UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL QUARTER ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 33-40093
_______________________
PLM EQUIPMENT GROWTH FUND VI
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3135515
(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 VI
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------------
ASSETS
<S> <C> <C>
Equipment held for operating lease, at cost $ 92,822 $ 90,755
Less accumulated depreciation (46,344) (43,341)
--------------------------------------
46,478 47,414
Equipment held for sale 6,396 --
Net equipment 52,874 47,414
Cash and cash equivalents 700 2,558
Restricted cash 833 1,416
Accounts receivable, less allowance for doubtful accounts
of $1,873 in 1999 and $1,930 in 1998 2,428 2,321
Investments in unconsolidated special-purpose entities 34,508 33,414
Net investment in direct finance lease 2 41
Deferred charges, net of accumulated amortization of
$298 in 1999 and $367 in 1998 399 413
Prepaid expenses and other assets 58 93
Equipment acquisition deposit -- 667
--------------------------------------
Total assets $ 91,802 $ 88,337
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 1,001 $ 1,147
Due to affiliates 400 2,946
Lessee deposits and reserve for repairs 1,351 1,290
Note payable 30,000 30,000
--------------------------------------
Total liabilities 32,752 35,383
--------------------------------------
Partners' capital:
Limited partners (8,191,718 limited partnership units as of
June 30, 1999 and 8,206,339 as of December 31, 1998) 59,050 52,954
General Partner -- --
--------------------------------------
Total partners' capital 59,050 52,954
--------------------------------------
Total liabilities and partners' capital $ 91,802 $ 88,337
======================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(in thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
----------------------------------------------------------------
REVENUES
<S> <C> <C> <C> <C>
Lease revenue $ 4,467 $ 4,096 $ 8,877 $ 8,560
Interest and other income 37 232 88 326
Net gain (loss) on disposition of equipment 67 4,859 (124) 4,921
------------------------------------------------------------------
Total revenues 4,571 9,187 8,841 13,807
------------------------------------------------------------------
EXPENSES
Depreciation and amortization 2,915 3,493 5,692 6,994
Repairs and maintenance 1,007 864 1,806 1,734
Equipment operating expense 785 525 1,478 1,300
Insurance expense to affiliate -- (113) -- (127)
Other insurance expense 28 97 221 212
Management fees to affiliate 252 231 486 480
Interest expense 551 502 1,076 1,013
General and administrative expenses
to affiliates 166 218 359 444
Other general and administrative expenses 184 258 422 496
Provision for (recovery of) bad debts (7) 29 36 156
------------------------------------------------------------------
Total expenses 5,881 6,104 11,576 12,702
------------------------------------------------------------------
Equity in net income of unconsol-
idated special-purpose entities 15,307 3,787 15,861 7,569
------------------------------------------------------------------
Net income $ 13,997 $ 6,870 $ 13,126 $ 8,674
==================================================================
PARTNERS' SHARE OF NET INCOME
Limited partners $ 13,824 $ 6,654 $ 12,780 $ 8,241
General Partner 173 216 346 433
------------------------------------------------------------------
Total $ 13,997 $ 6,870 $ 13,126 $ 8,674
==================================================================
Net income per weighted-average
limited partnership unit $ 1.69 $ 0.81 $ 1.56 $ 1.00
==================================================================
Cash distributions $ 3,452 $ 4,326 $ 6,908 $ 8,665
==================================================================
Cash distributions per weighted-average
limited partnership unit $ 0.40 $ 0.50 $ 0.80 $ 1.00
==================================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
( A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the period from December 31, 1997 to June 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
----------------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1997 $ 67,152 $ -- $ 67,152
Net income 666 779 1,445
Repurchase of limited partnership units (417) -- (417)
Cash distribution (14,447) (779) (15,226)
------------------------------------------------------------
Partners' capital as of December 31, 1998 52,954 -- 52,954
Net income 12,780 346 13,126
Repurchase of limited partnership units (122) -- (122)
Cash distribution (6,562) (346) (6,908)
------------------------------------------------------------
Partners' capital as of June 30, 1999 $ 59,050 $ -- $ 59,050
============================================================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
---------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 13,126 $ 8,674
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,692 6,994
Net (gain) loss on disposition of equipment 124 (4,921)
Equity in net income from unconsolidated special-purpose entities (15,861) (7,569)
Changes in operating assets and liabilities:
Restricted cash -- 88
Accounts receivable, net (139) 598
Prepaid expenses and other assets 35 113
Accounts payable and accrued expenses (146) (204)
Due to affiliates 41 (12)
Lessee deposits and reserve for repairs 61 (47)
------------------------------
Net cash provided by operating activities 2,933 3,714
-------------------------------
INVESTING ACTIVITIES
Payments for equipment purchases and capitalized improvements (11,609) (23,815)
Investment in and equipment purchased and placed in
unconsolidated special-purpose entities (14,297) (1,265)
Distributions from unconsolidated special-purpose entities 3,700 4,950
Distributions from liquidation of unconsolidated special-purpose entities 23,360 16,679
Payments of acquisition fees to affiliate (300) (1,132)
Payments of lease negotiation fees to affiliate (67) (251)
Principal payments on direct finance lease 49 55
Proceeds from disposition of equipment 1,403 8,384
-------------------------------
Net cash provided by investing activities 2,239 3,605
-------------------------------
FINANCING ACTIVITIES
Proceeds from short-term note payable 3,712 --
Payment of short-term note payable (3,712) --
Cash distribution paid to limited partners (6,562) (8,232)
Cash distribution paid to General Partner (346) (433)
Repurchase of limited partnership units (122) (417)
-------------------------------
Net cash used in financing activities (7,030) (9,082)
-------------------------------
Net decrease in cash and cash equivalents (1,858) (1,763)
Cash and cash equivalents at beginning of period 2,558 14,204
-------------------------------
Cash and cash equivalents at end of period $ 700 $ 12,441
===============================
SUPPLEMENTAL INFORMATION
Interest paid $ 1,076 $ 1,013
===============================
</TABLE>
See accompanying notes to financial statements.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
1. Opinion of Management
In the opinion of the management of PLM Financial Services, Inc. (FSI or the
General Partner), the accompanying unaudited financial statements contain all
adjustments necessary, consisting primarily of normal recurring accruals, to
present fairly the financial position of PLM Equipment Growth Fund VI (the
Partnership) as of June 30, 1999 and December 31, 1998, the statements of income
for the three and six months ended June 30, 1999 and 1998, the statements of
changes in partners' capital for the period from December 31, 1997 to June 30,
1999, and the statements of cash flows for the six months ended June 30, 1999
and 1998. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying financial
statements. For further information, reference should be made to the financial
statements and notes thereto included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 1998, on file at the Securities and
Exchange Commission.
