INDEPENDENT AUDITORS' REPORT
The Partners
Ulloa Partnership
We have audited the accompanying statements of operations, changes in partners'
capital, and cash flows of Ulloa Partnership (the Partnership) for the year
ended December 31, 1997. These statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
statements based on our audits.
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 statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As described in Note 1 to the financial statements, the Partnership is expected
to terminate in 2000.
In our opinion, the statements referred to above present fairly, in all material
respects, the results of the Partnership's operation and its cash flows for the
year ended December 31, 1997 in conformity with generally accepted accounting
principles. The accompanying 1999 and 1998 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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<TABLE>
<CAPTION>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998
ASSETS (unaudited) (unaudited)
--------------------------------------------
<S> <C> <C>
Marine vessel held for lease, at cost $ 12,790 $ 12,790
Less accumulated depreciation (8,563) (7,718)
--------------------------------------
Net equipment 4,227 5,072
Accounts receivable 410 165
Prepaid expenses -- 22
--------------------------------------
Total assets $ 4,637 $ 5,259
======================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses 42 $ 136
Due to affiliates 25 13
Reserve for repairs 212 85
---------------------------------------
Total liabilities 279 234
Partners' capital:
Limited partners 4,442 5,102
General partner (84) (77)
---------------------------------------
Total partners' capital 4,358 5,025
---------------------------------------
Total liabilities and partners' capital $ 4,637 $ 5,259
=======================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998 1997
(unaudited) (unaudited)
---------------------------------------------
REVENUES
<S> <C> <C> <C>
Lease revenue $ 1,910 2,508 $ 2,526
Interest and other income 46 -- --
-------------------------------------------
Total revenues 1,956 2,508 2,526
-------------------------------------------
EXPENSES
Depreciation expense 845 1,015 1,218
Marine operating expense 777 908 862
Repairs and maintenance 257 264 247
Insurance expense to affiliate -- (34) 174
Insurance expense 98 101 510
Management fees to affiliate 96 125 126
Administrative expenses to affiliate 24 30 32
Administrative expenses and other 25 52 21
-------------------------------------------
Total expenses 2,122 2,461 3,190
-------------------------------------------
Net income (loss) $ (166) 47 $ (664)
===========================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS OF DOLLARS)
Limited General
Partners Partner Total
----------------------------------------------------
<S> <C> <C> <C>
Partners' capital as of December 31, 1996 (unaudited) $ 7,197 $ (56) $ 7,141
Net loss (658) (6) (664)
Cash distribution (924) (9) (933)
---------------------------------------------------
Partners' capital as of December 31, 1997 5,615 (71) 5,544
Net income 47 -- 47
Cash distribution (560) (6) (566)
---------------------------------------------------
Partners' capital as of December 31, 1998 (unaudited) 5,102 (77) 5,025
Net loss (164) (2) (166)
Cash distribution (496) (5) (501)
---------------------------------------------------
Partners' capital as of December 31, 1999 (unaudited) $ 4,442 $ (84) $ 4,358
===================================================
</TABLE>
See accompanying auditors' report and notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
1999 1998 1997
(unaudited) (unaudited)
------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) $ (166) $ 47 $ (664)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 845 1,015 1,218
Changes in operating assets and liabilities:
Accounts receivable (245) 37 42
Prepaid expenses 22 3 48
Accounts payable and accrued expenses (94) (215) 290
Due to affiliates 12 (6) (1)
Reserve for repairs 127 (315) --
-----------------------------------------
Net cash provided by operating activities 501 566 933
-----------------------------------------
FINANCING ACTIVITIES
Cash distributions - limited partners (496) (560) (924)
Cash distributions - General Partner (5) (6) (9)
------------------------------------------
Net cash used in financing activities (501) (566) (933)
-----------------------------------------
Net change in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========================================
</TABLE>
See accompanying auditors' report and notes to financials tatements.
<PAGE>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Ulloa Partnership, a California limited partnership (the Partnership), was
formed during December 1993. The Partnership was formed for the purpose of
purchasing a bulk-carrier marine vessel and commenced significant operations in
January 1994. The Partnership has no employees nor operations other than the
operation of the marine vessel. The Partnership is owned 99% by the limited
partners and 1% by the General Partner. The Partnership has two limited
partners; PLM Equipment Growth Fund III (EGF III) and PLM Equipment Growth &
Income Fund VII (EGF VII), (the Limited Partners). The General Partner is the
Ulloa Corporation (UC) which is owned by EGF III and EGF VII. The Limited
Partnership is owned 56% by EGF III and 44% by EGF VII.
The Partnership is expected to terminate during 2000 as EGF III is currently in
its liquidation phase and is scheduled to sell all of its assets by December 31,
2000.
