its unaffiliated aircraft equipment manager that
considered, among other factors, expected income to be earned from the asset,
estimated sales proceeds and holding costs excluding interest. This resulted in
an impairment loss of $36,000 to the aircraft rotables owned by the Partnership.
In addition, during 2002, the Partnership reduced the net book value of 84 owned
tank railcars in its railcar fleet to their fair value of $2,000 per railcar,
and recorded a $0.7 million impairment loss. The impairment was caused by a
general recall due to a manufacturing defect allowing extensive corrosion of the
railcars' internal lining. Repairing the railcars was determined to be cost
prohibitive. The fair value of railcars with this defect was determined by
using industry expertise. These railcars were off lease. No impairments to
owned equipment were required in 2001 or partially owned equipment in 2002 and
2000.
(C) Financial Condition - Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $166.1 million and permanent
debt financing of $30.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement.
The Partnership relies on operating cash flow to meet its operating obligations,
make cash distributions, and increase the Partnership's equipment portfolio with
any remaining available surplus cash.
For the year ended December 31, 2002, the Partnership generated $5.4 million in
operating cash to meet its operating obligations, pay debt and interest payments
and maintain working capital reserves.
During 2002, the Partnership disposed of owned equipment for aggregate proceeds
of $0.4 million and $0.1 million in account receivable.
Accounts receivable decreased $0.5 million during 2002. A decrease of $0.2
million was due to the timing of cash receipts and a $0.3 million decrease was
due to lower balances due from certain lessees caused by lower utilization of
certain equipment.
Investments in USPEs decreased $2.6 million during 2002 due to cash
distributions of $1.7 million from the USPEs to the Partnership and a $0.9
million loss that was recorded by the Partnership for its equity interests in
the USPEs.
Prepaid expenses increased $0.2 million during 2002 due to the payment of
insurance and certain administrative expenses during 2002 that relate to 2003.
Accounts payable increased $0.1 million during the year ended 2002 due to the
timing of cash payments.
Due to affiliates increased $0.4 million during 2002 due to additional engine
reserves due to a USPE.
During January 2002, the Partnership prepaid the $20.0 million senior note
payable outstanding on December 31, 2001 and a prepayment penalty of $1.0
million to prepay the note. Concurrent with this payment, the Partnership
borrowed $15.0 million under the new $30.0 million term loan facility. The
General Partner anticipates that the Partnership will borrow the additional
$15.0 million available under this facility in 2003.
The Partnership made its scheduled principal payments totaling $2.3 million
under the new notes payable during 2002 and made another payment of $0.8 million
during January 2003. The Partnership is scheduled to make a quarterly debt
payment of $0.8 million plus interest to the lenders of the notes payable at the
beginning of each quarter. The remaining balance of the notes of $12.8 million
will be repaid with principal payments totaling $3.0 million in 2003, 2004,
2005, and 2006 and a final principal payment of $0.8 million in January 2007.
The cash for each payment will come from operations and equipment dispositions.
The Partnership is a participant in a $10.0 million warehouse facility. The
warehouse facility is shared by the Partnership, PLM Equipment Growth Fund V,
PLM Equipment Growth & Income Fund VII, Professional Lease Management Income
Fund I, LLC, and Acquisub LLC, a wholly owned subsidiary of PLM International,
Inc. (PLMI), the parent company of FSI. In July 2002, PLMI reached an agreement
with the lenders of the $10.0 million warehouse facility to extend the
expiration date to June 30, 2003. The facility provides for financing up to
100% of the cost of the equipment. Any borrowings by the Partnership are
collateralized by equipment purchased with the proceeds of the loan.
Outstanding borrowings by one borrower reduce the amount available to each of
the other borrowers under the facility. Individual borrowings may be
outstanding for no more than 270 days, with all advances due no later than June
30, 2003. Interest accrues either at the prime rate or LIBOR plus 2.0% at the
borrower's option and is set at the time of an advance of funds. Borrowings by
the Partnership are guaranteed by PLMI. The Partnership is not liable for the
advances made to the other borrowers.
As of March 26, 2003, the Partnership had no borrowings outstanding under this
facility and there were no other borrowings outstanding under this facility by
any other eligible borrower.
In October 2002, PLM Transportation Equipment Corp. Inc. (TEC), a wholly owned
subsidiary of FSI, arranged for the lease or purchase of a total of 1,050
pressurized tank railcars by (i) partnerships and managed programs in which FSI
serves as the general partner or manager and holds an ownership interest
(Program Affiliates) or (ii) partnerships or managed programs in which FSI
provides management services but does not hold an ownership interest
(Non-Program Affiliates). These railcars will be delivered over the next three
years. A leasing company affiliated with the manufacturer will acquire
approximately 70% of the railcars and lease them to a Non-Program Affiliate.
The remaining approximately 30% will either be purchased by other third parties
to be managed by PLMI or by the Program Affiliates. Neither TEC nor its
affiliate will be liable for these railcars. TEC estimates that the total value
of purchased railcars will not exceed $26.0 million with approximately one third
of the railcars being purchased in each of 2002, 2003, and 2004. As of December
31, 2002, FSI committed one Program Affiliate, other than the Partnership, to
purchase $11.3 million in railcars that were purchased by TEC in 2002 or will be
purchased in 2003. Although FSI has neither determined which Program Affiliates
will purchase the remaining railcars nor the timing of any purchases, it is
possible the Partnership may purchase some of the railcars.
Commitment and contingencies as of December 31, 2002 are as follows (in
thousands of dollars):
Less than 1-3 4-5 After 5
Current Obligations Total 1 Year Years Years Years
- ------------------------------- ----- -------- --------- ------- ------
Commitment to purchase railcars $14,699 $ 6,257 $ 8,442 $ -- $ --
Notes payable 12,750 3,000 6,000 3,750 --
Line of credit -- -- -- -- --
------- ------- -------- ------- ------
$27,449 $ 9,257 $ 14,442 $ 3,750 $ --
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the General Partner
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On a regular basis, the General Partner reviews
these estimates including those related to asset lives and depreciation methods,
impairment of long-lived assets, allowance for doubtful accounts, reserves
related to legally mandated equipment repairs and contingencies and litigation.
These estimates are based on the General Partner's historical experience and on
various other assumptions believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or
conditions. The General Partner believes, however, that the estimates,
including those for the above-listed items, are reasonable and that actual
results will not vary significantly from the estimated amounts.
The General Partner believes the following critical accounting policies affect
the more significant judgments and estimates used in the preparation of the
Partnership's financial statements:
Asset lives and depreciation methods: The Partnership's primary business
involves the purchase and subsequent lease of long-lived transportation and
related equipment. The General Partner has chosen asset lives that it believes
correspond to the economic life of the related asset. The General Partner has
chosen a deprecation method that it believes matches the benefit to the
Partnership from the asset with the associated costs. These judgments have been
made based on the General Partner's expertise in each equipment segment that the
Partnership operates. If the asset life and depreciation method chosen does not
reduce the book value of the asset to at least the potential future cash flows
from the asset to the Partnership, the Partnership would be required to record
an impairment loss. Likewise, if the net book value of the asset was reduced by
an amount greater than the economic value has deteriorated, the Partnership may
record a gain on sale upon final disposition of the asset.
Impairment of long-lived assets: Whenever circumstances indicate that an
impairment may exist, the General Partner reviews the carrying value of its
equipment and investments in USPEs to determine if the carrying value of the
assets may not be recoverable, in consideration of the current economic
conditions. This requires the General Partner to make estimates related to
future cash flows from each asset as well as the determination if the
deterioration is temporary or permanent. If these estimates or the related
assumptions change in the future, the Partnership may be required to record
additional impairment charges.
Allowance for doubtful accounts: The Partnership maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
lessees to make the lease payments. These estimates are primarily based on the
amount of time that has lapsed since the related payments were due as well as
specific knowledge related to the ability of the lessees to make the required
payments. If the financial condition of the Partnership's lessees were to
deteriorate, additional allowances could be required that would reduce income.
Conversely, if the financial condition of the lessees were to improve or if
legal remedies to collect past due amounts were successful, the allowance for
doubtful accounts may need to be reduced and income would be increased.
Reserves for repairs: The Partnership accrues for legally required repairs to
equipment such as dry docking for marine vessels and engine overhauls to
aircraft engines over the period prior to the required repairs. The amount that
is reserved for is based on the General Partner's expertise in each equipment
segment, the past history of such costs for that specific piece of equipment and
discussions with independent, third party equipment brokers. If the amount
reserved for is not adequate to cover the cost of such repairs or if the repairs
must be performed earlier than the General Partner estimated, the Partnership
would incur additional repair and maintenance or equipment operating expenses.
Contingencies and litigation: The Partnership is subject to legal proceedings
involving ordinary and routine claims related to its business. The ultimate
legal and financial liability with respect to such matters cannot be estimated
with certainty and requires the use of estimates in recording liabilities for
potential litigation settlements. Estimates for losses from litigation are
disclosed if considered possible and accrued if considered probable after
consultation with outside counsel. If estimates of potential losses increase or
the related facts and circumstances change in the future, the Partnership may be
required to record additional litigation expense.
(E) Recent Accounting Pronouncements
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill and other intangible assets determined to have an indefinite useful
life from an amortization method to an impairment-only approach. Amortization
of applicable intangible assets will cease upon adoption of this statement. The
Partnership implemented SFAS No. 142 on January 1, 2002. SFAS No. 142 had no
impact on the Partnership's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" (SFAS No.
145). The provisions of SFAS No. 145 are effective for fiscal years beginning
after May 15, 2002. As permitted by the pronouncement, the Partnership has
elected early adoption of SFAS No. 145 as of January 1, 2002. SFAS No. 145 had
no impact on the Partnership's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value. SFAS No. 146 applies to costs associated with (1) an exit activity that
does not involve an entity newly acquired in a business combination, or (2) a
disposal activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities" (FIN 46). This interpretation clarifies existing accounting
principles related to the preparation of consolidated financial statements when
the owners of an USPE do not have the characteristics of a controlling financial
interest or when the equity at risk is not sufficient for the entity to finance
its activities without additional subordinated financial support from others.
FIN 46 requires the Partnership to evaluate all existing arrangements to
identify situations where the Partnership has a "variable interest," commonly
evidenced by a guarantee arrangement or other commitment to provide financial
support, in a "variable interest entity," commonly a thinly capitalized entity,
and further determine when such variable interest requires the Partnership to
consolidate the variable interest entities' financial statements with its own.
The Partnership is required to perform this assessment by September 30, 2003 and
consolidate any variable interest entities for which the Partnership will absorb
a majority of the entities' expected losses or receive a majority of the
expected residual gains. The Partnership has determined that it is not
reasonably possible that it will be required to consolidate or disclose
information about a variable interest entity upon the effective date of FIN 46.
(F) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2002 and 2001
(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, 2002, compared to 2001. Gains or
losses from the sale of equipment, interest and other income, and certain
expenses such as depreciation and amortization and general and administrative
expenses relating to the operating segments (see Note 5 of the financial
statements), are not included in the owned equipment operation discussion
because these expenses are indirect in nature and not a result of operations,
but the result of owning a portfolio of equipment. The following table presents
lease revenues less direct expenses by segment (in thousands of dollars):
For the Years
Ended December 31,
2002 2001
-------------------
Marine containers . . . $ 3,750 $ 4,587
Railcars. . . . . . . . 2,386 2,642
Aircraft and components 1,616 1,842
Trailers. . . . . . . . 248 383
Marine vessel . . . . . (1) 179
Marine containers: Marine container lease revenues and direct expenses were
$3.8 million and $39,000, respectively, for the year ended December 31, 2002,
compared to $4.6 million and $0.1 million, respectively, during the same period
of 2001. The decrease in lease revenues of $0.9 million during 2002 was due to
a decrease of $0.4 million caused by certain marine containers switching from a
fixed lease rate to utilization based rate resulting in lower lease revenues and
a decrease of $0.5 million caused by a lower lease rate earned on the remaining
fleet under utilization leases compared to the same period of 2001.
Railcars: Railcar lease revenues and direct expenses were $3.3 million and $0.9
million, respectively, for the year ended December 31, 2002, compared to $3.8
million and $1.1 million, respectively, during the same period of 2001. A
decrease in railcar lease revenues of $0.5 million was primarily due to lower
re-lease rates earned on new leases as old leases expired during 2002. A
decrease in railcar direct expenses of $0.2 million was due to a decrease in the
repairs and maintenance of railcars in the year ended December 31, 2002 compared
to the same period in 2001.
Aircraft and components: Aircraft and component lease revenues and direct
expenses were $1.6 million and $22,000, respectively, for the year ended
December 31, 2002, compared to $1.8 million and $19,000, respectively, during
the same period of 2001. Lease revenues decreased $0.2 million during 2002 due
to the reduction in the lease rate on an MD-82 aircraft as part of a new lease
agreement in 2001.
