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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 01-19203
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PLM EQUIPMENT GROWTH FUND V
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3104548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ______
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located on page __.
Total number of pages in this report: __.
PART I
ITEM 1. BUSINESS
(A) Background
In November 1989, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 10,000,000 limited partnership
units (the units) including 2,500,000 optional units, in PLM Equipment Growth
Fund V, a California limited partnership (the Partnership, the Registrant, or
EGF V). The Registration Statement also proposed offering an additional
1,250,000 Class B units through a reinvestment plan. The General Partner has
determined that it will not adopt this reinvestment plan for the Partnership.
The Partnership's offering became effective on April 11, 1990. FSI, as General
Partner, owns a 5% interest in the Partnership. The Partnership engages in the
business of investing in a diversified equipment portfolio consisting primarily
of used, long-lived, low-obsolescence capital equipment that is easily
transportable by and among prospective users.
The Partnership was formed to engage in the business of owning and managing a
diversified pool of used and new transportation-related equipment and certain
other items of equipment.
The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of low-obsolescence equipment with
long lives and high residual values which were purchased with the net proceeds
of the initial Partnership offering, supplemented by debt financing, and surplus
operating cash during the investment phase of the Partnership. All transactions
over $1.0 million must be approved by the PLMI Credit Review Committee (the
"Committee') which is made up of members of PLMI's senior management. In
determining a lessee's creditworthiness, the Committee will consider, among
other factors, the lessee's financial statements, internal and external credit
ratings, and letters of credit;
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or expected future benefits from continued ownership of a particular
asset. Proceeds from these sales, together with excess net operating cash flows
from operations (net cash provided by operating activities plus distributions
from unconsolidated special-purpose entities (USPEs)) are used to repay the
Partnership's outstanding indebtedness and for distributions to the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining diversity, and constantly monitoring equipment markets.
The offering of units of the Partnership closed on December 23, 1991. As of
December 31, 1999, there were 9,067,911 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
Beginning in the Partnership's seventh year of operation, which commenced on
January 1, 1999, the General Partner stopped reinvesting cash flow. Surplus
funds, if any, less reasonable reserves, will be distributed to the partners.
During the period between the seventh year of operation and the ninth year of
operation, the Partnership will not be able to purchase any additional
equipment. In the ninth year of operations of the Partnership, the General
Partner intends to begin the dissolution and liquidation of the Partnership in
an orderly fashion, unless the Partnership is terminated earlier upon sale of
all of the equipment or by certain other events. Under certain circumstances,
however, the term of the Partnership may be extended. In no event will the
Partnership be extended beyond December 31, 2010.
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio, and the cost of investments in unconsolidated
special-purpose entities as of December 31, 1999 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
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Owned equipment held for operating leases:
3 737-200 Stage II commercial aircraft Boeing $ 16,049
2 737-200A Stage III commercial aircraft Boeing 12,920
1 DC-9-32 Stage II commercial aircraft McDonnell Douglas 10,057
2 DHC-8-102 commuter aircraft DeHavilland 7,628
1 DHC-8-300 commuter aircraft DeHavilland 5,748
1 Product tanker Kaldnes M/V 16,276
1 Anchor-handling supply vessel Marine Fabricators 9,614
85 Sulphur tank railcars ACF/RTC 2,912
119 Covered hopper railcars Various 2,823
106 Anhydrous ammonia tank railcars GATX 2,483
71 Tank railcars Various 1,862
44 Mill gondola railcars Bethlehem Steel 1,248
181 Refrigerated trailers Various 5,491
147 Piggyback refrigerated trailers Oshkosh 2,245
123 Dry trailers Various 1,509
252 Refrigerated marine containers Various 4,728
659 Various marine containers Various 4,347
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Total owned equipment held for operating leases $ 107,9401
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Investments in unconsolidated special-purpose entities:
0.48 Product tanker Boelwerf-Temse 9,4922
0.50 Product tanker Kaldnes M/V 8,2492
0.25 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 3,0053
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Total investments in unconsolidated special-purpose entities $ 20,7461
1 Includes equipment and investments purchased with the proceeds from capital
contributions, undistributed cash flow from operation, and Partnership borrow-
ings. Includes costs capitalized, subsequent to the dte of acquisition, and
equipment acquisition fees paid to PLM Transportation Equipment Corporation
(TEC), a wholly-owned subsidiary of FSI, or PLM Worldwide Management Service
(WMS), a wholly-owned subsidiary of PLM International. All equipment was used
equipment at the time of purchase, except 125 dry van trailers and 150 piggy-
back refrigerated trailers.
2 Jointly owned: EGF V and an affiliated program.
3 Jointly owned: EGF V and two affiliated programs.
The equipment is generally leased under operating leases with terms of one to
six years. The Partnership's marine containers are leased to operators of
utilization-type leasing pools, 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. Rents for railcars are based on mileage traveled or a fixed rate;
rents for all other equipment are based on fixed rates.
As of December 31, 1999, approximately 67% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing. Rents are reported as revenue in accordance with Financial
Accounting Standards Board Statement No. 13 "Accounting for Leases". Direct
expenses associated with the equipment are charged directly to the Partnership.
An allocation of other indirect expenses of the rental yard operations is
charged to the Partnership monthly.
The lessees of the equipment include but are not limited to: Chevron USA,
Seacore Smit, Inc., Husky Oil Operations, Coastal Chemical, Inc., Koch Sulphur,
Potash Corp., Kansas City Southern, Canadian Airlines International, Varig South
America, and Aero California.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than the longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other investment programs that lease the same
types of equipment.
(D) Demand
The Partnership currently operates in the following operating segments: aircraft
leasing, marine vessel leasing, railcar leasing, trailer leasing, and marine
container leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers. Except for those aircraft
leased to passenger air carriers, the Partnership's equipment and investments
are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Aircraft
(a) Commercial Aircraft
After experiencing relatively robust growth over the prior four years, demand
for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two
primary manufacturers of new commercial aircraft, saw a decrease in their volume
of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in
1998. The slowdown in aircraft orders can be partially attributed to the full
implementation of United States (U.S.) Stage III environmental restrictions,
which became fully effective on December 31, 1999. Since these restrictions
effectively prohibit the operation of noncompliant aircraft in the U.S. after
1999, carriers operating within or into the U.S. either replaced or modified all
of their noncompliant aircraft before the end of the year. The continued
weakness of the Asian economy has also served to slow the volume of new aircraft
orders. However, with the Asian economy now showing signs of recovery, air
carriers in this region are beginning to resume their fleet building efforts.
Demand for, and values of, used commercial aircraft have been adversely affected
by the Stage III environmental restrictions and an oversupply of older aircraft
as manufacturers delivered more new aircraft that the overall market required.
Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will
increase from approximately 12,600 airplanes as of the end of 1998 to about
13,700 aircraft by the end of 2003, an average increase of 220 units per year.
However, actual deliveries for the first two years of this period, 1998 and
1999, averaged 839 units annually. Although some of the resultant surplus used
aircraft have been retired, the net effect has been an overall increase in the
number of used aircraft available. This has resulted in a decrease in both
market prices and lease rates for used aircraft. The weakness in the used
commercial aircraft market may be mitigated in the future as manufacturers bring
their new production more in line with demand and given the anticipated
continued growth in air traffic. Worldwide, demand for air passenger services is
expected to increase at about 5% annually and freight services at about 6% per
year, for the foreseeable future.
This Partnership owns 100% of two Stage III-compliant aircraft and 25% of two
similar aircraft. It also wholly owns four Stage II aircraft, three of which are
operating outside the United States and thus not subject to Stage III
environmental restrictions. All of these aircraft were on lease throughout most
of 1999 and were not affected by changes in market conditions. Additionally, one
Stage II aircraft, underwent a Stage III modification during the first quarter
of 2000.
(b) Commuter Aircraft
The Partnership owns commuter turboprops with 36 to 50 seats. These aircraft fly
in North America, which continues to be the largest market in the world for this
type aircraft. However, the introduction of regional jet aircraft continues to
have adverse impact on the turboprop market. Regional jets have been well
received in the commuter market and their growing use has been at the expense of
turboprops. Due to this trend, the turboprop market has experienced a decrease
in aircraft values and lease rates.
One of the Partnership's turboprop aircraft remained on lease throughout 1999
and saw no change in rates. However, two other turboprops that came off lease
during 1999 were re-leased at lower rates due to the change in market conditions
noted above.
(2) Marine Vessels
The Partnership owns or has investments in product tankers that operate in
international markets carrying a variety of commodity-type cargoes. Demand for
commodity-based shipping is closely tied to worldwide economic growth patterns,
which can affect demand by causing changes in volume on trade routes. The
General Partner operates the Partnership's vessels through a combination of spot
and period charters, an approach that provides the flexibility to adapt to
changes in market conditions. The Partnership also owns an anchor-handling
supply vessel that operates through bareboat charters.
(a) Product Tankers
During 1999, product tanker markets experienced declines in charter rates and
vessel values brought about by volatile oil and oil product prices, relatively
low growth in trade volumes, and high rates of new product tanker deliveries.
The 1999 daily charter rates for standard-size product tankers averaged 21%
lower than in 1998 and 39% lower than in 1997. This decline was primarily due to
a deterioration in oil products trade in European markets.
Since crude oil is the source feedstock for oil products, the products trade is
closely tied to crude oil prices. Although 1999 was a year of rising oil prices,
volatility in trading appeared to depress actual shipping volumes, particularly
in Europe. Although product imports to the United States and Japan increased
such that the entire worldwide market grew by 2.7% during 1999, due to the
lingering effects of the Asian recession, shipping volumes ended the year below
the levels of 1996-1997.
Measured by deadweight tons, the product tanker fleet grew by only 3.2% during
1999, as overall supply was significantly moderated by a 150% increase in
scrapping levels as compared to 1998. For 2000, the product tanker fleet is
expected to expand due to a 6.5% rise in new deliveries. This increase is due to
the continuing effects of high order levels in the mid-1990s, which was driven
by growth in Asian trade and the anticipated effects of the U.S. Oil Pollution
Act of 1990. Under this Act, tankers over 25 years old are restricted from
trading to the United States if they do not have double bottoms and/or double
hulls (similar, though somewhat less stringent restrictions are in place within
developing nations). These regulations have the effect of inducing the
retirement of older vessels that would otherwise continue trading.
Two of the Partnership's product tankers are single-bottom, single-hull tankers
that are restricted from trading in the United States effective January 1, 2000.
Both of these vessels have been moved to markets not affected by these
regulations.
The combined effects of regulatory restrictions and low charter rates are
expected to keep scrapings at relatively high levels throughout 2000. However,
an anticipated high rate of new tanker deliveries will prevent much improvement
in rates and ship values during 2000. Should high scrapping levels continue
beyond then, this could offset increases in new deliveries and prevent further
significant declines in freight rates and ship values.
(b) Anchor-handling Supply Vessels
The Partnership owns one U.S.-flagged anchor-handling supply vessel used to
support rig drilling operations in the U.S. Gulf of Mexico. Although this type
of vessel can be used in other regions, the U.S. Gulf of Mexico is the more
desirable market due to U.S. maritime law which stipulates that only
U.S.-flagged vessels be used in this region.
Demand for anchor-handling vessels depends primarily on the demand for floating
drilling services by oil companies. During 1999, demand for such services
remained at 1997-98 levels, however several higher-capacity vessels were
delivered during 1998-99, resulting in lower utilization and rates.
The 1999 recovery in oil prices has led forecasters to expect an increase in
drilling activity for 2000, as rising oil prices improve the economics of
offshore oil and gas development. Oil companies are expected to increase their
drilling programs during 2000, although it is uncertain by how much. Increases
in capacity brought about by new building may delay a return to the higher
utilization and rate levels experienced during 1997-98.