2. Schedule of Partnership Phases
The Partnership is currently operating within the first six years of operation
in which the General Partner intends to reinvest a portion of cash flow and net
disposition proceeds in additional equipment. Beginning in the Partnership's
seventh year of operations, which commences on January 1, 2000, the General
Partner will stop reinvesting excess cash, if any, which, less reasonable
reserves, will be distributed to the Partners. Beginning in the Partnership's
ninth year of operations, which commences on January 1, 2002, the General
Partner intends to begin an orderly liquidation of the Partnership's assets. The
Partnership will terminate on December 31, 2011, 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 up to 23,700 limited partnership
units in 1999 for an aggregate purchase price of up to a maximum of $0.2
million. During the six months ended June 30, 1999, the Partnership had
repurchased 14,621 limited partnership units for $0.1 million. The General
Partner may repurchase the additional units in the future.
4. Cash Distributions
Cash distributions are recorded when paid and may include amounts in excess of
net income that are considered to represent a return of capital. For each of the
three and six months ended June 30, 1999 and 1998, cash distributions totaled
$6.9 million and $8.7 million, respectively. None of the cash distributions to
the limited partners for the six months ended June 30, 1999 and 1998 were deemed
to be a return of capital.
Cash distributions related to the results from the second quarter of 1999 of
$2.0 million, will be paid during the third quarter of 1999.
5. Transactions with General Partner and Affiliates
The balance due to affiliates as of June 30, 1999 included $0.2 million due to
FSI and its affiliates for management fees and $0.2 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 $2.8 million due to an affiliated USPE.
During the six months ended June 30, 1999, $2.6 million in engine reserves and
security deposits were paid to an affiliated USPE.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
5. Transactions with General Partner and Affiliates (continued)
The Partnership's proportional share of USPE-affiliated management fees of $0.1
million was payable as of June 30, 1999 and December 31, 1998.
The Partnership's proportional share of the affiliated expenses incurred by
USPEs during 1999 and 1998 is listed in the following table (in thousands of
dollars):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management fees $ 87 $ 125 $ 210 $ 253
Data processing and administrative
expenses 31 38 68 76
Insurance expense -- 1 -- 2
</TABLE>
The Partnership and USPEs paid FSI $0.5 million and $1.4 million for equipment
acquisition and lease negotiation fees during the six months ended June 30, 1999
and 1998, respectively.
The Partnership did not pay $0.9 million in acquisition and lease negotiation
fees on $16.6 million of owned equipment and investments in USP's purchased
during 1999. The Partnership has reached certain fee limitations, per the
partnership agreement, that can be paid to FSI.
6. Equipment
Owned equipment held for operating leases is stated at cost. Equipment held for
sale is stated at the lower of the equipment's depreciated cost or fair value,
less cost to sell, and is subject to a pending contract for sale. The components
of owned equipment were as follows (in thousands of dollars):
June 30, December 31,
1999 1998
-------------------------------------
Marine vessels $ 26,094 $ 26,094
Aircraft and rotable components 21,630 21,630
Railcars 17,256 18,638
Marine containers 15,901 11,189
Trailers 11,941 13,204
92,822 90,755
Less accumulated depreciation (46,344 ) (43,341)
------------- --------------
46,478 47,414
Equipment held for sale 6,396 --
Net equipment $ 52,874 $ 47,414
============= ==============
As of June 30, 1999, all owned equipment in the Partnership's portfolio was
either on lease or operating in PLM-affiliated short-term trailer rental
facilities, except for a Boeing 737-200 and 9 railcars. 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 59
marine containers and 15 railcars. The net book value of the off-lease equipment
was $2.1 million and $0.3 million as of June 30, 1999 and December 31, 1998,
respectively.
The marine vessel purchased during the six months ended June 30, 1999 (see
below), has been reclassified to equipment held for sale. The Partnership has
received a signed offered of $7.5 million for the purchase of this marine
vessel.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
6. Equipment (continued)
During the six months ended June 30, 1999, the Partnership completed the
purchase of a marine vessel for $7.0 million, including acquisition fees of $0.3
million paid to FSI for the purchase of this equipment. The Partnership made a
deposit of $0.7 million toward this purchase in 1998, which is included in the
December 31, 1998 balance sheet as equipment acquisition deposit. During the six
months ended June 30, 1999, the Partnership also purchased a portfolio of marine
containers for $5.5 million of which no fees were paid to FSI.
During the six months ended June 30, 1999, the Partnership disposed of or sold
marine containers, trailers, and railcars, with an aggregate net book value of
$1.5 million, for $1.4 million.
During the six months ended June 30, 1998, the Partnership disposed of or sold a
Boeing 737-200 commercial aircraft, marine containers, trailers, and railcars,
with an aggregate net book value of $5.0 million, for $9.9 million which
includes $1.4 million of unused engine reserves.
7. Investments in Unconsolidated Special-Purpose Entities
The net investments in USPEs include the following jointly-owned equipment (and
related assets and liabilities) (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
62% interest in a trust owning a Boeing 737-300 Stage II
commercial aircraft $ 13,757 $ --
53% interest in an entity owning a product tanker 7,039 7,678
40% interest in a trust owning two Stage II commercial aircraft
on direct finance lease 4,249 4,435
30% interest in an entity owning a mobile offshore drilling unit 3,930 4,279
25% interest in an entity owning marine containers 2,421 2,475
50% interest in an entity owning a container feeder vessel 1,364 1,421
20% interest in an entity owning a handymax bulk carrier 1,190 1,311
64% interest in a trust that owned a 767-200ER Stage III
commercial aircraft 341 11,536
50% interest in a trust that owned four 737-200A Stage II
commercial aircraft 217 279
Net investments $ 34,508 $ 33,414
============= =============
</TABLE>
As of June 30, 1999, all jointly-owned equipment in the Partnership's USPE
portfolio was on lease except for a commercial aircraft with a net investment
value of $13.8 million. As of December 31, 1998, all jointly-owned equipment in
the Partnership's USPE portfolio was on lease.
During the six months ended June 30, 1999, the Partnership purchased an interest
in a trust owning a Boeing 737-300 Stage III commercial aircraft for $14.0
million including acquisition fees of only $0.1 million that were paid to FSI
for the purchase of this investment and increased its investment in a trust
owning marine containers by $0.1 million and paid no fees to FSI. The remaining
interest in these trusts were purchased by an affiliated program.
