UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal quarter ended September 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 33-32258
-----------------------
PLM EQUIPMENT GROWTH FUND V
(Exact name of registrant as specified in its charter)
California 94-3104548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Market, Steuart Street Tower
Suite 800, San Francisco, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 974-1399
-----------------------
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 ____
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------------------------------
<S> <C> <C>
Assets
Equipment held for operating lease, at cost $ 110,253 $ 104,902
Less accumulated depreciation (67,439 ) (62,320)
--------------------------------------
Net equipment 42,814 42,582
Cash and cash equivalents 1,850 9,884
Restricted cash 108 111
Accounts receivable, net of allowance for doubtful
accounts of $102 in 1998 and $113 in 1997 2,450 3,229
Investments in unconsolidated special-purpose entities 15,538 22,758
Prepaid expenses and other assets 10 114
Deferred charges, net of accumulated amortization of
$974 in 1998 and $948 in 1997 328 435
Equipment acquisition deposit -- 920
--------------------------------------
Total assets $ 63,098 $ 80,033
======================================
Liabilities and partners' capital
Liabilities:
Accounts payable and accrued expenses $ 574 $ 1,826
Due to affiliates 531 477
Lessee deposits and reserve for repairs 1,804 1,644
Note payable 25,553 32,000
--------------------------------------
Total liabilities 28,462 35,947
--------------------------------------
Partners' capital:
Limited partners (9,081,028 limited partnership units as of
September 30, 1998 and 9,086,608 as of December 31, 1997) 34,636 44,086
General Partner -- --
--------------------------------------
Total partners' capital 34,636 44,086
--------------------------------------
Total liabilities and partners' capital $ 63,098 $ 80,033
======================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Lease revenue $ 5,464 $ 7,218 $ 17,227 $ 23,556
Interest and other income 50 61 311 190
Net gain on disposition of equipment 162 193 655 2,418
--------------------------------------------------------------------
Total revenues 5,676 7,472 18,193 26,164
--------------------------------------------------------------------
Expenses
Depreciation and amortization 2,856 3,994 8,376 12,122
Management fees to affiliate 274 374 848 1,149
Repairs and maintenance 564 787 1,339 2,208
Equipment operating expenses 489 1,277 3,160 5,289
Interest expense 480 618 1,526 1,935
Insurance expense to affiliate 7 146 (49) 582
Other insurance expense 93 290 171 742
General and administrative expenses
to affiliates 213 282 684 748
Other general and administrative expenses 135 158 429 497
Provision for bad debt 14 209 46 588
--------------------------------------------------------------------
Total expenses 5,125 8,135 16,530 25,860
--------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities 98 (189 ) 403 165
--------------------------------------------------------------------
Net income (loss) $ 649 $ (852 ) $ 2,066 $ 469
====================================================================
Partners' share of net income (loss):
Limited partners $ 458 $ (1,044 ) $ 1,492 $ (107)
General Partner 191 192 574 576
--------------------------------------------------------------------
Total $ 649 $ (852 ) $ 2,066 $ 469
====================================================================
Net income (loss) per weighted-average
limited partnership unit $ 0.05 $ (0.11 ) $ 0.16 $ (0.01)
====================================================================
Cash distributions $ 3,824 $ 3,825 $ 11,474 $ 11,520
====================================================================
Cash distributions per weighted-average
limited partnership unit $ 0.40 $ 0.40 $ 1.20 $ 1.20
====================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
( A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1996
to September 30, 1998 (in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 $ 52,296 $ -- $ 52,296
Net income 7,154 767 7,921
Repurchase of limited partnership units (785) -- (785)
Cash distribution (14,579) (767) (15,346)
------------------------------------------------------------
Partners' capital as of December 31, 1997 44,086 -- 44,086
Net income 1,492 574 2,066
Repurchase of limited partnership units (42) -- (42)
Cash distribution (10,900) (574) (11,474)
------------------------------------------------------------
Partners' capital as of September 30, 1998 $ 34,636 $ -- $ 34,636
============================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
---------------------------
<S> <C> <C>
Operating activities
Net income $ 2,066 $ 469
