UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 0-21806
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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
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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
Aggregate market value of voting stock: N/A
An index of exhibits filed with this Form 10-K is located at page 30.
Total number of pages in this report: 59.
<PAGE>
PART I
ITEM 1. BUSINESS
(A) Background
In April 1991, PLM Financial Services, Inc. (FSI or the General Partner), a
wholly-owned subsidiary of PLM International, Inc. (PLM International or PLMI),
filed a Registration Statement on Form S-1 with the Securities and Exchange
Commission with respect to a proposed offering of 8,750,000 limited partnership
units (the units) in PLM Equipment Growth Fund VI, a California limited
partnership (the Partnership, the Registrant, or EGF VI). The Partnership's
offering became effective on December 23, 1991. FSI, as General Partner, owns a
5% interest in the Partnership. The Partnership engages in the business of
investing in a diversified equipment portfolio consisting primarily of used,
long-lived, low-obsolescence capital equipment that is easily transportable by
and among prospective users.
The Partnership's primary objectives are:
(1) to invest in a diversified portfolio of low obsolescence equipment with
long lives and high residual values, at prices that the General Partner believes
to be below inherent values, and to place the equipment on lease or under other
contractual arrangements with creditworthy lessees and operators of equipment.
All transactions over $1.0 million must be approved by PLM International's
Credit Review Committee (the Committee), which is made up of members of PLM
International's senior management. In determining a lessee's creditworthiness,
the Committee considers, among other factors, the lessee's financial statements,
internal and external credit ratings, and letters of credit;
(2) to generate sufficient net operating cash flow from lease operations to
meet liquidity requirements and to generate cash distributions to the limited
partners until such time as the General Partner commences the orderly
liquidation of the Partnership assets, or unless the Partnership is terminated
earlier upon sale of all Partnership property or by certain other events;
(3) to create a significant degree of safety relative to other equipment
leasing investments through the purchase of a diversified equipment portfolio.
This diversification reduces the exposure to market fluctuations in any one
sector. The purchase of used, long-lived, low-obsolescence equipment, typically
at prices that are substantially below the cost of new equipment, also reduces
the impact of economic depreciation and can create the opportunity for
appreciation in certain market situations, where supply and demand return to
balance from oversupply conditions; and
(4) to increase the Partnership's revenue base by reinvesting a portion of
its operating cash flow in additional equipment during the first six years of
the Partnership's operation in order to grow the size of its portfolio. Since
net income and distributions are affected by a variety of factors, including
purchase prices, lease rates, and costs and expenses, growth in the size of the
Partnership's portfolio does not necessarily mean that in all cases the
Partnership's aggregate net income and distributions will increase upon the
reinvestment of operating cash flow.
The offering of units of the Partnership closed on May 24, 1993. As of December
31, 1999, there were 8,191,718 units outstanding. The General Partner
contributed $100 for its 5% general partner interest in the Partnership.
Beginning in the Partnership's seventh year of operation, which commenced
January 1, 2000, the General Partner stopped reinvesting cash flow. Surplus
funds, if any, less reasonable reserves, will be distributed to the partners. In
the ninth year of operations of the Partnership, which commences January 1,
2002, the General Partner intends to begin the dissolution and liquidation of
the Partnership in an orderly fashion, unless the Partnership is terminated
earlier upon sale of all of the equipment or by certain other events. Under
certain circumstances, however, the term of the Partnership may be extended. In
no event will the Partnership be extended beyond December 31, 2011.
<PAGE>
Table 1, below, lists the equipment and the original cost of equipment in the
Partnership's portfolio, and the original cost of investments in unconsolidated
special-purpose entities as of December 31, 1999 (in thousands of dollars):
<TABLE>
<CAPTION>
TABLE 1
Units Type Manufacturer Cost
- -------------------------------------------------------------------------------------------------------------------
Owned equipment held for operating leases:
<S> <C> <C> <C>
2 Container cargo carrier vessels O. C. Staalskibsvaerft A/F $ 16,036
1 Anchor-handling supply vessel Moss Point Marine 10,058
6,470 Marine containers Various 16,866
3,001 Refrigerated marine containers Various 7,825
1 DC-9-82 Stage III commercial aircraft McDonnell Douglas 13,951
1 737-200 Stage II commercial aircraft Boeing 5,406
1 Portfolio of aircraft rotables Various 2,273
368 Pressurized tank railcars Various 10,716
180 Nonpressurized tank railcars Various 3,482
139 Covered hopper railcars Various 3,086
125 Refrigerated trailers Various 4,268
343 Dry piggyback trailers Stoughton 5,273
235 Dry trailers Various 2,172
=============
Total owned equipment held for operating leases $ 101,412<F1>1
=============
Investments in unconsolidated special-purpose entities:
0.62 737-300 Stage III commercial aircraft Boeing $ 14,150<F2>2
0.40 Equipment on direct finance lease:
Two DC-9 Stage III commercial aircraft McDonnell Douglas 4,505<F3>3
0.53 Product tanker Boelwerf-Temse 10,476<F2>2
0.50 Container cargo feeder vessel O. C. Staalskibsvaerft A/F 4,004<F2>2
0.20 Handymax dry bulk carrier marine vessel Tsuneishi Shipbuilding Co., Ltd 3,553<F2>2
0.25 Marine containers Various 2,636<F2>2
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Total investments in unconsolidated special-purpose entities $ 39,324<F1>1
<FN>
- --------------------------
<F1> 1 Includes equipment and investments purchased with the proceeds from
capital contributions, undistributed cash flow from operations, and Partnership
borrowings invested in equipment. Includes costs capitalized, subsequent to the
date of purchase, and equipment acquisition fees paid to PLM Transportation
Equipment Corporation (TEC), or PLM Worldwide Management Services (WMS).
<F2> 2 Jointly owned: EGF VI and an affiliated progra.
<F3> 3 Jointly owned: EGF VI and two affiliated programs.
</FN>
</TABLE>
The equipment is generally leased under operating leases with terms of one to
six years. Some of the Partnership's marine containers are leased to operators
of utilization-type leasing pools, which include equipment owned by unaffiliated
parties. In such instances, revenues received by the Partnership consist of a
specified percentage of revenues generated by leasing the pooled equipment to
sublessees after deducting certain direct operating expenses of the pooled
equipment.
As of December 31, 1999, approximately 48% of the Partnership's trailer
equipment operated in rental yards owned and maintained by PLM Rental, Inc., the
short-term trailer rental subsidiary of PLM International doing business as PLM
Trailer Leasing. Rents are reported as revenue in accordance with Financial
Accounting Standards Board Statement No. 13 "Accounting for Leases". Direct
expenses associated with the equipment are charged directly to the Partnership.
An allocation of other indirect expenses related to the rental yard operations
is charged to the Partnership monthly.
The lessees of the equipment include but are not limited to: Domino Sugar Corp.,
Union Carbide Corporation, Tosco Refining Company, Terra Nitrogen Corporation,
Trans World Airlines, Aero California, Seacor Smit Inc., and AAR Allen Group
International.
<PAGE>
(B) Management of Partnership Equipment
The Partnership has entered into an equipment management agreement with PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI, for the
management of the Partnership's equipment. The Partnership's management
agreement with IMI is to co-terminate with the dissolution of the Partnership,
unless the limited partners vote to terminate the agreement prior to that date,
or at the discretion of the General Partner. IMI has agreed to perform all
services necessary to manage the equipment on behalf of the Partnership and to
perform or contract for the performance of all obligations of the lessor under
the Partnership's leases. In consideration for its services and pursuant to the
partnership agreement, IMI is entitled to a monthly management fee (see Notes 1
and 2 to the audited financial statements).
(C) Competition
(1) Operating Leases versus Full Payout Leases
Generally, the equipment owned or invested in by the Partnership is leased out
on an operating lease basis wherein the rents received during the initial
noncancelable term of the lease are insufficient to recover the Partnership's
purchase price of the equipment. The short to mid-term nature of operating
leases generally commands a higher rental rate than longer-term full payout
leases and offers lessees relative flexibility in their equipment commitment. In
addition, the rental obligation under an operating lease need not be capitalized
on the lessee's balance sheet.
The Partnership encounters considerable competition from lessors that utilize
full payout leases on new equipment, i.e., leases that have terms equal to the
expected economic life of the equipment. While some lessees prefer the
flexibility offered by a shorter-term operating lease, other lessees prefer the
rate advantages possible with a full payout lease. Competitors may write full
payout leases at considerably lower rates and for longer terms than the
Partnership offers, or larger competitors with a lower cost of capital may offer
operating leases at lower rates, which may put the Partnership at a competitive
disadvantage.
(2) Manufacturers and Equipment Lessors
The Partnership competes with equipment manufacturers who offer operating leases
and full payout leases. Manufacturers may provide ancillary services that the
Partnership cannot offer, such as specialized maintenance service (including
possible substitution of equipment), training, warranty services, and trade-in
privileges.
The Partnership also competes with many equipment lessors, including ACF
Industries, Inc. (Shippers Car Line Division), GATX Corp., General Electric
Railcar Services Corporation, General Electric Capital Aviation Services
Corporation, Xtra Corporation, and other programs that lease the same types of
equipment.
(D) Demand
The Partnership currently operates in the following operating segments: marine
vessel leasing, marine container leasing, aircraft leasing, railcar leasing, and
trailer leasing. Each equipment leasing segment engages in short-term to
mid-term operating leases to a variety of customers. Except for those aircraft
leased to passenger air carriers, the Partnership's equipment and investments
are used to transport materials and commodities, rather than people.
The following section describes the international and national markets in which
the Partnership's capital equipment operates:
(1) Marine Vessels
The Partnership owns or has investments in small to medium-sized dry bulk
vessels, product tankers, and container vessels, all of which operate in
international markets carrying a variety of commodity-type cargoes. Demand for
commodity-based shipping is closely tied to worldwide economic growth patterns,
which can affect demand by causing changes in volume on trade routes. The
General Partner operates the Partnership's vessels through a combination of spot
and period charters, an approach that provides the flexibility to adapt to
changes in market conditions. The Partnership also owns an anchor-handling
supply vessel that operates through bareboat charters.
(a) Container and Container Feeder Vessels
Container vessels are used to transport cargo that is shipped in containers.
Vessels that transport containers from small outlying ports to main
transportation hubs serviced by regularly scheduled ocean liners, are called
container feeder vessels.
Container vessels typically carry up to approximately 1,000 20-foot equivalent
unit (TEU) containers. For the past several years, this trade has been generally
characterized by growth in both supply and demand. In 1998, however, these
patterns changed as worldwide container shipments dropped by about 1%. In 1999,
this sector resumed growth due to some stabilization of the Asian economies. In
the future, containerized shipping is expected to continue to grow somewhat
faster than world trade, as more types of cargo are introduced to
containerization and larger-sized vessels reduce the cost of main-line container
shipments.
After beginning 1999 at low levels, container vessel freight rates staged a
recovery late in the first quarter due to increased shipment volumes. Throughout
1999, vessels carrying over 1,000 TEU containers experienced significant rate
improvement, however, such improvement was limited for smaller feeder vessels.
If economic growth continues as expected, freight rates for these vessels should
improve during 2000. New building of feeder vessels is not expected to undermine
any potential for rate improvement, as only 6.1% of the existing fleet was on
order as of the end of 1999.
(b) Product Tankers
During 1999, product tanker markets experienced declines in charter rates and
vessel values brought about by volatile oil and oil product prices, relatively
low growth in trade volumes, and high rates of new product tanker deliveries.
The 1999 daily charter rates for standard-size product tankers averaged 21%
lower than in 1998 and 39% lower than in 1997. This decline was primarily due to
a deterioration in oil products trade in European markets.
Since crude oil is the source feedstock for oil products, the products trade is
closely tied to crude oil prices. Although 1999 was a year of rising oil prices,
volatility in trading appeared to depress actual shipping volumes, particularly
in Europe. Although product imports to the United States (U.S.) and Japan
increased such that the entire worldwide market grew by 2.7% during 1999, due to
the lingering effects of the Asian recession, shipping volumes ended the year
below the levels of 1996-1997.
Measured by deadweight tons, the product tanker fleet grew by only 3.2% during
1999, as overall supply was significantly moderated by a 150% increase in
scrapping levels as compared to 1998. For 2000, the product tanker fleet is
expected to expand due to a 6.5% rise in new deliveries. This increase is due to
the continuing effects of high order levels in the mid-1990s, which was driven
by growth in Asian trade and the anticipated effects of the U.S. Oil Pollution
Act of 1990. Under this Act, tankers over 25 years old are restricted from
trading to the U.S. if they do not have double bottoms and/or double hulls
(similar, though somewhat less stringent restrictions are in place within
developing nations). These regulations have the effect of inducing the
retirement of older vessels that would otherwise continue trading.
The Partnership's product tanker is a single-bottom, single-hull tanker that is
restricted from trading in the U.S. effective January 1, 2000. This vessel has
been moved to markets not affected by these regulations.
The combined effects of regulatory restrictions and low charter rates are
expected to keep scrapings at relatively high levels throughout 2000. However,
an anticipated high rate of new tanker deliveries will prevent much improvement
in rates and ship values during 2000. Should high scrapping levels continue
beyond then, this could offset increases in new deliveries and prevent further
significant declines in freight rates and ship values.
(c) Anchor-Handling Supply Vessel
The Partnership owns one U.S.-flagged anchor-handling supply vessel used to
support rig drilling operations in the U.S. Gulf of Mexico. Although this type
of vessel can be used in other regions, the U.S. Gulf of Mexico is the more
desirable market due to U.S. maritime law which stipulates that only
U.S.-flagged vessels be used in this region.
Demand for anchor-handling vessels depends primarily on the demand for floating
drilling services by oil companies. During 1999, demand for such services
remained at 1997-98 levels, however several higher-capacity vessels were
delivered during 1998-99, resulting in lower utilization and rates.
The 1999 recovery in oil prices has led forecasters to expect an increase in
drilling activity for 2000, as rising oil prices improve the economics of
offshore oil and gas development. Oil companies are expected to increase their
drilling programs during 2000, although it is uncertain by how much. Increases
in capacity brought about by new building may delay a return to the higher
utilization and rate levels experienced during 1997-98.
(d) Dry Bulk Vessels
Dry bulk shipping is a cyclical business that induces capital investment during
periods of high freight rates and leads to a contraction in investment during
periods of low rates. Currently, the industry environment is one of slow growth.
Fleet size is relatively stable, the overall bulk carrier fleet grew by less
than 1%, as measured by deadweight tons, and the total number of ships shrank
slightly in 1999.
Freight rates, after declining in 1998 due, in part, to the Asian recession,
improved for dry bulk vessels of all sizes during 1999. Freight rates increased
during the year such that by the end of 1999, they had reverted back to 1997
levels, although these levels are still moderate by historical comparison. The
1999 improvement was driven by increases in U.S. grain exports as well as
stronger trade in iron ore and steel products.
Total dry bulk trade, as measured in deadweight tons, is estimated to have grown
by approximately 2% during 1999, compared to a flat year in 1998. Forecasts for
2000 indicate that bulk trade should continue to grow, albeit at slow rates.
During 1999, ship values reversed the declines of the prior year, ending as much
as 30% above the levels seen at the beginning of the year for certain vessel
types. This upturn in ship values was due to a general improvement in dry bulk
trade as well as increases in the cost of new building as compared to 1998. A
slow but steady rise in trade volumes, combined with low fleet expansion, both
of which are anticipated to continue in 2000, may provide some basis for
increases in freight rates and ship values in the future. For example, it is
believed that should growth in demand return to historic levels of 3% annually,
this could stimulate increases in freight rates and ship values, and ultimately,
induce further investment in new building.
(2) Marine Containers
The marine container leasing market started 1999 with industrywide utilization
rates in the mid 70% range, down somewhat from the beginning of 1998. The market
strengthened throughout the year such that most container leasing companies
reported utilization of 80% by the end of 1999. Offsetting this favorable trend
was a continuation of historically low acquisition prices for new containers
acquired in the Far East, predominantly China. These low prices put pressure on
fleetwide per diem leasing rates.
The Partnership took advantage of attractive purchase prices by acquiring
several groups of containers during the year. It is the General Partner's belief
that acquiring containers at these historically low prices will yield strong
long-terms results for the Partnership.
Industry consolidation continued in 1999 as the parent of one of the world's top
ten container lessors finalized the outsourcing of the management of its
container fleet to a competitor. However, the General Partner believes that such
consolidation is a positive trend for the overall container leasing industry,
and ultimately will lead to higher industrywide utilization and increased per
diem rates.
<PAGE>
(3) Aircraft
(a) Commercial Aircraft
After experiencing relatively robust growth over the prior four years, demand
for commercial aircraft softened somewhat in 1999. Boeing and Airbus, the two
primary manufacturers of new commercial aircraft, saw a decrease in their volume
of orders, which totaled 368 and 417 during 1999, compared to 656 and 556 in
1998. The slowdown in aircraft orders can be partially attributed to the full
implementation of U.S. Stage III environmental restrictions, which became fully
effective on December 31, 1999. Since these restrictions effectively prohibit
the operation of noncompliant aircraft in the U.S. after 1999, carriers
operating within or into the U.S. either replaced or modified all of their
noncompliant aircraft before the end of the year. The continued weakness of the
Asian economy has also served to slow the volume of new aircraft orders.
However, with the Asian economy now showing signs of recovery, air carriers in
this region are beginning to resume their fleet building efforts.
Demand for, and values of, used commercial aircraft have been adversely affected
by the Stage III environmental restrictions and an oversupply of older aircraft
as manufacturers delivered more new aircraft that the overall market required.
Boeing predicts that the worldwide fleet of jet-powered commercial aircraft will
increase from approximately 12,600 airplanes as of the end of 1998 to about
13,700 aircraft by the end of 2003, an average increase of 220 units per year.
