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 MARCH 31, 1999
[ ] TRANSITION PERIOD 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 ____
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 108,840 $ 109,515
Less accumulated depreciation (70,413 ) (68,711 )
-----------------------------------
Net equipment 38,427 40,804
Cash and cash equivalents 4,798 1,774
Restricted cash 108 108
Accounts receivable, net of allowance for doubtful
accounts of $75 in 1999 and $77 in 1998 3,426 3,188
Investments in unconsolidated special-purpose entities 12,857 15,144
Deferred charges, net of accumulated amortization of
$1,086 in 1999 and $1,038 in 1998 229 277
Prepaid expenses and other assets 42 81
-----------------------------------
Total assets 59,887 $ 61,376
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 754 $ 593
Due to affiliates 373 339
Lessee deposits and reserve for repairs 2,325 2,450
Note payable 21,622 23,588
-----------------------------------
Total liabilities 25,074 26,970
-----------------------------------
Partners' capital:
Limited partners (9,076,236 limited partnership units as of
March 31, 1999 and 9,081,028 as of December 31, 1998) 34,813 34,406
General Partner -- --
-----------------------------------
Total partners' capital 34,813 34,406
-----------------------------------
Total liabilities and partners' capital $ 59,887 $ 61,376
===================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
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
Ended March 31,
1999 1998
--------------------------------
<S> <C> <C>
REVENUES
Lease revenue $ 4,833 $ 5,212
Interest and other income 46 161
Net gain on disposition of equipment 60 135
--------------------------------
Total revenues 4,939 5,508
--------------------------------
EXPENSES
Depreciation and amortization 2,262 2,641
Repairs and maintenance 475 325
Equipment operating expenses 519 991
Insurance expense to affiliate -- 9
Other insurance expenses 123 71
Management fees to affiliate 241 257
Interest expense 365 533
General and administrative expenses to affiliates 249 237
Other general and administrative expenses 125 140
Provision for (recovery of) bad debts (8 ) 6
--------------------------------
Total expenses 4,351 5,210
--------------------------------
Equity in net income of unconsolidated special-purpose entities 1,507 36
--------------------------------------------------------------------------------------------------------------
Net income $ 2,095 $ 334
================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 1,976 $ 143
General Partner 119 191
--------------------------------
Total $ 2,095 $ 334
================================
Net income per weighted-average limited partnership unit $ 0.22 $ 0.02
================================
Cash distribution $ 1,656 $ 3,825
================================
Cash distribution per weighted-average limited partnership unit $ 0.17 $ 0.40
================================
</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, 1997 TO MARCH 31, 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 1,976 119 2,095
Repurchase of limited partnership units (32 ) -- (32 )
Cash distribution (1,537 ) (119 ) (1,656 )
-------------------------------------------------------
Partners' capital as of March 31, 1999 $ 34,813 $ -- $ 34,813
=======================================================
</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 Three Months
Ended March 31,
1999 1998
----------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,095 $ 334
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,262 2,641
Net gain on disposition of equipment (60 ) (135 )
Equity in net income from unconsolidated
special-purpose entities (1,507 ) (36 )
Changes in operating assets and liabilities, net:
Accounts receivable, net (240 ) (143 )
Prepaid expenses and other assets 39 54
Accounts payable and accrued expenses 161 (876 )
Due to affiliates 4 (98 )
Lessee deposits and reserve for repairs (125 ) 108
--------------
-------------
Net cash provided by operating activities 2,629 1,849
---------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment and capitalized improvements -- (8,280 )
Payments of acquisition fees to affiliate -- (414 )
Payments of lease negotiation fees to affiliate -- (92 )
Distribution from liquidation of unconsolidated special-purpose entity 3,553 3,724
Distributions from unconsolidated special-purpose entities 271 2,003
Proceeds from disposition of equipment 225 411
---------------------------
Net cash provided by (used in) investing activities 4,049 (2,648 )
---------------------------
FINANCING ACTIVITIES
Payments of note payable (1,966 ) (2,000 )
Cash distributions paid to limited partners (1,537 ) (3,634 )
Cash distributions paid to General Partner (119 ) (191 )
Repurchase of limited partnership units (32 ) (34 )
---------------------------
Net cash used in financing activities (3,654 ) (5,859 )
---------------------------
Net increase (decrease) in cash and cash equivalents 3,024 (6,658 )
Cash and cash equivalents at beginning of period 1,774 9,884
---------------------------
Cash and cash equivalents at end of period $ 4,798 $ 3,226
===========================
SUPPLEMENTAL INFORMATION
Interest paid $ 398 $ 569
==========================================================================================================
</TABLE>
See accompanying notes to financial
statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1999 and December 31, 1998, the statements of
income for the three months ended March 31, 1999 and 1998, the statements of
changes in partners' capital for the period from December 31, 1997 to March 31,
1999, and the statements of cash flows for the three months ended March 31, 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 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 three months ended March 31, 1999, the Partnership had repurchased
4,792 limited partnership units for $32,000. 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 March 31, 1999 and 1998, cash distributions totaled $1.7 million
and $3.8 million, respectively. None of the cash distributions to the limited
partners for the three months ended March 31, 1999, were deemed to be a return
of capital. Cash distributions to the limited partners of $3.5 million for the
three months ended March 31, 1998, were deemed to be a return of capital.