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 marine vessel in the Partnership is managed under a continuing management
agreement by PLM Investment Management, Inc. (IMI), a wholly-owned subsidiary of
PLM Financial Services Inc. (FSI). FSI is a wholly-owned subsidiary of PLM
International, Inc. (PLM International). IMI receives a monthly management fee
from the Partnership for managing the marine vessel (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 the general partner in EGF III, EGF VII, and other
limited partnerships.
CASH AND CASH EQUIVALENTS
All cash generated from operations is distributed to the partners, accordingly,
the Partnership has no cash balance at December 31, 1999 and 1998.
ACCOUNTING FOR LEASES
The marine vessel in the Partnership is leased under 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". Lease origination costs
are capitalized and amortized over the lease term.
DEPRECIATION
Depreciation 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 12 years. The depreciation method changes to straight-line when
annual depreciation expense using the straight-line method exceeds that
calculated by the double-declining balance method. Acquisition fees of $0.5
million, which were paid to FSI, have been capitalized as part of the cost of
the equipment. Major expenditures that are expected to extend the marine
vessel's useful life or reduce future equipment operating expenses, have been
capitalized and amortized over the estimated remaining life of the marine
vessel.
<PAGE>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARINE VESSEL
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", FSI reviews the carrying value of the Partnership's marine
vessel at least quarterly, and whenever circumstances indicate that the carrying
value of this 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
marine vessel is less than the carrying value of the marine vessel, a loss on
revaluation is recorded. No reduction to the carrying value of the marine vessel
was required during 1999, 1998, or 1997.
REPAIRS AND MAINTENANCE
Repair and maintenance cost are generally the obligation of the Partnership.
Costs associated with marine vessel dry-docking are estimated and accrued
ratably over the period prior to such dry-docking. The marine vessel dry-docking
reserve account is included in the balance sheet as reserve for repairs.
NET INCOME (LOSS) AND CASH DISTRIBUTION TO LIMITED PARTNERS
The net income (loss) and cash distributions of the Partnership are generally
allocated 99% to the limited partners and 1% to the General Partner. The net
income (loss) and cash distributions are allocated to the limited partners based
on their percentage of ownership in the Partnership. The limited partners 99%
share of net income (loss) and cash distributions are allocated 56% to EGF III
and 44% to EGF VII.
Cash distributions are recorded when paid.
COMPREHENSIVE INCOME
The Partnership's net income is equal to comprehensive income for the year ended
December 31, 1999, 1998 , and 1997.
2. GENERAL PARTNER
UC contributed $100 of the Partnership's initial capital. UC is owned by two
shareholders, EGF III owns 56% and EGF VII owns 44%. Dividends are paid to the
shareholders annually, when declared, based on the percentage of ownership each
shareholder owns.
3. TRANSACTIONS WITH AFFILIATES
Under the equipment management agreement, IMI, subject to certain reductions,
receives a monthly management fee attributable to owned equipment 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) 5% of the gross lease revenues
attributable to equipment that is subject to operating leases. The Partnership's
management fee expense to affiliate was $0.1 million during 1999,1998, and 1997.
The Partnership reimbursed FSI $24,000, $30,000, and $32,000 during 1999, 1998,
and 1997, respectively, for data processing and administrative expenses directly
attributable to the Partnership.
The Partnership paid $0.2 million in 1997, to Transportation Equipment Indemnity
Company Ltd. (TEI), an affiliate of FSI, which provided marine insurance
coverage and other insurance brokerage services. A substantial portion of this
amount was paid to third-party reinsurance underwriters or 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
<PAGE>
ULLOA PARTNERSHIP
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
are either paid out to cover applicable losses or refunded pro rata by TEI.
During 1998, the Partnership received a $34,000 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 in
2000.
Partnership management fees payable to IMI was $25,000 and $13,000 as of
December 31, 1999 and 1998, respectively.
4. MARINE VESSEL ON LEASE
As of December 31, 1999 and 1998, the Partnership owned one marine vessel which
was on lease.
The Partnership's marine vessel is 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.
The marine vessel in the Partnership is used as collateral against the senior
loans of the Limited Partners.
The marine vessel lease is being accounted for as an operating lease. There are
no future minimum rentals under non-cancelable leases at December 31, 1999. Per
diem and short-term rentals consisting of utilization rate lease payments
included in lease revenues amounted to $1.9 million in 1999 and $2.5 million in
1998 and 1997.
5. GEOGRAPHIC INFORMATION
The Partnership's marine vessel is leased to multiple lessees in different
regions that operate worldwide.
6. 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 owning the Limited
Partnership. 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 $4.3 million lower than the federal income tax
basis of such assets and liabilities, primarily due to differences in
depreciation methods and reserve for repairs.
7. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Partnership to
concentrations of credit risk, consist principally of lease receivables.
No single lessee accounted for more than 10% of the consolidated revenues for
the years ended December 31, 1999, 1998, or 1997.
As of December 31, 1999, the General Partner believes the Partnership had no
other significant concentrations of credit risk that could have a material
adverse effect on the Partnership.
