UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 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 0-19203
-----------------------
PLM EQUIPMENT GROWTH FUND V
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3104548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE MARKET, STEUART STREET TOWER
SUITE 800, SAN FRANCISCO, CA 94105-1301
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (415) 974-1399
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 108,878 $ 109,515
Less accumulated depreciation (73,917) (68,711)
-----------------------------------
Net equipment 34,961 40,804
Cash and cash equivalents 1,786 1,774
Restricted cash 217 108
Accounts receivable, net of allowance for doubtful
accounts of $104 in 1999 and $77 in 1998 2,477 3,188
Investments in unconsolidated special-purpose entities 11,803 15,144
Deferred charges, net of accumulated amortization of
$1,114 in 1999 and $1,038 in 1998 126 277
Prepaid expenses and other assets 7 81
-----------------------------------
Total assets $ 51,377 $ 61,376
===================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 455 $ 593
Due to affiliates 350 339
Lessee deposits and reserve for repairs 2,408 2,450
Note payable 17,420 23,588
-----------------------------------
Total liabilities 20,633 26,970
-----------------------------------
Partners' capital:
Limited partners (9,067,911 limited partnership units as of
September 30, 1999 and 9,081,028 as of December 31, 1998) 30,744 34,406
General Partner -- --
-----------------------------------
Total partners' capital 30,744 34,406
-----------------------------------
Total liabilities and partners' capital $ 51,377 $ 61,376
===================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 5,102 $ 5,464 $ 15,297 $ 17,227
Interest and other income 39 50 138 311
Net gain on disposition of equipment 67 162 173 655
--------------------------------------------------------------
Total revenues $ 5,208 $ 5,676 $ 15,608 $ 18,193
--------------------------------------------------------------
Expenses
Depreciation and amortization 2,320 2,856 6,879 8,376
Repairs and maintenance 399 564 1,280 1,339
Equipment operating expenses 916 489 2,255 3,160
Insurance expense to affiliate -- 7 -- (49)
Other insurance expense 269 93 483 171
Management fees to affiliate 267 274 773 848
Interest expense 311 480 992 1,526
General and administrative expenses
to affiliates 204 213 658 684
Other general and administrative expenses 163 135 453 429
Provision for bad debts 23 14 47 46
--------------------------------------------------------------
Total expenses 4,872 5,125 13,820 16,530
--------------------------------------------------------------
Equity in net income (loss) of unconsolidated
special-purpose entities (536) 98 866 403
--------------------------------------------------------------
Net income (loss) $ (200) $ 649 $ 2,654 $ 2,066
==============================================================
Partners' share of net income (loss):
Limited partners $ (319) $ 458 $ 2,295 $ 1,492
General Partner 119 191 359 574
--------------------------------------------------------------
Total $ (200) $ 649 $ 2,654 $ 2,066
==============================================================
Net income (loss) per weighted-average
limited partnership unit $ (0.04) $ 0.05 $ 0.25 $ 0.16
==============================================================
Cash distribution $ 2,386 $ 3,824 $ 6,231 $ 11,474
==============================================================
Cash distribution per weighted-average
limited partnership unit $ 0.25 $ 0.40 $ 0.65 $ 1.20
==============================================================
</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 September 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
Purchase 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 2,295 359 2,654
Purchase of limited partnership units (85) -- (85)
Cash distribution (5,872) (359) (6,231)
-------------------------------------------------------
Partners' capital as of September 30, 1999 $ 30,744 $ -- $ 30,744
=======================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
For the Nine Months
Ended September 30,
<TABLE>
<CAPTION>
1999 1998
----------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 2,654 $ 2,066
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,879 8,376
Net gain on disposition of equipment (173) (655)
Equity in net income from unconsolidated
special-purpose entities (866) (403)
Changes in operating assets and liabilities, net:
Restricted cash (109) 3
Accounts receivable, net 732 779
Prepaid expenses and other assets 74 104
Accounts payable and accrued expenses (138) (1,252)
Due to affiliates 11 (144)
Lessee deposits and reserve for repairs (42) 160
--------------------------
Net cash provided by operating activities 9,022 9,034
---------------------------
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 3,548 3,724