(3) Railcars
(a) Pressurized Tank Railcars
Pressurized tank cars are used to transport primarily liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). The major U.S. markets for
natural gas are industrial applications (40% of estimated demand in 1998),
residential use (21%), electrical generation (15%), and commercial applications
(14%). Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, the status of government farm subsidy
programs, amount of farming acreage and mix of crops planted, weather patterns,
farming practices, and the value of the U.S. dollar. Population growth and
dietary trends also play an indirect role.
On an industrywide basis, North American carloadings of the commodity group that
includes petroleum and chemicals increased 2.5% in 1999, compared to 1998.
Correspondingly, demand for pressurized tank cars remained solid during 1999,
with utilization of this type of railcar within the Partnership remaining above
98%. While renewals of existing leases continue at similar rates, some cars have
been renewed for "winter only" terms of approximately six months. As a result,
it is anticipated that there will be more pressurized tank cars than usual
coming up for renewal in the spring.
(b) General Purpose (Nonpressurized) Tank Railcars
These cars, which are used to transport bulk liquid commodities and chemicals
not requiring pressurization, such as certain petroleum products, liquefied
asphalt, lubricating and vegetable oils, molten sulfur, and corn syrup,
continued to be in high demand during 1999. The overall health of the market for
these types of commodities is closely tied to both the U.S. and global
economies, as reflected in movements in the Gross Domestic Product, personal
consumption expenditures, retail sales, and currency exchange rates. The
manufacturing, automobile, and housing sectors are the largest consumers of
chemicals. Within North America, 1999 carloadings of the commodity group that
includes chemicals and petroleum products rose 2.5% over 1998 levels.
Utilization of the Partnership's nonpressurized tank cars was above 98% again
during 1999.
(c) Covered Hopper (Grain) Railcars
Demand for covered hopper cars, which are specifically designed to service the
agricultural industry, continued to experience weakness during 1999. The U.S.
agribusiness industry serves a domestic market that is relatively mature, the
future growth of which is expected to be consistent but modest. Most domestic
grain rail traffic moves to food processors, poultry breeders, and feed lots.
The more volatile export business, which accounts for approximately 30% of total
grain shipments, serves emerging and developing nations. In these countries,
demand for protein-rich foods is growing more rapidly than in the United States,
due to higher population growth, a rapid pace of industrialization, and rising
disposable income.
Within the United States, 1999 carloadings of agricultural products increased
4.3%, while Canadian carloadings of these products fell 3.4%, resulting in an
overall increase within North America of only 2.8% compared to 1998. Since the
combined North American shipments for 1998 had decreased 7.7% over the previous
year, the 1999 volume, while representing a slight increase, is still below 1997
levels. Another factor contributing to softness in the covered hopper car market
has been the large number of new cars built in the last few years. Production of
new railcars of all types is estimated to have reached 57,685 cars during 1999,
with covered hopper cars representing 19,845, or one-third, of this total. For
those covered hopper cars whose leases expired in 1999, both industrywide and
within the Partnership, the combination of a lack of strong demand and an excess
supply of cars resulted in many of these expiring leases being renewed at
considerably lower rates.
(d) Mill Gondola Railcars
Mill gondola railcars are used typically to transport scrap steel for recycling
from steel processors to small steel mills called minimills. Demand for steel is
cyclical and moves in tandem with the growth or contraction of the overall
economy. Within the United States, 1999 carloadings for the commodity group that
includes scrap steel increased 1.0% over 1998 volumes. The Partnership's mill
gondola railcars continued to operate on a long-term lease in 1999.
(4) Trailers
(a) Refrigerated Trailers
The temperature-controlled trailer market continued to expand during 1999,
although not as quickly as in 1998 when the market experienced very strong
growth. The leveling off in 1999 occurred as equipment users began to absorb the
increases in supply created over the prior two years. Refrigerated trailer users
have been actively retiring their older units and consolidating their fleets in
response to improved refrigerated trailer technology. Concurrently, there is a
backlog of six to nine months on orders for new equipment.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies and shippers will utilize short-term trailer
leases more frequently to supplement their existing fleets. Such a trend should
benefit the Partnership, whose trailers are typically leased on a short-term
basis.
(b) Dry Trailers
The U.S. nonrefrigerated (dry) trailer market continued its recovery during
1999, as the strong domestic economy resulted in heavy freight volumes. With
unemployment low, consumer confidence high, and industrial production sound, the
outlook for leasing this type of trailer remains positive, particularly as the
equipment surpluses of recent years are being absorbed by the buoyant market. In
addition to high freight volumes, improvements in inventory turnover and tighter
turnaround times have lead to a stronger overall trucking industry and increased
equipment demand.
(c) Intermodal (Piggyback) Trailers
Intermodal (piggyback) trailers are used to transport a variety of goods either
by truck or by rail. Over the past decade, intermodal trailers have been
gradually displaced by domestic containers as the preferred method of transport
for such goods. During 1999, demand for intermodal trailers was more volatile
than usual . Slow demand occurred over the first half of the year due to
customer concerns over rail service problems associated with mergers in the rail
industry, however, demand picked up significantly over the second half of the
year due to both a resolution of these service problems and the continued
strength of the U.S. economy. Due to a rise in demand which occurred over the
latter half of 1999, overall, activity within the intermodal trailer market
declined less than expected for the year, as total intermodal trailer shipments
decreased by only approximately 1.8% compared to the prior year. Average
utilization of the entire intermodal fleet rose from 73% in 1998 to 77% in 1999,
primarily due to demand exceeding available supply of intermodal trailers during
the second part of the year.
The General Partner stepped up its marketing and asset management program for
the Partnership's intermodal trailers during 1999. These efforts resulted in
average utilization for the Partnership's intermodal trailers of approximately
82% for the year, up 2% compared to 1998 levels.
Although the trend towards using domestic containers instead of intermodal
trailers is expected to continue in the future, overall intermodal trailer
shipments are forecast to decline by only 2% to 3% in 2000, compared to the
prior year, due to the anticipated continued strength of the overall economy. As
such, the nationwide supply of intermodal trailers is expected to remain
essentially in balance with demand for 2000. For the Partnership's intermodal
fleet, the General Partner will continue to seek to expand its customer base
while minimizing trailer downtime at repair shops and terminals.
(5) Marine Containers
The marine container leasing market started 1999 with industrywide utilization
in the mid 70% range, down somewhat from the beginning of 1998. The market
strengthened throughout the year such that most container leasing companies
reported utilization of 80% by the end of 1999. Overall, industrywide
utilization for marine containers was increasing during 1999. The Partnership
owns older marine containers and thus, did not contribute to the overall
increase in the industrywide utilization.
Offsetting this favorable trend was a continuation of historically low
acquisition prices for new containers manufactured in the Far East,
predominantly China. These low prices put pressure on fleetwide per diem leasing
rates.
Industry consolidation continued in 1999 as the parent of one of the world's top
ten container lessors finalized the outsourcing of the management of its
container fleet to a competitor. However, the General Partner believes that such
consolidation is a positive trend for the overall container leasing industry,
and ultimately will lead to higher industrywide utilization and increased per
diem rates.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in governmental regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, government, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require its removal from service or extensive modification to meet these
regulations, at considerable cost to the Partnership. Such regulations include
but are not limited to:
(1) the United States (U.S.) Oil Pollution Act of 1990, which established
liability for operators and owners of marine vessels that create
environmental pollution. This regulation has resulted in higher oil
pollution liability insurance. The lessee of the equipment typically
reimburses the Partnership for these additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport
in the contiguous United States unless that aircraft has been shown to
comply with Stage III noise levels. The Partnership has Stage II aircraft
that do not meet Stage III requirements. These Stage II aircraft are
scheduled to be either modified to meet Stage III requirements, sold, or
re-leased in countries that do not require this regulation. The cost to
install a hushkit to meet quieter Stage III requirements is approximately
$2.0 million, depending on the type of aircraft;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects on the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers and refrigerated trailers;
(4) the U.S. Department of Transportation's Hazardous Materials
Regulations, which regulate the classification and packaging requirements
of hazardous materials and which apply particularly to the Partnership's
tank railcars. The Federal Railroad Administration has mandated that
effective July 1, 2000, all jacketed and non-jacketed tank railcars must be
re-qualified to insure tank shell integrity. Tank shell thickness, weld
seams, and weld attachments must be inspected and repaired if necessary to
re-qualify a tank railcar for service. The average cost of this inspection
is $1,800 for non-jacketed tank railcars and $3,600 for jacketed tank
railcars, not including any necessary repairs. This inspection is to be
performed at the next scheduled tank test.
As of December 31, 1999, the Partnership was in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interests in entities that own equipment for leasing
purposes. As of December 31, 1999, the Partnership owned a portfolio of
transportation and related equipment and investments in equipment owned by
unconsolidated special-purpose entities (USPEs) as described in Item 1, Table 1.
The Partnership acquired equipment with the proceeds of the Partnership offering
of $184.3 million through the first quarter of 1992, with proceeds from the debt
financing of $38.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action in January
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251
(the Koch action). The named plaintiffs are six individuals who invested in PLM
Equipment Growth Partnership IV (Fund IV), PLM Equipment Growth Partnership V
(Fund V), PLM Equipment Growth Partnership VI (Fund VI), and PLM Equipment
Growth & Income Partnership VII (Fund VII) (the Funds), each a California
limited partnership for which the Company's wholly-owned subsidiary, FSI, acts
as the General Partner. The complaint asserts causes of action against all
defendants for fraud and deceit, suppression, negligent misrepresentation,
negligent and intentional breaches of fiduciary duty, unjust enrichment,
conversion, and conspiracy. Plaintiffs allege that each defendant owed
plaintiffs and the class certain duties due to their status as fiduciaries,
financial advisors, agents, and control persons. Based on these duties,
plaintiffs assert liability against defendants for improper sales and marketing
practices, mismanagement of the Funds, and concealing such mismanagement from
investors in the Funds. Plaintiffs seek unspecified compensatory damages, as
well as punitive damages, and have offered to tender their limited partnership
units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction. In December 1997, the court granted defendants motion to
compel arbitration of the named plaintiffs' claims, based on an agreement to
arbitrate contained in the limited partnership agreement of each Partnership.
Plaintiffs appealed this decision, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No. 987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices and violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company's petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei action, as
discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and June 29,
1999. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Funds V, VI and VII of up to 10% of that partnership's outstanding units
for 80% of net asset value per unit; and (e) the deferral of a portion of the
management fees paid to an affiliate of FSI until, if ever, certain performance
thresholds have been met by the Funds. Subject to final court approval, these
proposed changes would be made as amendments to each Partnership's limited
partnership agreement if less than 50% of the limited partners of each
Partnership vote against such amendments. The limited partners will be provided
the opportunity to vote against the amendments by following the instructions
contained in solicitation statements that will be mailed to them after being
filed with the Securities and Exchange Commission. The equitable settlement also
provides for payment of additional attorneys' fees to the plaintiffs' attorneys
from Partnership funds in the event, if ever, that certain performance
thresholds have been met by the Funds. The equitable settlement class consists
of all investors, limited partners, assignees or unit holders who on June 29,
1999 held any units in Funds V, VI, and VII, and their assigns and successors in
interest.
The court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. The Company continues to
believe that the allegations of the Koch and Romei actions are completely
without merit and intends to continue to defend this matter vigorously if the
monetary settlement is not consummated.
