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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, 1996.
[ ] 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 33-40093
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PLM EQUIPMENT GROWTH FUND VI
(Exact name of registrant as specified in its charter)
California 94-3135515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (415) 974-1399
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ______
Aggregate Market Value of Voting Stock: N/A
An index of exhibits filed with this Form 10-K is located at page 44.
Total number of pages in this report: 47.
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International), filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
with respect to a proposed offering of 8,750,000 Depositary Units (the Units) in
PLM Equipment Growth Fund VI, a California limited partnership (the Partnership,
the Registrant or EGF VI). The Partnership's offering became effective on
December 23, 1991. FSI, as General Partner, owns a 5% interest in the
Partnership. The Partnership engages in the business of owning and leasing
transportation equipment to various commodity shippers and transportation
companies.
The Partnership's primary objectives are:
(i) Investment in equipment: to acquire a diversified portfolio of low
obsolescence equipment with long lives and high residual values, at prices that
the General Partner believes to be below inherent values and to place the
equipment on lease or under other contractual arrangements with creditworthy
lessees and operators of equipment;
(ii)Cash distributions: to generate cash distributions (a portion of which
may represent a return of an investor's investment) to investors beginning in
the calendar quarter following the month in which the minimum number of Units
were sold;
(iii) Safety: to preserve and protect the value of the Partnership's
equipment portfolio through investment in a diverse range of low obsolescence
equipment in many different equipment sectors, leasing such equipment pursuant
to leases having various maturity dates to a diverse group of lessees, while
carefully monitoring the equipment markets; and
(iv)Growth: to invest a substantial portion of the Partnership's capital in
equipment which the General Partner believes will retain its value, to reinvest
a portion of sales proceeds and rental revenues in additional equipment during
the first six years of the Partnerships operation and sell equipment when the
General Partner believes that, due to market conditions, prices are above
inherent equipment values.
The offering of Units of the Partnership closed on May 24, 1993. As of
December 31, 1996, there were 8,286,966 Units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
In the ninth year of operations of the Partnership, which commences January
1, 2002, the General Partner intends to begin the dissolution and liquidation of
the Partnership in an orderly fashion, unless the Partnership is terminated
earlier upon sale of all of the equipment or by certain other events. However,
under certain circumstances, the term of the Partnership may be extended. In no
event will the Partnership extend beyond December 31, 2011.
(This space intentionally left blank.)
Table 1, below, lists the equipment and the cost of equipment in the
Partnership's portfolio as of December 31, 1996 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
2 Bulk carrier marine vessels Hitachi Zosen Corp. $ 25,228
2 Container cargo carrier vessels O. C. Staalskibsvaerft A/F 16,035
2 Portfolios of aircraft rotable spare
components Various 6,340
2 737-200 commercial aircraft Boeing 11,919
320 Over-the-road refrigerated trailers Various 8,285
494 Over-the-road dry trailers Various 4,350
348 Dry piggyback trailers Stoughton 5,350
141 Covered hopper railcars Various 3,130
27 Non-pressurized tank railcars Various 550
423 Pressurized tank railcars Various 11,963
598 Refrigerated marine containers Various 9,026
2,552 Various marine containers Various 7,375
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Total Equipment held for operating leases $ 109,551
================
Investment in equipment owned by unconsolidated special purpose entities:
0.64 Trust comprised of a 767-200ER Boeing
stage III commercial aircraft $ 27,329
0.17 Trust comprised of six 737-200
stage II commercial aircraft Boeing 4,493
0.50 Trust comprised of four 737-200
stage II commercial aircraft Boeing 11,724
0.50 Container feeder vessel O. C. Staalskibsvaerft A/F 4,004
0.20 Handymax bulk carrier marine vessel Tsuneishi Shipbuilding Co., Ltd. 3,553
0.30 Mobile offshore drilling unit AT & CH de France 6,165
0.40 Equipment on direct finance lease:
Two DC-9 commercial aircraft McDonnell Douglas 4,807
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Total investments $ 62,075
==============
Includes proceeds from capital contributions, undistributed cash flow from
operations, and Partnership borrowings invested in equipment. Includes
costs capitalized, subsequent to the date of purchase and equipment
acquisition fees paid to PLM Transportation Equipment Corporation (TEC) or
PLM Worldwide Management Services (WMS).
Jointly owned: EGF VI and two affiliated partnerships.
Jointly owned: EGF VI and three affiliated partnerships.
Jointly owned: EGF VI and two affiliated partnerships.
Jointly owned: EGF VI and two affiliated partnerships.
Jointly owned: EGF VI and an affiliated partnership.
Jointly owned: EGF VI, two affiliated partnerships (45%), and TEC Acquisub,
Inc. (25%), an affiliate of PLM International.
Jointly owned: EGF VI and two affiliated partnerships.
The equipment is generally leased under operating leases with terms of one to
six years. Some of the Partnership's marine containers are leased to operators
of utilization-type leasing pools which include equipment owned by unaffiliated
parties. In such instances revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sub-lessees after deducting certain direct operating expenses of the pooled
equipment.
At December 31, 1996, approximately 70% 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. Revenues collected
under short-term rental agreements with the rental yards' customers are credited
to the owners of the related equipment as received. Direct expenses associated
with the equipment are charged directly to the Partnership. An allocation of
other direct expenses of the rental yard operations are billed to the
Partnership monthly.
The lessees of the equipment include, but are not limited to: Transamerica
Leasing, Burlington Northern Railroad Company, Northern Navigation Services,
Inc., Malaysian Air Systems Berhad, CSX Transportation, Inc., Union Pacific
Railroad Company, Westway Express Incorporated, and Pacific Carriers Ltd.
(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 equipment. IMI agreed to perform all services necessary to manage
the transportation 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 will be entitled to a monthly management fee (see
Financial Statements notes 1 and 3).
(C) Competition
(1) Operating Leases vs. Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein rents owed during the initial noncancelable
term of the lease are insufficient to recover the purchase price of the
equipment. The short to mid-term nature of operating leases generally commands a
higher rental rate than longer term, full payout leases and offers lessees
relative flexibility in their equipment commitment. In addition, the rental
obligation under an operating lease need not be capitalized on the lessee's
balance sheet.
The Partnership encounters considerable competition from lessors utilizing
full payout leases on new equipment, i.e., leases which have terms equal to the
expected economic life of the equipment. Full payout leases are written for
longer terms and for lower monthly rates than the Partnership offers. 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 of the Partnership may write full payout leases at considerably
lower rates, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, and as a result, the Partnership may be at a
competitive disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership also competes with equipment manufacturers who offer operating
leases and full payout leases. Manufacturers may provide ancillary services
which the Partnership cannot offer, such as specialized maintenance service
(including possible substitution of equipment), training, warranty services, and
trade-in privileges.
The Partnership competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, Greenbrier Leasing Company, General Electric Capital Aviation
Services Corporation, and other limited partnerships which lease the same types
of equipment.
(D) Demand
The Partnership invests in transportation-related capital equipment and in
"relocatable environments." "Relocatable environments" refer to capital
equipment constructed to be self-contained in function but transportable,
examples of which include mobile offshore drilling units, storage units, and
relocatable buildings. A general distinction can be drawn between equipment used
for the transport of either materials and commodities or people. With the
exception of aircraft leased to passenger air carriers, the Partnership's
equipment is used primarily for the transport of materials.
The following describe the markets for the Partnership's equipment:
(1) Commercial Aircraft
The market for commercial aircraft continued to improve in 1996 representing two
consecutive years of growth and profits in the airline industry. The $5.7
billion in net profits recorded by the world's top 100 airlines in 1995 grew to
over $6 billion in 1996. The profits are a result of the continued management
emphasis on costs. The demand for ever lower unit costs by airline management
has caused a significant reduction of surplus used Stage II and Stage III
commercial aircraft. The result is a return to supply-demand equilibrium. On the
demand side, passenger traffic is improving, cargo movement is up and load
factors are generally higher across the major markets.
These changes are reflected in the performance of the world's 62 major
airlines that operate 60% of the world airline fleet but handle 78% of world
passenger traffic. Focusing on the supply/demand for Partnership type narrowbody
commercial aircraft, there were 213 used narrowbody aircraft available at year
end 1995. In the first ten months of 1996 this supply was reduced to 119
narrowbody aircraft available for sale or lease. Forecasts for 1997 see a
continuing supply-demand equilibrium due to air travel growth and balanced
aircraft supply.
The Partnership's narrowbody fleet are late model (post 1974) Boeing
737-200 Advanced aircraft. There are a total of 939 Boeing 737-200 aircraft in
service with 219 built prior to 1974. Independent forecasts estimate 250 total
Boeing 737-200's will be retired leaving approximately 700 aircraft in service
after 2003. The forecasts regarding hushkits estimate half of the 700 Boeing
737-200's will be hushed to meet Stage III noise levels. The Partnership's
aircraft are all prospects for Stage III hushkits due to their age, hours,
cycles, engine configurations and operating weights.
The Partnership's Douglas DC-9-32's are late model aircraft. There are 663
DC-9-30/40/50 series aircraft in-service with 437 built prior to 1974.
Independent forecasts estimate 300 older DC-9 aircraft will be retired by the
year 2003. The remaining fleet will total approximately 350 aircraft and most of
these aircraft will be hushed to Stage III. The aircraft will remain in active
airline service. The lessees are likely to be secondary airlines operating in
markets outside the US.
The Partnership has an interest in a trust which owns a widebody, twin
engine, twin aisle Boeing 767-200ER. The aircraft is a late model aircraft with
high gross operating weights and the most advanced technology engine powerplant
available on the market. The aircraft carries 216 passengers in a mixed class
over 6800 nautical miles. There are currently 99 aircraft in service with 26
different operators worldwide. The aircraft competes with the three engine older
generation widebody aircraft such as the Lockheed L1011 and Douglas DC-10. This
fleet (L1011/DC-10) totals over 500 aircraft today. These older aircraft will
continue to be phased out of service with 140 retired before 2003.
(2) Aircraft Rotables
Aircraft rotables are replacement spare parts held by an airline in inventory.
These parts are components that are removable from an aircraft or engine,
undergo overhaul, and are recertified and refit to the aircraft in an "as new"
condition. Components or rotables, carry specific identification numbers
allowing each part to be individually tracked. The types of rotables owned and
leased by the Partnership include landing gear, certain engine components,
avionics, auxiliary power units (APU's), replacement doors, control surfaces,
pumps, valves and other comparable equipment. Generally a rotable has a useful
life that is either measured in terms of time in service or number of cycles
(takeoffs and landings). While there are no specific guidelines that apply to
the time or cycles between overhauls for rotable equipment, there is no
limitation on the number of times a rotable may be overhauled and recertified.
The component will be overhauled until the cost of such overhaul becomes
uneconomic relative to the units' replacement cost.
The Partnership's rotable parts will be available for sale or lease in
1997. Rotables generally reflect the market conditions of the aircraft they
support. The Partnership's rotables support primarily Boeing 737-300/400/500 and
the Boeing 737-200 Advanced aircraft. Independent forecasts for 1997 indicate a
supply-demand equilibrium for these aircraft types.
(3) Marine Containers
At the end of 1995, the consensus of industry sources was that 1996 would see
both higher container utilization and strengthening per diem lease rates. Such
was not the case as there was no appreciable cyclical improvement in the
container market following the traditional winter slow down. Industry
utilization continues to be under pressure with per diem rates being impacted as
well.
A substantial portion of the Partnership's containers are on long-term
utilization leases which were entered into with Trans Ocean Leasing as lessee.
The industry has seen a major consolidation as Transamerica Leasing late in the
fourth quarter of 1996, acquired Trans Ocean Leasing. Transamerica Leasing is
the second largest container leasing company in the world. Transamerica Leasing
is the substitute lessee for Trans Ocean Leasing. Long term, such industry
consolidation should bring more rationalization to the market and result in
higher utilization and per diem rates.
(4) Railcars
Pressurized Tank Cars
These cars are used primarily in the petro-chemical and fertilizer industries.
They transport liquefied petroleum gas ("LPG") and anhydrous ammonia. The
utilization rate on the Partnership's fleet of pressurized tank cars was over
98% during 1996. Independent forecasts show the demand for natural gas to grow
during 1997 to 1999, as the developing world, former Communist countries and the
industrialized world all increase their demand for energy. The fertilizer
industry was undergoing a rapid restructuring toward the end of 1996 after a
string of major mergers, which began in 1995. These mergers reduce the number of
companies that use pressurized tank cars for fertilizer service. Whether or not
the economies of the mergers allow the total fleet size to be reduced remains to
be seen.