During the six months ended June 30, 1999, the General Partner sold the
Partnership's 64% interest in a 767-200ER Stage III commercial aircraft. The
Partnership's interest in this trust was sold for proceeds of $25.6 million
which includes $1.9 million of unused engine reserves for its net investment of
$10.1 million.
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
8. Operating Segments
The Partnership operates in five primary operating segments: marine vessel
leasing, aircraft leasing, railcar leasing, trailer leasing, and marine
container leasing. Each equipment leasing segment primarily 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
Vessel Aircraft Railcar Trailer Container
For the quarter ended June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 1,767 $ 695 $ 1,107 $ 650 $ 248 $ -- $ 4,467
Interest income and other 5 -- -- -- -- 32 37
Gain (loss) on disposition of equipment -- -- 103 (94) 58 -- 67
Total revenues 1,772 695 1,210 556 306 32 4,571
COSTS AND EXPENSES
Operations support 1,291 42 278 197 1 11 1,820
Depreciation and amortization 919 1,048 418 192 331 7 2,915
Interest expense -- -- -- -- -- 551 551
Management fees to affiliate 88 33 83 36 12 -- 252
General and administrative expenses 23 29 18 115 3 162 350
Provision for (recovery of) bad debts -- (31) 1 23 -- -- (7)
Total costs and expenses 2,321 1,121 798 563 347 731 5,881
Equity in net income of USPEs 27 15,134 -- -- -- 146 15,307
Net income (loss) $ (522) $ 14,708 $ 412 $ (7) $ (41) $ (553) $ 13,997
===============================================================================
Total assets as of June 30, 1999 $ 30,085 $ 26,754 $ 9,492 $ 4,222 $ 14,320 $ 6,929 $ 91,802
===============================================================================
Marine Marine
Vessel Aircraft Railcar Trailer Container
For the quarter ended June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
Lease revenue $ 982 $ 1,086 $ 1,033 $ 784 $ 211 $ -- $ 4,096
Interest income and other 64 -- -- 3 -- 165 232
Gain on disposition of equipment 19 4,420 15 89 316 -- 4,859
Total revenues 1,065 5,506 1,048 876 527 165 9,187
COSTS AND EXPENSES
Operations support 814 110 227 200 7 15 1,373
Depreciation and amortization 617 2,124 317 260 154 21 3,493
Interest expense -- -- -- -- -- 502 502
Management fees to affiliate 49 52 73 51 6 -- 231
General and administrative expenses 18 125 16 149 1 167 476
Provision for (recovery of) bad debts -- (60) (36) 21 104 -- 29
Total costs and expenses 1,498 2,351 597 681 272 705 6,104
Equity in net income (loss) of USPEs (181) 3,925 -- -- -- 43 3,787
Net income (loss) $ (614) $ 7,080 $ 451 $ 195 $ 255 $ (497) $ 6,870
================================================================================
Total assets as of June 30, 1998 $ 33,681 $ 30,993 $ 8,479 $ 6,009 $ 3,498 $ 18,931 $ 101,591
================================================================================
<FN>
<F1> 1 Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support. Also includes aggregate net income from an investment in an
entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
For the six months ended Vessel Aircraft Railcar Trailer Container
June 30, 1999 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Lease revenue $ 3,096 $ 1,449 $ 2,298 $ 1,275 $ 759 $ -- $ 8,877
Interest income and other 10 -- -- 1 -- 77 88
Gain (loss) on disposition of equipment -- (1) (27) (181) 85 -- (124)
Total revenues 3,106 1,448 2,271 1,095 844 77 8,841
Costs and expenses
Operations support 2,634 51 441 351 2 26 3,505
Depreciation and amortization 1,840 2,095 744 391 607 15 5,692
Interest expense -- -- -- -- -- 1,076 1,076
Management fees to affiliate 155 66 164 63 38 -- 486
General and administrative expenses 53 123 29 237 7 332 781
Provision for bad debts -- -- 6 30 -- -- 36
Total costs and expenses 4,682 2,335 1,384 1,072 654 1,449 11,576
Equity in net income (loss) of USPEs (81) 15,655 -- -- (1) 288 15,861
Net income (loss) $ (1,657) $ 14,768 $ 887 $ 23 $ 189 $ (1,084) $ 13,126
================================================================================
Total assets as of June 30, 1999 $ 30,085 $ 26,754 $ 9,492 $ 4,222 $ 14,320 $ 6,929 $ 91,802
================================================================================
Marine Marine
For the six months ended Vessel Aircraft Railcar Trailer Container
June 30, 1998 Leasing Leasing Leasing Leasing Leasing All Other<F1>1 Total
REVENUES
Lease revenue $ 2,320 $ 2,099 $ 2,064 $ 1,633 $ 444 $ -- $ 8,560
Interest income and other 64 19 -- 7 4 232 326
Gain on disposition of equipment 19 4,415 9 96 382 -- 4,921
Total revenues 2,403 6,533 2,073 1,736 830 232 13,807
COSTS AND EXPENSES
Operations support 2,052 234 394 398 9 32 3,119
Depreciation and amortization 1,123 4,341 632 551 330 17 6,994
Interest expense -- -- -- -- -- 1,013 1,013
Management fees to affiliate 116 95 143 109 17 -- 480
General and administrative expenses 75 144 27 307 6 381 940
Provision for (recovery of) bad debts -- 62 (3) (7) 104 -- 156
Total costs and expenses 3,366 4,876 1,193 1,358 466 1,443 12,702
Equity in net income (loss) of USPEs (382) 7,843 -- -- -- 108 7,569
Net income (loss) $ (1,345) $ 9,500 $ 880 $ 378 $ 364 $ (1,103) $ 8,674
================================================================================
Total assets as of June 30, 1998 $ 33,681 $ 30,993 $ 8,479 $ 6,009 $ 3,498 $ 18,931 $ 101,591
================================================================================
<FN>
<F1> 1 Includes interest income and costs not identifiable to a particular
segment, such as general and administrative, interest expense, and certain
operations support. Also includes aggregate net income from an investment in an
entity owning a mobile offshore drilling unit.
</FN>
</TABLE>
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
9. Debt
The General Partner has entered into a short-term, joint $24.5 million credit
facility on behalf of the Partnership that is due to expire on December 14,
1999. Among the eligible borrowers, TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $10.4 million under the
short-term joint, $24.5 million credit facility as of June 30, 1999. No other
eligible borrower had any outstanding borrowings.
The General Partner believes it will renew the credit facility upon its
expiration with similar terms to those in the current credit facility.
