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 JUNE 30, 1999
[ ] 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>
June 30, December 31,
1999 1998
--------------------------------------
Assets
<S> <C> <C>
Equipment held for operating lease, at cost $ 109,563 $ 109,515
Less accumulated depreciation (72,193) (68,711)
--------------------------------------
Net equipment 37,370 40,804
Cash and cash equivalents 2,209 1,774
Restricted cash 108 108
Accounts receivable, net of allowance for doubtful
accounts of $94 in 1999 and $77 in 1998 3,826 3,188
Investments in unconsolidated special-purpose entities 12,119 15,144
Deferred charges, net of accumulated amortization of
$1,150 in 1999 and $1,038 in 1998 177 277
Prepaid expenses and other assets 24 81
--------------------------------------
Total assets $ 55,833 $ 61,376
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 454 $ 593
Due to affiliates 406 339
Lessee deposits and reserve for repairs 2,287 2,450
Note payable 19,355 23,588
--------------------------------------
Total liabilities 22,502 26,970
--------------------------------------
Partners' capital:
Limited partners (9,067,911 limited partnership units as of
June 30, 1999 and 9,081,028 as of December 31, 1998) 33,331 34,406
General Partner -- --
--------------------------------------
Total partners' capital 33,331 34,406
--------------------------------------
Total liabilities and partners' capital $ 55,833 $ 61,376
======================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 5,362 $ 6,551 $ 10,195 $ 11,763
Interest and other income 54 99 100 260
Net gain on disposition of equipment 45 359 105 494
--------------------------------------------------------------------
Total revenues 5,461 7,009 10,400 12,517
--------------------------------------------------------------------
EXPENSES
Depreciation and amortization 2,296 2,880 4,559 5,521
Repairs and maintenance 406 450 881 774
Equipment operating expenses 820 1,680 1,338 2,671
Insurance expense to affiliate -- (66) -- (56)
Other insurance expense 91 8 214 79
Management fees to affiliate 266 318 506 574
Interest expense 316 512 681 1,045
General and administrative expenses
to affiliates 205 234 454 471
Other general and administrative expenses 165 154 290 294
Provision for bad debts 33 25 25 32
--------------------------------------------------------------------
Total expenses 4,598 6,195 8,948 11,405
--------------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (105) 269 1,402 305
--------------------------------------------------------------------
Net income $ 758 $ 1,083 $ 2,854 $ 1,417
====================================================================
PARTNERS' SHARE OF NET INCOME:
Limited partners $ 639 $ 891 $ 2,615 $ 1,034
General Partner 119 192 239 383
--------------------------------------------------------------------
Total $ 758 $ 1,083 $ 2,854 $ 1,417
====================================================================
Net income per weighted-average
limited partnership unit $ 0.07 $ 0.10 $ 0.29 $ 0.11
====================================================================
Cash distribution $ 2,188 $ 3,825 $ 3,844 $ 7,650
====================================================================
Cash distribution per weighted-average
limited partnership unit $ 0.23 $ 0.40 $ 0.40 $ 0.80
====================================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
( A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1997 to June 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 44,086 $ -- $ 44,086
Net income 1,796 574 2,370
Repurchase of limited partnership units (42) -- (42)
Cash distribution (11,434) (574) (12,008)
------------------------------------------------------------
Partners' capital as of December 31, 1998 34,406 -- 34,406
Net income 2,615 239 2,854
Repurchase of limited partnership units (85) -- (85)
Cash distribution (3,605) (239) (3,844)
------------------------------------------------------------
Partners' capital as of June 30, 1999 $ 33,331 $ -- $ 33,331
============================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
---------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,854 $ 1,417
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,559 5,521
Net gain on disposition of equipment (105) (494)
Equity in net income from unconsolidated
special-purpose entities (1,402) (305)
Changes in operating assets and liabilities, net:
Restricted cash -- 3
Accounts receivable, net (649) (764)
Prepaid expenses and other assets 57 65
Accounts payable and accrued expenses (139) (1,120)
Due to affiliates 67 (100)
Lessee deposits and reserve for repairs (163) 189
------------------------------
Net cash provided by operating activities 5,079 4,412
-------------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements (1,255) (8,285)
Payments of acquisition fees to affiliate (56) (414)
Payments of lease negotiation fees to affiliate (13) (92)
Distribution from liquidation of unconsolidated special-purpose entity 3,553 3,724
Distributions from unconsolidated special-purpose entities 874 2,882
Proceeds from disposition of equipment 415 1,487
-------------------------------
Net cash provided by (used in) investing activities 3,518 (698)
-------------------------------
FINANCING ACTIVITIES
Payments of note payable (4,233) (4,481)
Proceeds from short-term note payable -- 1,600
Cash distribution paid to limited partners (3,605) (7,267)
Cash distribution paid to General Partner (239) (383)
Repurchase of limited partnership units (85) (42)
-------------------------------
Net cash used in financing activities (8,162) (10,573)
-------------------------------
Net increase (decrease) in cash and cash equivalents 435 (6,859)
Cash and cash equivalents at beginning of period 1,774 9,884
-------------------------------
Cash and cash equivalents at end of period $ 2,209 $ 3,025
===============================
SUPPLEMENTAL INFORMATION
Interest paid $ 730 $ 1,091
================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
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 June 30, 1999 and December 31, 1998, the statements of income
for the three and six months ended June 30, 1999 and 1998, the statements of
changes in partners' capital for the period from December 31, 1997 to June 30,
1999, and the statements of cash flows for the six months ended June 30, 1999
and 1998. 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, 1998, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
Beginning in the Partnership's seventh year of operations, which commenced on
January 1, 1999, the General Partner stopped reinvesting excess cash. Surplus
cash, less reasonable reserves, will be distributed to the partners. Beginning
in the Partnership's ninth year of operations, the General Partner intends to
begin an orderly liquidation of the Partnership's assets. The Partnership will
be terminated by December 31, 2010, unless terminated earlier upon the sale of
all equipment or by certain other events.