Distributions from unconsolidated special-purpose entities 659 3,899
Proceeds from disposition of equipment 591 1,865
---------------------------
Net cash provided by investing activities 3,474 697
---------------------------
Financing activities
Payments of note payable (6,168) (6,447)
Proceeds from short-term note payable -- 1,600
Payments of short-term note payable -- (1,600)
Proceeds from short-term note payable to affiliate 1,400 --
Payment of short-term note payable to affiliate (1,400) --
Cash received from affiliates -- 198
Cash distribution paid to limited partners (5,872) (10,900)
Cash distribution paid to General Partner (359) (574)
Purchase of limited partnership units (85) (42)
---------------------------
Net cash used in financing activities (12,484) (17,765)
--------------------------
Net increase (decrease) in cash and cash equivalents 12 (8,034)
Cash and cash equivalents at beginning of period 1,774 9,884
---------------------------
Cash and cash equivalents at end of period $ 1,786 $ 1,850
===========================
Supplemental information
Interest paid $ 1,047 $ 1,595
===========================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 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 September 30, 1999 and December 31, 1998, the statements of
operations for the three and nine months ended September 30, 1999 and 1998, the
statements of changes in partners' capital for the period from December 31, 1997
to September 30, 1999, and the statements of cash flows for the nine months
ended September 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 which begins January 1, 2001, 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. Purchase of Limited Partnership Units
In 1998, the Partnership agreed to purchase approximately 18,100 limited
partnership units in 1999 for an aggregate purchase price of up to $0.1 million.
During the nine months ended September 30, 1999, the Partnership had purchased
13,117 limited partnership units for $0.1 million. The General Partner may
purchase 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 September 30, 1999 and 1998, cash distributions totaled $2.4
million and $3.8 million, respectively. For the nine months ended September 30,
1999 and 1998, cash distributions totaled $6.2 million and $11.5 million,
respectively. Cash distributions to the limited partners of $3.6 million and
$9.4 million for the nine months ended September 30, 1999 and 1998,
respectively, were deemed to be a return of capital.
Cash distributions related to the results from the third 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 September 30, 1999 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 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 September 30, 1999 and December 31, 1998.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 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 Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 57 90 $ 197 276
Data processing and administrative
expenses 14 $ 20 52 $ 69
Insurance expense -- 5 -- 11
</TABLE>
The Partnership paid FSI $0.1 million and $0.5 million for equipment acquisition
and lease negotiation fees during the nine months ended September 30, 1999 and
1998, respectively.
6. Equipment
The components of owned equipment were as follows (in thousands of dollars):
September 30, December 31,
1999 1998
---------------------------------
Aircraft $ 52,402 $ 51,090
Marine vessels 25,890 25,890
Railcars 11,348 11,383
Marine containers 9,991 11,842
Trailers 9,247 9,310
----------- -----------
108,878 109,515
Less accumulated depreciation (73,917) (68,711)
----------- -----------
Net equipment $ 34,961 $ 40,804
============ ===========
As of September 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 8 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 nine months ended September 30, 1999, the Partnership disposed of
marine containers, railcars, and trailers with an aggregate net book value of
$0.4 million, for $0.6 million. During the nine months ended September 30, 1998,
the Partnership disposed of marine containers, railcars, and trailers with an
aggregate net book value of $1.2 million, for $1.9 million.
During the nine months ended September 30, 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 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>
September 30 December 31,
1999 1998
----------------------------------
<S> <C> <C>
48% interest in an entity owning a product tanker $ 6,104 $ 6,890
25% interest in a trust owning two DC-9 Stage III commercial
aircraft on direct finance lease 2,490 2,771
50% interest in an entity owning a bulk carrier 1,835 1,872
50% interest in an entity owning a product tanker 1,374 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 $ 11,803 $ 15,144
============ ============
</TABLE>
As of September 30, 1999 and December 31, 1998, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease.