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,376 12,122
Net gain on disposition of equipment (655 ) (2,418)
Equity in net income from unconsolidated
special-purpose entities (403 ) (165)
Changes in operating assets and liabilities, net:
Restricted cash 3 403
Accounts receivable, net 779 (586)
Prepaid expenses and other assets 104 490
Accounts payable and accrued expenses (1,252 ) 10
Due to affiliates (144 ) (87)
Lessee deposits and reserve for repairs 160 (1,270)
-----------------
---------------
Net cash provided by operating activities 9,034 8,968
-------------------------------
Investing activities
Payments for equipment purchases and capital improvements (8,285 ) (155)
Payments of acquisition fees to affiliate (414 ) --
Payments of lease negotiation fees to affiliate (92 ) --
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities -- (9,110)
Liquidation proceeds from unconsolidated
special-purpose entity 3,724 --
Distributions from unconsolidated special-purpose entities 3,899 2,111
Proceeds from disposition of equipment 1,865 5,379
-------------------------------
Net cash provided by (used in) investing activities 697 (1,775)
-------------------------------
Financing activities
Payments of short-term note payable (1,600 ) (2,463)
Payments of note payable (6,447 ) (4,500)
Proceeds from short-term note payable 1,600 9,110
Cash received from affiliates 198 --
Cash distributions paid to limited partners (10,900 ) (10,944)
Cash distributions paid to General Partner (574 ) (576)
Repurchase of limited partnership units (42 ) (785)
-------------------------------
Net cash used in financing activities (17,765 ) (10,158)
-------------------------------
Net decrease in cash and cash equivalents (8,034 ) (2,965)
Cash and cash equivalents at beginning of period 9,884 4,662
-------------------------------
Cash and cash equivalents at end of period $ 1,850 $ 1,697
===============================
Supplemental information
Interest paid $ 1,595 $ 1,993
=============================
Supplemental disclosure of noncash investing and financing activities:
Sale proceeds included in accounts receivable $ 4 $ --
===============================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth Fund V (the
Partnership) as of September 30, 1998 and December 31, 1997, the statements of
operations for the three and nine months ended September 30, 1998 and 1997, the
statements of changes in partners' capital for the period from December 31, 1996
to September 30, 1998, and the statements of cash flows for the nine months
ended September 30, 1998 and 1997. Certain information and note disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted from the
accompanying financial statements. For further information, reference should be
made to the financial statements and notes thereto included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1997, on file with
the Securities and Exchange Commission.
2. Repurchase of Limited Partnership Units
In 1997, the Partnership agreed to repurchase approximately 9,000 limited
partnership units in 1998 for an aggregate purchase price of up to $0.1 million.
During the nine months ended September 30, 1998, the Partnership had repurchased
5,580 limited partnership units for $42,000. The General Partner may repurchase
the additional units in the future.
3. Cash Distributions
Cash distributions are recorded when paid and totaled $3.8 million and $11.5
million for the three and nine months ended September 30, 1998 and 1997,
respectively. Cash distributions to limited partners in excess of net income
represent a return of capital. Cash distributions to the limited partners of
$9.4 million and $10.9 million for the nine months ended September 30, 1998 and
1997, respectively, were deemed to be a return of capital. Cash distributions of
$0.5 million, relating to the results from the third quarter of 1998, were paid
during the fourth quarter of 1998 to the investors that elected to receive a
monthly cash distribution.
4. Transactions with General Partner and Affiliates
The Partnership's proportional share of the affiliated expenses incurred by the
unconsolidated special-purpose entities (USPEs) during 1998 and 1997 is listed
in the following table (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 90 $ 66 $ 276 $ 203
Data processing and administrative
expenses 20 15 69 47
Insurance expense 5 47 11 195
</TABLE>
Transportation Equipment Indemnity Company, Ltd. (TEI), an affiliate of the
General Partner, provided certain marine insurance coverage for the
Partnership's equipment and other insurance brokerage services during 1998 and
1997. TEI did not provide the same level of insurance coverage during 1998 as
had been provided during 1997. These services were provided by an unaffiliated
third party.
