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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, 1997.
[ ] 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: 127.
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLM),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (the units) in PLM Equipment Growth Fund VI, a California limited
partnership (the Partnership, the registrant, or EGF VI). The Partnership's
offering became effective on December 23, 1991. FSI, as General Partner, owns a
5% interest in the Partnership. The Partnership engages in the business of
owning and leasing transportation and related equipment to various commodity
shippers and transportation companies.
The Partnership's primary objectives are:
(1) 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. All transactions over $1.0 million must be
approved by PLM International's Credit Review Committee, which is made up of
members of PLM International's senior management. In determining a lessee's
creditworthiness, the committee will consider, among other factors, the lessee's
financial statements, internal and external credit ratings, and letters of
credit.
(2) 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;
(3) 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
(4) 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 Partnership's 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, 1997, there were 8,247,264 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, 1997 (in thousands of dollars):
TABLE 1
Units Type Manufacturer Cost
- ------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
2 Container cargo carrier vessels O. C. Staalskibsvaerft A/F $ 16,035
2 737-200 Stage II commercial aircraft Boeing 11,919
265 Over-the-road refrigerated trailers Various 7,352
444 Over-the-road dry trailers Various 3,547
345 Dry piggyback trailers Stoughton 5,304
141 Covered hopper railcars Various 3,130
27 Nonpressurized tank railcars Various 554
423 Pressurized tank railcars Various 11,973
343 Refrigerated marine containers Various 5,432
2,176 Various marine containers Various 6,351
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Total equipment held for operating leases $ 71,597
==============
Investment in equipment owned by unconsolidated special-purpose entities:
0.64 Trust comprised of a 767-200ER
Stage III commercial aircraft Boeing $ 27,329
0.50 Trust comprised of four 737-200
Stage II commercial aircraft Boeing 11,724
0.53 Product tanker Boelwerf-Temse 10,476
0.30 Mobile offshore drilling unit AT & CH de France 6,165
0.40 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,505
0.50 Container cargo feeder vessels O. C. Staalskibsvaerft A/F 4,004
0.20 Handymax bulk-carrier marine vessel Tsuneishi Shipbuilding Co., Ltd. 3,553
-------------
Total investments $ 67,756
==============
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 an affiliated program.
Jointly owned: EGF VI and two affiliated programs.
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
sublessees after deducting certain direct operating expenses of the pooled
equipment.
As of December 31, 1997, approximately 66% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing. 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 indirect expenses of the rental yard
operations is charged 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. The Partnership's management agreement with IMI are to
co-terminate with the dissolution of the Partnership, unless the partners vote
to terminate the agreement prior to that date or at the discretion of the
General Partner. 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 2).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein 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 a lessee's
balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment. Full payout leases are leases that have
terms equal to the expected economic life of the equipment and 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, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership competes with many equipment lessors, including ACF Industries,
Inc. (Shippers Car Line Division), GATX, General Electric Railcar Services
Corporation, General Electric Capital Aviation Services Corporation, and other
programs that lease the same types of equipment.
(D) Demand
The Partnership has investments in transportation-related capital equipment and
relocatable environments. Types of transportation equipment owned by the
Partnership include aircraft, marine vessels, railcars, and trailers.
Relocatable environments are functionally self-contained transportable
equipment, and include mobile offshore drilling units and marine containers.
Except for those aircraft leased to passenger air carriers, the Partnership's
equipment is used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Aircraft
(a) Commercial Aircraft
The international commercial aircraft market experienced another good year of
growth and expansion in 1997, with a third consecutive year of profits by the
world's airlines. Airline managements have continued to emphasize cost
reductions and a moderate increase in capacity. However, even the limited volume
of new aircraft deliveries has caused the market to change from being in
equilibrium at the end of 1996 to having excess supply. This market imbalance is
expected to continue, with the number of surplus aircraft increasing from
approximately 350 aircraft at the end of 1996 to an estimated 600 aircraft by
the end of the decade.
The changes taking place in the commercial aircraft market also reflect the
impact of noise legislation enacted in the United States and Europe. Between
1997 and the end of 2002, approximately 1,400 Stage II aircraft (aircraft that
have been shown to comply with Stage II noise levels prescribed in Federal
Aviation Regulation section C36.5) are forecast to be retired, primarily due to
noncompliance with Stage III noise requirements (Stage III aircraft are aircraft
that have been shown to comply with Stage III noise levels prescribed in Federal
Aviation Regulation section C36.5). This represents about 41% of the Stage II
aircraft now in commercial service worldwide. By 2002, about 2,000 (59%) of the
current fleet of Stage II aircraft will remain in operational service outside of
Stage III-legislated regions or as aircraft that have had hushkits installed so
that engine noise levels meet the quieter Stage III requirements. The cost to
install a hushkit is approximately $1.5 million, depending on the type of
aircraft. All aircraft currently manufactured meet Stage III requirements.
The Partnership's fleet provides a balance of Stage II narrowbody, Stage III
narrowbody, and Stage III widebody aircraft in the portfolio. This strategy is
intended to optimize individual aircraft and the corresponding lease rentals
with projected demand. The Stage II aircraft either are positioned with air
carriers outside Stage III-legislated areas, are scheduled for Stage III hushkit
installation in 1998-99, or are anticipated to be sold or leased outside Stage
III areas before the year 2000.
Specifically, the Partnership has scheduled some Stage II narrowbody aircraft
for sale during 1998. It is anticipated that a Stage III widebody aircraft now
on lease will also be sold before the end of 1998. The Partnership has entered
into agreements to install hushkits on selected late-model Stage II Boeing
737-200 advanced aircraft owned or partially owned by the Partnership over the
next two years. These modifications are expected to enhance the current and
residual value of the aircraft, while allowing them to continue operating in the
Stage III-legislated areas of North America.
(2) Marine Vessels
The Partnership owns or has investments with other affiliated programs in small
to medium-sized dry bulk vessels, product tankers, and container feeder vessels
which are traded in worldwide markets and carry commodity cargoes. The markets
for dry bulk vessels and product tankers took different paths in 1997. Dry bulk
and container carrier markets experienced flat freight rates, with supply
increases outrunning demand growth. In the product tanker trades, rates
strengthened through most of the year and supply and demand were well balanced.
Demand for commodity shipping closely tracks worldwide economic growth patterns;
however, economic development alters trade patterns from time to time, causing
changes in volume on trade routes. The General Partner operates the
Partnership's marine vessels under spot charters and period charters. It is
believed that this operating approach provides the flexibility to adapt to
changing demand patterns.
Freight rates for dry bulk vessels in 1997 maintained the levels experienced in
the fourth quarter of 1996. Freight rates had declined significantly in 1996
until a moderate recovery occurred late in the year due to an increase in grain
trade. In 1997, rates moved little throughout the year. The size of the overall
dry bulk carrier fleet increased by 3%, as measured by the number of vessels,
and by 5%, as measured by deadweight tonnage. Scrapping of ships was not a
significant factor in 1997: 126 dry bulk ships were scrapped while 247 were
delivered. Total dry trade (as measured in deadweight tons) grew by 3% in 1997,
versus 1% in 1996. This balance of supply and demand made market conditions
soft, providing little foundation for increasing freight rates.
Growth in 1998 is expected to be approximately 2%, with most commodity trading
flat. The majority of growth is forecast to come from grain (2%) and thermal
coal (6%). The primary variable in forecasts is Asian growth; if there is some
recovery from the economic shake-up of the second half of 1997, then there will
be prospects for improvement in 1998. Delivery of ships in 1998 is expected to
be about the same as in 1997; however, an increase in scrapping is anticipated
to strengthen the market.
Current rates do not justify any new construction of dry bulk carriers and there
should be a significant drop in orders over the next two years. If growth in
demand matches historic averages of around 3%, then the current excess supply
should be absorbed by the end of 1999, leading to the possible strengthening of
freight rates.
(3) Marine Containers
The marine container market began 1997 with a continuation of the weakness in
industrywide container utilization and rate pressures that had been experienced
in 1996. A reversal of this trend began in early spring and continued during the
remainder of 1997, as utilization returned to the 80% range. Per diem rates did
not strengthen, however, since customers resisted attempts to raise daily rental
rates.
Industrywide consolidation continued in 1997. Late in the year, Genstar, one of
the world's largest container leasing companies, announced that it had reached
an agreement with SeaContainers, another large container leasing company,
whereby SeaContainers will take over the management of Genstar's fleet. Long
term, such industrywide consolidation should bring more rationalization to the
container leasing market and result in both higher fleetwide utilization and per
diem rates.
(4) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars are used primarily in the petrochemical and fertilizer
industries to transport liquefied petroleum gas and anhydrous ammonia. The
demand for natural gas is anticipated to grow through 1999, as the developing
world, former Communist countries, and the industrialized world all increase
their energy consumption. World demand for fertilizer is expected to increase,
based on an awareness of the necessity of fertilizing crops and improving diets,
the shortage of farm land, and population growth in developing nations. Based on
ongoing renewals with current lessees, demand for these cars continues to be
strong and is projected to remain so during 1998.
The utilization rate of the Partnership's fleet of pressurized tank cars was
over 98% during 1997.