Non-Pressurized Tank Cars
General purpose or non-pressurized tank cars are used to transport a wide
variety of bulk liquid commodities such as petroleum fuels, lubricating oils,
vegetable oils, molten sulphur, corn syrup, asphalt, and specialty chemicals.
Demand for general purpose tank cars in the Partnership's fleet has remained
healthy over the last two years with utilization remaining above 98%. The demand
for petroleum is anticipated to grow during 1997 to 1999, as the developing
world, former communist countries and the industrialized world all increase
their demand for energy. Chemical carloadings for the first 40 weeks of 1996 are
up one tenth of one percent (0.1%) as compared to the same period in 1995.
Covered Hopper Cars
Through October 5, 1996, grain car loadings were down 13% compared to the same
period for 1995. Even with the greatly reduced loadings, the on-lease rate
during 1996 for the Partnership grain cars remained at 100%. Industry-wide, the
covered hopper is one car type that has increased in number over the last ten
years, going from a total of 299,172 cars in 1985 to 325,882 cars in 1995. It is
possible that another poor crop year, combined with more available cars, could
place downward pressure on grain car rental rates during 1997.
(5) Marine Vessels
The Partnership owns or has investments in small to medium-sized dry bulk
vessels and container feeder vessels, which are traded in worldwide markets,
carrying commodity cargoes and intermodal containers from larger ports to more
remote and smaller ports.
The freight rates in the dry bulk shipping market are dependent on the
balance of supply and demand for shipping commodities and trading patterns for
such dry bulk commodities. In 1995, dry bulk shipping demand was robust (growing
at 5% over 1994) and there was a significant infusion of new vessel tonnage
especially late in the year, causing some decline in freight rates after a peak
in mid-year. The slide in freight rates continued in the first half of 1996, as
new tonnage was delivered and shipping demand slipped from the high growth rates
of 1995. In the third quarter of 1996, there was a significant acceleration in
the drop of freight rates, primarily caused by the lack of significant grain
shipment volumes and the infusion of new tonnage. The low freight rates induced
many ship owners to scrap older tonnage and to defer or cancel new building
orders. In the fourth quarter, a strong grain harvest worldwide gave the market
new strength and freight rates recovered to the levels experienced in early
1996, but not to 1995 levels. Overall 1996 was a soft year for shipping with dry
bulk demand growing only 1.8% and the dry bulk fleet growing 3% in tonnage. The
outlook for 1997 shows an expected improvement in demand with growth at 2.4%,
but a high orderbook remains. 1997 is expected to be a soft year with relatively
low freight rates; however, prospects may be strengthened by continued scrapping
of older vessels in the face of soft rates and deferment or canceling of orders.
Demand for commodity shipping closely tracks worldwide economic growth;
however, economic development may alter demand patterns from time to time. The
general partner operates its funds' vessels in spot charters, period charters
and pooled vessel operations. This operating approach provides the flexibility
to adapt to changing demand patterns.
Independent forecasts show the longer term outlook (past 1997) should bring
improvement in freight rates earned by vessels; however, this is dependent on
the supply/demand balance and stability in growth levels. The newbuilding
orderbook currently is slightly lower than at the end of 1995 in tonnage.
Shipyard capacity is booked through late 1998; however, it remains to be seen
how many of these orders will actually be fulfilled. Historically, demand has
averaged approximately 3 percent annual growth, fluctuating between flat growth
and 6 percent annually. With predictable long term demand growth, the long term
outlook depends on the supply side, which is affected by interest rates,
governmental shipbuilding subsidy programs, and prospects for reasonable capital
returns in shipping.
(6) Mobile Offshore Drilling Units (Rigs)
Worldwide demand for mobile offshore drilling units (rigs) in 1996 increased in
all sectors of the business over the demand levels experienced in 1995 and 1994.
This increase in demand spread over all geographic regions of offshore drilling;
it also affected all equipment types in the offshore drilling sector (both
jackup rigs and floating rigs). This increase in demand without any increase in
supply of rigs gave increased utilization and higher contract dayrates in the
market. The improvement in the market can be attributed to a number of factors,
but primarily it can be associated with continued growth worldwide in the use of
oil and natural gas for energy. Stable prices at moderate levels have encouraged
such growth, while providing adequate margins for oil and natural gas
exploration and production development.
The floating rig sector has also experienced an improving market.
Technological improvements and more efficient operations have improved the
economics of drilling and production in the deeper water operations for which
floating rigs are utilized. Overall, demand for floating rigs increased from 117
rig-years in 1995 to 128 rig-years in 1996, with no increase in supply of rigs.
The increase in demand and utilization prompted an approximate doubling of
contract day rates and an associated increase in floating rig market values.
Three floating rigs were ordered in 1996; however, these will not be delivered
until late in 1998 and will have a minimal effect on the market as they are
committed to specific contracts.
The most significant trend in 1996 was the continued consolidation of the
offshore drilling industry. Five major mergers of offshore drilling contractors
occurred in 1996, leading to a more controlled and stable market in which higher
levels of day rates may be maintained. The consolidation of rig ownership into
fewer hands has a recognizable effect on stabilizing day rates in times of lower
utilization and quicker improvement in times of increasing utilization.
Demand for floating rigs is projected by industry participants to continue
to increase through 1997, with no significant increases in rig supply. Day rates
are not yet at levels sufficiently high to justify widespread ordering of new
equipment.
(7) Trailers
Intermodal Trailers
The robust intermodal trailer market that began 4 years ago began to soften in
1995 and reduced demand continued in 1996. Intermodal trailer loadings were flat
in 1996 verses 1995's depressed levels. This lack of growth has been the result
of many factors ranging from truckload firms recapturing market share from the
railroads through aggressive pricing, to the continuing consolidation activities
and asset efficiency improvements of the major U.S. railroads.
All of these factors helped make 1996 a year of equalizing equipment supply
as railroads and lessors were pressured to retire older and less efficient
trailers. The two largest suppliers of railroad trailers reduced the available
fleet in 1996 by over 15%. Overall utilization for intermodal trailers,
including the Partnership's fleet , was lower in 1996 than in previous years.
Over-the-Road Dry Trailers
The over-the-road dry trailer market was weak in 1996 with utilization down 15%.
The trailer industry experienced a record year in 1994 for new production and
1995 production levels were similar to 1994. However, in 1996 , the truck
freight recession, along with an over building situation, contributed to 1996's
poor performance. 1996 had too little freight and too much equipment.
Over-the-Road Refrigerated Trailers
The Partnership experienced fairly strong demand levels in 1996 for its
refrigerated trailers. With over 37% of the fleet in over the road refrigerated
trailers, the Partnership, PLM and affiliated partnerships combined, is the
largest supplier of short-term rental refrigerated trailers in the U.S..
(E) Government Regulations
The use, maintenance, and ownership of equipment is regulated by federal, state,
local, and/or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, 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 the removal from service or extensive modification of such equipment to
meet these regulations at considerable cost to the Partnership. Such regulations
include (but are not limited to):
(1) the U.S. Oil Pollution Act of 1990 (which established liability for
operators and owners of vessels, mobile offshore drilling units, etc.
that create environmental pollution);
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990
(which limits or eliminates the operation of commercial aircraft in the
U.S. that do not meet certain noise, aging, and corrosion criteria);
(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, over-the-road trailers, etc.);
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
(which regulate the classification of and packaging requirements for
hazardous materials and which apply particularly to the Partnership's
tank cars).
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased for leasing purposes. At December 31, 1996, the Partnership
owned a portfolio of transportation equipment and investments in equipment owned
by special purpose entities as described in Part I, Table 1. The Partnership
acquired equipment with the proceeds of the Partnership offering through
approximately the first nine months of 1993.
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 (PLMI) along with FSI, IMI, TEC and PLM Securities Corp (PLM
Securities), and collectively with PLMI, FSI, IMI, TEC and PLM Securities, (the
"PLM Entities"), were named as defendants in a class action lawsuit filed in the
Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251. The PLM
Entities received service of the complaint on February 10, 1997, and pursuant to
an extension of time granted by plaintiffs' attorneys, have sixty days to
respond to the complaint. PLM International is currently reviewing the substance
of the allegations with its counsel, and believes the allegations to be
completely without merit and intends to defend this matter vigorously.
The plaintiffs, who filed the complaint on their own and on behalf of all
class members similarly situated, are six individuals who allegedly invested in
certain California limited partnerships sponsored by PLM Securities, for which
FSI acts as the general partner, including the Partnership, PLM Equipment Growth
Fund IV, PLM Equipment Growth Fund V, and PLM Equipment Growth and Income Fund
VII (the "PLM Growth Funds"). The complaint purports eight causes of action
against all defendants as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action for breach of
third party beneficiary contracts against and in violation of the National
Association of Securities Dealers (NASD) rules of fair practice by PLM
Securities alone.
Plaintiffs allege that each defendant owed plaintiffs and the class
certain duties due to their status as fiduciaries, financial advisors, agents,
general partner, and control persons. Based on these duties, plaintiffs assert
liability against the PLM Entities for improper sales and marketing practices,
mismanagement of the PLM Growth Funds, and concealing such mismanagement from
investors in the PLM Growth Funds. Plaintiffs seek unspecified compensatory and
recissory damages, as well as punitive damages, and have offered to tender their
limited partnership units back to the defendants.
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, 1996.
(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
generally entitled to a 5% interest in the profits and losses and distributions
of the Partnership. The General Partner is the sole holder of such interests.
Gross income in each year of the Partnership will be specially allocated to the
General Partner to the extent, if any, necessary to cause the capital account
balance of the General Partner to be zero as of the close of such year. The
remaining interests in the profits and losses and distributions of the
Partnership are owned as of December 31, 1996, by the approximately 8,090
holders of Units in the Partnership.
There are several secondary markets in which Depositary Units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and, therefore, generally are viewed as inefficient vehicles for the
sale of 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 number
permitted by certain safe harbors promulgated by the Internal Revenue Service. A
transfer may be prohibited if the intended transferee is not a U.S. Citizen or
if the transfer would cause any portion of the Units to be treated as "plan
assets." The Partnership may also be obligated to redeem a certain number of
Units each year beginning November 24, 1995. At December 31, 1996, the
Partnership agreed to purchase approximately 54,000 Units for an aggregate price
of approximately $0.7 million. The General Partner anticipates that these Units
will be repurchased in the first and second quarters of 1997.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the years ended December 31, 1996, 1995, 1994,
1993, and 1992 (In thousands of dollars, except
per unit amounts)
1996 1995 1994 1993 1992
-----------------------------------------------------------------------------
Operating results:
Total revenues $ 31,436 $ 33,445 $ 37,467 $ 20,072 $ 6,398
Net gain (loss) on disposition of
equipment 7,214 128 4,295 (113 ) (55 )
Loss on revaluation of equipment -- -- 1,175 -- --
Equity in net income of unconsolidated
special purpose entities 3,426 -- -- -- --
Net income (loss) 8,291 (1,974 ) (1,680 ) (3,266 ) (1,940 )
At year-end:
Total assets $ 113,525 $ 121,957 $ 139,848 $ 160,529 $ 95,255
Total liabilities 37,735 36,527 34,926 36,390 1,999
Notes payable 31,286 30,000 30,000 30,000 --
Cash distributions $ 17,467 $ 17,518 $ 17,537 $ 14,828 $ 3,240
Cash distributions which represent
a return of capital $ 9,176 $ 16,642 $ 16,661 $ 14,133 $ 3,121
Per weighted average
Limited Partnership Depositary Unit
Net income (loss) $ 0.89 $ (0.34 ) $ (0.31 ) Various, according to
interim closings
Cash distributions $ 2.00 $ 2.00 $ 2.00 Various, according to
interim closings
Cash distributions which represent
a return of capital $ 1.11 $ 2.00 $ 2.00 Various, according to
interim closings
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Management's Discussion and Analysis of Financial Condition and Results of
Operations relates to the Financial Statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
Results of Operations - Factors Affecting Performance
(A) Re-leasing Activity and Re-pricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to re-pricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be re-marketed. Major factors influencing the current market rate
for transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, various regulations concerning the use of the
equipment, and others. The Partnership experienced repricing exposure in 1996
primarily in its aircraft portfolios.
