INDEPENDENT AUDITORS' REPORT
The Partners
Montgomery Partnership
We have audited the accompanying balance sheet of the Montgomery Partnership
(the Partnership) as of December 31, 1999 and the related statements of
operations, changes in partners' capital, and cash flows of for the years ended
December 31, 1999 and 1997. 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 statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Partnership is expected
to terminate in 2000, as the marine vessel in the Partnership has been sold.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Partnership as of December
31, 1999, and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1997 in conformity with generally accepted
accounting principles. The accompanying 1998 financial statements were not
audited by us, and accordingly, we express no opinion or any other form of
assurance on them.
/s/ KPMG
SAN FRANCISCO, CALIFORNIA
June 9, 2000
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<TABLE>
<CAPTION>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998
ASSETS (unaudited)
---------------------------------------
<S> <C> <C>
Marine vessel held for lease, at cost $ -- $ 19,411
Less accumulated depreciation -- (14,908)
--------------------------------------
Net equipment -- 4,503
Accounts receivable 30 100
Prepaid expenses -- 27
---------------------------------------
Total assets $ 30 $ 4,630
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 290 $ 404
Due to affiliates 6 8
Reserve for repairs -- 500
---------------------------------------
Total liabilities 296 912
Partners' capital (deficit):
Limited partners (69) 3,875
General partner (197) (157)
---------------------------------------
Total partners' capital (deficit) (266) 3,718
---------------------------------------
Total liabilities and partners' capital $ 30 $ 4,630
=======================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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<CAPTION>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998 1997
(unaudited)
---------------------------------------
REVENUES
<S> <C> <C> <C>
Lease revenue $ 2,106 $ 2,466 $ 2,229
Interest and other income (losses) 11 (9) --
Gain on disposition of the marine vessel 3,812 -- --
-------------------------------------------
Total revenues 5,929 2,457 2,229
-------------------------------------------
EXPENSES
Depreciation expense 702 911 1,087
Marine operating expense 1,135 1,409 1,585
Repairs and maintenance 251 500 818
Insurance expense to affiliate -- -- 175
Other insurance expense 173 69 320
Management fees to affiliate 105 123 111
Administrative expenses to affiliate 21 31 36
Administrative expenses and other 32 25 40
-------------------------------------------
Total expenses 2,419 3,068 4,172
-------------------------------------------
Net income (loss) $ 3,510 $ (611) $ (1,943)
===========================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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<TABLE>
<CAPTION>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS OF DOLLARS)
Limited General
Partners Partner Total
---------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit) as of December 31, 1996 (unaudited) $ 6,462 $ (131) $ 6,331
Net loss (1,924) (19) (1,943)
Cash contribution 139 1 140
--------------------------------------------
Partners' capital (deficit) as of December 31, 1997 4,677 (149) 4,528
Net loss (605) (6) (611)
Cash distribution (197) (2) (199)
--------------------------------------------
Partners' capital (deficit) as of December 31, 1998 (unaudited) 3,875 (157) 3,718
Net income 3,475 35 3,510
Cash distribution (7,419) (75) (7,494)
--------------------------------------------
Partners' deficit as of December 31, 1999 $ (69) $ (197) $ (266)
============================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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<TABLE>
<CAPTION>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998 1997
(unaudited)
------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ 3,510 $ (611) $ (1,943)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 702 911 1,087
Gain on disposition of the marine vessel (3,812) -- --
Changes in operating assets and liabilities:
Accounts receivable 70 (24) 62
Prepaid expenses 27 (12) 119
Accounts payable and accrued expenses (114) (159) 453
Due to affiliates (2) (2) (3)
Reserve for repairs (500) 96 85
-----------------------------------------
Net cash (used in) provided by operating activities (119) 199 (140)
-----------------------------------------
Investing activities
Proceeds from disposition of vessel 7,613 -- --
-----------------------------------------
Net cash provided by investing activities 7,613 -- --
Financing activities
Cash (distributions) contributions - limited partners (7,419) (197) 139
Cash (distributions) contributions - General Partner (75) (2) 1
-----------------------------------------
Net cash (used in) provided by financing activities (7,494) (199) 140
-----------------------------------------
Net change in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
-----------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
<PAGE>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Montgomery Partnership, a California limited partnership (the Partnership), was
formed during December 1990. The Partnership was formed for the purpose of
purchasing a bulk-carrier marine vessel and commenced significant operations in
January 1991. The Partnership has no employees nor operations other than the
operation of the marine vessel. The Partnership is owned 99% by the limited
partners and 1% by the General Partner. The Partnership has two limited
partners; PLM Equipment Growth Fund IV (EGF IV) and PLM Equipment Growth Fund V
(EGF V), (the Limited Partners). The General Partner is the Montgomery
Corporation (MC) which is owned by EGF IV and EGF V. The Limited Partnership is
owned 50% by EGF IV and 50% by EGF V.
