INDEPENDENT AUDITORS' REPORT
The Owners
TWA Trust S/N 49183
We have audited the accompanying balance sheet of the TWA Trust S/N 49183 as of
December 31, 1998, and the related statements of operations, changes in owners'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the owner's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 the TWA Trust S/N 49183 as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles. The
accompanying 1999 and 1997 financial statements were not audited by us, and
accordingly, we express no opinion or any other form of assurance on them.
/S/ KPMG
SAN FRANCISCO, CALIFORNIA
June 9, 2000
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TWA TRUST S/N 49183
(A TRUST)
BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998
(unaudited)
-------------------------------------
ASSETS
<S> <C> <C>
Aircraft equipment held for lease, at cost $ 13,957 $ 13,957
Less accumulated depreciation (10,468) (6,978)
-----------------------------------
Net equipment 3,489 6,979
Accounts receivable 200 --
Lease negotiation fees, less accumulated
amortization of $34 in 1999 and $17 in 1998 34 51
Prepaid expenses 2 2
-----------------------------------
Total assets $ 3,725 $ 7,032
===================================
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 1 $ 2
Due to affiliates 20 20
Lessee deposits 123 123
-----------------------------------
Total liabilities 144 145
Owners' equity 3,581 6,887
------------------------------------
Total liabilities and owners' equity $ 3,725 $ 7,032
===================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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<CAPTION>
TWA TRUST S/N 49183
(A TRUST)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
For the period
from 12/30/97
(inception)
through
1999 1998 12/31/97
(unaudited) (unaudited)
--------------------------------------------------------
REVENUES
<S> <C> <C> <C>
Lease revenue $ 2,401 $ 2,355 $ --
-------------------------------------------------------
Total revenues 2,401 2,355 --
-------------------------------------------------------
EXPENSES
Depreciation and amortization expense 3,507 6,995 --
Management fees to affiliate 120 118 --
Insurance expense 18 9 --
Administrative expenses to affiliates 28 20 --
Administrative expenses -- 1 1
------------------------------------------------------
Total expenses 3,673 7,143 1
-------------------------------------------------------
Net loss $ (1,272) $ (4,788) $ (1)
=======================================================
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See accompanying auditors' report and notes to financial statements.
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TWA TRUST S/N 49183
(A TRUST)
STATEMENTS OF CHANGES IN OWNERS' EQUITY FOR THE
PERIOD FROM INCEPTION DECEMBER 30, 1997 THROUGH DECEMBER 31, 1997 AND FOR THE
YEARS ENDED DECEMBER 31, 1998 AND 1999
(IN THOUSANDS OF DOLLARS)
Owners' capital contribution $ 1,365
Net loss (1)
----------------
Owners' equity at December 31, 1997 (unaudited) 1,364
Owners' capital contribution 12,660
Net loss (4,788)
Distributions paid (2,349)
----------------
Owners' equity at December 31, 1998 6,887
Net loss (1,272)
Distributions paid (2,034)
----------------
Owners' equity at December 31, 1999 (unaudited) $ 3,581
================
See accompanying auditors' report and notes to financial statements.
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<CAPTION>
TWA TRUST S/N 49183
(A TRUST)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
For the period
from 12/30/97
(inception)
through
1999 1998 12/31/97
(unaudited) (unaudited)
---------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (1,272) $ (4,788 ) $ (1)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,507 6,995 --
Changes in operating assets and liabilities:
Accounts receivable (200) -- --
Prepaid expenses -- (2) --
Accounts payable and accrued expenses (1) 1 1
Due to affiliates -- 20 --
Lessee deposits -- 123 --
--------------------------------------------------------
Net cash provided by operating activities 2,034 2,349 --
--------------------------------------------------------
Investing activities
Payments for the purchase of aircraft -- (12,285) --
Payment for aircraft acquisition deposit -- -- (1,365)
Payment of acquisition fees to affiliate -- (307) --
Payment of lease negoitation fees to affiliate -- (68) --
--------------------------------------------------------
Net cash used in investing activities -- (12,660) (1,365)
--------------------------------------------------------
Financing activities
Owners' capital contributions -- 12,660 1,365
Distributions paid (2,034) (2,349) --
--------------------------------------------------------
Net cash (used in) provided by financing activities (2,034) 10,311 1,365
--------------------------------------------------------
Net change in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of period -- -- --
--------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
========================================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
<PAGE>
TWA TRUST S/N 49183
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
In December 1997, PLM Equipment Growth & Income Fund VII (EGFVII), a California
limited partnership, and Professional Lease Management Income Fund I (Fund I), a
Delaware Limited Liability Company, (the Owners) entered into a Trust Agreement
(the Trust) with PLM Transportation Equipment Corp.(TEC), a wholly-owned
subsidiary of PLM International, Inc., by the terms of which TEC is owner
trustee for the benefit of the Owners as equal co-beneficiaries. The Trust was
established for the purpose of purchasing a McDonnell Douglas MD-82 commercial
aircraft. The Trust has no employees nor operations other than the operation of
the MD-82 commercial aircraft.