(b) General-Purpose (Nonpressurized) Tank Cars
General-purpose or nonpressurized tank cars are used to transport a wide variety
of bulk liquid commodities, such as petroleum fuels, lubricating oils, vegetable
oils, molten sulfur, corn syrup, asphalt, and specialty chemicals. Chemical
carloadings for the first 45 weeks of 1997 were up 4%, compared to the same
period in 1996. The demand for petroleum is anticipated to grow, as the
developing world, former Communist countries, and the industrialized world
increase energy consumption.
The demand for general-purpose tank cars in the Partnership's fleet has remained
healthy over the last three years, with utilization remaining above 98%.
(c) Covered Hopper (Grain) Cars
Industrywide, the size of the covered hopper car fleet has increased only 9%
over the last 10 years, from a total of 299,172 cars in 1985 to 325,882 cars in
1995. Covered hopper cars accounted for 30% of all new railcar deliveries in
1995 and 50% of new deliveries in 1996. During 1997, there was some downward
pressure on rental rates, as demand for covered hopper cars softened somewhat.
Grain car loadings decreased 2% compared to the same period in 1996.
(5) Trailers
(a) Intermodal (Piggyback) Trailers
In all intermodal equipment areas, 1997 was a remarkably strong year. The United
States inventory of intermodal equipment totaled 163,900 units in 1997, divided
between about 55% intermodal trailers and 45% domestic containers. Trailer
loadings increased approximately 4% in 1997 due to a robust economy and a
continuing shortage of drivers in over-the-road markets. The expectation is for
flat to slightly declining utilization of intermodal trailer fleets in the near
future.
(b) Over-the-Road Dry Trailers
The United States over-the-road dry trailer market began to recover in mid-1997
as an oversupply of equipment from 1996 subsided. The strong domestic economy, a
continuing focus on integrated logistics planning by American companies, and
numerous service problems on Class I railroads contributed to the recovery in
the dry van market. In addition, federal regulations requiring antilock brake
systems on all new trailers, effective in March 1998, have helped stimulate new
trailer production, and the market is anticipated to remain strong in the near
future. There continues to be much consolidation of the trailer leasing industry
in North America, as the two largest lessors of dry vans now control over 60% of
the market. The reduced level of competition, coupled with anticipated continued
strong utilization, may lead to an increase in rates.
(c) Over-the-Road Refrigerated Trailers
The temperature-controlled over-the-road trailer market recovered in 1997;
freight levels improved and equipment oversupply was reduced as industry players
actively retired older trailers and consolidated fleets. Most refrigerated
carriers posted revenue growth of between 2% and 5% in 1997, and accordingly are
planning fleet upgrades. In addition, with refrigeration and trailer
technologies changing rapidly and industry regulations becoming tighter,
trucking companies are managing their refrigerated fleets more effectively.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies will utilize short-term trailer leases more
frequently to supplement their fleets. Such a trend should benefit the
Partnership, which generally leases its equipment of this type on a short-term
basis from rental yards owned and operated by PLM International subsidiaries.
(6) Mobile Offshore Drilling Units (Rigs)
Worldwide demand in all sectors of the mobile offshore drilling unit industry in
1997 was a continuation of the increases experienced in 1996. This increase in
demand was spread over all the geographic regions of offshore drilling and
affected both jackup and floating rigs. Potential demand during 1997 was
difficult to estimate because of the shortage of rigs.
The tightness in the market caused significant increases in contract day rates
throughout the year. Day rates at the end of 1997 approached levels justifying
new rig construction. While continuing market improvement can be attributed to a
number of factors, the primary reason is worldwide growth 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 trend of contractor consolidation continued in 1997; three major mergers or
acquisitions initiated late in 1997 are expected to be consummated by the end of
1998. For 1998, utilization and demand are expected to remain at the levels
reached in 1997. Industry participants project that demand for both floating and
jackup rigs will continue at current high levels through 1998, with additional
rig supply absorbed by demand increases. Day rates are expected to continue to
increase; however, the rate of increase will slow, since the current high levels
have induced long-term contracting with few opportunities for increases.
The floating rig sector has experienced a strengthening in market conditions.
Technological advances and more efficient operations have improved the economics
of drilling and production in the deep-water operations for which floating rigs
are utilized. Overall, demand for floating rigs increased from 128 rig-years in
1996 to 131 rig-years in 1997, growth being constrained by a limited supply of
rigs. The increase in demand and utilization prompted significant increases in
contract day rates and floating rig market values. Twenty-five floating rigs
were ordered in 1996 and several conversion and upgrade projects were
contracted, none of which will be delivered until late 1998.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, 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 that 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 and mobile offshore drilling units that create
environmental pollution). This regulation has resulted in higher oil pollution
liability insurance. The lessee typically reimburses the Partnership for these
additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990
(which limits or eliminates the operation of commercial aircraft in the U.S.
that do not meet certain noise, aging, and corrosion criteria). In addition,
under U.S. Federal Aviation Regulations, after December 31, 1999, no person
shall operate an aircraft to or from any airport in the contiguous United States
unless that airplane has been shown to comply with Stage III noise levels. The
Partnership has Stage II aircraft that do not meet Stage III requirements;
(3)the Montreal Protocol on Substances that Deplete the Ozone Layer and the
U.S. Clean Air Act Amendments of 1990 (which call for the control and eventual
replacement of substances that have been found to cause or contribute
significantly to harmful effects on the stratospheric ozone layer and which are
used extensively as refrigerants in refrigerated marine cargo containers and
over-the-road refrigerated trailers);
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
(which regulate the classification and packaging requirements of hazardous
materials and which apply particularly to the Partnership's tank cars).
As of December 31, 1997, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased for leasing purposes. As of December 31, 1997, 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 and proceeds from the debt financing
of $30.0 million.
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 along with FSI, TEC, IMI and PLM Securities (the PLM
Entities), are named as defendants in a lawsuit filed as a class action on
January 22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case
No. CV-97-251 (the Koch action). 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
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 Growth Funds). The complaint asserts 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 against PLM
Securities for breach of third party beneficiary contracts in violation of the
National Association of Securities Dealers rules of fair practice. 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
defendants for improper sales and marketing practices, mismanagement of the
Growth Funds, and concealing such mismanagement from investors in the 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.
On March 6, 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. On September 24, 1997, the district court denied plaintiffs'
motion and dismissed without prejudice the individual claims of the California
class representative, reasoning that he had been fraudulently joined as a
plaintiff. On October 3, 1997, plaintiffs filed a motion requesting that the
district court reconsider its ruling or, in the alternative, that the court
modify its order dismissing the California plaintiff's claims so that it is a
final appealable order, as well as certify for an immediate appeal to the
Eleventh Circuit Court of Appeals that part of its order denying plaintiffs'
motion to remand. On October 7, 1997, the district court denied each of these
motions. In responses to such denial, plaintiffs filed a petition for writ of
mandamus with the Eleventh Circuit, which was denied on November 18, 1997. On
November 24, 1997, plaintiffs filed with the Eleventh Circuit a petition for
rehearing and en banc consideration of the court's order denying the petition
for a writ of mandamus, which petition was supplemented by plaintiffs on January
27, 1998.
On October 10, 1997, defendants filed a motion to compel arbitration of
plaintiffs' claims, based on an agreement to arbitrate contained in the limited
partnership agreement of each Growth Fund, and to stay further proceedings
pending the outcome of such arbitration. Notwithstanding plaintiffs' opposition,
the district court granted the motion on December 8, 1997. On December 15, 1997,
plaintiffs filed with the Eleventh Circuit a notice of appeal from the district
court's order granting defendants'
motion to compel arbitration and to stay the proceedings, and of the district
court's September 24, 1997 order denying plaintiffs' motion to remand and
dismissing the claims of the California plaintiff. Plaintiffs filed an amended
notice of appeal on December 31, 1997. The PLM Entities believe that the
allegations of the Koch action are completely without merit and intend to
continue to defend this matter vigorously.
On June 5, 1997, the PLM Entities were named as defendants in another purported
class action filed in the San Francisco Superior Court, San Francisco,
California, Case No. 987062 (the Romei action). The plaintiff is an investor in
PLM Equipment Growth Fund V, and filed the complaint on her own behalf and on
behalf of all class members similarly situated who invested in certain
California limited partnerships for which FSI acts as the general partner,
including the Growth Funds. The complaint alleges the same facts and the same
nine causes of action as in the Koch action, plus five additional causes of
action against all of the defendants, as follows: violations of California
Business and Professions Code Sections 17200, et seq. for alleged unfair and
deceptive practices, constructive fraud, unjust enrichment, violations of
California Corporations Code Section 1507, and a claim for treble damages under
California Civil Code Section 3345.
On July 31, 1997, the PLM Entities filed with the district court for the
Northern District of California (Case No. C-97-2847 WHO) a petition under the
Federal Arbitration Act seeking to compel arbitration of plaintiff's claims and
for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. By memorandum and order dated October 23, 1997, the district
court denied the PLM Entities' petition to compel arbitration. On November 5,
1997, the PLM Entities filed an expedited motion for leave to file a motion for
reconsideration of this order, which motion was granted on November 14, 1997.
The parties have agreed to have oral argument on the reconsideration motion set
for April 23, 1998. The state court action has been stayed pending the district
court's decision on this motion.
In connection with her opposition to the Company's petition to compel
arbitration, on August 22, 1997, the plaintiff filed an amended complaint with
the state court alleging two new causes of action for violations of the
California Securities Law of 1968 (California Corporations Code Sections 25400
and 25500) and for violation of California Civil Code Section 1709 and 1710.