(1) Aircraft: Aircraft contribution decreased from 1995 to 1996. The
decrease in the year to year contribution was due to lower re-lease rates on two
engines which were eventually sold during 1996;
(2) Trailers: The majority of the Partnership's trailer portfolio operates
in short-term rental facilities or 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
was largely unaffected by re-leasing;
(3) Marine Vessels: Marine vessel contribution declined during 1996 due to
lower day rates earned by the marine vessels on time charter;
(4) Marine Containers: All of the Partnership's marine containers are
leased to operators of utilization-type leasing pools, and, as such, was highly
exposed to repricing activity. The decline in marine containers contributions
was due to soft market conditions that caused a decline in repricing activity
during 1996;
(5) Other Equipment: While market conditions and other factors may have had
some impact on lease rates in markets in which the Partnership owns the
remainder of its equipment portfolio, the majority of this equipment was
unaffected.
(B) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment, unless accompanied by an immediate
replacement of additional equipment earning similar rates (see below in
"Reinvestment Risk"), represents a reduction in the size of the equipment
portfolio, and may result in a reduction of contribution 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 leases can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession, legal fees, etc.
(1) Liquidations: During the year, the Partnership liquidated or sold one
marine vessel, 4 aircraft engines, 249 marine containers, 78 trailers, and 2
railcars for $27.7 million. The Partnership also sold its investment in an
entity which owned a rig and received liquidating proceeds of $11.7 million. The
sale proceeds of the owned equipment and equipment in unconsolidated special
purpose entities (USPE's) represented approximately 85% of the original cost of
these assets. By year end, the Partnership had reinvested all of the $39.4
million received.
(2) Nonperforming Lessees: At December 31, 1996, one lessee of a commercial
aircraft has become delinquent in its lease payments to the Partnership. The
Partnership has established reserves against these receivables and the General
Partner is in the process of taking the necessary steps to recover the lease
payments from the lessee.
(C) Reinvestment Risk
Reinvestment risk occurs when 1) the Partnership cannot generate sufficient
surplus cash after fulfillment of operating obligations and distributions to
reinvest in additional equipment during the reinvestment phase of Partnership
operations; 2) equipment is sold or liquidated for less than threshold amounts;
3) proceeds from sales, losses, or surplus cash available for reinvestment
cannot be reinvested at threshold lease rates; or 4) proceeds from sales or
surplus cash available for reinvestment cannot be deployed in a timely manner.
During the first six years of operations, the Partnership intends to
increase its equipment portfolio by investing surplus cash in additional
equipment after fulfilling operating requirements and paying distributions to
the partners. Subsequent to the end of the reinvestment period, the Partnership
will continue to operate for another two years and then begin an orderly
liquidation over an anticipated two year period.
Other nonoperating funds for reinvestment are generated from the sale of
equipment prior to the Partnership's planned liquidation phase, the receipt of
funds realized from the payment of stipulated loss values on equipment lost or
disposed of during the time it is subject to lease agreements, or the exercise
of purchase options written into certain lease agreements. Equipment sales
generally result from evaluations by the General Partner that continued
ownership of certain equipment is either inadequate to meet Partnership
performance goals, or that market conditions, market values, and other
considerations indicate it is the appropriate time to sell certain equipment.
During 1996, the Partnership reinvested $11.8 million in the purchase of an
interest in an entity which owns four Boeing 737-200 commercial aircraft, $4.6
million in an entity owning two commercial aircraft on a direct finance lease,
$4.0 million in an entity which owns a marine vessel, $6.2 million in an entity
which owns a rig, and $16.0 million in another two marine vessels. The remaining
interest in all the entities are held by affiliated partnerships. TEC Acquisub,
a subsidiary of PLM International, is an additional owner in the entity owning
the rig.
(D) Equipment Valuation
In March 1996, the Financial Accounting Standards Board (FASB) issued statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" (SFAS 121). This standard is effective for years
beginning after December 15, 1996. The Partnership adopted SFAS 121 during 1996,
the effect of which was not material as the method previously employed by the
Partnership was consistent with SFAS 121. In accordance with SFAS 121, the
General Partner reviews the carrying value of the Partnership's equipment
portfolio at least annually in relation to expected future market conditions for
the purpose of assessing the recoverability of the recorded amounts. If the
projected future lease revenue plus residual values are less than the carrying
value of the equipment, a loss on revaluation is recorded. There were no
reductions required to the carrying value of equipment during 1996. The carrying
value of three aircraft engines were reduced by approximately $1.2 million in
1994. The implicit impact of such reductions is anticipated future lower sales
proceeds.
As of December 31, 1996, the General Partner estimated the current fair
market value of the Partnership's equipment portfolio, including equipment owned
by USPE's, to be approximately $153.2 million.
(B) 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, borrowings from the Committed
Bridge Facility and permanent debt financing. No further capital contributions
from original partners are permitted under the terms of the Partnership's
Limited Partnership Agreement, while the Partnership's total outstanding
indebtedness, currently $31.3 million, can only be increased by a maximum of
$3.7 subject to specific covenants in existing debt agreements. The Partnership
relies on operating cash flow to meet its operating obligations and to make cash
distributions to the Limited Partners.
For the year ended December 31, 1996, the Partnership generated sufficient
operating revenues to meet its operating obligations including interest expense.
Cash distributions of $17.5 million were generated from current period
operations.
Beginning December 1, 1994, the Partnership became obligated, under
certain conditions, to redeem up to 2% of the outstanding Depositary Units each
year. The purchase price to be offered for such outstanding units will be equal
to 110% of the unrecovered principal attributed to the units - where unrecovered
principal is defined as the excess of the capital contribution attributable to a
unit over the distributions from any source paid with respect to that unit. At
December 31, 1996, the Partnership agreed to purchase approximately 54,000 units
for an aggregate price of approximately $0.7 million. The General Partner
anticipates that these units will be repurchased in the first and second
quarters of 1997.
The General Partner has entered into a joint $50 million credit facility
(the "Committed Bridge Facility") on behalf of the Partnership, PLM Equipment
Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment Growth & Income Fund
VII and Professional Lease Management Income Fund I ("Fund I"), all affiliated
investment programs, TEC Acquisub, Inc. ("TECAI"), an indirect wholly-owned
subsidiary of the General Partner, and American Finance Group, Inc. (AFG), a
subsidiary of PLM International Inc., which may be used to provide interim
financing of up to (i) 70% of the aggregate book value or 50% of the aggregate
net fair market value of eligible equipment owned by the Partnership, plus (ii)
50% of unrestricted cash held by the borrower. The Committed Bridge Facility
became available on December 20, 1993, and was amended and restated on October
31, 1996, to expire on October 31, 1997 and increased the available borrowings
for AFG to $50 million. The Partnership, TECAI, Fund I and the other
partnerships collectively may borrow up to $35 million of the Committed Bridge
Facility. The Committed Bridge Facility also provides for a $5 million Letter of
Credit Facility for the eligible borrowers. Outstanding borrowings by Fund I,
TECAI, AFG or PLM Equipment Growth Funds IV through VII reduce the amount
available to each other under the Committed Bridge Facility. Individual
borrowings may be outstanding for no more than 179 days, with all advances due
no later than October 31, 1997. The Committed Bridge Facility prohibits the
Partnership from incurring any additional indebtedness. Interest accrues at
either the prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is
set at the time of an advance of funds. Borrowings by the Partnership are
guaranteed by the General Partner. As of December 31, 1996, the Partnership had
borrowings of $1.3 million, PLM Equipment Growth Fund V had $2.5 million, PLM
Equipment Growth and Income Fund VII had $2.0 million, AFG had $26.9 million,
and TECAI had $4.1 million in outstanding borrowings. Neither PLM Equipment
Growth Fund IV nor Fund I had any outstanding borrowings.
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
Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1996 and 1995
(A) Owned equipment operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1996, when compared to the same
period of 1995. The following table presents lease revenues less direct expenses
by owned equipment type (in thousands):
For the years ended
December 31,
1996 1995
----------------------------
Aircraft and aircraft engines $ 3,982 $ 4,571
Marine vessels 3,816 5,661
Trailers 3,148 4,080
Rail equipment 2,774 3,252
Marine containers 2,179 2,880
Aircraft: Aircraft lease revenues and direct expenses were $4.2 million and 0.2
million, respectively, for the year ended December 31, 1996, compared to $4.9
and $0.3 million, respectively during the same period of 1995. The decrease in
aircraft contribution was due to a lower re-lease rate earned on two aircraft
engines which were sold during 1996 compared to the same period during 1995;
Marine vessels: Marine vessel lease revenues and direct expenses were $8.9
million and $5.1 million, respectively, for the year ended December 31, 1996,
compared to $10.7 million and $5.1 million, respectively during the same period
of 1995. The decrease in marine vessel contribution during 1996, was due to
lower day rates earned by two marine vessels and the sale of a marine vessel
during the first quarter of 1996 offset, in part, by the purchase of two marine
vessels during the first quarter of 1996 when compared to the same period of
1995;
Trailers: Trailer lease revenues and direct expenses were $4.2 million and $1.0
million, respectively, for the year ended December 31, 1996, compared to $5.0
million and $1.0 million, respectively during the same period of 1995. The
number of trailers owned by the Partnership has been declining over the past
twelve months due to sales and dispositions. The result of this declining fleet
has been a decrease in trailer net contribution. In addition, the trailer fleet
is experiencing lower utilization in the PLM affiliated short-term rental yards
due to soft market conditions;
Rail equipment: Rail equipment lease revenues and direct expenses were $4.1
million and $1.3 million, respectively, for the year ended December 31, 1996,
compared to $4.1 million and $0.9 million, respectively during the same period
of 1995. Although the rail fleet remained relatively the same size for both
periods, the decrease in rail contribution resulted from running repairs
required on certain of the railcars in the fleet during 1996 which were not
needed during 1995;
Marine containers: Marine container lease revenues and expenses were $2.2
million and $12,000, respectively, for the year ended December 31, 1996,
compared to $2.9 million and $23,000, respectively during the same period of
1995. The number of marine containers owned by the Partnership has been
declining over the past twelve months due to sales and dispositions. The result
of this declining fleet has resulted in a decrease in marine container net
contribution.
(B) Indirect expenses related to owned equipment operations
Total indirect expenses of $18.8 million for the year ended December 31, 1996,
decreased from $21.4 million for the same period in 1995. The variances are
explained as follows:
(a) A $3.4 million decrease in depreciation and amortization expenses from 1995
levels reflecting the sale of certain assets during 1996 and 1995, and the
double declining balance method of depreciation. These decreases were offset, in
part, by the purchase of two marine vessels during the first quarter of 1996;
(b) A $0.3 million increase in interest expense due to the net increase in
short-term debt of $12.5 million which was in place for six months during 1996
compared to $1.7 million in short-term debt which was in place for three months
during the same period of 1995;
(c) A $0.7 million increase in bad debt expenses due to an increase in
uncollectable amounts due from certain lessees;
(d) A $0.1 million decrease in management fees due to lower revenues earned,
when compared to the same period of 1995;
(e) A $0.1 million increase in administrative expenses due to higher collection
costs and legal fees associated with uncollected receivables when compared to
the same period of 1995.
(C) Net gain on disposition of owned equipment
Net gain on disposition of equipment for the year ended December 31, 1996
totaled $7.2 million which resulted primarily from the sale of one marine vessel
which was held for sale as of December 31, 1995, with a net book value of $14.6
million at the date of sale for proceeds of $20.8 million. Included in the gain
of $6.3 million from the sale of the marine vessel, is the unused portion of
accrued drydocking of $0.1 million. Other equipment sold or disposed of during
1996, included 249 marine containers, 78 trailers, 4 aircraft engines and 2
railcars with an aggregate net book value of $6.0 million for proceeds of $7.0
million. Net gain on disposition of equipment for the year ended December 31,
1995, totaled $0.1 million which resulted from the sale or disposition of 298
marine containers, 50 trailers and 1 railcar with an aggregate net book value of
$0.9 million for proceeds of $1.0 million.
(D) Interest and other income
Interest and other income increased $0.2 million during the year ended December
31, 1996 due primarily an increase in interest income due to higher cash
balances available for investments when compared to the same period of 1995.
