INDEPENDENT AUDITORS' REPORT
The Owners
Boeing 767
We have audited the accompanying balance sheet of the Boeing 767 as of December
31, 1999, and the related statements of income, 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.
As described in Note 1 to the financial statements, the Boeing 767 is expected
to terminate in 2000, as the aircraft equipment in the Boeing 767 has been sold.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Boeing 767 as of December
31, 1999, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles. The
accompanying 1998 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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BOEING 767
(A Tenancy-In-Common)
Balance Sheets
December 31,
(in thousands of dollars)
1999 1998
(unaudited)
------------------------------------
ASSETS
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Aircraft equipment held for lease, at cost $ -- $ 42,483
Less accumulated depreciation -- (25,648 )
-------------------------------------
Net equipment -- 16,835
Accounts receivable, less allowance for
doubtful accounts of $284 in 1999 and $0 in 1998 -- 1,410
Due from affiliates -- 4,043
Prepaid expenses -- 6
-------------------------------------
Total assets $ -- $ 22,294
=====================================
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ -- $ 15
Due to affiliates 3 63
Lessee deposits and reserve for repairs -- 4,276
------------------------------------
Total liabilities 3 4,354
Owners' equity (3) 17,940
------------------------------------
Total liabilities and owners' equity $ -- $ 22,294
====================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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BOEING 767
(A Tenancy-In-Common)
STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands of dollars)
1999 1998 1997
----------------
(unaudited) (unaudited)
--------------------------------------------------------
REVENUES
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Lease revenue $ 1,648 $ 5,130 $ 4,920
Net gain on disposition of equipment 24,415 -- --
-------------------------------------------------------
Total revenues 26,063 5,130 4,920
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EXPENSES
Depreciation expense 1,186 3,367 4,043
Management fees to affiliate 92 268 283
Interest expense 15 43 37
Insurance expense 30 68 52
Administrative expenses to affiliates 61 87 70
Administrative expenses and other 68 27 2
Provision for bad debts 284 -- --
-------------------------------------------------------
Total expenses 1,736 3,860 4,487
-------------------------------------------------------
Net income $ 24,327 $ 1,270 $ 433
=======================================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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BOEING 767
(A Tenancy-In-Common)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
For the Years Ended December 31, 1999 , 1998, and 1997
(in thousands of dollars)
Owners' equity at December 31, 1996 (unaudited) $ 23,925
Net income 433
Distributions paid (4,378)
----------------
Owners' equity at December 31, 1997 (unaudited) 19,980
Net income 1,270
Distributions paid (3,310)
----------------
Owners' equity at December 31, 1998 (unaudited) 17,940
Net income 24,327
Distributions paid (42,270)
----------------
Owners' equity at December 31, 1999 $ (3)
================
See accompanying auditors' report and notes to financial statements.
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BOEING 767
(A Tenancy-In-Common)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
1999 1998 1997
(unaudited) (unaudited)
---------------------------------------------------------
OPERATING ACTIVITIES
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Net income $ 24,327 $ 1,270 $ 433
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 1,186 3,367 4,043
Net gain on disposition of aircraft equipment (24,415) -- --
Changes in operating assets and liabilities:
Accounts receivable, net 1,691 (1,410) --
Due from affiliates 4,043 (416) (534)
Prepaid expenses 6 2 2
Accounts payable and accrued expenses (15) 11 (102)
Due to affiliates (60) 40 --
Lessee deposits and reserve for repairs (1,279) 446 535
--------------------------------------------------------
Net cash provided by operating activities 5,484 3,310 4,377
--------------------------------------------------------
Investing activities
Proceeds from disposition of aircraft 36,786 -- --
---------------------------------------------------------
Net cash provided by investing activities 36,786 -- --
--------------------------------------------------------
Financing activities
Distributions paid (42,270) (3,310) (4,378)
--------------------------------------------------------
Net cash used in financing activities (42,270) (3,310) (4,378)
--------------------------------------------------------
Net decrease in cash and cash equivalents -- -- (1)
Cash and cash equivalents at beginning of year -- -- 1
--------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
========================================================
Supplemental information:
Interest paid $ 268 $ -- $ --
=========================================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
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BOEING 767
(A TENANCY-IN-COMMON)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
In December 1993, a Tenancy-In-Common Agreement was entered into between PLM
Equipment Growth Fund (EGF), a California limited partnership, PLM, Equipment
Growth Fund VI (EGFVI), a California limited partnership, and PLM Equipment
Growth & Income Fund VII (EGFVII), a California limited partnership (the
Partnerships). The tenancy-in-common (TIC) was entered into for the purpose of
purchasing a Boeing 767 extended range aircraft. The TIC has no employees nor
operations other than the operation of the Boeing 767. The TIC is owned 12% by
EGF, 64% by EGFVI, and 24% by EGFVII. PLM Financial Services Inc., (FSI) is the
General Partner of the Partnerships owning the TIC. FSI is a wholly-owned
subsidiary of PLM International, Inc.