Cash distributions related to the results from the first quarter of 1999 of $1.5
million, will be paid during the second quarter of 1999.
5. Transactions with General Partner and Affiliates
The balance due to affiliates as of March 31, 1999 and December 31, 1998,
included $0.2 million due to FSI and its affiliates for management fees and $0.1
million due to affiliated unconsolidated special-purpose entities (USPEs).
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million was payable as of March 31, 1999 and December 31, 1998.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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
Ended March 31,
1999 1998
---------------------------
<S> <C> <C>
Management fees $ 84 $ 91
Data processing and administrative
expenses 22 26
Insurance expense -- 2
</TABLE>
The Partnership and USPEs paid FSI $0.5 million for equipment acquisition and
lease negotiation fees during the three months ended March 31, 1998, no fees
were paid during the three months ended March 31, 1999.
6. Equipment
The components of owned equipment were as follows (in thousands of dollars):
March 31, December 31,
1999 1998
--------------------------------
Aircraft $ 51,090 $ 51,090
Marine vessels 25,890 25,890
Railcars 11,383 11,383
Marine containers 11,168 11,842
Trailers 9,309 9,310
----------- -----------
108,840 109,515
Less accumulated depreciation (70,413 ) (68,711 )
----------- -----------
Net equipment $ 38,427 $ 40,804
=========== ===========
As of March 31, 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 6 railcars with a net book value of $0.1 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 three months ended March 31, 1999, the Partnership disposed of marine
containers with a net book value of $0.2 million, for $0.2 million.
During the three months ended March 31, 1998, the Partnership disposed of marine
containers and trailers with an aggregate net book value of $0.3 million, for
$0.4 million.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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>
March 31, December 31,
1999 1998
----------------------------------
<S> <C> <C>
48% interest in an entity owning a product tanker $ 6,531 $ 6,890
25% interest in a trust owning two commercial aircraft on direct
finance lease 2,715 2,771
50% interest in an entity owning a bulk carrier 1,861 1,872
50% interest in an entity owning a product tanker 1,750 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 $ 12,857 $ 15,144
============ ============
</TABLE>
During the three months ended March 31, 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 All
For the quarter ended March 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1> Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,192 $ 1,140 $ 602 $ 260 $ 639 $ -- $ 4,833
Interest income and other 9 -- -- -- -- 37 46
Gain (loss) on disposition of -- -- -- 61 (1 ) -- 60
equipment
------------------------------------------------------------------------
Total revenues 2,201 1,140 602 321 638 37 4,939
COSTS AND EXPENSES
Operations support 15 791 117 1 180 13 1,117
Depreciation and amortization 1,281 466 154 164 167 30 2,262
Interest expense -- -- -- -- -- 365 365
Management fees to affiliate 96 57 31 13 44 -- 241
General and administrative expenses 7 8 10 -- 152 197 374
Provision for (recovery of) bad -- -- 3 (4 ) (7 ) -- (8 )
debts
------------------------------------------------------------------------
Total costs and expenses 1,399 1,322 315 174 536 605 4,351
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 1,571 (64 ) -- -- -- -- 1,507
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 2,373 $ (246 ) $ 287 $ 147 $ 102 $ (568 ) $ 2,095
========================================================================
Total assets As of March 31, 1999 $ 22,236 $ 21,272 $ 3,906 $ 2,814 $ 3,897 $ 5,762 $ 59,887
========================================================================
<FN>
<F1> Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
8. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Vessel Railcar Container Trailer All
For the quarter ended March 31, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1> Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 2,227 $ 1,170 $ 630 $ 529 $ 656 $ -- $ 5,212
Interest income and other 12 5 -- -- -- 144 161
Gain on disposition of equipment -- -- -- 132 3 -- 135
------------------------------------------------------------------------
Total revenues 2,239 1,175 630 661 659 144 5,508
COSTS AND EXPENSES
Operations support 21 1,172 44 3 141 15 1,396
Depreciation and amortization 1,700 286 175 241 206 33 2,641
Interest expense -- -- -- -- -- 533 533
Management fees to affiliate 86 59 43 26 43 -- 257
General and administrative expenses 10 22 10 -- 137 198 377
Provision for (recovery of) bad -- -- (3 ) -- 9 -- 6
debts
------------------------------------------------------------------------
Total costs and expenses 1,817 1,539 269 270 536 779 5,210
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 65 (29 ) -- -- -- -- 36
------------------------------------------------------------------------
========================================================================
Net income (loss) $ 487 $ (393 ) $ 361 $ 391 $ 123 $ (635 ) $ 334
========================================================================
Total assets As of March 31, 1998 $ 28,953 $ 25,147 $ 4,621 $ 5,523 $ 4,820 $ 4,578 $ 73,642
========================================================================
<FN>
<F2> Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support.