(E) Equity in net income (loss) of unconsolidated special purpose entities
represents net income generated from the operation of jointly-owned assets
accounted for under the equity method (see Note 2 to the financial statements):
For the year ended
December 31,
1996 1995
--------------------------
Aircraft $ (1,853 ) $ (1,113 )
Marine vessels (415 ) (130 )
Mobile offshore drilling unit 5,694 (269 )
Aircraft: As of December 31, 1996, the Partnership had an interest in a trust
which owns a Boeing 767 commercial aircraft and had acquired an interest in two
trusts which own 10 commercial aircraft during the later half of 1995 and the
first quarter of 1996, then, during the fourth quarter of 1996, purchased an
interest in a trust owning two commercial aircraft on a direct finance lease. As
of December 31, 1995, the Partnership had an interest in the trust holding the
Boeing 767 commercial aircraft and purchased an interest in a trust containing
seven commercial aircraft. During the year ended December 31, 1996, revenues of
$6.3 million were offset by depreciation and administrative expenses of $8.2
million. During the same period of 1995, revenues of $3.4 million were offset by
depreciation and administrative expenses of $4.5 million.
Marine vessel: As of December 31, 1996, the Partnership owned a 20% interest in
an entity which owns a marine vessel and a 50% interest in another entity which
owns a marine vessel which was purchased during the first quarter of 1996. As of
December 31, 1995, the Partnership only owned the 20% interest in the marine
vessel. During the year ended December 31, 1996, revenues of $1.6 million were
offset by depreciation and administrative expenses of $2.0 million. During the
same period of 1995, revenues of $0.7 million were offset by depreciation and
administrative expenses of $0.8 million.
Mobile offshore drilling unit: As of December 31, 1996, the interest in the
entity which owned a rig was sold by the General Partner. The increase in net
income of $5.9 million during the year ended December 31, 1996, resulted
primarily from the gain on the sale of the rig. The Partnership's share of the
liquidating distribution was $11.7 million. Revenues of $0.7 million earned
during the year ended December 31, 1996 were offset by depreciation and
administrative expenses of $0.9 million. During the same period of 1995,
revenues of $1.2 million were offset by depreciation and administrative expenses
of $1.5 million.
(F) Net Income (Loss)
As a result of the foregoing, the Partnership's net income of $8.3 million for
the year ended December 31, 1996, increased from a net loss of $2.0 million
during the same period in 1995. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the duration of the Partnership is subject to many factors and the
Partnership's performance in the year ended December 31, 1996 is not necessarily
indicative of future periods. For the year ended December 31, 1996, the
Partnership distributed $16.6 million to the Unitholders, or $2.00 per weighted
average Depositary Unit.
Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1995 and 1994
(A) Revenues
Total revenues for the years ended December 31, 1995 and 1994, were $33.4
million and $37.5 million respectively. The decrease in 1995 revenues was
primarily attributable to the Partnership posting a lower gain on the sale of
equipment compared to 1994. The Partnership's ability to acquire, operate, or
liquidate assets, secure leases, and re-lease those assets whose leases expire
during the duration of the Partnership is subject to many factors; therefore,
the Partnership's performance in 1996 or 1994, in this regard, is not
necessarily indicative of future periods.
(1) The Partnership's lease revenue remained relatively constant at $32.9
million for both years ended December 31, 1995 and 1994.
The following table presents lease revenues earned by equipment type (in
thousands):
For the year ended December
31,
1995 1994
-----------------------------
Marine vessels $ 11,369 $ 10,829
Mobile offshore drilling units 1,175 3,561
Marine containers 2,903 2,968
Aircraft 8,254 8,936
Rail equipment 4,131 1,410
Trailers 5,046 5,245
-----------------------------
$ 32,878 $ 32,949
=============================
Significant revenue component changes resulted primarily from:
(a) An increase of $2.7 million in rail equipment revenues due primarily to
the purchase and lease of 350 tank railcars during December 1994 which
significantly increased 1995's revenue;
(b) The small decrease in marine container revenues was due primarily to
higher utilization and rents earned during 1995 on a fleet that has 298 fewer
units when compared to the end of 1994;
(c) The decline of $2.4 million in revenues earned by the mobile offshore
drilling unit ("rig") was due primarily to the sale of the Partnership's
interest in one of its rigs during the later part of December 1994, which was on
lease during 1994 and to a lower re-lease rate earned on the remaining rig;
(d) The decline of $0.7 million in aircraft revenues is due primarily to
the off-lease status of two aircraft engines which were on-lease during the same
period in 1994. The decrease was offset, in part, by the revenues earned from
the Partnership's purchase of a partial beneficial interest in a trust comprised
of seven commercial aircraft;
(e) The increase of $0.5 million in marine vessel revenues was due
primarily to one marine vessel which was operating under a bareboat charter
during 1994, switching to a higher revenue producing time charter during 1995.
In addition, during 1995, two other marine vessels which were operating under a
time charter switched to the pooling arrangement earning increased revenues.
These increases were offset in part, by another marine vessel which earned a
lower rate during 1995's time charter when compared to the rate earned under a
time charter during 1994;
(f) The decline of $0.2 million in trailer revenues is due primarily to the
expiration of several term leases and the transition of these trailers to the
PLM-affiliated short-term trailer rental facilities which is experiencing lower
utilizations. In addition to this, the Partnership sold 50 trailers during 1995
which were on lease during 1994.
(2) Interest and other income increased $0.2 million during the year ended
December 31, 1995, due to an increase in the interest rate paid on cash invested
during the year ending December 31, 1995, when compared to the same period in
1994.
(3) Net gain on disposition of equipment during the year ended December 31,
1995, was realized on the disposal of 298 marine containers, one railcar, and 50
trailers with an aggregate net book value of $0.9 million for proceeds of $1.0
million. During the same period 1994, the Partnership realized a net gain from
the sale or disposal of the Partnership's interest in a mobile offshore drilling
unit with a net book value of $7.6 million for proceeds of $12.1 million, in
addition to the sale or disposal of 359 marine containers and 217 trailers with
an aggregate net book value of $1.4 million for proceeds of $1.2 million.
(B) Expenses
The Partnership's total expenses for the years ended December 31, 1995 and 1994,
were $35.4 million and $39.1 million, respectively. The decrease in 1996
expenses was attributable to a reduction in depreciation expense, partially
offset by increases in repairs and maintenance, marine equipment operating
expenses, insurance expense, provision for bad debts, and general and
administrative expenses.
(1) Direct operating expenses (defined as repairs and maintenance,
insurance expenses, and marine equipment operating expenses) increased to $7.5
million in 1995, from $6.7 million in 1994. This change resulted from:
(a) An increase of $0.3 million in marine equipment operating costs is due
to the following:
(a-1) During 1995, marine operating expenses increased $0.1
million due to one of the Partnership's marine vessels which ran aground during
1995 and required additional inspections and administrative expenses until the
marine vessel could be returned to service;
(a-2) Another marine vessel's operating expenses increased
$0.1 million due primarily to the switch from a bareboat charter in which the
lessee pays all operating expenses to a time charter in which the Partnership is
responsible for a portion of the marine vessel's operating expenses;
(a-3) Also, during 1995; operating expenses increased $0.1
million due to a general escalation in operating expenses charged to the
Partnership;
(b) An increase of $0.4 million in repairs and maintenance is due to a
number of events:
(b-1) Trailer repairs increased $0.1 million due to an
additional running repairs needed to maintain the fleet in a rental ready
condition;
(b-2) A decrease of $0.3 million in repairs and maintenance
due to a decrease in the expected dry docking costs of one marine vessel of $0.1
million and a decrease of $0.2 million in repairs and maintenance due to another
marine vessel which had certain repairs completed during 1994;
(b-3) Railcar repairs increased $0.6 million due to the
purchase of 350 tank railcars during December 1994 which required running
repairs during 1995.
(c) Insurance expense increased $0.1 million during 1995 when compared to
the same period of 1994. The increase is due to an overall escalation of
insurance premiums charged to the marine vessels. Also, during 1994, the
Partnership received a refund of $22,000 from the insurance company due to lower
loss of hire claims which resulted in a decrease to 1994 expense, a similar
refund was not received in 1996.
(2) Indirect operating expenses (defined as depreciation and amortization
expense, management fees, interest expense, bad debt expense, and general and
administrative expenses) decreased to $27.9 million in the year ended December
31, 1995, from $31.2 million in the same period 1994. This change resulted from:
(a) A decrease in depreciation and amortization expense of $3.8 million
from 1994 levels reflecting the Partnership's double-declining balance
depreciation method and the sale of a rig in December 1994 offset by an increase
due to the purchase of 350 railcars in December 1994 and a partial beneficial
interest in a trust containing seven commercial aircraft during September 1995;
(b) An increase of $0.3 million in general and administrative expenses due
primarily to the increased number of trailers and cost associated with the
administration of the short-term rental yards used for the trailers during 1995
and a loan fee charged the Partnership;
(c) An increase of $0.2 million in bad debt expense over the same period in
1994 is due to an increase in the reserve for an amount due from one lessee
during 1995;
(3) Loss on revaluation of equipment in 1994 results from the Partnership
reducing the carrying value of three aircraft engines to $4.9 million, the
estimated net fair value less cost to sell. There were no revaluations of
equipment required in 1995.
(C) Net Loss
The Partnership's net loss of $2.0 million in the year ended December 31, 1995,
increased from a net loss of $1.7 million during the same period in 1994. For
the year ended December 31, 1995, the Partnership distributed $16.6 million to
the Limited Partners, or $2.00 per weighted average Depositary Unit.
Geographic Information
The Partnership operates its equipment in international markets. Although these
operations expose the Partnership to certain currency, political, credit and
economic risks, the Manager believes these risks are minimal or has implemented
strategies to control the risks as follows: 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
generally through the avoidance of 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 Manager strives to minimize this risk with market analysis prior
to committing equipment to a particular geographic area. Refer to the Financial
Statements, Note 4 for information on the revenues, income, and assets 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 due to
the use of the 200% declining balance method of depreciation. The relationships
of geographic revenues, net income (loss) and net book value are expected to
significantly change in the future as assets come off lease and decisions are
made to redeploy the assets in the most advantageous geographic location or sell
the assets.
The Partnership's owned equipment and investments in equipment owned by
USPE's on lease to U.S. domiciled lessees consists of trailers and railcars.
During 1996, U.S. lease revenues accounted for 23% of the total lease revenues
while net income accounted for 14% of the net income for the Partnership. The
primary reason for this relationship is that there was a large gain realized
from the sale of an asset in another geographic region. In addition, the
Partnership depreciates its rail equipment over a fifteen year period versus
twelve years for other equipment types owned and leased in other geographic
regions.
The Partnership's owned equipment and investments in equipment owned by
USPE's on lease to Canadian domiciled lessees consists of aircraft and railcars.
During 1996, Canadian lease revenues accounted for 12% of the total lease
revenues and a $1.4 million net loss when compared to the net income for the
Partnership of $8.3 million. The primary reason for this relationship is that
there was a large gain realized from the sale of assets in other geographic
regions.
The Partnership's investment in an aircraft owned by a USPE on lease to
South American domiciled lessees during 1996, accounted for 10% of the total
lease revenues. South American operations accounted for $0.3 million net loss
when compared to the net income for the Partnership of $8.3 million. The primary
reason for this relationship is that there was a large gain realized from the
sale of assets in other geographic regions. This aircraft is on lease until
1998, and is expected to generate higher net profit in the future as
depreciation charges decline.
The Partnership's owned equipment and investments in equipment owned by
USPE's which was on lease to lessees domiciled in Asia consists of aircraft and
a rig. Lease revenues in this region accounted for 12% of the total lease
revenues, while net income accounted for 80% of the net income for the
Partnership. The primary reason for this relationship is that during 1996, the
Partnership sold the Rig for a gain of $5.8 million which accounted for 70% of
total net income for the Partnership.
The Partnership's owned equipment on lease to lessees in Europe consisted
of two packages of aircraft rotable spare part components and accounted for 3%
of lease revenues, while net income accounted for 4% of the net income for the
Partnership. The primary reason for this relationship is that there was a large
gain realized from the sale of assets in other geographic regions.
The Partnership's owned equipment and investments in equipment owned by
USPE's on lease to lessees in the rest of the world consists of marine vessels,
a rig, and marine containers. During 1996, lease revenues from these operations
accounted for 40% of the total lease revenues while net income from these
operations accounted for 60% when compared to the total net income for the
Partnership. The primary reason for this relationship is that during 1996, the
Partnership sold a marine vessel for a gain of $6.2 million which accounted for
76% of total net income for the Partnership.
