UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 For the fiscal year ended
December 31, 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 0-15436
PLM EQUIPMENT GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2998816
(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 executive offices) (Zip code)
Registrant's telephone number, including area code (415) 974-1399
-----------------------
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 ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Sec.229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock: N/A.
Indicate the number of units outstanding of each of the issuer's classes of
depositary units as of the latest practicable date:
Class Outstanding at March 20, 1998
----- -----------------------------
Limited Partnership Depositary Units: 5,785,350
General Partnership Units: 1
An index of exhibits filed with this Form 10-K is located on page 41.
Total number of pages in this report: 44
.
<PAGE>
PART I
ITEM 1. BUSINESS
(A) Background
On January 28, 1986, PLM Financial Services, Inc. (FSI or the General Partner),
a wholly-owned subsidiary of PLM International, Inc. (PLM or PLM International),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 6,000,000 depositary units in
PLM Equipment Growth Fund, a California limited partnership (the Partnership,
the registrant, or EGF). The Partnership's offering became effective on May 20,
1986. FSI, as General Partner, owns a 1% interest in the Partnership. The
Partnership was formed to engage in the business of owning and managing a
diversified pool of used and new transportation-related equipment and certain
other items of equipment. The Partnership's primary objectives are:
(1) to maintain a diversified portfolio of low-obsolescence equipment with
long lives and high residual values with the net proceeds of the initial
Partnership offering, supplemented by debt financing if deemed appropriate by
the General Partner. The General Partner sought to purchase a diversified pool
of used transportation and related equipment which due to supply and demand
being out of equilibrium, is priced below its inherent value. The General
Partner places the equipment on lease or under other contractual agreements with
creditworthy lessees and operators of equipment. A lessee's creditworthiness is
determined by PLM's Credit Review Committee (the Committee) which is made up of
members of PLM's senior management. In determining a lessee's creditworthiness,
the Committee will consider, among other factors, its financial statements,
internal and external credit ratings, and letters of credit);
(2) to generate sufficient net operating cash flows from lease operations
to meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to selectively sell equipment when the General Partner believes that,
due to market conditions, market prices for equipment exceed inherent equipment
values or that expected future benefits from continual ownership of a particular
asset will not equal or exceed other equipment investment opportunities.
Proceeds from these sales, together with excess net operating cash flows from
operations (net cash provided by operating activities plus distributions from
unconsolidated special-purpose entities (USPEs)) are used for distributions to
the partners;
(4) to preserve and protect the value of the portfolio through quality
management, maintaining diversity and constantly monitoring equipment markets.
The offering of Partnership units closed on May 19, 1987. On June 1, 1989, each
unitholder received a depositary receipt representing ownership of the number of
units owned by such unitholder. As of December 31, 1997, there were 5,785,350
depositary units outstanding. The General Partner contributed $100 for its 1%
general partner interest in the Partnership. The General Partner delisted the
Partnership's depositary units from the American Stock Exchange (AMEX) on April
8, 1996. The last day for trading on the AMEX was March 22, 1996.
Since the third quarter of 1994, the Partnership agreement has prohibited the
General Partner from reinvesting cash flows and surplus funds in equipment. All
future cash flows and surplus funds, if any, are to be used for distributions to
Partners, except to the extent used to maintain reasonable reserves.
<PAGE>
Table 1, below, lists the equipment and the cost of the equipment in the
Partnership's portfolio and the cost of investments in unconsolidated
special-purpose entities, as of December 31, 1997 (in thousands of dollars):
TABLE 1
<TABLE>
<CAPTION>
Units Type Manufacturer Cost
- ------------------------------------------------------------------------------------------------------
Equipment held for operating leases:
<S> <C> <C> <C>
880 Tank railcars Various $ 21,948
257 Refrigerated marine containers Various 3,443
9 Dry storage trailers Various 54
222 Over-the-road dry trailers Various 2,016
155 Dry piggyback trailers Various 2,169
116 Over-the-road refrigerated trailers Various 3,389
-----------------
Total equipment $ 33,019<F5>
=================
Investments in unconsolidated special-purpose entities:
0.50 Product tanker Kaldnes M/V $ 8,277<F1>
0.50 737-200 Stage II commercial aircraft Boeing 8,084<F2>
0.12 767-200ER Stage III commercial aircraft Boeing 4,905<F3>
0.18 727-200 Stage III commercial aircraft Boeing 1,112<F4>
Total investments $ 22,378<F5>
=================
<FN>
<F1> Jointly owned: EGF (50%) and one affiliated program.
<F2> Jointly owned: EGF (50%) and one affiliated program.
<F3> Jointly owned: EGF (12%) and two affiliated programs.
<F4> Jointly owned: EGF (18%) and two affiliated programs.
<F5> Includes proceeds from capital contributions, operations and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to
the date of acquisitions, and equipment acquisition fees paid to PLM
Transportation Equipment Corporation, a wholly-owned subsidiary of FSI. All
equipment was used equipment at the time of purchase.
</FN>
</TABLE>
<PAGE>
The equipment is generally leased under operating leases with terms of one to
six years. All 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 equipment to
sublessees, after deducting certain direct operating expenses of the pooled
equipment. Rents for railcars are based on mileage traveled or a fixed rate;
rents for all other equipment are based on fixed rates.
As of December 31, 1997, 70% of the Partnership's trailer equipment is 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 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, Petro Canada, and SWR BRAZIL. As of December 31, 1997, all of the
equipment was either operating in short-term rental facilities, was on lease, or
was under other contractual agreements, except for 24 marine containers, 3
railcars, and the Partnership's 50% and 18% investments in commercial aircraft.
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the equipment until the Partnership terminates. IMI has 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 is entitled to a
monthly management fee (refer to Notes 1 and 2 to the financial statements). The
Partnership's management agreement with IMI is 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.
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents owed during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short- to mid-term nature of operating
leases generally commands a higher rental rate than the longer term, full payout
leases, and offers lessees relative flexibility in their equipment commitment.
In addition, the rental obligation under an operating lease need not be
capitalized on 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 services (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership competes with many equipment lessors, including ACF Industries,
Inc. (Shippers Car Line Division), General Electric Railcar Services
Corporation, General Electric Capital Aviation Services Corporation, and other
programs that lease the same types of equipment.
<PAGE>
(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, such as 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) Commercial Aircraft
The international commercial aircraft market experienced another good year 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, the increased 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 (Stage II
aircraft are 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. All aircraft currently manufactured meet Stage III
requirements. The cost to install a hushkit is approximately $1.5 million,
depending on the type of aircraft.
The Partnership has a 50% investment in a late-model (post-1974) Boeing 737-200
aircraft that has not been hushed. The Partnership has a 12% investment in a
widebody, twin-engine, twin-aisle Boeing 767-200ER. The aircraft is a late-model
aircraft with high gross operating weights and the most advanced-technology
engine powerplants available on the market. The aircraft carries 216 passengers
in a mixed class over 6,800 nautical miles. The Partnership has an 18%
investment in a Boeing 727-200 Stage III aircraft that has been hushed. All
aircraft are scheduled to be sold in 1998.
(2) Marine Product Tanker
The international marine product tanker market experienced a stable year. With
supply and demand generally in balance throughout the year, freight rates had a
slight upward trend, averaging $13,402 per day in 1997, contrasted with $12,902
per day in 1996 and $12,692 per day in 1995. Some weakening in freight rates
occurred late in the year due to softness in European and Mediterranean markets.
Product trade grew only 0.2% in 1997; the majority of growth came from imports
to the United States, which increased 3%. The crude oil trade, which is closely
related to product trade, especially for large vessels, was strong in 1997.
Crude oil trade grew 2% in volume, led by imports to the United States, which
grew 7%. Overall, the entire United States tanker fleet grew only 1% in 1997.
Supply is anticipated to increase in 1998, with expected deliveries of up to 5%
of the existing fleet. Despite these additions, forecasts for the tanker trade
remains firm; fleet expansion is expected to be matched by a growth in demand
for at least two more years.
The Partnership has an investment with another affiliated program in a product
tanker, which is traded in worldwide markets and carries commodity cargos.
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 product tanker under period charters. It is believed that this
operating approach provides the flexibility to adapt to changing demand
patterns.
(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, as 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.
The utilization rate on the Partnership's fleet of pressurized tank cars was
over 98% during 1997. Based on ongoing renewals with current lessees, demand for
these cars continues to be strong and is projected to remain so during 1998.