Trailers: Trailer lease revenues and direct expenses were $0.8 million and
$0.5 million, respectively, for the year ended December 31, 2002, compared to
$0.9 million and $0.5 million, respectively, during the same period of 2001.
Trailer contribution decreased $0.1 million during 2002 due to lower lease
revenues of $0.1 million and higher repair costs of $49,000.
Marine vessel: Marine vessel contribution decreased $0.2 million during the
year ended December 31, 2002 due to the sale of the Partnership's wholly-owned
marine vessel during 2001.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $8.6 million for the year ended December 31, 2002
decreased from $10.3 million for the same period in 2001. Significant variances
are explained as follows:
(i) A $2.3 million decrease in depreciation and amortization expenses
from 2001 levels reflects the decrease of approximately $0.9 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 $1.3 million
resulting from certain assets being fully depreciated during 2001, and a
decrease of $0.1 million due to the sale of certain equipment during 2002 and
2001;
(ii) A $1.0 million decrease in interest expense resulted from a
decrease of $0.8 million caused by lower average borrowings outstanding in the
year ended December 31, 2002 compared to the same period of 2001 and a $0.2
million decrease due to a lower interest rate charged during 2002 compared to
2001;
(iii) A $0.1 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2002
compared to the same period of 2001. The management fee rate paid by the
Partnership will be reduced by 25% for the period January 1, 2003 through June
30, 2005;
(iv) A $0.1 million increase in the provision for bad debts was due to
the General Partners evaluation of the collectability of receivables due from
certain lessees.
(v) A $0.8 million increase in general and administrative expenses
during the year ended December 31, 2002 was due to a $1.0 million debt
prepayment penalty in the year ended December 31, 2002 related to the
Partnership's note payable that was not required during 2001, offset, in part,
by a decrease of $0.2 million due to lower professional service costs; and
(vi) Impairment loss increased $0.8 million during 2002 and resulted
from the Partnership reducing the carrying value of 84 tank railcars and one
aircraft to their estimated fair value. No impairment of equipment was required
during 2001.
(c) Interest and Other Income
Interest and other income decreased $0.5 million during 2002. A decrease of
$0.3 million was due to lower average cash balances compared to 2001, a decrease
of $0.1 million was due to a decrease in the interest rate earned on cash
balances, and a decrease of $0.1 million was due to an insurance settlement in
2001. A similar settlement was not received in 2002.
(d) Gain on Disposition of Owned Equipment
The gain on the disposition of owned equipment for the year ended December 31,
2002 totaled $0.2 million and resulted from the sale of marine containers and
railcars, with an aggregate net book value of $0.3 million for proceeds of $0.5
million. The gain on the disposition of owned equipment for the year ended
December 31, 2001 totaled $1.1 million, and resulted from the sale of a Boeing
737-200 commercial aircraft, a marine vessel, trailers, railcars, and marine
containers with an aggregate net book value of $3.0 million, for proceeds of
$3.7 million. Included in the net gain on sale of the marine vessel was the
unused portion of marine vessel dry-docking liability of $0.3 million.
(e) Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of USPEs represents the Partnership's share of the net income
or loss generated from the operation of jointly owned assets accounted for under
the equity method of accounting. These entities are single purpose and have no
debt or other financial encumbrances. The following table presents equity in
net loss by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2002 2001
---------------------
Aircraft. . . . . . . . . . . . $ (407) $ (2,850)
Marine vessels. . . . . . . . . (514) 1,915
--------- ----------
Equity in net loss of USPEs $ (921) $ (935)
========= ==========
The following USPE discussion by equipment type is based on the Partnership's
proportional share of revenues, gain on equipment dispositions, depreciation
expense, impairment loss, direct expenses, and administrative expenses in the
USPEs:
Aircraft: As of December 31, 2002 and 2001, the Partnership owned an interest
in two commercial aircraft on a direct finance lease and an interest in a Boeing
737-300 commercial aircraft. During the year ended December 31, 2002, revenues
of $1.4 million were offset by depreciation expense, direct expenses and
administrative expenses of $1.8 million. During the same period of 2001,
revenues of $1.7 million were offset by depreciation expense, impairment loss,
direct expenses and administrative expenses of $4.5 million.
Revenues earned by the trust that owns two commercial aircraft on a direct
finance lease decreased $0.3 million due to the leases for the aircraft in the
trust being renegotiated at a lower rate in 2001.
Depreciation expense, impairment loss, direct expenses, and administrative
expenses decreased $2.7 million during the year ended December 31, 2002 compared
to 2001 due to:
(i) A $1.6 million impairment loss was recorded on the trust that owned
two commercial aircraft on a direct finance lease during the year ended December
31, 2001 which resulted from the reduction of the carrying value of the trust's
aircraft to its estimated net realizable value. There were no impairments to
partially owned aircraft required during 2002.
(ii) A $0.5 million decrease in repairs and maintenance was due to
fewer required repairs during the year ending 2002 for the trust owning a Boeing
737-300 compared to 2001.
(iii) A $0.4 million decrease in depreciation expense due to the use of
the double declining-balance method of depreciation, which results in greater
depreciation in the first years an asset is owned.
(iv) A $0.1 million decrease in amortization expense due to deferred
charges being fully amortized.
Marine vessels: As of December 31, 2002 and 2001, the Partnership owned an
interest in an entity that owned a marine vessel. During the year ended
December 31, 2002, lease revenues of $2.8 million were offset by depreciation
expense, direct expenses, and administrative expenses of $3.4 million. During
the same period of 2001, lease revenues of $5.6 million and the gain of $0.7
million from the sale of the Partnership's interest in two entities that owned
marine vessels were offset by depreciation expense, direct expenses, and
administrative expenses of $4.4 million.
Marine vessel lease revenues decreased $2.7 million during the year ended
December 31, 2002 compared to 2001. During the year ended December 31, 2002,
marine vessel lease revenues decreased $1.9 million due to one marine vessel
earning a lower charter rate while on charter, $0.3 million due to the marine
vessel being in dry dock for three weeks, and $0.5 million due to the sale of
the Partnership's interest in two entities that owned marine vessels during
2001.
Depreciation expense, direct expenses, and administrative expenses decreased
$1.1 million during the year ended December 31, 2002 compared to 2001 due to the
following:
(i) A $0.2 million decrease in direct expenses due to lower operating
expenses;
(ii) A $0.2 million decrease in depreciation expense due to the use of
the double declining-balance method of depreciation, which results in greater
depreciation in the first years an asset is owned;
(iii) A $0.1 million decrease in management fees due to lower lease
revenues; and
(iv) An additional $0.6 million decrease was due to the sale of the
Partnership's interest in two entities that owned marine vessels during 2001.
(f) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss for the year ended
December 31, 2002 was $1.1 million, compared to a net income of $13,000 during
the same period of 2001. The Partnership's ability to acquire, operate, and
liquidate assets, secure leases and re-lease those assets whose leases expire is
subject to many factors. Therefore, the Partnership's performance in the year
ended December 31, 2002 is not necessarily indicative of future periods.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 2001 and 2000
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 2001, compared to 2000. The
following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
2001 2000
-------------------
Marine containers . . . $ 4,587 $ 4,686
Railcars. . . . . . . . 2,642 3,281
Aircraft and components 1,824 2,722
Trailers. . . . . . . . 383 1,415
Marine vessels. . . . . 179 1,276
Marine containers: Marine container lease revenues and direct expenses were
$4.6 million and $0.1 million, respectively, for the year ended December 31,
2001, compared to $4.7 million and $20,000, respectively, during 2000. The
decrease in lease revenues of $0.1 million during the year ended December 31,
2001, was due to lower marine container utilization compared to 2000.
Railcars: Railcar lease revenues and direct expenses were $3.8 million and $1.1
million, respectively, for the year ended December 31, 2001, compared to $4.3
million and $1.0 million, respectively, during 2000. Lease revenues decreased
$0.2 million due to lower re-lease rates earned on railcars whose leases expired
during 2001 and decreased $0.3 million due to the increase in the number of
railcars off-lease during 2001, compared to 2000. An increase in direct
expenses of $0.1 million was due to higher repairs during 2001, compared to
2000.
Aircraft and components: Aircraft lease revenues and direct expenses were $1.8
million and $19,000, respectively, for the year ended December 31, 2001,
compared to $2.8 million and $0.1 million, respectively, during 2000. Lease
revenues were lower primarily due to the reduction of the lease rate on an MD-82
as part of a new lease agreement.
Trailers: Trailer lease revenues and direct expenses were $0.9 million and
$0.5 million, respectively, for the year ended December 31, 2001, compared to
$2.1 million and $0.7 million, respectively, during 2000. The decrease in
trailer contribution of $1.0 million was due to the sale of 49% of the
Partnership's trailers during 2000.
Marine vessels: Marine vessel lease revenues and direct expenses were $0.5
million and $0.3 million, respectively, for the year ended December 31, 2001,
compared to $3.6 million and $2.3 million, respectively, during 2000. Decreases
in lease revenues of $3.1 million and direct expenses of $2.0 million during the
year ended December 31, 2001, compared to the same period in 2000, were due to
the sale of all of the Partnership's wholly owned marine vessels during 2001 and
2000.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $10.3 million for the year ended December 31, 2001
decreased from $13.5 million for the same period in 2000. Significant variances
are explained as follows:
(i) A $2.8 million decrease in depreciation and amortization expenses from
2000 levels reflects a decrease of $1.8 million due to the sale of certain
equipment during 2001 and 2000, and a $1.2 million decrease caused by the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
These decreases were offset, in part, by an increase of $0.2 million in
depreciation expenses resulting from the transfer of the Partnership's interest
in an entity that owned marine containers from the USPE portfolio to owned
equipment during 2000, and a $0.2 million increase in amortization expense
related to deferred charges.
(ii) A $0.4 million impairment loss on equipment during the year ended
December 31, 2000 resulted from the reduction of the carrying value of a Boeing
737-200 commercial aircraft to its estimated net realizable value. There was no
impairment of wholly owned equipment required during 2001.
(iii) A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 2001
compared to 2000.
(iv) A $0.3 million decrease in general and administrative expenses during
the year ended December 31, 2001 was due to lower costs of $0.3 million
resulting from the sale of 49% of the Partnership's trailers during 2000 and by
a decrease of $0.2 million resulting from decreased allocations by the General
Partner compared to 2001. These decreases were offset, in part, by an increase
of $0.2 million due to higher professional costs.
(v) A $0.7 million increase in the recovery of bad debts was due to the
collection of past due receivables during the year ended December 31, 2000 that
had been previously reserved for as a bad debt. A similar collection did not
occur in 2001.
(c) Gain on Disposition of Owned Equipment, Net
The gain on the disposition of owned equipment for the year ended December 31,
2001 totaled $1.1 million, and resulted from the sale of a Boeing 737-200
commercial aircraft, a marine vessel, trailers, railcars, and marine containers
with an aggregate net book value of $3.0 million, for proceeds of $3.7 million.
Included in the gain on sale of the marine vessel was the unused portion of
marine vessel dry-docking liability of $0.3 million. The net gain on the
disposition of owned equipment for the year ended December 31, 2000 totaled $2.1
million, and resulted from the sale of marine vessels, marine containers,
trailers, and railcars with an aggregate net book value of $7.3 million, for
proceeds of $9.1 million and unused dry-docking reserves on sold marine vessels
of $0.3 million.
(d) Equity in Net Loss of Unconsolidated Special-Purpose Entities
Equity in net loss of USPEs represents the Partnership's share of the net income
or loss generated from the operation of jointly owned assets accounted for under
the equity method of accounting. These entities are single purpose and have no
debt or other financial encumbrances. The following table presents equity in
net loss by equipment type (in thousands of dollars):
For the Years
Ended December 31,
2001 2000
-------------------
Marine vessels. . . . . . . . . $ 1,915 $ (548)
Aircraft. . . . . . . . . . . . (2,850) (1,485)
Other . . . . . . . . . . . . . -- 129
--------- --------
Equity in net loss of USPEs $ (935) $(1,904)
========= ========
The following USPE discussion by equipment type is based on the Partnership's
proportional share of revenues, gain on equipment dispositions, depreciation
expense, direct expenses, and administrative expenses in the USPEs:
Marine vessels: During the year ended December 31, 2001, lease revenues of
$5.6 million and the gain of $0.7 million from the sale of the Partnership's
interest in two entities that owned marine vessels were offset by depreciation
expense, direct expenses, and administrative expenses of $4.4 million. During
2000, lease revenues of $3.5 million were offset by depreciation expense, direct
expenses, and administrative expenses of $4.1 million.
Marine vessel lease revenues increased $2.1 million during the year ended
December 31, 2001 compared to 2000 due to the following:
(i) Marine vessel lease revenues increased $1.8 million due to a marine
vessel switching from a fixed rate lease to a voyage charter lease during 2001.
Under a voyage charter lease, the marine vessel earns a higher lease rate;
however, certain direct expenses that were previously paid by the lessee are now
paid by the owner.