Inflation
There was no significant impact on the Partnership's operations as a result of
inflation during 1996, 1995, or 1994.
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.
Outlook for the Future
Several factors may affect the Partnership's operating performance in 1996 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
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. In 1996, market conditions, supply and demand equilibrium,
and other factors varied in several markets. In the container and refrigerated
over-the-road trailer markets, oversupply conditions, industry consolidations,
and other factors resulted in falling rates and lower returns. In the dry
over-the-road trailer markets, strong demand and a backlog of new equipment
deliveries produced high utilization and returns. The marine vessel, rail, and
mobile offshore drilling unit markets could be generally categorized by
increasing rates as the demand for equipment is increasing faster than new
additions net of retirements. Finally, demand for narrowbody stage II aircraft,
such as those owned by the Partnership, has increased as expected savings from
newer narrowbody aircraft have not materialized and deliveries of the newer
aircraft have slowed down. These different markets have had individual effects
on the performance of Partnership equipment - in some cases resulting in
declining performance, and in others, in improved performance.
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,
governmental or other regulations, and others. The unpredictability of some of
these factors, or of their occurrence, 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. Alternatively,
the General Partner may make a determination to enter equipment markets in which
it perceives opportunities to profit from supply-demand instabilities or other
market imperfections.
The Partnership intends to use excess cash flow, if any, after payment of
expenses, loan principal, and cash distributions to acquire additional equipment
during the first seven years of Partnership operations. The General Partner
believes these acquisitions may cause the Partnership to generate additional
earnings and cash flow for the Partnership.
(A) Repricing and Reinvestment Risk
Certain portions of the Partnership's aircraft, marine vessel, railcar, and
trailer portfolios will be remarketed in 1997 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.
(B) 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 into U.S. ports
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the U.S. and internationally,
cannot be predicted with any accuracy, and preclude the General Partner from
determining the impact of such changes on Partnership operations or sale of
equipment.
(C) Additional Capital Resources and Distribution Levels
The Partnership's initial contributed capital was composed of the proceeds from
its initial offering, supplemented later by permanent debt in the amount of
$30.0 million and borrowings from the Committed Bridge Facility of $1.3 million.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies, that would cause it to require any additional capital or debt (an
additional $3.7 million of debt is allowable under the Partnership's debt
agreement covenants) to that mentioned above.
Pursuant to the Limited Partnership Agreement, the Partnership will cease
to reinvest surplus cash in additional equipment beginning in its seventh year
of operations which commences on January 1, 2000. The General Partner intends to
continue its strategy of selectively redeploying equipment, throughout the
reinvestment phase of the Partnership, to achieve competitive returns. By the
end of this reinvestment period, the General Partner intends to have assembled
an equipment portfolio capable of achieving a level of operating cash flow for
the remaining life to the Partnership sufficient to meet its obligations and
sustain a predictable level of distributions to the partners.
The General Partner believes the current level of distributions can be
maintained throughout 1997 using cash from operations, undistributed available
cash from prior periods, and proceeds from sales or dispositions of equipment if
necessary. Subsequent to this period, the General Partner will evaluate the
level of distributions the Partnership can sustain over extended periods of
time, and together with other considerations, may adjust the level of
distributions accordingly. In the long term, the difficulty in predicting market
conditions precludes the General Partner from accurately determining the impact
on liquidity or distribution levels.
The Partnership's permanent debt obligation begins to mature in November
2001. The General Partner believes there will be sufficient cash flow available
in the future for repayment of debt.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(this space left blank intentionally)
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
As of the date of this Annual Report, the directors and executive officers of
PLM International (and key executive officers of its subsidiaries) are as
follows:
Name Age Position
-------------------------------------- ------------------ -------------------------------------------------------
J. Alec Merriam 61 Director, Chairman of the Board, PLM International,
Inc.; Director, PLM Financial Services, Inc.
Douglas P. Goodrich 50 Director and Senior Vice President, PLM
International; Director and President, PLM Financial
Services, Inc.; Senior Vice President, PLM
Transportation Equipment Corporation; President, PLM
Railcar Management Services, Inc.
Walter E. Hoadley 80 Director, PLM International, Inc.
Robert L. Pagel 60 Director, Chairman of the Executive Committee, PLM
International, Inc.; Director, PLM Financial
Services, Inc.
Harold R. Somerset 62 Director, PLM International, Inc.
Robert N. Tidball 58 Director, President and Chief Executive Officer, PLM
International, Inc.
J. Michael Allgood 48 Vice President and Chief Financial Officer, PLM
International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 50 President, PLM Investment Management, Inc.;
President, PLM Securities Corp.; Vice President, PLM
Financial Services, Inc.
David J. Davis 40 Vice President and Corporate Controller, PLM
International and PLM Financial Services, Inc.
Frank Diodati 42 President, PLM Railcar Management Services Canada
Limited.
Steven O. Layne 42 Vice President, PLM Transportation Equipment
Corporation; Vice President and Director, PLM
Worldwide Management Services, Ltd.
Stephen Peary 48 Senior Vice President, General Counsel and Secretary,
PLM International, Inc.; Vice President, General
Counsel and Secretary, PLM Financial Services, Inc.,
PLM Investment Management, Inc., PLM Transportation
Equipment Corporation; Vice President, PLM
Securities, Corp.
Thomas L. Wilmore 54 Vice President, PLM Transportation Equipment
Corporation; Vice President, PLM Railcar Management
Services, Inc.
J. Alec Merriam was appointed Chairman of the Board of Directors of PLM
International in September 1990, having served as a director since February
1988. In October 1988, he became a member of the Executive Committee of the
Board of Directors of PLM International. From 1972 to 1988, Mr. Merriam was
Executive Vice President and Chief Financial Officer of Crowley Maritime
Corporation, a San Francisco area-based company engaged in maritime shipping and
transportation services. Previously, he was Chairman of the Board and Treasurer
of LOA Corporation of Omaha, Nebraska and served in various financial positions
with Northern Natural Gas Company, also of Omaha.
Douglas P. Goodrich was elected to the Board of Directors in July 1996, and
appointed Director and President of PLM Financial Services in June 1996, and
appointed Senior Vice President of PLM International in March 1994. 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, a subsidiary of Guardian Industries Corp. of Chicago,
Illinois from December 1980 to September 1985.
Dr. Hoadley joined PLM International's Board of Directors and its Executive
Committee in September, 1989. He served as a Director of PLM, Inc. from November
1982 to June 1984 and PLM Companies, Inc. from October 1985 to February 1988.
Dr. Hoadley has been a Senior Research Fellow at the Hoover Institute since
1981. He was Executive Vice President and Chief Economist for the Bank of
America from 1968 to 1981, and Chairman of the Federal Reserve Bank of
Philadelphia from 1962 to 1966. Dr. Hoadley served as a Director of Transcisco
Industries, Inc. from 1988 through August of 1995.
Robert L. Pagel was appointed Chairman of the Executive Committee of the
Board of Directors of PLM International in September 1990, having served as a
director since February 1988. In October 1988, he became a member of the
Executive Committee of the Board of Directors of PLM International. From June
1990 to April 1991, Mr. Pagel was President and Co-Chief Executive Officer of
The Diana Corporation, a holding company traded on the New York Stock Exchange.
He is the former President and Chief Executive Officer of FanFair Corporation
which specializes in sports fans' gift shops. He previously served as President
and Chief Executive Officer of Super Sky International, Inc., a publicly traded
company, located in Mequon, Wisconsin, engaged in the manufacture of skylight
systems. He was formerly Chairman and Chief Executive Officer of Blunt, Ellis &
Loewi, Inc., a Milwaukee-based investment firm. Mr. Pagel retired from Blunt,
Ellis & Loewi in 1985 after a career spanning 20 years in all phases of the
brokerage and financial industries. Mr. Pagel has also served on the Board of
Governors of the Midwest Stock Exchange.
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), a recently-acquired subsidiary of Alexander & Baldwin, Inc.
Mr. Somerset joined C&H in 1984 as Executive Vice President and Chief Operating
Officer, having served on its Board of Directors since 1978, a position in which
he continues to serve. 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 -
Agricultures, Vice President, General Counsel and Secretary. In addition to a
law degree from Harvard Law School, Mr. Somerset also holds degrees in civil
engineering from the Rensselaer Polytechnic Institute and 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 N. Tidball was appointed President and Chief Executive Officer of
PLM International in March 1989. At the time of his appointment, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989 and a member of the Executive Committee of the
Board of Directors of PLM International in September 1990. Mr. Tidball was
elected President of PLM Railcar Management Services, Inc. in January 1986. 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,
Inc., he was Vice President, a General Manager and a Director of North American
Car Corporation, and a Director of the American Railcar Institute and the
Railway Supply Association.
J. Michael Allgood was appointed Vice President and Chief Financial Officer
of PLM International in October 1992. Between July 1991 and October 1992, Mr.
Allgood was a consultant to various private and public sector companies and
institutions specializing in financial operational systems development. In
October 1987, Mr. Allgood co-founded Electra Aviation Limited and its holding
company, Aviation Holdings Plc of London where he served as Chief Financial
Officer until July 1991. Between June 1981 and October 1987, Mr. Allgood served
as a First Vice President with American Express Bank, Ltd. In February 1978, Mr.
Allgood founded and until June 1981, served as a director of Trade Projects
International/Philadelphia Overseas Finance Company, a joint venture with
Philadelphia National Bank. From March 1975 to February 1978, Mr. Allgood served
in various capacities with Citibank, N.A.
Stephen M. Bess was appointed President of PLM Securities, Corp. in June
1996 and 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 Corp., a manufacturer of computer peripheral equipment, from October
1975 to November 1978.
David J. Davis was appointed Vice President and Controller of PLM
International in January 1994. From March 1993 through January 1994, Mr. Davis
was engaged as a consultant for various firms, including PLM. Prior to that Mr.
Davis was Chief Financial Officer of LB Credit Corporation in San Francisco from
July 1991 to March 1993. From April 1989 to May 1991, Mr. Davis was Vice
President and Controller for ITEL Containers International Corporation which was
located in San Francisco. Between May 1978 and April 1989, Mr. Davis held
various positions with Transamerica Leasing Inc., in New York, including that of
Assistant Controller for their rail leasing division.
Frank Diodati was appointed President of PLM Railcar Management Services
Canada Limited in 1986. Previously, Mr. Diodati was Manager of Marketing and
Sales for G.E. Railcar Services Canada Limited.
Steven O. Layne was appointed Vice President, PLM Transportation Equipment
Corporation's Air Group in November 1992, and was appointed Vice President and
Director of PLM Worldwide Management Services, Ltd. in September 1995. Mr. Layne
was PLM Transportation Equipment Corporation's Vice President, Commuter and
Corporate Aircraft beginning in July 1990. Prior to joining PLM, Mr. Layne was
the Director, Commercial Marketing for Bromon Aircraft Corporation, a joint
venture of General Electric Corporation and the Government Development Bank of
Puerto Rico. Mr. Layne is a Major in the United States Air Force Reserves and
senior pilot with 13 years of accumulated service.
Stephen Peary became Vice President, Secretary, and General Counsel of PLM
International in February 1988 and Senior Vice President in March 1994. Mr.
Peary was Assistant General Counsel of PLM Financial Services, Inc. from August
1987 through January 1988. Previously, Mr. Peary was engaged in the private
practice of law in San Francisco. Mr. Peary is a graduate of the University of
Illinois, Georgetown University Law Center, and Boston University (Masters of
Taxation Program).
Thomas L. Wilmore was appointed Vice President - Rail, PLM Transportation
Equipment Corporation, in March 1994 and has served as Vice President, Marketing
for PLM Railcar Management Services, Inc. since May 1988. Prior to joining PLM,
Mr. Wilmore was Assistant Vice President Regional Manager for MNC Leasing Corp.
in Towson, Maryland from February 1987 to April 1988. From July 1985 to February
1987, he was President and Co-Owner of Guardian Industries Corp., Chicago,
Illinois, and between December 1980 and July 1985, Mr. Wilmore was an Executive
Vice President for its subsidiary, G.I.C. Financial Services Corporation. Mr.
Wilmore also served as Vice President of Sales for Gould Financial Services
located in Rolling Meadows, Illinois from June 1978 to December 1980.
The directors of the General Partner are elected for a one-year term or
until their successors are elected and qualified. There are no family
relationships between any director or any executive officer of the General
Partner.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers or employees. The Partnership
has no pension, profit sharing, retirement or similar benefit plan in effect as
of December 31, 1996.