The Company is involved as plaintiff or defendant in various other legal actions
incident to its business. Management does not believe that any of these actions
will be material to the financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1999.
(This space intentionally left blank)
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
entitled to 5% of the cash distributions of the Partnership. The General Partner
is the sole holder of such interests. Net income is allocated to the General
Partner to the extent necessary to cause the General Partner's capital account
to equal zero. The remaining interests in the profits, losses, and cash
distributions of the Partnership are allocated to the limited partners. As of
December 31, 1999, there were 9,672 limited partners holding units in the
Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and, therefore, are generally viewed as inefficient vehicles for the
sale of limited partnership units. Presently, there is no public market for the
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 units
will not be transferable without the consent of the General Partner, which may
be withheld in its absolute discretion. The General Partner intends to monitor
transfers of units in an effort to ensure that they do not exceed the percentage
or number permitted by certain safe harbors promulgated by the Internal Revenue
Service. A transfer may be prohibited if the intended transferee is not an
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.
The Partnership may redeem a certain number of units each year under the terms
of the Partnership's limited partnership agreement, beginning January 1, 1994.
If the number of units made available for purchase by limited partners in any
calendar year exceeds the number that can be purchased with reinvestment plan
proceeds, then the Partnership may, subject to certain terms and conditions,
redeem up to 2% of the outstanding units each year. The purchase price to be
offered by the Partnership for these units will be equal to 110% of the
unrecovered principal attributable to the units. The unrecovered principal for
any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid with
respect to the units. As of December 31, 1999, the Partnership agreed to
purchase approximately 2,300 units for an aggregate price of $12,500. The
General Partner anticipates that these units will be repurchased in the first
and second quarters of 2000. As of December 31, 1999, the Partnership has
repurchased a cumulative total of 152,021 units at a cost of $1.6 million. In
addition to these units, the General Partner may purchase additional units on
behalf of the Partnership in the future.
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ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the Years Ended December 31, (In
thousands of dollars, except weighted-average unit
amounts)
1999 1998 1997 1996 1995
-------------------------------------------------------------------------
Operating results:
Total revenues $ 20,768 $ 24,047 $ 41,123 $ 44,322 $ 39,142
Net gain on disposition
of equipment 253 732 10,990 14,199 3,835
Loss on revaluation of equipment 2,899 -- -- -- --
Equity in net income (loss) of uncon-
solidated special-purpose entities 2,108 294 (264) (116) --
Net income 1,302 2,370 7,921 12,441 2,045
At year-end:
Total assets $ 46,083 $ 61,376 82,681 $ 98,419 $ 102,109
Total liabilities 19,077 26,970 35,958 46,123 44,092
Note payable 15,484 23,588 32,000 40,463 38,000
Cash distribution $ 8,617 $ 12,008 15,346 $ 18,083 $ 19,342
Cash distribution representing
a return of capital to the limited
partners $ 7,315 $ 9,638 $ 7,425 $ 5,642 $ 17,297
Per weighted-average limited partnership unit:
Net income $ 0.091$ 0.201$ 0.791$ 1.261$ 0.121
Cash distribution $ 0.90 $ 1.26 $ 1.60 $ 1.87 $ 2.00
Cash distribution representing
a return of capital $ 0.81 $ 1.06 $ 0.81 $ 0.61 $ 1.89
(This space intentionally left blank)
- --------------------
1 After reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.4 million ($0.05 per weighted-average depositary
unit) in 1999, $0.5 million ($0.05 per weighted-average depositary unit) in
1998, $0.4 million ($0.04 per weighted-average depositary unit) in 1997, $0.3
million ($0.03 per weighted-average depositary unit) in 1996, and $0.9
million ($0.09 per weighted-average depositary unit) in 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund V
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in the various segments in
which it operates and its effect on the Partnership's overall financial
condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for Partnership equipment include, but are not limited to, supply and demand for
similar or comparable types of transport capacity, desirability of the equipment
in the leasing market, market conditions for the particular industry segment in
which the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of 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 1999 primarily
in its trailer, marine vessels, aircraft, and marine container portfolios.
(a) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities or with short-line railroad systems. The relatively short
duration of most leases in these operations exposes the trailers to considerable
re-leasing activity. Contributions from the Partnership's trailers were lower
than in previous years due to the process of moving certain dry trailers to
short-term rental facilities equipped to handle only this type of trailer.
(b) Marine vessels: Certain of the Partnership's marine vessels operate in
the voyage charter market. Voyage charters are usually short in duration and
reflect the short-term demand and pricing trends in the vessel market. As a
result of this, the Partnership experienced a decrease in lease revenues due to
the weakness in the voyage charter market.
(c) Aircraft: Certain of the Partnership's aircraft leases expired during
1999. The commuter aircraft that came off lease during 1999 were re-leased at
lower rates due to a decline in the demand for this type of aircraft. The
commercial aircraft that came off lease during 1999 has remained off lease due
to the installation of a hush kit to this aircraft. The Partnership expects to
re-lease this aircraft during 2000.
(d) Marine containers: All of the Partnership's marine containers are leased
to operators of utilization-type leasing pools and, as such, are highly exposed
to repricing activity. The Partnership saw lower re-lease rates and lower
utilization on the remaining marine containers fleet during 1999.
(e) Other: While market conditions and other factors may have had some impact
on lease rates in other markets in which the Partnership owns equipment, the
majority of this equipment was unaffected.
(2) Equipment Liquidations and Nonperforming Lessee
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs) represents a reduction in the size of the
equipment portfolio and may result in reductions of contributions to the
Partnership. 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 contributions, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1999:
(a) Liquidations: During the year, the Partnership disposed of owned
equipment that included marine containers, trailers, and railcars, an interest
in an entity that owned a marine vessel, and an interest in two trusts that
owned a total of three Boeing 737-200A Stage II commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables for total proceeds of
$8.2 million.
(b) Non-performing lessee: A Brazilian lessee of a commercial aircraft is
having financial difficulties. The lessee has an extended repayment schedule for
the lease payment arrearage of $0.3 million.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If the projected undiscounted future
cash flow and the fair market value of the equipment are less than the carrying
value of the equipment, a loss on revaluation is recorded. Reductions of $2.9
million to the carrying value of owned equipment were required during 1999. No
reductions were required to the carrying value of the equipment during either
1998 or 1997.
As of December 31, 1999, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including the Partnership's
interest in equipment owned by USPEs, to be $66.6 million. This estimate is
based on recent market transactions for equipment similar to the Partnership's
equipment portfolio and the Partnership's interest in equipment owned by USPEs.
Ultimate realization of fair market value by the Partnership may differ
substantially from the estimate due to specific market conditions, technological
obsolescence, and government regulations, among other factors, that the General
Partner cannot accurately predict.
(C) Financial Condition - Capital Resources, Liquidity, and Unit Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $184.3 million and permanent
debt financing of $38.0 million. No further capital contributions from limited
partners are permitted under the terms of the Partnership's limited partnership
agreement. The Partnership relies on operating cash flow to meet its operating
obligations and make cash distributions to limited partners.
For the year ended December 31, 1999, the Partnership generated $12.3 million in
operating cash (net cash provided by operating activities plus non-liquidating
cash distributions from USPEs) to meet its operating obligations, make principal
debt payments, and pay distributions of $8.6 million to the partners.
Lessee deposits and reserve for repairs increased $0.3 million during the year
ended December 31, 1999 when compared to December 31, 1998. Reserves for
aircraft engine repair increased $0.9 million due to additional lessee deposits
and security deposits increased $0.3 million due to a security deposit from a
potential lessee of a DC-9-32 commercial aircraft. Lessee prepaid deposits
decreased $0.2 million due to fewer lessee's prepaying future lease revenue and
marine vessel drydocking decreased $0.7 million due to the drydocking of one of
the Partnership's marine vessels in 1999.
Pursuant to the terms of the limited partnership agreement, beginning January 1,
1994, if the number of units made available for purchase by limited partners in
any calendar year exceeds the number that can be purchased with reinvestment
plan proceeds, then the Partnership may, subject to certain terms and
conditions, redeem up to 2% of the outstanding limited partnership units each
year. The purchase price to be offered for such units will be equal to 110% of
the unrecovered principal attributed to the units. The unrecovered principal for
any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid with
respect to the units. As of December 31, 1999, the Partnership agreed to
purchase approximately 2,300 units for an aggregate price of $12,500. The
General Partner anticipates that these units will be repurchased in the first
and second quarters of 2000. In addition to these units, the General Partner may
purchase additional units on behalf of the Partnership in the future.
The Partnership made the regularly scheduled principal payments of $7.6 million
and quarterly interest payments at a rate of LIBOR plus 1.2% per annum (7.3% at
December 31, 1999) to the lender of the senior loan during 1999. The Partnership
also paid the lender of the senior loan an additional $0.5 million from
equipment sale proceeds, as required by the loan agreement.
During 1999 the Partnership borrowed, from time to time, a total of $3.2 million
from the General Partner for less than 20 days. The Partnership had fully repaid
this amount during 1999. The General Partner charged the Partnership market
interest rates. Total interest paid to the General Partner was $15,000.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 5 to
the audited financial statements), are not included in the owned equipment
operation discussion because 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,
1999 1998
----------------------------
Aircraft $ 8,000 $ 8,811
Marine vessels 2,332 2,777
Railcars 1,989 1,928
Trailers 1,857 2,150
Marine containers 694 1,206
Aircraft: Aircraft lease revenues and direct expenses were $8.2 million and $0.2
million, respectively, for the year ended December 31, 1999, compared to $8.9
million and $0.1 million, respectively, during the same period of 1998. The
decrease in aircraft lease revenues was due to the re-lease of two aircraft at a
lower lease rate than had been in place during 1998. The increase in direct
expenses of $0.1 was due to additional repairs required during 1999 that were
not required during the same period of 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $6.2
million and $3.9 million, respectively, for the year ended December 31, 1999,
compared to $7.5 million and $4.7 million, respectively, during the same period
of 1998. The decrease in marine vessel lease revenues of $1.3 million was
primarily due to one of the marine vessels earning $1.3 million less during the
year ended December 31, 1999 due to earning a lower lease rate when compared to
the lease rate that was in place during the same period of 1998 and this marine
vessel being off lease in 1999 for nine weeks for required dry-docking. This
drydocking resulted in a loss of lease revenues of approximately $0.5 million.
The decrease in lease revenues was partially offset by an increase in lease
revenues of $0.6 million caused by the purchase of an additional marine vessel
during March of 1998. This marine vessel was on lease the entire year of 1999
when compared to nine months of 1998.
Direct expenses decreased $0.8 million during the year ended 1999 when compared
to the same period of 1998. A decrease of $1.2 million in direct expenses was
due to not having any operating costs while this marine vessel was in drydock as
well as having lower repairs and maintenance due to the drydocking. The decrease
in direct expenses was partially offset by an increase in insurance expense of
$0.5 million. The increase in insurance was caused by a $0.3 million
loss-of-hire insurance refund received during 1998 from Transportation Equipment
Indemnity Company, Ltd., an affiliate of the General Partner, due to lower
claims from the insured Partnership. The Partnership did not receive a refund
during 1999. Additionally, the 1999 lease agreement with one marine vessel
lessee requires that the Partnership is responsible for the premiums on
insurance coverage when compared to 1998, during which the lessee was
responsible for the premiums on certain insurance coverage.
Railcars: Railcar lease revenues and direct expenses were $2.5 million and $0.5
million, respectively, for the year ended December 31, 1999, compared to $2.5
million and $0.6 million, respectively, during the same period of 1998. Railcar
lease revenues remained relatively the same for both years. Direct expenses
decreased $0.1 million due to fewer required repairs to certain railcars during
1999 than were required during 1998.