</FN>
</TABLE>
9. Debt
The Partnership made the regularly scheduled installment payment of $2.0 million
to the lender of the note payable during the three months ended March 31, 1999,
and accrued the quarterly interest payment at a rate of LIBOR plus 1.2% per
annum (6.2% at March 31, 1999 and 6.6% at December 31, 1998).
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 months ended
March 31, 1999 and 1998, was 9,080,730 and 9,084,809, respectively.
11. Contingencies
PLM International (the Company) and various of its affiliates 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 (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 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 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
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
11. Contingencies (continued)
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) based on the district court's diversity
jurisdiction, following which plaintiffs filed a motion to remand the action to
the state court. Removal of the action to federal court automatically nullified
the state court's ex parte certification of the class. In September 1997, the
district 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
partnership, and to stay further proceedings pending the outcome of such
arbitration. Notwithstanding plaintiffs' opposition, the district court granted
defendants' motion in December 1997.
Following various unsuccessful requests that the district 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 district 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 district 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 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, 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 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
11. Contingencies (continued)
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 monetary
settlement). The monetary settlement contemplated by the MOU 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
Alabama district court. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy.
The parties to the monetary settlement have also agreed to an equitable
settlement (the equitable settlement) which provides, among other things: (a)
for the extension of the operating lives of the Partnership and Funds VI and VII
by judicial amendment to each of their partnership agreements, such that FSI,
the general partner of each such partnership, will be permitted to reinvest cash
flow, surplus partnership funds or retained proceeds in additional equipment
into the year 2004, and will liquidate the partnerships' equipment in 2006; (b)
that FSI is entitled to earn front-end fees (including acquisition and lease
negotiation fees) 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 the Partnership and
Funds VI and VII; (c) for a one-time redemption of up to 10% of the outstanding
units of the Partnership and Funds VI and VII at 80% of such partnership's net
asset value; and (d) for the deferral of a portion of FSI's management fees. The
equitable settlement also provides for payment of the equitable class attorneys'
fees from partnership funds in the event that distributions paid to investors in
the Partnership and Funds 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 proposed settlements. The parties completed the
documentation of the monetary and equitable settlements in April 1999. The
monetary settlement remains subject to numerous conditions, including but not
limited to, notice to and certification of the monetary class for purposes of
the monetary settlement, and preliminary and final approval of the monetary
settlement by the Alabama district court. The equitable settlement remains
subject to numerous conditions, including but not limited to: (a) notice to the
current unitholders in the Partnership and Funds VI and VII (the equitable
class) and certification of the equitable class for purposes of the equitable
settlement, (b) preparation, review by the Securities and Exchange Commission
(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 the Partnership and Funds V 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) preliminary
and final approval of the equitable settlement by the Alabama district court. If
the district court grants preliminary approval, notices to the monetary class
and equitable class will be sent following review by the SEC of the solicitation
statements to be prepared in connection with the equitable settlement. 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 Company.
<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 March 31, 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 March 31, 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 they 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):
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1999 1998
----------------------------
<S> <C> <C>
Aircraft $ 2,177 $ 2,206
Railcars 485 586
Trailers 459 515
Marine vessels 349 (2 )
Marine containers 259 526
</TABLE>
Aircraft: Aircraft lease revenues and direct expenses were $2.2 million and
$15,000, respectively, for the three months ended March 31, 1999, compared to
$2.2 million and $21,000, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to the release of two aircraft at a
slightly lower lease rate than had been in place during 1998.
Railcars: Railcar lease revenues and direct expenses were $0.6 million and $0.1
million, respectively, for the three months ended March 31, 1999, compared to
$0.6 million and $44,000, respectively, during the same period of 1998. The
decrease in railcar contribution was due to lower lease revenues due to certain
railcars being off-lease during the three months ended March 31, 1999 that were
on-lease during the first quarter of 1998 and additional required repairs to
certain railcars that were not needed 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 March 31, 1999, compared to
$0.7 million and $0.1 million, respectively, during the same period of 1998.