3. Repurchase of Limited Partnership Units
In 1998, the Partnership agreed to repurchase approximately 18,100 limited
partnership units in 1999 for an aggregate purchase price of up to $0.1 million.
During the six months ended June 30, 1999, the Partnership had repurchased
13,117 limited partnership units for $0.1 million. The General Partner may
repurchase the additional units in the future.
4. Cash Distributions
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For the three
months ended June 30, 1999 and 1998, cash distributions totaled $2.2 million and
$3.8 million, respectively. For the six months ended June 30, 1999 and 1998,
cash distributions totaled $3.8 million and $7.6 million, respectively. Cash
distributions to the limited partners of $1.0 million and $6.2 million for the
six months ended June 30, 1999 and 1998, respectively, were deemed to be a
return of capital.
Cash distributions related to the results from the second quarter of 1999 of
$1.7 million, will be paid during the third quarter of 1999.
5. Transactions with General Partner and Affiliates
The balance due to affiliates as of June 30, 1999 included $0.3 million due to
FSI and its affiliates for management fees and $0.1 million due to affiliated
unconsolidated special-purpose entities (USPEs). The balance due to affiliates
as of December 31, 1998 included $0.2 million due to FSI and its affiliates for
management fees and $0.1 million due to an affiliated USPE.
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million was payable as of June 30, 1999 and December 31, 1998.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
5. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of the affiliated expenses incurred by the
USPEs is listed in the following table (in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Data processing and administrative
expenses $ 16 $ 23 $ 38 $ 48
Management fees 13 96 26 187
Insurance expense -- (2) -- --
</TABLE>
The Partnership paid FSI $0.1 million and $0.5 million for equipment acquisition
and lease negotiation fees during the six months ended June 30, 1999 and 1998,
respectively.
6. Equipment
The components of owned equipment were as follows (in thousands of dollars):
June 30, December 31,
1999 1998
-------------------------------------
Aircraft $ 52,402 $ 51,090
Marine vessels 25,890 25,890
Railcars 11,383 11,383
Marine containers 10,629 11,842
Trailers 9,259 9,310
------------- --------------
109,563 109,515
Less accumulated depreciation (72,193) (68,711)
Net equipment $ 37,370 $ 40,804
============= ==============
As of June 30, 1999, all owned equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities except for 7 railcars and 60 marine containers with a net book value
of $0.4 million. As of December 31, 1998, all owned equipment in the
Partnership's portfolio was either on lease or operating in PLM-affiliated
short-term trailer rental facilities except for 10 railcars with a net book
value of $0.1 million.
During the six months ended June 30, 1999, the Partnership disposed of marine
containers and trailers with an aggregate net book value of $0.3 million, for
$0.4 million.
During the six months ended June 30, 1998, the Partnership disposed of marine
containers, railcars, and trailers with an aggregate net book value of $1.0
million, for $1.5 million.
During the six months ended June 30, 1999, the Partnership purchased a hush-kit
for one of the Partnership's Boeing 737-200 commercial aircraft for $1.3
million, including acquisition fees of $0.1 million paid to FSI for the purchase
of this equipment. The Partnership was required to install the hush-kit per the
Partnership's lease agreement.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
7. 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>
June 30 December 31,
1999 1998
---------------------------------------
<S> <C> <C>
48% interest in an entity owning a product tanker $ 6,312 $ 6,890
25% interest in a trust owning two commercial aircraft on direct
finance lease 2,656 2,771
50% interest in an entity owning a bulk carrier 1,827 1,872
50% interest in an entity owning a product tanker 1,324 1,552
17% interest in two trusts that owned three commercial aircraft,
two aircraft engines, and a portfolio of aircraft rotables -- 2,059
Net investments $ 12,119 $ 15,144
=============== ===============
</TABLE>
As of June 30, 1999 and December 31, 1998, all jointly-owned equipment in the
Partnership's USPE portfolio was on lease.
During the six months ended June 30, 1999, the General Partner sold the
Partnership's 17% interest in two trusts that owned a total of three 737-200A
Stage II commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables. The Partnership's interest in these trusts were sold for
proceeds of $3.6 million for its net investment of $2.0 million.