Trailers: Trailer lease revenues and direct expenses were $2.7 million and $0.9
million, respectively, for the year ended December 31, 1999, compared to $2.8
million and $0.7 million, respectively, during the same period of 1998. During
the year ended December 31, 1999, certain dry trailers were in the process of
transitioning to a new PLM-affiliated short-term rental facility specializing in
this type of trailer causing lease revenues for this group of trailers to
decrease $0.1 million when compared to the same period of 1998. Trailer repairs
and maintenance increased $0.2 million primarily due to required repairs during
1999 that were not needed during the same period of 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.7
million and $5,000, respectively, for the year ended December 31, 1999, compared
to $1.2 million and $11,000, respectively, during the same period of 1998. A
decrease of approximately $0.3 million in lease revenues was caused by a
worldwide increase in available marine containers which has lead to a decline in
lease rates. In addition, the number of marine containers owned by the
Partnership has been declining due to sales and dispositions during 1999 and
1998. This declining fleet has also resulted in a decrease of approximately $0.2
million in marine container contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $16.1 million for the year ended December 31, 1999
increased from $15.9 million for the same period in 1998. Significant variances
are explained as follows:
(i) Loss on revaluation increased $2.9 million during the year ended
December 31, 1999 and resulted from the Partnership reducing the carrying value
of a marine vessel to its estimated fair market value. No revaluation of
equipment was required during 1998.
(ii)A $1.9 million decrease in depreciation and amortization expenses from
1998 levels was caused primarily by the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(iii) A $0.7 million decrease in interest expense was due to a lower
average outstanding debt balance when compared to 1998.
(iv) A $0.1 million decrease in management fees to an affiliate was due
to lower lease revenues.
(c) Interest and Other Income
Interest and other income decreased $0.2 million during the year ended December
31, 1999 when compared to the same period of 1998 due primarily to lower average
cash balances available for investment.
(d) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1999 totaled $0.3 million, which resulted from the sale of marine containers,
railcars, and trailers with an aggregate net book value of $0.6 million, for
proceeds of $0.9 million. The net gain on the disposition of equipment for the
year ended December 31, 1998 totaled $0.7 million, which resulted from the sale
of an aircraft, marine containers, railcars, and trailers, with an aggregate net
book value of $8.0 million, for proceeds of $8.7 million.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1999 1998
--------------------------
Aircraft, rotable components, and aircraft engines $ 1,811 446
Marine vessels 297 (152)
--------------------------
Equity in net income of USPEs $ 2,108 294
==========================
Aircraft, rotable components, and aircraft engines: As of December 31, 1999 the
Partnership had an interest in an entity owning two DC-9 Stage III commercial
aircraft on a direct finance lease. As of December 31, 1998, the Partnership had
an interest in two trusts that owned a total of three Boeing 737-200A Stage II
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables
(the Two Trusts), and an interest in an entity owning two DC-9 Stage III
commercial aircraft on a direct finance lease. During the year ended December
31, 1999, revenues of $0.4 million and the gain from the sale of the
Partnership's interest in the Two Trusts of $1.6 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.2
million. During the same period of 1998, revenues of $1.2 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.8
million. Revenues decreased $0.8 million and depreciation expense, direct
expenses, and administrative expenses decreased $0.6 million due to the sale of
the Partnership's investment in the Two Trusts.
Marine vessels: As of December 31, 1999, the Partnership owned an interest in
two entities owning a total of two marine vessels. As of December 31, 1998, the
Partnership owned an interest in three entities owning a total of three marine
vessels. During the year ended December 31, 1999, lease revenues of $5.2 million
and the gain of $1.9 million from the sale of the Partnership's interest in an
entity owning a marine vessel were offset by depreciation expense, direct
expenses, and administrative expenses of $6.8 million. During the same period of
1998, lease revenues of $6.4 million were offset by depreciation expense, direct
expenses, and administrative expenses of $6.6 million.
The decrease in lease revenues of $1.2 million was primarily due to lower lease
rates earned on the Partnership's investments in entities that own marine
vessels.
Depreciation expense, direct expenses, and administrative expenses increased
$0.2 million during the year ended December 31, 1999 when compared to the same
period of 1998. The following changes occurred:
(i) Marine operating expenses increased $1.2 million during 1999 when
compared to 1998. An increase in marine operating expenses of $0.9 million was
due to one marine vessel that switched to a voyage charter during 1999 that was
on a time charter during 1998. Also, the other marine vessel that was on voyage
charter during 1999 and 1998, had an increase of $0.5 million in marine
operating expenses during 1999. This marine vessel was with the same charterer
the entire year of 1998, when this marine vessel changed to a different
charterer, the new charterer charged the Partnership higher operating expenses.
Marine operating expenses for the remaining marine vessel that was sold
decreased $0.1 million during the year ended December 31, 1999 when compared to
the same period of 1998;
(ii)Insurance expense increased $0.3 million during 1999 when compared to
1998. During 1999, the marine vessel entities had increased insurance premiums
of $0.2 million on certain insurance coverage that it was now responsible for
when compared to 1998, during which the lessee was responsible for the premiums
on these insurance coverage. Additionally, the marine vessel entities received a
$0.1 million loss-of-hire insurance refund during 1998 from TEI, due to lower
claims from the insured entities. These marine vessel entities did not receive a
refund during 1999.
(iii)Repairs and maintenance decreased $0.8 million due to fewer repairs
required;
(iv)Depreciation expense decreased $0.4 million resulting from the use of
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned;
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1999 was $1.3 million, compared to net income of $2.4 million
during the same period in 1998. The Partnership's ability to operate assets,
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the year ended
December 31, 1999 is not necessarily indicative of future periods. In the year
ended December 31, 1999, the Partnership distributed $8.1 million to the limited
partners, or $0.90 per weighted-average limited partnership unit.
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1998, when compared to the same
period of 1997. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 5 to
the audit 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,
1998 1997
----------------------------
Aircraft and aircraft engines $ 8,811 $ 9,279
Marine vessels 2,777 2,650
Trailers 2,150 1,918
Railcars 1,928 2,062
Marine containers 1,206 2,057
Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were
$8.9 million and $0.1 million, respectively, for the year ended December 31,
1998, compared to $9.4 million and $0.1 million, respectively, during the same
period of 1997. The decrease in aircraft contribution of $0.5 million was due to
the sale of two commuter aircraft and an aircraft engine during 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $7.5
million and $4.7 million, respectively, for the year ended December 31, 1998,
compared to $12.8 million and $10.1 million, respectively, during the same
period of 1997. A decrease in marine vessel lease revenues of $6.1 million was
due to the sale of two marine vessels during the fourth quarter of 1997 offset
in part, by an increase in lease revenues of $1.9 million from the purchase of
an additional marine vessel during March 1998. Additionally, lease revenues
decreased $1.0 million due to lower lease rates earned on the remaining marine
vessel during 1998 when compared to the same period of 1997. Marine vessel
direct operating expenses decreased $4.9 million as a direct result of the sale
of two marine vessels and also decreased $0.6 million as the result of lower
operating expenses on the remaining marine vessel. The decreases in marine
vessel direct expenses were off set in part, by an increase of $0.1 million as
the result of the purchase of an additional marine vessel during March 1998.
Marine vessel contribution also increased as a result of a $0.3 million
loss-of-hire insurance refund from Transportation Equipment Indemnity Company,
Ltd., an affiliate of the General Partner, due to lower claims from the insured
Partnership and other insured affiliated partnerships.
Trailers: Trailer lease revenues and direct expenses were $2.8 million and $0.7
million, respectively, for the year ended December 31, 1998, compared to $2.8
million and $0.8 million, respectively, during the same period of 1997. The
trailer contribution increased during 1998 due to fewer maintenance repairs
needed for trailers in the PLM affiliated rental yards, when compared to 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $2.5
million and $0.6 million, respectively, for the year ended December 31, 1998,
compared to $2.5 million and $0.5 million, respectively, during the same period
of 1997. The decrease in railcar contribution was due to required repairs to
certain railcars during 1998 that were not needed during 1997.
Marine containers: Marine container lease revenues and direct expenses were $1.2
million and $10,000, respectively, for the year ended December 31, 1998,
compared to $2.1 million and $17,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining over the past two years due to sales and dispositions. The result of
this declining fleet has been a decrease in marine container contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $15.9 million for the year ended December 31, 1998
decreased from $21.4 million for the same period in 1997. Significant variances
are explained as follows:
(i) A $4.5 million decrease in depreciation and amortization expense from
1997 levels was caused primarily by a decrease of $1.8 million due to the sale
of two marine vessels and a decrease of approximately $4.1 million due to the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned. These decreases were
partially offset by a $1.4 million increase in additional depreciation expense
from the purchase of a marine vessel during the first quarter of 1998.
(ii) A $0.6 million decrease in interest expense was due to a lower average
outstanding debt balance when compared to the same period of 1997.
(iii) A $0.3 million decrease in management fees to affiliate was due to
lower lease revenues.
(iv) A $0.2 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past-due receivables due from
certain nonperforming lessees and lower costs associated with the Partnership
trailers at the PLM-affiliated short-term rental yards.
(v) A $0.1 million increase in bad debt expenses was due to the General
Partner's evaluation of the collectibility of receivables due from certain
lessees.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1998 totaled $0.7 million, which resulted from the sale of an aircraft, marine
containers, railcars, and trailers, with an aggregate net book value of $8.0
million, for proceeds of $8.7 million. The net gain on the disposition of
equipment for 1997 totaled $11.0 million, which resulted from the sale of an
aircraft engine, a commuter aircraft, marine containers, trailers, and a
railcar, with an aggregate net book value of $4.7 million, for proceeds of $7.8
million, and the sale of two marine vessels with a net book value of $10.9
million for proceeds of $18.0 million. Included in the gain from the sale of the
marine vessels is the unused portion of accrued drydocking of $0.8 million.
(d) Interest and Other Income
Interest and other income decreased $0.2 million for the year ended December 31,
1998, when compared to the same period of 1997. A decrease of $0.3 million in
other income was due to the repossession of the aircraft that was on a direct
finance lease during 1997. This decrease was offset, in part, by an increase of
$0.1 million in interest income due to higher average cash balances available
for investment in 1998 when compared to 1997.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December 31,
1998 1997
-----------------------------
Aircraft, rotable components, and aircraft engines $ 446 $ 1,215
Marine vessels (152) (1,479)
-----------------------------
Equity in net income (loss) of USPEs $ 294 $ (264)
=============================
Aircraft, rotable components, and aircraft engines: As of December 31, 1998 and
1997, the Partnership had an interest in two trusts that own a total of three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables,
and also had an interest in an entity owning two commercial aircraft on a direct
finance lease. During the year ended December 31, 1998, revenues of $1.2 million
were offset by depreciation expense, direct expenses, and administrative
expenses of $0.8 million. During the same period of 1997, lease revenues of $2.3
million were offset by depreciation expense, direct expenses, and administrative
expenses of $1.0 million. The decrease in lease revenues is due to the renewal
of the leases for three commercial aircraft, two aircraft engines, and a
portfolio of aircraft rotables at lower rates than were in place during the same
period of 1997. The decrease in depreciation expense, when compared to the same
period of 1997, was due to the double-declining balance method of depreciation,
which results in greater depreciation in the first years an asset is owned.