However, actual deliveries for the first two years of this period, 1998 and
1999, averaged 839 units annually. Although some of the resultant surplus used
aircraft have been retired, the net effect has been an overall increase in the
number of used aircraft available. This has resulted in a decrease in both
market prices and lease rates for used aircraft. Weakness in the used commercial
aircraft market may be mitigated in the future as manufacturers bring their new
production more in line with demand and given the anticipated continued growth
in air traffic. Worldwide, demand for air passenger services is expected to
increase at about 5% annually and freight services at about 6% per year, for the
foreseeable future.
This Partnership owns 100% of one Stage III-compliant aircraft and 40% of two
similar aircraft. These assets were not affected by changes in market conditions
as they remained on lease throughout 1999. The Partnership also owns 62% of one
Stage III aircraft and 100% of one Stage II aircraft, both of which were off
lease during 1999 and thus were impacted by the soft market conditions described
above.
(b) Rotables
The Partnership also owns a package of aircraft components, or rotables, that
are used for Stage III aircraft. Aircraft rotables are replacement spare parts
that are held in inventory by an airline. The types of rotables owned and leased
by the Partnership include avionics, replacement doors, control surfaces, pumps,
valves, and other comparable equipment. The rotable market remained stable in
1999.
(4) Railcars
(a) Pressurized Tank Cars
Pressurized tank cars are used to transport primarily liquefied petroleum gas
(natural gas) and anhydrous ammonia (fertilizer). The major U.S. markets for
natural gas are industrial applications (40% of estimated demand in 1998),
residential use (21%), electrical generation (15%), and commercial applications
(14%). Within the fertilizer industry, demand is a function of several factors,
including the level of grain prices, the status of government farm subsidy
programs, amount of farming acreage and mix of crops planted, weather patterns,
farming practices, and the value of the U.S. dollar. Population growth and
dietary trends also play an indirect role.
On an industrywide basis, North American carloadings of the commodity group that
includes petroleum and chemicals increased 2.5% in 1999, compared to 1998.
Correspondingly, demand for pressurized tank cars remained solid during 1999,
with utilization of this type of railcar within the Partnership remaining above
98%. While renewals of existing leases continue at similar rates, some cars have
been renewed for "winter only" terms of approximately six months. As a result,
it is anticipated that there will be more pressurized tank cars than usual
coming up for renewal in the spring.
<PAGE>
(b) General-Purpose (Nonpressurized) Tank Cars
These cars, which are used to transport bulk liquid commodities and chemicals
not requiring pressurization, such as certain petroleum products, liquefied
asphalt, lubricating and vegetable oils, molten sulfur, and corn syrup,
continued to be in high demand during 1999. The overall health of the market for
these types of commodities is closely tied to both the U.S. and global
economies, as reflected in movements in the Gross Domestic Product, personal
consumption expenditures, retail sales, and currency exchange rates. The
manufacturing, automobile, and housing sectors are the largest consumers of
chemicals. Within North America, 1999 carloadings of the commodity group that
includes chemicals and petroleum products rose 2.5% over 1998 levels.
Utilization of the Partnership's nonpressurized tank cars was above 98% again
during 1999.
(c) Covered Hopper (Grain) Cars
Demand for covered hopper cars, which are specifically designed to service the
agricultural industry, continued to experience weakness during 1999. The U.S.
agribusiness industry serves a domestic market that is relatively mature, the
future growth of which is expected to be consistent but modest. Most domestic
grain rail traffic moves to food processors, poultry breeders, and feed lots.
The more volatile export business, which accounts for approximately 30% of total
grain shipments, serves emerging and developing nations. In these countries,
demand for protein-rich foods is growing more rapidly than in the U.S., due to
higher population growth, a rapid pace of industrialization, and rising
disposable income.
Within the U.S., 1999 carloadings of agricultural products increased 4.3%, while
Canadian carloadings of these products fell 3.4%, resulting in an overall
increase within North America of only 2.8% compared to 1998. Since the combined
North American shipments for 1998 had decreased 7.7% over the previous year, the
1999 volume, while representing a slight increase, is still below 1997 levels.
Another factor contributing to softness in the covered hopper car market has
been the large number of new cars built in the last few years. Production of new
railcars of all types is estimated to have reached 57,685 cars during 1999, with
covered hopper cars representing 19,845, or one-third, of this total. For those
covered hopper cars whose leases expired in 1999, both industrywide and within
the Partnership, the combination of a lack of strong demand and an excess supply
of cars resulted in many of these expiring leases being renewed at considerably
lower rates.
(5) Trailers
(a) Intermodal (Piggyback) Trailers
Intermodal (piggyback) trailers are used to transport a variety of goods either
by truck or by rail. Over the past decade, intermodal trailers have been
gradually displaced by domestic containers as the preferred method of transport
for such goods. During 1999, demand for intermodal trailers was more volatile
than usual . Slow demand occurred over the first half of the year due to
customer concerns over rail service problems associated with mergers in the rail
industry, however, demand picked up significantly over the second half of the
year due to both a resolution of these service problems and the continued
strength of the U.S. economy. Due to a rise in demand which occurred over the
latter half of 1999, overall, activity within the intermodal trailer market
declined less than expected for the year, as total intermodal trailer shipments
decreased by only approximately 2% compared to the prior year.
Although the trend towards using domestic containers instead of intermodal
trailers is expected to continue in the future, overall intermodal trailer
shipments are forecast to decline by only 2% to 3% in 2000, compared to the
prior year, due to the anticipated continued strength of the overall economy. As
such, the nationwide supply of intermodal trailers is expected to remain
essentially in balance with demand for 2000. For the Partnership's intermodal
fleet, the General Partner will continue to seek to expand its customer base
while minimizing trailer downtime at repair shops and terminals.
<PAGE>
(b) Dry Trailers
The U.S. nonrefrigerated (dry) trailer market continued to show improvement
during 1999, as the strong domestic economy resulted in heavy freight volumes.
With unemployment low, consumer confidence high, and industrial production
sound, the outlook for leasing this type of trailer remains positive,
particularly as the equipment surpluses of recent years are being absorbed by
the buoyant market. In addition to high freight volumes, improvements in
inventory turnover and tighter turnaround times have lead to a stronger overall
trucking industry and increased equipment demand.
(c) Refrigerated Trailers
The temperature-controlled trailer market continued to expand during 1999,
although not as quickly as in 1998 when the market experienced very strong
growth. The leveling off in 1999 occurred as equipment users began to absorb the
increases in supply created over the prior two years. Refrigerated trailer users
have been actively retiring their older units and consolidating their fleets in
response to improved refrigerated trailer technology. Concurrently, there is a
backlog of six to nine months on orders for new equipment.
As a result of these changes in the refrigerated trailer market, it is
anticipated that trucking companies and shippers will utilize short-term trailer
leases more frequently to supplement their existing fleets. Such a trend should
benefit the Partnership, whose trailers are typically leased on a short-term
basis.
(E) Government Regulations
The use, maintenance, and ownership of equipment are regulated by federal,
state, local, or foreign governmental authorities. Such regulations may impose
restrictions and financial burdens on the Partnership's ownership and operation
of equipment. Changes in government regulations, industry standards, or
deregulation may also affect the ownership, operation, and resale of the
equipment. Substantial portions of the Partnership's equipment portfolio are
either registered or operated internationally. Such equipment may be subject to
adverse political, governmental, or legal actions, including the risk of
expropriation or loss arising from hostilities. Certain of the Partnership's
equipment is subject to extensive safety and operating regulations, which may
require it's removal from service or extensive modification to meet these
regulations, at considerable cost to the Partnership. Such regulations include
but are not limited to:
(1) the U.S. Oil Pollution Act of 1990, which established liability for
operators and owners of marine vessels that create environmental pollution.
This regulation has resulted in higher oil pollution liability insurance.
The lessee of the equipment typically reimburses the Partnership for these
additional costs;
(2) the U.S. Department of Transportation's Aircraft Capacity Act of 1990,
which limits or eliminates the operation of commercial aircraft in the
United States that do not meet certain noise, aging, and corrosion
criteria. In addition, under U.S. Federal Aviation Regulations, after
December 31, 1999, no person may operate an aircraft to or from any airport
in the contiguous U.S. unless that aircraft has been shown to comply with
Stage III noise levels. The Partnership has a Stage II aircraft that does
not meet Stage III requirements. This Stage II aircraft is scheduled to be
sold or re-leased in a country that does not require this regulation;
(3) the Montreal Protocol on Substances that Deplete the Ozone Layer and
the U.S. Clean Air Act Amendments of 1990, which call for the control and
eventual replacement of substances that have been found to cause or
contribute significantly to harmful effects to the stratospheric ozone
layer and which are used extensively as refrigerants in refrigerated marine
cargo containers and refrigerated trailers;
(4) the U.S. Department of Transportation's Hazardous Materials Regulations
regulate the classification and packaging requirements of hazardous
materials which apply particularly to the Partnership's tank railcars. The
Federal Railroad Administration has mandated that effective July 1, 2000,
all jacketed and non-jacketed tank railcars must be re-qualified to insure
tank shell integrity. Tank shell thickness, weld seams, and weld
attachments must be inspected and repaired if necessary to re-qualify a
tank railcar for service. The average cost of this inspection is $1,800 for
non-jacketed tank railcars and $3,600 for jacketed tank railcars, not
including any necessary repairs. This inspection is to be performed at the
next scheduled tank test.
As of December 31, 1999, the Partnership is in compliance with the above
governmental regulations. Typically, costs related to extensive equipment
modifications to meet government regulations are passed on to the lessee of that
equipment.
ITEM 2. PROPERTIES
The Partnership neither owns nor leases any properties other than the equipment
it has purchased and its interest in entities that own equipment for leasing
purposes. As of December 31, 1999, the Partnership owned a portfolio of
transportation and related equipment and investments in equipment owned by
unconsolidated special-purpose entities (USPEs) as described in Item 1, Table 1.
The Partnership acquired equipment with the proceeds of the Partnership offering
of $166.1 million through the third quarter of 1993, with proceeds from the debt
financing of $30.0 million, and by reinvesting a portion of its operating cash
flow in additional equipment.
The Partnership maintains its principal office at One Market, Steuart Street
Tower, Suite 800, San Francisco, California 94105-1301. All office facilities
are provided by FSI without reimbursement by the Partnership.
ITEM 3. LEGAL PROCEEDINGS
PLM International (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). The named plaintiffs are six individuals who invested in 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), each a California limited partnership for which the
Company's wholly-owned subsidiary, FSI, acts as the General Partner. The
complaint asserts causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches 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 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. 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 the Funds. The complaint 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 violations of state securities law. In July 1997, defendants filed a
petition (the petition) in federal district court under the Federal Arbitration
Act seeking to compel arbitration of plaintiff's claims. In October 1997, the
district court denied the Company's petition, but in November 1997, agreed to
hear the Company's motion for reconsideration. Prior to reconsidering its order,
the district court dismissed the petition pending settlement of the Romei
action, as discussed below.The state court action continues to be stayed pending
such resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The settlement is divided into two
parts, a monetary settlement and an equitable settlement. 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 $6.6
million. The final settlement amount will depend on the number of claims filed
by class members, the amount of the administrative costs incurred in connection
with the settlement, and the amount of attorneys' fees awarded by the court to
plaintiffs' attorneys. The Company will pay up to $0.3 million of the monetary
settlement, with the remainder being funded by an insurance policy. For
settlement purposes, the monetary settlement 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 monetary settlement, if approved, will go forward regardless of
whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy, (d) a one-time repurchase by
each of Funds V, VI, and VII of up to 10% of that partnership's outstanding
units for 80% of net asset value per unit, and (e) the deferral of a portion of
the management fees paid to an affiliate of FSI until, if ever, certain
performance thresholds have been met by the Funds. Subject to final court
approval, these proposed changes would be made as amendments to each
Partnership's limited partnership agreement if less than 50% of the limited
partners of each Partnership vote against such amendments. The limited partners
will be provided the opportunity to vote against the amendments by following the
instructions contained in solicitation statements that will be mailed to them
after being filed with the Securities and Exchange Commission. The equitable
settlement also provides for payment of additional attorneys' fees to the
plaintiffs' attorneys from Partnership funds in the event, if ever, that certain
performance thresholds have been met by the Funds. The equitable settlement
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 court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. 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 has initiated litigation in various official forums in India
against a defaulting Indian airline lessee to recover damages for failure to pay
rent and failure to maintain such property in accordance with relevant lease
contracts. The Partnership has repossessed its property previously leased to
such airline. In response to the Partnership's collection efforts, the airline
filed counter-claims against the Partnership in excess of the Partnership's
claims against the airline. The General Partner believes that the airlines'
counterclaims are completely without merit, and the General Partner will
vigorously defend against such counterclaims. The General Partner believes the
likelihood of an unfavorable outcome from the counterclaims is remote.
The Company 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Partnership's limited partners during
the fourth quarter of its fiscal year ended December 31, 1999.
<PAGE>
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED UNITHOLDER MATTERS
Pursuant to the terms of the partnership agreement, the General Partner is
entitled to 5% of the cash distributions of the Partnership. Net income is
allocated to the General Partner to the extent necessary to cause the General
Partner's capital account to equal zero. The remaining interests in the profits,
losses, and cash distributions of the Partnership are allocated to the limited
partners. As of December 31, 1999, there were 9,672 limited partners holding
units in the Partnership.
There are several secondary markets in which limited partnership units trade.
Secondary markets are characterized as having few buyers for limited partnership
interests and therefore are generally viewed as being inefficient vehicles for
the sale of limited partnership units. Presently, there is no public market for
the limited partnership units and none is likely to develop. To prevent the
units from being considered publicly traded and thereby to avoid taxation of the
Partnership as an association treated as a corporation under the Internal
Revenue Code, the limited partnership units will not be transferable without the
consent of the General Partner, which may be withheld in its absolute
discretion. The General Partner intends to monitor transfers of units in an
effort to ensure that they do not exceed the percentage or number permitted by
certain safe harbors promulgated by the Internal Revenue Service. A transfer may
be prohibited if the intended transferee is not a U.S. citizen or if the
transfer would cause any portion of the units of a "Qualified Plan" as defined
by the Employee Retirement Income Security Act of 1974 and Individual Retirement
Accounts to exceed the allowable limit.
The Partnership may redeem a certain number of units each year under the terms
of the Partnership's Limited Partnership Agreement, beginning November 24, 1995.
If the number of units made available for purchase by limited partners in any
calendar year exceeds the number that can be purchased with reinvestment plan
proceeds, then the Partnership may, subject to certain terms and conditions,
redeem up to 2% of the outstanding units each year. The purchase price to be
offered by the Partnership for these units will be equal to 110% of the
unrecovered principal attributable to the units. The unrecovered principal for
any unit will be equal to the excess of (i) the capital contribution
attributable to the unit over (ii) the distributions from any source paid with
respect to the units. As of December 31, 1999, the Partnership had agreed to
purchase approximately 4,000 units for an aggregate price of $30,400. The
General Partner anticipates that these units will be repurchased in the first
and second quarters of 2000. As of December 31, 1999, the Partnership has
repurchased a cumulative total of 126,529 units at a cost of $1.5 million. In
addition to these units, the General Partner may purchase additional limited
partnership units on behalf of the Partnership in the future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Table 2, below, lists selected financial data for the Partnership:
<TABLE>
<CAPTION>
TABLE 2
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
1999 1998 1997 1996 1995
----------------------------------------------------------------------
Operating results:
<S> <C> <C> <C> <C> <C>
Total revenues $ 50,209 $ 35,140 $ 39,576 $ 36,356 $ 35,216
Net gain on disposition of equipment 25,951 6,253 10,121 7,214 128
Loss on revaluation of equipment 3,567 4,276 -- -- --
Equity in net income (loss) of uncon-
solidated special-purpose entities (1,003) 6,465 3,336 3,700 --
Net income (loss) 5,996 1,445 9,232 8,291 (1,974)
At year-end:
Total assets $ 78,204 $ 104,270 $ 121,551 $ 123,441 $ 132,484
Total liabilities 33,183 38,022 39,006 41,059 39,253
Note payable 30,000 30,000 30,000 31,286 30,000
Cash distribution $ 13,806 $ 15,226 $ 17,384 $ 17,467 $ 17,518
Cash distribution representing
a return of capital to the limited
partners $ 7,810 $ 13,781 $ 8,152 $ 9,176 $ 16,642
Per weighted-average limited partnership unit:
Net income (loss) $ 0.65<F1>1$ 0.08<F1>1$ 1.01<F1>1$ 0.89<F1>1$ (0.34)<F1>1
Cash distribution $ 1.60 $ 1.76 $ 2.00 $ 2.00 $ 2.00
Cash distribution representing
a return of capital $ 0.95 $ 1.68 $ 0.99 $ 1.11 $ 2.00
<FN>
<F1>
1 After reduction of income necessary to cause the General Partner's capital
account to equal zero of $0.4 million ($0.04 per weighted-average depositary
unit) in 1999, $0.7 million ($0.08 per weighted-average depositary unit) in
1998, $0.4 million ($0.04 per weighted-average depositary unit) in 1997, $0.5
million ($0.05 per weighted-average depositary unit) in 1996, and $1.1
million ($0.12 per weighted-average depositary unit) in 1995.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(A) Introduction
Management's discussion and analysis of financial condition and results of
operations relates to the financial statements of PLM Equipment Growth Fund VI
(the Partnership). The following discussion and analysis of operations focuses
on the performance of the Partnership's equipment in various segments in which
it operates and its effect on the Partnership's overall financial condition.
(B) Results of Operations - Factors Affecting Performance
(1) Re-leasing Activity and Repricing Exposure to Current Economic Conditions
The exposure of the Partnership's equipment portfolio to re-pricing risk occurs
whenever the leases for the equipment expire or are otherwise terminated and the
equipment must be re-marketed. Major factors influencing the current market rate
for Partnership equipment include, but are not limited to, supply and demand for
similar or comparable types of transport capacity, desirability of the equipment
in the leasing market, market conditions for the particular industry segment in
which the equipment is to be leased, overall economic conditions, and various
regulations concerning the use of the equipment. Equipment that is idle or out
of service between the expiration of one lease and the assumption of a
subsequent lease can result in a reduction of contribution to the Partnership.