Plaintiff has also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required. The PLM Entities believe that the allegations of the amended complaint
in the Romei action are completely without merit and intend to defend this
matter vigorously.
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, 1997.
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 at the close of such year. The
remaining interests in the profits and losses and distributions of the
Partnership are owned as of December 31, 1997, by the 8,053 holders of units in
the Partnership.
There are several secondary markets in which Limited Partnership Units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are generally viewed as being inefficient vehicles for
the sale of limited partnership units. Presently, there is no public market for
the units and none is likely to develop. To prevent the units from being
considered publicly traded and thereby to avoid taxation of the Partnership as
an association treated as a corporation under the Internal Revenue Code, the
units will not be transferable without the consent of the General Partner, which
may be withheld in its absolute discretion. The General Partner intends to
monitor transfers of units in an effort to ensure that they do not exceed the
percentage or number permitted by certain safe harbors promulgated by the
Internal Revenue Service. A transfer may be prohibited if the intended
transferee is not a U.S. citizen or if the transfer would cause any portion of
the units to be treated as plan assets. The Partnership may redeem a certain
number of units each year under the terms of the Partnership's Limited
Partnership Agreement, beginning November 24, 1995. If the number of units made
available for purchase by limited partners in any calendar year exceeds the
number that can be purchased with reinvestment plan proceeds, then the
Partnership may redeem up to 2% of the outstanding units each year, subject to
certain terms and conditions. As of December 31, 1997, the Partnership had
agreed to purchase approximately 47,000 units for an aggregate price of
approximately $0.5 million. The General Partner anticipates that these units
will be repurchased in the first and second quarters of 1998. As of December 31,
1997, the Partnership has repurchased a cumulative total of 70,983 units at a
cost of $1.0 million. The General Partner may purchase additional units on
behalf of the Partnership in the future.
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
TABLE 2
For the years ended December 31, 1997, 1996, 1995,
1994, and 1993 (In thousands of dollars, except
weighted-average unit amounts)
1997 1996 1995 1994 1993
---------------------------------------------------------------------------------
Operating results:
Total revenues $ 32,723 $ 31,436 $ 33,445 $ 37,467 $ 20,072
Net gain (loss) on disposition of
equipment 10,121 7,214 128 4,295 (113)
Loss on revaluation of equipment -- -- -- 1,175 --
Equity in net income of unconsolidated
special-purpose entities 3,384 3,426 -- -- --
Net income (loss) 9,232 8,291 (1,974) (1,680) (3,266)
At year-end:
Total assets $ 103,961 $ 113,525 $ 121,957 $ 139,848 $ 160,529
Total liabilities 36,809 37,735 36,527 34,926 36,390
Notes payable 30,000 31,286 30,000 30,000 30,000
Cash distribution $ 17,384 $ 17,467 $ 17,518 $ 17,537 $ 14,828
Cash distributions representing
a return of capital $ 8,152 $ 9,176 $ 16,642 $ 16,661 $ 14,133
Per weighted-average limited partnership unit:
Net income (loss) $ 1.01 $ 0.89 $ (0.34) $ (0.31) Various
according
Cash distribution $ 2.00 $ 2.00 $ 2.00 $ 2.00 to
interim
Cash distribution representing closings
a return of capital $ 0.99 $ 1.11 $ 2.00 $ 2.00
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various sectors of the
transportation industry and its effect on the Partnership's overall financial
condition.
(B) Results of Operations -- Factors Affecting Performance
(1) 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
leasing 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 1997
primarily in its trailer and container portfolios.
(a) Aircraft: The Partnership's aircraft continued to be on pre-existing
leases throughout the year. Aircraft contribution decreased during 1997 due to
the sale of aircraft equipment which were on lease in the previous year.
(b) 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
were largely unaffected by re-leasing.
(c) Marine Vessels: Marine vessel lease revenues remained relatively
unchanged during 1997.
(d) Marine Containers: All of the Partnership's marine containers that are
on lease are leased to operators of utilization-type leasing pools and, as such,
are highly exposed to repricing activity. The decline in marine container
contributions was due to equipment sales. Market conditions were relatively
constant in repricing activity during 1997.
(e) 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.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment, unless accompanied by an immediate
replacement of additional equipment earning similar rates (see Reinvestment
Risk, below), represents a reduction in the size of the equipment portfolio and
may result in reductions of contributions to the Partnership. Lessees not
performing under the terms of their leases, either by not paying rent, not
maintaining or operating the equipment in accordance with the conditions of the
leases, or other possible departures from the leases, can result not only in
reductions in contributions, but also may require the Partnership to assume
additional costs to protect its interests under the leases, such as repossession
or legal fees.
(a) Liquidations: During the year, the Partnership liquidated or sold
marine vessels, aircraft components, marine containers, and trailers for $25.0
million. The sale proceeds of the owned equipment represented approximately 66%
of the original cost of these assets.
(b) Nonperforming Lessees: During 1997, the Partnership reposessed an
aircraft from a lessee that did not comply with the terms of the lease
agreement. The Partnership incurred legal fees, and reposession and repair costs
associated with this lessee. In addition, the Partnership wrote off all
outstanding receivables from this lessee. Currently, the Partnership expects to
sell this asset.
(3) Reinvestment Risk
Reinvestment risk occurs when (a) 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, (b) equipment is sold or liquidated for less than threshold amounts,
(c) proceeds from sales, losses, or surplus cash available for reinvestment
cannot be reinvested at threshold lease rates, or (d) 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 from 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 1997, the Partnership purchased an interest in an entity that owns a
marine vessel for $10.6 million.
In 1997, the Partnership entered into a commitment to purchase a MD-80 Stage III
commercial aircraft for $13.4 million. The Partnership made a deposit of $1.3
million toward this purchase in 1997 which is included in this balance sheet as
equipment acquisition deposits. The Partnership completed the purchase of this
equipment during January 1998 and paid $0.7 million for acquisition and lease
negotiation fees to FSI related to this acquisition.
(4) Equipment Valuation
In March 1995, 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, 1995. The Partnership adopted SFAS 121 during 1995,
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 revenues plus residual values are less than the carrying
value of the equipment, a loss on revaluation is recorded. No reductions were
required to the carrying value of equipment during 1997, 1996 or 1995.
As of December 31, 1997, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including equipment owned by
USPEs, to be approximately $124.7 million.
(C) Financial Condition -- Capital Resources, Liquidity, and
Unit Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering, borrowings from the Committed
Bridge Facility (described below) and permanent debt financing. No further
capital contributions from original partners are permitted under the terms of
the Partnership's limited partnership agreement. The Partnership's total
outstanding indebtedness, currently $30.0 million, can only be increased by a
maximum of $5.0 million subject to specific covenants in existing debt
agreements unless the Partnership's senior lender will issue a waiver. 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, 1997, the Partnership generated $15.4 million in
operating cash (net cash provided by operating activities plus cash
distributions from unconsolidated special-purpose entities) to meet its
operating obligations and maintain the current level of distributions (total in
1997 of approximately $17.4 million) to the partners, but also used
undistributed available cash from prior periods of approximately $1.9 million.
Beginning December 1, 1994, if the number of units made available for purchase
by limited partners in any calendar year exceeds the number that can be
purchased with reinvestment plan proceeds, then the Partnership may redeem up to
2% of the outstanding units each year, subject to certain terms and conditions.
The purchase price to be offered for such units will be equal to 110% of the
unrecovered principal attributed to the units. Unrecovered principal is defined
as the excess of the capital contribution attributable to a unit over the
distributions from any source paid with respect to that unit. As of December 31,
1997, the Partnership had agreed to purchase approximately 47,000 units for an
aggregate price of approximately $0.5 million. The General Partner anticipates
that these units will be repurchased in the first and second quarters of 1998.
During 1997 the Partnership borrowed $1.0 million and $9.0 million from the
General Partner for 52 days and 3 days, respectively. The General Partner
charged the Partnership market interest rates. Total interest paid to the
General Partner was $17,000.
The General Partner has entered into a joint $50.0 million credit facility (the
Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth
Fund V (EGF V), PLM Equipment Growth & Income Fund VII (EGFVII), 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, 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 December 2, 1997 to expire on November
2, 1998. The Partnership, EGF V, EGF VII, Fund I, and TECAI may collectively
borrow up to $35.0 million of the Committed Bridge Facility and AFG may borrow
up to $50.0 million. The Committed Bridge Facility also provides for a $5.0
million Letter of Credit Facility for the eligible borrowers. Outstanding
borrowings by one borrower reduce the amount available to each of the other
borrowers under the Committed Bridge Facility. Individual borrowings for the
Partnership may be outstanding for no more than 179 days, with all advances due
no later than November 2, 1998. Interest accrues at either the prime rate or
adjusted LIBOR plus 1.625% at the borrower's 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, 1997, AFG had $23.0 million in outstanding
borrowings. No other eligible borrower had any outstanding borrowings. The
General Partner believes it will renew the Committed Bridge Facility upon its
expiration with similar terms as those in the current Committed Bridge Facility.
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.