8. Operating Segments
The Partnership operates in five primary operating segments: aircraft leasing,
marine vessel leasing, railcar leasing, marine container leasing, and trailer
leasing. Each equipment leasing segment engages in short-term to mid-term
operating leases to a variety of customers.
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Marine Marine
Aircraft Vessel Railcar Container Trailer
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
- - -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,052 $ 1,900 $ 606 $ 188 $ 616 $ -- $ 5,362
Interest income and other 8 2 -- 5 -- 39 54
Gain (loss) on disposition of equipment -- -- -- 62 (17) -- 45
Total revenues 2,060 1,902 606 255 599 39 5,461
Costs and expenses
Operations support 17 970 117 1 199 13 1,317
Depreciation and amortization 1,308 466 154 156 166 46 2,296
Interest expense -- -- -- -- -- 316 316
Management fees to affiliate 80 95 41 9 41 -- 266
General and administrative expenses 6 11 11 -- 149 193 370
Provision for bad debts -- -- 13 1 19 -- 33
Total costs and expenses 1,411 1,542 336 167 574 568 4,598
Equity in net income (loss) of USPEs 99 (204) -- -- -- -- (105)
Net income (loss) $ 748 $ 156 $ 270 $ 88 $ 25 $ (529) $ 758
===============================================================================
Total assets as of June 30, 1999 $ 22,230 $ 20,658 $ 3,752 $ 2,506 $ 3,709 $ 2,978 $ 55,833
===============================================================================
<FN>
<F1>1 Includes interest income and costs not identifiable to a particular
segment, such as certain general and administrative, certain amortization
expense, interest expense, and certain operations support.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
8. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Vessel Railcar Container Trailer
For the quarter ended June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
- - -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,219 $ 2,782 $ 630 $ 238 $ 682 $ -- $ 6,551
Interest income and other 11 60 -- -- -- 28 99
Gain on disposition of equipment -- -- -- 236 123 -- 359
Total revenues 2,230 2,842 630 474 805 28 7,009
COSTS AND EXPENSES
Operations support 19 1,705 169 3 181 (5) 2,072
Depreciation and amortization 1,714 527 173 222 205 39 2,880
Interest expense -- -- -- -- -- 512 512
Management fees to affiliate 80 139 43 10 46 -- 318
General and administrative expenses 23 9 12 -- 160 184 388
Provision for (recovery of) bad debts -- -- (1) 31 (5 ) -- 25
Total costs and expenses 1,836 2,380 396 266 587 730 6,195
Equity in net income of USPEs 93 176 -- -- -- -- 269
Net income (loss) $ 487 $ 638 $ 234 $ 208 $ 218 $ (702) $ 1,083
===============================================================================
Total assets as of June 30, 1998 $ 26,996 $ 25,010 $ 4,425 $ 4,655 $ 4,458 $ 4,302 $ 69,846
===============================================================================
Marine Marine
For the six months ended Aircraft Vessel Railcar Container Trailer
June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
- - -----------------------------------
REVENUES
Lease revenue $ 4,244 $ 3,041 $ 1,208 $ 447 $ 1,255 $ -- $ 10,195
Interest income and other 17 2 -- 5 -- 76 100
Gain (loss) on disposition of equipment -- -- -- 124 (19 ) -- 105
Total revenues 4,261 3,043 1,208 576 1,236 76 10,400
COSTS AND EXPENSES
Operations support 32 1,761 235 2 378 25 2,433
Depreciation and amortization 2,589 932 308 320 334 76 4,559
Interest expense -- -- -- -- -- 681 681
Management fees to affiliate 175 152 82 22 75 -- 506
General and administrative expenses 13 19 22 -- 301 389 744
Provision for (recovery of) bad debts -- -- 16 (3) 12 -- 25
Total costs and expenses 2,809 2,864 663 341 1,100 1,171 8,948
Equity in net income (loss) of USPEs 1,670 (268) -- -- -- -- 1,402
Net income (loss) $ 3,122 $ (89) $ 545 $ 235 $ 136 $ (1,095) $ 2,854
===============================================================================
Total assets as of June 30, 1999 $ 22,230 $ 20,658 $ 3,752 $ 2,506 $ 3,709 $ 2,978 $ 55,833
===============================================================================
<FN>
<F1> 1 Includes interest income and costs not identifiable to a particular
segment, such as certain general and administrative, certain amortization
expense, interest expense, and certain operations support.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
8. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
For the six months ended Aircraft Vessel Railcar Container Trailer
June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
- - -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 4,446 $ 3,952 $ 1,261 $ 767 $ 1,337 $ -- $ 11,763
Interest income and other 23 64 -- 1 -- 172 260
Gain on disposition of equipment -- -- -- 368 126 -- 494
Total revenues 4,469 4,016 1,261 1,136 1,463 172 12,517
COSTS AND EXPENSES
Operations support 40 2,877 214 6 321 10 3,468
Depreciation and amortization 3,414 813 348 463 411 72 5,521
Interest expense -- -- -- -- -- 1,045 1,045
Management fees to affiliate 163 198 87 37 89 -- 574
General and administrative expenses 33 32 21 -- 299 380 765
Provision for (recovery of) bad debts -- -- (3) 31 4 -- 32
Total costs and expenses 3,650 3,920 667 537 1,124 1,507 11,405
Equity in net income of USPEs 158 147 -- -- -- -- 305
Net income (loss) $ 977 $ 243 $ 594 $ 599 $ 339 $ (1,335) $ 1,417
===============================================================================
Total assets as of June 30, 1998 $ 26,996 $ 25,010 $ 4,425 $ 4,655 $ 4,458 $ 4,302 $ 69,846
===============================================================================
<FN>
<F1> 1 Includes interest income and costs not identifiable to a particular
segment such as certain general and administrative, certain amortization
expense, interest expense, and certain operations support.