(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%.
(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 of 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.
Overall utilization in the Partnership's dry piggyback fleet was over 75% in
1997, an increase of 10% over 1996 levels. The expectation is for flat to
slightly lower utilization of the fleet 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.
Utilization of the Partnership's dry van fleet is up 8% over last year.
(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 on a short-term basis from
rental yards owned and operated by PLM subsidiaries. The Partnership's
utilization, especially in the second half of 1997, was significantly higher
than 1996 levels.
(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 which may
require its removal from service or extensive modification to meet these
regulations at considerable cost to the Partnership. Such regulations include
but are not limited to:
(1) the United States 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 United States Department of Transportation's Aircraft
Capacity Act of 1990, which limits or eliminates the operation of
commercial aircraft in the United States that do not meet certain
noise, aging, and corrosion criteria. In addition, under U.S.
Federal Aviation Regulations, after December 31, 1999, no person
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 only one
Stage II aircraft that does not meet Stage III requirements. This
aircraft is scheduled to be sold in 1998.
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer
and the United States 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 trailers;
(4) the United States Department of Transportation's Hazardous
Materials Regulations. which regulate the classification of and
packaging requirements for hazardous materials and which apply
particularly to the Partnership's tank cars.
As of December 31, 1997, the Partnership is in compliance with the above
government regulations. Typically, costs related to extensive modifications are
passed on to the lessee of that equipment.
<PAGE>
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 USPEs, as described in Part I, Table 1.
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
None
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.
(This space intentionally left blank.)
<PAGE>
Part II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED DEPOSITARY UNIT
MATTERS
The General Partner delisted the Partnership's depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading on the
AMEX was March 22, 1996. Under the Internal Revenue Code (the Code) then in
effect, the Partnership was classified as a publicly traded partnership. The
Code treated all publicly traded partnerships as corporations if they remained
publicly traded after December 31, 1997. Treating the Partnership as a
corporation would have meant the Partnership itself became a taxable rather than
a "flow through" entity. As a taxable entity, the income of the Partnership
would have become subject to federal taxation at both the partnership level and
the investor level to the extent that income would have been distributed to an
investor. In addition, the General Partner believed that the trading price of
the depositary units would have become distorted when the Partnership began the
final liquidation of the underlying equipment portfolio. In order to avoid
taxation of the Partnership as a corporation and to prevent unfairness to
unitholders, the General Partner delisted the Partnership's depositary units
from the AMEX. While the Partnership's depositary units are no longer publicly
traded on a national stock exchange, the General Partner continues to manage the
equipment of the Partnership and prepare and distribute quarterly and annual
reports and Forms 10-Q and 10-K in accordance with the Securities and Exchange
Commission requirements. In addition, the General Partner continues to provide
pertinent tax reporting forms and information to unitholders.
As of March 20, 1998, there were 5,785,350 depositary units outstanding. There
are approximately 8,800 depositary unitholders of record as of the date of this
report.
Several secondary exchanges facilitate sales and purchases of depositary units.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are generally viewed as inefficient vehicles for the
sale of depositary units. There is presently 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 Code, the units will not be transferred
without the consent of the General Partner, which may be withheld in its
absolute discretion. The General Partner intends to monitor transfers of units
in an effort to ensure that they do not exceed the number permitted by certain
safe harbors promulgated by the Internal Revenue Service. A transfer may be
prohibited if the intended transferee is not a U.S. citizen or if the transfer
would cause any portion of the units to be treated as plan assets.
Pursuant to the terms of the partnership agreement, the General Partner is
generally entitled to a 1% interest in the profits and losses and distributions
of the Partnership. The General Partner also is entitled to a special allocation
of any gains from the sale of the Partnership's assets during the liquidation
phase in an amount sufficient to eliminate any negative balance in the General
Partner's capital account.
(This space intentionally left blank.)
<PAGE>
Table 2, below, sets forth the high and low reported prices of the Partnership's
depositary units for 1996, as reported by the AMEX, as well as cash
distributions paid per depositary unit.
TABLE 2
<TABLE>
<CAPTION>
Cash Distributions
Paid Per
Reported Trade Depositary
Prices Unit
-----------------------------------------
Calendar Period High Low
1996
<S> <C> <C> <C>
1st Quarter $ 8.25 $ 5.94 $ 0.575
2nd Quarter $ -- $ -- $ 0.289
3rd Quarter $ -- $ -- $ 0.289
4th Quarter $ -- $ -- $ 0.274
</TABLE>
The General Partner delisted the Partnership's depositary units from the
American Stock Exchange (AMEX), which traded with the symbol GFX. The last day
for trading on the AMEX was March 22, 1996.
The Partnership engaged in a plan to repurchase up to 250,000 depositary units.
During the first, second, and fourth quarters of 1995, the Partnership
repurchased 11,900, 16,147, and 10,000 depositary units at a total cost of
$140,000, $194,000, and $80,000, respectively. During the first quarter of 1996,
the Partnership repurchased 24,800 depositary units at a total cost of $163,000.
There were no repurchases of depositary units in 1997. As of December 31, 1997,
the Partnership had purchased a cumulative total of 199,650 depositary units at
a cost of $2.6 million. The General Partner does not plan any future repurchases
of depositary units on behalf of the Partnership.
(This space intentionally left blank.)
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Table 3, below, lists selected financial data for the Partnership:
TABLE 3
For the years ended December 31,
(in thousands of dollars, except per weighted-average depositary unit amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating results:
Total revenues $ 12,462 $ 23,859 $ 23,575 $ 25,659 $ 24,278
Net gain on disposition
of equipment 3,265 13,304 2,195 1,585 838
Loss on revaluation of
equipment -- -- -- 1,989 1,380
Equity in net income (loss) of
unconsolidated special-
purpose entities (483) 8,728 -- -- --
Net income 5,685 23,847 4,234 75 1,725
At year-end:
Total assets $ 20,006 $ 20,749 $ 39,061 $ 56,669 $ 70,482
Total liabilities 1,308 1,331 24,727 32,606 32,746
Notes payable - - 23,000 28,000 28,000
Cash distribution $ 6,405 $ 8,358 $ 13,549 $ 13,580 $ 13,760
Special distribution $ -- $ 10,242 $ -- $ -- $ --
Cash and special distribution
representing a return of capital $ 754 $ -- $ 9,351 $ 13,462 $ 12,042
Per weighted-average depositary unit:
Net income (loss) $ 0.97<F1> $ 4.08 $ 0.70<F2> $ (0.01)<F3> $ 0.27<F4>
Cash distribution $ 1.10 $ 1.43 $ 2.30 $ 2.30 $ 2.31
Special distribution $ -- $ 1.75 $ -- $ -- $ --
Cash and special distribution
representing a return of capital $ 0.13 $ -- $ 1.60 $ 2.30 $ 2.04
<FN>
<F1> After reduction of $41,000 ($0.01 per weighted-average Depositary Unit)
resulting from a special allocation to the General Partner relating to an
amendment to the Partnership agreement. (See Note 1 to the financial
statements.)
<F2> After reduction of $0.1 million ($0.02 per weighted-average Depositary
Unit) resulting from a special allocation to the General Partner relating
to an amendment to the Partnership agreement. (See Note 1 to the financial
statements.)
<F3> After reduction of $0.1 million ($0.02 per weighted-average Depositary
Unit) resulting from a special allocation to the General Partner relating
to an amendment to the Partnership agreement. (See Note 1 to the financial
statements.)
<F4> After reduction of $0.1 million ($0.02 per weighted-average Depositary
Unit) resulting from a special allocation to the General Partner relating
to an amendment to the Partnership agreement. (See Note 1 to the financial
statements.)
</FN>
</TABLE>
<PAGE>
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 (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 and Repricing Activity
The exposure of the Partnership's equipment portfolio to repricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be remarketed. Major factors influencing the current market rate
for transportation equipment include supply and demand for similar or comparable
types or kinds of transport capacity, desirability of the equipment in the lease
market, market conditions for the particular industry segment in which the
equipment is to be leased, overall economic conditions, various regulations
concerning the use of the equipment, and others. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent one can result in a reduction of contribution to the Partnership. The
Partnership experienced re-leasing or repricing exposure in 1997 primarily in
its aircraft, trailer, and railcar portfolios.