The Partnership experienced re-leasing or repricing activity in 1999 primarily
in its railcar, trailer, marine vessel, aircraft, and marine container
portfolios.
(a) Railcars: While this equipment experienced some re-leasing activity,
lease rates in this market remain relatively constant.
(b) Trailers: The Partnership's trailer portfolio operates in short-term
rental facilities or with short-line railroad systems. The relatively short
duration of most leases in these operations exposes the trailers to considerable
re-leasing activity.
(c) Marine vessels: Certain of the Partnership's marine vessels ended their
existing leases and are now operating in the voyage charter market. Voyage
charters are usually short in duration and reflect the short-term demand and
pricing trends in the vessel market. As a result, the Partnership experienced a
decrease in lease revenues due to the weakness in the voyage charter market.
These marine vessels will again be remarketed during 2000 exposing them to
repricing and re-leasing risk.
(d) Aircraft: One of the Partnership's stage II commercial aircraft ended
its existing lease during 1999 and remains off lease. The Partnership also
purchased an interest in an entity that owns a stage III commercial aircraft
which it has been unable to lease.
(e) Marine containers: Some of the Partnership's marine containers that are
on lease are leased to operators of utilization-type leasing pools and, as such,
are highly exposed to repricing activity. The increase in marine container
contributions was due to equipment purchases. Market conditions were relatively
constant in repricing activity during 1999.
(2) Equipment Liquidations and Nonperforming Lessees
Liquidation of Partnership equipment and investments in unconsolidated
special-purpose entities (USPEs), represents a reduction in the size of the
equipment portfolio and may result in a reduction of contribution to the
Partnership. Lessees not performing under the terms of their leases, either by
not paying rent, not maintaining or operating the equipment in accordance with
the conditions of the leases, or other possible departures from the lease terms,
can result not only in reductions in contribution, but also may require the
Partnership to assume additional costs to protect its interests under the
leases, such as repossession or legal fees. The Partnership experienced the
following in 1999:
(a) Liquidations: During the year, the Partnership disposed of owned
equipment that included a marine vessel, marine containers, trailers, and
railcars, and an interest in a USPE trust that owned a mobile offshore drilling
unit, for total proceeds of $12.8 million.
The Partnership also sold a commercial aircraft with a net book value of $15.6
million for proceeds of $40.1 million which included $3.6 million of unused
engine reserves. The Partnership's share of the proceeds from this sale, after
payment to the minority interest holders in this commercial aircraft, was $25.6
million.
(b) Nonperforming lessees: Two former India lessees are having financial
difficulties. The Partnership has initiated litigation in various official
forums in India against the defaulting Indian airline lessees to recover damages
for failure to pay rent and failure to maintain such property in accordance with
relevant lease contracts. The total amount of $2.2 million due from these
lessees has been reserved for as a bad debt. The Partnership has repossessed its
property previously leased to these airlines.
(3) Equipment Valuation
In accordance with Financial Accounting Standards Board statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", the General Partner reviews the carrying value of the
Partnership's equipment portfolio at least quarterly and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions for the purpose of assessing the
recoverability of the recorded amounts. If the projected undiscounted cash flows
and the fair market value of the equipment are less than the carrying value of
the equipment, a loss on revaluation is recorded. Reductions of $3.6 million to
the carrying value of owned equipment were required during 1999. Reductions of
$4.3 million and $1.0 million to the carrying value of owned equipment and
partially owned equipment, respectively, were required during 1998. No
reductions were required to the carrying value of equipment during 1997.
As of December 31, 1999, the General Partner estimated the current fair market
value of the Partnership's equipment portfolio, including the Partnership's
interest in equipment owned by USPEs, to be $95.2 million. This estimate is
based on recent market transactions for equipment similar to the Partnership's
equipment portfolio and the Partnership's interest in equipment owned by USPEs.
Ultimate realization of fair market value by the Partnership may differ
substantially from the estimate due to specific market conditions, technological
obsolescence, and government regulations, among other factors that the General
Partner cannot accurately predict.
(C) Financial Condition - Capital Resources, Liquidity, and Unit Redemption Plan
The General Partner purchased the Partnership's initial equipment portfolio with
capital raised from its initial equity offering of $166.1 million and permanent
debt financing of $30.0 million. No further capital contributions from the
limited partners are permitted under the terms of the Partnership's limited
partnership agreement. The Partnership's total outstanding indebtedness,
currently $30.0 million, can only be increased by a maximum of $5.0 million,
subject to specific covenants in existing debt agreements, unless the
Partnership's senior lender will issue a waiver.
The Partnership relies on operating cash flow to meet its operating obligations
and to make cash distributions.
For the year ended December 31, 1999, the Partnership generated $7.1 million in
operating cash (net cash used in operating activities less minority interests
plus non-liquidating cash distributions from USPEs) to meet its operating
obligations and make distributions of $13.8 million to the partners, but also
used undistributed available cash from prior periods of approximately $6.7
million.
Pursuant the terms of the limited partnership agreement, beginning December 1,
1994, if the number of units made available for purchase by limited partners in
any calendar year exceeds the number that can be purchased with reinvestment
plan proceeds, then the Partnership may, subject to certain terms and
conditions, redeem up to 2% of the outstanding units each year. The purchase
price to be offered for such units will be equal to 110% of the unrecovered
principal attributed to the units. Unrecovered principal is defined as the
excess of the capital contribution attributable to a unit over the distributions
from any source paid with respect to that unit. As of December 31, 1999, the
Partnership had agreed to purchase approximately 4,000 units for an aggregate
price of approximately $30,400. The General Partner anticipates that these units
will be repurchased during the first and second quarters of 2000. In addition to
these units, the General Partner may purchase additional units on behalf of the
Partnership in the future.
The General Partner has entered into a joint $24.5 million credit facility (the
Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth &
Income Fund VII (EGF VII) and Professional Lease Management Income Fund I (Fund
I), both affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an
indirect wholly-owned subsidiary of the General Partner, which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Partnership, plus (ii) 50% of unrestricted cash held by the borrower. The
Partnership, EGF VII, Fund I, and TECAI collectively may borrow up to $24.5
million of the Committed Bridge Facility. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the Committed
Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Individual borrowings may
be outstanding for no more than 179 days, with all advances due no later than
June 30, 2000. Interest accrues at either the prime rate or adjusted LIBOR plus
1.625% at the borrower's option and is set at the time of an advance of funds.
Borrowings by the Partnership are guaranteed by the General Partner. As of
December 31, 1999, no eligible borrower had any outstanding borrowings. As of
March 27, 2000, no eligible borrower had any outstanding borrowings. The General
Partner believes it will be able to renew the Committed Bridge Facility upon its
expiration with similar terms as those in the current Committed Bridge Facility.
During 1999 the Partnership borrowed $0.4 million from the General Partner for 5
days. The General Partner charged the Partnership market interest rates. Total
interest paid to the General Partner was $421.
The General Partner has not planned any expenditures, nor is it aware of any
contingencies that would cause it to require any additional capital to that
mentioned above.
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<PAGE>
(D) Results of Operations - Year-to-Year Detailed Comparison
(1) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1999 and 1998
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repairs and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1999, when compared to the year
ended 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 5 to
the audited 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.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided 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 (the Amendment). As such, although the
Partnership may own a majority interest in a USPE, the Partnership does not
control its management and thus the equity method of accounting will be used
after adoption of the amendment. As a result of the amendment, as of September
30, 1999, all jointly owned equipment in which the Partnership owned a majority
interest, which had been consolidated, were reclassified to investments in
USPEs. Lease revenues and direct expenses for jointly owned equipment in which
the Partnership held a majority interest were reported under the consolidation
method of accounting during the nine months ended September 30, 1999 and were
included with the owned equipment operations. For the three months ended
December 31, 1999, lease revenues and direct expenses for these entities are
reported under the equity method of accounting and are included with the
operations of the USPEs.
The following table presents lease revenues less direct expenses by segment (in
thousands of dollars):
For the Years
Ended December 31,
1999 1998
----------------------------
Railcars $ 3,722 3,254
Aircraft, aircraft engines, and components 3,649 7,907
Marine vessels 3,527 4,640
Marine containers 2,317 911
Trailers 2,021 2,478
Railcars: Railcar lease revenues and direct expenses were $4.6 million and $0.8
million, respectively, for the year ended December 31, 1999, compared to $4.1
million and $0.9 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 the
entire 1999 year compared to being on lease for less than two weeks in 1998.
Railcar contribution also increased due to lower repairs required during 1999
when compared to the same period of 1998.
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $4.5 million and $0.8 million, respectively, for the year ended
December 31, 1999, compared to $9.1 million and $1.2 million, respectively,
during the same period of 1998. The decrease in aircraft lease revenues of $1.1
million was due to a Boeing 737-200 being off-lease during the entire year of
1999 that was on-lease for 10 months of 1998. Additionally, aircraft lease
revenues decreased $3.5 million due to the sale of a Boeing 767-200ER Stage III
commercial aircraft in June 1999. Direct expenses decreased $0.5 million due to
required repairs to the Boeing 737-200 and 767-200 in 1998 that were not
required in 1999.
Marine vessels: Marine vessel lease revenues and direct expenses were $9.8
million and $6.3 million, respectively, for the year ended December 31, 1999,
compared to $10.7 million and $6.1 million, respectively, during the same period
of 1998. The purchase of two marine vessels during 1998 and 1999 generated $2.2
million in additional lease revenues. During the end of 1998, two marine vessels
ended their existing lease with a lessee that was paying the Partnership a fixed
lease rate that was 70% above freight market rates in effect at that time. When
these two vessels went on voyage charter during the year of 1999, lease revenues
decreased $1.1 million due to a decline in the comparative lease rates.
Direct expenses from the two marine vessels purchased during 1999 and 1998
increased $1.1 million, while the existing marine vessels saw a decline of $0.3
million in repairs and maintenance due to fewer required repairs.
The September 30, 1999 Amendment which changed the accounting treatment of
majority held equipment from the consolidation method of accounting to the
equity method of accounting affected the lease revenues and direct expenses of
one marine vessel. Lease revenues for the Partnership's majority held marine
vessel decreased $2.0 million for the year ended December 31, 1999 when compared
to the same period of 1998. The decline in lease revenues of $1.3 million was
caused by a decline in lease rates and the decline of $0.7 million was caused by
the Amendment. Direct expenses for the Partnership's majority held marine vessel
also decreased $0.6 million due to the Amendment.
Marine containers: Marine container lease revenues and direct expenses were $2.3
million and $1,000, respectively, for the year ended December 31, 1999, compared
to $0.9 million and $13,000, respectively, during the same period of 1998. The
increase in marine container lease revenues of $1.4 million was primarily due to
the purchase of a portfolio of marine containers during 1999 and the fourth
quarter of 1998, and an increase in marine container utilization. The marine
containers purchased during 1998 were on-lease the entire year of 1999 compared
to only one month of 1998.
Trailers: Trailer lease revenues and direct expenses were $2.8 million and $0.8
million, respectively, for the year ended December 31, 1999, compared to $3.3
million and $0.8 million, respectively, during the same period of 1998. During
1999, certain dry trailers transitioned to a new PLM-affiliated short-term
rental facility specializing in this type of trailer causing lease revenues for
this group of trailers to decrease $0.1 million during the year ended December
31, 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 of
approximately $0.4 million in trailer contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $26.5 million for the year ended December 31, 1999
decreased from $30.9 million for the same period in 1998. Significant variances
are explained as follows:
(i) A $4.1 million decrease in depreciation and amortization expenses from
1998 levels reflects the decrease of $5.9 million caused by the double-declining
balance method of depreciation which results in greater depreciation in the
first years an asset is owned, a decrease of $2.2 million due to the sale of
certain equipment during 1999 and 1998, and a decrease of $0.8 million as a
result the Amendment. These decreases were offset in part, by an increase of
$4.8 million in depreciation and amortization expenses resulting from the
purchase of additional equipment during 1999.
(ii)Loss on revaluation of marine vessels and marine containers decreased
$0.7 million during the year ended December 31, 1999 when compared to the same
period of 1998. During 1999, a loss on revaluation of $3.6 million was recorded
for marine vessels compared to $4.1 million during the same period of 1998. A
loss on revaluation of $0 during 1999 and $0.2 million during 1998 was recorded
for marine containers.
(iii) A $0.3 million decrease in management fees was due to lower lease
revenues earned by the Partnership during the year ended December 31, 1999 when
compared to the same period of 1998.
(iv)A $0.1 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(v) A $0.7 million increase in the provision for bad debts reflects the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
<PAGE>
(c) Net Gain on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 1999 totaled $26.0 million, and resulted from the sale of a marine vessel,
marine containers, trailers, and railcars, with an aggregate net book value of
$7.9 million, for $9.3 million. In addition, the Partnership also sold a
commercial aircraft with a net book value of $15.6 million for $40.1 million
which includes $3.6 million of unused engine reserves. The net gain on the
disposition of owned equipment for the year ended December 31, 1998 totaled $6.3
million, and resulted from the sale of a commercial aircraft, an aircraft
engine, marine containers, trailers, and railcars, with an aggregate net book
value of $6.1 million, for $12.4 million which included $1.4 million of unused
engine reserves.
(d) Minority interests
Minority interests increased $7.7 million in 1999 when compared to 1998
primarily due to the $24.4 million gain on the sale of the Partnership's
aircraft of which the minority's share of the gain was $8.8 million. The
increase caused by the sale was offset in part, by a decrease of $2.2 million in
the minority's share of lease revenues, and a decrease of $1.1 million in the
minority's share of direct and indirect expenses during the year ended December
31, 1999 when compared to the same period of 1998, as it relates to the
minority's percentage of ownership in these interests.
(e) Interest and other income
Interest and other income decreased $0.5 million in 1999 due to lower average
cash balances available for investments when compared to the same period of
1998.
(f) 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):
For the Years
Ended December 31,
1999 1998
------------------------------
Mobile offshore drilling unit $ 271 $ 243
Marine containers 5 (20)
Aircraft (250) 7,841
Marine vessels (1,029) (1,599)
============= ============
Equity in net income (loss) of USPEs $ (1,003) $ 6,465
============= ============
Mobile offshore drilling unit: During 1999 and as of December 31, 1998, the
Partnership owned an interest in an entity that owned a mobile offshore drilling
unit. During the year ended December 31, 1999, lease revenues of $1.2 million
were offset by the loss of $0.3 million from the sale of this entity and
depreciation expense, direct expenses, and administrative expenses of $0.6
million. During the same period of 1998, lease revenues of $1.2 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$1.0 million. Direct expenses from this equipment decreased $0.3 million during
1999, when compared to the same period of 1998, due to lower depreciation
expense caused by the double-declining balance method of depreciation. The
double-declining balance method of depreciation results in greater depreciation
in the first years an asset is owned.
Marine containers: As of December 31, 1999 and 1998, the Partnership owned an
interest in an entity that owns marine containers. During the year ended
December 31, 1999, lease revenues of $0.5 million were offset by depreciation
expense, direct expenses, and administrative expenses of $0.4 million. During
the same period of 1998, 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. The
year ended December 31, 1999 represents a full year of lease revenues,
depreciation expense, direct expenses, and administrative expenses when compared
to four months of revenues and expenses during the same period of 1998.
Aircraft: As of December 31, 1999, the Partnership owned an interest in two
commercial aircraft on a direct finance lease and an interest in a Boeing
737-300 commercial aircraft. As of December 31, 1998, the Partnership owned an
interest in two commercial aircraft on a direct finance lease. During the year
ended December 31, 1999, revenues of $0.7 million were offset by depreciation
expense, direct expenses, and administrative expenses of $1.0 million. During
the same period of 1998, revenues of $1.8 million and the gain of $6.9 million
from the sale of an interest in a trust that held four commercial aircraft, were
offset by depreciation expense, direct expenses, and administrative expenses of
$0.8 million. The decrease in revenues of $1.0 million during the year ended
December 31, 1999, was due to the sale of the Partnership's investment in a
trust owning four commercial aircraft during 1998. The Partnership's investment
in a trust owning a Boeing 737-300 during 1999 did not generate any lease
revenues. The increase of $0.2 million in depreciation expense, direct expenses,
and administrative expenses was caused by the purchase of an interest in a
Boeing 737-300 during 1999.
Marine vessels: As of December 31, 1999, the Partnership owned an interest in
entities that own a total of three marine vessels. As of December 31, 1998, the
Partnership owned an interest in entities that own a total of two marine
vessels. During the year ended December 31, 1999, revenues of $1.6 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.7 million. During the same period of 1998, revenues of $1.5 million were
offset by depreciation expense, direct expenses, and administrative expenses of
$2.1 million and a loss on the revaluation of a marine vessel of $1.0 million.
The increase in lease revenues of $0.1 million was primarily due to the
September 30, 1999 Amendment which changed the accounting treatment of majority
held equipment from the consolidation method of accounting to the equity method
of accounting affected the lease revenues and direct expenses of one marine
vessel. The Amendment that caused lease revenues to increase $0.4 million for a
marine vessel was offset in part, by a decrease of $0.2 million earned on the
two other marine vessels due to lower lease rates.
The increase in depreciation expense, direct expenses, and administrative
expenses of $0.6 million was primarily due to the September 30, 1999 Amendment.
The Amendment caused depreciation expense, direct expenses, and administrative
expenses to increase $1.0 million for one marine vessel. The increase in these
expenses was offset in part, by a 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 $0.1 million during the year ended December
31, 1999, due to fewer repairs required when compared to the same period of
1998.
Additionally, there was no loss on the revaluation of marine vessels required
during the year ended December 31, 1999.
(g) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1999 was $6.0 million, compared to net income of $1.4 million
during the same period of 1998. The Partnership's ability to 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 year ended
December 31, 1999 is not necessarily indicative of future periods. In the year
ended December 31, 1999, the Partnership distributed $13.1 million to the
limited partners, or $1.60 per weighted-average limited partnership unit.