(ii) Lease revenues increased $0.9 million during the year ended
December 31, 2001 due to one marine vessel being on lease the entire year of
2001, which was in drydock and off-lease for nine weeks during 2000. During the
drydock period, the marine vessel did not earn any lease revenues.
(iii) These increases were offset, in part, by a $0.7 million decrease
in lease revenue due to the sale of two marine vessels in 2001 in which the
Partnership owned an interest.
Depreciation expense, direct expenses, and administrative expenses increased
$0.3 million during the year ended December 31, 2001 compared to 2000 due to the
following:
(i) A $1.0 million increase in direct expenses due to higher operating
expenses for one marine vessel that was on voyage charter during the year ending
December 31, 2001, that was on fixed rate lease during part of the same period
of 2000.
(ii) A $0.2 million increase in direct expenses due to a marine vessel
being on lease during the year of 2001 that was in dry dock and off-lease for
nine weeks in 2000.
(iii) A $0.1 million increase in management fees due to higher lease
revenue on partially owned marine vessels.
(iv) A $0.4 million decrease in depreciation expense due to a $0.3
million decrease from the sale of two marine vessels in which the Partnership
owned an interest and a $0.2 million decrease due to the use of the double
declining-balance method of depreciation, which results in greater depreciation
in the first years an asset is owned.
(v) A $0.5 million decrease in direct expenses resulting from the sale
of two marine vessels in which the Partnership owned an interest.
Aircraft: As of December 31, 2001 and 2000, the Partnership owned an interest
in two commercial aircraft on a direct finance lease and an interest in a Boeing
737-300 commercial aircraft. During the year ended December 31, 2001, revenues
of $1.7 million were offset by depreciation expense, direct expenses, and
administrative expenses of $4.5 million. During 2000, revenues of $1.5 million
were offset by depreciation expense, direct expenses and administrative expenses
of $3.0 million.
Lease revenues increased $0.2 million during the year ended December 31, 2001
due to the Boeing 737-300 being on-lease the full year of 2001. This aircraft
was off-lease most of 2000.
Depreciation expense, direct expenses, and administrative expenses increased
$1.5 million during the year ended December 31, 2001 compared to 2000 due to:
(i) A $1.6 million impairment loss was recorded on the trust that owned
two commercial aircraft on a direct finance lease during the year ended December
31, 2001 which resulted from the reduction of the carrying value of the trust's
aircraft to its estimated net realizable value. There were no impairments to
partially owned aircraft required during 2000.
(ii) A $0.1 million increase in amortization expense due to the
amortization of deferred charges.
(iii) A $0.1 million increase in bad debt expenses resulting from the
collection of an unpaid accounts receivable during 2000 that had been reserved
for as a bad debt in a previous year. A similar collection was not received
during 2001.
(iv) A $0.2 million decrease in depreciation expense due to the use of
the double declining-balance method of depreciation, which results in greater
depreciation in the first years an asset is owned.
(v) A $0.2 million decrease in repairs and maintenance was due to fewer
required repairs during the year ending 2001 for the trust owning a Boeing
737-300 compared to 2000.
(e) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 2001 was $13,000, compared to a net income of $0.4 million during
2000. The Partnership's ability to acquire, operate and liquidate assets,
secure leases, and re-lease those assets whose leases expire is subject to many
factors. Therefore, the Partnership's performance in the year ended December
31, 2001 is not necessarily indicative of future periods. In the year ended
December 31, 2001, the Partnership distributed $1.3 million to the limited
partners, or $0.16 per weighted-average limited partnership unit.
(G) 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 United States (US) dollars. Political
risks are minimized by avoiding operations in countries that do not have a
stable judicial system and established commercial business laws. Credit support
strategies for lessees range from letters of credit supported by US banks to
cash deposits. Although these credit support mechanisms generally allow the
Partnership to maintain its lease yield, there are risks associated with
slow-to-respond judicial systems when legal remedies are required to secure
payment or repossess equipment. Economic risks are inherent in all
international markets and the General Partner strives to minimize this risk with
market analysis prior to committing equipment to a particular geographic area.
Refer to Note 6 to the financial statements for information on the lease
revenues, net income (loss), and net book value of equipment in various
geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment on lease to US - domiciled lessees consists of
aircraft, trailers and railcars. During 2002, US lease revenues accounted for
32% of the total lease revenues of wholly and jointly owned equipment while this
region reported net income of $0.9 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars. During 2002, Canadian lease revenues accounted for 7% of
the total lease revenues of wholly and jointly owned equipment, while this
region reported net income of $0.3 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 3% of the total lease revenues of wholly and jointly owned
equipment, while this region reported net income of $0.1 million.
The Partnership's investment in equipment owned by a USPE on lease to a lessee
domiciled in South America consists of an aircraft. South American lease
revenues accounted for 9% of the total lease revenues of wholly and jointly
owned equipment while this region reported net loss of $0.5 million. The
primary reasons for this loss were due to the double-declining balance method of
depreciation that results in greater depreciation in the first years an asset is
owned.
The Partnership's ownership share in equipment owned by a USPE on lease to a
Mexican-domiciled lessee consisted of two aircraft on a direct finance lease.
No operating lease revenues were reported in this region while this region
reported net income of $0.1 million.
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 2002, lease revenues from these operations accounted for 49%
of the total lease revenues of wholly and jointly owned equipment, while
reporting net income from these operations of $0.8 million.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 2002,
2001, or 2000.
(I) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially
from those discussed here.
(J) Outlook for the Future
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent upon many factors,
such as specific market conditions and economic activity, technological
obsolescence, and government or other regulations. The unpredictability of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continuously monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General
Partner may make an evaluation to reduce the Partnership's exposure to those
equipment markets in which it determines that it cannot operate equipment and
achieve acceptable rates of return. Alternatively, the General Partner may make
a determination to enter those markets in which it perceives opportunities to
profit from supply and demand instabilities, or other market imperfections.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay principal and interest on debt and acquire
additional equipment until December 31, 2004. Additionally, in 2003 the
Partnership intends to borrow the additional $15.0 million available under the
Partnership term loan. The proceeds from this loan will be used to purchase
additional equipment.
Due to a weak economy, and specifically weakness in the transportation industry,
the General Partner has not purchased additional equipment for the Partnership
since 2000. The General Partner believes prices on certain transportation
assets, particularly rail equipment, have reached attractive levels and is
actively looking to make investments in 2003. The General Partner believes that
transportation assets purchased in today's economic environment may appreciate
when the economy returns to historical growth rates. Accordingly, the General
Partner believes that most of the cash currently held by the Partnership as well
as cash that will be provided by additional borrowings under the Partnership's
senior debt facility will be used to purchase equipment over the next 18 months.
Factors affecting the Partnership's contribution during the year 2003 and beyond
include:
(i) 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 for
this type of equipment. In addition, during 2003, a significant number of the
Partnership's marine containers currently on a fixed rate lease will be
switching to a lease based on utilization. The General Partner anticipates that
this will result in a significant decrease in lease revenues;
(ii) Railcar freight loadings in the United States and Canada decreased 1%
and 3%, respectively, through most of 2002. There has been, however, a recent
increase for some of the commodities that drive demand for those types of
railcars owned by the Partnership. It will be some time, however, before this
translates into new leasing demand by shippers since most shippers have idle
railcars in their fleets;
(iii) Marine vessel freight rates are dependent upon the overall condition
of the international economy. Freight rates earned by the Partnership's
partially owned marine vessels began to decrease during the latter half of 2001
and through most of 2002. In the fourth quarter of 2002 and into 2003, freight
rates for the Partnership's marine vessel, which primarily carries petroleum
products, started to increase due to an increase in oil prices caused by
political instability in the Middle East;
(iv) The airline industry began to see lower passenger travel during 2001.
The events of September 11, 2001, along with a recession in the United States
have continued to adversely affect the market demand for both new and used
commercial aircraft and to significantly weaken the financial position of most
major domestic airlines. As a result of this, the Partnership has had to
renegotiate leases on its owned aircraft and partially owned aircraft on a
direct finance lease during 2001 that resulted in a decrease in revenues during
2002. In addition, these events have had a negative impact on the fair value of
the Partnership's owned and partially owned aircraft. A reduction in the
carrying value of $37,000 was required during 2002 to the Partnership's aircraft
rotable portfolio. The General Partner does not expect aircraft and aircraft
rotables to return to their September 11, 2001 values due to a significant
oversupply of commercial aircraft available and that this oversupply will
continue for some time;
(v) Utilization of intermodal trailers owned by the Partnership decreased
12% in 2002 compared to 2001. This decline was similar to the decline in
industry-wide utilization. As the Partnership's trailers are smaller than many
shippers prefer, the General Partner expects continued declines in utilization
over the next few years. Additionally, one of the major shippers that leased
the Partnership's trailers has entered bankruptcy. While the Partnership did
not have any outstanding receivables from the company, its bankruptcy may cause
a further decline in performance of the trailer fleet in the future;
(vi) The General Partner has seen an increase in its insurance premiums on
its equipment portfolio and is finding it more difficult to find an insurance
carrier with which to place the coverage. Premiums for aircraft insurance have
increased over 50% and for other types of equipment the increases have been over
25%. The increase in insurance premiums caused by the increased rate will be
partially mitigated by the reduction in the value of the Partnership's equipment
portfolio caused by the events of September 11, 2001 and other economic factors.
The General Partner has also experienced an increase in the deductible required
to obtain coverage. This may have a negative impact on the Partnership in the
event of an insurance claim; and
(vii) The management fee rate paid by the Partnership will be reduced by 25%
for the period starting January 1, 2003 and ending June 30, 2005.
Several other factors may affect the Partnership's operating performance in the
year 2003 and beyond, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
(1) Repricing and Reinvestment Risk
Certain portions of the Partnership's aircraft rotables, railcar, marine
container, marine vessel, and trailer portfolios will be remarketed in 2003 as
existing leases expire, exposing the Partnership to considerable repricing
risk/opportunity. Additionally, the General Partner may select to sell certain
underperforming equipment or equipment whose continued operation may become
prohibitively expensive. In either case, the General Partner intends to
re-lease or sell equipment at prevailing market rates; however, the General
Partner cannot predict these future rates with any certainty at this time and
cannot accurately assess the effect of such activity on future Partnership
performance. The proceeds from the sold or liquidated equipment will be
redeployed to purchase additional equipment, as the Partnership is in its
reinvestment phase.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Ongoing changes in the regulatory
environment, both in the United States and internationally, cannot be predicted
with any accuracy and preclude the General Partner from determining the impact
of such changes on Partnership operations, purchases, or sale of equipment.
The US Department of Transportation's Hazardous Materials Regulations regulates
the classification and packaging requirements of hazardous materials and apply
particularly to Partnership's tank railcars. The Federal Railroad
Administration has mandated that effective July 1, 2000 all tank railcars must
be re-qualified every ten years from the last test date stenciled on each
railcar to insure tank shell integrity. Tank shell thickness, weld seams, and
weld attachments must be inspected and repaired if necessary to re-qualify the
tank railcar for service. The average cost of this inspection is $3,600 for
jacketed tank railcars and $1,800 for non-jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test and every ten years thereafter. The Partnership currently owns 282
jacketed tank railcars and 179 non-jacketed tank railcars. As of December 31,
2002, 42 jacketed tank railcars and 13 non-jacketed tank railcars of the fleet
will need to be re-qualified in 2003 or 2004.
During the fourth quarter of 2002, the Partnership reduced the net book value of
84 owned tank railcars in its railcar fleet to their fair value of $2,000 per
railcar, and recorded a $0.7 million impairment loss. The impairment was caused
by a general recall due to a manufacturing defect allowing extensive corrosion
of the railcars' internal lining. Repairing the railcars was determined to be
cost prohibitive. The fair value of railcars with this defect was determined by
using industry expertise. These railcars were off lease.
Ongoing changes in the regulatory environment, both in the United States and
internationally, cannot be predicted with accuracy, and preclude the General
Partner from determining the impact of such changes on Partnership operations,
purchases, or sale of equipment.
(K) Distribution Levels and Additional Capital Resources
Pursuant to the amended limited partnership agreement, the Partnership will
cease to reinvest surplus cash in additional equipment beginning on January 1,
2005. Prior to that date, the General Partner intends to continue its strategy
of selectively redeploying equipment to achieve competitive returns, or selling
equipment that is underperforming or whose operation becomes prohibitively
expensive. During this time, the Partnership will use operating cash flow,
proceeds from the sale of equipment, and additional debt to meet its operating
obligations, make distributions to the partners, and acquire additional
equipment. In the long term, changing market conditions and used-equipment
values may preclude the General Partner from accurately determining the impact
of future re-leasing activity and equipment sales on Partnership performance and
liquidity. Consequently, the General Partner cannot establish future
distribution levels with any certainty at this time.