Marine vessels: As of December 31, 1998 and 1997, the Partnership owned an
interest in three marine vessels. During the year ended December 31, 1998, lease
revenues of $6.4 million were offset by depreciation expense, direct expenses,
and administrative expenses of $6.6 million. During the same period of 1997,
lease revenues of $4.2 million were offset by depreciation expense, direct
expenses, and administrative expenses of $5.7 million. The primary reason for
the increase in lease revenues and depreciation expense, direct expenses, and
administrative expenses during 1998 was the purchase of an interest in an entity
that owns a marine vessel during the third quarter of 1997.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1998 was $2.4 million, compared to a net income of $7.9 million
during the same period in 1997. The Partnership's ability to operate assets,
liquidate assets, and re-lease those assets whose leases expire is subject to
many factors, and the Partnership's performance during the year ended December
31, 1998 is not necessarily indicative of future periods. In the year ended
December 31, 1998, the Partnership distributed $11.4 million to the limited
partners, or $1.26 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership's equipment operates in international markets.
Although these operations expose the Partnership to certain currency, political,
credit, and economic risks, the General Partner believes these risks are minimal
or has implemented strategies to control the risks. Currency risks are at a
minimum because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets, and the General
Partner strives to minimize this risk with market analysis prior to committing
equipment to a particular geographic area. Refer to Note 6 to the audited
financial statements for information on the lease revenues, net income (loss),
and net book value of equipment in various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's equipment on lease to U.S. domiciled lessees consists of
trailers, railcars, and aircraft. During 1999, U.S. lease revenues accounted for
25% of the total lease revenues of wholly- and partially-owned equipment while
net income accounted for $1.6 million of the Partnership's net income of $1.3
million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees
consists of railcars and aircraft. During 1999, Canadian lease revenues
accounted for 16% of the total lease revenues of wholly- and partially-owned
equipment, and recorded net income of $1.6 million, compared to the
Partnership's net income of $1.3 million.
The Partnership's owned aircraft on lease to a South American-domiciled lessee
during 1999 accounted for 12% of the total lease revenues of wholly- and
partially-owned equipment, and recorded a net income of $0.9 million, compared
to the Partnership's net income of $1.3 million.
The Partnership's ownership share of equipment owned by USPEs on lease to a
Mexican-domiciled lessee consisted of aircraft on a direct finance lease and
recorded a net income of $0.3 million of the Partnership's net income of $1.3
million.
The Partnership's ownership share of equipment that was owned by USPEs on lease
to European-domiciled lessees consisted of aircraft, aircraft engines, and
aircraft rotables. All of the equipment on lease to the European lessee was sold
during 1999 and recorded a net income of $1.5 million of the Partnership's net
income of $1.3 million. The primary reason this region recorded net income was
due to the sale of the Partnership's ownership in this USPE for a gain of $1.6
million.
The Partnership's owned equipment and its ownership share in USPEs on lease to
lessees in the rest of the world consisted of marine vessels and marine
containers. During 1999, lease revenues for these lessees accounted for 47% of
the total lease revenues of wholly- and partially-owned equipment and recorded a
net loss of $2.3 million, compared to the Partnership's net income of $1.3
million. The primary reason this region recorded a net loss of $2.3 million was
due to the Partnership recording a loss on the revaluation of a owned marine
vessel of $2.9 million.
(F) Effects of Year 2000
As of March 20, 2000, the Partnership has not experienced any material Year 2000
(Y2K) issues with either its internally developed software or purchased
software. In addition, to date, the Partnership has not been impacted by any Y2K
problems that may have impacted our customers and suppliers. The amount
allocated to the Partnership by the General Partner related to Y2K issues has
not been material. The General Partner continues to monitor its systems for any
potential Y2K issues.
(G) Inflation
Inflation had no significant impact on the Partnership's operations during 1999,
1998, or 1997.
(H) 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.
(I) Outlook for the Future
Since the Partnership is in its holding or passive liquidation phase, the
General Partner will be seeking to selectively re-lease or sell assets as the
existing leases expire. Sale decisions will cause the operating performance of
the Partnership to decline over the remainder of its life.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors makes
it difficult for the General Partner to clearly define trends or influences that
may impact the performance of the Partnership's equipment. The General Partner
continuously monitors both the equipment markets and the performance of the
Partnership's equipment in these markets. The General Partner may make an
evaluation to reduce the Partnership's exposure to equipment markets in which it
determines that it cannot operate equipment and achieve acceptable rates of
return.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay principal and interest on debt, and pay cash
distributions to the partners.
Factors affecting the Partnership's contribution during the year 2000 and beyond
include:
1. A worldwide increase in available marine containers to lease has led to
declining lease rates for this equipment. In addition, some of the Partnership's
refrigerated marine containers have become delaminated. This condition lowers
the demand for these marine containers which has lead to declining lease rates
and lower utilization.
2. Depressed economic conditions in Asia during most of 1999 has led to
declining freight rates for dry bulk marine vessels. As Asia begins its economic
recovery and in the absence of new additional orders, this market would be
expected to stabilize and improve over the next one to two years.
3. The Partnership owns an anchor handling supply marine vessel that has a fixed
lease rate due to expire in the year 2000. If the economic conditions remain the
same, the General Partner would expect to re-lease this marine vessel at a rate
much lower than the rate that is currently in place.
4. Railcar loading in North America has continued to be high, however a
softening in the market in the last quarter of 1999, may lead to lower
utilization and lower contribution to the Partnership as existing leases expire
and renewal leases are negotiated.
Several other factors may affect the Partnership's operating performance in the
year 2000 and beyond, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
(1) Repricing Risk
Certain portions of the Partnership's aircraft, railcar, marine container,
marine vessel, and trailer portfolios will be remarketed in 2000 as existing
leases expire, exposing the Partnership to considerable repricing
risk/opportunity. Additionally, the General Partner may select to sell certain
underperforming equipment or equipment whose continued operation may become
prohibitively expensive. In either case, the General Partner intends to re-lease
or sell equipment at prevailing market rates; however, the General Partner
cannot predict these future rates with any certainty at this time and cannot
accurately assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels in U.S. ports,
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the United States and
internationally, cannot be predicted with accuracy, and preclude the General
Partner from determining the impact of such changes on Partnership operations or
sale of equipment. Under U.S. Federal Aviation Regulations, after December 31,
1999, no person may operate an aircraft to or from any airport in the contiguous
United States unless that aircraft has been shown to comply with Stage III noise
levels. The Partnership's Stage II aircraft are scheduled to be either modified
to meet Stage III requirements, sold, or re-leased in countries that do not
require this regulation. The Federal Railroad Administration has mandated that
effective July 1, 2000, all jacketed and non-jacketed tank railcars must be
re-qualified to insure tank shell integrity. Tank shell thickness, weld seams,
and weld attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not including
any necessary repairs. This inspection is to be performed at the next scheduled
tank test.
(3) Distributions
Pursuant to the limited partnership agreement, the Partnership stopped
reinvesting in additional equipment beginning in its seventh year of operation,
which commenced on January 1, 1999. The General Partner intends to pursue a
strategy of selectively re-leasing equipment to achieve competitive returns, or
selling equipment that is underperforming or whose operation becomes
prohibitively expensive, in the period prior to the final liquidation of the
Partnership. During this time, the Partnership will use operating cash flow and
proceeds from the sale of equipment to meet its operating obligations and make
distributions to the partners. Although the General Partner intends to maintain
a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing distribution levels. In the long term, changing
market conditions and used-equipment values may preclude the General Partner
from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainty
at this time.
The Partnership's permanent debt obligation began to mature in February 1997.
The General Partner believes that sufficient cash flow from operations and
equipment sales will be available in the future for repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of interest rate and
currency risk. The Partnership's senior secured note is a variable rate debt.
The Partnership estimates a one percent 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 2000, and $38,000 in 2001.
The Partnership estimates a two percent 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 2000, and $0.1 million in
2001.
During 1999, 75% of the Partnership's total lease revenues from wholly- and
partially-owned equipment came from non-United States domiciled lessees. Most of
the Partnership's leases require payment in United States (U.S.) currency. If
these lessees currency devalues against the U.S. dollar, the lessees could
potentially encounter difficulty in making the U.S. dollar denominated lease
payments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed on the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
(This space intentionally left blank)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 34 Director, PLM International, Inc.
Howard M. Lorber 51 Director, PLM International, Inc.
Harold R. Somerset 64 Director, PLM International, Inc.
Robert L. Witt 59 Director, PLM International, Inc.
Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 37 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking
firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Chief Financial Officer of PLM
International and PLM Financial Services, Inc. in January 2000, after having
served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller
of PLM International and PLM Financial Services, Inc. beginning in June 1997, as
Director of Planning and General Accounting beginning in February 1994, and as
an accounting manager beginning in September 1991. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
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, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain allocations of income), cash
available for distributions, and net disposition proceeds of the
Partnership. As of December 31, 1999, no investor was known by the
General Partner to beneficially own more than 5% of the limited
partnership units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any officer or
director of the General Partner and its affiliates own any limited
partnership units of the Partnership as of December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1999, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees, $1.0 million, equipment acquisition
fees, $0.1 million; lease negotiation fees, $13,000, and administrative
and data processing services performed on behalf of the Partnership,
$0.9 million.
During 1999, the Partnership's proportional share of ownership in USPEs
paid or accrued the following fees to FSI or its affiliates: management
fees, $0.3 million; and administrative and data processing services,
$0.1 million.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1. Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on
Form 10-K.
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-32258), which became effective with the Securities
and Exchange Commission on April 11, 1990.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-32258), which
became effective with the Securities and Exchange Commission on
April 11, 1990.
10.2 Loan Agreement, amended and restated as of September 26, 1996
regarding Senior Notes due November 8, 1999. Incorporated by
reference to the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 18, 1997.
10.3 Amendment No. 1 to the Amended and Restated $38,000,000 Loan
Agreement, dated as of December 29, 1997. Incorporated by
reference to the Partnership's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 31, 1998.