<PAGE>
(2) Comparison of the Partnership's Operating Results for the Years Ended
December 31, 1998 and 1997
(a) Owned Equipment Operations
Lease revenues less direct expenses (defined as repair and maintenance,
equipment operating, and asset-specific insurance expenses) on owned equipment
decreased during the year ended December 31, 1998, when compared to the same
period of 1997. 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 5 to
the audited financial statements), are not included in the owned equipment
operations 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 Years
Ended December 31,
1998 1997
----------------------------
Aircraft, aircraft engines, and components $ 7,907 $ 7,846
Marine vessels 4,640 2,705
Railcars 3,254 3,134
Trailers 2,478 2,890
Marine containers 911 1,668
Aircraft, aircraft engines, and components: Aircraft lease revenues and direct
expenses were $9.1 million and $1.2 million, respectively, for the year ended
December 31, 1998, compared to $8.5 million and $0.7 million, respectively,
during the same period of 1997. A decrease of $2.3 million in aircraft
contribution was due to the sale of a Stage II commercial aircraft during 1998
and the sale of a portfolio of aircraft engines and components during the fourth
quarter of 1997. The sale of this equipment was offset, in part, by an increase
in aircraft contribution of $2.7 million from the purchase of an MD-82 Stage III
commercial aircraft and a portfolio of aircraft rotable components during the
first quarter of 1998. The Partnership received additional lease revenues of
$0.2 million due to a rate increase on the 767-200ER commercial aircraft. Direct
expenses increased $0.5 million during the year ended December 31, 1998 when
compared to the same period of 1997 due to required repairs needed to the Boeing
737-200 that were not required during 1997.
Marine vessels: Marine vessel lease revenues and direct expenses were $10.7
million and $6.1 million, respectively, for the year ended December 31, 1998,
compared to $10.8 million and $8.1 million, respectively, during the same period
of 1997.
The decrease in marine vessel lease revenues of $0.1 million was caused by the
following events:
(i) the sale of two marine vessels during the fourth quarter of 1997 caused
lease revenues to decrease $4.2 million during 1998 when compared to the same
period of 1997;
(ii) two marine vessels ended their existing leases during 1998. These
marine vessels were re-leased during 1998 to a bareboat charter. Under a
bareboat charter, the lessee pays a lower lease rate and also pays for certain
operating expenses. As a result of the new lease arrangement at a lower rate,
lease revenues decreased $0.8 million;
(iii) the decrease in lease revenues caused by the above was offset in
part, by the purchase of an additional marine vessel during the second quarter
of 1998 that increased lease revenues $1.3 million;
(iv) lease revenues also increased $3.6 million due the Partnership's
purchase of a marine vessel during the fourth quarter of 1997, which was on
lease the full year of 1998 when compared to three months of 1997.
The decrease in marine vessel direct expenses of $2.0 million was caused by the
following events:
(i) the sale of the Partnership's two marine vessels during the fourth
quarter of 1997 caused direct expenses to decrease $3.2 million. These marine
vessels also received a $0.1 million loss-of-hire insurance refund during 1998
from Transportation Equipment Indemnity Company, Ltd., an affiliate of the
General Partner, due to lower claims from the insured Partnership and other
insured affiliated partnerships;
(ii) two marine vessels ended their existing leases during 1998. These
marine vessel were re-leased during 1998 on a bareboat charter. Under a bareboat
charter, the lessee pays for certain operating expenses, this lease arrangement
caused direct expenses to decrease $0.4 million;
(iii) the decrease in direct expenses caused by the above was offset in
part, by the purchase of an additional marine vessel during the second quarter
of 1998 that increased direct expenses $0.1 million;
(iv)direct expenses also increased $1.7 million due the Partnership's
purchase of a marine vessel during the fourth quarter of 1997, which was on
lease the full year of 1998 when compared to one quarter of 1997.
Railcars: Railcar lease revenues and direct expenses were $4.1 million and $0.9
million, respectively, for the year ended December 31, 1998 compared to $4.1
million and $1.0 million, respectively, during the same period of 1997. The
increase in railcar contribution was due to lower repairs required during 1998
when compared to the same period of 1997.
Trailers: Trailer lease revenues and direct expenses were $3.3 million and $0.8
million, respectively, for the year ended December 31, 1998, compared to $3.8
million and $0.9 million, respectively, during the same period of 1997. The
number of trailers owned by the Partnership has declined during 1998 and 1997
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 $0.9
million and $13,000, respectively, for the year ended December 31, 1998,
compared to $1.7 million and $13,000, respectively, during the same quarter of
1997. The number of containers has declined during 1998 and 1997 due to sales
and dispositions. The result of this declining fleet has been a decrease in
container contribution.
(b) Indirect Expenses Related to Owned Equipment Operations
Total indirect expenses of $30.9 million for the year ended December 31, 1998
increased from $23.4 million for the same period in 1997. Significant variances
are explained as follows:
(i) A $5.6 million increase in depreciation and amortization expenses from
1997 levels reflects the purchase of certain assets during 1998. This increase
was offset in part by the sale of certain equipment during 1998 and 1997 and use
of the double-declining balance method of depreciation which results in greater
depreciation in the first years an asset is owned.
(ii)Loss on revaluation of equipment increased $4.3 million during the year
ended December 31, 1998 and resulted from the Partnership reducing the carrying
value of marine containers and marine vessels to their estimated net realizable
value. No revaluation of equipment was required during 1997.
(iii)A $0.4 million decrease in interest expense was due to a lower average
debt balance on the short-term credit facility when compared to 1997.
(iv) A $0.5 million decrease in administrative expenses was due to lower
costs for professional services needed to collect past due receivables due from
certain nonperforming lessees.
(v)A $1.3 million decrease in the provision for bad debts was due to the
collection of $0.7 million from past due receivables during the year ended
December 31, 1998 that had previously been reserved for as a bad debt, and the
General Partner's evaluation of the collectibility of receivables due from
certain lessees.
<PAGE>
(c) Net Gain (Loss) on Disposition of Owned Equipment
The net gain on the disposition of owned equipment for the year ended December
31, 1998 totaled $6.3 million, and resulted from the sale of a commercial
aircraft, an aircraft engine, marine containers, trailers, and railcars, with an
aggregate net book value of $6.1 million, for $12.4 million, which included $1.4
million of unused engine reserves. The net gain on the disposition of equipment
for the year ended December 31, 1997 totaled $10.1 million, which resulted from
the sale of aircraft components, marine containers, and trailers, with an
aggregate net book value of $5.4 million, for proceeds of $7.2 million, and the
sale of two marine vessels with a net book value of $10.3 million for proceeds
of $17.8 million. Included in the gain of $8.3 million from the sale of the
marine vessels is the unused portion of accrued drydocking of $0.8 million.
(d) Minority interests
A $0.7 million increase in minority interest was due to an increase in lease
revenues of $2.0 million and direct and indirect expenses of $1.4 million during
1998 when compared to the same period of 1997, as it relates to the minority's
percentage of ownership in these interests.
(e) Interest and Other Income
Interest and other income increased $0.3 million due to higher average cash
balances available for investment throughout most of 1998 when compared to 1997.
(f) 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 Years
Ended December 31,
1998 1997
------------------------------
Aircraft $ 7,841 $ 3,866
Mobile offshore drilling unit 243 1
Marine containers (20) --
Marine vessels (1,599) (531)
------------- ------------
Equity in net income of USPEs $ 6,465 $ 3,336
============= ============
Aircraft: As of December 31, 1998, the Partnership owned an interest in a trust
that owns two commercial aircraft on a direct finance lease. As of December 31,
1997, the Partnership owned an interest in a trust that owns two commercial
aircraft on a direct finance lease and an interest in a trust that held four
commercial aircraft. During the year ended December 31, 1998, lease revenues of
$1.8 million and the gain of $6.9 million from the sale of an interest in the
trust that held four commercial aircraft, were offset by depreciation expense,
direct expenses, and administrative expenses of $0.8 million. During the same
period of 1997, lease revenues of $4.5 million and the gain of $3.4 million from
the sale of an interest in the trust that held six commercial aircraft, were
offset by depreciation expense, direct expenses, and administrative expenses of
$4.0 million. The decrease in lease revenues of $2.7 million during the year
ended December 31, 1998 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 interest in another trust owning six commercial aircraft during
the fourth quarter of 1997. Depreciation expense, direct expenses, and
administrative expenses decreased $3.2 million as a result of these sales.
Mobile offshore drilling unit: As of December 31, 1998 and 1997, the Partnership
owned an interest in a mobile offshore drilling unit. During the year ended
December 31, 1998, revenues of $1.2 million were offset by depreciation expense,
direct expenses, and administrative expenses of $1.0 million. During the same
period of 1997, revenues of $1.1 million were offset by depreciation expense,
direct expenses, and administrative expenses of $1.1 million. The contribution
from this equipment increased during 1998, when compared to the same period of
1997, due to a higher lease rate of $0.1 million earned on this equipment, and
lower depreciation expense of $0.2 million due to the double-declining balance
method of depreciation which results in greater depreciation in the first years
an asset is owned.
Marine containers: As of December 31, 1998, the Partnership owned an interest in
an entity that owns marine containers. During 1998, 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 the third quarter of 1998.
Marine vessels: As of December 31, 1998 and 1997, the Partnership owned an
interest in entities that owned two marine vessels. During the year ended
December 31, 1998, revenues of $1.5 million were offset by depreciation expense,
direct expenses, and administrative expenses of $2.1 million and a loss on the
revaluation of a marine vessel of $1.0 million. During the same period of 1997,
revenues of $1.9 million were offset by depreciation expense, direct expenses,
and administrative expenses of $2.4 million. Marine vessel revenues decreased
$0.4 million during the year ended 1998 due to lower lease rates earned when
compared to the same period of 1997. Depreciation expense decreased $0.2 million
during the year ended December 31, 1998 due to the double-declining balance
method of depreciation which results in greater depreciation in the first years
an asset is owned, and lower direct expenses when compared to the same period of
1997. Direct expense decreased $0.1 million during the year ended 1998 due to
lower required repairs and maintenance when compared to the same period of 1997.
Loss on revaluation of equipment of $1.0 million during the year ended December
31, 1998 resulted from the Partnership reducing the carrying value of its
interest in an entity owning a marine vessel to its estimated net realizable
value. No revaluation in the carrying value of interests in marine vessels was
required during 1997.
(g) Net Income
As a result of the foregoing, the Partnership's net income for the year ended
December 31, 1998 was $1.4 million, compared to a net income of $9.2 million
during the same period of 1997. 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 during the
year ended December 31, 1998 is not necessarily indicative of future periods. In
the year ended December 31, 1998, the Partnership distributed $14.4 million to
the limited partners, or $1.76 per weighted-average limited partnership unit.
(E) Geographic Information
Certain of the Partnership equipment operates in international markets. Although
these operations expose the Partnership to certain currency, political, credit
and economic risks, the General Partner believes that these risks are minimal or
has implemented strategies to control the risks. Currency risks are at a minimum
because all invoicing, with the exception of a small number of railcars
operating in Canada, is conducted in U.S. dollars. Political risks are minimized
by avoiding operations in countries that do not have a stable judicial system
and established commercial business laws. Credit support strategies for lessees
range from letters of credit supported by U.S. banks to cash deposits. Although
these credit support mechanisms generally allow the Partnership to maintain its
lease yield, there are risks associated with slow-to-respond judicial systems
when legal remedies are required to secure payment or repossess equipment.
Economic risks are inherent in all international markets and the General Partner
strives to minimize this risk with market analysis prior to committing equipment
to a particular geographic area. Refer to Note 6 to the audited financial
statements, for information on the lease revenues, net income (loss), and net
book value of equipment in various geographic regions.
Revenues and net operating income (loss) by geographic region are impacted by
the time period the asset is owned and the useful life ascribed to the asset for
depreciation purposes. Net income (loss) from equipment is significantly
impacted by depreciation charges, which are greatest in the early years of
ownership due to the use of the double-declining balance method of depreciation.
The relationships of geographic revenues, net income (loss), and net book value
of equipment are expected to change significantly in the future, as assets come
off lease and decisions are made either to redeploy the assets in the most
advantageous geographic location or sell the assets.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to U.S.- domiciled lessees consist of aircraft, trailers and railcars.
During 1999, U.S. lease revenues accounted for 31% of the total lease revenues
of wholly- and partially-owned equipment, while this region reported a net loss
of $0.9 million compared to the Partnership's net income of $6.0 million.
The Partnership's owned equipment on lease to Canadian-domiciled lessees consist
of railcars. During 1999, Canadian lease revenues accounted for 4% of the total
lease revenues of wholly- and partially-owned equipment, while net income
accounted for $0.4 million of the Partnership's net income of $6.0 million.
The Partnership's investment in an aircraft on lease to a South
American-domiciled lessee during 1999 accounted for 6% of the total lease
revenues of wholly- and partially-owned equipment. South American operations
accounted for $15.5 million of the Partnership's net income of $6.0 million. The
primary reason for this relationship is the gain of $24.4 million realized from
the sale of the asset in this geographic region of which the Partnership's
proportional share was $15.6 million after deducting the minority's interest
share.
The Partnership's owned equipment that was on lease to lessees domiciled in
Europe consists of a portfolio of aircraft rotables. Lease revenues in this
region accounted for 1% of the total lease revenues of wholly- and
partially-owned equipment and recorded a net income of $23,000 when compared to
the Partnership's net income of $6.0 million.
The Partnership's owned equipment that was on lease to lessees domiciled in
India consists of aircraft. Lease revenues in this region accounted for less
than 1% of the total lease revenues of wholly- and partially-owned equipment and
recorded a net loss of $1.8 million when compared to the Partnership's net
income of $6.0 million.
The Partnership's owned equipment and investments in equipment owned by USPEs on
lease to lessees in the rest of the world consists of marine vessels, a rig that
was sold during 1999, and marine containers. During 1999, lease revenues from
these operations accounted for 57% of the total lease revenues of wholly- and
partially-owned equipment, while reporting a net loss from these operations of
$5.0 million compared to the Partnership's net income of $6.0 million. The
primary reason for this relationship is that the Partnership recorded a loss on
the revaluation of owned marine vessels for $3.6 million.
(F) Effects of Year 2000
As of March 27, 2000, the Partnership has not experienced any material Year 2000
(Y2K) issues with either its internally developed software or purchased
software. In addition, to date, the Partnership has not been impacted by any Y2K
problems that may have impacted our customers and suppliers. The amount
allocated to the Partnership by the General Partner related to Y2K issues has
not been material. The General Partner continues to monitor its systems for any
potential Y2K issues.
(G) Inflation
Inflation had no significant impact on the Partnership's operations during 1999,
1998, or 1997.
(H) Forward-Looking Information
Except for historical information contained herein, the discussion in this Form
10-K 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-K should be read as
being applicable to all related forward-looking statements wherever they appear
in this Form 10-K. The Partnership's actual results could differ materially from
those discussed here.
(I) 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.
The Partnership's operation of a diversified equipment portfolio in a broad base
of markets is intended to reduce its exposure to volatility in individual
equipment sectors.
The ability of the Partnership to realize acceptable lease rates on its
equipment in the different equipment markets is contingent on many factors, such
as specific market conditions and economic activity, technological obsolescence,
and government or other regulations. The unpredictability of these factors makes
it difficult for the General Partner to clearly define trends or influences that
may impact the performance of the Partnership's equipment. The General Partner
continuously monitors both the equipment markets and the performance of the
Partnership's equipment in these markets. The General Partner may make an
evaluation to reduce the Partnership's exposure to equipment markets in which it
determines that it cannot operate equipment and achieve acceptable rates of
return.
The Partnership intends to use cash flow from operations to satisfy its
operating requirements, pay principal and interest on debt, and pay cash
distributions to the partners.
Other factors affecting the Partnership's contribution during the year 2000 and
beyond include:
(i) The Partnership is experiencing difficulty in re-leasing its older aircraft.
(ii) A worldwide increase in marine containers available to lease has led to
declining lease rates for this equipment.
(iii) Depressed economic conditions in Asia during most of 1999 have led to
declining freight rates for dry bulk marine vessels. As Asia begins its economic
recovery and in the absence of new additional orders, this market is expected to
stabilize and improve over the next 1-2 years.
(iv) 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.
(v) Railcar loading in North America have continued to be high, however a
softening in the market is expected which may lead to lower utilization and
lower contribution to the Partnership as existing leases expire and renewal
leases are negotiated.
Several other factors may affect the Partnership's operating performance in the
year 2000 and beyond, including changes in the markets for the Partnership's
equipment and changes in the regulatory environment in which that equipment
operates.
(1) Repricing Risk
Certain portions of the Partnership's aircraft, railcar, marine container,
marine vessel, and trailer portfolios will be remarketed in 2000 as existing
leases expire, exposing the Partnership to considerable repricing
risk/opportunity. Additionally, the General Partner may select to sell certain
underperforming equipment or equipment whose continued operation may become
prohibitively expensive. In either case, the General Partner intends to re-lease
or sell equipment at prevailing market rates; however, the General Partner
cannot predict these future rates with any certainty at this time and cannot
accurately assess the effect of such activity on future Partnership performance.
(2) Impact of Government Regulations on Future Operations
The General Partner operates the Partnership's equipment in accordance with
current applicable regulations (see Item 1, Section E, Government Regulations).
However, the continuing implementation of new or modified regulations by some of
the authorities mentioned previously, or others, may adversely affect the
Partnership's ability to continue to own or operate equipment in its portfolio.
Additionally, regulatory systems vary from country to country, which may
increase the burden to the Partnership of meeting regulatory compliance for the
same equipment operated between countries. Currently, the General Partner has
observed rising insurance costs to operate certain vessels into U.S. ports
resulting from implementation of the U.S. Oil Pollution Act of 1990. Ongoing
changes in the regulatory environment, both in the U.S. and internationally,
cannot be predicted with any accuracy and preclude the General Partner from
determining the impact of such changes on Partnership operations, purchases, or
sale of equipment. Under U.S. Federal Aviation Regulations, after December 31,
1999, no person may operate an aircraft to or from any airport in the contiguous
U.S. unless that aircraft has been shown to comply with Stage III noise levels.