(a) Aircraft: Aircraft contribution decreased from 1996 to 1997 due
to an aircraft in which the Partnership owns a 50% interest
remaining off-lease for all of 1997. This aircraft was on lease
until the third quarter of 1996. In addition, one aircraft was
sold during the third quarter of 1997. All other aircraft
investments were on lease for the entire year.
(b) Trailers: The Partnership's trailer portfolio operates in
short-term rental facilities or on 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 operated in
short-term rental facilities and the short-line railroad system
from 1996 to 1997 increased due to higher utilization, although
this was offset by sales of trailers.
(c) Railcars: The majority of the Partnership's railcar equipment
remained on lease throughout the year, and thus was not adversely
affected by re-leasing and repricing exposure.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment represents a reduction in the size of the
equipment portfolio and will result in reduction of contribution to the
Partnership. Lessees not performing under the terms of their leases, either by
not paying rent, not maintaining or operating the equipment in accordance with
the conditions of the leases, or other possible departures from lease terms can
result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1997:
(a) Liquidations: During 1997, the Partnership sold its 50%
investment in an aircraft engine, marine containers, trailers,
railcars, and an aircraft. Since the Partnership may no longer
purchase additional equipment, these disposals represent a
permanent reduction in the Partnership's equipment portfolio.
(b) Nonperforming Lessees: In 1996, the General Partner repossessed
an aircraft owned by a trust in which the Partnership has a 50%
interest, due to the lessee's inability to pay outstanding
receivables. This aircraft remained off lease throughout 1997. In
addition, another aircraft lessee was unable to continue paying
its obligations to the Partnership. As payment for these past due
receivables, the Partnership was given an 18% interest in an
entity that owns a Boeing 727 aircraft. The fair market value of
the Partnership's interest in this aircraft approximates its
outstanding receivable from the lessee. This aircraft was sold at
its approximate net book value in the first quarter of 1998.
Other equipment such as railcars, trailers and some of the marine
containers experienced minor nonperforming issues that have no
significant impact on the Partnership.
(3) Reinvestment Risk
During the first eight years of operations, the Partnership invested surplus
cash in additional equipment after fulfilling operating requirements and paying
distributions to the partners. Since the third quarter of 1994, pursuant to the
Partnership agreement, the Partnership may no longer reinvest in equipment. In
1997, the Partnership was engaged in a holding or passive liquidation period. In
1998, the Partnership began an orderly liquidation over the remaining life of
the Partnership.
During 1997, the Partnership received proceeds of approximately $4.2 million
from the disposition of equipment. In addition, the Partnership received
proceeds of approximately $0.2 million from the sale of its investment in an
entity that owned equipment. The General Partner incurred approximately $0.1
million in capital improvement costs on behalf of the Partnership, but did not
purchase any additional equipment in 1997.
(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 its equipment portfolio at least
annually in relation to expected future market conditions for the purpose of
assessing the recoverability of the recorded amounts. If the projected future
lease revenue plus residual values are less than the carrying values of the
equipment, a loss on revaluation is recorded. No reductions were required to the
carrying value of equipment during 1997 or 1996.
As of December 31, 1997, the General Partner estimated the current fair market
value of the Partnership's owned and partially owned equipment portfolio to be
approximately $33.9 million.
(C) Financial Condition -- Capital Resources and Liquidity
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering and permanent debt financing. No
further capital contributions from original partners are permitted under the
terms of the limited partnership agreement. The Partnership currently has no
debt obligations. As the Partnership entered its liquidation phase in 1998, it
is prohibited from incurring any new debt. The Partnership relies on operating
cash flows to meet its operating obligations and to make cash distributions to
the limited partners.
For the year ended December 31, 1997, the General Partner generated sufficient
operating cash (net cash provided by operating activities, plus distributions
from USPEs) to meet its operating obligations, but used undistributed available
cash from prior periods of approximately $0.5 million to maintain the current
level of distributions to the partners. During the year, the General Partner
sold equipment for approximately $4.2 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 to that
mentioned above.
<PAGE>
(D) Results of Operations -- Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended 1997
and 1996
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended 1997 when compared to 1996. The following table
presents lease revenues less direct expenses by owned equipment type (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
------------------------------
<S> <C> <C>
Rail equipment $ 4,497 $ 4,547
Trailers 1,222 1,299
Marine containers 791 1,276
Aircraft and aircraft engines 249 472
Marine vessels -- 162
</TABLE>
Rail Equipment: Rail equipment lease revenues and direct expenses were $6.2
million and $1.7 million, respectively, for 1997, compared to $6.4 million and
$1.9 million, respectively, during 1996. During 1997 and 1996, the Partnership
sold 37 railcars, resulting in lower revenues and expenses in 1997 compared to
1996.
Trailers: Trailer lease revenues and direct expenses were $1.7 million and $0.5
million, respectively, for 1997, compared to $1.8 million and $0.5 million,
respectively, during 1996. The trailer net contribution decreased due to the
sale of trailers during 1996 and 1997.
Marine Containers: Marine container lease revenues and direct expenses were $0.8
million and $5,000, respectively, for 1997, compared to $1.3 million and $8,000,
respectively, during 1996. The number of marine containers owned by the
Partnership has been declining over the past twelve months due to sales and
dispositions.
Aircraft and Aircraft Engines:Aircraft lease revenues and direct expenses were
$0.3 million and $6,000, respectively, for 1997, compared to $0.5 million and
$16,000, respectively, during 1996. Aircraft contribution decreased in 1997 due
to the disposition of an aircraft during the third quarter of 1997.
Marine Vessels: Marine vessel lease revenues and direct expenses were zero for
1997, compared to $0.2 million and a credit of $22,000, respectively, during
1996. The decrease in marine vessel contribution from 1996 to 1997 was due to
the sale of all vessels during 1996.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.1 million for 1997 decreased from $6.3 million in
1996. The variances are explained as follows:
(i) A $1.0 million decrease in depreciation and amortization expenses
from 1996 levels reflects the sale of certain assets during 1997
and 1996.
(ii) A $0.9 million decrease in interest expense was due to repayment
of the Partnership's outstanding debt in 1996.
(iii) A $0.2 million decrease in management fees to affiliate was due
to a decrease in the Partnership's operating cash flows.
Management fees are based on the greater of (A) 10% of cash
flows, or (B) 1/12 of 1/2% of the net book value of the equipment
portfolio subject to reduction in certain events described in the
limited partnership agreement.
<PAGE>
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of owned equipment for 1997 totaled $3.3 million, which
resulted from the sale or disposal of marine containers, trailers, railcars, and
an aircraft, with an aggregate net book value of $0.9 million, for aggregate
proceeds of $4.2 million. For 1996, the $13.3 million net gain on disposition of
owned equipment resulted mainly from the sale of vessels with a net book value
of $2.3 million, for proceeds of $13.4 million. The remaining gain resulted from
the sale or disposal of marine containers, trailers, railcars, locomotives, and
an aircraft engine, with an aggregate net book value of $2.3 million, for
aggregate proceeds of $4.5 million.
(d) Interest and Other Income
Interest and other income decreased $0.1 million during 1997, when compared to
1996, due primarily to lower average cash balances available during the year for
investments.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Equity in net income (loss) of unconsolidated special-purpose entities
represents net income (loss) generated from the operation of jointly-owned
assets, and is accounted for under the equity method (see Note 4 to the
financial statements), as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
------------------------------
<S> <C> <C>
Marine vessel $ 12 $ 247
Aircraft and aircraft engines (495 ) 468
Mobile offshore drilling unit -- 8,013
</TABLE>
Marine Vessel: The Partnership's share of marine vessel revenues and expenses
was $2.5 million and $2.5 million, respectively, for 1997, compared to $2.2
million and $2.0 million, respectively, for 1996. During 1997 and 1996, the
Partnership owned a 50% investment in a marine vessel. The decrease in net
income in 1997 resulted from higher insurance expense, partially offset by
higher lease rates during 1997, compared to 1996.
Aircraft and Aircraft Engines: The Partnership's share of aircraft revenues and
expenses was $0.7 million and $1.2 million, respectively, for 1997, compared to
$2.5 million and $2.0 million, respectively, for 1996. As of December 31, 1997,
the Partnership owned 50%, 18%, and 12% interests in commercial aircraft. The
Partnership liquidated its 70% and 50% investments in commuter aircraft and its
50% investment in an aircraft engine during 1996 as a result of the General
Partner's sale of the assets. The loss of $0.5 million related to the
Partnership's 50% investment in a commercial aircraft. This aircraft was off
lease during 1997, although it had been on lease for six months in 1996. The
Partnership's remaining 18% and 12% investments in commercial aircraft operated
at essentially breakeven during 1997.