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 and distributions of the Partnership. At December
31, 1996, no investor was known by the General Partner to beneficially
own more than 5% of the Units of the Partnership.
(b) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates own any
Units of the Partnership as of December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
During 1996, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees - $1,363,000. The Partnership
reimbursed FSI and/or its affiliates $953,000 for administrative and
data processing services performed on behalf of the Partnership. The
Partnership paid Transportation Equipment Indemnity Company Ltd. (TEI),
a wholly owned, Bermuda-based subsidiary of PLM International, $186,000
for insurance coverages during 1996 substantially all of which was paid
to third party reinsurance underwriters or placed in risk pools managed
by TEI on behalf of affiliated partnerships 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.
During 1996, the USPE's paid or accrued the following fees to FSI or
its affiliates (based on the Partnership's proportional share of
ownership): management fees - $305,000; administrative and data
processing services - $113,000; equipment acquisition fees - $978,000
and lease negotiation fees - $217,000. The USPE's did not make any
payments to TEI for insurance coverages during 1996
(b) Certain Business Relationships
None.
(c) Indebtedness of Management
None.
(d) Transactions With Promoters
None.
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.
(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. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. Incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which
became effective with the Securities and Exchange Commission on
December 23, 1991.
10.2 Note Agreement, dated as of August 1, 1993 regarding $30,000,000
6.7% senior notes due November 17, 2003.
10.3 Second Amended and restated Warehousing Credit Agreement, dated as
of May 31, 1996 with First Union National Bank of North Carolina.
10.4 Amendment No. 1 to Second Amended and restated Warehousing Credit
Agreement, dated as of November 5, 1996 with First Union National
Bank of North Carolina.
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 11, 1997 PLM EQUIPMENT GROWTH FUND VI
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
----------------------------
Douglas P. Goodrich
President and Director
By: /s/ David J. Davis
----------------------------
David J. Davis
Vice President and
Corporate Controller
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
*_______________________
J. Alec Merriam Director - FSI March 11, 1997
*_______________________
Robert L. Pagel Director - FSI March 11, 1997
* Stephen Peary, by signing his 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/ Stephen Peary
- --------------------
Stephen Peary
Attorney-in-Fact
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of Independent Auditors 29
Balance sheets as of December 31, 1996 and 1995 30
Statements of operations for the years ended December 31, 1996,
1995, and 1994 31
Statements of changes in partners' capital for the years
ended December 31, 1996, 1995, and 1994 32
Statements of cash flows for the years ended December 31, 1996
1995, and 1994 33
Notes to financial statements 33 - 43
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.
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund VI:
We have audited the financial statements of PLM Equipment Growth Fund VI 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 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 VI as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- -----------------------------
SAN FRANCISCO, CALIFORNIA
February 28, 1997
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(Dollars in thousands)
ASSETS
1996 1995
-------------------------------------
Equipment held for operating leases, at cost $ 109,551 $ 106,453
Less accumulated depreciation (46,544 ) (41,382 )
------------------------------------
63,007 65,071
Equipment held for sale -- 14,607
----------------------------------
Net equipment 63,007 79,678
Cash and cash equivalents 3,017 2,600
Restricted cash 1,285 1,298
Investments in unconsolidated special purpose entities 42,119 32,023
Accounts receivable, net of allowance for doubtful accounts of
$1,188 in 1996 and $245 in 1995 3,253 3,374
Net investment in direct finance lease 254 --
Prepaid expenses 241 227
Lease negotiation fees to affiliate, net of accumulated
amortization of $291 in 1996 and $950 in 1995 139 189
Debt issuance costs, net of accumulated amortization
of $45 in 1996 and $30 in 1995 107 122
Debt placement fees of affiliate, net of accumulated
amortization of $45 in 1996 and $30 in 1995 103 118
Equipment acquisition deposits -- 2,328
------------------------------------
Total assets $ 113,525 $ 121,957
====================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,048 $ 852
Due to affiliates 2,177 2,784
Lessee deposits and reserve for repairs 3,224 2,891
Short term note payable 1,286 --
Note payable 30,000 30,000
------------------------------------
Total liabilities 37,735 36,527
Partners' capital:
Limited Partners (8,286,966 Depositary Units in 1996
8,318,247 Depositary Units in 1995) 75,790 85,430
General Partner -- --
------------------------------------
Total partners' capital 75,790 85,430
------------------------------------
Total liabilities and partners' capital $ 113,525 $ 121,957
====================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31,
(In thousands of dollars, except per unit amounts)
1996 1995 1994
------------------------------------------------
Revenues:
Lease revenue $ 23,592 $ 32,878 $ 32,949
Interest and other income 630 439 223
Net gain on disposition of equipment 7,214 128 4,295
------------------------------------------------
Total revenues 31,436 33,445 37,467
Expenses:
Depreciation and amortization 12,394 21,993 25,838
Management fees to affiliate 1,363 1,775 1,760
Repairs and maintenance 3,085 3,108 2,719
Interest expense 2,339 2,044 2,016
Marine equipment operating expenses 3,775 3,245 2,963
Insurance expense to affiliate 186 603 531
Other insurance expense 694 547 510
General and administrative expenses
to affiliates 953 1,161 806
Other general and administrative expenses 766 684 780
Loss on revaluation of equipment -- -- 1,175
Bad debt expense 1,016 259 49
------------------------------------------------
Total expenses 26,571 35,419 39,147
------------------------------------------------
Equity in net income of unconsolidated
special purpose entities 3,426 -- --
------------------------------------------------
Net income (loss) $ 8,291 $ (1,974 ) $ (1,680 )
================================================
Partners' share of net income (loss):
Limited Partners $ 7,418 $ (2,850 ) $ (2,556 )
General Partner 873 876 876
================================================
Total $ 8,291 $ (1,974 ) $ (1,680 )
================================================
Net income (loss) per weighted average Depositary Unit:
(8,292,853 Units at December 31, 1996,
================================================
8,318,247 Units at December 31, 1995 and 1994) $ 0.89 $ (0.34 ) $ (0.31 )
================================================
Cash distributions $ 17,467 $ 17,518 $ 17,537
================================================
Cash distribution per weighted average
Depositary Unit $ 2.00 $ 2.00 $ 2.00
================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the years ended December 31, 1996, 1995, and 1994
(in thousands)
Limited General
Partners Partners Total
-----------------------------------------------------
Partners' capital at December 31, 1993 $ 124,139 $ -- $ 124,139
Net income (loss) (2,556 ) 876 (1,680 )
Cash distributions (16,661 ) (876 ) (17,537 )
----------------------------------------------------
Partners' capital at December 31, 1994 104,922 -- 104,922
Net income (loss) (2,850 ) 876 (1,974 )
Cash distributions (16,642 ) (876 ) (17,518 )
----------------------------------------------------
Partners' capital at December 31, 1995 85,430 -- 85,430
Net income 7,418 873 8,291
Repurchase of Depositary Units (464 ) -- (464 )
Cash distributions (16,594 ) (873 ) (17,467 )
----------------------------------------------------
Partners' capital at December 31, 1996 $ 75,790 $ -- $ 75,790
====================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31,
(In thousands)
1996 1995 1994
------------------------------------------
Operating activities:
Net income (loss) $ 8,291 $ (1,974 ) $ (1,680 )
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Net gain on disposition of equipment (7,214 ) (128 ) (4,295 )
Equity in net income from unconsolidated special purpose entities (3,426 ) -- --
Depreciation and amortization 12,394 21,993 25,838
Loss on revaluation of equipment -- -- 1,175
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 13 (551 ) 3
Decrease (increase) in accounts receivable 160 (711 ) (1,763 )
(Increase) decrease in prepaid expenses (14 ) 46 (28 )
Increase in accounts payable and accrued expenses 196 387 109
Increase (decrease) in due to affiliates 217 (59 ) (889 )
Increase in lessee deposits and reserve for repairs 448 914 1,012
-----------------------------------------
Net cash provided by operating activities 11,065 19,917 19,482
-----------------------------------------
Investing activities:
Payments for purchase of equipment (13,927 ) (4,688 ) (10,088 )
Investment in and equipment purchased and placed in
unconsolidated special purpose entities (26,287 ) -- --
Distributions from unconsolidated special purpose entities 7,941 -- --
Liquidation distribution from
unconsolidated special purpose entities 11,677 -- --
Payments of acquisition fees to affiliate (675 ) (194 ) (1,817 )
Payments for equipment acquisition deposits -- (1,880 ) --
Principal payments received on direct finance lease 41 -- --
Payments of lease negotiation fees to affiliate (152 ) (43 ) (404 )
Proceeds from disposition of equipment 27,379 1,038 13,368
-----------------------------------------
Net cash provided (used in) by investing activities 5,997 (5,767 ) 1,059
-----------------------------------------
Financing activities:
Increase in due to affiliates -- -- 15
Proceeds from short-term-note payable 12,506 -- --
Payments of short-term note payable (11,220 ) -- --
Cash distributions paid to General Partner (873 ) -- --
Cash distributions paid to Limited Partners (16,594 ) (17,518 ) (17,537 )
Repurchase of depositary units (464 ) -- --
Payment of debt placement fees to affiliates -- -- (148 )
-----------------------------------------
Net cash used in by financing activities (16,645 ) (17,518 ) (17,670 )
-----------------------------------------
Net increase (decrease) in cash and cash equivalents 417 (3,368 ) 2,871
Cash and cash equivalents at beginning of year (see note 2) 2,600 6,246 3,375
-----------------------------------------
Cash and cash equivalents at end of year $ 3,017 $ 2,878 $ 6,246
=========================================
Supplemental information:
Interest paid $ 2,513 $ 1,869 $ 2,010
=========================================
Supplemental disclosure of noncash investing and financing activities:
Sales proceeds included in accounts receivable $ 38 $ -- $ --
=========================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation
Organization
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991, to engage in the business of
owning and leasing primarily used transportation 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). The
Partnership offering became effective on December 23, 1991, and closed on
May 24, 1993.
The Partnership will terminate on December 31, 2011, unless terminated
earlier upon sale of all equipment or by certain other events. Beginning in
the Partnership's seventh year of operations, which commences on January 1,
2000, the General Partner will stop reinvesting excess cash if any, which,
less reasonable reserves, will be distributed to the Partners. Beginning in
the Partnership's ninth year of operations, the General Partner intends to
begin an orderly liquidation of the Partnership's assets. The General
Partner anticipates that the liquidation of the assets will be completed by
the end of the Partnership's tenth year of operations.
FSI manages the affairs of the Partnership. The net income (loss) and
distributions of the Partnership are generally allocated 95% to the Limited
Partners and 5% to the General Partner (see, Net Income (Loss) per
Depositary Unit, below). The General Partner is also entitled to receive a
subordinated incentive fee after the Limited Partners receive a minimum
return on, and a return of, their invested capital.
The Partnership Agreement includes provisions for a reinvestment plan
and a redemption obligation. The General Partner has adopted certain
provisions of the reinvestment plan whereby investors were allowed to
purchase newly-issued units using cash distributions made by the
Partnership during the original offering period. The General Partner has
determined that it will not expand the reinvestment plan to allow Partners
to repurchase outstanding units after the original offering period. Upon
the conclusion of the 30-month period immediately following the termination
of the offering, the Partnership may be obligated to redeem up to 2% of the
outstanding units each year. The purchase price to be offered by the
Partnership for outstanding units will be equal to 110% of the amount
Unitholders paid for the units, less the amount of cash distributions
Unitholders have received relating to such units. As of December 31, 1996,
the Partnership had repurchased 31,281 Depositary Units for $464,000 (none
at December 31, 1995).
At December 31, 1996, the Partnership agreed to repurchase
approximately 54,000 Units for an aggregate price of approximately $0.7
million. The General Partner anticipates that these Units will be
repurchased in the first and second quarters of 1997.
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 and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operations
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned
subsidiary of the General Partner. IMI receives a monthly management fee
from the Partnership for managing the equipment (see Note 3). FSI, in
conjunction with its subsidiaries, syndicates investor programs, sells
transportation equipment to investor programs and third parties, manages
pools of transportation equipment under agreements with investor programs,
and is a General Partner of other Limited Partnerships.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation (continued)
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is
recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. 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 Statement of
Financial Accounting Standards No. 13 (SFAS 13).