The Partnership has a Stage II aircraft that does not meet Stage III
requirements. This Stage II aircraft is scheduled to be sold or re-leased in a
country that does not require this regulation. The U.S. Federal Railroad
Administration has mandated that effective July 1, 2000, all jacketed and
non-jacketed tank railcars must be re-qualified to insure tank shell integrity.
Tank shell thickness, weld seams, and weld attachments must be inspected and
repaired if necessary to re-qualify a tank railcar for service. The average cost
of this inspection is $1,800 for non-jacketed tank railcars and $3,600 for
jacketed tank railcars, not including any necessary repairs. This inspection is
to be performed at the next scheduled tank test.
(J) Distribution Levels
Pursuant to the limited partnership agreement, the Partnership stopped
reinvesting in additional equipment beginning in its seventh year of operation,
which commenced on January 1, 2000. The General Partner intends to pursue a
strategy of selectively re-leasing equipment to achieve competitive returns, or
selling equipment that is underperforming or whose operation becomes
prohibitively expensive, in the period prior to the final liquidation of the
Partnership. During this time, the Partnership will use operating cash flow and
proceeds from the sale of equipment to meet its operating obligations and make
distributions to the partners. Although the General Partner intends to maintain
a sustainable level of distributions prior to final liquidation of the
Partnership, actual Partnership performance and other considerations may require
adjustments to then-existing distribution levels. In the long term, changing
market conditions and used-equipment values may preclude the General Partner
from accurately determining the impact of future re-leasing activity and
equipment sales on Partnership performance and liquidity. Consequently, the
General Partner cannot establish future distribution levels with any certainty
at this time.
The General Partner will evaluate the level of distributions the Partnership can
sustain over extended periods of time and, together with other considerations,
may adjust the level of distributions accordingly. In the long term, the
difficulty in predicting market conditions precludes the General Partner from
accurately determining the impact of changing market conditions on liquidity or
distribution levels.
The Partnership's permanent debt obligation begins to mature in November 2001.
The General Partner believes that sufficient cash flow will be available in the
future for repayment of debt.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's primary market risk exposure is that of currency devaluation
risk. During 1999, 69% 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the Partnership are listed in the Index to
Financial Statements included in Item 14(a) of this Annual Report on Form 10-K
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(This space intentionally left blank)
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF PLM INTERNATIONAL AND PLM
FINANCIAL SERVICES, INC.
As of the date of this annual report, the directors and executive officers of
PLM International and of PLM Financial Services, Inc. (and key executive
officers of its subsidiaries) are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------------- ------- ------------------------------------------------------------------
<S> <C> <C>
Robert N. Tidball 61 Chairman of the Board, Director, President, and Chief Executive
Officer, PLM International, Inc.;
Director, PLM Financial Services, Inc.;
Vice President, PLM Railcar Management Services, Inc.;
President, PLM Worldwide Management Services Ltd.
Randall L.-W. Caudill 52 Director, PLM International, Inc.
Douglas P. Goodrich 53 Director and Senior Vice President, PLM International, Inc.;
Director and President, PLM Financial Services, Inc.; President,
PLM Transportation Equipment Corporation; President, PLM Railcar
Management Services, Inc.
Warren G. Lichtenstein 34 Director, PLM International, Inc.
Howard M. Lorber 51 Director, PLM International, Inc.
Harold R. Somerset 64 Director, PLM International, Inc.
Robert L. Witt 59 Director, PLM International, Inc.
Robin L. Austin 53 Vice President, Human Resources, PLM International, Inc. and PLM
Financial Services, Inc.
Stephen M. Bess 53 President, PLM Investment Management, Inc.; Vice President and
Director, PLM Financial Services, Inc.
Richard K Brock 37 Vice President and Chief Financial Officer, PLM International,
Inc. and PLM Financial Services, Inc.
Susan C. Santo 37 Vice President, Secretary, and General Counsel, PLM
International, Inc. and PLM Financial Services, Inc.
</TABLE>
Robert N. Tidball was appointed Chairman of the Board in August 1997 and
President and Chief Executive Officer of PLM International in March 1989. At the
time of his appointment as President and Chief Executive Officer, he was
Executive Vice President of PLM International. Mr. Tidball became a director of
PLM International in April 1989. Mr. Tidball was appointed a Director of PLM
Financial Services, Inc. in July 1997 and was elected President of PLM Worldwide
Management Services Limited in February 1998. He has served as an officer of PLM
Railcar Management Services, Inc. since June 1987. Mr. Tidball was Executive
Vice President of Hunter Keith, Inc., a Minneapolis-based investment banking
firm, from March 1984 to January 1986. Prior to Hunter Keith, he was Vice
President, General Manager, and Director of North American Car Corporation and a
director of the American Railcar Institute and the Railway Supply Association.
Randall L.-W. Caudill was elected to the Board of Directors in September 1997.
He is President of Dunsford Hill Capital Partners, a San Francisco-based
financial consulting firm serving emerging growth companies. Prior to founding
Dunsford Hill Capital Partners, Mr. Caudill held senior investment banking
positions at Prudential Securities, Morgan Grenfell Inc., and The First Boston
Corporation. Mr. Caudill also serves as a director of Northwest Biotherapeutics,
Inc., VaxGen, Inc., SBE, Inc., and RamGen, Inc.
Douglas P. Goodrich was elected to the Board of Directors in July 1996,
appointed Senior Vice President of PLM International in March 1994, and
appointed Director and President of PLM Financial Services, Inc. in June 1996.
Mr. Goodrich has also served as Senior Vice President of PLM Transportation
Equipment Corporation since July 1989 and as President of PLM Railcar Management
Services, Inc. since September 1992, having been a Senior Vice President since
June 1987. Mr. Goodrich was an executive vice president of G.I.C. Financial
Services Corporation of Chicago, Illinois, a subsidiary of Guardian Industries
Corporation, from December 1980 to September 1985.
Warren G. Lichtenstein was elected to the Board of Directors in December 1998.
Mr. Lichtenstein is the Chief Executive Officer of Steel Partners II, L.P.,
which is PLM International's largest shareholder, currently owning 16% of the
Company's common stock. Additionally, Mr. Lichtenstein is Chairman of the Board
of Aydin Corporation, a NYSE-listed defense electronics concern, as well as a
director of Gateway Industries, Rose's Holdings, Inc., and Saratoga Beverage
Group, Inc. Mr. Lichtenstein is a graduate of the University of Pennsylvania,
where he received a Bachelor of Arts degree in economics.
Howard M. Lorber was elected to the Board of Directors in January 1999. Mr.
Lorber is President and Chief Operating Officer of New Valley Corporation, an
investment banking and real estate concern. He is also Chairman of the Board and
Chief Executive Officer of Nathan's Famous, Inc., a fast food company.
Additionally, Mr. Lorber is a director of United Capital Corporation and Prime
Hospitality Corporation and serves on the boards of several community service
organizations. He is a graduate of Long Island University, where he received a
Bachelor of Arts degree and a Masters degree in taxation. Mr. Lorber also
received charter life underwriter and chartered financial consultant degrees
from the American College in Bryn Mawr, Pennsylvania. He is a trustee of Long
Island University and a member of the Corporation of Babson College.
Harold R. Somerset was elected to the Board of Directors of PLM International in
July 1994. From February 1988 to December 1993, Mr. Somerset was President and
Chief Executive Officer of California & Hawaiian Sugar Corporation (C&H Sugar),
a subsidiary of Alexander & Baldwin, Inc. Mr. Somerset joined C&H Sugar in 1984
as Executive Vice President and Chief Operating Officer, having served on its
Board of Directors since 1978. Between 1972 and 1984, Mr. Somerset served in
various capacities with Alexander & Baldwin, Inc., a publicly held land and
agriculture company headquartered in Honolulu, Hawaii, including Executive Vice
President of Agriculture and Vice President and General Counsel. Mr. Somerset
holds a law degree from Harvard Law School as well as a degree in civil
engineering from the Rensselaer Polytechnic Institute and a degree in marine
engineering from the U.S. Naval Academy. Mr. Somerset also serves on the boards
of directors for various other companies and organizations, including Longs Drug
Stores, Inc., a publicly held company.
Robert L. Witt was elected to the Board of Directors in June 1997. Since 1993,
Mr. Witt has been a principal with WWS Associates, a consulting and investment
group specializing in start-up situations and private organizations about to go
public. Prior to that, he was Chief Executive Officer and Chairman of the Board
of Hexcel Corporation, an international advanced materials company with sales
primarily in the aerospace, transportation, and general industrial markets. Mr.
Witt also serves on the boards of directors for various other companies and
organizations.
Robin L. Austin became Vice President, Human Resources of PLM Financial
Services, Inc. in 1984, having served in various capacities with PLM Investment
Management, Inc., including Director of Operations, from February 1980 to March
1984. From June 1970 to September 1978, Ms. Austin served on active duty in the
United States Marine Corps and served in the United States Marine Corp Reserves
from 1978 to 1998. She retired as a Colonel of the United States Marine Corps
Reserves in 1998. Ms. Austin has served on the Board of Directors of the
Marines' Memorial Club and is currently on the Board of Directors of the
International Diplomacy Council.
Stephen M. Bess was appointed a Director of PLM Financial Services, Inc. in July
1997. Mr. Bess was appointed President of PLM Investment Management, Inc. in
August 1989, having served as Senior Vice President of PLM Investment
Management, Inc. beginning in February 1984 and as Corporate Controller of PLM
Financial Services, Inc. beginning in October 1983. Mr. Bess served as Corporate
Controller of PLM, Inc. beginning in December 1982. Mr. Bess was Vice
President-Controller of Trans Ocean Leasing Corporation, a container leasing
company, from November 1978 to November 1982, and Group Finance Manager with the
Field Operations Group of Memorex Corporation, a manufacturer of computer
peripheral equipment, from October 1975 to November 1978.
Richard K Brock was appointed Vice President and Chief Financial Officer of PLM
International and PLM Financial Services, Inc. in January 2000, after having
served as Acting CFO since June 1999. Mr. Brock served as Corporate Controller
of PLM International and PLM Financial Services, Inc. beginning in June 1997, as
Director of Planning and General Accounting beginning in February 1994, and as
an accounting manager beginning in September 1991. Mr. Brock was a division
controller of Learning Tree International, a technical education company, from
February 1988 through July 1991.
Susan C. Santo became Vice President, Secretary, and General Counsel of PLM
International and PLM Financial Services, Inc. in November 1997. She has worked
as an attorney for PLM International since 1990 and served as its Senior
Attorney since 1994. Previously, Ms. Santo was engaged in the private practice
of law in San Francisco. Ms. Santo received her J.D. from the University of
California, Hastings College of the Law.
The directors of PLM International, Inc. are elected for a three-year term and
the directors of PLM Financial Services, Inc. are elected for a one-year term or
until their successors are elected and qualified. No family relationships exist
between any director or executive officer of PLM International Inc. or PLM
Financial Services, Inc., PLM Transportation Equipment Corp., or PLM Investment
Management, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no directors, officers, or employees. The Partnership had no
pension, profit sharing, retirement, or similar benefit plan in effect as of
December 31, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) Security Ownership of Certain Beneficial Owners
The General Partner is generally entitled to a 5% interest in the
profits and losses (subject to certain allocations of income), cash
available for distributions, and net disposition proceeds of the
Partnership. As of December 31, 1999, no investor was known by the
General Partner to beneficially own more than 5% of the limited
partnership units of the Partnership.
(B) Security Ownership of Management
Neither the General Partner and its affiliates nor any executive
officer or director of the General Partner and its affiliates owned
any limited partnership units of the Partnership as of December 31,
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) Transactions with Management and Others
During 1999, the Partnership paid or accrued the following fees to
FSI or its affiliates: management fees, $1.3 million; equipment
acquisition fees, $0.3 million; lease negotiation fees, $0.1 million,
and administrative and data processing services performed on behalf
of the Partnership, $0.9 million.
During 1999, the Partnership's proportional share of ownership in
USPEs paid or accrued the following fees to FSI or its affiliates
(based on the Partnership's proportional share of ownership):
management fees, $0.2 million; administrative and data processing
services, $43,000; and equipment acquisition fees, $0.1 million.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) 1.Financial Statements
The financial statements listed in the accompanying Index to
Financial Statements are filed as part of this Annual Report on Form
10-K.
(B) Reports on Form 8-K
None.
(C) Exhibits
4. Limited Partnership Agreement of Partnership. Incorporated by
reference to the Partnership's Registration Statement on Form S-1
(Reg. No. 33-40093) which became effective with the Securities and
Exchange Commission on December 23, 1991.
10.1 Management Agreement between Partnership and PLM Investment
Management, Inc. incorporated by reference to the Partnership's
Registration Statement on Form S-1 (Reg. No. 33-40093) which became
effective with the Securities and Exchange Commission on December 23,
1991.
10.2 Note Agreement, dated as of August 1, 1993, regarding $30.0 million
in 6.7% senior notes due November 17, 2003, incorporated by reference
to the Partnership's Annual Report on Form 10-K dated December 31,
1993 filed with the Securities and Exchange Commission on March 25,
1994.
10.3 Fourth Amended and Restated Warehousing Credit Agreement, dated as of
December 15, 1998, with First Union National Bank of North Carolina
incorporated by reference the Partnership's Annual Report on Form
10-K/A dated December 31, 1998 filed with the Securities and Exchange
Commission on January 5, 2000.
10.4 First amendment to the Fourth Amended and Restated Warehouse
Credit Agreement dated December 10, 1999.
24. Powers of Attorney.
(This space intentionally left blank.)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Partnership has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
The Partnership has no directors or officers. The General Partner has signed on
behalf of the Partnership by duly authorized officers.
Dated: March 27, 2000 PLM EQUIPMENT GROWTH FUND VI
PARTNERSHIP
By: PLM Financial Services, Inc.
General Partner
By: /s/ Douglas P. Goodrich
Douglas P. Goodrich
President and Director
By: /s/ Richard K Brock
Richard K Brock
Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following directors of the Partnership's General
Partner on the dates indicated.
Name Capacity Date
*_______________________
Robert N. Tidball Director, FSI March 27, 2000
*_______________________
Douglas P. Goodrich Director, FSI March 27, 2000
*_______________________
Stephen M. Bess Director, FSI March 27, 2000
*Susan C. Santo, by signing her name hereto, does sign this document on behalf
of the persons indicated above pursuant to powers of attorney duly executed by
such persons and filed with the Securities and Exchange Commission.