(this space intentionally left blank)
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1997 and 1996
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operation, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December, 31, 1997, when compared to the same
period of 1996. The following table presents revenues less direct expenses by
owned equipment type (in thousands of dollars):
For the Years
Ended December 31,
1997 1996
------------------------------
Rail equipment $ 3,134 $ 2,774
Aircraft, aircraft engines, and components 3,083 3,982
Trailers 2,890 3,148
Marine containers 1,668 2,179
Marine vessels 1,610 3,816
Rail Equipment: Rail equipment lease revenues and direct expenses were $4.1
million and $1.0 million, respectively, for the year ended December, 31, 1997,
compared to $4.1 million and $1.3 million, respectively, during the same period
of 1996. Although the railcar fleet remained relatively the same size for both
years, the increase in railcar contribution resulted from fewer running repairs
during 1997 than were required on certain of the railcars in the fleet during
1996.
Aircraft, Aircraft Engines, and Components: Aircraft lease revenues and direct
expenses were $3.6 million and $0.5 million, respectively, for the year ended
December, 31, 1997, compared to $4.2 million and $0.2 million, respectively,
during 1996. The decrease in aircraft contribution was due to the sale of two
aircraft engines during the second quarter of 1996 and the sale of the aircraft
components during the fourth quarter of 1997.
Trailers: Trailer lease revenues and direct expenses were $3.8 million and $0.9
million, respectively, for the year ended December, 31, 1997, compared to $4.2
million and $1.1 million, respectively, during 1996. The number of trailers
owned by the Partnership has been declining over the past 12 months due to sales
and dispositions. The result of this declining fleet has been a decrease in
trailer contribution.
Marine Containers: Marine container lease revenues and direct expenses were $1.7
million and $13,000, respectively, for the year ended December, 31, 1997,
compared to $2.2 million and $12,000, respectively, during 1996. The number of
marine containers owned by the Partnership has been declining over the past 12
months due to sales and dispositions. The result of this declining fleet has
been a decrease in marine container contribution.
Marine Vessels: Marine vessel lease revenues and direct expenses were $8.9
million and $7.3 million, respectively, for the year ended December, 31, 1997,
compared to $8.9 million and $5.1 million, respectively, during 1996. The
decrease in marine vessel contribution was due in part to the sale of two marine
vessels during the fourth quarter of 1997. The decrease in marine contribution
caused by these dispositions was offset in part by an increase in marine vessel
lease revenues due to the purchase of two marine vessels during the second
quarter of 1996 that were on lease for the full year of 1997, compared to being
on lease for only a partial period of 1996. The increase in lease revenues from
the purchased marine vessels was offset in part by lower day rates earned on two
marine vessels that were sold during 1997, when compared to 1996. Direct
expenses increased $2.2 million during the year ended 1997, due primarily to
repairs to two marine vessel that were not needed during 1996 and an increase in
the liability insurance for these marine vessels.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $17.0 million for the year ended December, 31, 1997
decreased from $18.8 million for the same period in 1996. The significant
variances are explained as follows:
(i) A $2.6 million decrease in depreciation and amortization expenses from
1996 levels reflects the sale of certain assets during 1997 and 1996 and the
double-declining balance method of depreciation.
(ii) A $0.2 million decrease in management fees was due to lower lease
revenues.
(iii) A $0.7 million increase in administrative expenses was because of the
additional professional services needed to collect outstanding receivables due
from certain nonperforming lessees.
(iv) A $0.3 million increase in the allowance for bad debts was due to an
increase in uncollectable amounts due from certain lessees during 1997.
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1997 totaled $10.1 million, which resulted from the sale of aircraft components,
marine containers, and trailers, with an aggregate net book value of $5.4
million, for proceeds of $7.2 million, and the sale of two marine vessels with a
net book value of $10.3 million for proceeds of $17.8 million. Included in the
gain of $8.3 million from the sale of the marine vessels is the unused portion
of accrued drydocking of $0.8 million. For the year ended December, 31, 1996,
the $7.2 million net gain on the disposition of equipment resulted from the sale
or disposal of marine containers, aircraft engines, trailers, and railcars, with
an aggregate net book value of $6.0 million, for proceeds of $7.0 million., In
addition, one marine vessel with a net book value of $14.6 million was sold for
proceeds of $20.8 million. Included in the gain of $6.3 million from the sale of
the marine vessel was the unused portion of accrued drydocking of $0.1 million.
(d) Interest and Other Income
Interest and other income decreased $0.1 million during the year of 1997 when
compared to the same period of 1996. Interest income decreased $0.4 million
during 1997, due to lower cash balances available for investment. This decrease
was offset, in part, by the receipt of $0.3 million in business interruption
claims during 1997 resulting from the off-hire status of a marine vessel that
had various mechanical breakdowns.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
For the Years
Ended December, 31,
1997 1996
---------------------------------
Aircraft $ 4,090 $ (1,853)
Mobile offshore drilling unit 1 5,694
Marine vessels (707 ) (415)
Aircraft: As of December, 31, 1997, the Partnership owned an interest in an
entity that owns a Boeing 767 commercial aircraft, an interest in a trust that
owns two commercial aircraft on direct finance lease, and an interest in a trust
that holds four commercial aircraft. As of December, 31, 1996, the Partnership
owned an interest in an entity that owned a Boeing 767 commercial aircraft, an
interest in a trust that held two commercial aircraft on direct finance lease,
and an interest in a trust that held ten commercial aircraft. During the year
ended December 31, 1997, lease revenues of $7.6 million and the gain from the
sale of an interest in a trust that held six commercial aircraft, of $3.4
million, were offset by depreciation and administrative expenses of $6.9
million. During the same period of 1996, lease revenues of $6.3 million were
offset by depreciation and administrative expenses of $8.2 million. The increase
of $1.3 million in revenues was due to the purchase of a trust that owns two
commercial aircraft on direct finance lease during 1997 and the purchase of a
trust that holds five commercial aircraft during the latter half of the first
quarter of 1996. The decrease of $1.3 million in depreciation and administrative
expenses was primarily due to the double-declining balance method of
depreciation
Mobile Offshore Drilling Unit: As of December, 31, 1997, the Partnership owned
an interest in a rig that was purchased during the fourth quarter of 1996. In
the third quarter of 1996, the Partnership sold its interest in another rig.
During the year ended December 31, 1997, revenues of $1.1 million were offset by
depreciation and administrative expenses of $1.1 million. During the same period
of 1996, revenues of $0.8 million and the gain from the sale of the rig of $5.8
million were offset by depreciation and administrative expenses of $0.9 million.
Marine Vessels: As of December, 31, 1997, the Partnership owned an interest in
entities that own three marine vessels, one of which was purchased during the
third quarter of 1997. As of December, 31, 1996, the Partnership owned an
interest in two marine vessels. During the year ended December, 31, 1997,
revenues of $3.2 million were offset by depreciation and administrative expenses
of $3.9 million. During the same period of 1996, revenues of $1.6 million were
offset by depreciation and administrative expenses of $2.0 million. The primary
reason revenues and expenses increased during 1997 was due to the purchase of an
interest in an entity that owns a marine vessel during 1997.
(f) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December, 31, 1997 was $9.2 million, compared to a net income of $8.3 million
during the same period in 1996. The Partnership's ability to operate and
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the year ended
December, 31, 1997 is not necessarily indicative of future periods. In the year
ended December, 31, 1997, the Partnership distributed $16.5 million to the
limited partners, or $2.00 per weighted-average limited partnership unit.
(2) 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,
equipment operation, 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 of dollars):
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 and Aircraft Engines: 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 that 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, which was 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 12
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 that 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 12 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:
(i) A $3.4 million decrease in depreciation and amortization expenses from
1995 levels reflects 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.
(ii) A $0.1 million decrease in management fees was due to lower revenues
earned, when compared to the same period of 1995.
(iii) A $0.1 million decrease in administrative expenses was due to the
lower costs associated with data processing services and general administration
of the Partnership, when compared to the same period of 1995.
(iv) A $0.7 million increase in bad debt expense was due to an increase in
uncollectible amounts due from certain lessees.
(v) A $0.3 million increase in interest expense was 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) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the year ended December 31,
1996 totaled $7.2 million, which resulted primarily from the sale of a marine
vessel that 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 marine containers, trailers, aircraft engines, and
railcars, with an aggregate net book value of $6.0 million, for proceeds of $7.0
million. The net gain on the disposition of equipment for the year ended
December 31, 1995 totaled $0.1 million, which resulted from the sale or
disposition of marine containers, trailers, and a 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, which was due primarily to an increase in interest income from 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
The net income (loss) generated from the operation of jointly-owned assets
accounted for under the equity method is shown in the following table by
equipment type (in thousands of dollars):
For the Years
Ended December 31,
1996 1995
--------------------------------
Mobile offshore drilling unit $ 5,694 $ (269)
Marine vessels (415) (130)
Aircraft (1,853) (1,113)
Mobile Offshore Drilling Unit: As of December 31, 1996, the interest in the
entity that 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 $0.8 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.
Marine Vessel: As of December 31, 1996, the Partnership owned a 20% interest in
an entity that owns a marine vessel and a 50% interest in another entity that
owns a marine vessel, 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.
Aircraft: As of December 31, 1996, the Partnership had an interest in a trust
that owns a Boeing 767 commercial aircraft and had acquired an interest in two
trusts that own 10 commercial aircraft during the latter half of 1995 and the
first quarter of 1996; then, during the fourth quarter of 1996, the Partnership
purchased an interest in a trust owning two commercial aircraft on 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.
(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 remainder 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 limited partnership unit.