During the nine months ended September 30, 1999, the General Partner sold the
Partnership's 17% interest in two trusts that owned a total of three Boeing
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 $3.5 million for its net investment of $2.0 million.
In September 1999, the General Partner amended the corporate-by-laws of all the
Partnership's and any affiliated program's investments in USPE's that own an
interest greater than 50%. The amendment to the by-laws provides that all
decisions regarding the acquisition and disposition of the investment as well as
other significant business decisions of that investment would be permitted only
upon unanimous consent of the Partnership and all the affiliated programs that
have an ownership in the investment regardless of the percentage of ownership.
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.
(This space intentionally left blank)
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
8. Operating Segments (continued)
The following tables present a summary of the operating segments for the three
and nine months ended September 30, 1999 and 1998 (in thousands of dollars):
<TABLE>
<CAPTION>
Marine Marine
For the Three Months Ended Aircraft Vessel Railcar Container Trailer All
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 2,094 $ 1,570 $ 613 $ 130 $ 695 $ -- $ 5,102
Interest income and other 7 4 -- 8 -- 20 39
Gain on disposition of equipment -- -- 18 49 -- -- 67
------------------------------------------------------------------------
Total revenues 2,101 1,574 631 187 695 20 5,208
COSTS AND EXPENSES
Operations support 17 1,205 100 1 247 14 1,584
Depreciation and amortization 1,339 466 153 154 167 41 2,320
Interest expense -- -- -- -- -- 311 311
Management fees to affiliate 96 79 44 7 41 -- 267
General and administrative expenses 12 10 11 -- 146 188 367
Provision for bad debts -- -- 19 -- 4 -- 23
------------------------------------------------------------------------
Total costs and expenses 1,464 1,760 327 162 605 554 4,872
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 94 (630) -- -- -- -- (536)
------------------------------------------------------------------------
Net income (loss) $ 731 $ (816) $ 304 $ 25 $ 90 $ (534) $ (200)
========================================================================
Total assets as of September 30, 1999 $ 20,174 $ 19,380 $ 3,568 $ 2,157 $ 3,963 $ 2,135 $ 51,377
========================================================================
Marine Marine
For the Three Months Ended Aircraft Vessel Railcar Container Trailer ALl
September 30, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
Revenues
Lease revenue $ 2,227 $ 1,724 $ 625 $ 185 $ 703 $ -- $ 5,464
Interest income and other 11 5 -- 1 -- 33 50
Gain on disposition of equipment -- -- 1 157 4 -- 162
------------------------------------------------------------------------
Total revenues 2,238 1,729 626 343 707 33 5,676
Costs and expenses
Operations support 22 743 188 3 181 16 1,153
Depreciation and amortization 1,701 540 174 203 200 38 2,856
Interest expense -- -- -- -- -- 480 480
Management fees to affiliate 81 86 53 9 45 -- 274
General and administrative expenses 21 -- 7 13 134 173 348
Provision for bad debts -- -- 8 -- 6 -- 14
------------------------------------------------------------------------
Total costs and expenses 1,825 1,369 430 228 566 707 5,125
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 123 (25) -- -- -- -- 98
-----------------------------------------------------------------------
Net income (loss) $ 536 $ 335 $ 196 $ 115 $ 141 $ (674) $ 649
========================================================================
Total assets as of September 30, 1998 $ 25,322 $ 22,416 $ 4,251 $ 3,843 $ 4,331 $ 2,935 $ 63,098
========================================================================
<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>
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
8. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
For the Nine Months Ended Aircraft Vessel Railcar Container Trailer All
September 30, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
REVENUES
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 6,338 $ 4,611 $ 1,821 $ 577 $ 1,950 $ -- $ 15,297
Interest income and other 23 6 -- 13 -- 96 138
Gain (loss) on disposition of -- -- 18 173 (18) -- 173
equipment
------------------------------------------------------------------------
Total revenues 6,361 4,617 1,839 763 1,932 96 15,608
COSTS AND EXPENSES
Operations support 49 2,966 335 3 625 40 4,018
Depreciation and amortization 3,928 1,398 461 474 500 118 6,879