/s/ Susan C. Santo
Susan C. Santo
Attorney-in-Fact
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
INDEX TO FINANCIAL STATEMENTS
(Item 14(a))
Page
Independent auditors' report 33
Balance sheets as of December 31, 1999 and 1998 34
Statements of income for the years ended
December 31, 1999, 1998, and 1997 35
Statements of changes in partners' capital for the
years ended December 31, 1999, 1998, and 1997 36
Statements of cash flows for the years ended
December 31, 1999, 1998, and 1997 37
Notes to financial statements 38-50
All other financial statement schedules have been omitted, as the required
information is not pertinent to the registrant or is not material, or because
the information required is included in the financial statements and notes
thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
PLM Equipment Growth Fund VI:
We have audited the accompanying financial statements of PLM Equipment Growth
Fund VI (the Partnership), as listed in the accompanying index to financial
statements. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PLM Equipment Growth Fund VI as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
March 12, 2000
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
BALANCE SHEETS
December 31,
(in thousands of dollars, except unit amounts)
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
Assets
<S> <C> <C>
Equipment held for operating leases $ 85,318 $ 153,206
Less accumulated depreciation (39,250) (73,704)
-----------------------------------
Net equipment 46,068 79,502
Cash and cash equivalents 2,486 2,558
Restricted cash 183 1,416
Accounts receivable, less allowance for doubtful accounts of
$2,416 in 1999 and $1,930 in 1998 1,397 5,186
Investments in unconsolidated special-purpose entities 27,736 14,200
Net investment in direct finance lease -- 41
Lease negotiation fees to affiliate, less accumulated
amortization of $175 in 1999 and $302 in 1998 156 369
Debt issuance costs, less accumulated amortization
of $91 in 1999 and $76 in 1998 61 76
Debt placement fees to affiliate, less accumulated
amortization of $89 in 1999 and $74 in 1998 59 74
Prepaid expenses and other assets 58 181
Equipment acquisition deposits -- 667
-----------------------------------
Total assets $ 78,204 $ 104,270
===================================
Liabilities, minority interests, and partners' capital
Liabilities
Accounts payable and accrued expenses $ 2,106 $ 1,302
Due to affiliates 342 444
Lessee deposits and reserve for repairs 735 6,276
Note payable 30,000 30,000
-----------------------------------
Total liabilities 33,183 38,022
-----------------------------------
Minority interests -- 13,294
Partners' capital
Limited partners (limited partnership units of 8,191,718 and
8,206,339 as of December 31, 1999 and 1998, respectively) 45,021 52,954
General Partner -- --
-----------------------------------
Total partners' capital 45,021 52,954
-----------------------------------
Total liabilities, minority interests, and partners' capital $ 78,204 $ 104,270
===================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF INCOME
For the Years Ended December 31,
(In thousands of dollars, except weighted-average unit amounts)
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------
Revenues
<S> <C> <C> <C>
Lease revenue $ 23,988 $ 28,122 $ 28,943
Interest and other income 270 765 512
Net gain on disposition of equipment 25,951 6,253 10,121
------------------------------------------------
Total revenues 50,209 35,140 39,576
------------------------------------------------
Expenses
Depreciation and amortization 17,001 21,085 15,521
Repairs and maintenance 4,183 5,114 5,035
Equipment operating expenses 3,974 3,507 4,077
Insurance expense to affiliate -- (231) 250
Other insurance expenses 642 605 1,388
Management fees to affiliate 1,261 1,538 1,555
Interest expense 2,108 2,061 2,434
General and administrative expenses
to affiliates 850 1,007 925
Other general and administrative expenses 1,084 1,046 1,646
Loss on revaluation of equipment 3,567 4,276 --
Provision for (recovery of) bad debts 591 (75) 1,273
------------------------------------------------
Total expenses 35,261 39,933 34,104
------------------------------------------------
Minority interests (7,949) (227) 424
Equity in net income (loss) of unconsolidated
special-purpose entities (1,003) 6,465 3,336
-----------------------------------------------
Net income $ 5,996 $ 1,445 9,232
================================================
Partners' share of net income
Limited partners $ 5,305 $ 666 $ 8,363
General Partner 691 779 869
------------------------------------------------
Total $ 5,996 $ 1,445 $ 9,232
================================================
Net income per weighted-average limited
partnership unit $ 0.65 $ 0.08 $ 1.01
================================================
Cash distribution $ 13,806 $ 15,226 $ 17,384
================================================
Cash distribution per weighted-average
limited partnership unit $ 1.60 $ 1.76 $ 2.00
================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
For the Years Ended December 31, 1999, 1998, and 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
-----------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 $ 75,790 $ -- $ 75,790
Net income 8,363 869 9,232
Purchase of limited partnership units (486) -- (486)
Cash distribution (16,515) (869) (17,384)
-----------------------------------------------------
Partners' capital as of December 31, 1997 67,152 -- 67,152
Net income 666 779 1,445
Purchase 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 5,305 691 5,996
Purchase of limited partnership units (123) -- (123)
Cash distribution (13,115) (691) (13,806)
-----------------------------------------------------
Partners' capital as of December 31, 1999 $ 45,021 $ -- $ 45,021
=====================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 5,996 $ 1,445 $ 9,232
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 17,001 21,085 15,521
Loss on revaluation of equipment 3,567 4,276 --
Net gain on disposition of equipment (25,951) (6,253) (10,121)
Equity in net income from unconsolidated special-purpose
entities 1,003 (6,465) (3,336)
Changes in operating assets and liabilities:
Restricted cash 1,233 (624) 494
Accounts receivable, net 3,237 (1,316) 500
Prepaid expenses and other assets (79) 91 (20)
Accounts payable and accrued expenses 85 283 (34)
Due to affiliates (70) (430) (1,325)
Lessee deposits and reserve for repairs (1,232) 863 1,084
Minority interests 1,268 (2,099) 8,800
-----------------------------------------
Net cash (used in) provided by operating activities 6,058 10,856 20,795
-----------------------------------------
Investing activities
Payments for purchase of equipment and capitalized repairs (42,883) (31,739) (19,128)
Investments in and equipment purchased and placed in
unconsolidated special-purpose entities (147) (3,778) --
Distribution from unconsolidated special-purpose entities 2,318 3,425 4,204
Distribution from liquidation of unconsolidated special-purpose
entities 3,504 16,679 1,735
Payments of acquisition fees to affiliate (825) (1,486) (857)
Payments for equipment acquisition deposits -- (668) (1,335)
Principal payments received on direct finance lease 60 102 101
Payments of lease negotiation fees to affiliate (67) (330) (190)
Proceeds from disposition of equipment 45,839 10,936 25,017
-----------------------------------------
Net cash provided by (used in) investing activities 7,799 (6,859) 9,547
-----------------------------------------
Financing activities
Proceeds from short-term note payable 4,712 -- 10,551
Payments of short-term note payable (4,712) -- (11,837)
Proceeds from short-term loan from affiliate 400 -- 10,001
Payment of short-term loan to affiliate (400) -- (10,001)
Cash distribution paid to limited partners (13,115) (14,447) (16,515)
Cash distribution paid to General Partner (691) (779) (869)
Purchase of limited partnership units (123) (417) (486)
-----------------------------------------
Net cash used in financing activities (13,929) (15,643) (19,156)
-----------------------------------------
Net (decrease) increase in cash and cash equivalents (72) (11,646) 11,186
Cash and cash equivalents at beginning of year 2,558 14,204 3,018
-----------------------------------------
Cash and cash equivalents at end of year $ 2,486 $ 2,558 $ 14,204
=========================================
Supplemental information
Interest paid $ 2,108 $ 2,018 $ 2,297
=========================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation
Organization
PLM Equipment Growth Fund VI, a California limited partnership (the
Partnership), was formed on April 17, 1991 to engage in the business of owning,
leasing or otherwise investing in primarily used transportation and related
equipment. PLM Financial Services, Inc. (FSI) is the General Partner of the
Partnership. FSI is a wholly-owned subsidiary of PLM International, Inc. (PLM
International).
Beginning in the Partnership's seventh year of operations, which commenced on
January 1, 2000, 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 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.
FSI manages the affairs of the Partnership. Cash distributions of the
Partnership are generally allocated 95% to the limited partners and 5% to the
General Partner. Net income is allocated to the General Partner to the extent
necessary to cause the General Partner's capital account to equal zero. The
General Partner is also entitled to receive a subordinated incentive fee after
the limited partners receive a minimum return on, and a return of, their
invested capital.
The General Partner has determined that it will not adopt a reinvestment plan
for the Partnership. Beginning November 24, 1995, if the number of units made
available for purchase by limited partners in any calendar year exceeds the
number that can be purchased with reinvestment plan proceeds, then the
Partnership may redeem up to 2% of the outstanding units each year, subject to
certain terms and conditions. The purchase price to be offered by the
Partnership for these units will be equal to 110% of the unrecovered principal
attributable to the units. The unrecovered principal for any unit will be equal
to the excess of (i) the capital contribution attributable to the unit over (ii)
the distributions from any source paid with respect to the units. For the years
ended December 31, 1999, 1998 and 1997, the Partnership had repurchased 14,621,
40,925, and 39,702 limited partnership units for $0.1 million, $0.4 million and
$0.5 million, respectively.
As of December 31, 1999, the Partnership agreed to repurchase approximately
4,000 units for an aggregate price of approximately $30,400. The General Partner
anticipates that these units will be repurchased in the first and second
quarters of 2000. In addition to these units, the General Partner may purchase
additional units on behalf of the Partnership in the future.
These financial statements have been prepared on the accrual basis of accounting
in accordance with generally accepted accounting principles. This requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Operations
The equipment of the Partnership is managed, under a continuing management
agreement, by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary
of FSI. IMI receives a monthly management fee from the Partnership for managing
the equipment (see Note 2). FSI, in conjunction with its subsidiaries, sells
equipment to investor programs and third parties, manages pools of
transportation equipment under agreements with investor programs, and is a
general partner of other programs.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Accounting for Leases
The Partnership's leasing operations generally consist of operating leases.
Under the operating lease method of accounting, the leased asset is recorded at
cost and depreciated over its estimated useful life. Rental payments are
recorded as revenue over the lease term as earned in accordance with Statement
of Financial Accounting Standards No. 13, "Accounting for Leases" (SFAS 13).
Lease origination costs are capitalized and amortized over the term of the
lease. Periodically, the Partnership leases equipment with lease terms that
qualify for direct finance lease classification, as required by SFAS 13.
Depreciation and Amortization
Depreciation of transportation equipment held for operating leases is computed
on the double-declining balance method, taking a full month's depreciation in
the month of acquisition, based upon estimated useful lives of 15 years for
railcars and 12 years for all other equipment. The depreciation method is
changed to straight line when annual depreciation expense using the
straight-line method exceeds that calculated by the double-declining balance
method. Acquisition fees and certain other acquisition costs have been
capitalized as part of the cost of the equipment. Lease negotiation fees are
amortized over the initial equipment lease term. Debt issuance costs and debt
placement fees are amortized over the term of the loan (see Note 7). Major
expenditures that are expected to extend the useful lives or reduce future
operating expenses of equipment are capitalized and amortized over the estimated
remaining life of the equipment.
Transportation Equipment
In accordance with the Financial Accounting Standards Board's Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" (SFAS 121), the General Partner reviews the carrying value of
the Partnership's equipment at least quarterly, and whenever circumstances
indicate that the carrying value of an asset may not be recoverable in relation
to expected future market conditions, for the purpose of assessing
recoverability of the recorded amounts. If projected undiscounted future cash
flows and the fair market value of the equipment are less than the carrying
value of the equipment, a loss on revaluation is recorded. Reductions of $3.6
million to the carrying value of owned equipment were required during 1999.
Reductions of $4.3 million and $1.0 million to the carrying value of owned
equipment and partially owned equipment, respectively, were required during
1998. No reductions to the carrying value of equipment were required during
1997.
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121.
Investments in Unconsolidated Special-Purpose Entities
The Partnership has interests in unconsolidated special-purpose entities (USPEs)
that own transportation equipment. The Partnership owns a majority interest in
two such entities. Prior to September 30, 1999, the Partnership controlled the
management of these entities and thus they were consolidated into the
Partnership's financial statements. On September 30, 1999, the corporate-by-laws
of these entities were changed to require a unanimous vote by all owners on
major business decisions. Thus, from September 30, 1999 forward, the Partnership
no longer controlled the management of these entities, and the accounting method
for the entities was changed from the consolidation method to the equity method.
The Partnership's investment in USPEs includes acquisition and lease negotiation
fees paid by the Partnership to PLM Transportation Equipment Corporation (TEC)
and PLM Worldwide Management Services (WMS). TEC is a wholly-owned subsidiary of
FSI and WMS is a wholly-owned subsidiary of PLM International. The Partnership's
interest in USPEs are managed by IMI. The Partnership's equity interest in the
net income (loss) of USPEs is reflected net of management fees paid or payable
to IMI and the amortization of acquisition and lease negotiation fees paid to
TEC or WMS.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Repairs and Maintenance
Repair and maintenance costs related to marine vessels, railcars, and trailers
are usually the obligation of the Partnership and are accrued as incurred. Costs
associated with marine vessel dry-docking are estimated and accrued ratably over
the period prior to such dry-docking. Maintenance costs of aircraft and marine
containers are the obligation of the lessee. To meet the maintenance
requirements of certain aircraft airframes and engines, reserve accounts are
prefunded by the lessee over the period of the lease based on the number of
hours this equipment is used, times the estimated rate to repair this equipment.
If repairs exceed the amount prefunded by the lessee, the Partnership has the
obligation to fund and accrue the difference. In certain instances, if the
aircraft is sold and there is a balance in the reserve account for repairs to
that aircraft, the balance in the reserve account is reclassified as additional
sales proceeds. The aircraft reserve accounts and marine vessel dry-docking
reserve accounts are included in the balance sheet as lessee deposits and
reserve for repairs.
Net Income (Loss) and Distributions Per Limited Partnership Unit
Net income is allocated to the General Partner to the extent necessary to cause
the General Partner's capital account to equal zero. The limited partners' net
income (loss) is allocated among the limited partners based on the number of
limited partnership units owned by each limited partner and on the number of
days of the year each limited partner is in the Partnership.
Cash distributions of the Partnership are allocated 95% to the limited partners
and 5% to the General Partner and may include amounts in excess of net income.
Cash distributions are recorded when paid. Monthly unitholders receive a
distribution check 15 days after the close of the previous month's business and
quarterly unitholders receive a distribution check 45 days after the close of
the quarter.
Cash distributions to investors in excess of net income are considered a return
of capital. Cash distributions to the limited partners of $7.8 million, $13.8
million, and $8.2 million in 1999, 1998, and 1997, respectively, were deemed to
be a return of capital.
Cash distributions related to the fourth quarter of 1999 and 1998 of $2.0
million, and 1997 of $2.6 million, were paid during the first quarter of 2000,
1999, and 1998, respectively.
Net Income (Loss) Per Weighted-Average Partnership Unit
Net income (loss) per weighted-average Partnership unit was computed by dividing
net income (loss) attributable to limited partners by the weighted-average
number of Partnership units deemed outstanding during the year. The
weighted-average number of Partnership units deemed outstanding during the years
ended December 31, 1999, 1998, and 1997 was 8,196,209, 8,216,472, and 8,257,256,
respectively.
Cash and Cash Equivalents
The Partnership considers highly liquid investments that are readily convertible
to known amounts of cash with original maturities of three months or less as
cash equivalents. The carrying amount of cash equivalents approximates fair
market value due to the short-term nature of the investments.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. Basis of Presentation (continued)
Comprehensive Income
The Partnership's net income is equal to comprehensive income for the years
ended December 31, 1999, 1998, and 1997.
Restricted Cash
As of December 31, 1999 and 1998, restricted cash represented lessee security
deposits held by the Partnership.
2. General Partner and Transactions with Affiliates
An officer of PLM Securities Corp., a wholly-owned subsidiary of the General
Partner, contributed $100 of the Partnership's initial capital. Under the
equipment management agreement, IMI, subject to certain reductions, receives a
monthly management fee attributable to either owned equipment or interests in
equipment owned by the USPEs equal to the lesser of (i) the fees that would be
charged by an independent third party for similar services for similar equipment
or (ii) the sum of (a) 5% of the gross lease revenues attributable to equipment
that is subject to operating leases, (b) 2% of the gross lease revenues, as
defined in the agreement, that is subject to full payout net leases, and (c) 7%
of the gross lease revenues attributable to equipment for which IMI provides
both management and additional services relating to the continued and active
operation of program equipment, such as on-going marketing and re-leasing of
equipment, hiring or arranging for the hiring of crew or operating personnel for
equipment, and similar services. Partnership management fees payable were $0.2
million as of December 31, 1999 and 1998. The Partnership's proportional share
of USPE management fees of $0.1 million and $27,000 was payable as of December
31, 1999, and 1998, respectively. The Partnership's proportional share of USPE
management fee expense was $0.2 million during 1999, 1998, and 1997. The
Partnership reimbursed FSI $0.9 million, $1.0 million, and $0.9 million in 1999,
1998, and 1997, respectively, for data processing and administrative expenses
directly attributable to the Partnership. The Partnership's proportional share
of USPE data processing and administrative expenses reimbursed to FSI was
$43,000 during 1999 and $0.1 million during 1998 and 1997.
The Partnership paid $0.3 million in 1997 to Transportation Equipment Indemnity
Company Ltd. (TEI), which provided marine insurance coverage for Partnership
equipment and other insurance brokerage services. TEI was an affiliate of the
General Partner. No fees for owned equipment were paid to TEI in 1999 and 1998.
The Partnership's proportional share of USPE marine insurance coverage paid to
TEI was $7,000 and $0.1 million during 1998 and 1997, respectively. A
substantial portion of the amount paid was to third-party reinsurance
underwriters or was placed in risk pools managed by TEI on behalf of affiliated
programs and PLM International, which provide threshold coverages on marine
vessel loss of hire and hull and machinery damage. All pooling arrangement funds
are either paid out to cover applicable losses or refunded pro rata by TEI.
Also, during 1998, the Partnership and the USPEs received a total of $0.2
million loss-of-hire insurance refund from TEI due to lower claims from the
insured Partnership and other insured affiliated programs. During 1999 and 1998,
TEI did not provide the same level of insurance coverage as had been provided
during 1997. These services were provided by an unaffiliated third party. PLM
International liquidated TEI during the first quarter of 2000.
Debt placement fees were paid to the General Partner in an amount equal to 1% of
the Partnership's long-term borrowings, less any costs paid to unaffiliated
parties related to obtaining the borrowing.
The Partnership and USPEs paid or accrued equipment acquisition and lease
negotiation fees of $0.4 million, $1.9 million, and $1.1 million during 1999,
1998, and 1997, respectively, to FSI, TEC, and WMS.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
2. General Partner and Transactions with Affiliates (continued)
As of December 31, 1999, approximately 48% of the Partnership's trailer
equipment was in rental facilities operated by PLM Rental, Inc., an affiliate of
the General Partner, doing business as PLM Trailer Leasing. Rents are reported
as revenue in accordance with Financial Accounting Standards Board Statement No.
13 "Accounting for Leases". Direct expenses associated with the equipment are
charged directly to the Partnership. An allocation of indirect expenses of the
rental yard operations is charged to the Partnership monthly.
The Partnership owned certain equipment in conjunction with affiliated programs
during 1999, 1998, and 1997 (see Note 4).
The Partnership had borrowings from the General Partner from time to time and
was charged market interest rates effective at the time of the borrowing. During
1999 the Partnership borrowed $0.4 million from the General Partner for five
days and paid a total of $421 in interest to the General Partner. During 1997
the Partnership borrowed $1.0 million and $9.0 million from the General Partner
for 52 days and three days, respectively, and paid a total of $17,000 in
interest to the General Partner. There were no similar borrowings during 1998.
The balance due to affiliates as of December 31, 1999 and 1998 includes $0.2
million due to FSI and its affiliates for management fees and $0.2 million due
to a USPE.
3. Equipment
The components of owned equipment as of December 31, are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Equipment Held for Operating Leases 1999 1998
----------------------------------------------------- --------------------------------
<S> <C> <C>
Marine containers $ 24,691 $ 11,189
Aircraft, aircraft engines and components 21,630 64,113
Rail equipment 17,284 18,638
Trailers 11,713 13,204
Marine vessels 10,000 46,062
---------------------------------
85,318 153,206
Less accumulated depreciation (39,250) (73,704)
--------------------------------
Net equipment $ 46,068 $ 79,502
=================================
</TABLE>
Revenues are earned by placing the equipment under operating leases. A portion
of the Partnership's marine containers are leased to operators of
utilization-type leasing pools that include equipment owned by unaffiliated
parties. In such instances, revenues earned by the Partnership consist of a
specified percentage of the total revenues generated by leasing the pooled
equipment to sublessees after deducting certain direct operating expenses of the
pooled equipment. Most of the Partnership's marine vessels are leased to lessees
on a voyage charter basis for a specific trip. Rental revenues for railcars are
based on a monthly fixed lease rate however, in certain instances, rental
revenues are based on mileage traveled. Rental revenues for all other equipment
are based on a monthly fixed lease rate.
During September 1999, certain equipment in which the Partnership held a
majority ownership, was reclassified to investments in USPEs (see Note 4).