The Partnership is expected to terminate during 2000 as the marine vessel has
been sold as of December 31, 1999. The General Partner will contribute
additional capital, as needed, to eliminate any deficit balance in the capital
account prior to the Partnership's termination.
These accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles. This
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
OPERATIONS
The marine vessel in the Partnership was managed under a continuing management
agreement by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of
PLM Financial Services Inc. (FSI). FSI is a wholly-owned subsidiary of PLM
International, Inc. (PLM International). IMI received a monthly management fee
from the Partnership for managing the marine vessel (Note 2). FSI, in
conjunction with its subsidiaries, sells equipment to investor programs and
third parties, manages pools of transportation equipment under agreements with
investor programs, and is the general partner of EGF IV, EGF V, and other
limited partnerships.
CASH AND CASH EQUIVALENTS
All cash generated from operations is distributed to the partners, accordingly,
the Partnership has no cash balance at December 31, 1999 and 1998.
ACCOUNTING FOR LEASES
The marine vessel in the Partnership was leased under operating leases. Under
the operating lease method of accounting, the leased asset is recorded at cost
and depreciated over its estimated useful life. Rental payments are recorded as
revenue over the lease term as earned in accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases". Lease origination costs
were capitalized and amortized equally over 36 months.
DEPRECIATION
Depreciation was computed using the double-declining balance method, taking a
full month's depreciation in the month of acquisition, based upon an estimated
useful life of 12 years. The depreciation method changed to straight-line when
annual depreciation expense using the straight-line method exceeded that
calculated by the double-declining balance method. Acquisition fees of $0.8
million, that were paid to FSI, were capitalized as part of the cost of the
equipment. Major expenditures
<PAGE>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION (CONTINUED)
that were expected to extend the marine vessel's useful life or reduce future
equipment operating expenses, were capitalized and amortized over the estimated
remaining life of the marine vessel.
MARINE VESSEL
In accordance with the Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", FSI reviewed the carrying value of the Partnership's marine
vessel at least quarterly, and whenever circumstances indicated that the
carrying value of this asset may not be recoverable in relation to expected
future market conditions, for the purpose of assessing recoverability of the
recorded amounts. If projected undiscounted future cash flows and the fair
market value of the marine vessel was less than the carrying value of the marine
vessel, a loss on revaluation would have been recorded. No reduction to the
carrying value of the marine vessel was required during 1999, 1998, or 1997.
REPAIRS AND MAINTENANCE
Repair and maintenance cost are generally the obligation of the Partnership.
Costs associated with marine vessel dry-docking were estimated and accrued
ratably over the period prior to such dry-docking. The marine vessel dry-docking
reserve account was included in the balance sheet as reserve for repairs.
NET INCOME (LOSS) AND CASH DISTRIBUTION TO LIMITED PARTNERS
The net income (loss) and cash distributions of the Partnership are generally
allocated 99% to the limited partners and 1% to the General Partner. The net
income (loss) and cash distributions are allocated to the limited partners based
on their percentage of ownership in the Partnership. The limited partners 99%
share of net income (loss) and cash distributions are allocated 50% to EGF IV
and 50% to EGF V.