During 1998, the Partnership received a $0.1 million loss-of-hire insurance
refund from TEI due to lower claims from the insured Partnership and other
insured affiliated partnerships.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
4. Transactions with General Partner and Affiliates (continued)
The balance due to affiliates as of September 30, 1998 includes $0.2 million due
to FSI and its affiliate for management fees and $0.3 million due to affiliated
USPEs. The balance due to affiliates as of December 31, 1997 includes $0.4
million due to FSI and its affiliate for management fees and $0.1 million due to
affiliated USPEs.
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million was payable as of September 30, 1998 and December 31, 1997.
During the nine months ended September 30, 1998, the Partnership purchased a
marine vessel at a cost of $9.2 million and paid FSI $0.5 million for
acquisition and lease negotiation fees.
5. Equipment
Owned equipment held for operating lease is stated at cost. The components of
owned equipment held for operating leases are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Aircraft $ 49,838 $ 49,838
Marine vessels 25,890 16,276
Marine containers 13,805 17,592
Rail equipment 11,428 11,500
Trailers 9,292 9,696
------------- --------------
110,253 104,902
Less accumulated depreciation (67,439 ) (62,320)
Net equipment $ 42,814 $ 42,582
============= ==============
</TABLE>
As of September 30, 1998 and December 31, 1997, all of the equipment was on
lease or operating in PLM-affiliated short-term trailer rental facilities.
During March 1998, the Partnership purchased a marine vessel for $9.6 million,
including acquisition fees of $0.4 million paid to FSI. The Partnership made a
deposit of $0.9 million toward this purchase in 1997, which is included in the
balance sheet as of December 31, 1997 as an equipment acquisition deposit.
During the nine months ended September 30, 1998, the Partnership disposed of
marine containers, railcars, and trailers, with an aggregate net book value of
$1.2 million, for $1.9 million.
During the nine months ended September 30, 1997, the Partnership disposed of an
aircraft engine, marine containers, trailers, and a railcar, with an aggregate
net book value of $3.0 million, for $5.4 million, which included $1.5 million of
unused engine reserves.
(this space intentionally left blank)
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
6. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs include the following jointly-owned equipment and
related assets and liabilities (in thousands of dollars):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------------------------------------
<S> <C> <C>
48% interest in an entity owning a product tanker $ 6,989 $ 8,266
25% interest in a trust owning two commercial aircraft on direct
finance lease 2,772 2,863
17% interest in two trusts owning three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables 2,222 4,027
50% interest in an entity owning a bulk carrier 2,011 2,277
50% interest in an entity owning a product tanker 1,544 1,547
60% interest in a trust that owned a commercial aircraft -- 3,778
Net investments $ 15,538 $ 22,758
=============== ===============
</TABLE>
During the nine months ended September 30, 1998, the Partnership received
liquidating proceeds of $3.7 million from the sale of its interest in an entity
that owned a commercial aircraft which approximated the net book value.
7. Debt
The Partnership made the regularly scheduled installment payments of $5.9
million to the lender of the senior loan during the nine months ended September
30, 1998. The Partnership also paid the lender of the senior loan an additional
$0.5 million from equipment sale proceeds, as required by the loan agreement.
The General Partner entered into a short-term, joint $50.0 million credit
facility. This facility was amended on June 1, 1998 to temporarily increase the
borrowing capacity of American Finance Group, Inc. (AFG), a subsidiary of PLM
International, Inc., from $50.0 million to $55.0 million until September 1,
1998. On June 8, 1998, this facility was amended again to temporarily increase
AFG's borrowing capacity from $55.0 million to $60.0 million until July 8, 1998.
As of September 30, 1998, the Partnership had no borrowing under the short-term
joint $50.0 million credit facility. Among the other eligible borrowers, AFG had
borrowings of $44.2 million, and TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $0.3 million under the
short-term joint, $50.0 million credit facility as of September 30, 1998. No
other eligible borrower had any outstanding borrowings.
When the short-term, joint $50.0 million credit facility expired on November 2,
1998, the General Partner did not include the Partnership in the extension of
the facility as the Partnership will not make any further equipment purchases.
8. Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the period. The
weighted-average number of Partnership units deemed outstanding during the three
and nine months ended September 30, 1998 was 9,081,028 and 9,081,849,
respectively. The weighted-average number of Partnership units deemed
outstanding during the three and nine months ended September 30, 1997 was
9,087,685 and 9,114,033, respectively.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
9. Contingencies
PLM International, Inc. (the Company) and various of its affiliates are named as
defendants in a lawsuit filed as a class action on January 22, 1997 in the
Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251 (the Koch
action). The plaintiffs, who filed the complaint on their own and on behalf of
all class members similarly situated, are six individuals who allegedly invested
in certain California limited partnerships (the Funds) for which the Company's
wholly-owned subsidiary, FSI, acts as the general partner, including the
Partnership, PLM Equipment Growth Funds IV and VI, and PLM Equipment Growth &
Income Fund VII. The complaint asserts eight causes of action against all
defendants, as follows: fraud and deceit, suppression, negligent
misrepresentation and suppression, intentional breach of fiduciary duty,
negligent breach of fiduciary duty, unjust enrichment, conversion, and
conspiracy. Additionally, plaintiffs allege a cause of action against PLM
Securities Corp. for breach of third party beneficiary contracts in violation of
the National Association of Securities Dealers rules of fair practice.
Plaintiffs allege that each defendant owed plaintiffs and the class certain
duties due to their status as fiduciaries, financial advisors, agents, and
control persons. Based on these duties, plaintiffs assert liability against the
defendants for improper sales and marketing practices, mismanagement of the
Funds, and concealing such mismanagement from investors in the Funds.
Plaintiffs seek unspecified compensatory and recissory damages, as well as
punitive damages, and have offered to tender their limited partnership units
back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. In September 1997, the district court denied plaintiffs' motion
and dismissed without prejudice the individual claims of the California class
representative, reasoning that he had been fraudulently joined as a plaintiff.
In October 1997, defendants filed a motion to compel arbitration of plaintiffs'
claims, based on an agreement to arbitrate contained in the limited partnership
agreement of each Funds, and to stay further proceedings pending the outcome of
such arbitration. Notwithstanding plaintiffs' opposition, the district court
granted the motion in December 1997.
Following various unsuccessful requests that the district court reverse or
otherwise amend its decisions, plaintiffs filed with the U.S. Court of Appeals
for the Eleventh Circuit a notice of appeal from the district court's order
granting defendants' motion to compel arbitration and to stay the proceedings,
and of the district court's order denying plaintiffs' motion to remand and
dismissing the claims of the California plaintiff. This appeal was voluntarily
dismissed by plaintiffs in June 1998 pending settlement of the Koch action, as
discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The plaintiff is an investor in the Partnership, and filed
the complaint on her own behalf and on behalf of all class members similarly
situated who invested in certain California limited partnerships for which FSI
acts as the general partner, including the Funds. The complaint alleges the same
facts and the same nine causes of action as in the Koch action, plus five
additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et seq.
for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, the defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. In October 1997, the district court denied the Company's
petition to compel arbitration and in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
9. Contingencies (continued)
calendar and the district court has dismissed the petition pending settlement of
the Romei action, as discussed below. The state court action continues to be
stayed pending such resolution. In connection with her opposition to the
petition to compel arbitration, the plaintiff filed an amended complaint with
the state court in August 1997 alleging two new causes of action for violations
of the California Securities Law of 1968 (California Corporations Code Sections
25400 and 25500) and for violation of California Civil Code Sections 1709 and
1710. Plaintiff also served certain discovery requests on defendants. Because of
the stay, no response to the amended complaint or to the discovery is currently
required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding (MOU) related to the settlement of those actions. The MOU
contemplates a settlement and release of all claims in exchange for payment of
up to $6.0 million. The final settlement amount will depend on the number of
authorized claims filed by authorized claimants, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the Alabama district court. The Company will pay
up to $0.3 million of the settlement, with the remainder being funded by an
insurance policy. The defendants will continue to deny each of the claims and
contentions and admit no liability in connection with the proposed settlement.
The settlement remains subject to numerous conditions, including but not limited
to (a) agreement and execution by the parties of a settlement agreement, (b)
notice to and certification of the class for settlement purposes and (c)
preliminary and final approval of the settlement by the Alabama district court.