Mobile Offshore Drilling Unit: The Partnership's share of mobile offshore
drilling unit revenues and expenses was zero for 1997, compared to $8.8 million
and $0.8 million, respectively, during 1996. The Partnership liquidated its 55%
investment in the mobile offshore drilling unit during July 1996 as a result of
the General Partner's sale of the asset.
(f) Net Income
As a result of the foregoing, the Partnership's net income of $5.7 million
during 1997 decreased from net income of $23.8 million during 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 1997 is not necessarily indicative of future
periods. During 1997, the Partnership distributed $6.3 million to the limited
partners, or $1.10 per depositary unit.
<PAGE>
(2) Comparison of the Partnership's Operating Results for the Years Ended 1996
and 1995
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance, marine
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended 1996 when compared to 1995. The following table
presents lease revenues less direct expenses by owned equipment type (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1996 1995
------------------------------
<S> <C> <C>
Rail equipment $ 4,547 $ 4,823
Trailers 1,299 1,895
Marine containers 1,276 1,631
Aircraft and aircraft engines 472 364
Marine vessels 162 1,889
</TABLE>
Rail Equipment: Rail equipment lease revenues and direct expenses were $6.4
million and $1.9 million, respectively, for 1996, compared to $6.8 million and
$2.0 million, respectively, during 1995. During 1996, the Partnership sold
railcars and locomotives, which resulted in lower revenues and expenses in 1996,
compared to 1995. In addition, the decrease in railcar contribution resulted
from running repairs required on certain of the railcars in 1996 that were not
needed during 1995.
Trailers: Trailer lease revenues and direct expenses were $1.8 million and $0.5
million, respectively, for 1996, compared to $2.5 million and $0.6 million,
respectively, during 1995. The trailer net contribution decreased due to the
sale of trailers during 1995 and 1996. In addition, the trailer fleet
experienced lower utilization in the short-term rental yards.
Marine Containers: Marine container lease revenues and direct expenses were $1.3
million and $8,000, respectively, for 1996, compared to $1.6 million and
$28,000, respectively, during 1995. The number of marine containers owned by the
Partnership declined over the past twelve months due to sales and dispositions.
In addition, the marine container fleet experienced lower utilization resulting
in a decrease in marine container net contribution.
Aircraft and Aircraft Engines: Aircraft lease revenues and direct expenses were
$0.5 million and $16,000, respectively, for 1996, compared to $0.5 million and
$0.1 million, respectively, during 1995. Aircraft contribution increased in 1996
due to lower insurance expenses for the year, compared to 1995.
Marine Vessels: Marine vessel lease revenues and direct expenses were $0.2
million and ($22,000), respectively, for 1996, compared to $1.7 million and
($0.2) million, respectively, during 1995. In 1995, marine vessel expenses were
$0.2 million lower than in 1996, due to actual refurbishment costs for the
Partnership's vessels being lower than the amount previously accrued. The
decrease in marine vessel lease revenues from 1995 to 1996 was due to the sale
of seven offshore supply vessels during the first quarter of 1996, which were on
lease during 1995.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $6.3 million for 1996, decreased from $8.8 million in
1995. The variances are explained as follows:
(i) A $1.3 million decrease in depreciation and amortization expenses
from 1995 levels reflects the sale of certain assets during 1996
and 1995.
(ii) A $1.0 million decrease in interest expense was due to repayment
of the Partnership's outstanding debt.
(iii) A $0.1 million decrease in general and administrative expenses
was due to a decrease in trailer accruals that are no longer
required.
(iv) A $0.1 million decrease in management fees to affiliate was due
to a decrease in the Partnership's operating cash flows.
Management fees are based on the greater of (A) 10% of cash flows
or (B) 1/12 of 1/2% of the net book value of the equipment
portfolio, subject to a reduction in certain events described in
the limited partnership agreement.
(c) Net Gain on Disposition of Owned Equipment
Net gain on disposition of owned equipment for 1996 totaled $13.3 million, which
resulted mainly from the sale of seven offshore supply vessels, with a net book
value of $2.3 million, for proceeds of $13.4 million. The remaining gain
resulted from the sale or disposal of marine containers, trailers, railcars,
locomotives, and an aircraft engine, with an aggregate net book value of $2.3
million, for aggregate proceeds of $4.5 million. For 1995, the $1.3 million net
gain on disposition of owned equipment resulted from the sale or disposal of
marine containers, trailers, and railcars, with an aggregate net book value of
$0.9 million, for aggregate proceeds of $2.2 million.
(d) Interest and Other Income
Interest and other income decreased $0.4 million during 1996 due to lower cash
balances and adjustments recorded in 1995, which represented $0.3 million of
accrued interest income on deposit balances no longer payable. No similar
adjustments were recorded in 1996.
(e) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Equity in net income (loss) of unconsolidated special-purpose entities
represents net income (loss) generated from the operation of jointly-owned
assets, and is accounted for under the equity method (see Note 4 to the
financial statements), as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1996 1995
------------------------------
<S> <C> <C>
Mobile offshore drilling unit $ 8,013 $ (134)
Aircraft and aircraft engines 468 331
Marine vessels 247 268
</TABLE>
Mobile Offshore Drilling Unit: The Partnership's share of mobile offshore
drilling unit (rig) revenues and expenses was $8.8 million and $0.8 million,
respectively, for 1996, compared to $1.6 million and $1.7 million, respectively,
during 1995. Net income generated from the rig increased in 1996 due to the $8.0
million gain on the sale of the Partnership's rig during July 1996.
Aircraft and Aircraft Engines: The Partnership's share of aircraft revenues and
expenses was $2.5 million and $2.0 million, respectively, for 1996, compared to
$2.5 million and $2.2 million, respectively, for 1995. As of December 31, 1996,
the Partnership owned 50% and 12% investments in commercial aircraft. The
Partnership sold its 70% and 50% investments in commuter aircraft and its 50%
investment in an aircraft engine during 1996, resulting in $1.3 million in net
gains and $1.2 million of net income. Income from the sales was partially offset
by a net loss during 1996 of $0.7 million related to the Partnership's 50%
investment in a commercial aircraft, and was due to an increase in the allowance
for doubtful accounts related to a financially troubled lessee. In addition, the
aircraft was off lease during the last six months of 1996. The Partnership's
remaining 12% investment in a commercial aircraft operated at essentially
breakeven during 1996.
During 1995, the Partnership sold its 50% investments in a commuter and a
commercial aircraft, resulting in an aggregate gain of $0.4 million and an
aggregate net income of $0.3 million. The Partnership's remaining joint
investments in aircraft generated $13,000 of net income during 1995.
Marine Vessel: The Partnership's share of marine vessel revenues and expenses
was $2.2 million and $2.0 million, respectively, for 1996, compared to $4.4
million and $4.1 million, respectively, for 1995. During 1995 and 1996, the
Partnership owned a 50% investment in a marine vessel. Although this vessel
experienced lower daily rates in 1996, the vessel generated $0.2 million in net
income to the Partnership in 1996, compared to $0.1 million in net loss to the
Partnership in 1995. The increase in net income in 1996 resulted from lower
marine operating expenses associated with the vessel, compared to 1995, due
mainly to lower drydocking costs.
In addition, the Partnership had a 50% investment in a marine vessel that was
sold during the second quarter of 1995 for a gain of $0.5 million. This vessel
generated $0.4 million of net income during 1995. There was no similar net
income during 1996.
(f) Net Income
As a result of the foregoing, the Partnership's net income of $23.8 million
during 1996 increased from net income of $4.2 million during 1995. The
Partnership's ability to operate and liquidate assets, secure leases, and
re-lease those assets whose leases expire during the life of the Partnership is
subject to many factors, and the Partnership's performance in 1996 is not
necessarily indicative of future periods. During 1996, the Partnership
distributed $18.4 million to the limited partners, or $3.18 per depositary unit,
which included special distributions of $10.1 million, or $1.75 per depositary
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 Note 3 to the financial
statements for information on the revenues, income, 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 equipment is
sold in various equipment markets and geographic areas. An explanation of the
current relationships is presented below.