10. Net Income Per Weighted-Average Partnership Unit
Net income per weighted-average Partnership unit was computed by dividing net
income attributable to limited partners by the weighted-average number of
Partnership units deemed outstanding during the period. The weighted-average
number of Partnership units deemed outstanding during the three and six months
ended June 30, 1999 was 8,200,774 and 8,200,178, respectively. The
weighted-average number of Partnership units deemed outstanding during the three
and six months ended June 30, 1998 was 8,217,205 and 8,226,773, respectively.
11. Contingencies
PLM International (the Company) and various of its wholly-owned subsidiaries are
named as defendants in a lawsuit filed as a purported class action on January
22, 1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No.
CV-97-251 (the Koch action). Plaintiffs, who filed the complaint on their own
and on behalf of all class members similarly situated, are six individuals who
invested in certain California limited partnerships for which the Company's
wholly-owned subsidiary, PLM Financial Services, Inc. (FSI), acts as the general
partner, including PLM Equipment Growth Fund IV (Fund IV), PLM Equipment Growth
Fund V (Fund V), PLM Equipment Growth Fund VI (Fund VI), and PLM Equipment
Growth & Income Fund VII (Fund VII) (the Funds). The state court ex parte
certified the action as a class action (i.e., solely upon plaintiffs' request
and without the Company being given the opportunity to file an opposition). The
complaint asserts eight causes of action against all defendants, as follows:
fraud and deceit, suppression, negligent misrepresentation and suppression,
intentional breach of fiduciary duty, negligent breach of fiduciary duty, unjust
enrichment, conversion, and conspiracy. Additionally, plaintiffs allege a cause
of action against PLM Securities Corp. for breach of third party beneficiary
contracts in violation of the National Association of Securities Dealers rules
of fair practice. Plaintiffs allege that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial advisors,
agents, and control persons. Based on these duties, plaintiffs assert liability
against defendants for improper sales and marketing practices, mismanagement of
the Funds, and concealing such mismanagement from investors in the Funds.
Plaintiffs seek unspecified compensatory and recissory damages, as well as
punitive damages, and have offered to tender their limited partnership units
back to the defendants.
In March 1997, the defendants removed the Koch action from the state court to
the United States District Court for the Southern District of Alabama, Southern
Division (Civil Action No. 97-0177-BH-C) (the court) based on the court's
diversity jurisdiction, following which plaintiffs filed a motion to remand the
action to the state court. Removal of the action automatically nullified the
state court's ex parte certification of the class. In September 1997, the court
denied plaintiffs' motion to remand the action to state court and dismissed
without prejudice the individual claims of the California plaintiff, reasoning
that he had been fraudulently joined as a plaintiff. In October 1997, defendants
filed a motion to compel arbitration of plaintiffs' claims, based on an
agreement to arbitrate contained in the limited partnership agreement of each
Fund, and to stay further proceedings pending the outcome of such arbitration.
Notwithstanding plaintiffs' opposition, the court granted defendants' motion in
December 1997.
PLM EQUIPMENT GROWTH FUND VI
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
11. Contingencies (continued)
Following various unsuccessful requests that the court reverse, or otherwise
certify for appeal, its order denying plaintiffs' motion to remand the case to
state court and dismissing the California plaintiff's claims, plaintiffs filed
with the U.S. Court of Appeals for the Eleventh Circuit a petition for a writ of
mandamus seeking to reverse the court's order. The Eleventh Circuit denied
plaintiffs' petition in November 1997, and further denied plaintiffs subsequent
motion in the Eleventh Circuit for a rehearing on this issue. Plaintiffs also
appealed the court's order granting defendants' motion to compel arbitration,
but in June 1998 voluntarily dismissed their appeal pending settlement of the
Koch action, as discussed below.
On June 5, 1997, the Company and the affiliates who are also defendants in the
Koch action were named as defendants in another purported class action filed in
the San Francisco Superior Court, San Francisco, California, Case No. 987062
(the Romei action). The plaintiff is an investor in Fund V, and filed the
complaint on her own behalf and on behalf of all class members similarly
situated who invested in certain California limited partnerships for which FSI
acts as the general partner, including the Funds. The complaint alleges the same
facts and the same nine causes of action as in the Koch action, plus five
additional causes of action against all of the defendants, as follows:
violations of California Business and Professions Code Sections 17200, et seq.
for alleged unfair and deceptive practices, constructive fraud, unjust
enrichment, violations of California Corporations Code Section 1507, and a claim
for treble damages under California Civil Code Section 3345.
On July 31, 1997, defendants filed with the district court for the Northern
District of California (Case No. C-97-2847 WHO) a petition (the petition) under
the Federal Arbitration Act seeking to compel arbitration of plaintiff's claims
and for an order staying the state court proceedings pending the outcome of the
arbitration. In connection with this motion, plaintiff agreed to a stay of the
state court action pending the district court's decision on the petition to
compel arbitration. In October 1997, the district court denied the Company's
petition to compel arbitration, but in November 1997, agreed to hear the
Company's motion for reconsideration of this order. The hearing on this motion
has been taken off calendar and the district court has dismissed the petition
pending settlement of the Romei action, as discussed below. The state court
action continues to be stayed pending such resolution. In connection with her
opposition to the petition to compel arbitration, plaintiff filed an amended
complaint with the state court in August 1997, alleging two new causes of action
for violations of the California Securities Law of 1968 (California Corporations
Code Sections 25400 and 25500) and for violation of California Civil Code
Sections 1709 and 1710. Plaintiff also served certain discovery requests on
defendants. Because of the stay, no response to the amended complaint or to the
discovery is currently required.
In May 1998, all parties to the Koch and Romei actions entered into a memorandum
of understanding related to the settlement of those actions (the monetary
settlement), following which the parties agreed to an additional equitable
settlement (the equitable settlement). The terms of the monetary settlement and
the equitable settlement are contained in a Stipulation of Settlement that was
filed with the court on February 12, 1999. On June 14, 1999, the parties amended
the stipulation and revised certain exhibits, and requested that the court set a
preliminary approval hearing on the monetary settlement and equitable
settlement.