The Company continues to believe that the allegations of the Koch and Romei
actions are completely without merit and intends to continue to defend this
matter vigorously if the settlement is not consummated.
10. Subsequent Event
Based on current operating lease revenues and near-term trends, during October
1998, the General Partner made the decision to reduce the level of cash
distribution from 8% to 0% for the quarter ended September 30, 1998.
As a result of this decision, monthly investors that received third quarter cash
distributions totalling $1.5 million during the third and fourth quarter of 1998
in advance of the quarterly investors, will have their future cash distribution
reduced, or withheld, until the overpaid amount related to the third quarter has
been reimbursed.
(this space intentionally left blank)
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund V's (the Partnership's) Operating
Results for the Three Months Ended September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as expenses for repair and
maintenance, equipment operation, and asset-specific insurance) on owned
equipment decreased during the three months ended September 30, 1998 when
compared to the same period of 1997. The following table presents lease revenues
less direct expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft $ 2,205 $ 2,393
Marine vessels 981 902
Trailers 522 450
Rail equipment 437 460
Marine containers 182 524
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $2.2 million and
$22,000, respectively, for the three months ended September 30, 1998, compared
to $2.4 million and $21,000, respectively, during the same period of 1997. The
decrease in aircraft contribution was due to the sale of two commuter aircraft
during the fourth quarter of 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.7
million and $0.7 million, respectively, for the three months ended September 30,
1998, compared to $3.0 million and $2.1 million, respectively, during the same
period of 1997. The increase in marine vessel contribution was due to the sale
of two marine vessels during the fourth quarter of 1997 that were operating
under a voyage charter and that had significantly higher lease revenues and
operating costs, which was offset by the purchase of an additional marine vessel
in 1998 that was operating under a bareboat charter which produces lower lease
revenues and practically no operating costs.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2
million, respectively, for the three months ended September 30, 1998 and 1997.
Trailer contribution increased during the third quarter of 1998 due to lower
repairs required during 1998 when compared to the same period of 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $0.6
million and $0.2 million, respectively, for the three months ended September 30,
1998 and 1997. The decrease in railcar contribution was due to required repairs
to certain railcars in the third quarter of 1998 that were not needed during the
same period of 1997.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $3,000, respectively, for the three months ended September 30, 1998,
compared to $0.5 million and $4,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining over the past 12 months due to sales and dispositions. The result of
this declining fleet has been a decrease in marine container contribution.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.0 million for the quarter ended September 30, 1998
decreased from $5.6 million for the same period in 1997. Significant variances
are explained as follows:
(1) A $1.1 million decrease in depreciation and amortization expenses from
1997 levels was caused primarily by the sale of two marine vessels and two
commuter aircraft during 1997, along with the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned. These decreases were partially offset by the purchase of a marine
vessel during the first quarter of 1998.
(2) A $0.2 million decrease in the provision for bad debts reflects the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
(3) A $0.1 million decrease in interest expense was due to a lower average
outstanding debt balance when compared to the same period of 1997.
(4) A $0.1 million decrease in management fees to affiliate was due to
lower lease revenues.
(5) A $0.1 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees and lower costs associated with the Partnership
trailers at the PLM-affiliated short-term rental yards.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the third quarter of 1998
totaled $0.2 million, which resulted from the sale of marine containers and a
trailer, with an aggregate net book value of $0.2 million, for proceeds of $0.4
million. Net gain on disposition of equipment for the third quarter of 1997
totaled $0.2 million, which resulted from the sale of marine containers with an
aggregate net book value of $0.5 million, for proceeds of $0.7 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 123 $ 303
Marine vessels (25) (492 )
Equity in net income (loss) of USPEs $ 98 $ (189 )
==================================================================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1998 and
1997, the Partnership had an interest in two trusts that own a total of three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables,
and an interest in an entity owning two commercial aircraft on a direct finance
lease. During the third quarter of 1998, revenues of $0.3 million were offset by
depreciation and administrative expenses of $0.2 million. During the same period
of 1997, lease revenues of $0.6 million were offset by depreciation and
administrative expenses of $0.3 million. The decrease in lease revenues was due
to the renewal of the leases for three commercial aircraft, two aircraft
engines, and a portfolio of aircraft rotables at a lower rate than was in place
during the same period of 1997. The decrease in depreciation and administrative
expenses was due to the double-declining balance method of depreciation which
results in greater depreciation in the first years an asset is owned.