Interest expense -- -- -- -- -- 992 992
Management fees to affiliate 271 231 120 29 122 -- 773
General and administrative expenses 25 30 33 -- 446 577 1,111
Provision for (recovery of) bad -- -- 35 (4) 16 -- 47
debts
------------------------------------------------------------------------
Total costs and expenses 4,273 4,625 984 502 1,709 1,727 13,820
------------------------------------------------------------------------
Equity in net income (loss) of USPEs 1,764 (898) -- -- -- -- 866
------------------------------------------------------------------------
Net income (loss) $ 3,852 $ (906) $ 855 $ 261 $ 223 $ (1,631) $ 2,654
========================================================================
Total assets as of September 30, 1999 $ 20,174 $ 19,380 $ 3,568 $ 2,157 $ 3,963 $ 2,135 $ 51,377
========================================================================
Marine Marine
For the Nine Months Ended Aircraft Vessel Railcar Container Trailer All
September 30, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
---------------------------------- --------- --------- --------- --------- --------- --------- -----------
Revenues
Lease revenue $ 6,673 $ 5,677 $ 1,886 $ 951 $ 2,040 $ -- $ 17,227
Interest income and other 34 70 -- 2 -- 205 311
Gain on disposition of equipment -- -- 1 525 129 -- 655
------------------------------------------------------------------------
Total revenues 6,707 5,747 1,887 1,478 2,169 205 18,193
Costs and expenses
Operations support 62 3,621 402 9 502 25 4,621
Depreciation and amortization 5,115 1,354 522 666 611 108 8,376
Interest expense -- -- -- -- -- 1,526 1,526
Management fees to affiliate 242 284 142 46 134 -- 848
General and administrative expenses 54 45 31 -- 432 551 1,113
Provision for bad debts -- -- 5 31 10 -- 46
------------------------------------------------------------------------
Total costs and expenses 5,473 5,304 1,102 752 1,689 2,210 16,530
------------------------------------------------------------------------
Equity in net income of USPEs 281 122 -- -- -- -- 403
---------------------------------------------------------------------
Net income (loss) $ 1,515 $ 565 $ 785 $ 726 $ 480 $ (2,005 ) $ 2,066
========================================================================
Total assets as of September 30, 1998 $ 25,322 $ 22,416 $ 4,251 $ 3,843 $ 4,331 $ 2,935 $ 63,098
========================================================================
<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 $5.8
million and quarterly interest payments to the lender of the note payable during
the nine months ended September 30, 1999 at a rate of LIBOR plus 1.2% per annum
(6.6% at September 30, 1999 and 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.
<PAGE>
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
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 nine months
ended September 30, 1999, was 9,067,911 and 9,073,283, respectively. The
weighted-average number of Partnership units deemed outstanding during the three
and nine months ended September 30, 1998, was 9,081,028 and 9,081,849,
respectively.
11. Contingencies
PLM International Inc., (The Company) and various of its wholly-owned
subsidiaries are named as defendants in a lawsuit filed as a purported class
action in January 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 complaint
asserts eight causes of action against all defendants, as follows: fraud and
deceit, suppression, negligent misrepresentation, intentional breach of
fiduciary duty, negligent breach of fiduciary duty, unjust enrichment,
conversion, and conspiracy. 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, and the court denied plaintiffs' motion to remand, which
denial was upheld on appeal. In December 1997, the court granted defendants
motion to compel arbitration of the named plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of each
Partnership. Plaintiffs appealed this decision, but in June 1998 voluntarily
dismissed their appeal pending settlement of the Koch action, as discussed
below.
In June 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 (as amended in August 1997)
alleges the same facts and the same causes of action as in the Koch action, plus
additional causes of action against all of the defendants, including alleged
unfair and deceptive practices and constructive fraud. The plaintiff asserts a
claim for treble damages and violations of the California Securities Law of
1968.
In July 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 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.