</FN>
</TABLE>
9. Debt
The Partnership made the regularly scheduled installment payments of $3.9
million and quarterly interest payments to the lender of the note payable during
the six months ended June 30, 1999 at a rate of LIBOR plus 1.2% per annum (6.2%
at June 30, 1999 and 6.6% at December 31, 1998). The Partnership also paid the
lender of the senior note an additional $0.3 million from equipment sales
proceeds, as required by the loan agreement.
10. Net Income Per Weighted-Average Partnership Unit
Net income per weighted-average Partnership unit was computed by dividing net
income 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 six months
ended June 30, 1999, was 9,073,779 and 9,076,014, respectively. The
weighted-average number of Partnership units deemed outstanding during the three
and six months ended June 30, 1998, was 9,081,932 and 9,083,175, respectively.
11. Contingencies
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action on January
22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their own
and on behalf of all class members similarly situated, are six individuals who
invested in certain California limited partnerships for which the Company's
wholly-owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the general
partner, including PLM Equipment Growth Fund IV (Fund IV), PLM Equipment Growth
Fund V (Fund V), PLM Equipment Growth Fund VI (Fund VI), and PLM Equipment
Growth & Income Fund VII (Fund VII) (the Funds). The state court ex parte
certified the action as a class action (i.e., solely upon plaintiffs' request
and without the Company being given the opportunity to file an opposition). The
complaint asserts eight causes of action against all defendants, as
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
11. Contingencies (continued)
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 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) (the court) based on the court's
diversity jurisdiction, following which plaintiffs filed a motion to remand the
action to the state court. Removal of the action automatically nullified the
state court's ex parte certification of the class. In September 1997, the court
denied plaintiffs' motion to remand the action to state court and dismissed
without prejudice the individual claims of the California plaintiff, 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
Fund, and to stay further proceedings pending the outcome of such arbitration.
Notwithstanding plaintiffs' opposition, the court granted defendants motion in
December 1997.
Following various unsuccessful requests that the court reverse, or otherwise
certify for appeal, its order denying plaintiffs' motion to remand the case to
state court and dismissing the California plaintiff's claims, plaintiffs filed
with the U.S. Court of Appeals for the Eleventh Circuit a petition for a writ of
mandamus seeking to reverse the court's order. The Eleventh Circuit denied
plaintiffs' petition in November 1997, and further denied plaintiffs subsequent
motion in the Eleventh Circuit for a rehearing on this issue. Plaintiffs also
appealed the court's order granting defendants' motion to compel arbitration,
but in June 1998 voluntarily dismissed their appeal 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 Fund V, and filed the
complaint on her own behalf and on behalf of all class members similarly
situated who invested in certain California limited partnerships for which FSI
acts as the general partner, including the 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, 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, but in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off 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, 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
-
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
11. Contingencies (continued)
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 related to the settlement of those actions (the monetary
settlement), following which the parties agreed to an additional equitable
settlement (the equitable settlement). The terms of the monetary settlement and
the equitable settlement are contained in a Stipulation of Settlement that was
filed with the court on February 12, 1999. On June 14, 1999, the parties amended
the stipulation and revised certain exhibits, and requested that the court set a
preliminary approval hearing on the monetary settlement and equitable
settlement.
The monetary settlement provides for stipulating to a class for settlement
purposes, and a settlement and release of all claims against defendants and
third party brokers in exchange for payment for the benefit of the class of up
to $6.0 million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the class, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the court. The Company will pay up to $0.3 million
of the monetary settlement, with the remainder being funded by an insurance
policy. The equitable settlement provides, among other things: (a) for the
extension of the operating lives of Funds V, VI, and VII by judicial amendment
to each of their partnership agreements, such that FSI, the general partner of
each such partnership, be permitted to reinvest cash flow, surplus partnership
funds, or retained proceeds in additional equipment into the year 2004, and will
liquidate the Funds' equipment in 2006; (b) that FSI is entitled to earn
front-end fees (including acquisition and lease negotiation fees) up to 20% in
excess of the compensatory limitations set forth in the North American
Securities Administrators Association, Inc. Statement of Policy by judicial
amendment to the partnership agreements for Funds V, VI, and VII; (c) for a
one-time repurchase of up to 10% of the outstanding units of Funds V, VI, and
VII by the respective partnership at 80% of such partnership's net asset value;
and (d) for the deferral of a portion of FSI's management fees until such time
as certain performance thresholds have, if ever, been met by the Funds. The
equitable settlement also provides for payment of the equitable class attorneys'
fees from partnership funds in the event, if ever, that distributions paid to
investors in Funds V, VI, and VII during the extension period reach a certain
internal rate of return. Defendants will continue to deny each of the claims and
contentions and admit no liability in connection with the monetary and equitable
settlements.