24. Powers of Attorney.
(This space intentionally left blank.)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 20, 2000 PLM EQUIPMENT GROWTH FUND V
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
Richard K Brock
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*
Robert N. Tidball Director, FSI March 20, 2000
*
Douglas P. Goodrich Director, FSI March 20, 2000
*
Stephen M. Bess Director, FSI March 20, 2000
*Susan Santo, by signing her name hereto, does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
Susan C. Santo
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 30
Balance sheets as of December 31, 1999 and 1998 31
Statements of income for the years ended
December 31, 1999, 1998, and 1997 32
Statements of changes in partners' capital for the
years ended December 31, 1999, 1998, and 1997 33
Statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 34
Notes to financial statements 35-46
All other financial statement schedules have been omitted, as the required
information is not pertinent to the Registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund V:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund V (the Partnership), as listed in the accompanying index to financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund V as
of December 31, 1999 and 1998 and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
SAN FRANCISCO, CALIFORNIA
March 12, 2000
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars, except unit amounts)
1999 1998
-----------------------------------
Assets
Equipment held for operating leases, at cost $ 102,326 $ 109,515
Less accumulated depreciation (72,847) (68,711)
-----------------------------------
Net equipment 29,479 40,804
Cash and cash equivalents 4,188 1,774
Restricted cash 441 108
Accounts receivable, less allowance for doubtful accounts of
$47 in 1999 and $77 in 1998 2,187 3,188
Investments in unconsolidated special-purpose entities 9,633 15,144
Lease negotiation fees to affiliate, less accumulated
amortization of $64 in 1999 and $293 in 1998 53 119
Debt issuance costs, less accumulated amortization
of $84 in 1999 and $405 in 1998 48 118
Debt placement fees to affiliate, less accumulated
amortization of $340 in 1998 -- 40
Prepaid expenses and other assets 54 81
-----------------------------------
Total assets $ 46,083 $ 61,376
===================================
Liabilities and partners' capital
Liabilities
Accounts payable and accrued expenses $ 501 $ 593
Due to affiliates 304 339
Lessee deposits and reserve for repairs 2,788 2,450
Note payable 15,484 23,588
-----------------------------------
Total liabilities 19,077 26,970
-----------------------------------
Partners' capital
Limited partners (limited partnership units of 9,067,911 and
9,081,028 as of December 31, 1999 and 1998, respectively) 27,006 34,406
General Partner -- --
-----------------------------------
Total partners' capital 27,006 34,406
-----------------------------------
Total liabilities and partners' capital $ 46,083 $ 61,376
===================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars, except weighted-average unit amounts)
1999 1998 1997
-------------------------------------------
REVENUES
Lease revenue $ 20,276 $ 22,911 $ 29,493
Interest and other income 239 404 640
Net gain on disposition of equipment 253 732 10,990
-------------------------------------------
Total revenues 20,768 24,047 41,123
-------------------------------------------
EXPENSES
Depreciation and amortization 9,322 11,237 15,693
Repairs and maintenance 1,535 2,291 2,690
Equipment operating expenses 3,275 3,763 6,088
Insurance expense to affiliate -- (214) 838
Other insurance expenses 642 259 1,933
Management fees to affiliate 1,027 1,133 1,480
Interest expense 1,288 1,950 2,593
General and administrative expenses to affiliates 914 974 981
Other general and administrative expenses 659 593 731
Loss on revaluation of equipment 2,899 -- --
Provision for (recovery of) bad debts 13 27 (89)
-------------------------------------------
Total expenses 21,574 22,013 32,938
-------------------------------------------
Minority interests -- 42 --
Equity in net income (loss) of unconsolidated
special-purpose entities 2,108 294 (264)
------------------------------------------
Net income $ 1,302 $ 2,370 $ 7,921
===========================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 824 $ 1,796 $ 7,154
General Partner 478 574 767
-------------------------------------------
Total $ 1,302 $ 2,370 $ 7,921
===========================================
Net income per weighted-average limited partnership unit $ 0.09 $ 0.20 $ 0.79
===========================================
Cash distribution $ 8,617 $ 12,008 $ 15,346
===========================================
Cash distribution per weighted-average limited
partnership unit $ 0.90 $ 1.26 $ 1.60
===========================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(in thousands of dollars)
Limited General
Partners Partner Total
---------------------------------------------------
Partners' capital as of December 31, 1996 $ 52,296 $ -- $ 52,296
Net income 7,154 767 7,921
Purchase of limited partnership units (785) -- (785)
Cash distribution (14,579) (767) (15,346)
---------------------------------------------------
Partners' capital as of December 31, 1997 44,086 -- 44,086
Net income 1,796 574 2,370
Purchase of limited partnership units (42) -- (42)
Cash distribution (11,434) (574) (12,008)
---------------------------------------------------
Partners' capital as of December 31, 1998 $ 34,406 $ -- $ 34,406
Net income 824 478 1,302
Purchase of limited partnership units (85) -- (85)
Cash distribution (8,139) (478) (8,617)
---------------------------------------------------
Partners' capital as of December 31, 1999 $ 27,006 $ -- $ 27,006
===============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
1999 1998 1997
-----------------------------------------------
Operating activities Net income $ 1,302 $ 2,370 $ 7,921
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 9,322 11,237 15,693
Loss on revaluation of equipment 2,899 -- --
Net gain on disposition of equipment (253) (732) (10,990)
Equity in net (income) loss of unconsolidated
special-purpose entities (2,108) (294) 264
Changes in operating assets and liabilities:
Restricted cash (333) 3 442
Accounts and note receivable, net 1,001 158 (490)
Prepaid expenses and other assets 27 33 444
Accounts payable and accrued expenses (92) (1,244) 777
Due to affiliates (35) (138) (222)
Minority interest -- (2,637) 2,637
Lessee deposits and reserve for repairs 338 806 (1,438)
--------------------------------------------
Net cash provided by operating activities 12,068 9,562 15,038
---------------------------------------------
Investing activities
Proceeds from disposition of equipment 860 8,717 25,831
Equipment held for sale -- -- (3,397)
Payments for purchase of equipment and capitalized repairs (1,256) (9,485) (165)
Payments for equipment acquisition deposits -- -- (920)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities -- -- (9,608)
Distribution from liquidation of unconsolidated
special-purpose entity 7,354 -- --
Distribution from unconsolidated special-purpose entities 265 4,130 3,037
Payments of acquisition fees to affiliate (56) (468) --
Payments of lease negotiation fees to affiliate (13) (104) --
---------------------------------------------
Net cash provided by investing activities 7,154 2,790 14,778
---------------------------------------------
Financing activities
Proceeds from short-term note payable -- 3,950 9,110
Payments of short-term note payable -- (3,950) (11,573)
Payments of note payable (8,104) (8,412) (6,000)
Proceeds from short-term loan from affiliate 3,200 1,981 1,610
Payment of short-term loan to affiliate (3,200) (1,981) (1,610)
Cash distribution paid to General Partner (478) (574) (767)
Cash distribution paid to limited partners (8,139) (11,434) (14,579)
Purchase of limited partnership units (85) (42) (785)
---------------------------------------------
Net cash used in financing activities (16,806) (20,462) (24,594)
---------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,414 (8,110) 5,222
Cash and cash equivalents at beginning of year 1,774 9,884 4,662
---------------------------------------------
Cash and cash equivalents at end of year $ 4,188 $ 1,774 $ 9,884
=============================================
Supplemental information
Interest paid $ 1,348 $ 2,047 $ 2,843
=============================================
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
ORGANIZATION
PLM Equipment Growth Fund V, a California limited partnership (the Partnership),
was formed on November 14, 1989 to engage in the business of owning, leasing, or
otherwise investing in predominately used transportation and related equipment.
PLM Financial Services, Inc. (FSI) is the General Partner of the Partnership.
FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM International).
Beginning in the Partnership's seventh year of operations, which commenced on
January 1, 1999, the General Partner stopped reinvesting excess cash. Surplus
cash, less reasonable reserves, will be distributed to the partners. Beginning
in the Partnership's ninth year of operations which begins January 1, 2001, the
General Partner intends to begin an orderly liquidation of the Partnership's
assets. The Partnership will be terminated by December 31, 2010, unless
terminated earlier upon the sale of all equipment or by certain other events.
FSI manages the affairs of the Partnership. Cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner to the extent
necessary to cause the General Partner's capital account to equal zero. The
General Partner is entitled to subordinated incentive fees equal to 5% of cash
available for distribution and 5% of net disposition proceeds (as defined in the
partnership agreement), which are distributed by the Partnership after the
limited partners have received a certain minimum rate of return.
The General Partner has determined that it will not adopt a reinvestment plan
for the Partnership. If the number of units made available for purchase by
limited partners in any calendar year exceeds the number that can be purchased
with reinvestment plan proceeds, then the Partnership may redeem up to 2% of the
outstanding units each year, subject to certain terms and conditions. The
purchase price to be offered by the Partnership for these units will be equal to
110% of the unrecovered principal attributable to the units. The unrecovered
principal for any unit will be equal to the excess of (i) the capital
contribution attributable to the unit over (ii) the distributions from any
source paid with respect to the units. For the years ended December 31, 1999,
1998, and 1997, the Partnership had purchased 13,117, 5,580 and 82,411 limited
partnership units for $0.1 million, $42,000, and $0.8 million, respectively.
As of December 31, 1999, the Partnership agreed to purchase approximately 2,300
units for an aggregate price of approximately $12,500. The General Partner
anticipates that these units will be purchased in the first and second quarters
of 2000. In addition to these units, the General Partner may purchase additional
units on behalf of the Partnership in the future.
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
OPERATIONS
The equipment owned by the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of equipment
under agreements with the investor programs, and is a general partner of other
programs.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
ACCOUNTING FOR LEASES
The Partnership's leasing operations consists primarily of operating leases.
Under the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life. Rental payments are
recorded as revenue over the lease term as earned in accordance with Statement
of Financial Accounting Standards No. 13, "Accounting for Leases" (SFAS 13).
Lease origination costs are capitalized and amortized over the term of the
lease. Periodically, the Partnership leases equipment with lease terms that
qualify for direct finance lease classification, as required by SFAS 13.
DEPRECIATION AND AMORTIZATION
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for all other equipment. The depreciation method changes
to straight-line when annual depreciation expense using the straight-line method
exceeds that calculated by the double-declining balance method. Acquisition fees
and certain other acquisition costs have been capitalized as part of the cost of
the equipment. Lease negotiation fees are amortized over the initial equipment
lease term. Debt issuance costs are amortized over the term of the related loan
(see Note 7). Major expenditures that are expected to extend the useful lives or
reduce future operating expenses of equipment are capitalized and amortized over
the remaining life of the equipment.
TRANSPORTATION EQUIPMENT
In accordance with the Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment at least quarterly and whenever circumstances indicate
that the carrying value of an asset may not be recoverable in relation to
expected future market conditions for the purpose of assessing recoverability of
the recorded amounts. If projected undiscounted future cash flows and the fair
market value of the equipment are less than the carrying value of the equipment,
a loss on revaluation is recorded. Reductions of $2.9 million to the carrying
value of a marine vessel was required during 1999. No reductions to the carrying
value of equipment were required during either 1998, or 1997.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121
INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership has interests in unconsolidated special-purpose entities (USPEs)
that own transportation equipment. These interests are accounted for using the
equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly-owned subsidiary of
FSI and WMS is a wholly-owned subsidiary of PLM International. The Partnership's
interest in USPEs are managed by IMI. The Partnership's equity interest in the
net income (loss) of USPEs is reflected net of management fees paid or payable
to IMI and the amortization of acquisition and lease negotiation fees paid to
TEC and WMS.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
REPAIRS AND MAINTENANCE
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are accrued as incurred.
Certain costs associated with marine vessel dry-docking are estimated and
accrued ratably over the period prior to such dry-docking. Maintenance costs of
aircraft and marine containers are the obligation of the lessee. To meet the
maintenance requirements of certain aircraft airframes and engines, reserve
accounts are prefunded by the lessee over the period of the lease based on the
number of hours this equipment is used times the estimated rate to repair this
equipment. If repairs exceed the amount prefunded by the lessee, the Partnership
has the obligation to fund and accrue the difference. In certain instances, if
the aircraft is sold and there is a balance in the reserve account for repairs
to that aircraft, the balance in the reserve account is reclassified as
additional sales proceeds. The aircraft reserve accounts and marine vessel
dry-docking reserve accounts are included in the balance sheet as lessee
deposits and reserve for repairs.
NET INCOME (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.
Cash distributions of the Partnership are generally allocated 95% to the limited
partners and 5% to the General Partner and may include amounts in excess of net
income. The limited partners' net income (loss) is allocated among the limited
partners based on the number of limited partnership units owned by each limited
partner and on the number of days of the year each limited partner is in the
Partnership.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $7.3 million, $9.6
million, and $7.4 million in 1999, 1998, and 1997, respectively, were deemed to
be a return of capital.
Cash distributions related to the fourth quarter of 1999 of $1.7 million, $1.4
million in 1998, and $2.8 million in 1997, were paid during the first quarter of
2000, 1999, and 1998, respectively.
NET INCOME (LOSS) PER WEIGHTED-AVERAGE PARTNERSHIP UNIT
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the year. The
weighted-average number of Partnership units deemed outstanding during the years
ended December 31, 1999, 1998, and 1997 was 9,071,929, 9,082,093, and 9,107,121,
respectively.