The General Partner believes that sufficient cash flow will be available in the
future for repayment of debt and to meet Partnership operating cash flow
requirements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------------
The Partnership's primary market risk exposure is that of interest rate and
currency devaluation risk.
The Partnership's senior secured note is a variable rate debt. The Partnership
estimates a 1% increase or decrease in the Partnership's variable rate debt
would result in an increase or decrease, respectively, in interest expense of
$0.1 million in 2003 and $0.2 million thereafter. The Partnership estimates a
2% increase or decrease in the Partnership's variable rate debt would result in
an increase or decrease, respectively, in interest expense of $0.2 million in
2003 and $0.3 million thereafter.
During 2002, 68% of the Partnership's total lease revenues from wholly and
jointly owned equipment came from non-United States domiciled lessees. Most of
the Partnership's leases require payment in US currency. If these lessees'
currency devalues against the US dollar, the lessees could potentially encounter
difficulty in making the US dollar denominated lease payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-----------------------------------------------
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 15(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------------------------------------------------------------------
FINANCIAL DISCLOSURE
-----------------
(A) Disagreements with Accountants on Accounting and Financial Disclosures
None
(B) Changes in Accountants
In September 2001, the General Partner announced that the Partnership had
engaged Deloitte & Touche LLP as the Partnership's auditors and had dismissed
KPMG LLP. KPMG LLP issued an unqualified opinion on the 2000 financial
statement. During 2000 and the subsequent interim period preceding such
dismissal, there were no disagreements with KPMG LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM FINANCIAL SERVICES, INC.
------------------------------------------------------------------
As of the date of this annual report, the directors and executive officers of
PLM Financial Services, Inc. (and key executive officers of its subsidiaries)
are as follows:
Name Age Position
==============================================================================
Gary D. Engle . 53 Director, PLM Financial Services, Inc., PLM Investment
Management, Inc., and PLM Transportation Equipment Corp.
James A. Coyne 42 Director, Secretary and President, PLM Financial
Services, Inc. and PLM Investment Management, Inc.,
Director and Secretary, PLM Transportation Equipment Corp.
Richard K Brock 40 Director and Chief Financial Officer, PLM Financial
Services, Inc., PLM Investment Management, Inc. and
PLM Transportation Equipment Corp.
Gary D. Engle was appointed a Director of PLM Financial Services, Inc. in
January 2002. He was appointed a director of PLM International, Inc. in
February 2001. He is a director and President of MILPI Holdings, LLC (MILPI).
Since November 1997, Mr. Engle has been Chairman and Chief Executive Officer of
Semele Group Inc. ("Semele"), a publicly traded company. Mr. Engle is President
and Chief Executive Officer of Equis Financial Group ("EFG"), which he joined in
1990 as Executive Vice President. Mr. Engle purchased a controlling interest in
EFG in December 1994. He is also President of AFG Realty, Inc.
James A. Coyne was appointed President of PLM Financial Services, Inc. in August
2002. He was appointed a Director and Secretary of PLM Financial Services, Inc.
in April 2001. He was appointed a director of PLM International, Inc. in
February 2001. He is a director, Vice President and Secretary of MILPI. Mr.
Coyne has been a director, President and Chief Operating Officer of Semele since
1997. Mr. Coyne is Executive Vice President of Equis Corporation, the general
partner of EFG. Mr. Coyne joined EFG in 1989, remained until 1993, and rejoined
in November 1994.
Richard K Brock was appointed a Director and Chief Financial Officer of PLM
Financial Services, Inc. in August 2002. From June 2001 through August 2002,
Mr. Brock was a consultant to various leasing companies including PLM Financial
Services, Inc. From October 2000 through June 2001, Mr. Brock was a Director of
PLM Financial Services, Inc. Mr. Brock was appointed Vice President and Chief
Financial Officer of PLM International, Inc. 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, Inc. and
PLM Financial Services, Inc. since June 1997. Prior to June 1997, Mr. Brock
served as an accounting manager at PLM Financial Services, Inc. beginning in
September 1991 and as Director of Planning and General Accounting beginning in
February 1994.
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, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain allocations of income), and
distributions. As of December 31, 2002, 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, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------
(A) Transactions with Management and Others
During 2002, the Partnership paid or accrued the following fees to FSI or its
affiliates: management fees, $0.5 million; and administrative and data
processing services performed on behalf of the Partnership, $0.2 million.
During 2002, 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, $0.2 million; and
administrative and data processing services, $0.1 million.
The balance due to affiliates as of December 31, 2002 includes $0.1 million due
to FSI and its affiliates for management fees and $1.3 million due to a USPE.
ITEM 14. CONTROLS AND PROCEDURES
-------------------------
Based on their evaluation as of a date within 90 days of the filing of this Form
10-K, the Partnership's principal Executive Officer and Chief Financial Officer
have concluded that the Partnership's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Partnership files or submits under the Securities Exchange Act of 1934
is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There
have been no significant changes in the Partnership's internal controls or in
other factors that could significantly affect those controls subsequent to the
date of their evaluation.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
------------------------------------------------------------------
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
2. Financial Statements required under Regulation S-X Rule 3-09
The following financial statements are filed as Exhibits of this Annual Report
on Form 10-K:
a. Aero California Trust (A Trust)
b. Lion Partnership
c. Boeing 737-200 Trust S/N 24700
d. Pacific Source Partnership
(B) Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
All other financial statement schedules have been omitted, as the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
(C) Reports on Form 8-K
None.
(D) Exhibits
4. Limited Partnership Agreement of Partnership, incorporated by
reference to the Partnership's Registration Statement on Form S-1 (Reg. No.
33-40093) which became effective with the Securities and Exchange Commission on
December 23, 1991.
4.1 Second Amendment to the Amended and Restated Limited Partnership
Agreement dated August 24, 2001, incorporated by reference to the Partnership's
Form 10-K dated December 31, 2001 filed with the Securities and Exchange
Commission on March 26, 2002.
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 December 21, 2001, regarding $30.0
million term loan notes due December 21, 2006, incorporated by reference to the
Partnership's Form 10-K dated December 31, 2001 filed with the Securities and
Exchange Commission on March 26, 2002.
10.3 Warehousing Credit Agreement dated as of April 13, 2001,
incorporated by reference to the Partnership's Form 10-Q dated March 31, 2001
filed with the Securities and Exchange Commission on May 9, 2001.
10.4 First amendment to the Warehouse Credit Agreement, dated December 21,
2001, incorporated by reference to the Partnership's Form 10-K dated December
31, 2001 filed with the Securities and Exchange Commission on March 26, 2002.
10.5 Second amendment to the Warehouse Credit Agreement, dated April 12,
2002, incorporated by reference to the Partnership's Form 10-Q dated March 31,
2002 filed with the Securities and Exchange Commission on May 7, 2002.
10.6 Third amendment to the Warehouse Credit Agreement, dated July 11, 2002,
incorporated by reference to the Partnership's Form 10-Q dated June 30, 2002
filed with the Securities and Exchange Commission on August 14, 2002.
10.7 October 2002 purchase agreement between PLM Transportation Equipment
Corp., Inc. and Trinity Tank Car, Inc. incorporated by reference to the
Partnership's Form 10-Q dated September 30, 2002 filed with the Securities and
Exchange Commission on November 14, 2002.
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Aero California Trust
99.2 Lion Partnership
99.3 Boeing 737-200 Trust S/N 24700
99.4 Pacific Source Partnership
- ------
CONTROL CERTIFICATION
- ----------------------
I, James A. Coyne, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund VI.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this annual report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 By: /s/ James A. Coyne
---------------------
James A. Coyne
President
(Principal Executive Officer)
CONTROL CERTIFICATION
- ----------------------
I, Richard K Brock, certify that:
1. I have reviewed this annual report on Form 10-K of PLM Equipment Growth
Fund VI.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to us by others,
particularly during the period in which this annual report is prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and board of Managers:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 26, 2003 By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
(Principal Financial Officer)
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 26, 2003 PLM EQUIPMENT GROWTH FUND VI
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ James A. Coyne
---------------------
James A. Coyne
President
By: /s/ Richard K Brock
----------------------
Richard K Brock
Chief Financial Officer
CERTIFICATION
The undersigned hereby certifies, in their capacity as an officer of the General
Partner of PLM Equipment Growth Fund VI (the Partnership), that the Annual
Report of the Partnership on Form 10-K for the year ended December 31, 2002,
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that the information contained in such report fairly presents,
in all material respects, the financial condition of the Partnership at the end
of such period and the results of operations of the Partnership for such period.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
- ---- -------- ----
/s/ Gary D. Engle_________
- -----------------------------
Gary D. Engle Director, FSI March 26, 2003
/s/ James A. Coyne_______
- ----------------------------
James A. Coyne Director, FSI March 26, 2003
/s/ Richard K Brock______
- ----------------------
Richard K Brock Director, FSI March 26, 2003
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 15(a))
Page
----
Independent auditors' reports 33-34
Balance sheets as of December 31, 2002 and 2001 35
Statements of operations for the years ended
December 31, 2002, 2001, and 2000 36
Statements of changes in partners' capital for the
years ended December 31, 2002, 2001, and 2000 37
Statements of cash flows for the years ended
December 31, 2002, 2001, and 2000 38
Notes to financial statements 39-54
Independent auditors' reports on financial statement
schedule 55-56
Schedule II valuation and qualifying accounts 57
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying balance sheets of PLM Equipment Growth Fund VI,
a limited partnership (the "Partnership"), as of December 31, 2002 and 2001, and
the related statements of operations, changes in partners' capital, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2002 and
2001, and the results of its operations and its cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying statements of operations, changes in partners'
capital and cash flows of PLM Equipment Growth Fund V ("the Partnership") for
the year ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of PLM Equipment
Growth Fund VI for the year ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
2002 2001
--------- ---------
ASSETS
Equipment held for operating leases. . . . . . . . . . . . . . . . . . . . $ 62,686 $ 63,694
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . (44,382) (40,487)
--------- ---------
Net equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,304 23,207
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . 8,286 8,051
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 410 425
Accounts receivable, less allowance for doubtful accounts of
$425 in 2002 and $380 in 2001. . . . . . . . . . . . . . . . . . . . . 944 1,394
Investments in unconsolidated special-purpose entities . . . . . . . . . . 12,625 15,223
Lease negotiation fees to affiliate, less accumulated
amortization of $320 in 2002 and $178 in 2001. . . . . . . . . . . . . 66 75
Debt issuance costs, less accumulated amortization
of $48 in 2002 and $122 in 2001. . . . . . . . . . . . . . . . . . . . 276 310
Debt placement fees to affiliate, less accumulated
amortization of $118 in 2001 . . . . . . . . . . . . . . . . . . . . . -- 30
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . . . . . 273 77
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,184 $ 48,792
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . . . . $ 449 $ 317
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391 947
Lessee deposits and reserve for repairs. . . . . . . . . . . . . . . . . . 18 30
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,750 20,000
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,608 21,294
--------- ---------
Commitments and contingencies
Partners' capital
Limited partners (7,730,965 limited partnership units outstanding in 2002
and 7,781,898 limited partnership units outstanding in 2001) . . . . 26,576 27,498
General Partner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
--------- ---------
Total partners' capital. . . . . . . . . . . . . . . . . . . . . . . . . 26,576 27,498
--------- ---------
Total liabilities and partners' capital. . . . . . . . . . . . . . . $ 41,184 $ 48,792
========= =========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands of dollars, except weighted-average unit amounts)
2002 2001 2000
-------- -------- --------
REVENUES
Lease revenue. . . . . . . . . . . . . . . . . . . $ 9,502 $11,669 $17,526
Interest and other income. . . . . . . . . . . . . 177 663 253
Gain on disposition of equipment . . . . . . . . . 203 1,077 2,192
Loss on disposition of equipment . . . . . . . . . -- -- (45)
-------- -------- --------
Total revenues . . . . . . . . . . . . . . . . . 9,882 13,409 19,926
-------- -------- --------
EXPENSES
Depreciation and amortization. . . . . . . . . . . 3,881 6,144 8,897
Repairs and maintenance. . . . . . . . . . . . . . 1,345 1,550 1,956
Equipment operating expenses . . . . . . . . . . . 69 494 2,034
Insurance expenses . . . . . . . . . . . . . . . . 152 119 195
Management fees to affiliate . . . . . . . . . . . 526 645 963
Interest expense . . . . . . . . . . . . . . . . . 916 1,956 2,059
General and administrative expenses to affiliates. 175 440 659
Other general and administrative expenses. . . . . 2,163 1,128 1,193
Loss on impairment of equipment. . . . . . . . . . 769 -- 374
Provision for (recovery of) bad debts. . . . . . . 61 (15) (720)
-------- -------- --------
Total expenses . . . . . . . . . . . . . . . . 10,057 12,461 17,610
-------- -------- --------
Equity in net loss of unconsolidated
special-purpose entities . . . . . . . . . . . (921) (935) (1,904)
-------- -------- --------
Net income (loss). . . . . . . . . . . . . . $(1,096) $ 13 $ 412