Trailer contribution decreased during the first quarter of 1999 due to lower
lease revenues caused by trailer sales during 1998 and higher repairs required
during 1999 when compared to the same period of 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.1
million and $0.8 million, respectively, for the three months ended March 31,
1999, compared to $1.2 million and $1.2 million, respectively, during the same
period of 1998. The increase in marine vessel contribution was due to the
purchase of an additional marine vessel during March of 1998 that was on lease
the entire first quarter of 1999 operating under a bareboat charter which
produces lease revenues and practically no operating costs. In addition, lease
revenues and direct expenses decreased during the first quarter of 1999 due to
one of the Partnership's marine vessels going into dry-docking for approximately
six weeks. During this period, the marine vessel did not earn any revenues or
incur any expenses.
Marine containers: Marine container lease revenues and direct expenses were $0.3
million and $1,000, respectively, for the three months ended March 31, 1999,
compared to $0.5 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 $3.2 million for the quarter ended March 31, 1999
decreased from $3.8 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.4 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 $0.1 million during the three months ended March
31, 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 first quarter of 1999
totaled $0.1 million, which resulted from the sale of marine containers with a
net book value of $0.2 million, for proceeds of $0.2 million. Net gain on
disposition of equipment for the first quarter of 1998 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.
(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 March 31,
1999 1998
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 1,571 $ 65
Marine vessels (64 ) (29 )
===================================================================================================
Equity in net income of USPEs $ 1,507 $ 36
===================================================================================================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of March 31, 1999 the
Partnership had an interest in an entity owning two commercial aircraft on a
direct finance lease. As of March 31, 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 March 31, 1999, lease revenues of $0.1 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,
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 $0.1 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 March 31, 1999 and 1998, the Partnership owned an interest
in three entities owning a total of three marine vessels. During the first
quarter of 1999, lease revenues of $1.6 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.7 million. During
the same period of 1998, lease revenues of $1.6 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.6
million. The primary reason for the decrease in the 1999 contribution from USPEs
that own marine vessels was due to higher marine operating expenses during the
first quarter of 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 three months
ended March 31, 1999 was $2.1 million, compared to net income of $0.3 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 first
quarter of 1999 is not necessarily indicative of future periods. In the first
quarter of 1999, the Partnership distributed $1.5 million to the limited
partners, or $0.17 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the three months ended March 31, 1999, the Partnership generated $2.9
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 three months ended
March 31, 1999 of $1.7 million) to the partners.
During the three months ended March 31, 1999, the Partnership sold owned
equipment and received aggregate proceeds of $0.2 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 is scheduled to make quarterly installments of $2.0 million to
the lender through the year 2001 and, in 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
three months ended March 31, 1999, the Partnership made the regularly scheduled
installment payment of $2.0 million to the lender of the note payable. The
Partnership is scheduled to pay the senior lender an additional $0.3 million
from the proceeds of equipment sales with the next quarterly installments of
$2.0 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 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" or "Y2K" problem). Since 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 end 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.
It is possible that certain of the Partnership's equipment lease portfolio may
not be Year 2000 compliant. The General Partner is currently contacting
equipment manufacturers of the Partnership's leased equipment portfolio to
assure Year 2000 compliance or to develop remediation strategies. The General
Partner does not expect that non-Year 2000 compliance of its leased equipment
portfolio will have an adverse material impact on its financial statements.
Some risks associated with the Year 2000 problem are beyond the ability of the
Partnership or the 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 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 from the Partnership. The General Partner will make an ongoing
effort to recognize and evaluate potential exposure relating to third-party Year
2000 noncompliance, and will develop a contingency plan if the General Partner
determines that third-party noncompliance will 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 due to the Year 2000 problems. The General
Partner anticipates 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. As of March 31, 1999,
the General Partner is reviewing the effect this standard 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 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 cash flow from operations to satisfy its
operating requirements, pay loan principal and interest on debt, 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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is 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 $0.2 million for the remaining nine months of 1999, $0.1
million in 2000, and $39,000 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 $0.3 million for the
remaining nine months of 1999, $0.2 million in 2000, and $0.1 million in 2001.
During the three months ended March 31, 1999, 75% 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.
(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: April 30, 1999 By: /s/ Richard K Brock
---------------------------
Richard K Brock
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,906
<SECURITIES> 0
<RECEIVABLES> 3,501
<ALLOWANCES> (75)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 108,840
<DEPRECIATION> (70,413)
<TOTAL-ASSETS> 59,887
<CURRENT-LIABILITIES> 0
<BONDS> 21,622
0
0
<COMMON> 0
<OTHER-SE> 34,813
<TOTAL-LIABILITY-AND-EQUITY> 59,887
<SALES> 0
<TOTAL-REVENUES> 4,939
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,994
<LOSS-PROVISION> (8)
<INTEREST-EXPENSE> 365
<INCOME-PRETAX> 2,095
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,095
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