During 1997, the Partnership's equipment on lease to United States-domiciled
lessees accounted for 61% of the lease revenues generated by wholly and
partially-owned equipment while the net income accounted for $1.5 million for
the Partnership's total net income of $5.7 million. In 1997, the Partnership
generated $1.7 million in gains from disposition of an aircraft, trailers, and
railcars that were operated in the United States. Depreciating the Partnership's
rail equipment, which is leased in the United States, over 15 to 18 years versus
9 to 12 years for other types of equipment, offsets these gains, resulting in
net income of $1.5 million.
The Partnership's equipment leased to Canadian-domiciled lessees consists of
railcars. During 1997, lease revenues in Canada accounted for 7% of total lease
revenues of wholly and partially-owned equipment, while the net income accounted
for $3.8 million for the Partnership's total net income of $5.7 million.
The Partnership's 50% investment in a marine vessel and various marine
containers, which were leased in various regions throughout 1997, accounted for
26% of the lease revenues generated by wholly and partially-owned equipment,
while the net income accounted for $2.0 million for the Partnership's total net
income of $5.7 million. The Partnership's 50% investment in a marine vessel
earned lease revenues of $2.3 million in 1997 and generated $12,000 in net
income. The Partnership's marine containers earned $0.8 million in lease
revenues and generated $2.0 million in net income due to a $1.5 million gain
from the disposition of equipment. Marine container net income is expected to
decline in the future, as the Partnership has sold and will continue to sell
marine containers.
The Partnership has a 12% investment in a commercial aircraft that operates in
South America, which accounted for 5% of the lease revenues generated by wholly
and partially-owned equipment, while the net income accounted for $25,000 for
the Partnership's total net income of $5.7 million. This aircraft is on lease
until 1998 and is expected to generate higher net profit in the future as
depreciation charges decline.
(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 Partnership'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
Since the Partnership entered its orderly liquidation phase in the first quarter
of 1998, the General Partner is seeking to selectively re-lease or sell assets
as the existing leases expire. Sale decisions will cause the operating
performance of the Partnership to decline over the remainder of its life.
Throughout the remaining life of the Partnership, the Partnership will
periodically make special distributions to the partners as asset sales are
completed.
(1) 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,
purchases, or sale of equipment. 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 is scheduled to sell its remaining Stage
II aircraft in 1998.
(2) Distributions
Pursuant to the limited partnership agreement, the Partnership has ceased to
reinvest in additional equipment. The General Partner will pursue a strategy of
selectively re-leasing equipment to achieve competitive returns or selling
equipment that is underperforming or whose operation becomes prohibitively
expensive during the liquidation of the Partnership. During this time, the
Partnership will use operating cash flow and proceeds from the sale of equipment
to meet its operating obligations and make distributions to the partners.
Although the General Partner intends to maintain a sustainable level of
distributions prior to final liquidation of the Partnership, actual Partnership
performance and other considerations may require adjustments to then-existing
distribution levels. In the long term, changing market conditions and used
equipment values may preclude the General Partner from accurately determining
the impact of future re-leasing activity and equipment sales on partnership
performance and liquidity.
Since the Partnership has entered the active liquidation phase, the size of the
Partnership's remaining equipment portfolio and, in turn, the amount of net cash
flows from operations, will continue to become progressively smaller as assets
are sold. Although distribution levels will be reduced, significant asset sales
may result in potential special distributions to unitholders.
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 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank.)
<PAGE>
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:
<TABLE>
<CAPTION>
Name Age Position
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
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, 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 U.S. Naval Academy. Mr. Somerset also serves on the boards of directors
for various other companies and organizations, including Longs Drug Stores,
Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
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, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc.
(This space intentionally left blank.)
<PAGE>
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 1% interest in the profits and
losses and distributions of the Partnership. In addition to its General Partner
interest, FSI owned 1,500 units in the Partnership at December 31, 1997. As of
December 31, 1997, no investor was known by the General Partner to beneficially
own more than 5% of the depositary units of the Partnership.
(B) Security Ownership of Management
Table 4, below, sets forth, as of the date of this report, the amount and
percentage of the Partnership's outstanding depositary units beneficially owned
by each of the directors and executive officers and all directors and executive
officers as a group of the General Partner and its affiliates:
TABLE 4
Name Depositary Units Percent of Units
Robert N. Tidball 400 *
All directors and officers
As a group (1 person) 400 *
* Less than 1%.
(This space intentionally left blank.)
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1997, management fees paid or accrued to IMI were $0.5 million. During
1997, the Partnership reimbursed FSI or its affiliates $0.6 million for
administrative services and data processing expenses performed on behalf of the
Partnership.
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, $0.2 million and administrative and data processing services,
$49,000.
The USPEs paid Transportation Equipment Indemnity Company Ltd. (TEI), a
wholly-owned, Bermuda-based subsidiary of PLM International $0.2 million for
insurance coverages during 1997, which 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. No insurance coverages were paid to TEI by the
Partnership during 1997.
(B) Certain Business Relationships
None.
(C) Indebtedness of Management
None.
(D) Transactions with Promoters
None.
(This space intentionally left blank.)
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, 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. 33-2834), which became effective with the
Securities and Exchange Commission on May 20, 1986.
4.1 Amendment, dated November 18, 1991, to Limited Partnership
Agreement of Partnership.
10.1 Management Agreement between the Partnership and PLM Investment
Management, Inc., incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-2834), which
became effective with the Securities and Exchange Commission on
May 20, 1986.
25. Powers of Attorney.
(This space intentionally left blank.)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 20, 1998 PLM EQUIPMENT GROWTH FUND
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 20, 1998
*_______________________
Douglas P. Goodrich Director , FSI March 20, 1998
*_______________________
Stephen M. Bess Director , FSI March 20, 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
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Report of independent auditors 28
Balance sheets as of December 31, 1997 and 1996 29
Statements of income for the years ended
December 31, 1997, 1996, and 1995 30
Statements of changes in partners' capital for the years
ended December 31, 1997, 1996, and 1995 31
Statements of cash flows for the years ended
December 31, 1997, 1996, and 1995 32
Notes to financial statements 33-40
All financial statement schedules have been omitted, because 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.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
PLM Equipment Growth Fund:
We have audited the financial statements of PLM Equipment Growth Fund as listed
in the accompanying index. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund 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
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
1997 1996
---------------------------------
<S> <C> <C>
Assets
Equipment held for operating leases, at cost $ 33,019 $ 45,118
Less accumulated depreciation (24,885 ) (33,919)
Net equipment 8,134 11,199
Cash and cash equivalents 4,585 1,864
Restricted cash -- 60
Accounts receivable, less allowance for doubtful accounts
of $212 in 1997 and $139 in 1996 920 1,039
Due from affiliate 353 --
Investments in unconsolidated special-purpose entities 5,983 6,553
Prepaid expenses and other assets 31 34
-------------------------------------
Total assets $ 20,006 $ 20,749
=====================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 735 $ 457
Due to affiliates 529 121
Lessee deposits and reserve for repairs 44 753
-------------------------------------
Total liabilities 1,308 1,331
-------------------------------------
Partners' capital (deficit):
Limited partners (5,785,350 depositary units as of
December 31, 1997 and 1996) 18,887 19,641
General Partner (189 ) (223)
-------------------------------------
Total partners' capital 18,698 19,418
-------------------------------------
Total liabilities and partners' capital $ 20,006 $ 20,749
=====================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Revenues
Lease revenue $ 8,956 $ 10,187 $ 20,621
Interest and other income 241 368 759
Net gain on disposition of equipment 3,265 13,304 2,195
------------------------------------------------
Total revenues 12,462 23,859 23,575
------------------------------------------------
Expenses
Depreciation and amortization 2,276 3,267 8,547
Management fees to affiliate 535 739 1,318
Repairs and maintenance 2,164 2,405 2,787
Equipment operating expenses -- -- 2,261
Interest expense -- 945 2,021
Insurance expense to affiliate -- 1 214