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is
computed on the 200% 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 types of equipment. The
depreciation method is changed to straight-line when annual depreciation
expense using the straight line method exceeds that calculated by the 200%
declining balance method. Acquisition fees and 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
and debt placement fees are amortized over the term of the loan for which
they were paid. Major expenditures which are expected to extend the useful
lives or reduce future operating expenses of equipment are capitalized.
Transportation Equipment
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" (SFAS 121). This standard is
effective for years beginning after December 15, 1995. The Partnership
adopted SFAS 121 during 1996, the effect of which was not material as the
method previously employed by the Partnership was consistent with SFAS 121.
In accordance with SFAS 121, the General Partner reviews the carrying value
of the Partnership's equipment at least annually in relation to expected
future market conditions for the purpose of assessing recoverability of the
recorded amounts. If projected future lease revenue plus residual values
are less than the carrying value of the equipment, a loss on revaluation is
recorded. There were no reductions to the carrying value of equipment
required during 1996.
Equipment held for operating leases is stated at cost. Equipment held
for sale is stated at the lower of the equipment's depreciated cost or fair
value less cost to sell and, is subject to a pending contract for sale.
Investments in Unconsolidated Special Purpose Entities
The Partnership has interests in unconsolidated special purpose entities
which own transportation equipment. These interests are accounted for using
the equity method.
The Partnership's investment in unconsolidated special purpose entities
includes acquisition and lease negotiation fees paid by the Partnership to
PLM Transportation Equipment Corporation (TEC). The Partnership's equity
interest in net income of unconsolidated special purpose entities (USPE) is
reflected net of management fees paid or payable to IMI and the
amortization of acquisition and lease negotiation fees paid to TEC.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are not
covered by the lessee, they are charged against operations as incurred.
Estimated costs associated with marine vessel
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Basis of Presentation (continued)
Repairs and Maintenance (continued)
drydockings are accrued and charged to income ratably over the period prior
to such dry docking. The reserve account is included in the balance sheet
as lessee deposits and reserve for repairs.
Net Income (Loss) and Distributions per Depositary Unit
The net income (loss) and distributions of the Partnership are generally
allocated 95% to the Limited Partners and 5% to the General Partner. Gross
income in each year is specially allocated to the General Partner to the
extent, if any, necessary to cause the capital account balance of the
General Partner to be zero as of the close of such year. The Limited
Partners' net income (loss) and distributions are allocated among the
Limited Partners based on the number of Depositary Units owned by each
Limited Partner and on the number of days of the year each Limited Partner
is in the Partnership. The Partnership has computed net income (loss) per
Depositary Unit beginning in the first full year after closing of the
offering.
Cash distributions are recorded when paid. Cash distributions to
investors in excess of net income are considered to represent a return of
capital. Cash distributions to the Limited Partners of $9,176,000 in 1996,
were deemed to be a return of capital. All cash distributions to the
Limited Partners in 1995 and 1994 were deemed to be a return of capital.
Cash distributions of $2,584,000, $2,598,000, and $2,605,000 related to
the fourth quarter of 1996, 1995, and 1994, respectively, were paid or are
payable during January and February 1997, 1996, or 1995, respectively,
depending or whether the Unitholder elected to receive a monthly or
quarterly distribution check.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily
convertible to known amounts of cash with original maturities of three
months or less as cash equivalents.
Restricted Cash
At December 31, 1996 and 1995, restricted cash represented lessee security
deposits held by the Partnership.
Reclassification
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
2. Investments in Unconsolidated Special Purpose Entities (USPE)
During the second half of 1995, the Partnership began to increase the level
of its participation in the ownership of large-ticket transportation assets
to be owned and operated jointly with affiliated programs.
This trend continued during 1996.
Prior to 1996, the Partnership accounted for operating activities
associated with joint ownership of transportation equipment as undivided
interests, including its proportionate share of each asset with similar
wholly-owned assets in its financial statements. Under generally accepted
accounting principles, the effects of such activities, if material, should
be reported using the equity method of accounting. Therefore, effective
January 1, 1996, the Partnership adopted the equity method to account for
its investment in such jointly-held assets.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. Investments in Unconsolidated Special Purpose Entities (continued)
The principle differences between the previous accounting method and
the equity method relate to the presentation of activities relating to
these assets in the statement of operations. Whereas, under the equity
method of accounting the Partnership's proportionate share is presented as
a single net amount, "equity in net income (loss) of unconsolidated special
purpose entities," under the previous method, the Partnership's statement
of operations reflected its proportionate share of each individual item of
revenue and expense. Accordingly, the effect of adopting the equity method
of accounting has no cumulative effect on previously reported partner's
capital or on the Partnership's net income (loss) for the period of
adoption. Because the effects on previously issued financial statements of
applying the equity method of accounting to investments in jointly-owned
assets are not considered to be material to such financial statements taken
as a whole, previously issued financial statements have not been restated.
However, certain items have been reclassified in the previously issued
balance sheet to conform to the current period presentation. The beginning
cash and cash equivalent for 1996 is different from the ending cash and
cash equivalent for 1995 on the statement of cash flows due to this
reclassification.
During 1996, the Partnership purchased an interest in a trust owning
five commercial aircraft for $11.2 million, an interest in an entity owning
two commercial aircraft on a direct finance lease for $4.6 million and an
interest in an entity owning a rig (the remaining interest is held by two
affiliated partnerships) for $5.9 million and incurred acquisition and
lease negotiation fees of $1.2 million to PLM Worldwide Management Services
(WMS), an affiliate of the General Partner. The Partnership also purchased
a 50% ownership interest in an entity owning a marine vessel (the remaining
interest is held by an affiliated partnership) for $4.0 million including
acquisition and lease negotiation fees of $0.2 million incurred to TEC for
this equipment. The Partnership made a deposit of $0.4 million toward this
purchase which is included in the balance sheet as investments in
unconsolidated special purpose entities at December 31, 1995.
The following summarizes the financial information for the special
purpose entities and the Partnership's interest therein as of and for the
year ended December 31, 1996 (in thousands):
Net
Total Interest of
USPE the
Partnership
------------------------------
Net Investments $ 97,980 $ 42,119
Revenues 24,157 8,728
Net Income 5,955 3,426
The net investments in USPE's at December 31, 1996 and 1995 include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands):
1996 1995
-----------------------------
64% interest in a trust owning a 767-200ER commercial aircraft $ 15,453 $ 18,674
14% interest in a trust that owns seven commercial aircraft (see note
below) -- 3,962
17% interest in a trust that owns six commercial aircraft (see note
below) 2,583 --
50% interest in a trust that owns four commercial aircraft (see note
below) 8,410 --
45% interest in an entity owning a mobile offshore drilling unit -- 6,633
50% interest in an entity owning a container feeder vessel 3,197 378
20% interest in an entity owning a handymax bulk carrier 1,851 2,376
30% interest in an entity owning a mobile offshore drilling unit 6,196 --
40% interest in two commercial aircraft on direct finance lease 4,429 --
-----------------------------
Net investments $ 42,119 $ 32,023
=============================
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
2. Investments in Unconsolidated Special Purpose Entities (continued)
The Partnership has interests in two USPE's that own multiple aircraft
(the Trusts). These Trusts contain provisions, under certain circumstances,
for allocating specific aircraft to the beneficial owners. During September
1996, PLM Equipment Growth Fund V, an affiliated partnership which also has
an interest in the Trust, renegotiated its senior loan agreement and was
required, for loan collateral purposes, to withdraw the aircraft designated
to it from the Trust. The result for the Partnership was to restate the
ownership in the trust from 14% to 17%. This change has no effect on the
income or loss recognized during 1996.
Also during 1996, the General Partner sold the Partnership's 45%
interest in the entity which owned the rig. The Partnership received a
liquidating distribution of $11.7 million for its net investment of $5.9
million.
3. General Partner and Transactions with Affiliates
An officer of PLM Securities Corp. (PLM Securities) contributed $100 of the
Partnership's initial capital. Under the equipment management agreement,
IMI, subject to certain reductions, receives a monthly management fee
attributable to either owned equipment or interests in equipment owned by
the USPE's equal to the lesser of (i) the fees which 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
which is subject to Operating Leases, (B) 2% of the Gross Lease Revenues,
as defined in the agreement which is subject to Full Payout Net Leases, and
(C) 7% of the Gross Lease Revenues attributable to Equipment for which IMI
provides both management and additional services relating to the continued
and active operation of program Equipment such as on-going marketing and
re-leasing of Equipment, hiring or arranging for the hiring of crew or
operating personnel for equipment and similar services. Partnership
management fees payable were $260,000 and $390,000 at December 31, 1996 and
1995, respectively. The Partnership's proportional share of USPE's
management fees of $27,000, and $0 were payable as of December 31, 1996 and
1995, respectively. The Partnership's proportional share of USPE's
management fees expense during 1996 was $305,000. An affiliate of the
General Partner was reimbursed for data processing and administrative
expenses directly attributable to the Partnership, in the amount of
$953,000, $1,161,000, and $806,000 in 1996, 1995, and 1994, respectively.
The Partnership's proportional share of USPE's data processing and
administrative expenses was $113,000 during 1996.
The Partnership did not incur any lease negotiation and equipment
acquisition fees during 1996. The Partnership incurred lease negotiation
and equipment acquisition fees of $1,268,000 in 1995, and $541,000 in 1994,
while the Partnership's proportional share of USPE's incurred lease
negotiation and equipment acquisition fees of $1,195,000 to TEC and WMS.
PLM Securities and TEC are wholly-owned subsidiaries of the General
Partner. WMS is a wholly owned subsidiary of PLM International. The
Partnership paid $186,000 in 1996, $603,000 in 1995, and $531,000 in 1994,
to Transportation Equipment Indemnity Company, Ltd. (TEI) which provides
marine insurance coverage for Partnership equipment and other insurance
brokerage services TEI is an affiliate of the General Partner. 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
partnerships 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.
Debt placement fees are charged by the General Partner in an amount
equal to 1% of the Partnership's long-term borrowings reduced by any
amounts paid to third parties in relation to the debt placement. During
1994, debt placement fees of $148,000 were paid or payable to the General
Partner.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
3. General Partner and Transactions with Affiliates (continued)
As of December 31, 1996, approximately 70% of the Partnership's trailer
equipment is in rental facilities operated by an affiliate of the General
Partner. Revenues collected under short-term rental agreements with the
rental yard's customers are credited to the owners of the related equipment
as received. Direct expense associated with the equipment are charged
directly to the Partnership. An allocation of other direct expenses of the
rental yard operations are billed to the Partnership monthly.
The Partnership owns certain equipment in conjunction with affiliated
partnerships. At December 31, 1996, this equipment included an interest in
two entities owning marine vessels, an interest in a trust owning one
commercial aircraft, an interest in an entity owning a mobile offshore
drilling unit(Rig), an interest in two trusts comprised of ten aircraft,
and an interest in a trust comprised of two commercial aircraft on a direct
finance lease. At December 31, 1995, this equipment included an interest in
two entities owning marine vessels, an interest in a trust owning one
commercial aircraft, an interest in a trust comprised of seven aircraft,
and an interest in an entity owning one rig.
The balance due to affiliates at December 31, 1996, includes $0.3
million due to FSI and its affiliates and $1.9 million due to affiliated
investments in USPE's. The balance due to affiliates at December 31, 1995,
includes $1.0 million due to FSI and its affiliates and $1.8 million due to
affiliated investments in USPE's.
4. Equipment
The components of equipment at December 31, 1996 and 1995, are as follows
(in thousands):
Equipment held for operating leases 1996 1995
----------------------------------------------------- --------------------------------
Rail equipment $ 15,643 $ 15,656
Marine containers 16,401 16,984
Marine vessels 41,263 25,228
Trailers and tractors 17,985 18,675
Aircraft engines and components 6,340 17,992
Aircraft 11,919 11,918
----------------------------------
109,551 106,453
Less accumulated depreciation (46,544 ) (41,382 )
----------------------------------
63,007 65,071
Equipment held for sale -- 14,607
----------------------------------
Net equipment $ 63,007 $ 79,678
==================================
Revenues are earned by placing the equipment under operating leases
which are billed monthly or quarterly. As of December 31, 1996, all
equipment in the Partnership's portfolio was on lease or operating in
PLM-affiliated short-term trailer rental facilities except for six railcars
with a net book value of $0.2 million. As of December 31, 1995, all
equipment in the Partnership's portfolio was on lease or operating in
PLM-affiliated short-term trailer rental facilities except for two aircraft
engines. The net book value of the equipment off-lease at December 1995,
was $2.5 million . A portion of the Partnership's marine containers and
marine vessels 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.