CASH AND CASH EQUIVALENTS
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of one year or less as cash
equivalents. The carrying amount of cash equivalents approximates fair market
value due to the short-term nature of the investments.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION (CONTINUED)
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 1999, 1998, and 1997.
RESTRICTED CASH
As of December 31, 1999 and 1998, restricted cash represented lessee security
deposits held by the Partnership.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
An officer of PLM Securities Corp., a wholly-owned subsidiary of the General
Partner, contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI, subject to certain reductions, receives a
monthly management fee attributable either to owned equipment or interests in
equipment owned by the USPEs equal to the lesser of (i) the fees that would be
charged by an independent third party for similar services for similar equipment
or (ii) the sum of (a) 5% of the gross lease revenues attributable to equipment
that is subject to operating leases, (b) 2% of the gross lease revenues, as
defined in the agreement, that is subject to full payout net leases, or (c) 7%
of the gross lease revenues attributable to equipment, if any, that is subject
to per diem leasing arrangements and thus is operated by the Partnership.
Partnership management fees of $0.2 million were payable as of December 31, 1999
and 1998. The Partnership's proportional share of USPE management fee expense of
$0.1 million was payable as of December 31, 1999 and 1998. The Partnership's
proportional share of USPE management fee expense was $0.3 million, $0.4 million
and $0.3 million during 1999, 1998, and 1997, respectively. The Partnership
reimbursed FSI for data processing and administrative expenses directly
attributable to the Partnership in the amount of $0.9 million, $1.0 million, and
$1.0 million during 1999, 1998, and 1997, respectively. The Partnership's
proportional share of USPE data processing and administrative expenses
reimbursed to FSI was $0.1 million during 1999, 1998, and 1997. Debt placement
fees were paid to FSI in an amount equal to 1% of the Partnership's long-term
borrowings during 1991.
The Partnership paid $0.1 million and $0.8 million in 1998 and 1997,
respectively, to Transportation Equipment Indemnity Company Ltd. (TEI), an
affiliate of the General Partner, which provided marine insurance coverage and
other insurance brokerage services. The Partnership's proportional share of USPE
marine insurance coverage paid to TEI was $47,000 and $0.3 million during 1998
and 1997, respectively. A substantial portion of this amount was paid to
third-party reinsurance underwriters or placed in risk pools managed by TEI on
behalf of affiliated programs and PLM International, which provide threshold
coverages on marine vessel loss of hire and hull and machinery damage. All
pooling arrangement funds are either paid out to cover applicable losses or
refunded pro rata by TEI. Also, during 1998, the Partnership and the USPEs
received a $0.4 million loss-of-hire insurance refund from TEI due to lower
claims from the insured Partnership and other insured affiliated programs.
During 1999 and 1998, TEI did not provide the same level of insurance coverage
as had been provided during 1997. These services were provided by an
unaffiliated third party. PLM International liquidated TEI in 2000.
The Partnership and the USPEs paid or accrued lease negotiation and equipment
acquisition fees of $0.1 million, $0.6 million, and $0.5 million to TEC in 1999,
1998, and 1997, respectively.
As of December 31, 1999, approximately 67% of the Partnership's trailer
equipment was in rental facilities operated by PLM Rental, Inc., an affiliate of
the General Partner, doing business as PLM Trailer Leasing. Rents are reported
as revenue in accordance with Financial Accounting Standards Board Statement No.
13 "Accounting for Leases". Direct expenses associated with the equipment are
charged directly to the Partnership. An allocation of indirect expenses of the
rental yard operations is charged to the Partnership monthly.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Partnership owned certain equipment in conjunction with affiliated programs
during 1999, 1998, and 1997 (see Note 4).
The Partnership borrowed a total of $3.2 million, $2.0 million, and $1.6 million
from the General Partner for a period of time during 1999, 1998, and 1997,
respectively. The General Partner charged the Partnership market interest rates
for the time the loan was outstanding. Total interest paid to the General
Partner was $15,000, $3,000, and $10,000 during 1999, 1998, and 1997,
respectively.
The balance due to affiliates as of December 31, 1999 and 1998 included $0.2
million due to FSI and its affiliates for management fees and $0.1 million due
to affiliated USPEs.
3. EQUIPMENT
The components of owned equipment as of December 31 were as follows (in
thousands of dollars):
Equipment Held for Operating Leases 1999 1998
------------------------------------------------------ ------------------------------------
Aircraft and rotable components $ 52,402 $ 51,090
Marine vessels 20,276 25,890
Rail equipment 11,328 11,383
Trailers 9,245 9,310
Marine containers 9,075 11,842
------------------------------------
102,326 109,515
Less accumulated depreciation (72,847) (68,711)
------------------------------------
Net equipment $ 29,479 $ 40,804
====================================
Revenues are earned under operating leases. In most cases, lessees are invoiced
for equipment leases on a monthly basis. All equipment invoiced monthly are
based on a fixed rate except for a small number of railcars which are based on
mileage traveled. 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 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.
As of December 31, 1999, all owned equipment was on lease or operating in
PLM-affiliated short-term trailer rental yards. As of December 31, 1998, all
owned equipment was on lease or operating in PLM-affiliated short-term trailer
rental yards except for 10 railcars with a net book value of $0.1 million.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. During 1999, reductions to the carrying
value of marine vessels of $2.9 were required.
During 1999, the Partnership purchased a hush-kit for one of the Partnership's
Boeing 737-200 commercial aircraft for $1.3 million, including acquisition fees
of $0.1 million paid to FSI for the purchase of this equipment. The Partnership
was required to install the hush-kit per the Partnership's lease agreement.
During 1998, the Partnership completed the purchase of a marine vessel for $9.6
million, including acquisition fees of $0.4 million paid to FSI. The Partnership
also purchased a Boeing 737-200 hushkit which was installed on one of the
Partnership's stage II aircraft during 1998 for $1.3 million, including
acquisition fees of $0.1 million paid to FSI.
During 1999, the Partnership disposed of marine containers, railcars, and
trailers with an aggregate net book value of $0.6 million, for $0.9 million. In
addition, during 1999, the Partnership recorded a revaluation loss on two marine
vessels of $2.9 million. During 1998, the Partnership disposed of an
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. EQUIPMENT (CONTINUED)
aircraft, marine containers, railcars, and trailers, with an aggregate net book
value of $8.0 million, for $8.7 million.
All wholly- and partially-owned equipment on lease is accounted for as operating
leases, except for one finance lease. Future minimum rentals under noncancelable
operating leases, as of December 31, 1999, for wholly- and partially-owned
equipment during each of the next five years are approximately $10.0 million in
2000, $6.8 million in 2001, $1.3 million in 2002, $0.9 million in 2003, and $0.5
million in 2004. Per diem and short-term rentals consisting of utilization rate
lease payments included in lease revenues amounted to approximately $9.2
million, $12.2 million, and $14.0 million in 1999, 1998, and 1997, respectively.
4. INVESTMENTS IN UNCONSOLIDATED SPECIAL-PURPOSE ENTITIES
The Partnership owns equipment jointly with affiliated programs.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPE's in which an affiliated program owns an interest greater than 50%. The
amendment to the corporate-by-laws provided that all decisions regarding the
disposition and other significant business decisions in regard to that
investment would be permitted only upon unanimous consent of the Partnership and
all the affiliated programs that have an ownership in the investment.
Accordingly, as of December 31, 1999, the balance sheet reflects all investments
in USPEs on an equity basis.
The net investments in USPEs include the following jointly-owned equipment (and
related assets and liabilities) as of December 31 (in thousands of dollars):
1999 1998
------------------------------
48% interest in an entity owning a product tanker $ 5,885 $ 6,890
25% interest in two commercial aircraft on direct finance lease 2,535 2,771
50% interest in an entity owning a product tanker 1,333 1,552
17% interest in two trusts that owned a total of three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables -- 2,059
50% interest in an entity that owned a bulk carrier (120) 1,872
============================
Net investments $ 9,633 $ 15,144
============================
As of December 31, 1999 and 1998, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
During 1999, the General Partner sold the Partnership's 17% interest in two
trusts that owned a total of three Boeing 737-200A Stage II commercial aircraft,
two stage II aircraft engines, and a portfolio of aircraft rotables and its 50%
interest in an entity owning a marine vessel. The Partnership's interest in
these trusts and entity were sold for proceeds of $7.4 million for its net
investment of $3.9 million.
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the years ended December 31 (in
thousands of dollars):
1999 1998 1997
Total Net Interest Total Net Interest Total Net Interest
USPEs of Partnership USPEs of Partnership USPE's of Partnership
--------------------------- --------------------------- ------------------------------
Net Investments $ 25,000 $ 9,633 $ 44,678 $ 15,144 $ 60,783 $ 18,980
Lease revenues 10,347 5,068 12,317 7,194 17,510 5,868
Net income (loss) 11,039 2,108 2,151 294 4,604 (264)
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. OPERATING SEGMENTS
The Partnership operates primarily in five operating segments: aircraft leasing,
marine container leasing, marine vessel leasing, trailer leasing, and railcar
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of interest expense, general and
administrative expenses, and certain other expenses. The segments are managed
separately due to different business strategies for each operation.
The following tables present a summary of the operating segments (in thousands
of dollars):
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
Revenues
Lease revenue $ 8,162 $ 699 $ 6,214 $ 2,727 $ 2,474 $ -- $ 20,276
Interest income and other 59 13 6 -- 28 133 239
Gain (loss) on disposition of -- 249 -- (16) 20 -- 253
equipment
------------------------------------------------------------------------
Total revenues 8,221 961 6,220 2,711 2,522 133 20,768
------------------------------------------------------------------------
Costs and expenses
Operations support 162 5 3,882 870 485 48 5,452
Depreciation and amortization 5,264 590 2,063 666 600 139 9,322
Interest expense -- -- -- -- -- 1,288 1,288
Management fees 334 35 311 171 176 -- 1,027
General and administrative expenses 67 -- 35 628 52 791 1,573
Loss on revaluation -- -- 2,899 -- -- -- 2,899
Provision for (recovery of) bad -- (4) -- 29 (12) -- 13
debts
------------------------------------------------------------------------
Total costs and expenses 5,827 626 9,190 2,364 1,301 2,266 21,574
------------------------------------------------------------------------
Equity in net income of USPEs 1,811 -- 297 -- -- -- 2,108
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 4,205 $ 335 $ (2,673 )$ 347 $ 1,221 $ (2,133 ) $ 1,302
========================================================================
Total assets as of December 31, $ 18,690 $ 1,854 $ 13,515 $ 3,821 $ 3,420 $ 4,783 $ 46,083
1999
========================================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
Revenues
Lease revenue $ 8,903 $ 1,217 $ 7,478 $ 2,817 $ 2,496 $ -- $ 22,911
Interest income and other 45 11 74 -- 25 249 404
Gain (loss) on disposition of (82 ) 665 -- 144 5 -- 732
equipment
------------------------------------------------------------------------
Total revenues 8,866 1,893 7,552 2,961 2,526 249 24,047
------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 92 11 4,701 667 568 60 6,099
Depreciation and amortization 6,846 846 1,894 809 695 147 11,237
Interest expense -- -- -- -- -- 1,950 1,950
Management fees to affiliate 343 60 372 186 172 -- 1,133
General and administrative expenses 75 1 54 632 48 757 1,567
Provision for (recovery of) bad -- -- -- 30 (3) -- 27
debts
------------------------------------------------------------------------
Total costs and expenses 7,356 918 7,021 2,324 1,480 2,914 22,013
------------------------------------------------------------------------
Minority interest 42 -- -- -- -- -- 42
Equity in net income (loss) of USPEs 446 -- (152) -- -- -- 294
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 1,998 $ 975 $ 379 $ 637 $ 1,046 $ (2,665) $ 2,370
========================================================================
Total assets as of December 31, $ 24,765 $ 3,281 $ 22,112 $ 4,052 $ 4,060 $ 3,106 $ 61,376
1998
========================================================================
1 Includes interest income and costs not identifiable to a particular segment,
such as: interest expense, and certain general and administrative operations
support expenses.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
5. OPERATING SEGMENTS (CONTINUED)
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Other1 Total
------------------------------------ ------- ------- ------- ------- ------- ----- -----
REVENUES
Lease revenue $ 9,388 $ 2,073 $ 12,760 $ 2,758 $ 2,514 $ -- $ 29,493
Interest income and other 388 12 65 -- 19 156 640
Gain (loss) on disposition of 2,259 828 7,902 6 (5) -- 10,990
equipment
------------------------------------------------------------------------
Total revenues 12,035 2,913 20,727 2,764 2,528 156 41,123
------------------------------------------------------------------------
COSTS AND EXPENSES
Operations support 109 17 10,110 840 452 21 11,549
Depreciation and amortization 10,037 1,286 2,413 994 813 150 15,693
Interest expense -- -- -- -- -- 2,593 2,593
Management fees to affiliate 329 103 637 187 170 54 1,480
General and administrative expenses 53 1 116 563 46 933 1,712
Provision for (recovery of) bad (127 ) 4 -- (20) 54 -- (89)
debts
------------------------------------------------------------------------
Total costs and expenses 10,401 1,411 13,276 2,564 1,535 3,751 32,938
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 1,215 -- (1,479) -- -- -- (264)
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 2,849 $ 1,502 $ 5,972 $ 200 $ 993 $ (3,595) $ 7,921
========================================================================
Total assets as of December 31, $ 38,450 $ 5,956 $ 15,953 $ 5,061 $ 4,796 $ 12,465 $ 82,681
1997
========================================================================
1 Includes interest income and costs not identifiable to a particular segment,
such as: interest expense, and certain general and administrative operations
support expenses.