======== ======== ========
PARTNERS' SHARE OF NET INCOME (LOSS)
Limited partners . . . . . . . . . . . . . . . . . $(1,096) $ (73) $ (278)
General Partner. . . . . . . . . . . . . . . . . . -- 86 690
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $(1,096) $ 13 $ 412
======== ======== ========
Limited partner's net loss per
weighted-average limited partnership unit. . . $ (0.14) $ (0.01) $ (0.03)
======== ======== ========
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, 2002, 2001, AND 2000
(in thousands of dollars)
Limited General
Partners Partner Total
---------- --------- ---------
Partners' capital as of December 31, 1999 . . $ 45,021 $ -- $ 45,021
Net income (loss) . . . . . . . . . . . . . . . (278) 690 412
Purchase of limited partnership units . . . . . (17) -- (17)
Cash distribution . . . . . . . . . . . . . . . (13,104) (690) (13,794)
---------- --------- ---------
Partners' capital as of December 31, 2000 . . 31,622 -- 31,622
Net income (loss) . . . . . . . . . . . . . . . (73) 86 13
Purchase of limited partnership units . . . . . (2,765) -- (2,765)
Cash distribution . . . . . . . . . . . . . . . (1,286) (86) (1,372)
---------- --------- ---------
Partners' capital as of December 31, 2001 . . 27,498 -- 27,498
Net loss. . . . . . . . . . . . . . . . . . . . (1,096) -- (1,096)
Canceled purchase of limited partnership units. 174 -- 174
---------- --------- ---------
Partners' capital as of December 31, 2002 . . $ 26,576 $ -- $ 26,576
========== ========= =========
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)
2002 2001 2000
--------- --------- ---------
OPERATING ACTIVITIES
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . $ (1,096) $ 13 $ 412
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 3,881 6,144 8,897
Amortization of debt issuance costs and debt placement fees. . . 182 30 30
Loss on impairment of equipment. . . . . . . . . . . . . . . . . 769 -- 373
Net gain on disposition of equipment . . . . . . . . . . . . . . (203) (1,077) (2,147)
Equity in net loss from unconsolidated special-purpose entities. 921 935 1,904
Changes in operating assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . . . . 533 588 (578)
Prepaid expenses and other assets. . . . . . . . . . . . . . . (196) 24 (43)
Accounts payable and accrued expenses. . . . . . . . . . . . . 132 (814) (49)
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . 465 105 479
Lessee deposits and reserve for repairs. . . . . . . . . . . . (12) (119) 59
--------- --------- ---------
Net cash provided by operating activities. . . . . . . . . . 5,376 5,829 9,337
--------- --------- ---------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized repairs . . . . (10) (2) (955)
Investments in, and equipment purchased and placed in,
unconsolidated special-purpose entities . . . . . . . . . . . . -- (632) --
Distribution from unconsolidated special-purpose entities. . . . . 1,656 3,346 2,760
Distribution from liquidation of unconsolidated special-purpose
entities . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 2,254 88
Payments of acquisition fees to affiliate. . . . . . . . . . . . . -- (678) --
Payments of lease negotiation fees to affiliate. . . . . . . . . . (1) (150) --
Proceeds from disposition of equipment . . . . . . . . . . . . . . 382 3,711 9,138
--------- --------- ---------
Net cash provided by investing activities. . . . . . . . . . 2,027 7,849 11,031
--------- --------- ---------
FINANCING ACTIVITIES
Payments of notes payable. . . . . . . . . . . . . . . . . . . . . (22,250) (10,000) --
Proceeds from notes payable. . . . . . . . . . . . . . . . . . . . 15,000 -- --
Payment of debt placement fees . . . . . . . . . . . . . . . . . . (118) (280) --
Decrease (increase) in restricted cash . . . . . . . . . . . . . . 15 (425) --
Proceeds from short-term note payable. . . . . . . . . . . . . . . -- -- 600
Payments of short-term note payable. . . . . . . . . . . . . . . . -- -- (600)
Purchase of limited partnership units. . . . . . . . . . . . . . . -- (2,776) (17)
Canceled purchase of limited partnership units . . . . . . . . . . 174 -- --
Refund from limited partnership units not eligible for purchase. . 11 -- --
Cash distribution paid to limited partners . . . . . . . . . . . . -- (1,286) (13,104)
Cash distribution paid to General Partner. . . . . . . . . . . . . -- (86) (690)
--------- --------- ---------
Net cash used in financing activities. . . . . . . . . . . . (7,168) (14,853) (13,811)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . . 235 (1,175) 6,557
Cash and cash equivalents at beginning of year . . . . . . . . . . 8,051 9,226 2,669
--------- --------- ---------
Cash and cash equivalents at end of year . . . . . . . . . . . . . $ 8,286 $ 8,051 $ 9,226
========= ========= =========
SUPPLEMENTAL INFORMATION
Interest paid. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 641 $ 1,954 $ 2,029
========= ========= =========
Noncash transfer of equipment at net book value from
unconsolidated special-purpose entities. . . . . . . . . . . . . $ -- $ -- $ 1,878
========= ========= =========
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
-----------------------
Organization
- ------------
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991 to engage in the business of owning,
leasing or otherwise investing in primarily used transportation and related
equipment. PLM Financial Services, Inc. (FSI) is the General Partner of the
Partnership. FSI is a wholly owned subsidiary of PLM International, Inc. (PLM
International or PLMI).
FSI manages the affairs of the Partnership. The cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner to the extent
necessary to cause the General Partner's capital account to equal zero (see Net
Income (Loss) and Distributions Per Limited Partnership Unit below). The
General Partner is also entitled to receive a subordinated incentive fee as
defined in the limited partnership agreement after the limited partners receive
a minimum return on, and a return of, their invested capital.
The Partnership is currently in its investment phase during which it may
invest cash from operations and equipment sale proceeds into additional
equipment until December 31, 2004. During that time, the General Partner may
purchase additional equipment, consistent with the objectives of the
Partnership. The Partnership will terminate December 31, 2011 unless terminated
earlier upon the sale of all equipment or by certain other events.
Estimates
- ---------
These financial statements have been prepared on the accrual basis of accounting
in accordance with accounting principles generally accepted in the United States
of America. This requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Operations
- ----------
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with investor programs, and is a general partner of other
programs.
Accounting for Leases
- -----------------------
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the lessor records the leased
asset at cost and depreciates the leased asset over its estimated useful life.
Rental payments are recorded as revenue over the lease term as earned in
accordance with Statement of Financial Accounting Standards (SFAS) No. 13,
"Accounting for Leases" (SFAS No. 13). Lease origination costs are capitalized
and amortized over the term of the lease. Periodically, the Partnership leases
equipment with lease terms that qualify for direct finance lease classification,
as required by SFAS No. 13.
Depreciation and Amortization
- -------------------------------
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for all other equipment. The depreciation method is
changed to straight line when the 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. Major expenditures that are
expected to extend the useful lives or reduce future operating
expenses of equipment are capitalized and
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
Depreciation and Amortization (continued)
- -------------------------------
amortized over the estimated remaining life of the equipment. Lease negotiation
fees are amortized over the initial equipment lease term. Debt issuance costs
and debt placement fees are amortized over the term of the loan using the
straight-line method that approximates the effective interest method and are
included in interest expense in the accompanying statements of operations (see
Note 7).
Transportation Equipment
- -------------------------
Equipment held for operating leases is stated at cost.
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), the General
Partner reviewed the carrying values of the Partnership's equipment portfolio at
least quarterly and whenever circumstances indicated that the carrying value of
an asset may not be recoverable due to expected future market conditions. If
the projected undiscounted cash flows and the fair value of the equipment was
less than the carrying value of the equipment, an impairment loss was recorded.
In October 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
144), which replaces SFAS No. 121. In accordance with SFAS No. 144, the
Partnership evaluates long-lived assets for impairment whenever events or
circumstances indicate that the carrying values of such assets may not be
recoverable. Losses for impairment are recognized when the undiscounted cash
flows estimated to be realized from a long-lived asset are determined to be less
than the carrying value of the asset and the carrying amount of long-lived
assets exceed its fair value. The determination of fair value for a given
investment requires several considerations, including but not limited to, income
expected to be earned from the asset, estimated sales proceeds, and holding
costs excluding interest. The Partnership applied the new rules on accounting
for the impairment or disposal of long-lived assets beginning January 1, 2002.
The estimate of the fair value of the Partnership's owned and partially owned
equipment is based on the opinion of the Partnership's equipment managers using
data, reasoning and analysis of prevailing market conditions of similar
equipment, data from recent purchases, independent third party valuations and
discounted cash flows. The events of September 11, 2001, along with the change
in general economic conditions in the United States, have continued to adversely
affect the market demand for both new and used commercial aircraft and weakened
the financial position of several airlines. Aircraft condition, age, passenger
capacity, distance capability, fuel efficiency, and other factors influence
market demand and market values for passenger jet aircraft.
The Partnership has recorded write-downs of certain owned equipment and certain
partially owned aircraft, representing impairment to the carrying value. During
2000, the downturn in the United States economy indicated to the General Partner
that an impairment may exist with certain of the equipment owned or partially
owned by the Partnership. Based on the equipment fair value determined by
unaffiliated Partnership equipment managers, a $0.4 million reduction to the
carrying value of owned aircraft equipment was required. During 2001, an
unconsolidated special-purpose entitiy (USPE) owning two Stage III commercial
aircraft on a direct finance lease reduced its net investment in the finance
lease receivable due to a series of lease amendments. The Partnership's
proportionate share of this write-down, which is included in equity in net
income (loss) of the USPE in the accompanying 2001 statement of operations, was
$1.6 million. During 2002, the bankruptcy of a major US airline and subsequent
increase in off-lease aircraft indicated to the General Partner that an
impairment to the aircraft portfolio may exist. The General Partner determined
the fair value of the aircraft and aircraft rotables based on the valuation
given by its unaffiliated aircraft equipment manager that considered, among
other factors, expected income to be earned from the asset, estimated sales
proceeds and holding costs excluding interest. This resulted in an impairment
of $36,000 to the aircraft rotables owned by the Partnership. Additionally,
during the fourth quarter of 2002, the Partnership reduced the net book value of
84 owned tank railcars in its railcar fleet to their fair value of $2,000 per
railcar, and recorded a $0.7 million impairment loss. The impairment was caused
by a general recall due to a manufacturing defect allowing extensive corrosion
of
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
Transportation Equipment (continued)
- -------------------------
the railcars' internal lining. Repairing the railcars was determined to be cost
prohibitive. The fair value of railcars with this defect was determined by
using industry expertise. These railcars were off lease. No impairments to
owned equipment were required in 2001 or partially owned equipment in 2002 and
2000.
Investments in Unconsolidated Special-Purpose Entities
- ----------------------------------------------------------
The Partnership has interests in USPEs that own transportation equipment. These
are single purpose entities that do not have any debt or other financial
encumbrances and are accounted for using the equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly owned subsidiary
of FSI and WMS is a wholly owned subsidiary of PLM International. The
Partnership's interests in USPEs are managed by IMI. The Partnership's equity
interest in the net income (loss) of USPEs is reflected net of management fees
paid or payable to IMI and the amortization of acquisition and lease negotiation
fees paid to TEC or WMS.
Repairs and Maintenance
- -------------------------
Repairs and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are charged against operations
as incurred. Costs associated with marine vessel 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 gain
on disposition. Maintenance costs of aircraft and certain marine containers are
the obligation of the lessee. To meet the maintenance requirements of aircraft
airframes and engines, reserve accounts are prefunded by the lessee over the
period of the lease based on the number of hours this equipment is used, times
the estimated rate to repair this equipment. If repairs exceed the amount
prefunded by the lessee, the Partnership may have the obligation to fund and
accrue the difference. In certain instances, if an aircraft is sold and there
is a balance in the reserve account for repairs to that aircraft, the balance in
the reserve account is reclassified as additional gain on disposition. The
aircraft reserve accounts are included in the accompanying balance sheets as
lessee deposits and reserve for repairs. Marine vessel dry-docking reserve
accounts are included in investments in USPEs.
Net Loss and Distributions Per Limited Partnership Unit
- --------------------------------------------------------------
Special allocations of income are made to the General Partner to the extent
necessary to cause the capital account balance of the General Partner to be zero
as of the close of such year. The limited partners' net 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 declared. Cash distributions are generally
paid in the same quarter they are declared. 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.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
Net Loss and Distributions Per Limited Partnership Unit (continued)
- --------------------------------------------------------------
For the years ended December 31, 2001 and 2000, cash distributions totaled $1.4
million and $13.8 million, respectively, or $0.16 and $1.60 per weighted-average
limited partnership unit, respectively. No cash distributions were declared or
paid during 2002.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $1.3 million and
$13.1 million in 2001 and 2000, respectively, were deemed to be a return of
capital.