Marine vessels: As of September 30, 1998 and 1997, the Partnership owned an
interest in three entities owning a total of three marine vessels. During the
third quarter of 1998, lease revenues of $1.6 million were offset by
depreciation and administrative expenses of $1.6 million. During the same period
of 1997, lease revenues of $1.0 million were offset by depreciation and
administrative expenses of $1.5 million. The primary reason for the increase in
lease revenues and depreciation and administrative expenses during 1998 was due
to the purchase of an interest in an entity that owns a marine vessel on the
last day of the third quarter of 1997.
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net income for the three months
ended September 30, 1998 was $0.6 million, compared to a net loss of $0.9
million during the same period in 1997. The Partnership's ability to operate
assets, liquidate assets, and re-lease those assets whose leases expire is
subject to many factors, and the Partnership's performance in the third quarter
of 1998 is not necessarily indicative of future periods. In the third quarter of
1998, the Partnership distributed $3.6 million to the limited partners, or $0.40
per weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 30, 1998 and 1997
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as expenses for repair and
maintenance, equipment operation, and asset-specific insurance) on owned
equipment decreased during the nine months ended September 30, 1998, when
compared to the same period of 1997. The following table presents lease revenues
less direct expenses by owned equipment type (in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft and aircraft engines $ 6,611 $ 7,346
Marine vessels 2,056 2,854
Trailers 1,538 1,333
Rail equipment 1,484 1,577
Marine containers 944 1,656
</TABLE>
Aircraft and aircraft engines: Aircraft lease revenues and direct expenses were
$6.7 million and $0.1 million, respectively, for the nine months ended September
30, 1998, compared to $7.4 million and $0.1 million, respectively, during the
same period of 1997. The decrease in aircraft contribution was due to the sale
of two commuter aircraft and an aircraft engine during 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $5.7
million and $3.6 million, respectively, for the nine months ended September 30,
1998, compared to $10.6 million and $7.8 million, respectively, during the same
period of 1997. The decrease in marine vessel contribution was due to the sale
of two marine vessels during the fourth quarter of 1997, which was offset in
part by the purchase of an additional marine vessel during March 1998 and the
receipt of a $0.1 million loss-of-hire insurance refund from Transportation
Equipment Indemnity Company, Ltd., an affiliate of the General Partner, due to
lower claims from the insured Partnership and other insured affiliated
partnerships.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.5
million, respectively, for the nine months ended September 30, 1998, compared to
$2.0 million and $0.6 million, respectively, during the same period of 1997.
Trailer contribution increased during the nine months of 1998 due to fewer
maintenance repairs needed to trailers at the PLM affiliated rental yards when
compared to the same period of 1997.
Rail equipment: Rail equipment lease revenues and direct expenses were $1.9
million and $0.4 million, respectively, for the nine months ended September 30,
1998, compared to $1.9 million and $0.3 million, respectively, during the same
period of 1997. The decrease in railcar contribution was due to required repairs
to certain railcars during the nine months of 1998 that were not needed during
the same period of 1997.
Marine containers: Marine container lease revenues and direct expenses were $1.0
million and $9,000, respectively, for the nine months ended September 30, 1998,
compared to $1.7 million and $14,000, respectively, during the same period of
1997. The number of marine containers owned by the Partnership has been
declining over the past 12 months due to sales and dispositions. The result of
this declining fleet has been a decrease in marine container contribution.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $11.9 million for the nine months ended September 30,
1998 decreased from $17.0 million for the same period in 1997. Significant
variances are explained as follows:
(1) A $3.7 million decrease in depreciation and amortization expenses from
1997 levels was caused primarily by the sale of two marine vessels and
two commuter aircraft during 1997 and equipment sales during 1998,
along with the double-declining balance method of depreciation which
results in greater depreciation in the first years an asset is owned.
These decreases were partially offset by the purchase of a marine
vessel during the first quarter of 1998.