PLM EQUIPMENT GROWTH FUND V
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
11. Contingencies (continued)
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. The monetary settlement provides for a settlement and
release of all claims against defendants 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 partnership
funds 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 Administrator's
Association's Statement of Policy; (c) for a one-time purchase 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 court, among other things, preliminarily approved the monetary and equitable
settlements in June 1999, and set a final fairness hearing for November 16,
1999. For settlement purposes, 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.
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 incidental to its business. Management does not believe that any of
these actions will be material to the financial condition of the Partnership.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund V's (the Partnership's) Operating
Results for the Three Months Ended September 30, 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 September 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 September 30,
1999 1998
----------------------------
Aircraft $ 2,077 $ 2,205
Railcars 513 437
Trailers 448 522
Marine vessels 365 981
Marine containers 129 182
Aircraft: Aircraft lease revenues and direct expenses were $2.1 million and
$17,000, respectively, for the three months ended September 30, 1999, compared
to $2.2 million and $22,000, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to the re-lease of two aircraft at a
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 September 30, 1999 and 1998,
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 third quarter of 1999 when compared to the same period of 1998.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2
million, respectively, for the three months ended September 30, 1999 and 1998.
The decrease in trailer contribution was due to a $0.1 million increase in
repairs and maintenance due to required repairs to certain trailers during the
third quarter of 1999 when compared to the same period of 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.6
million and $1.2 million, respectively, for the three months ended September 30,
1999, compared to $1.7 million and $0.7 million, respectively, during the same
period of 1998. The decrease in marine vessel lease revenues was due to one of
the marine vessels earning $0.2 million less during the third quarter of 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 increased $0.4 million due to higher operating costs when compared
to the same period of 1998. During the three months ended September 30, 1999,
this marine vessel was operating under a voyage charter. Under a voyage charter,
the owner of the marine vessel receives higher lease revenue and is responsible
for the certain equipment operating costs. During the same period of 1998, this
marine vessel was operating under a time charter and did not incur any equipment
operating expenses because under this charter the lessee is responsible for
these expenses.
Marine containers: Marine container lease revenues and direct expenses were $0.1
million and $1,000, respectively, for the three months ended September 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 September 30, 1999
decreased from $4.0 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.5 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 in the third quarter of 1999 when compared to the same
period of 1998.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of equipment for the third quarter of 1999
totaled $0.1 million, which resulted from the sale of marine containers,
railcars, and a trailer with an aggregate net book value of $0.1 million, for
proceeds of $0.2 million. Net gain on disposition of equipment for the third
quarter of 1998 totaled $0.2 million, which resulted from the sale of marine
containers and a trailer, with an aggregate net book value of $0.2 million, for
proceeds of $0.4 million.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
(USPEs)
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
1999 1998
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 94 123
Marine vessels (630) (25)
----------------------------
Equity in net income (loss) of USPEs $ (536) 98
============================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1999 the
Partnership had an interest in an entity owning two DC-9 Stage III commercial
aircraft on a direct finance lease. As of September 30, 1998, the Partnership
had an interest in two trusts that owned a total of three Boeing 737-200A Stage
II commercial aircraft, two aircraft engines, and a portfolio of aircraft
rotables (the Two Trusts), and an interest in an entity owning two DC-9 Stage
III commercial aircraft on a direct finance lease. During the three months ended
September 30, 1999, lease revenues of $0.1 million were offset by depreciation
expense, direct expenses, and administrative expenses of $10,000. 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 the Two Trusts.
Marine vessels: As of September 30, 1999 and 1998, the Partnership owned an
interest in three entities owning a total of three marine vessels. During the
third quarter of 1999, lease revenues of $1.2 million were offset by
depreciation expense, direct expenses, and administrative expenses of $1.8
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 decrease in lease revenues of $0.4 million was due to lower
lease rates earned on two marine vessels. The increase in depreciation expense,
direct expenses, and administrative expenses was primarily due to the increase
of $0.4 million in operating expenses when compared to the same period of 1998.
This increase was partially offset by a decrease in depreciation expense of $0.1
million resulting from the use of the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned and a decrease in repairs and maintenance of $0.1 million due to fewer
repairs required.