(E) Geographic Information
Certain of the Partnership equipment operates in international markets. Although
these operations expose the Partnership to certain currency, political, credit
and economic risks, the General Partner believes that these risks are minimal or
has implemented strategies to control the risks. Currency risks are at a minimum
because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a particular geographic area. Refer to the financial statements, Note 3 for
information on the revenues, income (loss), and net book value of equipment in
various geographic regions.
Revenues and net operating income by geographic region are impacted by the time
period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made to either redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to U.S.- domiciled lessees consist of trailers and railcars. During 1997,
U.S. lease revenues accounted for 22% of the total lease revenues of wholly and
partially owned equipment, while net income accounted for 13% of the total
aggregate net income for the Partnership. The primary reason for this
relationship is that a large gain was realized from the sale of an asset in
other geographic regions. In addition, the Partnership depreciates its rail
equipment over a 15-year period versus 12 years for other equipment types owned
and leased in other geographic regions.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to Canadian-domiciled lessees consist of aircraft and railcars. During
1997, Canadian lease revenues accounted for 13% of the total lease revenues of
wholly and partially owned equipment, while net income accounted for 39% of the
total aggregate net income for the Partnership. The primary reason for this
relationship is that a large gain was realized from the sale of assets in this
geographic region.
The Partnership's investment in an aircraft owned by a USPE on lease to South
American-domiciled lessees during 1997 accounted for 9% of the total lease
revenues of wholly and partially owned equipment. South American operations
accounted for 2% of the total aggregate net income for the Partnership. The
primary reason for this relationship is that a large gain was realized from the
sale of assets in other geographic regions.
The Partnership's owned equipment that was on lease to lessees domiciled in Asia
consists of aircraft. Lease revenues in this region accounted for 8% of the
total lease revenues of wholly and partially owned equipment and recorded a net
loss $1.2 million when compared to the total aggregate net income of the
Partnership of $9.2 million. The primary reason for this relationship is that
during 1997 the Partnership reserved $1.2 million in bad debts for this region.
The Partnership's sold equipment that was on lease to lessees in Europe
consisted of two packages of aircraft rotable spare-part components, which
accounted for 3% of lease revenues of wholly and partially owned equipment in
1997, while net income accounted for $2.4 million of the total aggregate net
income for the Partnership. The primary reason for the income is that a large
gain was realized from the sale of all equipment in this geographic region.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels, a rig, and
marine containers. During 1997, lease revenues from these operations accounted
for 45% of the total lease revenues of wholly and partially owned equipment,
while net income from these operations accounted for $5.4 million when compared
to the total aggregate net income for the Partnership. The primary reason for
this relationship is that during 1996 the Partnership sold two marine vessels
for a gain of $8.3 million.
(F) Year 2000 Compliance
The General Partner is currently addressing the Year 2000 computer software
issue. The General Partner is creating a timetable for carrying out any program
modifications that may be required. The General Partner does not anticipate that
the cost of these modifications allocable to the Partnership will be material.
(G) Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of adoption of these
statements will be limited to the form and content of the Partnership's
disclosures and will not impact the Partnership's results of operations, cash
flow, or financial position.
(H) Inflation
Inflation had no significant impact on the Partnership's operations during 1997,
1996, or 1995.
(I) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K contains forward-looking statements that involve risks and uncertainties,
such as statements of the Partnership's plans, objectives, expectations, and
intentions. The cautionary statements made in this Form 10-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(J) Outlook for the Future
Several factors may affect the Partnership's operating performance in 1998 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 1997, market conditions, supply and demand equilibrium,
and other factors varied in several markets. In the container market, continued
industry consolidations, and other factors, are helping increase utilization
resulting in higher per diem rates and 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 can generally be categorized by increasing rates, as the demand for
equipment is increasing faster than new additions, net of retirements. Finally,
the Partnership has made plans to sell specific narrowbody Stage II aircraft and
has made plans to install a hushkit on the others in order to continue
operating. These different markets have had individual effects on the
performance of Partnership equipment, in some cases resulting in a decline in
performance and in others in an improvement in 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,
and government or other regulations. The unpredictability of some of these
factors makes it difficult for the General Partner to clearly define trends or
influences that may impact the performance of the Partnership's equipment. The
General Partner continuously monitors both the equipment markets and the
performance of the Partnership's equipment in these markets. The General Partner
may make an evaluation to reduce the Partnership's exposure to equipment markets
in which it determines that it cannot operate equipment and achieve acceptable
rates of return. 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 and cash distributions to acquire additional equipment during the first
seven years of Partnership operations. The General Partner believes that these
acquisitions may cause the Partnership to generate additional earnings and cash
flow for the Partnership.
(1) Repricing and Reinvestment Risk
Certain portions of the Partnership's aircraft, marine vessel, railcar, and
trailer portfolios will be remarketed in 1998 as existing leases expire,
exposing the Partnership to repricing risk/opportunity. Additionally, the
General Partner may select to sell certain underperforming equipment or
equipment whose continued operation may become prohibitively expensive. In
either case, the General Partner intends to re-lease or sell equipment at
prevailing market rates; however, the General Partner cannot predict these
future rates with any certainty at this time, and cannot accurately assess the
effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels 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 United States and
internationally, cannot be predicted with accuracy, and preclude the General
Partner from determining the impact of such changes on Partnership operations or
sale of equipment.
(3) 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. 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 $5.0 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 of 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 1998 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 that sufficient cash flow will be available in the
future for repayment of debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND
PLM FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International (and key executive officers of its subsidiaries) and of PLM
Financial Services, Inc. are as follows:
Name Age Position
- -------------------------------------------------------------------------------------------------------------------------
Robert N. Tidball 59 Chairman of the Board, Director, President,
and Chief Executive Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 50 Director, PLM International, Inc.
Douglas P. Goodrich 51 Director and Senior Vice President, PLM International;
Director and President, PLM Financial Services, Inc.;
President, PLM Transportation Equipment Corporation;
President, PLM Railcar Management Services, Inc.
Harold R. Somerset 63 Director, PLM International, Inc.
Robert L. Witt 57 Director, PLM International, Inc.
J. Michael Allgood 49 Vice President and Chief Financial Officer,
PLM International, Inc. and PLM Financial Services, Inc.
Stephen M. Bess 51 President, PLM Investment Management, Inc. and PLM Securities Corp.;
Vice President and Director, PLM Financial Services, Inc.
Richard K Brock 35 Vice President and Corporate Controller,
PLM International, Inc. and PLM Financial Services, Inc.
Frank Diodati 43 President, PLM Railcar Management Services Canada Limited
Steven O. Layne 43 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Worldwide Management Services Ltd.
Susan C. Santo 35 Vice President, Secretary, and General Counsel,
PLM International, Inc. and PLM Financial Services, Inc.
Thomas L. Wilmore 55 Vice President, PLM Transportation Equipment Corporation;
Vice President, PLM Railcar Management Services, Inc.
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment to President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking
firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies in the United States
and abroad, as well as a senior advisor to the investment banking firm of
Prudential Securities, where he has been employed since 1987. Mr. Caudill also
serves as a director of VaxGen, Inc. and SBE, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a senior vice president since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation, a subsidiary of Guardian Industries Corporation of
Chicago, Illinois, from December 1980 to September 1985.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a recently acquired subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined
C&H Sugar in 1984 as Executive Vice President and Chief Operating Officer,
having served on its Board of Directors since 1978, 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 of
Agriculture and 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 US Naval Academy. Mr. Somerset also serves on the boards of directors
for various other companies and organizations, including Longs Drug Stores,
Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
J. Michael Allgood was appointed Vice President and Chief Financial Officer of
PLM International in October 1992 and Vice President and Chief Financial Officer
of PLM Financial Services, Inc. in December 1992. Between July 1991 and October
1992, Mr. Allgood was a consultant to various private and public-sector
companies and institutions specializing in financial operations 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 Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Securities Corporation 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 Corporation, a manufacturer of computer peripheral equipment, from
October 1975 to November 1978.
Richard K Brock was appointed Vice President and Corporate Controller of PLM
International and PLM Financial Services, Inc. in June 1997, having served as an
accounting manager beginning in September 1991 and as Director of Planning and
General Accounting beginning in February 1994. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
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 of PLM Transportation Equipment
Corporation's Air Group in November 1992, and was appointed Vice President and
Director of PLM Worldwide Management Services Limited in September 1995. Mr.
Layne was its Vice President, Commuter and Corporate Aircraft beginning in July
1990. Prior to joining PLM, Mr. Layne was Director of 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 a senior pilot with 13 years of accumulated
service.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
Thomas L. Wilmore was appointed Vice President, Rail of PLM Transportation
Equipment Corporation in March 1994, and has served as Vice President of
Marketing for PLM Railcar Management Services, Inc. since May 1988. Prior to
joining PLM, Mr. Wilmore was Assistant Vice President and Regional Manager for
MNC Leasing Corporation in Towson, Maryland from February 1987 to April 1988.
From July 1985 to February 1987, he was President and co-owner of Guardian
Industries Corporation, Chicago, 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 PLM International are elected for a three-year term and the
directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International or PLM Financial
Services, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1997.