The preliminary approval hearing was set for and occurred on June 25, 1999. On
June 29, 1999, the court entered orders, among other things, granting
preliminary approval of the monetary and equitable settlements, conditionally
certifying the monetary and equitable settlement classes, providing for a final
fairness hearing on November 16, 1999, approving the form and content of the
notices to be sent to the monetary class and the equitable class, and staying
all claims, counterclaims, and crossclaims by the monetary and equitable classes
against defendants pending the court's consideration of the fairness of the
monetary and equitable settlements at the final fairness hearing. The monetary
settlement class (the monetary class) consists of all investors, limited
partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and June 29,
1999. The equitable settlement class (the equitable class) consists of all
investors, limited partners, assignees or unit holders who on June 29, 1999 held
any units in Funds V, VI, and VII, and their assigns and successors in interest.
On June 29, 1999 the court also entered an order preliminarily approving as to
form and substance the form of solicitation statement that is to be distributed
to limited partners of Funds V, VI, and VII in connection with the equitable
settlement, following clearance by and with such changes necessary to comply
with the comments, if any, of the Securities and Exchange Commission (SEC) in
its review and clearance procedures. The monetary and equitable class notices
will be sent to the monetary and equitable classes, respectively, following
clearance by the SEC of the solicitation statement.
-
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
11. Contingencies (continued)
The monetary settlement remains subject to certain conditions, including but not
limited to notice to the monetary class for purposes of the monetary settlement
and final approval of the monetary settlement by the court following a final
fairness hearing. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) notice to the equitable class, (b)
review and clearance by the SEC, and dissemination to the members of the
equitable class, of solicitation statements regarding the proposed extensions,
(c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII
of the proposed amendments to the limited partnership agreements, (d) judicial
approval of the proposed amendments to the limited partnership agreements, and
(e) final approval of the equitable settlement by the court following a final
fairness hearing. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. 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 monetary settlement is not consummated.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition of the Partnership.
(This space intentionally left blank)
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 June 30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the three months ended June 30, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 8 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses are indirect in nature and not a result of
operations, but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Three Months
Ended June 30,
1999 1998
-------------------------------
Aircraft $ 2,035 $ 2,200
Marine vessels 930 1,077
Railcars 489 461
Trailers 417 501
Marine containers 187 235
Aircraft: Aircraft lease revenues and direct expenses were $2.1 million and
$17,000, respectively, for the three months ended June 30, 1999, compared to
$2.2 million and $19,000, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to the release of two aircraft at a
lower lease rate than had been in place during 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.9
million and $1.0 million, respectively, for the three months ended June 30,
1999, compared to $2.8 million and $1.7 million, respectively, during the same
period of 1998. The decrease in marine vessel lease revenues was due to one of
the marine vessels earning $0.8 million less during the second quarter 1999 due
to lower lease rates while on lease when compared to the lease rates in place
during the same period of 1998. Direct expenses associated with the same marine
vessel decreased due to lower operating costs and repairs when compared to the
same period of 1998.
Railcars: Railcar lease revenues and direct expenses were $0.6 million and $0.1
million, respectively, for the three months ended June 30, 1999, compared to
$0.6 million and $0.2 million, respectively, during the same period of 1998. The
increase in railcar contribution was due to a $0.1 million decrease in repairs
and maintenance due to fewer required repairs to certain railcars during the
second quarter of 1999 when compared to the same period of 1998. The decrease in
direct expenses was offset in part, by a decrease in lease revenues of $24,000
during the second quarter of 1999 when compared to the same period of 1998 due
to certain railcars being off-lease during the three months ended June 30, 1999
that were on-lease during the same period of 1998.
Trailers: Trailer lease revenues and direct expenses were $0.6 million and $0.2
million, respectively, for the three months ended June 30, 1999, compared to
$0.7 million and $0.2 million, respectively, during the same period of 1998.
During the second quarter of 1999, certain over-the-road dry trailers were in
the process of transitioning to a new PLM-affiliated short-term rental facility
specializing in this type of trailer causing lease revenues for this group of
trailers to decrease $0.1 million during the three months ended June 30, 1999
when compared to the same period of 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $1,000, respectively, for the three months ended June 30, 1999,
compared to $0.2 million and $3,000, respectively, during the same period of
1998. The number of marine containers owned by the Partnership has been
declining due to sales and dispositions during 1999 and 1998. 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 $3.3 million for the quarter ended June 30, 1999
decreased from $4.1 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.6 million decrease in depreciation and amortization expenses from
1998 levels was caused primarily by the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(ii) A $0.2 million decrease in interest expense was due to a lower average
outstanding debt balance when compared to the same period of 1998.
(C) Interest and Other Income
Interest and other decreased $45,000 during the three months ended June 30, 1999
when compared to the same period of 1998 due primarily to lower cash balances
available for investment.