The monetary settlement provides for stipulating to a class for settlement
purposes, and a settlement and release of all claims against defendants and
third party brokers in exchange for payment for the benefit of the class of up
to $6.0 million. The final settlement amount will depend on the number of claims
filed by authorized claimants who are members of the class, the amount of the
administrative costs incurred in connection with the settlement, and the amount
of attorneys' fees awarded by the court. The Company will pay up to $0.3 million
of the monetary settlement, with the remainder being funded by an insurance
policy. The equitable settlement provides, among other things: (a) for the
extension of the operating lives of Funds V, VI, and VII by judicial amendment
to each of their partnership agreements, such that FSI, the general partner of
each such partnership, be permitted to reinvest cash flow, surplus partnership
funds, or retained proceeds in additional equipment into the year 2004, and will
liquidate the PLM EQUIPMENT GROWTH FUND VI (A Limited Partnership) NOTES TO
FINANCIAL STATEMENTS June 30, 1999
11. Contingencies (continued)
Funds' equipment in 2006; (b) that FSI is entitled to earn front-end fees
(including acquisition and lease negotiation fees) up to 20% in excess of the
compensatory limitations set forth in the North American Securities
Administrators Association, Inc. Statement of Policy by judicial amendment to
the partnership agreements for Funds V, VI, and VII; (c) for a one-time
repurchase of up to 10% of the outstanding units of Funds V, VI, and VII by the
respective partnership at 80% of such partnership's net asset value; and (d) for
the deferral of a portion of FSI's management fees until such time as certain
performance thresholds have, if ever, been met by the Funds. The equitable
settlement also provides for payment of the equitable class attorneys' fees from
partnership funds in the event, if ever, that distributions paid to investors in
Funds V, VI, and VII during the extension period reach a certain internal rate
of return. Defendants will continue to deny each of the claims and contentions
and admit no liability in connection with the monetary and equitable
settlements.
The preliminary approval hearing was set for and occurred on June 25, 1999. On
June 29, 1999, the court entered orders, among other things, granting
preliminary approval of the monetary and equitable settlements, conditionally
certifying the monetary and equitable settlement classes, providing for a final
fairness hearing on November 16, 1999, approving the form and content of the
notices to be sent to the monetary class and the equitable class, and staying
all claims, counterclaims, and crossclaims by the monetary and equitable classes
against defendants pending the court's consideration of the fairness of the
monetary and equitable settlements at the final fairness hearing. The monetary
settlement class (the monetary class) consists of all investors, limited
partners, assignees, or unit holders who purchased or received by way of
transfer or assignment any units in the Funds between May 23, 1989 and June 29,
1999. The equitable settlement class (the equitable class) consists of all
investors, limited partners, assignees or unit holders who on June 29, 1999 held
any units in Funds V, VI, and VII, and their assigns and successors in interest.
On June 29, 1999 the court also entered an order preliminarily approving as to
form and substance the form of solicitation statement that is to be distributed
to limited partners of Funds V, VI, and VII in connection with the equitable
settlement, following clearance by and with such changes necessary to comply
with the comments, if any, of the Securities and Exchange Commission (SEC) in
its review and clearance procedures. The monetary and equitable class notices
will be sent to the monetary and equitable classes, respectively, following
clearance by the SEC of the solicitation statement.
The monetary settlement remains subject to certain conditions, including but not
limited to notice to the monetary class for purposes of the monetary settlement
and final approval of the monetary settlement by the court following a final
fairness hearing. The equitable settlement remains subject to numerous
conditions, including but not limited to: (a) notice to the equitable class, (b)
review and clearance by the SEC, and dissemination to the members of the
equitable class, of solicitation statements regarding the proposed extensions,
(c) disapproval by less than 50% of the limited partners in Funds V, VI, and VII
of the proposed amendments to the limited partnership agreements, (d) judicial
approval of the proposed amendments to the limited partnership agreements, and
(e) final approval of the equitable settlement by the court following a final
fairness hearing. The monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not. The Company
continues to believe that the allegations of the Koch and Romei actions are
completely without merit and intends to continue to defend this matter
vigorously if the monetary settlement is not consummated.
The Partnership is involved as plaintiff or defendant in various other legal
actions incident to its business. Management does not believe that any of these
actions will be material to the financial condition of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(I) RESULTS OF OPERATIONS
Comparison of PLM Equipment Growth Fund VI's (the Partnership's) Operating
Results for the Three Months Ended June 30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
remained relatively the same during the three months ended June 30, 1999, when
compared to the same period of 1998. Gains or losses from the sale of equipment,
interest and other income, and certain expenses such as depreciation and
amortization and general and administrative expenses relating to the operating
segments (see Note 8 to the financial statements), are not included in the owned
equipment operation discussion because these expenses are indirect in nature and
not a result of operations, but the result of owning a portfolio of equipment.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
1999 1998
------------------------------
<S> <C> <C>
Railcars $ 829 $ 806
Aircraft, aircraft engines, and components 653 976
Marine vessels 476 168
Trailers 453 584
Marine containers 247 204
</TABLE>
Railcars: Railcar lease revenues and direct expenses were $1.1 million and $0.3
million, respectively, for the three months ended June 30, 1999, compared to
$1.0 million and $0.2 million, respectively, during the same period of 1998. The
increase in railcar lease revenues was due to the purchase of a group of
railcars during the fourth quarter of 1998. The increase in railcar direct
expenses was due to required repairs to certain railcars in the fleet not
required during the same period of 1998.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $0.7 million and $42,000, respectively, for the three months ended
June 30, 1999, compared to $1.1 million and $0.1 million, respectively, during
the same period of 1998. The decrease in aircraft contribution was due to a
Boeing 737-200 that was off-lease during the second quarter of 1999 that was
on-lease during the same period of 1998.
Marine vessels: Marine vessel lease revenues and direct expenses were $1.8
million and $1.3 million, respectively, for the three months ended June 30,
1999, compared to $1.0 million and $0.8 million, respectively, during the same
period of 1998. Lease revenues increased $1.0 million during the three months
ended June 30, 1999 due to the purchase of two marine vessels during 1999 and
1998, this increase was partially offset by a decrease of $0.2 million due to
lower lease rates earned on one of the marine vessels. Direct expenses also
increased $0.5 million during the three months ended June 30, 1999 due to the
purchase of two marine vessels during 1999 and 1998.
Trailers: Trailer lease revenues and direct expenses were $0.7 million and $0.2
million, respectively, for the three months ended June 30, 1999, compared to
$0.8 million and $0.2 million, respectively, during the same period of 1998.
During the second quarter of 1999, certain over-the-road dry trailers were in
the process of transitioning to a new PLM-affiliated short-term rental facility
causing lease revenues for this group of trailers to decrease during the six
months ended June 30, 1999 when compared to the same period of 1998. In
addition, the number of trailers owned by the Partnership declined during 1999
and 1998 due to sales and dispositions. The result of this declining fleet has
also been a decrease in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.2
million and $1,000, respectively, for the three months ended June 30, 1999,
compared to $0.2 million and $7,000, respectively, during the same quarter of
1998. The increase in lease revenues of $35,000 during the second quarter of
1999 was due to the purchase of a portfolio of containers during the fourth
quarter of 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $4.1 million for the quarter ended June 30, 1999
decreased from $4.7 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $0.6 million decrease in depreciation and amortization expenses from
1998 levels reflects the sale of certain equipment during 1999 and 1998 and the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned offset, in part, by the
purchase of certain assets during 1999 and 1998.