Cash distributions related to the fourth quarter 2000 of $1.5 million, were
declared and paid during the first quarter of 2001. There were no cash
distributions related to the fourth quarter 2001 or 2002 paid during the first
quarter of 2002 or 2003.
Net Loss Per Weighted-Average Limited Partnership Unit
- ------------------------------------------------------------
Net loss per weighted-average limited partnership unit was computed by dividing
net loss attributable to limited partners by the weighted-average number of
limited partnership units deemed outstanding during the year. The
weighted-average number of limited partnership units deemed outstanding during
the years ended December 31, 2002, 2001, and 2000 was 7,736,291; 8,186,114; and
8,189,891, respectively.
Cash and Cash Equivalents
- ----------------------------
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
value due to the short-term nature of the investments.
Restricted Cash
- ----------------
As of December 31, 2002 and 2001, restricted cash consists of bank accounts or
short-term investments that are subject to withdrawal restrictions per loan
agreements and other legally binding agreements.
Comprehensive Loss
- -------------------
The Partnership's comprehensive loss is equal to net income for the years ended
December 31, 2002, 2001 and 2000.
New Accounting Standards
- --------------------------
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), was approved by the FASB. SFAS No. 142 changes the accounting for
goodwill and other intangible assets determined to have an indefinite useful
life from an amortization method to an impairment-only approach. Amortization
of applicable intangible assets will cease upon adoption of this statement. The
Partnership implemented SFAS No. 142 on January 1, 2002. SFAS No. 142 had no
impact on the Partnership's financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB No. 13, and Technical Corrections" (SFAS No.
145). The provisions of SFAS No. 145 are effective for fiscal years beginning
after May 15, 2002. As permitted by the pronouncement, the Partnership has
elected early adoption of SFAS No. 145 as of January 1, 2002. SFAS No. 145 had
no impact on the Partnership's financial position or results of operations.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS No. 146), which is based on the general
principle that a liability for a cost associated with an exit or disposal
activity should be recorded when it is incurred and initially measured at fair
value.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation (continued)
-----------------------
New Accounting Standards (continued)
- --------------------------
SFAS No. 146 applies to costs associated with (1) an exit activity that does not
involve an entity newly acquired in a business combination, or (2) a disposal
activity within the scope of SFAS No. 146. These costs include certain
termination benefits, costs to terminate a contract that is not a capital lease,
and other associated costs to consolidate facilities or relocate employees.
Because the provisions of this statement are to be applied prospectively to exit
or disposal activities initiated after December 31, 2002, the effect of adopting
this statement cannot be determined.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" (FIN 45). This interpretation requires the guarantor to
recognize a liability for the fair value of the obligation at the inception of
the guarantee. The provisions of FIN 45 will be applied on a prospective basis
to guarantees issued after December 31, 2002.
In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable
Interest Entities' (FIN 46). This interpretation clarifies existing accounting
principles related to the preparation of consolidated financial statements when
the owners of an USPE do not have the characteristics of a controlling financial
interest or when the equity at risk is not sufficient for the entity to finance
its activities without additional subordinated financial support from others.
FIN 46 requires the Partnership to evaluate all existing arrangements to
identify situations where the Partnership has a "variable interest," commonly
evidenced by a guarantee arrangement or other commitment to provide financial
support, in a "variable interest entity," commonly a thinly capitalized entity,
and further determine when such variable interest requires the Partnership to
consolidate the variable interest entities' financial statements with its own.
The Partnership is required to perform this assessment by September 30, 2003 and
consolidate any variable interest entities for which the Partnership will absorb
a majority of the entities' expected losses or receive a majority of the
expected residual gains. The Partnership has determined that it is not
reasonably possible that it will be required to consolidate or disclose
information about a variable interest entity upon the effective date of FIN 46.
Reclassifications
- -----------------
Certain amounts in the 2001 and 2000 financial statements have been reclassified
to conform to the 2002 presentations.
2. Transactions with General Partner and Affiliates
-----------------------------------------------------
An officer of FSI contributed $100 of the Partnership's initial capital. The
equipment management agreement, subject to certain reductions, requires the
payment of a monthly management fee attributable to either owned equipment or
interests in equipment owned by the USPEs to be paid to IMI in an amount 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.
The Partnership management fee in 2002, 2001 and 2000 was $0.5 million, $0.6
million and $1.0 million, respectively. Partnership management fees will be
reduced 25% for the period January 1, 2003 through June 30, 2005. The
Partnership reimbursed FSI or its affiliates $0.2 million, $0.4 million, and
$0.7 million in 2002, 2001, and 2000, respectively, for data processing and
administrative expenses directly attributable to the Partnership.
The Partnership's proportional share of USPEs' management fees to affiliate was
$0.2 million during 2002 and $0.3 million during 2001 and 2000, and the
Partnership's proportional share of administrative and
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
2. Transactions with General Partner and Affiliates (continued)
-----------------------------------------------------
data processing expenses to affiliate were $0.1 million, $0.2 million, and
$46,000 during 2002, 2001, and 2000, respectively. Both of these affiliate
expenses reduced the Partnership's proportional share of the equity interest in
the income of USPEs.
Debt placement fees were paid to the General Partner in an amount equal to 1% of
the Partnership's long-term borrowings, less any costs paid to unaffiliated
parties related to obtaining the borrowing. These fees are earned only on debt
used to purchase additional equipment. The Partnership did not pay a debt
placement fee to any affiliate related to the refinancing of the Partnership's
existing debt in 2002.
The Partnership and the USPEs paid or accrued equipment acquisition and
lease negotiation fees to FSI in the amount of $1,000 and $1.5 million during
2002 and 2001, respectively. No equipment acquisition or lease negotiation fees
were paid or accrued during 2000.
TEC will also be entitled to receive an equipment liquidation fee equal to the
lesser of (i) 3% of the sales price of equipment sold on behalf of the
Partnership or (ii) 50% of the "Competitive Equipment Sale Commission," as
defined in the agreement, if certain conditions are met.
The Partnership owned certain equipment in conjunction with affiliated programs
during 2002, 2001, and 2000 (see Note 4).
The balance due to affiliates as of December 31, 2002 includes $0.1 million due
to FSI and its affiliates for management fees and $1.3 million due to a USPE.
The balance due to affiliates as of December 31, 2001 includes $0.1 million due
to FSI and its affiliates for management fees and $0.8 million due to affiliated
USPEs.
3. Equipment
---------
The components of owned equipment as of December 31 are as follows (in thousands
of dollars):
Equipment Held for Operating Leases 2002 2001
========= =========
Marine containers . . . . . . . . . $ 24,223 $ 25,045
Rail equipment. . . . . . . . . . . 17,027 17,213
Aircraft and components . . . . . . 16,224 16,224
Trailers. . . . . . . . . . . . . . 5,212 5,212
--------- ---------
62,686 63,694
Less accumulated depreciation . . . (44,382) (40,487)
--------- ---------
Net equipment . . . . . . . . . $ 18,304 $ 23,207
========= =========
Revenues are earned by placing the equipment under operating leases. In most
cases, lessees are invoiced for equipment leases on a monthly basis. All
equipment invoiced monthly are based on a fixed rate. A portion of the
Partnership's marine containers are leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues earned by the Partnership consist of a specified percentage
of the total revenues generated by leasing the pooled equipment to sublessees
after deducting certain direct operating expenses of the pooled equipment. The
remaining Partnership marine containers are based on a fixed rate. Rental
revenues for trailers are based on a per-diem lease in the free running railroad
interchange.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS No. 121 or SFAS No. 144. The Partnership has
recorded write-downs of certain owned aircraft representing impairment to the
carrying value. During 2000, the starting downturn in the United States economy
indicated to the General Partner that an impairment may exist with certain of
the equipment owned by the Partnership. Based on the equipment fair value
determined by independent third party equipment managers, a $0.4 million
reduction to the carrying value of owned aircraft equipment was
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
3. Equipment (continued)
---------
required. During 2002, the bankruptcy of a major US airline and subsequent
increase in off-lease aircraft indicated to the General Partner that an
impairment to the aircraft portfolio may exist. The General Partner determined
the fair value of the aircraft and aircraft rotables based on the valuation
given by its independent third party aircraft equipment manager that considered,
among other factors, expected income to be earned from the asset, estimated
sales proceeds and holding costs excluding interest. This resulted in an
impairment of $36,000 to the aircraft rotables owned by the Partnership. In
addition, during the fourth quarter of 2002, the Partnership reduced the net
book value of 84 owned tank railcars in its railcar fleet to their fair value of
$2,000 per railcar, and recorded a $0.7 million impairment loss. The impairment
was caused by a general recall due to a manufacturing defect allowing extensive
corrosion of the railcars' internal lining. Repairing the railcars was
determined to be cost prohibitive. The fair value of railcars with this defect
was determined by using industry expertise. These railcars were off lease. No
impairments to owned equipment were required in 2001.
As of December 31, 2002, all owned equipment in the Partnership's portfolio was
on lease except for 15 marine containers and 183 railcars with an aggregate net
book value of $0.9 million. As of December 31, 2001, all owned equipment in the
Partnership's portfolio was on lease except for 118 railcars with a net book
value of $1.2 million.
During 2002, the Partnership disposed of marine containers and railcars, with an
aggregate net book value of $0.3 million for proceeds of $0.5 million. During
2001, the Partnership disposed of a Boeing 737-200 commercial aircraft, a marine
vessel, marine containers, railcars, and trailers with an aggregate net book
value of $3.0 million, for proceeds of $3.7 million. Included in the gain on
sale of the marine vessel was the unused portion of marine vessel dry-docking
liability of $0.3 million.
All owned equipment on lease is accounted for as operating leases. Future
minimum rentals under noncancelable operating leases as of December 31, 2002,
for owned equipment during each of the next five years are approximately $3.1
million in 2003; $2.0 million in 2004; $1.9 million in 2005; $1.6 million in
2006; $1.3 million in 2007; and $0.6 million thereafter. Per diem and
short-term rentals consisting of utilization rate lease payments included in
owned equipment lease revenues amounted to $3.2 million in 2002, $3.0 million in
2001, and $4.2 million in 2000.
4. Investments in Unconsolidated Special-Purpose Entities
----------------------------------------------------------
The Partnership owns equipment jointly with affiliated programs. These are
single purpose entities that do not have any debt or other financial
encumbrances.
Ownership interest is based on the Partnership's contribution towards the cost
of the equipment in the USPEs. The Partnership's proportional share of equity
and income (loss) in each entity is not necessarily the same as its ownership
interest. The primary reason for this difference has to do with certain fees
such as management, re-lease and acquisition and lease negotiation fees which
vary among the owners of the USPEs.
The tables below set forth 100% of the assets, liabilities, and equity of the
entities in which the Partnership has an interest and the Partnership's
proportional share of equity in each entity as of December 31, 2002 and 2001 (in
thousands of dollars):
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Unconsolidated Special-Purpose Entities (continued)
----------------------------------------------------------
Boeing Aero
737-300 California Lion
As of December 31, 2002 Trust1 Trust2 Partnership3 Total
- -------------------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $12,355 $ -- $ 7,356
Receivables 1,825 420 716
Finance lease receivable -- 2,425 --
Other assets 3 137 10
------- ------- ----------
Total assets $14,183 $ 2,982 $ 8,082
======= ======= ==========
Liabilities
Accounts payable $ -- $ 1 $ 548
Due to affiliates 7 2 44
Lessee deposits and reserve for repairs 1,825 420 97
------- ------- ----------
Total liabilities 1,832 423 689
------- ------- ----------
Equity 12,351 2,559 7,393
------- ------- ----------
Total liabilities and equity $14,183 $ 2,982 $ 8,082
======= ======= ==========
Partnership's share of equity $ 7,733 $ 1,024 $ 3,868 $ 12,625
======= ======= ========== ========
Boeing Aero
737-300 California Lion
As of December 31, 2001 Trust1 Trust2 Partnership3 Total
- -------------------------------------------------------------------------------
Assets
Equipment less accumulated depreciation $14,768 $ -- $ 8,827
Receivables 1,078 420 776
Finance lease receivable -- 3,234 --
Other assets 12 225 --
------- ------- ----------
Total assets $15,858 $ 3,879 $ 9,603
======= ======= ==========
Liabilities
Accounts payable $ 70 $ -- $ 111
Due to affiliates 20 39 51
Lessee deposits and reserve for repairs 1,027 420 514
------- ------- ----------
Total liabilities 1,117 459 676
------- ------- ----------
Equity 14,741 3,420 8,927
------- ------- ----------
Total liabilities and equity $15,858 $ 3,879 $ 9,603
======= ======= ==========
Partnership's share of equity $ 9,176 $ 1,368 $ 4,679 $ 15,223
======= ======= ========== ========
The tables below set forth 100% of the revenues, gain on disposition of
equipment, direct and indirect expenses, impairment loss, and net income (loss)
of the entities in which the Partnership has an interest, and the Partnership's
proportional share of income (loss) in each entity for the years ended December
31, 2002, 2001, and 2000 (in thousands of dollars):
Boeing Aero
For the year ended 737-300 California Lion
December 31, 2002 Trust1 Trust2 Partnership3 Other Total
- --------------------------------------------------------------------------------------
Revenues $ 1,860 $ 496 $ 5,390 $ --
Less: Direct expenses 37 24 4,471 (22)
Indirect expenses 2,762 129 1,878 --
-------- ------- ---------- ------
Net income (loss) $ (939) $ 343 $ (959) $ 22
======== ======= ========== ======
Partnership's share of net income (loss)$ (544) $ 137 $ (520) $ 6 $(921)
======== ======= ========== ====== ======
1 The Partnership owns a 62% interest of the Boeing 737-300 Trust that owns
a stage III commercial aircraft.