Equipment held for operating leases is stated at cost less any reductions to the
carrying value as required by SFAS 121. During 1999, reductions to the carrying
value of marine vessels of $3.6 million were required. During 1998, reductions
to the carrying value of marine vessels of $4.1 million and to marine containers
of $0.2 million were required.
As of December 31, 1999, all owned equipment in the Partnership's portfolio was
on lease or operating in PLM-affiliated short-term trailer rental facilities
except for a Boeing 737-200 Stage II commercial aircraft
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
3. Equipment (continued)
and 20 railcars with a net book value of $2.0 million. As of December 31, 1998,
all owned equipment in the Partnership's portfolio was on lease or operating in
PLM-affiliated short-term trailer rental facilities, except for 15 railcars and
59 marine containers with a net book value of $0.3 million.
During 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. Additionally, the Partnership purchased a
portfolio of marine containers for $15.1 million of which no fees were paid to
FSI. The Partnership has reached certain fee limitations, per the partnership
agreement, that can be paid to FSI.
During 1998, the Partnership purchased a portfolio of aircraft rotable
components for $2.3 million, including acquisition fees of $0.1 million; a
portfolio of marine containers for $5.2 million, including acquisition fees of
$0.2 million; a group of railcars for $3.1 million, including acquisition fees
of $0.1 million; and a marine vessel for $10.1 million, including acquisition
fees of $0.4 million. The Partnership also completed its commitment to purchase
a MD-80 Stage III commercial aircraft for $14.0 million during January 1998,
including acquisition fees of $0.6 million. All acquisition fees were paid to
FSI.
During 1999, the Partnership disposed of or sold a marine vessel, marine
containers, trailers, and railcars, with an aggregate net book value of $7.9
million, for $9.3 million. The Partnership also sold its majority interest in a
Boeing 767-200ER Stage III commercial aircraft with a net book value of $15.6
million for proceeds of $40.1 million which includes $3.6 million of unused
engine reserves. During 1998, the Partnership disposed of or sold a Boeing
737-200 commercial aircraft, an aircraft engine, marine containers, trailers,
and railcars, with an aggregate net book value of $6.1 million, for $12.4
million which included $1.4 million of unused engine reserves.
Periodically, PLM International purchases groups of assets whose ownership may
be allocated among affiliated programs and PLM International. Generally in these
cases only assets that are on lease will be purchased by the affiliated
programs. PLM International will generally assume the ownership and remarketing
risks associated with off-lease equipment. Allocation of the purchase price is
determined by a combination of third-party industry sources, recent transactions
and published fair market value references. During 1998, PLM International
purchased a group of railcars that were allocated to the Partnership at cost.
All wholly- and partially-owned equipment on lease is accounted for as operating
leases, except for one finance lease. Future minimum rentals under noncancelable
operating leases as of December 31, 1999, for wholly- and partially-owned
equipment during each of the next five years are approximately $8.6 million in
2000, $5.1 million in 2001, $2.6 million in 2002, $1.8 million in 2003, $1.4
million in 2004, and $2.8 million thereafter. Per diem and short-term rentals
consisting of utilization rate lease payments included in lease revenues
amounted to $4.4 million in 1999, $4.0 million in 1998, and $6.6 million in
1997.
4. Investments in Unconsolidated Special-Purpose Entities
The Partnership owns equipment jointly with affiliated programs.
In September 1999, the General Partner amended the corporate-by-laws of certain
USPEs in which the Partnership, or any affiliated program, owns an interest
greater than 50%. The amendment to the corporate-by-laws provided 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. As such, although the Partnership may own a
majority interest in a USPE, the Partnership does not control its management and
thus the equity method of accounting will be used after adoption of
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
4. Investments in Unconsolidated Special-Purpose Entities (continued)
the amendment. As a result of the amendment, as of September 30, 1999, all
jointly owned equipment in which the Partnership owned a majority interest,
which had been consolidated, were reclassified to investments in USPEs.
Accordingly, as of December 31, 1999, the balance sheet reflects all investments
in USPEs on an equity basis.
The net investments in USPEs include the following jointly-owned equipment and
related assets and liabilities as of December 31 (in thousands of dollars):
<TABLE>
<CAPTION>
1999 1998
------------------------------
<S> <C> <C>
62% interest in a trust owning a commercial stage III aircraft $ 12,574 $ --
53% interest in an entity owning a product tanker 6,482 --
40% interest in a trust owning two commercial stage III aircraft
on direct finance lease 4,055 4,435
30% interest in an entity owning a mobile offshore drilling unit -- 4,279
25% interest in an entity owning marine containers 2,211 2,475
50% interest in an entity owning a container feeder vessel 1,178 1,421
20% interest in an entity owning a handymax dry bulk carrier 1,065 1,311
50% interest in a trust that owned four stage II commercial aircraft 156 279
64% interest in a trust that owned a commercial stage III aircraft 15 --
----------- -----------
Net investments $ 27,736 $ 14,200
========== ===========
</TABLE>
As of December 31, 1999, all jointly-owned equipment in the Partnership's USPE
portfolio was on lease except for a Boeing 737-300 commercial aircraft with a
net investment value of $12.6 million. As of December 31, 1998, all
jointly-owned equipment in the Partnership's USPE portfolio was on lease.
During 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 $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
on which no fees were paid to FSI. The remaining interest in these trusts were
purchased by an affiliated program.
During 1998, the Partnership also purchased an interest in an entity owning a
portfolio of marine containers for $2.5 million, including acquisition and lease
negotiation fees of $0.1 million that were paid to FSI. The remaining interest
in this entity was purchased by an affiliated program.
The Partnership had a beneficial interests in two USPEs that owned multiple
aircraft (the Trusts). One of these Trusts contain provisions, under certain
circumstances, for allocating specific aircraft to the beneficial owners. During
1998, the Partnership increased its investment in a trust owning four commercial
aircraft by funding the installation of a hushkit on an aircraft assigned to the
Partnership in the trust for $1.3 million, including acquisition and lease
negotiation fees of $0.1 million that were paid to FSI. In this Trust, the
Partnership subsequently sold the two commercial aircraft assigned to it with a
net book value of $6.2 million for proceeds of $13.1 million.
During 1998, the Partnership reduced its interest in an entity owning a
container feeder vessel by $1.0 million to its net realizable value.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
4. Investments in Unconsolidated Special-Purpose Entities (continued)
The following summarizes the financial information for the USPEs and the
Partnership's interest therein as of and for the year ended December 31 (in
thousands of dollars):
<TABLE>
<CAPTION>
1999 1998 1997
Net Net Net
Total Interest of Total Interest of Total Interest of
USPEs Partnership USPEs Partnership USPEs Partnership
--------------------------- --------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investments $ 59,692 $ 27,736 $ 34,801 $ 14,200 $ 57,616 $ 24,061
Lease revenues 10,395 3,224 12,215 3,782 20,317 6,522
Net income (loss) (867) (1,003) 22,183 6,465 6,773 3,336
</TABLE>
5. Operating Segments
The Partnership operates primarily in five operating segments: aircraft leasing,
marine container leasing, marine vessel leasing, trailer leasing, and railcar
leasing. Each equipment leasing segment engage in short-term to mid-term
operating leases to a variety of customers.
The General Partner evaluates the performance of each segment based on profit or
loss from operations before allocation of interest expense, general and
administrative expenses, and certain other expenses. The segments are managed
separately due to different business strategies for each operation.
The following tables present a summary of the operating segments (in thousands
of dollars):
<TABLE>
<CAPTION>
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1999 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
------------------------------------ --------- --------- --------- --------- --------- --------- -----------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 4,481 $ 2,317 $ 9,849 $ 2,790 $ 4,551 $ -- $ 23,988
Interest income and other 33 -- 12 (2) 47 180 270
Gain (loss) on disposition of
equipment 24,414 93 1,670 (195) (31) -- 25,951
-------------------------------------------------------------------------
Total revenues 28,928 2,410 11,531 2,593 4,567 180 50,209
Costs and expenses
Operations support 832 -- 6,322 769 829 47 8,799
Depreciation and amortization 6,970 2,217 5,559 755 1,470 30 17,001
Interest expense 15 -- -- -- -- 2,093 2,108
Management fees 196 116 481 160 308 -- 1,261
General and administrative expenses 388 11 149 546 73 767 1,934
Loss on revaluation of equipment -- -- 3,567 -- -- -- 3,567
Provision for bad debts 485 -- -- 22 84 -- 591
-------------------------------------------------------------------------
Total costs and expenses 8,886 2,344 16,078 2,252 2,764 2,937 35,261
-------------------------------------------------------------------------
Minority interests (8,225) -- 276 -- -- -- (7,949)
Equity in net income (loss) of USPEs (250) 5 (1,029) -- -- 271 (1,003)
-------------------------------------------------------------------------
Net income (loss) $ 11,567 $ 71 $ (5,300) $ 341 $ 1,803 $ (2,486) $ 5,996
=========================================================================
Total assets as of December 31, 1999 $ 22,940 $ 21,811 $ 17,353 $ 4,208 $ 8,870 $ 3,022 $ 78,204
-
=========================================================================
<FN>
<F1>
- -------------------
1 Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain general and administrative
and operations support expenses. Also includes income from an investment in
an entity that owned a mobile offshore drilling unit.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
5. Operating Segments (continued)
<TABLE>
<CAPTION>
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1998 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
--------- --------- --------- --------- --------- --------- -----------
Revenues
<S> <C> <C> <C> <C> <C> <C> <C>
Lease revenue $ 9,098 $ 923 $ 10,695 $ 3,295 $ 4,111 $ -- $ 28,122
Interest income and other 20 89 65 10 20 561 765
Gain (loss) on disposition of 5,594 582 19 51 12 (5) 6,253
equipment
------------------------------------------------------------------------
Total revenues 14,712 1,594 10,779 3,356 4,143 556 35,140
Costs and expenses
Operations support 1,191 12 6,055 817 857 63 8,995
Depreciation and amortization 11,938 712 6,090 1,040 1,273 32 21,085
Interest expense 43 -- -- -- -- 2,018 2,061
Management fee to affiliate 453 46 535 216 288 -- 1,538
General and administrative expenses 420 30 209 604 67 723 2,053
Loss on revaluation of equipment -- 183 4,093 -- -- -- 4,276
Provision for (recovery of) bad (83) -- -- 22 (14) -- (75)
debts
------------------------------------------------------------------------
Total costs and expenses 13,962 983 16,982 2,699 2,471 2,836 39,933
------------------------------------------------------------------------
Minority interests (469) -- 242 -- -- -- (227)
Equity in net income (loss) of USPEs 7,841 (20) (1,599) -- -- 243 6,465
------------------------------------------------------------------------
Net income (loss) $ 8,122 $ 591 $ (7,560) $ 657 $ 1,672 $ (2,037) $ 1,445
========================================================================
Total assets as of December 31, 1998 $ 34,704 $ 9,267 $ 32,957 $ 4,824 $ 10,913 $ 11,605 $104,270
========================================================================
Marine Marine
Aircraft Container Vessel Trailer Railcar All
For the Year Ended December 31, 1997 Leasing Leasing Leasing Leasing Leasing Other<F1>1 Total
--------- --------- --------- --------- --------- --------- -----------
Revenues
Lease revenue $ 8,526 $ 1,681 $ 10,841 $ 3,760 $ 4,135 $ -- $ 28,943
Interest income and other -- 36 277 47 -- 152 512
Gain (loss) on disposition of 1,972 55 8,265 (171) -- -- 10,121
equipment
-------------------------------------------------------------------------
Total revenues 10,498 1,772 19,383 3,636 4,135 152 39,576
Costs and expenses
Operations support 680 12 8,136 870 1,001 52 10,751
Depreciation and amortization 5,624 1,147 5,746 1,522 1,452 30 15,521
Interest expense 137 -- -- -- -- 2,297 2,434
Management fees to affiliate 393 90 551 236 285 -- 1,555
General and administrative expenses 917 6 187 575 66 819 2,570
Provision for (recovery of) bad 1,188 (111) -- 153 43 -- 1,273
debts
-------------------------------------------------------------------------
Total costs and expenses 8,939 1,144 14,620 3,356 2,847 3,198 34,104
-------------------------------------------------------------------------
Minority interests (110) -- 534 -- -- -- 424
Equity in net income (loss) of USPEs 3,866 -- (531) -- -- 1 3,336
-------------------------------------------------------------------------
Net income (loss) $ 5,315 $ 628 $ 4,766 $ 280 $ 1,288 $ (3,045) $ 9,232
=========================================================================
Total assets as of December 31, 1997 $ 41,755 $ 4,393 $ 35,420 $ 7,098 $ 9,129 $ 23,756 $121,551
=========================================================================
<FN>
<F1>
- ----------------
1 Includes interest income and costs not identifiable to a particular
segment, such as interest expense, and certain general and administrative
and operations support expenses. Also includes income from an investment in
an entity that owned a mobile offshore drilling unit.
</FN>
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
6. Geographic Information
The Partnership owns certain equipment that is leased and operated
internationally. A limited number of the Partnership's transactions are
denominated in a foreign currency. Gains or losses resulting from foreign
currency transactions are included in the results of operations and are not
material.
The Partnership leases or leased its aircraft, railcars, and trailers to lessees
domiciled in six geographic regions: United States, South America, Canada,
Mexico, Europe, and India. Marine vessels and marine containers are leased or
were leased to multiple lessees in different regions that operate worldwide.
The table below sets forth lease revenues by geographic region for the
Partnership's owned equipment and investments in USPEs grouped by domiciles of
the lessees as of and for the years ended December 31, (in thousands of
dollars):
<TABLE>
<CAPTION>
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1999 1998 1997 1999 1998 1997
---------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 8,540 $ 9,126 $ 7,132 $ -- $ -- $ --
South America 1,643 5,130 4,920 -- -- --
Canada 1,201 988 764 -- 986 3,619
Europe 378 -- 948 -- -- --
India 60 1,260 2,658 -- -- --
Rest of the world 12,166 11,618 12,521 3,224 2,796 2,903
------------------------------------- -------------------------------------
Lease revenues $ 23,988 $ 28,122 $ 28,943 $ 3,224 $ 3,782 $ 6,522
===================================== =====================================
The following table sets forth net income (loss) information by region for the
owned equipment and investments in USPEs for the years ended December 31 (in
thousands of dollars):
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1999 1998 1997 1999 1998 1997
---------------------------- ------------------------------------- -------------------------------------
United States $ (312) $ (3,494) $ 1,219 $ (627) $ -- $ --
South America 15,719 801 224 (185) -- --
Canada 370 324 461 25 7,191 3,159
Mexico -- -- -- 537 651 707
Europe 23 -- 2,370 -- -- --
India (1,839) 4,980 (1,219) -- -- --
Rest of the world (4,205) (5,354) 5,900 (753) (1,377) (530)
------------------------------------- -------------------------------------
Regional income (loss) 9,756 (2,743) 8,955 (1,003) 6,465 3,336
Administrative and other (2,757) (2,277) (3,059) -- -- --
------------------------------------- -------------------------------------
Net income (loss) $ 6,999 $ (5,020) $ 5,896 $(1,003) $ 6,465 $ 3,336
===================================== =====================================
</TABLE>
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
6. Geographic Information (continued)
The net book value of these assets as of December 31 are as follows (in
thousands of dollars):
<TABLE>
<CAPTION>
Owned Equipment Investments in USPEs
------------------------------------- --------------------------------------
Region 1999 1998 1997 1999 1998 1997
---------------------------- ------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
United States $ 13,378 $ 22,048 $ 14,250 $ 12,589 $ -- $ 3,491
South America -- 16,834 20,202 -- -- --
Canada 1,873 1,889 1,978 156 279 6,614
Mexico -- -- -- 4,055 4,435 4,581
Europe 1,490 -- -- -- -- --
India 1,736 2,084 5,552 -- -- --
Rest of the world 27,591 36,647 34,226 10,936 9,486 9,375
------------------------------------- -------------------------------------
Net book value $ 46,068 $ 79,502 $ 76,208 $ 27,736 $ 14,200 $ 24,061
===================================== =====================================
</TABLE>
7. Note Payable
In August 1993, the Partnership entered into an agreement to issue a long-term
note totaling $30.0 million to two institutional investors. The note bears
interest at a fixed rate of 6.7% per annum and has a final maturity in 2003.
Interest on the note is payable monthly. The note is scheduled to be repaid in
three principal payments of $10.0 million on November 17, 2001, 2002, and 2003.
The agreement requires the Partnership to maintain certain financial covenants
related to fixed-charge coverage. Proceeds from the sale of the note were used
to fund equipment acquisitions and to repay obligations of the Partnership under
the credit facility.
The General Partner has entered into a joint $24.5 million credit facility (the
Committed Bridge Facility) on behalf of the Partnership, PLM Equipment Growth &
Income Fund VII (EGF VII) and Professional Lease Management Income Fund I (Fund
I), both affiliated investment programs; and TEC Acquisub, Inc. (TECAI), an
indirect wholly-owned subsidiary of the General Partner, which may be used to
provide interim financing of up to (i) 70% of the aggregate book value or 50% of
the aggregate net fair market value of eligible equipment owned by the
Partnership, plus (ii) 50% of unrestricted cash held by the borrower. The
Partnership, EGF VII, Fund I, and TECAI collectively may borrow up to $24.5
million of the Committed Bridge Facility. Outstanding borrowings by one borrower
reduce the amount available to each of the other borrowers under the Committed
Bridge Facility. The Committed Bridge Facility also provides for a $5.0 million
Letter of Credit Facility for the eligible borrowers. Individual borrowings may
be outstanding for no more than 179 days, with all advances due no later than
June 30, 2000. Interest accrues at either the prime rate or adjusted LIBOR plus
1.625% at the borrower's option and is set at the time of an advance of funds.
Borrowings by the Partnership are guaranteed by the General Partner. As of
December 31, 1999, no eligible borrower had any outstanding borrowings under
this facility. The General Partner believes it will be able to renew the
Committed Bridge Facility upon its expiration with similar terms as those in the
current Committed Bridge Facility.