(ii) A $0.1 million decrease in the administrative expenses was due to
lower costs for professional services needed to collect past due receivables due
from certain nonperforming lessees.
(C) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the second quarter of
1999 totaled $0.1 million, and resulted from the sale of marine containers,
railcars, and trailers, with an aggregate net book value of $0.4 million, for
$0.5 million. The net gain on the disposition of owned equipment for the second
quarter of 1998 totaled $4.9 million and resulted from the sale of a commercial
aircraft, marine containers, trailers, and railcars, with an aggregate net book
value of $4.0 million, for $8.9 million which included $1.4 million of unused
engine reserves.
(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):
For the Three Months
Ended June 30,
1999 1998
------------------------------
Aircraft $ 15,134 $ 3,925
Mobile offshore drilling unit 146 43
Marine vessels 28 (181)
Marine containers (1) --
------------------------------
Equity in net income of USPEs $ 15,307 $ 3,787
==============================
Aircraft: As of June 30, 1999, the Partnership owned an interest in an entity
that owns a Boeing 737-300 Stage III commercial aircraft and an interest in two
commercial aircraft on a direct finance lease. As of June 30, 1998, the
Partnership owned an interest in an entity that owns a Boeing 767-200 commercial
aircraft and an interest in two commercial aircraft on a direct finance lease.
During the second quarter of 1999, lease revenues of $0.3 million and the gain
from the sale of an interest in the trust that held a Boeing 767-200 commercial
aircraft of $15.6 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.8 million. During the same period of 1998,
lease revenues of $1.3 million and the gain from the sale of an interest in the
trust that held four commercial aircraft of $3.6 million were offset by
depreciation expense, direct expenses, and administrative expenses of $0.9
million. The decrease in lease revenues during the second quarter of 1999 was
due to the sale of the Partnership's interest in a trust owning four commercial
aircraft during 1998 and the sale of the Partnership's investment in a USPE
owning a Boeing 767-200. The Partnership's purchase of an interest in a trust
owning a Boeing 737-300 during 1999 did not generate any lease revenues since it
was off-lease. The decrease in depreciation expense, direct expenses, and
administrative expenses was also due to these sales during 1999 and 1998, offset
in part, by the Partnership's purchase of an interest in a trust owning a Boeing
737-300 during 1999 that generated $0.4 million in additional depreciation
expense.
Mobile offshore drilling unit: As of June 30, 1999 and 1998, the Partnership
owned an interest in an entity owning a mobile offshore drilling unit. During
the second quarter of 1999, revenues of $0.3 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.2 million. During
the same period of 1998, revenues of $0.3 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.3 million. The
increase in mobile offshore drilling unit contribution was primarily due to the
double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
Marine vessels: As of June 30, 1999 and 1998, the Partnership owned an interest
in entities that own three marine vessels. During the second quarter of 1999,
revenues of $1.0 million were offset by depreciation expense, direct expenses,
and administrative expenses of $1.0 million. During the same period of 1998,
revenues of $1.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $1.4 million. The decrease in lease revenues of
$0.2 million was due to lower lease rates earned on the marine vessels. The
decrease in depreciation expense, direct expenses, and administrative expenses
was primarily due to a decrease of $0.2 million in repairs and maintenance
expenses and a $0.1 million decrease from the double-declining balance method of
depreciation which results in greater depreciation in the first years an asset
is owned.
Marine containers: As of June 30, 1999, the Partnership owned an interest in an
entity that owns marine containers. During the second quarter of 1999, revenues
of $0.1 million were offset by depreciation expense, direct expenses, and
administrative expenses of $0.1 million. The Partnership purchased the interest
in this entity during September 1998.
(E) Net Income
As a result of the foregoing, the Partnership's net income for the three months
ended June 30, 1999 was $14.0 million, compared to a net income of $6.9 million
during the same period of 1998. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors. Therefore, the Partnership's performance in
the second quarter of 1999 is not necessarily indicative of future periods. In
the three months ended June 30, 1999, the Partnership distributed $3.3 million
to the limited partners, or $0.40 per weighted-average limited partnership unit.
Comparison of the Partnership's Operating Results for the Six Months Ended June
30, 1999 and 1998
(A) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
remained relatively the same during the six months ended June 30, 1999, when
compared to the same period of 1998. Gains or losses from the sale of equipment,
interest and other income, and certain expenses such as depreciation and
amortization and general and administrative expenses relating to the operating
segments (see Note 8 to the financial statements), are not included in the owned
equipment operation discussion because these expenses are indirect in nature and
not a result of operations, but the result of owning a portfolio of equipment.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
------------------------------
<S> <C> <C>
Railcars $ 1,858 $ 1,670
Aircraft, aircraft engines, and components 1,398 1,865
Trailers 924 1,235
Marine containers 757 435
Marine vessels 462 268
</TABLE>
Railcars: Railcar lease revenues and direct expenses were $2.3 million and $0.4
million, respectively, for the six months ended June 30, 1999, compared to $2.1
million and $0.4 million, respectively, for the same period of 1998. The
increase in railcar lease revenues was due to the purchase of a portfolio of
railcars during the fourth quarter of 1998. These railcars were on lease during
the six months ended June 30, 1999.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $1.4 million and $0.1 million, respectively, for the six months
ended June 30, 1999, compared to $2.1 million and $0.2 million, respectively,
during the same period of 1998. The decrease in aircraft lease revenues was due
to a Boeing 737-200 that was off-lease during the six months ended June 30, 1999
that was on-lease during the same period of 1998.
Trailers: Trailer lease revenues and direct expenses were $1.3 million and $0.4
million, respectively, for the six months ended June 30, 1999, compared to $1.6
million and $0.4 million, respectively, during the same period of 1998. During
the second quarter of 1999, certain over-the-road dry trailers were in the
process of transitioning to a new PLM-affiliated short-term rental facility
specializing in this type of trailer causing lease revenues for this group of
trailers to decrease during the six months ended June 30, 1999 when compared to
the same period of 1998. In addition, the number of trailers owned by the
Partnership declined during 1999 and 1998 due to sales and dispositions. The
result of this declining fleet has been a decrease in trailer contribution.
Marine containers: Marine container lease revenues and direct expenses were $0.8
million and $2,000, respectively, for the six months ended June 30, 1999,
compared to $0.4 million and $9,000, respectively, during the same period of
1998. The increase in marine container lease revenues was due to the purchase of
a portfolio of marine containers during the fourth quarter of 1998. These marine
containers were on lease during the six months ended June 30, 1999.