Other insurance expenses 61 73 382
General and administrative expenses to affiliate 641 708 921
Other general and administrative expenses 527 468 623
Provision for bad debts 90 134 267
------------------------------------------------
Total expenses 6,294 8,740 19,341
------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (483) 8,728 --
------------------------------------------------
Net income $ 5,685 $ 23,847 $ 4,234
================================================
Partners' share of net income
Limited partners $ 5,587 $ 23,609 $ 4,063
General Partner 98 238 171
------------------------------------------------
Total $ 5,685 $ 23,847 $ 4,234
================================================
Net income per weighted-average depositary unit
(5,785,350 in 1997, 5,787,545 in 1996, and
5,826,210 in 1995) $ 0.97 $ 4.08 $ 0.70
================================================
Cash distribution $ 6,405 $ 8,358 $ 13,549
Special distribution -- 10,242 --
Total distribution 6,405 18,600 13,549
================================================
Per weighted-average depositary unit:
Cash distribution $ 1.10 $ 1.43 $ 2.30
Special distribution -- 1.75 --
Total distribution $ 1.10 $ 3.18 $ 2.30
================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL For the Years
Ended December 31, 1997, 1996, and 1995 (in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1994 $ 24,374 $ (311) $ 24,063
Net income 4,063 171 4,234
Repurchase of depositary units (414 ) -- (414)
Cash distribution (13,414 ) (135) (13,549)
-----------------------------------------------------
Partners' capital (deficit) as of December 31, 1995 14,609 (275) 14,334
Net income 23,609 238 23,847
Repurchase of depositary units (163 ) -- (163)
Cash distribution (8,274 ) (84) (8,358)
Special distribution (10,140 ) (102) (10,242)
-----------------------------------------------------
Partners' capital (deficit) as of December 31, 1996 19,641 (223) 19,418
Net income 5,587 98 5,685
Cash distribution (6,341 ) (64) (6,405)
Partners' capital (deficit) as of December 31, 1997 $ 18,887 $ (189) $ 18,698
=====================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 5,685 $ 23,847 $ 4,234
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,276 3,267 8,547
Net gain on disposition of equipment (3,265) (13,304 ) (2,195)
Equity in net (income) loss from unconsolidated special-
purpose entities 483 (8,728 ) --
Changes in operating assets and liabilities:
Restricted cash 60 187 272
Accounts receivable, net (219) 344 256
Due from affiliate (353) -- --
Prepaid expenses and other assets 3 (50 ) 9
Deferred charges, net - - (172)
Accounts payable and accrued expenses 278 (208 ) (47)
Due to affiliates 408 21 (98)
Lessee deposits and reserve for repairs (649) (209 ) (977)
------------------------------------------------------
Net cash provided by operating activities 4,707 5,167 9,829
------------------------------------------------------
Investing activities
Payments for capital improvements and
equipment purchases (116) (62 ) (47)
Investment in unconsolidated special-purpose
entities (see Note 4) (831) -- --
Liquidation of investment in equipment placed in
unconsolidated special-purpose entities 150 17,525 --
Distribution from unconsolidated special-purpose entities 1,049 1,521 --
Proceeds from disposition of equipment 4,167 17,917 7,142
------------------------------------------------------
Net cash provided by investing activities 4,419 36,901 7,095
------------------------------------------------------
Financing activities
Principal repayments under note payable -- (23,000 ) (28,000)
Proceeds from notes payable -- -- 23,000
Decrease in restricted cash -- 85 1,348
Cash distribution paid to limited partners (6,341) (8,274 ) (13,414)
Cash distribution paid to General Partner (64) (84 ) (135)
Special distribution paid to limited partners - (10,140 ) --
Special distribution paid to General Partner - (102 ) --
Repurchases of depositary units - (163 ) (414)
------------------------------------------------------
Net cash used in financing activities (6,405) (41,678 ) (17,615)
------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,721 390 (691)
Cash and cash equivalents at beginning of year (see Note 4) 1,864 1,474 2,542
------------------------------------------------------
Cash and cash equivalents at end of year $ 4,585 $ 1,864 $ 1,851
======================================================
Supplemental information
Interest paid $ -- $ 958 $ 2,123
======================================================
Receipt of interest in unconsolidated special-purpose entity in
settlement of receivables $ 281 $ -- $ --
======================================================
Sales proceeds included in accounts receivable $ 3 $ -- $ --
======================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation
Organization
PLM Equipment Growth Fund, a California limited partnership (the
Partnership) was formed on January 28, 1986. The Partnership engages in
the business of owning and leasing primarily used transportation and
related equipment, and commenced significant operations in August 1986.
PLM Financial Services, Inc. (FSI) is the General Partner. FSI is a
wholly-owned subsidiary of PLM International, Inc. (PLM International).
The Partnership will terminate on December 31, 2006, unless terminated
earlier upon sale of all equipment or by certain other events. Since the
third quarter of 1994, and in accordance with the limited partnership
agreement, the General Partner may no longer reinvest cash flows and
surplus funds in equipment. All future cash flows and surplus funds, if
any, are to be used for distributions to partners, except to the extent
used to maintain reasonable reserves. The General Partner began the
liquidation phase of the Partnership in January 1998.
FSI manages the affairs of the Partnership. The net income (loss) and
distributions of the Partnership are generally allocated 99% to the
limited partners and 1% to the General Partner (see Net Income (Loss) and
Distributions Per Depositary Unit, below). The General Partner is entitled
to an incentive fee equal to 15% of surplus distributions, as defined in
the limited partnership agreement, remaining after the limited partners
have received a certain minimum rate of return.
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, along with disclosures of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Operations
The equipment owned by the Partnership is managed, under a continuing
management agreement, by PLM Investment Management, Inc. (IMI), a
wholly-owned subsidiary of FSI. IMI receives a monthly management fee from
the Partnership for managing the equipment (see Note 2). FSI, in
conjunction with its subsidiaries, sells transportation equipment to
investor programs and third parties, manages pools of transportation
equipment under agreements with the investor programs, and is a General
Partner of other programs.
Accounting for Leases
The Partnership's leasing operations generally consist of operating
leases. Under the operating lease method of accounting, the leased asset
is recorded at cost and depreciated over its estimated useful life. Rental
payments are recorded as revenue over the lease term. Lease origination
costs are capitalized and amortized over the term of the lease.
Depreciation and Amortization
Depreciation of equipment held for operating leases is computed on the
150% declining balance or 200% declining balance method, based upon
estimated useful lives of 9 to 12 years for aircraft, 15 to 18 years for
railcars, and 12 years for marine containers, trailers, and the marine
vessel. Both accelerated depreciation methods convert to straight line
when annual depreciation expense using the straight-line method exceeds
that calculated by the accelerated method. Acquisition fees were
capitalized as part of the cost of the equipment. Lease negotiation fees
were amortized over the initial equipment lease term. Debt placement fees
and issuance costs were amortized over the term of the loan for which they
were paid. Major expenditures that are expected to extend the useful lives
or reduce future operating expenses for equipment are capitalized.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
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). 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 either 1997 or 1996.
Investments in Unconsolidated Special-Purpose Entities
The Partnership has interests in unconsolidated special-purpose entities
that own transportation equipment. These interests are accounted for using
the equity method.
The Partnership's investment in unconsolidated special-purpose entities
includes acquisition and lease negotiation fees paid by the Partnership to
TEC. The Partnership's equity interest in net income of unconsolidated
special-purpose entities is reflected net of management fees paid or
payable to IMI and the amortization of acquisition and lease negotiation
fees paid to TEC.
Repairs and Maintenance
Maintenance costs are usually the obligation of the lessee. If they are
not covered by the lessee, they are charged against operations as
incurred. To meet the maintenance obligations of certain aircraft
airframes and engines, escrow accounts are prefunded by the lessees.
Estimated costs associated with marine vessel drydockings are accrued and
charged to income ratably over the period prior to such drydocking. The
reserve accounts are included in the balance sheet as prepaid deposits and
reserve for repairs.
Net Income (Loss) and Distributions Per Depositary Unit
The net income (loss) and distributions of the Partnership are generally
allocated 99% to the limited partners and 1% to the General Partner. The
limited partners' net income (loss) and distributions are allocated among
the limited partners based on the number of depositary units owned by each
limited partner. The General Partner received a special allocation of
income in the amount of $41,000 in 1997 and $129,000 in 1995. No special
allocation was received in 1996.
Cash distributions are recorded when paid. An operating cash distribution
of $1.6 million ($0.274 per depositary unit) and a special distribution of
$3.5 million ($0.60 per depositary unit) were declared on January 22, 1998
and paid on February 13, 1998 to the unitholders of record as of December
31, 1997. Operating cash distributions were $6.4 million, $8.4 million,
and $13.5 million in 1997, 1996, and 1995, respectively.