The aircraft was purchased in December 1993 for $40.6 million. A five-year lease
with Transbrasil S/A Linhas Aereas was signed upon the acquisition of the
aircraft. In June 1999, the aircraft was sold for proceeds of $40.1 million
resulting in a gain of $24.4 million. The TIC is expected to be liquidated in
2000, as the aircraft in the TIC has been sold.
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 TIC 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 TIC 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 TIC has no cash balance at December 31, 1999 and 1998.
ACCOUNTING FOR LEASES
The aircraft under the TIC was 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 over the life of the lease.
DEPRECIATION
Depreciation of aircraft equipment was computed on the double declining balance
method, taking a full month's depreciation in the month of acquisition, based
upon estimated useful lives of 12 years. Acquisition fees of $1.6 million, which
were paid to FSI, were capitalized as part of the cost of the equipment and
depreciated over the life of the aircraft. Major expenditures that were expected
to extend
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BOEING 767
(A TENANCY-IN-COMMON)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the equipment's useful life or reduce future equipment operating expenses were
capitalized and amortized over the estimated remaining life of the equipment.
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 reviewed the carrying value of the equipment under the TIC
at least quarterly, and whenever circumstances indicated 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 fair value were less than the
carrying value of the equipment, a loss on revaluation would have been recorded.
No reductions to the carrying value of equipment were required during 1999,1998,
or 1997.
REPAIRS AND MAINTENANCE
Repair and maintenance cost to aircraft are usually the obligation of the
lessee. To meet the maintenance requirements of certain aircraft airframes and
engines, reserve accounts were funded monthly by the lessee based on engine
hours. The reserve accounts are included in the balance sheet as lessee deposits
and reserve for repairs.
NET INCOME (LOSS) AND CASH DISTRIBUTION TO OWNERS
The net income (loss) and cash distributions are allocated to the owners based
on their percentage of ownership in the TIC.
COMPREHENSIVE INCOME
The TIC'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 (i) 10% of the amount of Cash Flows from operations, for PLM Equipment
Growth Fund and (ii) 5% of gross revenues for PLM Equipment Growth Fund VI and
PLM Equipment Growth and million, for 1998 and 1997 respectively.
FSI and its affiliates were reimbursed $0.1 million by the TIC for
administrative services performed on behalf of the TIC during 1999, 1998, and
1997, respectively.
The balance in due to affiliates as of December 31, 1999 includes $3,231 due to
FSI. This amount was paid in 2000. The balance due to affiliates as of December
31, 1998 was $0.1 million. This was paid in 1999.
<PAGE>
BOEING 767
(A TENANCY-IN-COMMON)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. EQUIPMENT
Revenues were earned by placing the aircraft in operating leases. A five-year
lease with Transbrasil S/A Linhas Aereas was signed upon the acquisition of the
aircraft in 1993.
The original lease expired in September 1998. After the original lease expired,
the aircraft was on a month-to-month lease until April 1999, upon which the
aircraft went off-lease. In June 1999, the aircraft was sold for proceeds of
$40.1 million, which resulted in a gain of $24.4 million. The proceeds consisted
of cash of $36.5 million, engine reserves of $3.0 million, and $0.5 million in
receivables related to unpaid rents and engine reserve fundings, which were
netted against the security deposit. As of December 31, 1999, $0.3 million of
this receivable was still outstanding. This was fully reserved for as allowance
for doubtful accounts as of December 31, 1999.
4. GEOGRAPHIC INFORMATION
The aircraft was leased and operated in South America.
5. INCOME TAXES
The TIC is not subject to income taxes, as any income or loss is included in the
tax returns of the individual partners owning the Partnerships. Accordingly, no
provision for income taxes has been made in the financial statements of the TIC.
As of December 31, 1999, there were no temporary differences between the
financial statements carrying value of assets and the income tax basis.
6. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the TIC to concentrations of
credit risk consist principally of lease receivables. The aircraft in the TIC
was on lease to only one customer during 1999, 1998, and 1997. This lessee,
Transbrasil S/A Linhas Aereas, accounted for all of the revenue prior to the
sale of the aircraft in June 1999. The aircraft was sold to AAR Aircraft and
Engine Group.
As of December 31, 1999, the General Partner believes the TIC had no other
significant concentrations of credit risk that could have a material adverse
effect on the TIC.