At December 31, 1995, one marine vessel, which was on lease and subject
to a pending sale for $20.8 million with a net book value of $14.6 million,
was held for sale and subsequently sold during the first quarter of 1996.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
4. Equipment (continued)
During 1996, the Partnership sold or disposed of 249 marine containers,
78 trailers, 4 aircraft engines and 2 railcars with an aggregate net book
value of $6.0 million were disposed of or sold, and the Partnership
received proceeds of $7.0 million. The Partnership also sold one marine
vessel which was held for sale as of December 31, 1995, with a net book
value of $14.6 million at the date of sale for proceeds of $20.8 million.
Included in the gain of $6.3 million from the sale of the marine vessel, is
the unused portion of accrued drydocking of $0.1 million.
During 1995, the Partnership sold or disposed of 298 marine containers
with a net book value of $465,000, one railcar with a net book value of
$17,000, and 50 trailers with a net book value of $428,000 for aggregate
proceeds of $1.0 million.
During 1994, the Partnership reduced the carrying value of three
aircraft engines by a total of $1,175,000 to an estimated fair value less
cost to sell of $4,885,000.
Periodically, PLM International will purchase groups of assets whose
ownership may be allocated among affiliated partnerships and PLM
International. Generally in these cases, only assets that are on lease will
be purchased by the affiliated partnerships. PLM International will
generally assume the ownership and remarketing risks associated with
off-lease equipment. Allocation of the purchase price will be determined by
a combination of third party industry sources, and recent transactions or
published fair market value references. During 1996, PLM International
realized $0.7 million of gains on the sale of 69 off-lease railcars
purchased by PLM International as part of a group of assets in 1994 which
had been allocated to the Partnership, PLM Equipment Growth Funds IV, VII,
Professional Lease Management Income Fund I, L.L.C. (Fund I) and PLM
International. At December 31, 1995, PLM International included these
assets as held for sale. During 1995, PLM International realized $1.3
million in gains on sales of railcars and aircraft purchased by PLM
International in 1994 and 1995 as part of a group of assets which had been
allocated to the Partnership, PLM Equipment Growth Funds IV, V, VII, Fund
I, and PLM International.
All leases are being accounted for as operating leases except one
finance lease. Future minimum rentals receivable under noncancelable
operating leases at December 31, 1996, for the owned and partially owned
equipment during each of the next five years are approximately - 1997;
$16.5 million - 1998; $13.2 million - 1999; $5.8 million - 2000; $4.8
million, 2001 and $4.7 million - thereafter. Contingent rentals based upon
utilization were $7.0 million in 1996, $8.6 million in 1995, and $2.0
million in 1994.
The Partnership owns certain equipment which 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 units, and trailers to lessees domiciled in four
geographic regions: North America, South America, Europe, and Asia. Marine
vessels and marine containers are leased to multiple lessees in different
regions who operate the marine vessels and marine containers worldwide. The
tables below sets forth geographic information about the Partnership's
owned equipment and investments in USPE's grouped by domicile of the lessee
as of and for the years ended December 31, 1996, 1995, and 1994 (in
thousands):
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
4. Equipment (continued)
Investments
in USPE Owned Equipment
--------------- --------------------------------------------
Region 1996 1996 1995 1994
---------------------------- ------------ ------------------------------------------
Lease revenues:
United States $ -- $ 7,522 $ 8,978 $ 8,595
Canada 3,179 748 443 64
South America 3,149 -- 3,148 3,148
Asia 693 3,207 5,028 6,291
Europe -- 1,009 1,009 1,054
Rest of the world 1,707 11,106 14,272 13,797
============ ============================================
Total lease revenues $ 8,728 $ 23,592 $ 32,878 $ 32,949
============ ============================================
The following table sets forth identifiable net income (loss)
information by region for the owned equipment and investments in USPE's for
the years ended December 31, 1996, 1995, and 1994 (in thousands):
Investments
in USPE Owned Equipment
--------------- ---------------------------------------------
Region 1996 1996 1995 1994
----------------------------------- ----------- ----------------------------------------
Net income (loss):
United States $ -- $ 1,129 $ 1,807 $ 5,577
Canada (1,576 ) 195 (210 ) 19
South America (274 ) -- (567 ) (1,659 )
Mexico (3 ) -- -- --
Asia 5,723 887 (96 ) (722 )
Europe -- 294 245 42
Rest of the world (444 ) 5,401 (112 ) (2,347 )
----------- -----------------------------------------
Total identifiable income 3,426 7,906 1,067 910
Administrative and other -- (3,042 ) (3,041 ) (2,590 )
=========== =========================================
Total net income (loss): $ 3,426 $ 4,864 $ (1,974 ) $ (1,680 )
=========== =========================================
The net book value of these assets at December 31, 1996 and 1995, are
as follows (in thousands):
Investments Owned Equipment
in USPE
----------------------------------------------------------------------------
Region 1996 1995 1996 1995 1994
---------------------------- --------------------------- -------------------------------------------
Net book value:
United States $ -- $ -- $ 17,964 $ 22,196 $ 27,357
Canada 10,993 3,962 2,059 1,789 1,231
South America 15,453 18,674 -- -- 22,460
Mexico 4,429 -- -- -- --
Asia -- 6,633 6,663 13,760 24,425
Europe -- -- 3,141 3,769 4,522
Rest of the world 11,244 2,754 33,180 23,557 48,829
--------------------------- -------------------------------------------
42,119 32,023 63,007 65,071 128,824
Equipment held for sale -- -- -- 14,607 --
=========================== ===========================================
$ 42,119 $ 32,023 $ 63,007 $ 79,678 $ 128,824
=========================== ===========================================
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
4. Equipment (continued)
The lessees comprising approximately 10% or more of the total revenues
in 1995 were Star Shipping, AS (14% in 1995). There were no lessees during
1996 and 1994 whose rent approximated 10% or more of total revenues.
As of December 31, 1995, the Partnership had entered into a commitment
to purchase two marine vessels for $15.0 million. The Partnership made a
deposit of $1.5 million toward this purchase and was obligated to pay
acquisition and lease negotiation fees of $0.8 million to TEC for this
equipment. The total amount of the deposit and fees of $2.3 million is
included in this balance sheet as equipment acquisition deposits.
The Partnership purchased this equipment during the first quarter of 1996.
5. Net Investment in a Direct Finance Lease
During 1996, the Partnership entered into a direct finance lease related to
the sale of 48 trailers. Gross lease payments of $0.3 million are to be
received over a three-year period, which commenced in May of 1996.
The components of the net investment in the direct finance lease at
December 31, 1996 are as follows:
1996
--------------
Total minimum lease payments $ 286,000
Residual value --
Less: Unearned income (32,000 )
==============
$ 254,000
==============
Future minimum rentals receivable under the direct finance lease at
December 31, 1996, for the next three years are approximately $123,000 -
1997; $123,000 - 1998; and $40,000 - 1999.
6. Notes Payable
In August 1993, the Partnership entered into an agreement to issue a
long-term note totaling $30 million to an institutional investor. The note
bears interest at a fixed rate of 6.7% per annum and has a final maturity
in 2003. Interest on the note is payable monthly. The note will be repaid
in three principal payments of $10 million on November 17, 2001, 2002, and
2003. The agreement requires the Partnership to maintain certain financial
covenants related to fixed-charge coverage. Proceeds from the sale of the
note have been used to fund additional equipment acquisitions and to repay
any obligations of the Partnership under the Credit Facility.
The General Partner estimates, based on recent transactions, that the
fair value of the $30 million fixed-rate note is $28.9 million.
The General Partner has entered into a joint $50 million credit
facility (the "Committed Bridge Facility") on behalf of the Partnership,
PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, PLM Equipment
Growth & Income Fund VII and Professional Lease Management Income Fund I
("Fund I"), all affiliated investment programs, TEC Acquisub, Inc.
("TECAI"), an indirect wholly-owned subsidiary of the General Partner, and
American Finance Group, Inc. (AFG), a subsidiary of PLM International Inc.,
which may be used to provide interim financing of up to (i) 70% of the
aggregate book value or 50% of the aggregate net fair market value of
eligible equipment owned by the Partnership or Fund I, plus (ii) 50% of
unrestricted cash held by the borrower. The Committed Bridge Facility
became available on December 20, 1993, and was amended and restated on
October 31, 1996, to expire on October 31, 1997 and increased the available
borrowings for AFG to $50 million. The Partnership, TECAI, Fund I and the
other partnerships collectively may borrow up
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
6. Notes Payable (continued)
to $35 million of the Committed Bridge Facility. The Committed Bridge
Facility also provides for a $5 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by Fund I, TECAI, AFG or PLM
Equipment Growth Funds IV through VII reduce the amount available to each
other under the Committed Bridge Facility. Individual borrowings may be
outstanding for no more than 179 days, with all advances due no later than
October 31, 1997. The Committed Bridge Facility prohibits the Partnership
from incurring any additional indebtedness. Interest accrues at either the
prime rate or adjusted LIBOR plus 2.5% at the borrowers option and is set
at the time of an advance of funds. Borrowings by the Partnership are
guaranteed by the General Partner. As of December 31, 1996, the Partnership
had borrowings of $1.3 million, PLM Equipment Growth Fund V had $2.5
million, PLM Equipment Growth and Income Fund VII had $2.0 million, AFG had
$26.9 million, and TECAI had $4.1 million in outstanding borrowings.
Neither PLM Equipment Growth Fund IV nor Fund 5I had any outstanding
borrowings.
7. 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, 1996, there were temporary differences of
approximately $10.5 million between the financial statement carrying values
of certain assets and liabilities and the income tax basis of such assets
and liabilities, primarily due to differences in depreciation methods and
equipment reserves.
8. Subsequent Event
PLM International (PLMI) along with FSI, IMI, TEC and PLM Securities, and
collectively with PLMI, FSI, IMI, TEC and PLM Securities, (the "PLM
Entities"), were named as defendants in a class action lawsuit filed in the
Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251. The
PLM Entities received service of the complaint on February 10, 1997, and
pursuant to an extension of time granted by plaintiffs' attorneys, have
sixty days to respond to the complaint. PLM International is currently
reviewing the substance of the allegations with its counsel, and believes
the allegations to be completely without merit and intends to defend this
matter vigorously.
The plaintiffs, who filed the complaint on their own and on behalf of
all class members similarly situated, are six individuals who allegedly
invested in certain California limited partnerships sponsored by PLM
Securities, for which FSI acts as the general partner, including the
Partnership, PLM Equipment Growth Fund IV, PLM Equipment Growth Fund V, and
PLM Equipment Growth and Income Fund VII (the "PLM Growth Funds"). The
complaint purports eight causes of action against all defendants as
follows: fraud and deceit, suppression, negligent misrepresentation and
suppression, intentional breach of fiduciary duty, negligent breach of
fiduciary duty, unjust enrichment, conversion, and conspiracy.
Additionally, plaintiffs allege a cause of action for breach of third party
beneficiary contracts against and in violation of the National Association
of Securities Dealers (NASD) rules of fair practice by PLM Securities
alone.
Plaintiffs allege that each defendant owed plaintiffs and the class
certain duties due to their status as fiduciaries, financial advisors,
agents, general partner, and control persons. Based on these duties,
plaintiffs assert liability against the PLM Entities for improper sales and
marketing practices, mismanagement of the PLM Growth Funds, and concealing
such mismanagement from investors in the PLM Growth Funds. Plaintiffs seek
unspecified compensatory and recissory damages, as well as punitive
damages, and have offered to tender their limited partnership units back to
the defendants.
PLM EQUIPMENT GROWTH FUND VI
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10. 1 Management Agreement between Partnership and
PLM Investment Management, Inc. *
10. 2 Note Agreement, dated as of August 1, 1993 regarding
$30,000,000 6.7% senior notes due November 17, 2003. *
10.3 Second Amended and restated Warehousing Credit Agreement,
dated as of May 31, 1996 with First Union National Bank
of North Carolina *
10.4 Amendment No. 1 to Second Amended and restated Warehousing
Credit Agreement, dated as of November 5, 1996 with First
Union National Bank of North Carolina *
24. Powers of Attorney.
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* Incorporated by reference. See page 26 of this report.