2 The Partnership owns a 40% interest in the Aero California Trust that owns
two stage III commercial aircraft on a direct finance lease.
3 The Partnership owns a 53% interest in the Lion Partnership that owns a
product tanker.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
4. Investments in Unconsolidated Special-Purpose Entities (continued)
----------------------------------------------------------
Boeing Aero Pacific
For the year ended 737-300 California Lion Spear Source
December 31, 2001 Trust1 Trust2 Partnership3 Partnership4 Partnership5 Total
- ------------------------------------------------------------------------------------------------
Revenues $ 1,813 $ 1,336 $ 9,651 $ 710 $ 925
Gain on disposition of equipment -- -- -- 458 2,586
Less: Direct expenses 980 16 4,586 581 556
Indirect expenses 3,487 149 2,503 283 448
Impairment loss -- 4,069 -- -- --
-------- -------- --------- ------------ ---------
Net income (loss) $(2,654) $(2,898) $ 2,562 $ 304 $ 2,507
======== ======== ========= ============ =========
Partnership's share of
net income (loss) $(1,691) $(1,159) $ 1,345 $ 72 $ 498 $(935)
======== ======== ========= ============ ========= ======
As of December 31, 2002 and 2001, all jointly owned equipment in the
Partnership's USPE portfolio was on lease.
Boeing Aero Pacific
For the year ended 737-300 California Lion Spear Source
December 31, 2000 Trust1 Trust2 Partnership3 Partnership4 Partnership5
- -----------------------------------------------------------------------------------------
Revenues . . . . . . . . . . $ 1,399 $ 1,528 $ 4,417 $ 1,255 $ 2,907
Less: Direct expenses. . . . 1,261 19 2,583 1,273 1,542
Indirect expenses. 3,687 158 2,454 493 1,211
-------- -------- ----------- ------------ -----------
Net income (loss) . . . . $(3,549) $ 1,351 $ (620) $ (511) $ 154
======== ======== =========== ============ ===========
Partnership's share of
net income (loss) . . . . $(2,142) $ 614 $ (323) $ (256) $ 31
======== ======== =========== ============ ===========
For the year ended Boeing 767
December 31, 2000 Tenancy in Canadian Container Hyde
(continued) Common6 Trust #37 Partnership8 Partnership9 Total
- --------------------------------------------------------------------------------------------------
Revenues. . . . . . . . . . . . . $ -- $ 14 $ 1,090 $ --
Gain on disposition of equipment. -- -- -- 300
Less: Indirect expenses. . . . . (56) -- 917 13
------------ ---------- ------------- -------------
Net income (loss) . . . . . . . $ 56 $ 14 $ 173 $ 287
============ ========== ============= =============
Partnership's share of
net income (loss) . . . . . . . $ 36 $ 7 $ 44 $ 85 $(1,904)
============ ========== ============= ============= ========
During 2001 the Partnership increased its investment in a trust owning a
commercial stage III aircraft by paying FSI $0.6 million in additional
acquisition and lease negotiation fees.
During 2001, the Partnership recorded a write-down of certain partially owned
aircraft, representing impairment to the carrying value. During 2001, a USPE
owning two Stage III commercial aircraft on a direct finance lease reduced its
net investment in the finance lease receivable due to a series of lease
amendments. The Partnership's proportionate share of this write-down, which is
included in equity in net income (loss) of the USPE in the accompanying 2001
statement of operations, was $1.6 million. No impairments to partially owned
equipment were required in 2002 or 2000.
1 The Partnership owns a 62% interest of the Boeing 737-300 Trust that owns
a stage III commercial aircraft.
2 The Partnership owns a 40% interest in the Aero California Trust that owns
two stage III commercial aircraft on a direct finance lease.
3 The Partnership owns a 53% interest in the Lion Partnership that owns a
product tanker.
4. The Partnership owned a 50% interest in the Spear Partnership that owned
a container feeder vessel.
5 The Partnership owned a 20% interest in the Pacific Source Partnership
that owned a handymax dry bulk carrier.
6 The Partnership owned a 64% interest in the Boeing 767 Tenancy in Common
that owned a stage III commercial aircraft.
7 The Partnership owned a 50% interest in the Canadian Air Trust #3 that
owned four Boeing 737-200 commercial aircraft.
8 The Partnership owned a 25% interest in the Container Partnership that
owned marine containers.
9 The Partnership owned a 29.5% interest in the Hyde Partnership that owned
a mobile offshore drilling unit.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments
-------------------
During 2001, the General Partner sold the Partnership's 20% interest in an
entity that owned a handymax dry-bulk carrier marine vessel and its 50% interest
in an entity that owned a container feeder marine vessel. The Partnership's
interest in these entities was sold for proceeds of $2.3 million for its net
investment of $1.8 million. Included in the gain on sale of these entities was
the unused portion of marine vessel dry-docking liability of $0.2 million.
All jointly owned equipment on lease is accounted for as operating leases,
except for two jointly owned commercial aircraft on a direct finance lease. The
Partnership's proportionate share of future minimum rentals under noncancelable
operating leases as of December 31, 2002, for jointly owned equipment during
each of the next five years are approximately $2.1 million in 2003; $2.1 million
in 2004; and $0.3 million in 2005. The Partnership's proportionate share of per
diem and short-term rentals consisting of utilization rate lease payments
included in jointly owned lease revenues amounted to $2.8 million in 2002, $5.5
million in 2001, and $3.5 million in 2000.
The Partnership operates primarily in five operating segments: aircraft leasing,
marine container leasing, marine vessel leasing, trailer leasing, and railcar
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of interest expense, general and
administrative expenses, and certain other expenses. The segments are managed
separately due to different business strategies for each operation. The
accounting policies of the Partnership's operating segments are the same as
described in Note 1, Basis of Presentation. There were no intersegment revenues
for the years ended December 31, 2002, 2001 and 2000.
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, 2002 Leasing Leasing Leasing Leasing Leasing Other 1 Total
- -----------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . $ 1,638 $ 3,789 $ -- $ 786 $ 3,289 $ -- $ 9,502
Interest and other income. . . . . . -- -- 44 -- 36 97 177
Gain on disposition of equipment . . -- 140 -- -- 63 -- 203
---------- ---------- --------- --------- -------- --------- --------
Total revenues. . . . . . . . . . 1,638 3,929 44 786 3,388 97 9,882
---------- ---------- --------- --------- -------- --------- --------
EXPENSES
Operations support . . . . . . . . . 22 39 1 538 903 63 1,566
Depreciation and amortization. . . . 190 2,448 -- 291 941 11 3,881
Interest expense . . . . . . . . . . -- -- -- -- -- 916 916
Management fees to affiliate . . . . 68 190 -- 40 228 -- 526
General and administrative expenses. 144 -- 1 153 184 1,856 2,338
Loss on impairment of equipment. . . 36 -- -- -- 733 -- 769
Provision for bad debts. . . . . . . -- -- -- 16 45 -- 61
---------- ---------- --------- --------- -------- --------- --------
Total expenses. . . . . . . . . . 460 2,677 2 1,038 3,034 2,846 10,057
---------- ---------- --------- --------- -------- --------- --------
Equity in net loss of USPEs. . . . . . (407) -- (514) -- -- -- (921)
---------- ---------- --------- --------- -------- --------- --------
Net income (loss). . . . . . . . . . . $ 771 $ 1,252 $ (472) $ (252) $ 354 $ (2,749) $(1,096)
========== ========== ========= ========= ======== ========= ========
Total assets as of December 31, 2002 . $ 9,489 $ 12,463 $ 3,868 $ 1,054 $ 4,999 $ 9,311 $41,184
========== ========== ========= ========= ======== ========= ========
Includes certain assets not identifiable to a specific segment such as
cash, restricted cash, lease negotiation fees, debt placement fees, and prepaid
expenses. Also includes interest income and costs not identifiable to a
particular segment, such as interest expense, and certain amortization, general
and administrative, and operations support expenses.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments (continued)
-------------------
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 2001 Leasing Leasing Leasing Leasing Leasing Other 1 Total
- -------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . $ 1,843 $ 4,649 $ 515 $ 872 $ 3,790 $ -- $11,669
Interest and other income. . . . . . . 40 -- 73 -- 10 540 663
Gain on disposition of equipment . . . 516 57 488 8 8 -- 1,077
---------- ---------- -------- --------- --------- --------- --------
Total revenues. . . . . . . . . . . 2,399 4,706 1,076 880 3,808 540 13,409
---------- ---------- -------- --------- --------- --------- --------
EXPENSES
Operations support . . . . . . . . . . 19 62 336 489 1,148 109 2,163
Depreciation and amortization. . . . . 1,448 3,125 102 293 1,072 104 6,144
Interest expense . . . . . . . . . . . -- -- -- -- -- 1,956 1,956
Management fees to affiliate . . . . . 76 232 26 44 267 -- 645
General and administrative expenses. . 257 2 48 149 147 965 1,568
Provision for (recovery of) bad debts. 46 7 -- (13) (55) -- (15)
---------- ---------- -------- --------- --------- --------- --------
Total expenses. . . . . . . . . . . 1,846 3,428 512 962 2,579 3,134 12,461
---------- ---------- -------- --------- --------- --------- --------
Equity in net income (loss) of USPEs . . (2,850) -- 1,915 -- -- -- (935)
---------- ---------- -------- --------- --------- --------- --------
Net income (loss). . . . . . . . . . . . $ (2,297) $ 1,278 $ 2,479 $ (82) $ 1,229 $ (2,594) $ 13
========== ========== ======== ========= ========= ========= ========
Total assets as of December 31, 2001 . . $ 11,565 $ 15,373 $ 4,679 $ 1,414 $ 6,782 $ 8,979 $48,792
========== ========== ======== ========= ========= ========= ========
1 Includes certain assets not identifiable to a specific segment such as
cash, certain accounts receivable, lease negotiation fees, debt placement and
issuance fees, and prepaid expenses. Also includes interest income and costs
not identifiable to a particular segment, such as interest expense, and certain
amortization, general and administrative, and operations support expenses.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. Operating Segments (continued)
-------------------
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 2000 Leasing Leasing Leasing Leasing Leasing Other 2 Total
- -----------------------------------------------------------------------------------------------------------------------
REVENUES
Lease revenue. . . . . . . . . . . . . . $ 2,778 $ 4,706 $ 3,625 $ 2,130 $ 4,287 $ -- $17,526
Interest and other income. . . . . . . . -- -- -- -- -- 253 253
Gain (loss) on disposition of equipment. -- (45) 382 1,785 25 -- 2,147
---------- ----------- --------- --------- --------- --------- --------
Total revenues. . . . . . . . . . . . 2,778 4,661 4,007 3,915 4,312 253 19,926
---------- ----------- --------- --------- --------- --------- --------
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 11 8,897
Interest expense . . . . . . . . . . . . -- -- -- -- -- 2,059 2,059
Management fees to affiliate . . . . . . 157 235 181 121 269 -- 963
General and administrative expenses. . . 337 13 65 461 116 860 1,852
Loss on impairment of equipment. . . . . 374 -- -- -- -- -- 374
Recovery of bad debts. . . . . . . . . . (655) -- -- (6) (59) -- (720)
---------- ----------- --------- --------- --------- --------- --------
Total 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
========== =========== ========= ========= ========= ========= ========
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.