(2) A $0.5 million decrease in bad debt expenses was due to the General
Partner's evaluation of the collectibility of receivables due from
certain lessees.
(3) A $0.4 million decrease in interest expense was due to a lower average
outstanding debt balance when compared to the same period of 1997.
(4) A $0.3 million decrease in management fees to affiliate was due to
lower lease revenues.
(5) A $0.1 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables
due from certain nonperforming lessees and lower costs associated with
the Partnership trailers at the PLM-affiliated short-term rental
yards.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the nine months ended September
30, 1998 totaled $0.7 million, which resulted from the sale of marine
containers, railcars, and trailers, with an aggregate net book value of $1.2
million, for proceeds of $1.9 million. The net gain on disposition of equipment
for the same period of 1997 totaled $2.4 million, which resulted from the sale
of an aircraft engine, marine containers, trailers, and a railcar, with an
aggregate net book value of $3.0 million, for proceeds of $5.4 million, which
included $1.5 million of unused engine reserves.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
1998 1997
-------------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 281 $ 915
Marine vessels 122 (750 )
Equity in net income of USPEs $ 403 $ 165
==================================================================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1998 and
1997, the Partnership had an interest in two trusts that own a total of three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables,
and also had an interest in an entity owning two commercial aircraft on a direct
finance lease. During the nine months ended September 30, 1998, revenues of $0.9
million were offset by depreciation and administrative expenses of $0.6 million.
During the same period of 1997, lease revenues of $1.7 million were offset by
depreciation and administrative expenses of $0.8 million. The decrease in lease
revenues is due to the renewal of the leases for three commercial aircraft, two
aircraft engines, and a portfolio of aircraft rotables at lower rates than were
in place during the same period of 1997. The decrease in depreciation and
administrative expenses, when compared to the same period of 1997, was due to
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
Marine vessels: As of September 30, 1998 and 1997, the Partnership owned an
interest in three marine vessels. During the nine months ended September 30,
1998, lease revenues of $4.9 million were offset by depreciation and
administrative expenses of $4.7 million. During the same period of 1997, lease
revenues of $2.7 million were offset by depreciation and administrative expenses
of $3.4 million. The primary reason for the increase in lease revenues and
depreciation and administrative expenses during 1998 was the purchase of an
interest in an entity that owns a marine vessel during the third quarter of
1997.
(E) Net Income
As a result of the foregoing, the Partnership's net income for the nine months
ended September 30, 1998 was $2.1 million, compared to a net income of $0.5
million during the same period in 1997. The Partnership's ability to operate
assets, liquidate assets, and re-lease those assets whose leases expire is
subject to many factors, and the Partnership's performance during the nine
months ended September 30, 1998 is not necessarily indicative of future periods.
In the nine months ended September 30, 1998, the Partnership distributed $10.9
million to the limited partners, or $1.20 per weighted-average limited
partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1998, the Partnership generated $12.9
million in operating cash (net cash provided by operating activities plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for the nine months ended
September 30, 1998 of $11.5 million) to the partners. However, based on current
operating lease revenues and near-term trends, the General Partner made the
decision to reduce the level of cash distribution from 8% to 0% for the quarter
ended September 30, 1998. The General Partner expects the cash distribution to
increase to 5% for the quarter ended December 31, 1998.
During the nine months ended September 30, 1998, the Partnership sold owned
equipment and received aggregate proceeds of $1.9 million. The Partnership also
received liquidating proceeds of $3.7 million from the sale of its interest in
an entity that owned a commercial aircraft.
During the nine months ended September 30, 1998, the Partnership purchased a
marine vessel for $9.7 million, including acquisition and lease negotiation fees
of $0.5 million paid to PLM Financial Services, Inc. (FSI or the General
Partner). FSI is a wholly-owned subsidiary of PLM International, Inc. The
Partnership made a $0.9 million deposit on this marine vessel in 1997.
The Partnership is scheduled to make quarterly installments of $2.0 million to
the lender through the year 2001 and a percentage of equipment sale proceeds.