6. GEOGRAPHIC INFORMATION
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, mobile offshore
drilling unit, and trailers to lessees domiciled in five geographic regions:
United States, Canada, South America, Europe, and Mexico. Marine vessels and
marine containers are leased to multiple lessees in different regions that
operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs, grouped by domicile of
the lessee as of and for the years ended December 31 (in thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- ----------------------------------
Region 1999 1998 1997 1999 1998 1997
-------------------------- ------------------------------------- -----------------------------------
United States $ 6,271 $ 7,109 $ 7,553 $ -- $ -- $ --
Canada 4,081 4,096 4,096 -- -- --
South America 3,011 3,011 3,011 -- -- --
Europe -- -- -- -- 780 1,765
Rest of the world 6,913 8,695 14,833 5,068 6,414 4,103
------------------------------------- -------------------------------------
===================================== =====================================
Lease revenues $ 20,276 $ 22,911 $ 29,493 $ 5,068 $ 7,194 $ 5,868
===================================== =====================================
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
6. GEOGRAPHIC INFORMATION (CONTINUED)
The following table sets forth net income (loss) information by region for the
owned equipment and investments in USPEs for the years ended December 31 (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- -----------------------------------
Region 1999 1998 1997 1999 1998 1997
-------------------------- ------------------------------------- -----------------------------------
United States $ 1,594 $ 2,199 $ 4,549 $ (2) $ -- $ --
Canada 1,599 1,555 926 -- -- --
South America 858 (478) (2,712) -- -- --
Europe -- -- -- 1,477 39 773
Mexico -- -- -- 336 407 442
Rest of the world (2,635) 1,505 8,950 297 (152) (1,479)
------------------------------------- -------------------------------------
Regional income (loss) 1,416 4,781 11,713 2,108 294 (264)
Administrative and other (2,222) (2,705) (3,528) -- -- --
===================================== =====================================
Net income (loss) $ (806) 2,076 $ 8,185 $ 2,108 $ 294 $ (264)
===================================== =====================================
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- ----------------------------------
Region 1999 1998 1997 1999 1998 1997
-------------------------- ------------------------------------- -----------------------------------
United States $ 9,287 $ 11,670 $ 14,602 $ -- $ -- $ --
Canada 9,641 10,467 11,366 -- -- --
South America 3,004 5,008 8,345 -- -- --
Europe -- -- -- -- 2,059 4,027
Mexico -- -- -- 2,535 2,772 2,863
Rest of the world 7,547 13,659 8,269 7,098 10,313 12,090
------------------------------------- -------------------------------------
29,479 40,804 42,582 9,633 15,144 18,980
Equipment held for sale -- -- -- -- -- 3,778
===================================== =====================================
Net book value $ 29,479 $ 40,804 $ 42,582 $ 9,633 $ 15,144 $ 22,758
===================================== =====================================
7. NOTE PAYABLE
In November 1991, the Partnership borrowed $38.0 million under a nonrecourse
loan agreement. The loan currently is secured by certain marine containers, two
marine vessels, and six aircraft owned by the Partnership.
During 1996, the Partnership sold some of the assets in which the lender had a
secured interest. On September 26, 1996, the existing senior loan agreement was
amended and restated to reduce the interest rate, to grant increased flexibility
in allowable collateral, to pledge additional equipment to the lenders, and to
amend the loan repayment schedule from 16 consecutive equal quarterly
installments to 20 consecutive quarterly installments with lower payments of
principal for the first four payments. The Partnership incurred a loan amendment
fee of $133,000 to the lender in connection with the restatement of this loan.
Pursuant to the terms of the loan agreement, the Partnership must comply with
certain financial covenants and maintain certain financial ratios.
The note payable is scheduled to mature on December 12, 2001.
On December 29, 1997, the existing senior loan agreement was amended and
restated to allow the Partnership to deduct the next scheduled principal payment
from the equipment sales proceeds, which had previously been used to paydown the
loan.
The Partnership made the regularly scheduled principal payments and quarterly
interest payments at a rate of LIBOR plus 1.2% per annum (7.3% at December 31,
1999 and 6.6% at December 31, 1998) to the lender of the senior loan during 1999
and 1998. The Partnership also paid the lender of the senior loan an additional
$0.5 million from equipment sale proceeds, as required by the loan agreement.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
8. CONCENTRATIONS OF CREDIT RISK
For the years ended December 31, 1999 and 1998, the Partnership's customers that
accounted for 10% or more of the total consolidated revenues for the owned
equipment and partially owned equipment were Varig South America (10% in 1999)
and Canadian Airlines International (10% in 1998). No single lessee accounted
for more than 10% of the consolidated revenues for the year ended December 31,
1997.
As of December 31, 1999 and 1998, the General Partner believes the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
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, 1999, the financial statement carrying amount of assets and
liabilities was approximately $41.6 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.
10. CONTINGENCIES
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action in January
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251
(the Koch action). The named plaintiffs are six individuals who invested in PLM
Equipment Growth Fund IV (Fund IV), PLM Equipment Growth Fund V (Fund V), PLM
Equipment Growth Fund VI (Fund VI), and PLM Equipment Growth & Income Fund VII
(Fund VII) (the Funds), each a California limited partnership for which the
Company's wholly-owned subsidiary, FSI, acts as the General Partner. The
complaint asserts causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches of
fiduciary duty, unjust enrichment, conversion, and conspiracy. Plaintiffs allege
that each defendant owed plaintiffs and the class certain duties due to their
status as fiduciaries, financial advisors, agents, and control persons. Based on
these duties, plaintiffs assert liability against defendants for improper sales
and marketing practices, mismanagement of the Funds, and concealing such
mismanagement from investors in the Funds. Plaintiffs seek unspecified
compensatory damages, as well as punitive damages, and have offered to tender
their limited partnership units back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction. In December 1997, the court granted defendants motion to
compel arbitration of the named plaintiffs' claims, based on an agreement to
arbitrate contained in the limited partnership agreement of each Partnership.
Plaintiffs appealed this decision, but in June 1998 voluntarily dismissed their
appeal pending settlement of the Koch action, as discussed below.
In June 1997, the Company and the affiliates who are also defendants in the Koch
action were named as defendants in another purported class action filed in the
San Francisco Superior Court, San Francisco, California, Case No. 987062 (the
Romei action). The plaintiff is an investor in Fund V, and filed the complaint
on her own behalf and on behalf of all class members similarly situated who
invested in the Funds. The complaint alleges the same facts and the same causes
of action as in the Koch action, plus additional causes of action against all of
the defendants, including alleged unfair and deceptive practices and violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company's petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
10. CONTINGENCIES (CONTINUED)
district court dismissedthe petition pending settlement of the Romei action,
as discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. The monetary
settlement provides for a settlement and release of all claims against
defendants in exchange for payment for the benefit of the class of up to $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement class consists of all investors,
limited partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and June 29,
1999. The monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Funds V, VI and VII of up to 10% of that partnership's outstanding units
for 80% of net asset value per unit; and (e) the deferral of a portion of the
management fees paid to an affiliate of FSI until, if ever, certain performance
thresholds have been met by the Funds. Subject to final court approval, these
proposed changes would be made as amendments to each Partnership's limited
partnership agreement if less than 50% of the limited partners of each
Partnership vote against such amendments. The limited partners will be provided
the opportunity to vote against the amendments by following the instructions
contained in solicitation statements that will be mailed to them after being
filed with the Securities and Exchange Commission. The equitable settlement also
provides for payment of additional attorneys' fees to the plaintiffs' attorneys
from Partnership funds in the event, if ever, that certain performance
thresholds have been met by the Funds. The equitable settlement class consists
of all investors, limited partners, assignees or unit holders who on June 29,
1999 held any units in Funds V, VI, and VII, and their assigns and successors in
interest.
The court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. The Company continues to
believe that the allegations of the Koch and Romei actions are completely
without merit and intends to continue to defend this matter vigorously if the
monetary settlement is not consummated.
The Partnership has initiated litigation in various official forums in India
against the defaulting Indian airline lessees to repossess Partnership property
and to recover damages for failure to pay rent and failure to maintain such
property in accordance with relevant lease contracts. The Partnership has
repossessed its property previously leased to such airline, and the airline has
ceased operations. In response to the Partnership's collection efforts, the
airline filed counter-claims against the Partnership in excess of the
Partnership's claims against the airline. The General Partner believes that the
airlines'
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
10. CONTINGENCIES (CONTINUED)
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims. The General Partner believes an
unfavorable outcome from the counterclaims is remote.
The Company is involved as plaintiff or defendant in various other legal actions
incidental to its business. The General Partner does not believe that any of
these actions will be material to the financial condition of the Partnership.
11. SUBSEQUENT EVENT
During February 2000, the Partnership made its regularly scheduled principal
payment of $1.9 million and an additional $0.3 million from equipment sale
proceeds, as required by the loan agreement, to the lender of the senior loan.
The Partnership borrowed $1.9 million from the General Partner during February
2000 and subsequently paid the General Partner $0.3 million during February
2000. The General Partner will charge the Partnership market interest rates
during the time the loan will be outstanding.
PLM EQUIPMENT GROWTH FUND V
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10.1 Management Agreement between the Partnership and *
PLM Investment Management, Inc.
10.2 Amended and Restated $38,000,000 Loan Agreement, dated
as of September 26, 1996. *
10.3 Amendment No. 1 to the Amended and Restated $38,000,000
Loan Agreement, dated as of December 29, 1997. *
24. Powers of Attorney.
* Incorporated by reference. See page 27 of this report.