The General Partner estimates, based on recent transactions, that the fair
market value of the $30.0 million fixed-rate note is $29.0 million.
8. Concentrations of Credit Risk
No single lessee accounted for more than 10% of the consolidated revenues for
the owned equipment and partially owned equipment during 1999, 1998, and 1997.
In 1999, however, AAR Allen Group International purchased a commercial aircraft
from the Partnership and the gain from the sale accounted for 49% of total
consolidated revenues. In 1998, Triton Aviation Services, Ltd. purchased a
commercial aircraft from the Partnership and the gain from the sale accounted
for 16% of total consolidated revenues of 1998.
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
8. Concentrations of Credit Risk (continued)
As of December 31, 1999 and 1998, the General Partner believed the Partnership
had no other significant concentrations of credit risk that could have a
material adverse effect on the Partnership.
9. Income Taxes
The Partnership is not subject to income taxes, as any income or loss is
included in the tax returns of the individual partners. Accordingly, no
provision for income taxes has been made in the financial statements of the
Partnership.
As of December 31, 1999, the financial statement carrying amount of assets and
liabilities was approximately $42.2 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods, equipment reserves, provisions for bad debts, lessees'
prepaid deposits, and the tax treatment of underwriting commissions and
syndication costs.
10. 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 in January
1997 in the Circuit Court of Mobile County, Mobile, Alabama, Case No. CV-97-251
(the Koch action). The named plaintiffs are six individuals who invested in 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), each a California limited partnership for which the
Company's wholly-owned subsidiary, FSI, acts as the General Partner. The
complaint asserts causes of action against all defendants for fraud and deceit,
suppression, negligent misrepresentation, negligent and intentional breaches 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 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. 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 the Funds. The complaint 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 violations
of state securities law. In July 1997, defendants filed a petition (the
petition) in federal district court under the Federal Arbitration Act seeking to
compel arbitration of plaintiff's claims. In October 1997, the district court
denied the Company's petition, but in November 1997, agreed to hear the
Company's motion for reconsideration. Prior to reconsidering its order, the
district court dismissed the petition pending settlement of the Romei action, as
discussed below. The state court action continues to be stayed pending such
resolution.
In February 1999 the parties to the Koch and Romei actions agreed to settle the
lawsuits, with no admission of liability by any defendant, and filed a
Stipulation of Settlement with the court. The
<PAGE>
PLM EQUIPMENT GROWTH FUND VI
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
10. Contingencies (continued)
settlement is divided into two parts, a monetary settlement and an equitable
settlement. 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 $6.6 million. The final settlement amount will depend on the number of
claims filed by class members, the amount of the administrative costs incurred
in connection with the settlement, and the amount of attorneys' fees awarded by
the court to plaintiffs' attorneys. The Company will pay up to $0.3 million of
the monetary settlement, with the remainder being funded by an insurance policy.
For settlement purposes, the monetary settlement 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 monetary settlement, if approved, will go forward
regardless of whether the equitable settlement is approved or not.
The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, (b) the extension (until December 31, 2004) of the period
during which FSI can reinvest the Funds' funds in additional equipment, (c) an
increase of up to 20% in the amount of front-end fees (including acquisition and
lease negotiation fees) that FSI is entitled to earn in excess of the
compensatory limitations set forth in the North American Securities
Administrator's Association's Statement of Policy; (d) a one-time repurchase by
each of Funds V, VI and VII of up to 10% of that partnership's outstanding units
for 80% of net asset value per unit; and (e) the deferral of a portion of the
management fees paid to an affiliate of FSI until, if ever, certain performance
thresholds have been met by the Funds. Subject to final court approval, these
proposed changes would be made as amendments to each Partnership's limited
partnership agreement if less than 50% of the limited partners of each
Partnership vote against such amendments. The limited partners will be provided
the opportunity to vote against the amendments by following the instructions
contained in solicitation statements that will be mailed to them after being
filed with the Securities and Exchange Commission. The equitable settlement also
provides for payment of additional attorneys' fees to the plaintiffs' attorneys
from Partnership funds in the event, if ever, that certain performance
thresholds have been met by the Funds. The equitable settlement 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 court preliminarily approved the monetary and equitable settlements in June
1999. The monetary settlement remains subject to certain conditions, including
notice to the monetary class and final approval by the court following a final
fairness hearing. The equitable settlement remains subject to certain
conditions, including: (a) notice to the equitable class, (b) disapproval of the
proposed amendments to the partnership agreements by less than 50% of the
limited partners in one or more of Funds V, VI, and VII, and (c) judicial
approval of the proposed amendments and final approval of the equitable
settlement by the court following a final fairness hearing. No hearing date is
currently scheduled for the final fairness hearing. 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 has initiated litigation in various official forums in India
against the defaulting Indian airline lessees to repossess Partnership property
and to recover damages for failure to pay rent and failure to maintain such
property in accordance with relevant lease contracts. The Partnership has
repossessed its property previously leased to such airline, and the airline has
ceased operations. In response to the Partnership's collection efforts, the
airline filed counter-claims against the Partnership in excess of the
Partnership's claims against the airline. The General Partner believes that the
airlines' counterclaims are completely without merit, and the General Partner
will vigorously defend against such counterclaims. The General Partner believes
an unfavorable outcome from the counterclaims is remote.
The Company 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 Company.
<PAGE>
INDEX OF EXHIBITS
Exhibit Page
4. Limited Partnership Agreement of Partnership. *
10. 1 Management Agreement between Partnership and *
PLM Investment Management, Inc.
10. 2 Note Agreement, dated as of August 1, 1993, regarding *
$30.0 million in 6.7% senior notes due November 17, 2003.
10. 3 Fourth Amended and Restated Warehousing Credit Agreement,
dated as of December 15, 1998, with First Union National
Bank of North Carolina. *
10. 4 First amendment to the Fourth Amended and Restated Warehouse
Credit Agreement dated December 10, 1999. 52-56
24. Powers of Attorney. 57-59
- --------
* Incorporated by reference. See page 30 of this report.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM Financial Services, Inc., as General Partner of PLM
Equipment Growth Fund VI, to comply with the Securities Exchange Act of 1934, as
amended (the "Act"), and any rules and regulations thereunder, in connection
with the preparation and filing with the Securities and Exchange Commission of
annual reports on Form 10-K on behalf of PLM Equipment Growth Fund VI, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned, in any and all capacities, to
such annual reports, to any and all amendments thereto, and to any and all
documents or instruments filed as a part of or in connection therewith; and the
undersigned hereby ratifies and confirms all that each of the said attorneys, or
his substitute or substitutes, shall do or cause to be done by virtue hereof.
This Power of Attorney is limited in duration until May 1, 2000 and shall apply
only to the annual reports and any amendments thereto filed with respect to the
fiscal year ended December 31, 1999.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
3rd day of March, 2000.
/s/ Douglas P. Goodrich
----------------------------------
Douglas P. Goodrich
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM Financial Services, Inc., as General Partner of PLM
Equipment Growth Fund VI, to comply with the Securities Exchange Act of 1934, as
amended (the "Act"), and any rules and regulations thereunder, in connection
with the preparation and filing with the Securities and Exchange Commission of
annual reports on Form 10-K on behalf of PLM Equipment Growth Fund VI, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned, in any and all capacities, to
such annual reports, to any and all amendments thereto, and to any and all
documents or instruments filed as a part of or in connection therewith; and the
undersigned hereby ratifies and confirms all that each of the said attorneys, or
his substitute or substitutes, shall do or cause to be done by virtue hereof.
This Power of Attorney is limited in duration until May 1, 2000 and shall apply
only to the annual reports and any amendments thereto filed with respect to the
fiscal year ended December 31, 1999.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
3rd day of March, 2000.
/s/ Robert N. Tidball
-----------------------------------
Robert N. Tidball
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
That the undersigned does hereby constitute and appoint Robert N.
Tidball, Susan Santo, and Richard Brock, jointly and severally, his true and
lawful attorneys-in-fact, each with power of substitution, for him in any and
all capacities, to do any and all acts and things and to execute any and all
instruments which said attorneys, or any of them, may deem necessary or
advisable to enable PLM Financial Services, Inc., as General Partner of PLM
Equipment Growth Fund VI, to comply with the Securities Exchange Act of 1934, as
amended (the "Act"), and any rules and regulations thereunder, in connection
with the preparation and filing with the Securities and Exchange Commission of
annual reports on Form 10-K on behalf of PLM Equpment Growth Fund VI, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned, in any and all capacities, to
such annual reports, to any and all amendments thereto, and to any and all
documents or instruments filed as a part of or in connection therewith; and the
undersigned hereby ratifies and confirms all that each of the said attorneys, or
his substitute or substitutes, shall do or cause to be done by virtue hereof.
This Power of Attorney is limited in duration until May 1, 2000 and shall apply
only to the annual reports and any amendments thereto filed with respect to the
fiscal year ended December 31, 1999.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
3rd day of March, 2000.
/s/ Stephen M. Bess
----------------------------------
Stephen M. Bess
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,669
<SECURITIES> 0
<RECEIVABLES> 3,813
<ALLOWANCES> (2,416)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 85,318
<DEPRECIATION> (39,250)
<TOTAL-ASSETS> 78,204
<CURRENT-LIABILITIES> 0
<BONDS> 30,000
0
0
<COMMON> 0
<OTHER-SE> 45,021
<TOTAL-LIABILITY-AND-EQUITY> 78,204
<SALES> 0
<TOTAL-REVENUES> 50,209
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,562
<LOSS-PROVISION> 591
<INTEREST-EXPENSE> 2,108
<INCOME-PRETAX> 5,996
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,996
<EPS-BASIC> 0.65
<EPS-DILUTED> 0.65
</TABLE>
AMENDMENT NO. 1
TO FOURTH AMENDED AND RESTATED
WAREHOUSING CREDIT AGREEMENT
(Growth Funds)
THIS AMENDMENT NO. 1 TO FOURTH AMENDED AND RESTATED WAREHOUSING CREDIT AGREEMENT
dated as of December 10, 1999 (the "Amendment"), is entered into by and among
PLM EQUIPMENT GROWTH FUND VI, a California limited partnership ("EGF VI"), PLM
EQUIPMENT GROWTH & INCOME FUND VII, a California limited partnership ("EGF
VII"), and PROFESSIONAL LEASE MANAGEMENT INCOME FUND I, L.L.C., a Delaware
limited liability company ("Income Fund I") (EGF V, EGF VI, EGF VII and Income
Fund I each individually being a "Borrower" and, collectively, the "Borrowers"),
and PLM FINANCIAL SERVICES, INC., a Delaware corporation and the sole general
partner, in the case of EGF V, EGF VI and EGF VII, and the sole manager, in the
case of Income Fund I ("FSI"), the banks, financial institutions and
institutional lenders from time to time party hereto and defined as Lenders
herein and FIRST UNION NATIONAL BANK as agent on behalf of Lenders (not in its
individual capacity, but solely as agent, "Agent"). Capitalized terms used
herein without definition shall have the same meanings herein as given to them
in the Credit Agreement.
RECITALS
A. Borrowers, Lenders and Agent entered into that Fourth Amended and
Restated Warehousing Credit Agreement dated as of December 15, 1998 (the "Credit
Agreement"), pursuant to which Lenders have agreed to extend and make available
to Borrowers certain advances of money.
B. Borrowers desire to amend the Credit Agreement to extend the
Commitment Termination Date to June 30, 2000.
C. Subject to the representations and warranties of Borrowers and upon
the terms and conditions set forth in this Amendment, Lenders and Agent are
willing to so amend the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals and
intending to be legally bound, the parties hereto agree as follows:
Section 1. Amendments to Credit Agreement.
1.1 Commitment Termination Date. The definition of
"Commitment Termination Date" set forth in Section 1.1 of the Credit Agreement
is deleted in its entirety and is replaced with the following:
"Commitment Termination Date" means June 30, 2000.
1.2 Cash Balances. Section 7.3 of the Credit
Agreement is deleted in its entirety and is replaced with the following:
7.3 CASH BALANCES. The Equipment Growth Funds of which FSI is
the sole general partner shall maintain aggregate unrestricted cash
balances of $8,500,000.
SECTION 2. LIMITATIONS ON AMENDMENTS
(a) The amendments set forth in Section 1, above,
are effective for the purposes set forth herein and shall be limited precisely
as written and shall not be deemed to (i) be a consent to any amendment, waiver
or modification of any other term or condition of any Loan Document or (ii)
otherwise prejudice any right or remedy which Lenders or Agent may now have or
may have in the future under or in connection with any Loan Document.
(b) This Amendment shall be construed in connection
with and as part of the Loan Documents and all terms, conditions,
representations, warranties, covenants and agreements set forth in the Loan
Documents, except as herein amended, are hereby ratified and confirmed and shall
remain in full force and effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce Lenders
and Agent to enter into this Amendment, each Borrower severally as to itself,
but not jointly as to the other Borrowers and FSI, and FSI jointly and severally
with each Borrower and as to itself represents and warrants to each Lender and
Agent as follows:
(a) Immediately after giving effect to this
Amendment (i) the representations and warranties contained in the Loan Documents
(other than those which expressly speak as of a different date which shall be
true as of such different date) are true, accurate and complete in all material
respects as of the date hereof and (ii) no Event of Default, or event which
constitutes a Potential Event of Default, has occurred and is continuing;
(b) each Borrower and FSI has the power and
authority to execute and deliver this Amendment and to perform its Obligations
under the Credit Agreement, as amended by this Amendment, and each of the other
Loan Documents to which it is a party;
(c) The respective LP-1s, certificates of formation
and certificates of incorporation and the respective agreements of limited
partnership, operating agreements and bylaws delivered by Borrowers and FSI to
each Lender in connection with the closing of the Credit Agreement or, if
earlier, the Third Amended and Restated Warehousing Credit Agreement dated as of
December 2, 1997 are true, accurate and complete and have not been amended,
supplemented or restated and are and continue to be in full force and effect;
(d) The execution and delivery by Borrowers and FSI
of this Amendment and the performance by Borrowers and FSI of its Obligations
under the Credit Agreement, as amended by this Amendment, and each of the other
Loan Documents to which it is a party have been duly authorized by all necessary
corporate action on the part of Borrowers and FSI;
(e) The execution and delivery by each Borrower and
FSI of this Amendment and the performance by each Borrower and FSI of its
Obligations under the Credit Agreement, as amended by this Amendment, and each
of the other Loan Documents to which it is a party do not and will not
contravene (i) any law or regulation binding on or affecting such Borrower or
FSI, (ii) the organizational documents of such Borrower or FSI, (iii) any order,
judgment or decree of any court or other governmental or public body or
authority, or subdivision thereof, binding on such Borrower or FSI or (iv) any
contractual restriction binding on or affecting such Borrower or FSI;
(f) The execution and delivery by each Borrower and
FSI of this Amendment and the performance by each Borrower and FSI of its
Obligations under the Credit Agreement, as amended by this Amendment, and each
of the other Loan Documents to which it is a party do not require any order,
consent, approval, license, authorization or validation of, or filing, recording
or registration with, or exemption by any governmental or public body or
authority, or subdivision thereof, binding on each Borrower and FSI, except as
already has been obtained or made; and
(g) This Amendment has been duly executed and
delivered by each Borrower and FSI and is the binding Obligation of each
Borrower and FSI, enforceable against it in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors' rights.
SECTION 4. REAFFIRMATION. Each Borrower and FSI hereby reaffirms its
Obligations under each Loan Document to which it is a party.
SECTION 5. EFFECTIVENESS. This Amendment shall become effective upon
the last to occur of :
(a) The execution and delivery of this Amendment,
whether the same or different copies, by each Borrower, FSI and each Lender to
Agent;
(b) The execution and delivery by PLMI to Agent of
the Acknowledgment of Amendment and Reaffirmation of Guaranty attached to this
Amendment; and
(c) The receipt by Agent of a certificate of the
secretary of FSI for itself and as the sole general partner or manager, as
applicable of each Borrower, with incumbency signatures, attaching copies,
certified to be true and correct, of (i) the current organizational documents of
each Borrower and FSI (which certificate may instead refer to and incorporate by
reference to such documents as previously delivered to Agent under an identified
prior certificate of the secretary of Borrower) and certifying that such
organizational documents have not been further amended and remain in full force
and effect, and (ii) resolutions of the board of directors of FSI approving this
Amendment.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA.
SECTION 7. CLAIMS, COUNTERCLAIMS, DEFENSES, RIGHTS OF SET-OFF. EACH
BORROWER AND FSI HEREBY REPRESENTS AND WARRANTS TO AGENT AND EACH LENDER THAT IT
HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE
OR RIGHT OF SET-OFF.
SECTION 8. COUNTERPARTS. This Amendment may be signed in any number of
counterparts, and by different parties hereto in separate counterparts, with the
same effect as if the signatures to each such counterpart were upon a single
instrument. All counterparts shall be deemed an original of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above.
BORROWER PLM EQUIPMENT GROWTH FUND VI
BY PLM FINANCIAL SERVICES, INC.,
ITS GENERAL PARTNER
By: /s/Richard K Brock
Title: Acting CFO, Vice President and
Corporate Controller
PLM EQUIPMENT GROWTH & INCOME FUND VII
BY PLM FINANCIAL SERVICES, INC.,
ITS GENERAL PARTNER
By: /s/Richard K Brock
Title: Acting CFO, Vice President and
Corporate Controller
PROFESSIONAL LEASE MANAGEMENT INCOME FUND I,
L.L.C.
BY PLM FINANCIAL SERVICES, INC.,
ITS MANAGER
By: /s/Richard K Brock
Title: Acting CFO, Vice President and
Corporate Controller
FSI PLM FINANCIAL SERVICES, INC.
By: /s/Richard K Brock
Title: Acting CFO, Vice President and
Corporate Controller
LENDERS FIRST UNION NATIONAL BANK
By: /s/Bill A. Shirley
Title: Senior Vice President
AGENT FIRST UNION NATIONAL BANK
By: /s/Bill A. Shirley
Title: Senior Vice President