Marine vessels: Marine vessel lease revenues and direct expenses were $3.1
million and $2.6 million, respectively, for the six months ended June 30, 1999,
compared to $2.3 million and $2.1 million, respectively, during the same period
of 1998. The purchase of two marine vessels during 1998 and 1999 generated $1.7
million in additional lease revenues while the existing marine vessels saw lease
revenues decrease $0.8 million due to a decline in lease rates. Direct expenses
from the two marine vessels purchased during 1999 and 1998 increased these
expenses $0.7 million, while the existing marine vessels saw a declined of $0.1
million in repairs and maintenance. Direct expenses also decreased $0.2 million
during 1999 as the result of marine vessels sales during 1998.
(B) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $8.1 million for the six months ended June 30, 1999
decreased from $9.6 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $1.3 million decrease in depreciation and amortization expenses from
1998 levels reflects the double-declining balance method of depreciation which
results in greater depreciation in the first years an asset is owned and the
sale of certain equipment during 1999 and 1998.
(ii) A $0.1 million decrease in the provision for bad debts reflects the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
(iii) A $0.2 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(C) Net Gain (Loss) on Disposition of Owned Equipment
The net loss on the disposition of owned equipment for the six months ended June
30, 1999 totaled $0.1 million, and resulted from the sale of marine containers,
trailers, and railcars, with an aggregate net book value of $1.5 million, for
$1.4 million. The net gain on the disposition of owned equipment for the six
months ended June 30, 1998 totaled $4.9 million, and resulted from the sale of a
commercial aircraft, marine containers, trailers, and railcars, with an
aggregate net book value of $5.0 million, for $9.9 million which included $1.4
million of unused engine reserves.
(D) Equity in Net Income (Loss) of Unconsolidated Special-Purpose Entities
Net income (loss) generated from the operation of jointly-owned assets accounted
for under the equity method is shown in the following table by equipment type
(in thousands of dollars):
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
1999 1998
--------------------------------
<S> <C> <C>
Aircraft $ 15,655 $ 7,843
Mobile offshore drilling unit 288 108
Marine containers (1) --
Marine vessels (81) (382)
---------------------------------
Equity in net income of USPEs $ 15,861 $ 7,569
=================================
</TABLE>
Aircraft: As of June 30, 1999, the Partnership owned an interest in an entity
that owns a Boeing 737-300 Stage III commercial aircraft and an interest in two
commercial aircraft on a direct finance lease. As of June 30, 1998, the
Partnership owned an interest in an entity that owned a Boeing 767-200
commercial aircraft and an interest in two commercial aircraft on a direct
finance lease. During the six months ended June 30, 1999, lease revenues of $1.4
million and the gain from the sale of an interest in the trust that held a
Boeing 767-200 commercial aircraft of $15.6 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.3 million. During
the same period of 1998, lease revenues of $2.9 million and the gain from the
sale of an interest in the trust that held four commercial aircraft of $6.9
million were offset by depreciation expense, direct expenses, and administrative
expenses of $1.9 million. The decrease in lease revenues during the six months
ended June 30, 1999, was due to the sale of the Partnership's interest in a
trust owning a Boeing 767-200 during 1999 and the sale of the Partnership's
investment in a trust owning four commercial aircraft during 1998. The
Partnership's purchase of an interest in a trust owning a Boeing 737-300 during
1999 did not generate any lease revenues since it was off-lease. The decrease in
depreciation expense, direct expenses, and administrative expenses was also due
to these sales during 1999 and 1998 offset in part, by the Partnership's
purchase of an interest in a trust owning a Boeing 737-300 during 1999 that
generated $0.4 million in additional depreciation expense.
Mobile offshore drilling unit: As of June 30, 1999 and 1998, the Partnership
owned an interest in a mobile offshore drilling unit. During the six months
ended June 30, 1999, revenues of $0.7 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.4 million. During
the same period of 1998, revenues of $0.6 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.5 million. The
contribution from this equipment increased during 1999, when compared to the
same period of 1998, due to a higher lease rate earned on this equipment which
increased the contribution $0.1 million and lower depreciation and
administrative expenses due to the double-declining balance method of
depreciation which decreased $0.1 million. The double-declining balance method
of depreciation results in greater depreciation in the first years an asset is
owned.
Marine containers: As of June 30, 1999, the Partnership owned an interest in an
entity that owns marine containers. During the six months ended June 30, 1999,
revenues of $0.2 million were offset by depreciation expense, direct expenses,
and administrative expenses of $0.2 million. The Partnership purchased the
interest in this entity during September 1998.
Marine vessels: As of June 30, 1999 and 1998, the Partnership owned an interest
in entities that own three marine vessels. During the six months ended June 30,
1999, revenues of $2.1 million were offset by depreciation expense, direct
expenses, and administrative expenses of $2.1 million. During the same period of
1998, revenues of $2.3 million were offset by depreciation expense, direct
expenses, and administrative expenses of $2.7 million. The decrease in lease
revenues of $0.3 million was primarily due to lower lease rates earned on the
marine vessels. The decrease in depreciation expense, direct expenses, and
administrative expenses was primarily due to the decrease of $0.3 million from
the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned. Repairs and maintenance to
the marine vessels also decreased $0.2 million during the six months ended June
30, 1999, due to fewer repairs required when compared to the same period of 1998
(E) Net Income
As a result of the foregoing, the Partnership's net income for the six months
ended June 30, 1999 was $13.1 million, compared to net income of $8.7 million
during the same period of 1998. The Partnership's ability to acquire, operate,
and liquidate assets, secure leases, and re-lease those assets whose leases
expire is subject to many factors, and the Partnership's performance in the six
months ended June 30, 1998 is not necessarily indicative of future periods. In
the six months ended June 30, 1998, the Partnership distributed $6.6 million to
the limited partners, or $0.80 per weighted-average limited partnership unit.
(II) FINANCIAL CONDITION -- CAPITAL RESOURCES, LIQUIDITY, AND DISTRIBUTIONS
For the six months ended June 30, 1999, the Partnership generated $6.6 million
in operating cash (net cash provided by operating activities, plus
non-liquidating distributions from USPEs) to meet its operating obligations,
maintain working capital reserves, and maintain the current level of
distributions (total for the six months ended June 30, 1999 of $6.9 million) to
the partners, but also used undistributed available cash from prior periods of
$0.3 million.
During the six months ended June 30, 1999, the Partnership sold or disposed
owned equipment and investments in USPEs and received aggregate proceeds of
$24.8 million.