No special distributions were paid to partners in 1997. The special
distributions paid to partners in 1996 were $10.2 million. Cash
distributions to investors in excess of net income are considered to
represent a return of capital. Cash distributions to limited partners of
$0.8 million in 1997 were deemed to be a return of capital. No cash
distributions in 1996 were deemed to be a return of capital.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. Basis of Presentation (continued)
Cash and Cash Equivalents
The Partnership considers as cash equivalents highly liquid investments
that are readily convertible to known amounts of cash with original
maturities of three months or less. The carrying amount of cash
equivalents approximates fair market value due to the short-term nature of
the investments.
Restricted Cash
Lessee security deposits held by the Partnership at December 31, 1996 were
considered restricted cash.
Reclassifications
Certain amounts in the 1996 and 1995 financial statements have been
reclassified to conform to the 1997 presentation.
2. General Partner and Transactions with Affiliates
An officer of FSI contributed $100 of the Partnership's initial capital.
Under the equipment management agreement, IMI receives a monthly
management fee attributable to either owned equipment or interests in
equipment owned by the USPEs equal to the greater of (a) 10% of cash flows
or (b) 1/12 of 1/2% of the book value of the equipment portfolio, subject
to a reduction in certain events, as described in the limited Partnership
Agreement. Partnership management fees of $0.1 million were payable to IMI
as of December 31, 1997 and 1996. The Partnership's proportional share of
USPE management fees of $10,000 and $36,000 was payable as of December 31,
1997 and 1996, respectively. The Partnership's proportional share of USPE
management fee expense was $0.2 million during 1997 and 1996.
Additionally, the Partnership reimbursed FSI and its affiliates $0.6
million, $0.7 million, and $0.9 million for administrative services and
data processing expenses performed on behalf of the Partnership in 1997,
1996, and 1995, respectively. The Partnership's proportional share of USPE
administrative and data processing expenses was $49,000 and $0.1 million
during 1997 and 1996, respectively.
As of December 31, 1997, $0.4 million was due from one of the USPE's. The
amount was paid to the Partnership in the first quarter of 1998.
The Partnership paid $1,000 and $0.2 million in 1996 and 1995,
respectively, to Transportation Equipment Indemnity, Company, Ltd. (TEI),
which provides marine insurance coverage and other insurance brokerage
services. No fees were paid to TEI in 1997 for wholly-owned equipment. The
Partnership's proportional share of USPE marine insurance coverage paid to
TEI was $0.2 million during 1997. TEI is an affiliate of the General
Partner. A substantial portion of these amounts 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, 70% 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 expenses associated with the equipment are charged
directly to the Partnership. An allocation of indirect expenses of the
rental yard operations is charged to the Partnership monthly. .
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment
The components of owned equipment as of December 31, 1997 and 1996 were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
Equipment Held for Operating Leases 1997 1996
- ----------------------------------------------------- ---------------------------------
<S> <C> <C>
Rail equipment $ 21,948 $ 21,909
Trailers 7,628 9,445
Marine containers 3,443 7,465
Aircraft and aircraft engines -- 6,299
33,019 45,118
Less accumulated depreciation (24,885) (33,919)
Net equipment $ 8,134 $ 11,199
====================================
</TABLE>
As of December 31, 1997 and 1996, no equipment was held for sale.
Revenues are earned by placing the equipment under operating leases that
are generally billed monthly or quarterly. All 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 equipment to sublessees, after deducting
certain direct operating expenses of the pooled equipment. Rents for
railcars are based on mileage traveled or a fixed rate; rents for all
other equipment are based on fixed rates.
As of December 31, 1997, all owned equipment in the Partnership's
portfolio was on lease or operating in PLM-affiliated short-term trailer
rental facilities, except for 24 marine containers and 3 railcars with an
aggregate net book value of $20,000. As of December 31, 1996, the
Partnership had 27 marine containers and 20 railcars off lease with an
aggregate net book value of $0.1 million.
The General Partner, on behalf of the Partnership, incurred approximately
$0.1 million and $62,000 in 1997 and 1996, respectively, in capital
improvements, but did not purchase any additional equipment, in accordance
with the limited partnership agreement.
During 1997, the Partnership sold marine containers, trailers, railcars,
and an aircraft, with a net book value of $0.9 million, for $4.2 million.
During 1996, the Partnership sold or disposed of marine containers,
trailers, offshore supply vessels, railcars, locomotives, and an aircraft
engine, with a net book value of $4.6 million, for $17.9 million.
All leases for owned and partially-owned equipment are being accounted for
as operating leases. Future minimum rentals under noncancelable leases for
owned and partially-owned equipment as of December 31, 1997, and during
each of the next five years and thereafter, are approximately $1.1 million
in 1998, $0.5 million in 1999, $0.3 million in 2000, $0.1 million in 2001,
$54,000 in 2002, and $900 thereafter. Contingent rentals based upon
utilization for owned and partially-owned equipment were approximately
$0.8 million, $1.2 million, and $2.2 million in 1997, 1996, and 1995,
respectively.
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.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
The Partnership leases or leased its aircraft, railcars, mobile offshore
drilling unit, and trailers to lessees domiciled in six geographic
regions: Canada, the United States, South America, Europe, Australia, and
Asia. Marine equipment is leased to multiple lessees in different regions
who operate the marine equipment worldwide. The tables below set forth
geographic information about the Partnership's equipment grouped by
domicile of the lessee as of and for the years ended December 31, 1997,
1996, and 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
Lease Revenues Investments in USPEs Owned Equipment Total Equipment
----------------------------------------------------------------------
Region 1997 1996 1997 1996 1995
- --------------------------- -----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rest of the world $ 2,345 $ 2,115 $ 796 $ 1,423 $ 7,166
Canada -- -- 877 5,381 5,426
United States -- 879 7,283 3,383 6,092
Asia -- 441 -- -- 876
Europe -- 104 -- -- 311
South America 590 590 -- -- 590
Australia -- 27 -- -- 160
------------------------------------------------------------------------------
Total lease revenues $ 2,935 $ 4,156 $ 8,956 $ 10,187 $ 20,621
==============================================================================
</TABLE>
The following table sets forth identifiable income (loss) information by
region for the years ended December 31, 1997, 1996, and 1995 (in thousands of
dollars):
<TABLE>
<CAPTION>
Net Income (Loss) Investments in USPEs Owned Equipment Total Equipment
----------------------------------------------------------------------------
Region 1997 1996 1997 1996 1995
- -------------------------------------- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Rest of the world $ 12 $ 247 $ 1,949 $ 12,223 $ 2,756
Canada -- -- 3,774 3,570 3,282
United States -- 8,264 1,468 935 942
Asia (520) (695) -- (175 ) (295 )
Europe -- 715 -- -- 38
South America 25 (62) -- -- (175 )
Australia -- 259 -- -- 17
-------------------------------------------------------------------------------------
Total identifiable income (483) 8,728 7,191 16,553 6,565
Other net loss not identifiable -- -- (1,023 ) (1,434 ) (2,331 )
-------------------------------------------------------------------------------------
Total net income $ (483) $ 8,728 $ 6,168 $ 15,119 $ 4,234
=====================================================================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
3. Equipment (continued)
Thenet book value of these assets at December 31, 1997, 1996, and 1995 are
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
Net Book Value Investments in USPEs Owned Equipment
------------------------------------------ ------------------------------------------
Region 1997 1996 1995 1997 1996 1995
- --------------------------------- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rest of the world $ 1,247 $ 2,090 $ 2,615 $ 1,190 $ 2,252 $ 3,066
Canada -- -- -- 4,710 5,800 7,140
United States -- -- 170 2,234 3,147 5,019
Asia 1,241 1,689 2,368 -- -- 1,339
Europe -- -- 731 -- -- --
South America 3,495 2,774 3,334 -- -- --
Australia -- -- 358 -- -- --
--------------------------------------------------------------------------------------------
Total equipment held for
operating leases 5,983 6,553 9,576 8,134 11,199 16,564
Rest of the world -- -- -- -- -- 2,298
United States -- -- 7,295 -- -- --
--------------------------------------------------------------------------------------------
Total assets held for sale -- -- 7,295 -- -- 2,298
--------------------------------------------------------------------------------------------
Total equipment $ 5,983 $ 6,553 $ 16,871 $ 8,134 $ 11,199 $ 18,862
============================================================================================
</TABLE>
No lessees accounted for 10% or more of total lease revenues during 1997, 1996,
or 1995.
4. Investments in Unconsolidated Special-Purpose Entities
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.