(D) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the second quarter of 1999
totaled $45,000, which resulted from the sale of marine containers and trailers
with an aggregate net book value of $0.1 million, for proceeds of $0.2 million.
Net gain on disposition of equipment for the second quarter of 1998 totaled $0.4
million, which resulted from the sale of marine containers, railcars, and
trailers, with an aggregate net book value of $0.7 million, for proceeds of $1.1
million.
(E) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1999 1998
-------------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 99 $ 93
Marine vessels (204) 176
Equity in net income of USPEs $ (105) $ 269
================================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of June 30, 1999 the
Partnership had an interest in an entity owning two commercial aircraft on a
direct finance lease. As of June 30, 1998, the Partnership had an interest in
two trusts that owned 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 three
months ended June 30, 1999, lease revenues of $0.1 million were offset by
depreciation expense, direct expenses, and administrative expenses of $9,000.
During the same period of 1998, lease revenues of $0.3 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.2
million. Lease revenues decreased $0.2 million and depreciation expense, direct
expenses, and administrative expenses decreased $0.2 million due to the sale of
the Partnership's investment in two trusts that owned a total of three 737-200A
Stage II commercial aircraft, two stage II aircraft engines, and a portfolio of
aircraft rotables.
Marine vessels: As of June 30, 1999 and 1998, the Partnership owned an interest
in three entities owning a total of three marine vessels. During the second
quarter of 1999, lease revenues of $1.2 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.4 million. During
the same period of 1998, lease revenues of $1.7 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.5
million. The decrease in lease revenues of $0.5 million was due to lower lease
rates earned on two marine vessels. The decrease in depreciation expense, direct
expenses, and administrative expenses was primarily due to the decrease of $0.1
million in depreciation expense due to the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(F) Net Income
As a result of the foregoing, the Partnership's net income for the three months
ended June 30, 1999 was $0.8 million, compared to net income of $1.1 million
during the same period in 1998. The Partnership's ability to operate assets,
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the second
quarter of 1999 is not necessarily indicative of future periods. In the second
quarter of 1999, the Partnership distributed $2.1 million to the limited
partners, or $0.23 per weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the six months ended June 30, 1999, when compared to the same
period of 1998. Gains or losses from the sale of equipment, interest and other
income, and certain expenses such as depreciation and amortization and general
and administrative expenses relating to the operating segments (see Note 8 to
the financial statements), are not included in the owned equipment operation
discussion because these expenses are indirect in nature and not a result of
operations, but the result of owning a portfolio of equipment. The following
table presents lease revenues less direct expenses by segment (in thousands of
dollars):
For the Six Months
Ended June 30,
1999 1998
-------------------------------
Aircraft $ 4,212 $ 4,406
Marine vessels 1,280 1,075
Railcars 973 1,047
Trailers 877 1,016
Marine containers 445 761
Aircraft: Aircraft lease revenues and direct expenses were $4.2 million and
$32,000, respectively, for the six months ended June 30, 1999, compared to $4.4
million and $40,000, respectively, during the same period of 1998. The decrease
in aircraft contribution was due to the release of two aircraft at a lower lease
rate than had been in place during 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.0
million and $1.8 million, respectively, for the six months ended June 30, 1999,
compared to $4.0 million and $2.9 million, respectively, during the same period
of 1998. The decrease in marine vessel lease revenues was primarily due to one
of the marine vessels earning $1.4 million less during the six months ended June
30, 1999 due to earning a lower lease rate when compared to the lease rate that
was in place during the same period of 1998 and the required dry-docking of this
marine vessel for a six week period. During the dry docking, this marine vessel
did not earn any lease revenues. The decrease in lease revenues caused by the
dry-docking and lower lease rates was partially offset by an increase in marine
vessel lease revenues of $0.6 million caused by the purchase of an additional
marine vessel during March of 1998 that was on lease the entire six months of
1999 when compared to the same period of 1998. Direct expenses also decreased
$1.1 million due to not having any operating costs and repairs while in
dry-docking.
Railcars: Railcar lease revenues and direct expenses were $1.2 million and $0.2
million, respectively, for the six months ended June 30, 1999, compared to $1.3
million and $0.2 million, respectively, during the same period of 1998. The
decrease in railcar contribution of was due to lower lease revenues of $0.1
million due to certain railcars being off-lease during the six months ended June
30, 1999 that were on-lease during 1998 and additional repairs of $21,000 to
certain railcars that were not needed during the same period of 1998.
Trailers: Trailer lease revenues and direct expenses were $1.3 million and $0.4
million, respectively, for the six months ended June 30, 1999, compared to $1.3
million and $0.3 million, respectively, during the same period of 1998. During
the six months ended June 30, 1999, certain over-the-road dry trailers were in
the process of transitioning to a new PLM-affiliated short-term rental facility
specializing in this type of trailer causing lease revenues for this group of
trailers to decrease $0.1 million when compared to the same period of 1998.
Trailer repairs and maintenance increased $0.1 million primarily due to required
repairs during 1999 that were not needed during the same period of 1998.