During the six months ended June 30, 1999, the Partnership completed the
purchase of a marine vessel for $6.7 million and paid acquisition and lease
negotiation fees of $0.4 million to PLM Financial Services, Inc. (FSI or the
General Partner), a wholly-owned subsidiary of PLM International, Inc., for the
purchase of this equipment. The Partnership made a deposit of $0.7 million
toward the purchase of the marine vessel in 1998, which is included in the
December 31, 1998 balance sheet as equipment acquisition deposit. The
Partnership also purchased a portfolio of marine containers for $5.5 million and
paid no fees to FSI for this equipment.
The Partnership purchased an investment in a trust owning a Boeing 737 Stage III
commercial aircraft for $14.0 million and paid acquisition fees of only $0.1
million to FSI for this investment The Partnership also increased its investment
in a trust owning marine containers by $0.1 million and paid no fees to FSI.
The Partnership did not pay $0.9 million of acquisition and lease negotiation
fees on $16.6 million of owned equipment and investments in USPE's purchased
during 1999. The Partnership has reached certain fee limitations, per the
partnership agreement, that can be paid to FSI.
During the six months ended June 30, 1999, due to affiliates decreased $2.5
million and was paid to an affiliated USPE. Of the $2.5 million, $1.9 million
was unused engine reserves that were included in the gain on sale upon the sale
of the ralated USPE aircraft and $0.6 million was security deposits which were
used to pay outstanding account receivables.
Lessee deposits and reserve for repairs increased $0.1 million during the six
months ended June 30, 1999 when compared to December 31, 1998. The only reserve
that had any significant increase was that for marine vessel dry-docking which
increased $0.1 million.
The General Partner entered into a short-term, joint $24.5 million credit
facility. As of July 30, 1999, TEC Acquisub, Inc., an indirect wholly-owned
subsidiary of PLM International, Inc., had borrowings of $--.- million under the
short-term joint $24.5 million credit facility. No other eligible borrower had
any outstanding borrowings. The General Partner believes it will renew the
credit facility upon its expiration with similar terms to those in the current
credit facility.
(III) EFFECTS OF YEAR 2000
It is possible that the General Partner's currently installed computer systems,
software products, and other business systems, or those of the Partnership's
vendors, service providers, and customers, working either alone or in
conjunction with other software or systems, may not accept input of, store,
manipulate, and output dates on or after January 1, 2000 without error or
interruption, a possibility commonly known as the "Year 2000" or "Y2K" problem.
As the Partnership relies substantially on the General Partner's software
systems, applications and control devices in operating and monitoring
significant aspects of its business, any Year 2000 problem suffered by the
General Partner could have a material adverse effect on the Partnership's
business, financial condition and results of operations.
The General Partner has established a special Year 2000 oversight committee to
review the impact of Year 2000 issues on its business systems in order to
determine whether such systems will retain functionality after December 31,
1999. As of June 30, 1999, the General Partner has completed inventory,
assessment, remediation and testing stages of its Year 2000 review of its core
business information systems. Specifically, the General Partner (a) has
integrated Year 2000-compliant programming code into its existing internally
customized and internally developed transaction processing software systems and
(b) the General Partner's accounting and asset management software systems have
been made Year 2000 compliant. In addition, numerous other software systems
provided by vendors and service providers have been replaced with systems
represented by the vendor or service provider to be Year 2000 functional. These
systems will be fully tested September by 30, 1999 and are expected to be
compliant.
As of June 30, 1999, the costs incurred and allocated to the Partnership to
become Year 2000 compliant have not been material and 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 or vendors or service providers due to Year 2000
problems. For the purpose of such contingency planning, reasonably likely worst
case scenarios primarily anticipate a) an inability to access systems and data
on a temporary basis resulting in possible delay in reconciliation of funds
received or payment of monies owed, or b) an inability to continuously employ
equipment assets due to temporary Year 2000 related failure of external
infrastructure necessary to the ongoing operation of the equipment. The General
Partner is evaluating whether there are additional scenarios, which have not
been identified. Contingency planning will encompass strategies up to and
including manual processes. The General Partner anticipates that these plans
will be completed by September 30, 1999.
-
(IV) ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued "Accounting for
Derivative Instruments and Hedging Activities", (SFAS No. 133) which
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for all
quarters of fiscal years beginning after June 15, 1999
FASB Statement No. 137,"Accounting for Derivatives, Instruments, and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, an
amendment of FASB Statement No. 133," issued in June 1999, defers the effective
date of Statement No. 133. Statement No. 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. As of
June 30, 1999, the General Partner is reviewing the effect SFAS No. 133 will
have on the Partnership's financial statements.
(V) OUTLOOK FOR THE FUTURE
Several factors may affect the Partnership's operating performance in 1999 and
beyond, including changes in the markets for the Partnership's equipment and
changes in the regulatory environment in which that equipment operates.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The General Partner continually monitors
both the equipment markets and the performance of the Partnership's equipment in
these markets. The General Partner may decide to reduce the Partnership's
exposure to equipment markets in which it determines it cannot operate equipment
to achieve acceptable rates of return. Alternatively, the General Partner may
make a determination to enter equipment markets in which it perceives
opportunities to profit from supply/demand instabilities or other market
imperfections.
Other factors affecting the Partnership's contribution in 1999 and beyond
include:
1. The Partnership is experiencing difficulty in releasing its older aircraft.
2. The decrease in demand for available marine containers has lead to declining
lease rates.
3. Depressed economic conditions in Asia have led to declining freight rates
through the early part of 1999 for drybulk vessels. The market has stabilized
and is expected to improve over the next 2-3 years in the absence of new
additional orders.
4. Railcar loading in North America have continued to be high, however a
softening in the market is expected in the second half of 1999, which may lead
to lower utilization and lower contribution to the Partnership.
5. The Partnership's over-the-road dry trailers are currently in transition to
new PLM-affiliated short-term rental facilities specializing in this type of
trailer. The movement of these trailers to a new location will cause a temporary
reduction in lease revenues.
The Partnership intends to use excess cash flow, if any, after payment of
operating expenses, principal and interest on debt, redemption of limited
partnership units, and cash distributions to the partners to acquire additional
equipment during the first six years of Partnership operations which concludes
December 31, 1999. The General Partner believes that these acquisitions may
cause the Partnership to generate additional earnings and cash flow for the
Partnership.
(VI) FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Partnership's plans, objectives, expectations, and intentions.
The cautionary statements made in this Form 10-Q should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q. The Partnership's actual results could differ materially from
those discussed here.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During the six months ended June 30, 1999, 67% 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)
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)
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 VI
By: PLM Financial Services, Inc.
General Partner
Date: August 4, 1999 By: /s/ Richard K Brock
Richard K Brock
Vice President and
Corporate Controller
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