The Trust estate is owned 50% by EGF VII and 50% by Fund I.
PLM Financial Services Inc., (FSI) is the General Partner of EGF VII and the
Manager of Fund I. FSI is a wholly-owned subsidiary of PLM International, Inc.
The aircraft was purchased in January 1998 for $13.7 million. EGF VII paid
acquistion and lease negotiation fees of $0.4 million to FSI, no fees were paid
by Fund I. The aircraft was purchased subject to a lease to Trans World Airlines
with a term expiring in December 2001.
These accompanying 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 aircraft in the Trust 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 Trust for managing the aircraft (Note
2). FSI, in conjunction with its subsidiaries, sells transportation equipment to
investor programs and third parties, manages pools of transportation equipment
under agreements with the investor programs, and is a general partner in limited
partnerships.
CASH AND CASH EQUIVALENTS
All cash generated from operations is distributed to the owners, accordingly,
the Trust has no cash balance at December 31, 1999 and 1998.
ACCOUNTING FOR LEASES
The aircraft under the Trust is leased under an operating lease. 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 in accordance with Financial Accounting Standards
Board Statement No. 13 "Accounting for Leases". Lease origination costs are
amortized equally over 48 months.
DEPRECIATION
Depreciation of aircraft equipment is computed using the double-declining
balance method, taking a full month's depreciation in the month of acquisition,
based upon an estimated useful life of 4 years. Acquisition fees of $0.3
million, which were paid to FSI, were capitalized as part of the cost of the
equipment and amortized over the life of the aircraft.
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TWA TRUST S/N 49183
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AIRCRAFT
In accordance with the Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", FSI reviews the carrying value of the aircraft under the Trust
at least quarterly, and whenever circumstances indicated that the carrying value
of the aircraft 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 fair value are less than the
carrying value of the aircraft, a loss on revaluation would have been recorded.
No reductions to the carrying value of the aircraft were required during 1999 or
1998.
REPAIRS AND MAINTENANCE
Repair and maintenance for the aircraft are usually the obligation of the
lessee.
NET LOSS AND CASH DISTRIBUTIONS TO OWNERS
The net loss and cash distributions of the Trust are allocated to the Owners.
The net loss are generally allocated to the Owners based on their percentage of
ownership in the Trust. Certain depreciable and amortizable amounts are
allocated specifically to EGF VII, such as depreciation on acquisition fees and
amortization on lease negotiation fees. Cash distributions are allocated 50% to
EGF VII and 50% to Fund I.
COMPREHENSIVE INCOME
The Trust's net income is equal to comprehensive income for the years ended
December 31,1999, 1998, and 1997.
2. GENERAL PARTNER AND TRANSACTIONS WITH AFFILIATES
Under the equipment management agreement, IMI receives a monthly management fee
equal to the lessor of (i) the fees that would be charged by an independent
third party for similar services for similar equipment or (ii) 5% of the gross
lease revenues attributable to equipment that is subject to operating leases.
The Trust's management fee expense to affiliate was $0.1 million during 1999 and
1998.
The Trust reimbursed FSI $28,000 and $20,000 during 1999 and 1998, respectively,
for data processing and administrative expenses directly attributable to the
Trust. No fees were reimbursed to FSI during 1997.
Trust management fees payable to IMI was $20,000 as of December 31, 1999 and
1998.
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TWA TRUST S/N 49183
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. EQUIPMENT
Revenues were earned by placing the aircraft on an operating lease. A four-year
lease with Trans World Airlines was signed upon the acquisition of the aircraft
in 1998.
The aircraft in the Trust is used as collateral against the senior loan of the
Owners.
The aircraft lease is accounted for as an operating lease. Future minimum
rentals under noncancelable operating leases, as of December 31, 1999, during
each of the next five years are approximately $2.4 million in 2000, $2.3 million
in 2001, and $0 thereafter.
4. GEOGRAPHIC INFORMATION
The aircraft was leased and operated in North America.
5. INCOME TAXES
The Trust is not subject to income taxes, as any income or loss is included in
the tax return of the individual partners and members owning the Owners.
Accordingly, no provision for income taxes has been made in the financial
statements of the Trust.
As of December 31, 1999, the financial statement carrying amount of assets and
liabilities was approximately $4.5 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods and lessees' prepaid deposits.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Trust to concentrations of
credit risk, consist principally of lease receivables. The aircraft in the Trust
was on lease to only one customer during 1999 and 1998. This lessee, Trans World
Airlines, accounted for all of the revenue.
As of December 31, 1999, the manager believes the Trust had no other significant
concentrations of credit risk that could have a material adverse effect on the
Trust.