Cash distributions are recorded when paid.
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the year
ended December 31, 1999, 1998 , and 1997.
2. GENERAL PARTNER
MC contributed $100 of the Partnership's initial capital. MC is owned by two
shareholders, EGF IV owns 50% and EGF V owns 50%. Dividends are paid to the
shareholders annually, when declared, based on the percentage of ownership each
shareholder owns.
3. TRANSACTIONS WITH AFFILIATES
Under the equipment management agreement, IMI, subject to certain reductions,
receives a monthly management fee attributable to owned equipment equal to the
lesser of (i) the fees that would be charged by an independent third party for
similar services for similar equipment or (ii) 5% of the gross lease revenues
attributable to equipment that is subject to operating leases. The Partnership's
management fee expense to affiliate was $0.1 million during 1999, 1998, and
1997. The Partnership reimbursed FSI $21,000, $31,000, and $36,000 during 1999,
1998, and 1997, respectively, for data processing and administrative expenses
directly attributable to the Partnership.
<PAGE>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
The Partnership paid $-0-, $29,000 and $0.2 million in 1999, 1998, and 1997,
respectively, to Transportation Equipment Indemnity Company Ltd. (TEI), an
affiliate of FSI, which provided marine insurance coverage and other insurance
brokerage services. A substantial portion of this amount was paid to third-party
reinsurance underwriters or placed in risk pools managed by TEI on behalf of
affiliated programs and PLM International, which provide threshold coverages on
marine vessel loss of hire and hull and machinery damage. All pooling
arrangement funds are either paid out to cover applicable losses or refunded pro
rata by TEI. During 1998, the Partnership received a $29,000 loss-of-hire
insurance refund from TEI due to lower claims from the insured Partnership and
other insured affiliated programs. During 1999 and 1998, TEI did not provide the
same level of insurance coverage as had been provided during 1997. These
services were provided by an unaffiliated third party. PLM International
liquidated TEI in 2000.
Partnership management fees payable to IMI was $6,000 and $8,000 as of December
31, 1999 and 1998, respectively.
4. MARINE VESSEL ON LEASE
During 1999, the Partnership sold the marine vessel with net book value of $3.8
million for proceeds of $7.6 million.
The Partnership's marine vessel was leased to operators of utilization-type
leasing pools that include equipment owned by unaffiliated parties. In such
instances, revenues earned by the Partnership consist of a specified percentage
of the total revenues generated by leasing the pooled equipment to sublessees
after deducting certain direct operating expenses of the pooled equipment.
The marine vessel lease was being accounted for as an operating lease. There are
no future minimum rentals under non-cancelable leases at December 31, 1999. Per
diem and short-term rentals consisting of utilization rate lease payments
included in lease revenues amounted to $2.1 million in 1999, $2.5 million in
1998, and $2.2 million in 1997.
5. GEOGRAPHIC INFORMATION
The Partnership's marine vessel was leased to multiple lessees in different
regions that operated worldwide.
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 owning the Limited
Partners. Accordingly, no provision for income taxes has been made in the
financial statements of the Partnership.
As of December 31, 1999, there were no temporary differences between the
financial statements carrying value of assets and the income tax basis.
<PAGE>
MONTGOMERY PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Partnership to
concentrations of credit risk, consist principally of lease receivables.
No single lessee accounted for more than 10% of the consolidated revenues for
the years ended December 31, 1999, 1998, or 1997. CO. TBN by Messrs. Apex
Marine, New York purchased the marine vessel from the Partnership and the gain
from the sale accounted for 64% of total consolidated revenues during 1999.
As of December 31, 1999, the General Partner believes the Partnership had no
other significant concentrations of credit risk that could have a material
adverse effect on the Partnership.