2 Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain amortization, general and
administrative, and operations support expenses. Also includes income from an
investment in an entity that owned a mobile offshore drilling unit.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
6. Geographic Information (continued)
-----------------------
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in seven geographic regions: the United States, South America, Canada,
Mexico, Europe, Iceland, and India. Marine vessels and marine containers are
leased or were leased to multiple lessees in different regions that operate
worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs, grouped by domiciles of
the lessees, as of and for the years ended December 31 (in thousands of
dollars):
Owned Equipment Investments in USPEs
--------------- --------------------
Region. . . . . . . 2002 2001 2000 2002 2001 2000
- ---------------------------------------------------------------------------
United States . . . $ 4,351 $ 4,977 $ 6,921 $ -- $ -- $ --
South America . . . -- -- -- 1,153 96 --
Canada. . . . . . . 984 1,150 1,896 -- -- --
Europe. . . . . . . 378 378 378 -- -- --
Iceland . . . . . . -- -- -- -- 1,014 865
Rest of the world . 3,789 5,164 8,331 2,830 5,535 3,763
-------- -------- ------- ------- ------- -------
Lease revenues $ 9,502 $ 11,669 $17,526 $ 3,983 $ 6,645 $ 4,628
======== ======== ======= ======= ======= =======
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 2002 2001 2000 2002 2001 2000
United States . . . . . . $ 906 $ 877 $ 3,481 $ -- $ -- $ --
South America . . . . . . -- -- -- (544) (147) 36
Canada. . . . . . . . . . 260 505 873 -- -- 7
Mexico. . . . . . . . . . -- -- -- 137 (1,159) 614
Europe. . . . . . . . . . 114 122 57 -- -- --
Iceland . . . . . . . . . -- -- -- -- (1,544) (2,142)
India . . . . . . . . . . -- 195 (487) -- -- --
Rest of the world . . . . 1,293 1,843 1,109 (514) 1,915 (419)
-------- ------- --------- -------- -------- -------
Regional income (loss) 2,573 3,542 5,033 (921) (935) (1,904)
Administrative and other. (2,748) (2,594) (2,717) -- -- --
-------- ------- --------- -------- -------- -------
Net income (loss). . . $ (175) $ 948 $ 2,316 $ (921) $ (935) $(1,904)
======== ======= ========= ======== ======== =======
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
--------------- --------------------
Region. . . . . . 2002 2001 2002 2001
- ---------------------------------------------------------
United States . . $ 3,890 $ 5,915 $ -- $ --
South America . . -- -- 7,733 9,176
Canada. . . . . . 1,795 1,791 -- --
Mexico. . . . . . -- -- 1,024 1,368
Europe. . . . . . 731 958 -- --
Rest of the world 11,888 14,543 3,868 4,679
-------- -------- -------- --------
Net book value $ 18,304 $ 23,207 $ 12,625 $ 15,223
======== ======== ======== ========
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
7. Debt
----
During January 2002, the Partnership prepaid the $20.0 million senior note
payable that the Partnership entered into in August 1993 and paid a prepayment
penalty, included in other general and administrative expenses, of $1.0 million
to prepay the note. Concurrent with this payment, the Partnership borrowed
$15.0 million under the new $30.0 million term loan facility. The Partnership
entered into two loans totaling $15.0 million that bear an interest rate between
4.38% and 4.94%. The loans made in January 2002 were based on three and twelve
month LIBOR and are adjusted to market rates at the end of the respective LIBOR
term. All loans under this facility will be repaid with equal principal
payments plus interest payments. The Partnership's wholly and jointly owned
equipment is used as collateral for the term loan facility.
The Partnership paid a debt placement fee of $ 0.1 million and $0.3 million in
2002 and 2001, respectively, to the new lender of the notes payable.
The Partnership made the regularly scheduled principal payments of $2.3 million
to the lender of the notes during 2002. The remaining balance of the notes of
$12.8 million will be repaid with quarterly principal payments of $0.8 million
totaling $3.0 million in 2003, 2004, 2005, and 2006 and $0.8 million in 2007.
The General Partner estimates that the fair value of these notes approximates
book value due to the interest rate on the debt being repriced on a regular
basis.
The Partnership is a participant in a $10.0 million warehouse facility. The
warehouse facility is shared by the Partnership, PLM Equipment Growth Fund V,
PLM Equipment Growth & Income Fund VII, Professional Lease Management Income
Fund I, LLC, and Acquisub LLC, a wholly owned subsidiary of PLMI. In July 2002,
PLMI reached an agreement with the lenders of the $10.0 million warehouse
facility to extend the expiration date of the facility to June 30, 2003. The
facility provides for financing up to 100% of the cost of the equipment. Any
borrowings by the Partnership are collateralized by equipment purchased with the
proceeds of the loan. Outstanding borrowings by one borrower reduce the amount
available to each of the other borrowers under the facility. Individual
borrowings may be outstanding for no more than 270 days, with all advances due
no later than June 30, 2003. Interest accrues either at the prime rate or LIBOR
plus 2.0% at the borrower's option and is set at the time of an advance of
funds. Borrowings by the Partnership are guaranteed by PLMI. The Partnership
is not liable for the advances made to the other borrowers.
As of December 31, 2002, there were no outstanding borrowings on this facility
by any of the eligible borrowers.
8. Concentrations of Credit Risk
--------------------------------
No single lessee accounted for more than 10% of the consolidated revenues for
the owned equipment and jointly owned equipment during 2002, 2001, and 2000.
As of December 31, 2002 and 2001, 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, 2002, the financial statement carrying amount of assets and
liabilities was approximately $25.6 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.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
10. Commitments and Contingencies
-------------------------------
Commitment to Purchase Railcars
- ----------------------------------
TEC arranged for the lease or purchase of a total of 1,050 pressurized tank
railcars by (i) partnerships and managed programs in which FSI serves as the
general partner or manager and holds an ownership interest (Program Affiliates)
or (ii) managed programs in which FSI provides management services but does not
hold an ownership interest or third parties (Non-Program Affiliates). These
railcars will be delivered over the next three years. A leasing company
affiliated with the manufacturer will acquire approximately 70% of the railcars
and lease them to a Non-Program Affiliate. The remaining 30% will either be
purchased by other third parties to be managed by PLMI, or by the Program
Affiliates. An affiliate of TEC will manage the leased and purchased railcars.
Neither TEC nor its affiliate will be liable for these railcars. TEC estimates
that the total value of purchased railcars will not exceed $26.0 million with
one third of the railcars being purchased in each of 2002, 2003, and 2004. As
of December 31, 2002, FSI committed one Program Affiliate, other than the
Partnership, to purchase $11.3 million in railcars that were purchased by TEC in
2002 or will be purchased in 2003. Although FSI has neither determined which
Program Affiliates will purchase the remaining railcars nor the timing of any
purchases, it is possible the Partnership may purchase some of the railcars.
Warehouse Credit Facility and Notes Payable
- ------------------------------------------------
See Note 7 for discussion of the Partnership's debt facilities.
Commitments and contingencies as of December 31, 2002 are as follows (in
thousands of dollars):
Less than 1-3 4-5 After 5
Current Obligations Total 1 Year Years Years Years
- ---------------------------------------------------------------------------
Commitment to purchase railcars $14,699 $ 6,257 $ 8,442 $ -- $ --
Notes payable 12,750 3,000 6,000 3,750 --
Line of credit -- -- -- -- --
------- ------- ------- ------- ------
$27,449 $ 9,257 $14,442 $ 3,750 $ --
======= ======= ======= ======= ======
The Partnership, together with affiliates, initiated litigation in various
official forums in the United States and India against two defaulting Indian
airline lessees to repossess Partnership property and to recover damages for
failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. In response to the Partnership's collection efforts,
the airline lessees filed counter-claims against the Partnership one of which
was in excess of the Partnership's claims against the airline. The General
Partner believes that the airline's counterclaims are completely without merit,
and the General Partner will vigorously defend against such counterclaims.
During 2001, an arbitration hearing was held between one Indian lessee and the
Partnership and the arbitration panel issued an award to the Partnership. The
Partnership initiated proceedings in India to collect on the arbitration award
and has recently been approached again by the lessee to discuss a negotiated
settlement of the Partnership's collection action. The General Partner did not
accrue the arbitration award in the December 31, 2002 financial statements
because the likelihood of collection of the award is remote. The General
Partner will continue to try to collect the full amount of the settlement.
During 2001, the General Partner decided to minimize its collection efforts from
the other Indian lessee in order to save the Partnership from incurring
additional expenses associated with trying to collect from a lessee that has no
apparent ability to pay.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
11. Quarterly Results of Operations (unaudited)
----------------------------------
The following is a summary of the quarterly results of operations for the year
ended December 31, 2002 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
- -------------------------------------------------------------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . . . . . . $2,580 $2,546 $ 2,455 $ 2,301 $ 9,882
Net income (loss) . . . . . . . . . . . . . . (470) 212 87 (925) (1,096)
Per weighted-average limited partnership unit:
Net income (loss) . . . . . . . . . . . . . . . $(0.06) $ 0.03 $ 0.01 $ (0.12) $ (0.14)
The following is a list of the major events that affected the Partnership's
performance during 2002:
(i) In the first quarter of 2002, the Partnership paid the $1.0
million debt prepayment penalty related to the Partnership's note payable;
(ii) In the second quarter of 2002, the Partnership sold marine
containers and railcars for a total gain of $0.1 million; and.
(iii) In the fourth quarter of 2002, an impairment loss of $0.8 million
was recorded.
The following is a summary of the quarterly results of operations for the year
ended December 31, 2001 (in thousands of dollars, except weighted-average unit
amounts):
March June September December
31, 30, 30, 31, Total
- -------------------------------------------------------------------------------------------------
Operating results:
Total revenues. . . . . . . . . . . . . . . . $4,250 $3,555 $ 2,789 $ 2,815 $13,409
Net income (loss) . . . . . . . . . . . . . . 475 1,212 (430) (1,244) 13
Per weighted-average limited partnership unit:
Net income (loss) . . . . . . . . . . . . . . . $ 0.05 $ 0.15 $ (0.05) $ (0.16) $ (0.01)
The following is a list of the major events that affected the Partnership's
performance during 2001:
(i) In the first quarter of 2001, the Partnership sold a
commercial aircraft, marine containers, and a trailer for a total gain of $0.5
million;
(ii) In the second quarter of 2001, the Partnership sold a marine
vessel and marine containers for a total gain of $0.5 million and its interest
in two entities owning marine vessels for a total gain of $0.7 million; and
(iii) In the fourth quarter of 2001, the Partnership recorded a
$1.6 million impairment loss on the trust that owned two commercial aircraft on
a direct finance lease.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
12. Subsequent Event
-----------------
On January 3, 2003, the Partnership made its regularly scheduled principal
payment of $0.8 million and interest payment of $0.1 million to the lenders of
the notes payable.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the financial statements of PLM Equipment Growth Fund VI, a
limited partnership (the "Partnership"), as of December 31, 2002 and 2001, and
for each of the two years in the period ended December 31, 2002, and have issued
our report thereon dated March 7, 2003; such report is included elsewhere in
this Form 10-K. Our audits also included the financial statement schedules of
PLM Equipment Growth Fund VI, listed in Item 15(B). These financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such 2002 and 2001 financial statement schedules, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2003
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
Under date of March 2, 2001, we reported on the statements of operations,
changes in partners' capital, and cash flows for the year ended December 31,
2000 of PLM Equipment Growth Fund VI, as contained in the 2001 annual report to
the partners. These financial statements and our report thereon are included in
the annual report on Form 10-K for the year ended December 31, 2002. In
connection with our audit of the aforementioned financial statements, we also
audited the related financial statement schedule for the year ended December 31,
2000. This financial statement schedule is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein for the year ended December
31, 2000.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2001
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands of dollars)
Balance at Additions Balance at
Beginning of Charged to End of
Year Expense Deductions Year
- ----------------------------------------------------------------------------------------
Year Ended December 31, 2002:
Allowance for doubtful accounts . $ 380 $ 61 $ (16) $ 425
Year Ended December 31, 2001:
Allowance for doubtful accounts . $ 402 $ (15) $ (7) $ 380
Marine vessel dry-docking reserve 300 11 (311) --
Year Ended December 31, 2000:
Allowance for doubtful accounts . $ 2,416 $ -- $ (2,014) $ 402
Marine vessel dry-docking reserve 633 14 (347) 300
PLM EQUIPMENT GROWTH FUND VI
INDEX OF EXHIBITS
Exhibit . Page
- ------- ----
4.. . . Limited Partnership Agreement of Partnership. *
4.1 Second Amendment to the Amended and Restated Limited Partnership
Agreement. *
10.1 Management Agreement between Partnership and
PLM Investment Management, Inc. *
10.2 Note Agreement, dated as of December 21, 2001, regarding $30.0
million term loan notes due December 21, 2006. *
10.3 Warehousing Credit Agreement dated as of April 13, 2001. *
10.4 First Amendment to Warehousing Credit Agreement, dated as of
December 21, 2001. *
10.5 Second amendment to the Warehouse Credit Agreement, dated
April 12, 2002. . . *
10.6 Third amendment to the Warehouse Credit Agreement, dated
July 11, 2002. *
10.7 October 2002 purchase agreement between PLM Transportation
Equipment Corp. *
Financial Statements required under Regulation S-X Rule 3-09:
99.1 Aero California Trust.
99.2 Lion Partnership.
99.3 Boeing 737-200 Trust S/N 24700.
99.4 Pacific Source Partnership
* Incorporated by reference. See page 28 of this report.