When the Partnership pays the lender proceeds from equipment sales, the
quarterly installments of $2.0 million is reduced pro rata to reflect any
payments made from the proceeds of equipment sales. During the nine months ended
September 30, 1998, the Partnership made the regularly scheduled installment
payments of $5.9 million to the lender of the senior loan. The Partnership also
paid the lender of the senior loan an additional $0.5 million from equipment
sale proceeds, as required by the loan agreement.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or the Partnership's vendors,
service providers, and customers, working either alone or in conjunction with
other software or systems, may not accept input of, store, manipulate, and
output dates on or after January 1, 2000 without error or interruption (a
problem commonly known as the "Year 2000" problem). As the Partnership relies
substantially on the General Partner's software systems, applications, and
control devices in operating and monitoring significant aspects of its business,
any Year 2000 problem suffered by the General Partner could have a material
adverse effect on the Partnership's business, financial condition, and results
of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its software products and other
business systems in order to determine whether such systems will retain
functionality after December 31, 1999. The General Partner (a) is currently
integrating Year 2000 compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
either already been made Year 2000 compliant or Year 2000 compliant upgrades of
such systems are planned to be implemented by the General Partner before the end
of fiscal 1999. Although the General Partner believes that its Year 2000
compliance program can be completed by the beginning of 1999, there can be no
assurance that the compliance program will be completed by that date. To date,
the costs incurred and allocated to the Partnership to become Year 2000
compliant have not been material. Also, the General Partner believes the future
cost allocable to the Partnership to become Year 2000 compliant will not be
material.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership to control, including the extent to which third parties can address
the Year 2000 problem. The General Partner has begun to communicate with
vendors, services providers, and customers in order to assess the Year 2000
compliance readiness of such parties and the extent to which the Partnership is
vulnerable to any third-party Year 2000 issues. There can be no assurance that
the software systems of such parties will be converted or made Year 2000
compliant in a timely manner. Any failure by the General Partner or such other
parties to make their respective systems Year 2000 compliant could have a
material adverse effect on the business, financial position, and results of
operations of the Partnership. The General Partner will make an ongoing effort
to recognize and evaluate potential exposure relating to third-party Year 2000
non-compliance and will develop a contingency plan if the General Partner
determines, or is unable to determine, that third-party non-compliance will have
a material adverse effect on the Partnership's business, financial position, or
results of operation.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
statements: SFAS No. 130, "Reporting Comprehensive Income," which requires
enterprises to report, by major component and in total, all changes in equity
from nonowner sources; and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for a public company's operating segments and related
disclosures about its products, services, geographic areas, and major customers.
Both statements are effective for the Partnership's fiscal year ended December
31, 1998, with earlier application permitted. The effect of the 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999. As of September 30,
1998, the General Partner is reviewing the effect this standard will have on the
Partnership's consolidated financial statements.
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1998 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of some of these
factors, or of their occurrence, makes it difficult for the General Partner to
clearly define trends or influences that may impact the performance of the
Partnership's equipment. The General Partner continually monitors both the
equipment markets and the performance of the Partnership's equipment in these
markets. The General Partner may decide to reduce the Partnership's exposure to
equipment markets in which it determines it cannot operate equipment to achieve
acceptable rates of return.
The Partnership intends to use excess cash flow, if any, after payment of
expenses, loan principal, and cash distributions, to acquire additional
equipment during the first seven years of Partnership operations, which
concludes December 31, 1998. The General Partner believes that these
acquisitions may cause the Partnership to generate additional earnings and cash
flow for the Partnership.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q 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-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
(this space intentionally left blank)
<PAGE>
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND V
By: PLM Financial Services, Inc.
General Partner
Date: November 10, 1998 By: /s/ Richard K Brock
-------------------
Richard K Brock
Vice President and
Corporate Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,958
<SECURITIES> 0
<RECEIVABLES> 2,552
<ALLOWANCES> (103)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 110,253
<DEPRECIATION> (67,439)
<TOTAL-ASSETS> 63,098
<CURRENT-LIABILITIES> 0
<BONDS> 25,553
0
0
<COMMON> 0
<OTHER-SE> 34,636
<TOTAL-LIABILITY-AND-EQUITY> 63,098
<SALES> 0
<TOTAL-REVENUES> 18,193
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 14,958
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 1,526
<INCOME-PRETAX> 2,066
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,066
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,066
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