Marine containers: Marine container lease revenues and direct expenses were $0.4
million and $2,000, respectively, for the six months ended June 30, 1999,
compared to $0.8 million and $6,000, respectively, during the same period of
1998. The decrease in lease revenues was caused by a decrease in demand of
certain available marine containers which has lead to declining lease rates. In
addition, the number of marine containers owned by the Partnership has been
declining due to sales and dispositions during 1999 and 1998. The result of this
declining fleet has also been a decrease in marine container contribution.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $6.5 million for the six months ended June 30, 1999
decreased from $7.9 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $1.0 million decrease in depreciation and amortization expenses from
1998 levels was caused primarily by the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
(ii) A $0.4 million decrease in interest expense was due to a lower average
outstanding debt balance when compared to the same period of 1998.
(iii) A $0.1 million decrease in management fees to affiliate was due to
lower lease revenues.
(C) Interest and Other Income
Interest and other income decreased $0.2 million during the six months ended
June 30, 1999 when compared to the same period of 1998 due primarily to lower
cash balances available for investment.
(D) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the six months ended June 30,
1999 totaled $0.1 million, which resulted from the sale of marine containers and
trailers with an aggregate net book value of $0.3 million, for proceeds of $0.4
million. Net gain on disposition of equipment for the same period of 1998
totaled $0.5 million, which resulted from the sale of marine containers,
railcars, and trailers, with an aggregate net book value of $1.0 million, for
proceeds of $1.5 million.
(E) 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 Six Months
Ended June 30,
1999 1998
-------------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 1,670 $ 158
Marine vessels (268) 147
Equity in net income of USPEs $ 1,402 $ 305
=================================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of June 30, 1999 the
Partnership had an interest in an entity owning two commercial aircraft on a
direct finance lease. As of June 30, 1998, the Partnership had an interest in
two trusts that owned 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 six months
ended June 30, 1999, lease revenues of $0.2 million and the gain from the sale
of the Partnership's interest in two trusts that owned a total of three
commercial aircraft, two aircraft engines, and a portfolio of aircraft rotables
of $1.6 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.1 million. During the same period of 1998, lease
revenues of $0.6 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.4 million. Lease revenues decreased $0.4
million and depreciation expense, direct expenses, and administrative expenses
decreased $0.3 million due to the sale of the Partnership's investment in two
trusts that owned a total of three 737-200A Stage II commercial aircraft, two
stage II aircraft engines, and a portfolio of aircraft rotables.
Marine vessels: As of June 30, 1999 and 1998, the Partnership owned an interest
in three entities owning a total of three marine vessels. During the six months
ended June 30, 1999, lease revenues of $2.8 million were offset by depreciation
expense, direct expenses, and administrative expenses of $3.1 million. During
the same period of 1998, lease revenues of $3.3 million were offset by
depreciation expense, direct expenses, and administrative expenses of $3.1
million. The decrease in lease revenues of $0.5 million was due to lower lease
rates earned on two marine vessels. Depreciation expense, direct expenses, and
administrative expenses remained relatively the same however, a $0.2 million
decrease in depreciation expense from the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned, was offset by a $0.2 million increase to marine operating expenses
during 1999 when compared to the same period of 1998.
(F) Net Income
As a result of the foregoing, the Partnership's net income for the six months
ended June 30, 1999 was $2.9 million, compared to net income of $1.4 million
during the same period in 1998. The Partnership's ability to operate assets,
liquidate assets, secure leases, and re-lease those assets whose leases expire
is subject to many factors, and the Partnership's performance in the six months
ended June 30, 1999 is not necessarily indicative of future periods. In the six
months ended June 30, 1999, the Partnership distributed $3.6 million to the
limited partners, or $0.40 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 1999, the Partnership generated $6.0 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 six months ended June
30, 1999 of $3.8 million) to the partners.
During the six months ended June 30, 1999, the Partnership sold owned equipment
and received aggregate proceeds of $0.4 million. The Partnership also received
liquidating proceeds of $3.6 million from the sale of its interest in two trusts
that own a total of three commercial aircraft, two aircraft engines, and a
portfolio of aircraft rotables.
The Partnership was required to install a hush-kit to one of its Boeing 737-200
commercial aircraft per the Partnership's lease agreement. The Partnership
purchased the hush-kit for $1.2 million and paid acquisition and lease
negotiation fees of $0.1 million to PLM Financial Services, Inc. (FSI or the
General Partner), a wholly-owned subsidiary of PLM International, Inc., for this
equipment.
Lessee deposits and reserve for repairs decreased $0.2 million during the six
months ended June 30, 1999 when compared to December 31, 1998. Lessee prepaid
deposits decreased $0.1 million and marine vessel dry-docking decreased $0.3
million due to the dry-docking on one of the Partnership's marine vessels while
reserves for aircraft engine repair increased $0.2 million due to additional
lessee deposits.
The Partnership is scheduled to make quarterly principal installment payments of
$2.0 million to the lender through the year 2001 and, under some instances, 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 six months ended June 30, 1999, the Partnership made the
regularly scheduled installment payment of $3.9 million to the lender of the
note payable and an additional $0.3 million from the proceeds of equipment
sales. As a result of the additional payment from equipment sales, future
scheduled quarterly principal installment payments have been reduced to $1.9
million.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of 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 possibility commonly known as the "Year 2000" or "Y2K" 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 business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of June 30, 1999, the General Partner has completed inventory,
assessment, remediation and testing stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated 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
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems will be fully tested September by 30, 1999 and are expected to be
compliant.