<PAGE>
(E) Net Income (Loss)
As a result of the foregoing, the Partnership's net loss for the three months
ended September 30, 1999 was $0.2 million, compared to net income of $0.6
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
third quarter of 1999 is not necessarily indicative of future periods. In the
third quarter of 1999, the Partnership distributed $2.3 million to the limited
partners, or $0.25 per weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Nine Months Ended
September 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 nine months ended September 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 Nine Months
Ended September 30,
1999 1998
----------------------------
Aircraft $ 6,289 $ 6,611
Marine vessels 1,645 2,056
Railcars 1,486 1,484
Trailers 1,325 1,538
Marine containers 574 944
Aircraft: Aircraft lease revenues and direct expenses were $6.3 million and
$49,000, respectively, for the nine months ended September 30, 1999, compared to
$6.7 million and $0.1 million, respectively, during the same period of 1998. The
decrease in aircraft contribution was due to the re-lease 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 $4.6
million and $3.0 million, respectively, for the nine months ended September 30,
1999, compared to $5.7 million and $3.6 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 $1.6 million less during the nine months
ended September 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 nine week period. During the dry
docking, this marine vessel did not earn lease revenues of approximately $0.5
million. 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 nine months of 1999 when compared to
six full months of 1998. Direct expenses decreased $0.9 million due to not
having any operating costs and repairs while in dry-docking. The decrease in
direct expenses was partially offset by an increase in insurance expense of $0.4
million due to lease agreement in which the Partnership is responsible for
insurance coverage when compared to the same period of 1998, the lessee was
responsible for insurance coverage.
Railcars: Railcar lease revenues and direct expenses were $1.8 million and $0.3
million, respectively, for the nine months ended September 30, 1999, compared to
$1.9 million and $0.4 million, respectively, during the same period of 1998.
Although railcar contribution remained relatively the same, the decrease in
lease revenues of $0.1 million was due to certain railcars being off-lease
during the nine months ended September 30, 1999 that were on-lease during 1998
and the decrease in direct expenses of $0.1 million was due to fewer required
repairs to certain railcars during 1999 that were required during the same
period of 1998.
Trailers: Trailer lease revenues and direct expenses were $2.0 million and $0.6
million, respectively, for the nine months ended September 30, 1999, compared to
$2.0 million and $0.5 million, respectively, during the same period of 1998.
During the nine months ended September 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 $0.6
million and $3,000, respectively, for the nine months ended September 30, 1999,
compared to $1.0 million and $9,000, respectively, during the same period of
1998. The decrease of approximately $0.1 million in lease revenues was caused by
a worldwide increase in available marine containers which has lead to a decline
in the lease rate. 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 resulted in a decrease of
approximately $0.2 million in marine container contribution.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $9.8 million for the nine months ended September 30,
1999 decreased from $11.9 million for the same period in 1998. Significant
variances are explained as follows:
(i) A $1.5 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 $0.5 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 nine months ended
September 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 nine months ended September
30, 1999 totaled $0.2 million, which resulted from the sale of marine containers
railcars, and trailers with an aggregate net book value of $0.4 million, for
proceeds of $0.6 million. Net gain on disposition of equipment for the same
period of 1998 totaled $0.7 million, which resulted from the sale of marine
containers, railcars, and trailers, with an aggregate net book value of $1.2
million, for proceeds of $1.9 million.
(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 Nine Months
Ended September 30,
1999 1998
----------------------------
<S> <C> <C>
Aircraft, rotable components, and aircraft engines $ 1,764 281
Marine vessels (898) 122
============================
Equity in net income of USPEs $ 866 403
============================
</TABLE>
Aircraft, rotable components, and aircraft engines: As of September 30, 1999 the
Partnership had an interest in an entity owning two DC-9 Stage III commercial
aircraft on a direct finance lease. As of September 30, 1998, the Partnership
had an interest in two trusts that owned a total of three Boeing 737-200A Stage
II commercial aircraft, two aircraft engines, and a portfolio of aircraft
rotables (the Two Trusts), and an interest in an entity owning two DC-9 Stage
III commercial aircraft on a direct finance lease. During the nine months ended
September 30, 1999, lease revenues of $0.3 million and the gain from the sale of
the Partnership's interest in the Two Trusts 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 $0.9 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.6 million. Lease revenues decreased $0.6 million and depreciation expense,
direct expenses, and administrative expenses decreased $0.5 million due to the
sale of the Partnership's investment in the Two Trusts.