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. As of December
31, 1997, 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 owned any
units of the Partnership as of December 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1997, the Partnership paid or accrued the following fees to FSI
or its affiliates: management fees, $1.2 million, and administrative
and data processing services performed on behalf of the Partnership,
$0.9 million. The Partnership paid Transportation Equipment Indemnity
Company Ltd. (TEI), a wholly-owned, Bermuda-based subsidiary of PLM
International, $0.2 million for insurance coverages during 1997; these
amounts were paid substantially 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 1997, the USPEs paid or accrued the following fees to FSI or its
affiliates (based on the Partnership's proportional share of
ownership): management fees, $0.5 million; administrative and data
processing services, $0.1 million; equipment acquisition fees, $0.4
million, and lease negotiation fees, $0.1 million. The USPEs paid TEI
$0.1 million for insurance coverages during 1997.
(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 on Form 10-K.
(b) Reports on Form 8-K
None.
(c) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991. - -
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. Incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which
became effective with the Securities and Exchange Commission on
December 23, 1991.
10.2 Note Agreement, dated as of August 1, 1993, regarding $30.0
million in 6.7% senior notes due November 17, 2003.
10.3 Third Amended and Restated Warehousing Credit Agreement, dated as
of December 2, 1997, with First Union National Bank of North
Carolina and others.
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 24, 1998 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/ Richard K Brock
-------------------------
Richard K Brock
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
*_______________________
Robert N. Tidball Director, FSI March 24, 1998
*_______________________
Douglas P. Goodrich Director, FSI March 24, 1998
*_______________________
Stephen M. Bess Director, FSI March 24, 1998
*Susan Santo, by signing her name hereto, does sign this document on behalf of
the persons indicated above pursuant to powers of attorney duly executed by such
persons and filed with the Securities and Exchange Commission.
/s/ Susan Santo
- ------------------------
Susan Santo
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, 1997 and 1996 30
Statements of operations for the years ended December 31, 1997,
1996, and 1995 31
Statements of changes in partners' capital for the years
ended December 31, 1997, 1996, and 1995 32
Statements of cash flows for the years ended December 31, 1997,
1996, and 1995 33
Notes to financial statements 34 - 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 have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund VI as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- -------------------------------
SAN FRANCISCO, CALIFORNIA
March 12, 1998
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
1997 1996
---------------------------------------
Assets:
Equipment held for operating leases, at cost $ 71,597 $ 109,551
Less accumulated depreciation (33,895) (46,544)
---------------------------------------
Net equipment 37,702 63,007
Cash and cash equivalents 14,204 3,017
Restricted cash 792 1,285
Accounts receivable, less allowance for doubtful accounts of
$2,524 in 1997 and $1,188 in 1996 2,560 3,253
Investments in unconsolidated special-purpose entities 46,796 42,119
Net investment in direct finance lease 153 254
Lease negotiation fees to affiliate, less accumulated
amortization of $92 in 1996 and $291 in 1996 58 139
Debt issuance costs, less accumulated amortization
of $61 in 1997 and $45 in 1996 91 107
Debt placement fees to affiliate, less accumulated
amortization of $59 in 1997 and $45 in 1996 89 103
Prepaid expenses and other assets 181 241
Equipment acquisition deposits 1,335 --
---------------------------------------
Total assets $ 103,961 $ 113,525
=======================================
Liabilities and partners' capital:
Liabilities:
Accounts payable and accrued expenses $ 1,296 $ 1,048
Due to affiliates 2,822 2,177
Lessee deposits and reserve for repairs 2,691 3,224
Short-term note payable -- 1,286
Note payable 30,000 30,000
---------------------------------------
Total liabilities 36,809 37,735
---------------------------------------
Partners' capital:
Limited partners (limited partnership units of 8,247,264 and
8,286,966 as of December 31, 1997 and 1996, respectively) 67,152 75,790
General Partner -- --
---------------------------------------
Total partners' capital 67,152 75,790
---------------------------------------
Total liabilities and partners' capital $ 103,961 $ 113,525
=======================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
1997 1996 1995
----------------------------------------------------
Revenues:
Lease revenue $ 22,116 $ 23,592 $ 32,878
Interest and other income 486 630 439
Net gain on disposition of equipment 10,121 7,214 128
----------------------------------------------------
Total revenues 32,723 31,436 33,445
----------------------------------------------------
Expenses:
Depreciation and amortization 9,793 12,394 21,993
Management fees to affiliate 1,187 1,363 1,775
Repairs and maintenance 4,743 3,085 3,108
Equipment operating expenses 3,635 3,775 3,245
Interest expense 2,296 2,339 2,044
Insurance expense to affiliate 224 186 603
Other insurance expenses 1,277 694 547
General and administrative expenses
to affiliates 860 953 1,161
Other general and administrative expenses 1,587 766 684
Provision for bad debts 1,273 1,016 259
----------------------------------------------------
Total expenses 26,875 26,571 35,419
----------------------------------------------------
Equity in net income of unconsolidated
special-purpose entities 3,384 3,426 --
Net income (loss) $ 9,232 $ 8,291 $ (1,974)
====================================================
Partners' share of net income (loss):
Limited partners $ 8,363 $ 7,418 $ (2,850)
General Partner 869 873 876
----------------------------------------------------
Total $ 9,232 $ 8,291 $ (1,974)
====================================================
Net income (loss) per weighted-average limited
partnership unit (8,257,256, 8,292,853, and
8,318,247 in 1997, 1996, and 1995, respectively) $ 1.01 $ 0.89 $ (0.34)
====================================================
Cash distribution $ 17,384 $ 17,467 $ 17,518
====================================================
Cash distribution per weighted-average
limited partnership 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, 1997, 1996, and 1995
(in thousands of dollars)
Limited General
Partners Partners Total
---------------------------------------------------------
Partners' capital as of December 31, 1994 $ 104,922 $ -- $ 104,922
Net income (loss) (2,850 ) 876 (1,974)
Cash distribution (16,642 ) (876 ) (17,518)
---------------------------------------------------------
Partners' capital as of December 31, 1995 85,430 -- 85,430
Net income 7,418 873 8,291
Repurchase of limited partnership units (464 ) -- (464)
Cash distribution (16,594 ) (873 ) (17,467)
---------------------------------------------------------
Partners' capital as of December 31, 1996 75,790 -- 75,790
Net income 8,363 869 9,232
Repurchase of limited partnership units (486 ) -- (486)
Cash distribution (16,515 ) (869 ) (17,384)
---------------------------------------------------------
Partners' capital as of December 31, 1997 $ 67,152 $ -- $ 67,152
=========================================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31,
(In thousands of dollars)
1997 1996 1995
-----------------------------------------------
Operating activities:
Net income (loss) $ 9,232 $ 8,291 $ (1,974 )
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Net gain on disposition of equipment (10,121 ) (7,214) (128 )
Equity in net income from unconsolidated special-purpose entities (3,384 ) (3,426) --
Depreciation and amortization 9,793 12,394 21,993
Changes in operating assets and liabilities:
Restricted cash 493 13 (551 )
Accounts receivable 946 160 (711 )
Prepaid expenses and other assets 60 (14) 46
Accounts payable and accrued expenses (34 ) 196 387
Due to affiliates 645 217 (59 )
Lessee deposits and reserve for repairs 240 448 914
-----------------
-------------------------------
Net cash provided by operating activities 7,870 11,065 19,917
-----------------------------------------------
Investing activities:
Payments for purchase of equipment (17 ) (13,927) (4,688 )
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities (10,604 ) (26,287) --
Distribution from unconsolidated special-purpose entities 7,575 7,941 --
Distribution from liquidation of
unconsolidated special-purpose entities 1,736 11,677 --
Payments of acquisition fees to affiliate -- (675) (194 )
Payments for equipment acquisition deposits (1,335 ) -- (1,880 )
Principal payments received on direct finance lease 101 41 --
Payments of lease negotiation fees to affiliate -- (152) (43 )
Proceeds from disposition of equipment 25,017 27,379 1,038
-----------------------------------------------
Net cash provided by (used in) investing activities 22,473 5,997 (5,767 )
-----------------------------------------------
Financing activities:
Proceeds from short-term-note payable 10,551 12,506 --
Payments of short-term note payable (11,837 ) (11,220) --
Proceeds from short-term loan from affiliate 10,001 -- --
Payment of short-term loan to affiliate (10,001 ) -- --
Cash distribution paid to limited partners (16,515 ) (16,594) (16,642 )
Cash distribution paid to General Partner (869 ) (873) (876 )
Repurchase of limited partnership units (486 ) (464) --
-----------------------------------------------
Net cash used in financing activities (19,156 ) (16,645) (17,518 )
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents 11,187 417 (3,368 )
Cash and cash equivalents at beginning of year (see Note 4) 3,017 2,600 6,246
------------------------------------------------
Cash and cash equivalents at end of year $ 14,204 $ 3,017 $ 2,878
===============================================
Supplemental information:
Interest paid $ 2,297 $ 2,513 $ 1,869
===============================================
Supplemental disclosure of noncash investing and financing activities:
Direct finance billing included in accounts receivable $ 9 $ 8 $ --
===============================================
Sale proceeds included in accounts receivable $ 290 $ 38 $ --
===============================================
Sales commissions in accounts payable $ 282 $ -- $ --
===============================================
See accompanying notes to financial
statements.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
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 and related equipment. PLM
Financial Services, Inc. (FSI) is the General Partner of the Partnership.
FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM
International). 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 Limited
Partnership 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 General Partner has determined that it will not adopt the reinvestment
plan for the Partnership. Beginning November 24, 1995, if the number of
units made available for purchase by limited partners in any calendar year
exceeds the number that can be purchased with reinvestment plan proceeds,
then the Partnership may redeem up to 2% of the outstanding units each
year, subject to certain terms and conditions. The purchase price to be
offered by the Partnership for these units will be equal to 110% of the
unrecovered principal attributable to the units. The unrecovered principal
for any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid
with respect to the units. For the years ended December 31, 1997 and 1996,
the Partnership had repurchased 39,702 and 31,281 limited partnership units
for $0.5 million and $0.5 million, respectively.
As of December 31, 1997, the Partnership agreed to repurchase approximately
47,000 units for an aggregate price of approximately $0.5 million. The
General Partner anticipates that these units will be repurchased in the
first and second quarters of 1998.
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 2). FSI, in
conjunction with its subsidiaries, sells transportation equipment to
investor programs and third parties, manages pools of transportation
equipment under agreements with investor programs, and is
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
Operations (continued)
a General Partner of other programs.
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is
recorded at cost and depreciated over its estimated useful life. 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, "Accounting for Leases" (SFAS
13).
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is
computed on the double-declining balance method, taking a full month's
depreciation in the month of acquisition, based upon estimated useful lives
of 15 years for railcars and 12 years for all other types of equipment.
Certain aircraft are depreciated under the double-declining balance
depreciation method over the lease term. The depreciation method is changed
to straight line when annual depreciation expense using the straight-line
method exceeds that calculated by the double-declining balance method.
Acquisition fees and 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 are capitalized if they are expected to extend the useful
lives or reduce future operating expenses of equipment and amortized over
the remaining life of the equipment.
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 1995, the effect of which was not material, since
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. No reductions to the carrying value of
equipment were required during 1997, 1996, or 1995. Equipment held for
operating leases is stated at cost.
Investments in Unconsolidated Special-Purpose Entities (USPEs)
The Partnership has interests in unconsolidated special-purpose entities
(USPEs) that own transportation and related equipment. These interests are
accounted for using the equity method.
The Partnership's investment in USPEs includes acquisition and lease
negotiation fees paid by the Partnership to PLM Transportation Equipment
Corporation (TEC) and PLM Worldwide Management Services (WMS). TEC is a
wholly-owned subsidiary of FSI and WMS is a wholly-owned subsidiary of PLM
International. The Partnership's equity interest in net income of USPEs is
reflected net of management fees paid or payable to IMI and the
amortization of acquisition and lease negotiation fees paid to TEC or WMS.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
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 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 Limited Partnership 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 limited partnership units owned by
each limited partner and on the number of days of the year each limited
partner is in the Partnership
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business
and quarterly unitholders receive a distribution check 45 days after the
close of the quarter.
Cash distributions related to the fourth quarter of 1997, 1996, and 1995 of
$2.6 million for each year, were paid during January and February 1998,
1997, or 1996, respectively.
Cash distributions to investors in excess of net income are considered to
represent a return of capital. Cash distributions to the limited partners
of $8.2 million and $9.2 million in 1997 and 1996, respectively, were
deemed to be a return of capital. All cash distributions to the limited
partners in 1995 were deemed to be a return of capital.
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
As of December 31, 1997 and 1996, restricted cash represented lessee
security deposits held by the Partnership.
Reclassification
Certain amounts in the 1995 financial statements have been reclassified to
conform to the 1997 and 1996 presentation.
2. General Partner and Transactions with Affiliates
An officer of PLM Securities Corp. (PLM Securities) contributed $100 of the
Partnership's initial capital. PLM Securities is a wholly-owned subsidiary
of the General Partner. Under the equipment management agreement, IMI,
subject to certain reductions, receives a monthly management fee
attributable to either owned equipment or interests in equipment owned by
the USPEs equal to the lesser of (i) the fees that would be charged by an
independent third party for similar services for similar equipment or (ii)
the sum of (a) 5% of the gross lease revenues attributable to equipment
that is subject to operating leases, (b) 2% of the gross lease revenues, as
defined in the agreement, that
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
2. General Partner and Transactions with Affiliates (continued)
is subject to full payout net leases, and (c) 7% of the gross lease
revenues attributable to equipment for which IMI provides both management
and additional services relating to the continued and active operation of
program equipment, such as on-going marketing and re-leasing of equipment,
hiring or arranging for the hiring of crew or operating personnel for
equipment, and similar services. Partnership management fees payable were
$0.3 million as of December 31, 1997 and 1996. The Partnership's
proportional share of USPE management fees of $0.1 million and $27,000 was
payable as of December 31, 1997 and 1996, respectively. The Partnership's
proportional share of USPE management fee expense was $0.5 million and $0.3
million during 1997 and 1996, respectively. An affiliate of the General
Partner was reimbursed for data processing and administrative expenses
directly attributable to the Partnership in the amounts of $0.9 million,
$1.0 million, and $1.2 million in 1997, 1996, and 1995, respectively. The
Partnership's proportional share of USPE data processing and administrative
expenses was $0.1 million during 1997 and 1996.
Debt placement fees are paid to the General Partner in an amount equal to
1% of the Partnership's long-term borrowings, less any costs paid to
unaffiliated parties related to obtaining the borrowing.
The Partnership did not incur any equipment acquisition fees and lease
negotiation fees during 1997 and 1996. The Partnership incurred equipment
acquisition and lease negotiation fees of $1.3 million in 1995. The
Partnership's proportional share of USPEs incurred equipment acquisition
and lease negotiation fees of $0.6 million during 1997 to FSI and $1.2
million during 1996 to TEC and WMS. The Partnership paid $0.2 million in
1997 and 1996, and $0.6 million in 1995, 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.
As of December 31, 1997, approximately 66% of the Partnership's trailer
equipment was in rental facilities operated by an affiliate of the General
Partner. Revenues collected under short-term rental agreements with the
rental yards' 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 indirect expenses of the
rental yard operations is charged to the Partnership monthly.
The Partnership owned certain equipment in conjunction with affiliated
partnerships during 1997 and 1996 (see Note 4).
During 1997 the Partnership borrowed $1.0 million and $9.0 million from the
General Partner for 52 days and 3 days, respectively. The General Partner
charged the Partnership market interest rates. Total interest paid to the
General Partner was $17,000.
The balance due to affiliates as of December 31, 1997 includes $0.3 million
due to FSI and its affiliates for management fees and $2.5 million due to a
USPE. The balance due to affiliates as of December 31, 1996 includes $0.3
million due to FSI and its affiliates for management fees and $1.9 million
due to a USPE.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment
The components of equipment as of December 31, 1997 and 1996 are as follows
(in thousands of dollars):
Equipment Held for Operating Leases 1997 1996
- ----------------------------------------------------------------------------------------
Trailers $ 16,203 $ 17,985
Marine vessels 16,035 41,263
Rail equipment 15,657 15,643
Aircraft, aircraft engines and components 11,919 18,259
Marine containers 11,783 16,401
------------------------------------
71,597 109,551
Less accumulated depreciation (33,895) (46,544 )
Net equipment $ 37,702 $ 63,007
====================================
Revenues are earned by placing the equipment under operating leases that
are billed monthly or quarterly. As of December 31, 1997, all equipment in
the Partnership's portfolio was on lease or operating in PLM-affiliated
short-term trailer rental facilities, except for a railcar and 92 marine
containers with a net book value of $0.4 million. 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. A portion of the
Partnership's marine containers and marine vessels is leased to operators
of utilization-type leasing pools that include equipment owned by
unaffiliated parties. In such instances, revenues received by the
Partnership consist of a specified percentage of revenues generated by
leasing the pooled equipment to sublessees after deducting certain direct
operating expenses of the pooled equipment.
In 1997, the Partnership entered into a commitment to purchase a MD-80
Stage III commercial aircraft for $13.4 million. The Partnership made a
deposit of $1.3 million toward this purchase in 1997 which is included in
this balance sheet as equipment acquisition deposits. The Partnership
completed the purchase of this equipment during January 1998 and paid $0.7
million for acquisition and lease negotiation fees to FSI related to this
acquisition.
During 1997, the Partnership disposed of or sold aircraft components,
marine containers, and trailers, with an aggregate net book value of $5.4
million, for proceeds of $7.2 million. The Partnership also sold two marine
vessels with a net book value of $10.3 million for proceeds of $17.8
million. Included in the gain of $8.3 million from the sale of the marine
vessels is the unused portion of accrued drydocking of $0.8 million.
During 1996, the Partnership sold or disposed of marine containers,
trailers, aircraft engines, and railcars, with an aggregate net book value
of $6.0 million, for proceeds of $7.0 million. The Partnership also sold
one marine vessel that 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 was the unused portion of accrued drydocking of $0.1 million.
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 that
had been allocated to the Partnership, PLM Equipment Growth Funds (EGF) IV
and VII, Professional Lease Management Income Fund I, LLC (Fund I), and PLM
International. As of
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
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 that had been allocated to the
Partnership, EGF IV, V, and VII, Fund I, and PLM International.
All leases are being accounted for as operating leases, except for one
finance lease. Future minimum rentals receivable under noncancelable
operating leases as of December 31, 1997 for the owned and partially owned
equipment during each of the next five years are approximately $18.2 in
1998, $7.4 million in 1999, $4.5 million in 2000, $3.7 million in 2001 $1.2
million in 2002, and $0.3 million thereafter. Contingent rentals based upon
utilization were $2.8 million in 1997, $7.0 million in 1996, and $8.6
million in 1995.