As of June 30, 1999, the costs incurred and allocated to the Partnership to
become Year 2000 compliant have not been material and does not anticipate any
additional Year 2000-compliant expenditures.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or General Partner to control, including the extent to which third
parties can address the Year 2000 problem. The General Partner is communicating
with vendors, services providers, and customers in order to assess the Year 2000
readiness of such parties and the extent to which the Partnership is vulnerable
to any third-party Year 2000 issues. As part of this process, vendors and
service providers were ranked in terms of the relative importance of the service
or product provided. All service providers and vendors who were identified as
medium to high relative importance were surveyed to determine Year 2000 status.
The General Partner has received satisfactory responses to Year 2000 readiness
inquiries from surveyed service providers and vendors.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner has contacted equipment
manufacturers of the portion of the Partnership's leased equipment portfolio
identified as date sensitive to assure Year 2000 compliance or to develop
remediation strategies. The Partnership does not expect that non-Year 2000
compliance of its leased equipment portfolio will have an adverse material
impact on its financial statements. The General Partner has surveyed the
majority of its lessees and the majority of those surveyed have responded
satisfactorily to Year 2000 readiness inquiries.
There can be no assurance that the software systems of such parties will be
converted or made Year 2000 compliant in a timely manner. 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 has
made and will continue an ongoing effort to recognize and evaluate potential
exposure relating to third party Year 2000 noncompliance. The General Partner
will implement a contingency plan if the General Partner determines that
third-party noncompliance would have a material adverse effect on the
Partnership's business, financial position, or results of operation.
The General Partner is currently developing a contingency plan to address the
possible failure of any systems or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, a reasonably likely
worst case scenarios primarily anticipate a) an inability to access systems and
data on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. The General
Partner is evaluating whether there are additional scenarios, which have not
been identified. Contingency planning will encompass strategies up to and
including manual processes. The General Partner anticipates that these plans
will be completed by September 30, 1999.
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities", (SFAS No. 133) 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.
FASB Statement No. 137, "Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
June 30, 1999, the General Partner is reviewing the effect SFAS No. 133 will
have on the Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Since the Partnership is in its holding or passive liquidation phase, the
General Partner will be 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.
Several factors may affect the Partnership's operating performance in 1999 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 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.
Other factors affecting the Partnership's contribution in 1999 and beyond
include:
1. The decrease in demand for available marine containers has lead to declining
lease rates. Some of the Partnership's refrigerated marine containers currently
have become delaminated. This condition lowers the demand for these marine
containers which has lead to declining lease rates.
2. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk vessels. The market has stabilized
and is expected to improve over the next 2-3 years due to the absence of new
drybulk orders.
3. Railcar loading in North America have continued to be high, however a
softening in the market is expected in the second half of 1999, which may lead
to lower utilization and lower contribution to the Partnership.
4. The Partnershi's over-the-road dry trailers are currently in transition to
new PLM-affiliated short-term rental facilities specializing in this type of
trailer. The movement of these trailers to a new location will cause a temporary
reduction in lease revenues.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay loan principal and interest on debt, repurchase
limited partnership units, and pay cash distributions to the partners.
(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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposures are that of interest rate and
currency risk. The Partnership's note payable is a variable rate debt. The
Partnership estimates a one percent increase or decrease in the Partnership's
variable rate debt would result in an increase or decrease, respectively, in
interest expense of $0.1 million for the remaining six months of 1999, $0.1
million in 2000, and $38,000 in 2001. The Partnership estimates a two percent
increase or decrease in the Partnership's variable rate debt would result in an
increase or decrease, respectively, in interest expense of $0.2 million for the
remaining nine months of 1999, $0.2 million in 2000, and $0.1 million in 2001.
During the six months ended June 30, 1999, 76% of the Partnership's total lease
revenues from wholly- and partially-owned equipment came from non-United States
domiciled lessees. Most of the Partnership's leases require payment in United
States (U.S.) currency. If these lessees currency devalues against the U.S.
dollar, the lessees could potentially encounter difficulty in making the U.S.
dollar denominated lease payments.
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-
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None.
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-
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: August 4, 1999 By: /s/ Richard K Brock
Richard K Brock
Vice President and
Corporate Controller
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,317
<SECURITIES> 0
<RECEIVABLES> 3,920
<ALLOWANCES> (94)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 109,563
<DEPRECIATION> (72,193)
<TOTAL-ASSETS> 55,833
<CURRENT-LIABILITIES> 0
<BONDS> 19,355
0
0
<COMMON> 0
<OTHER-SE> 33,331
<TOTAL-LIABILITY-AND-EQUITY> 55,833
<SALES> 0
<TOTAL-REVENUES> 10,400
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,242
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 681
<INCOME-PRETAX> 2,854
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,854
<DISCONTINUED> 0
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<NET-INCOME> 2,854
<EPS-BASIC> 0.29
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