Marine vessels: As of September 30, 1999 and 1998, the Partnership owned an
interest in three entities owning a total of three marine vessels. During the
nine months ended September 30, 1999, lease revenues of $4.0 million were offset
by depreciation expense, direct expenses, and administrative expenses of $4.9
million. During the same period of 1998, lease revenues of $4.9 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$4.7 million. The decrease in lease revenues of $0.9 million was due to lower
lease rates earned on two marine vessels. Depreciation expense, direct expenses,
and administrative expenses increased $0.1 million during the nine months ended
September 30, 1999 when compared to the same period of 1998. Depreciation
expense decreased $0.3 million resulting from the use of the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned and a decrease in repairs and maintenance of $0.4
million due to fewer repairs required. These decreases were offset by a $0.8
million increase in 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 nine months
ended September 30, 1999 was $2.7 million, compared to net income of $2.1
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 nine
months ended September 30, 1999 is not necessarily indicative of future periods.
In the nine months ended September 30, 1999, the Partnership distributed $5.9
million to the limited partners, or $0.65 per weighted-average limited
partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the nine months ended September 30, 1999, the Partnership generated $9.7
million in operating cash (net cash provided by operating activities plus
non-liquidating distributions from USPEs) to meet its operating obligations and
maintain the current level of distributions (total for the nine months ended
September 30, 1999 of $6.2 million) to the partners.
During the nine months ended September 30, 1999, the Partnership sold owned
equipment and received aggregate proceeds of $0.6 million. The Partnership also
received liquidating proceeds of $3.5 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 $42,000 during the nine months
ended September 30, 1999 when compared to December 31, 1998. Lessee prepaid
deposits decreased $0.1 million due to fewer lessee's prepaying future lease
revenue and marine vessel dry-docking decreased $0.4 million due to the
dry-docking on one of the Partnership's marine vessels in 1999. Reserves for
aircraft engine repair increased $0.3 million due to additional lessee deposits
and security deposits increased $0.1 million due to a security deposit from a
potential lessee of a DC-9-32 commercial aircraft.
The Partnership is required 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 nine months ended September 30, 1999, the Partnership made the
regularly scheduled installment payment of $5.8 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 September 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 have been tested and appear to be compliant.
As of September 30, 1999, the costs incurred and allocated to the Partnership to
become Year 2000 compliant have not been material and the General Partner 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, 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 in the fourth quarter of 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
September 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 during the
remainder of 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 during the remainder of
1999 and beyond include:
1. A worldwide increase in available marine containers to lease has lead to
declining lease rates for marine containers. In addition, 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. In the absence of new
additional drybulk orders, the market would be expected to stabilize and improve
over the next 2-3 years.
3. The Partnership owns an anchor handling supply marine vessel that has a fixed
lease rate due to expire in the year 2000. If the economic conditions remain the
same, the General Partner would expect to re-lease this marine vessel at a rate
much lower than the rate that is currently in place.
4. Railcar loading in North America have continued to be high, however a
softening in the market is expected in the last quarter of 1999, which may lead
to lower utilization and lower contribution to the Partnership as existing
leases expire and renewal leases are negotiated.
5. The Partnership's over-the-road dry trailers were 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 caused 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, purchase
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 three 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 $0.1 million for the
remaining three months of 1999, $0.2 million in 2000, and $0.1 million in 2001.
During the nine months ended September 30, 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.
(This space intentionally left blank.)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PLM EQUIPMENT GROWTH FUND V
By: PLM Financial Services, Inc.
General Partner
Date: November 3, 1999 By: /s/ Richard K Brock
---------------------------------
Richard K Brock
Vice President and
Corporate Controller
<TABLE> <S> <C>
<ARTICLE> 5
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