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to
lessees domiciled in four geographic regions: United States, Canada,
Mexico, Europe, and Asia. Marine vessels, mobile offshore drilling units,
and marine containers are leased to multiple lessees in different regions
that operate the marine vessels and marine containers worldwide. The tables
below set forth geographic information about the Partnership's owned
equipment and investments in USPEs grouped by domiciles of the lessees as
of and for the years ended December 31, 1997, 1996, and 1995 (in thousands
of dollars):
Region Investments in USPEs Owned Equipment
----------------------------- ------------------------------ ------------------------------------------
Lease Revenues 1997 1996 1997 1996 1995
------------------------------------------------------------ --------------------------------------------
United States $ -- $ -- $ 7,132 $ 7,522 $ 8,978
Canada 3,619 3,179 764 748 443
South America 3,149 3,149 -- -- 3,148
Asia -- 693 2,658 3,207 5,028
Europe -- -- 948 1,009 1,009
Rest of the world 4,167 1,707 10,614 11,106 14,272
------------------------------- ------------------------------------------------
Total lease revenues $ 10,935 $ 8,728 $ 22,116 $ 23,592 $ 32,878
=============================== ================================================
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
The following table sets forth identifiable net income (loss) information
by region for the owned equipment and investments in USPEs for the years ended
December 31, 1997, 1996, and 1995 (in thousands of dollars):
Region Investments in USPEs Owned Equipment
- ------------------------------- --------------------------- -----------------------------------------
Net Income (Loss) 1997 1996 1997 1996 1995
------------------------------------------------------------ -------------------------------------------
United States $ -- $ -- $ 1,219 $ 1,129 $ 1,807
Canada 3,159 (1,576) 461 195 (210)
South America 224 (274) -- -- (567)
Mexico 707 (3) -- -- --
Asia -- 5,723 (1,219) 887 (96 )
Europe -- -- 2,370 294 245
Rest of the world (706) (444) 6,076 5,401 (112)
---------------------------- ----------------------------------------------
Total identifiable income 3,384 3,426 8,907 7,906 1,067
Administrative and other -- -- (3,059) (3,041) (3,041)
---------------------------- ----------------------------------------------
Total net income (loss) $ 3,384 $ 3,426 $ 5,848 $ 4,865 $ (1,974)
============================ ==============================================
The net book value of these assets as of December 31, 1997, 1996, and 1995
are as follows (in thousands of dollars):
Region Investments in USPEs Owned Equipment
- --------------------------------------------------------------------- ---------------------------------------
Net Book Value 1997 1996 1995 1997 1996 1995
----------------------------------------------------------------------- -----------------------------------------
United States $ 3,491 $ -- $ -- $ 14,250 $ 17,964 $ 22,196
Canada 6,614 10,993 3,962 1,978 2,059 1,789
South America 12,854 15,453 18,674 -- -- --
Mexico 4,581 4,429 -- -- -- --
Asia -- -- 6,633 5,552 6,663 13,760
Europe -- -- -- -- 3,141 3,769
Rest of the world 19,256 11,244 2,754 15,922 33,180 23,557
----------------------------------------- -----------------------------------------
46,796 42,119 32,023 37,702 63,007 65,071
Equipment held for sale -- -- -- -- -- 14,607
----------------------------------------- -----------------------------------------
Total net book value $ 46,796 $ 42,119 $ 32,023 $ 37,702 $ 63,007 $ 79,678
========================================= =========================================
The lessees comprising approximately 10% or more of the total revenues in
1995 were Star Shipping and AS (14% in 1995). There were no lessees during
1997 and 1996 whose rent was 10% or greater of total revenues.
4. Investments in Unconsolidated Special-Purpose Entities
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, 1997
4. Investments in Unconsolidated Special-Purpose Entities (continued)
The principal differences between the previous accounting method and the
equity method concern 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 partners'
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 1997, the Partnership purchased an interest in an entity owning a
product tanker for $10.1 million and incurred acquisition and lease
negotiation fees to FSI of $0.5 million.
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 programs) for $5.9 million, and incurred acquisition and lease
negotiation fees to WMS of $1.2 million. The Partnership also purchased a
50% ownership interest in an entity owning a marine vessel (the remaining
interest is held by an affiliated program) for $4.0 million, including
acquisition and lease negotiation fees of $0.2 million incurred to TEC for
this equipment.
The following summarizes the financial information for the unconsolidated
special-purpose entities and the Partnership's interest therein as of and
for the year ended December 31, 1997 and 1996 (in thousands of dollars):
1997 1996
------------------------------- -------------------------------
Net Interest
Total of Total Net Interest
USPEs Partnership USPEs of Partnership
-------------------------------- ----------------------------------
Net Investments $ 95,743 $ 46,796 $ 97,980 $ 42,119
Lease revenues 27,145 10,935 24,157 8,728
Net income 6,411 3,384 5,955 3,426
The net investments in USPEs as of December 31, 1997 and 1996 include the
following jointly-owned equipment (and related assets and liabilities) (in
thousands of dollars):
1997 1996
--------------------------------
64% interest in a trust owning a 767-200ER commercial aircraft $ 12,854 $ 15,453
53% interest in an entity owning a product tanker 9,881 --
50% interest in a trust that owns four commercial aircraft 6,614 8,410
30% interest in an entity owning a mobile offshore drilling unit 5,050 6,196
40% interest in two commercial aircraft on direct finance lease 4,581 4,429
17% interest in a trust that owned a commercial aircraft 3,491 --
50% interest in an entity owning a container feeder vessel 2,812 3,197
20% interest in an entity owning a handymax bulk carrier 1,513 1,851
17% interest in a trust owning six commercial aircraft -- 2,583
--------------------------------------------------- -------------
Net investments $ 46,796 $ 42,119
============= =============
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. Investments in Unconsolidated Special-Purpose Entities (continued)
The Partnership has interests in two USPEs that own multiple aircraft (the
Trusts). These Trusts contain provisions, under certain circumstances, for
allocating specific aircraft to the beneficial owners. During 1997, the
Partnership and an affiliated program each sold the aircraft designated to
it. The Partnership's 17% interest in one of the Trusts owning the
commercial aircraft was sold for proceeds of $5.2 million for its net
investment of $1.8 million. The Partnership received liquidating proceeds
of $1.7 million during 1997. The remaining liquidating proceeds of $3.5
were received during January 1998.
During September 1996, PLM Equipment Growth Fund V, an affiliated program
that also has an interest in one of the Trusts, 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 had 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 that owned a rig. The Partnership received a liquidating
distribution of $11.7 million for its net investment of $5.9 million.
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 were 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 as of
December 31, 1997 and 1996 are as follows (in thousands in dollars):
1997 1996
----------- -----------
Total minimum lease payments $ 163 $ 286
Less unearned income (10) (32)
----------- -----------
$ 153 $ 254
=========== ===========
Future minimum rentals receivable under the direct finance lease as of
December 31, 1997 for the next two years are approximately $123,000 in 1998
and $40,000 in 1999.
6. Notes Payable
In August 1993, the Partnership entered into an agreement to issue a
long-term note totaling $30.0 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 $10.0 million on November 17, 2001,
2002, and 2003. The agreement requires the Partnership to maintain certain
financial covenants related to fixed-charge coverage. Proceeds from the
sale of the note have been used to fund additional equipment acquisitions
and to repay any obligations of the Partnership under the credit facility
(see discussion below).
The General Partner estimates, based on recent transactions, that the fair
market value of the $30.0 million fixed-rate note is $29.0 million.
The General Partner has entered into a joint $50.0 million credit facility
(the Committed Bridge Facility) on behalf of the Partnership, EGF V, EGF
VII, and 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,
which may be used to provide interim financing of up to (i) 70% of the
aggregate book value or 50% of the aggregate net
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
6. Notes Payable (continued)
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 December 2, 1997 to expire on November 2, 1998. The
Partnership, TECAI, Fund I, and the other programs may collectively borrow
up to $35.0 million of the Committed Bridge Facility. AFG may borrow up to
$50.0 million of the Committed Bridge Facility. The Committed Bridge
Facility also provides for a $5.0 million Letter of Credit Facility for the
eligible borrowers. Outstanding borrowings by one borrower reduce the
amount available to each of the other borrowers under the Committed Bridge
Facility. Individual borrowings may be outstanding for no more than 179
days, with all advances due no later than November 2, 1998. Interest
accrues at either the prime rate or adjusted LIBOR plus 1.625% at the
borrower's 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, 1997, AFG had $23.0 million in outstanding borrowings. No other
eligible borrower had outstanding borrowings. The General Partner believes
it will renew the Committed Bridge Facility upon its expiration with
similar terms as those in the current Committed Bridge Facility.
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, 1997, there were temporary differences of approximately
$28.0 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,
equipment reserves, and the tax treatment of underwriting commissions and
syndication costs.
PLM EQUIPMENT GROWTH FUND VI
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10.1 Management Agreement between Partnership and *
PLM Investment Management, Inc.
10.2 Note Agreement, dated as of August 1, 1993,
regarding $30.0 million
in 6.7% senior notes due November 17, 2003 *
10.3 Third Amended and Restated Warehousing Credit Agreement,
dated as of December 2, 1997, with First Union National Bank
of North Carolina and others 45-124
24. Powers of Attorney 125-127
* Incorporated by reference. See page 26 of this report.