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 USPEs, 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
4. Investments in Unconsolidated Special Purpose Entities (continued)
The following summarizes the financial information for the special-purpose
entities and the Partnership's interest therein as of and for the years ended
December 31, 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
1997 1996
-------- ----------
Net Interest Net Interest
Total of Total USPEs of Partnership
USPEs Partnership
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Investments $ 31,664 $ 5,983 $ 31,608 $ 6,553
Revenues 9,610 2,935 11,872 4,156
Net Income (666) (483 ) 15,453 8,728
</TABLE>
The net investments in unconsolidated special-purpose entities include the
following jointly-owned equipment and related assets and liabilities as of
December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
% Ownership Equipment 1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
12% Boeing 767-200ER $ 2,303 $ 2,774
50% Product Tanker 1,247 2,090
50% Boeing 737-200 1,241 1,689
18% Boeing 727-200 1,192 --
Net investments $ 5,983 $ 6,553
====================================
</TABLE>
During 1997, the Partnership liquidated an aircraft engine from its 50%
investment in an entity that owned a commercial aircraft and an aircraft engine,
for a gain of $0.2 million. During 1996, the Partnership liquidated its 70% and
50% investments in commuter aircraft, its 55% investment in a mobile offshore
drilling unit, and its 50% investment in an aircraft engine, with an aggregate
net book value of $8.3 million, for aggregate proceeds of $17.5 million.
The Partnership's 50% investment in a commercial aircraft, included in the
investments in unconsolidated special-purpose entities, was off lease as of
December 31, 1997.
An aircraft lessee encountered financial difficulties in 1996. The General
Partner established reserves against these receivables due to the determination
that ultimate collection of these rents was uncertain. As payment for these past
due receivables, the Partnership was given an 18% interest in an entity that
owns a Boeing 727 aircraft. In 1997, the Partnership contributed $0.8 million to
this entity. These funds were used to make capital repairs to prepare the
aircraft for sale. This aircraft was sold at its approximate net book value in
the first quarter of 1998. The fair market value of the Partnership's interest
in this aircraft approximated the outstanding receivable from this lessee.
5. Notes Payable
During 1996, the General Partner used a portion of its equipment sale
proceeds to pay off its entire $23.0 million adjustable-rate senior secured note
with a syndicate of insurance companies. Quarterly interest payments on the debt
were equal to LIBOR plus 1.35% per annum and adjusted quarterly (7.04% as of
December 31, 1995). The Partnership is prohibited for incurring any new
indebtedness as it is in the liquidation phase.
6. 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND
A Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
6. Income Taxes (continued)
As of December 31, 1997, there were temporary differences of approximately
$14.0 million between the financial statement carrying values of certain
assets and liabilities and the federal income tax bases of such assets and
liabilities, primarily due to differences in depreciation methods and
equipment reserves.
7. Depositary Unit Repurchase Plan
The Partnership had engaged in a program to repurchase up to 250,000
depositary units. No repurchases of depositary units were made during
1997. During the year ended December 31, 1996, the Partnership repurchased
24,800 depositary units at a cost of $163,000. As of December 31, 1997,
the Partnership had repurchased a total of 199,650 depositary units at a
cost of $2.6 million. The General Partner does not plan any future
repurchases of depositary units on behalf of the Partnership.
8. Delisting of Partnership Units
The General Partner delisted the Partnership's depositary units from the
American Stock Exchange (AMEX) on April 8, 1996. The last day for trading
on the AMEX was March 22, 1996. Under the Internal Revenue Code (the
Code), then in effect, the Partnership was classified as a publicly traded
partnership. The Code treated all publicly traded partnerships as
corporations if they remained publicly traded after December 31, 1997.
Treating the Partnership as a corporation would have meant that the
Partnership itself became a taxable rather than a flow-through entity. As
a taxable entity, the income of the Partnership would have become subject
to federal taxation at both the partnership level and the investor level
to the extent that income would have been distributed to an investor. In
addition, the General Partner believed that the trading price of the
depositary units would have become distorted when the Partnership began
the final liquidation of the underlying equipment portfolio. In order to
avoid taxation of the Partnership as a corporation and to prevent
unfairness to unitholders, the General Partner delisted the Partnership's
depositary units from the AMEX. While the Partnership's depositary units
are no longer publicly traded on a national stock exchange, the General
Partner continues to manage the equipment of the Partnership and prepare
and distribute quarterly and annual reports and Forms 10-Q and 10-K in
accordance with Securities and Exchange Commission requirements. In
addition, the General Partner continues to provide pertinent tax reporting
forms and information to unitholders.
As of March 20, 1998, there were 5,785,350 depositary units outstanding.
There are approximately 8,800 depositary unitholders of record as of the
date of this report.
Several secondary exchanges facilitate sales and purchases of limited
partnership units. Secondary markets are characterized as having few
buyers for limited partnership interests and, therefore, are generally
viewed as inefficient vehicles for the sale of limited partnership units.
There is presently 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 Code, the units will not be transferred without
the consent of the General Partner, which may be withheld in its absolute
discretion. The General Partner intends to monitor transfers of units in
an effort to ensure that they do not exceed the number permitted by
certain safe harbors promulgated by the Internal Revenue Service. A
transfer may be prohibited if the intended transferee is not a U.S.
citizen or if the transfer would cause any portion of the units to be
treated as plan assets.
<PAGE>
PLM EQUIPMENT GROWTH FUND
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Registrant *
4.1 Amendment to Limited Partnership Agreement of Registrant *
10.1 Management Agreement between Registrant and PLM Investment *
Management, Inc.
24. Powers of Attorney 42-44
- --------
* Incorporated by reference. See page 25 of this report.
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
General Partner of PLM Equipment Growth Fund, to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM
Equipment Growth Fund, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign the name of the
undersigned, in any and all capacities, to such annual reports, to any and all
amendments thereto, and to any and all documents or instruments filed as a part
of or in connection therewith; and the undersigned hereby ratifies and confirms
all that each of the said attorneys, or his substitute or substitutes, shall do
or cause to be done by virtue hereof. This Power of Attorney is limited in
duration until May 1, 1998 and shall apply only to the annual reports and any
amendments thereto filed with respect to the fiscal year ended December 31,
1997.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
12th day of February, 1998.
/s/ Douglas P. Goodrich
- -------------------------------------
Douglas P. Goodrich
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
General Partner of PLM Equipment Growth Fund, to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM Equpment
Growth Fund, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned, in any
and all capacities, to such annual reports, to any and all amendments thereto,
and to any and all documents or instruments filed as a part of or in connection
therewith; and the undersigned hereby ratifies and confirms all that each of the
said attorneys, or his substitute or substitutes, shall do or cause to be done
by virtue hereof. This Power of Attorney is limited in duration until May 1,
1998 and shall apply only to the annual reports and any amendments thereto filed
with respect to the fiscal year ended December 31, 1997.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
17th day of February, 1998.
/s/ Robert N. Tidball
- -----------------------------------
Robert N. Tidball
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, J. Michael Allgood and Richard Brock, jointly and
severally, his true and lawful attorneys-in-fact, each with power of
substitution, for him in any and all capacities, to do any and all acts and
things and to execute any and all instruments which said attorneys, or any of
them, may deem necessary or advisable to enable PLM Financial Services, Inc., as
General Partner of PLM Equipment Growth Fund, to comply with the Securities
Exchange Act of 1934, as amended (the "Act"), and any rules and regulations
thereunder, in connection with the preparation and filing with the Securities
and Exchange Commission of annual reports on Form 10-K on behalf of PLM
Equipment Growth Fund, including specifically, but without limiting the
generality of the foregoing, the power and authority to sign the name of the
undersigned, in any and all capacities, to such annual reports, to any and all
amendments thereto, and to any and all documents or instruments filed as a part
of or in connection therewith; and the undersigned hereby ratifies and confirms
all that each of the said attorneys, or his substitute or substitutes, shall do
or cause to be done by virtue hereof. This Power of Attorney is limited in
duration until May 1, 1998 and shall apply only to the annual reports and any
amendments thereto filed with respect to the fiscal year ended December 31,
1997.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
13th day of February, 1998.
/s/ Stephen M. Bess
- -----------------------------------
Stephen M. Bess
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,585
<SECURITIES> 0
<RECEIVABLES> 1,132
<ALLOWANCES> (212)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 33,019
<DEPRECIATION> (24,885)
<TOTAL-ASSETS> 20,006
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,698
<TOTAL-LIABILITY-AND-EQUITY> 20,006
<SALES> 0
<TOTAL-REVENUES> 12,462
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,685
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,685
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,685
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
