INDEPENDENT AUDITORS' REPORT
The Owners
Canadian Air Trust #3
We have audited the accompanying balance sheet of the Canadian Air Trust #3 (the
Trust) 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.
As described in Note 1 to the financial statements, the Trust is expected to
liquidate in 2000, as the aircraft in the Trust has been sold.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Trust 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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CANADIAN AIR TRUST #3
(A Trust)
Balance Sheets
December 31,
(in thousands of dollars)
1999 1998
(unaudited)
-------------------------------------
ASSETS
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Accounts receivable $ 315 $ 564
-------------------------------------
Total assets $ 315 $ 564
=====================================
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Due to affiliates $ 4 $ 6
------------------------------------
Total liabilities 4 6
Owners' equity 311 558
------------------------------------
Total liabilities and owners' equity $ 315 $ 564
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See accompanying auditors' report and notes to financial statements.
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CANADIAN AIR TRUST #3
(A Trust)
STATEMENTS OF OPERATIONS
For the Years Ended December 31,
(in thousands of dollars)
1999 1998 1997
-----------------
(unaudited) (unaudited)
---------------------------------------------------------
REVENUES
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Lease revenue $ -- $ 1,933 $ 5,547
Interest income 50 74 79
Gain from the sale of aircraft -- 13,733 --
---------------------------------------------------------
Total revenues 50 15,740 5,626
---------------------------------------------------------
EXPENSES
Depreciation and amortization expense -- 1,262 5,641
Management fees to affiliate -- 36 97
Insurance expense -- 18 29
Administrative expenses to affiliates -- 40 70
Administrative expenses -- 6 2
---------------------------------------------------------
Total expenses -- 1,362 5,839
---------------------------------------------------------
Net income (loss) $ 50 $ 14,378 $ (213)
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See accompanying auditors' report and notes to financials tatements.
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CANADIAN AIR TRUST #3
(A Trust)
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) $ 16,597
Net loss (213)
Distributions paid (3,299)
-----------------
Owners' equity at December 31, 1997 (unaudited) 13,085
Owners' capital contribution 1,199
Net income 14,378
Distributions paid (28,104)
-----------------
Owners' equity at December 31, 1998 558
Net income 50
Distributions paid (297)
-----------------
Owners' equity at December 31, 1999 (unaudited) $ 311
=================
See accompanying auditors' report and notes to financial statements.
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CANADIAN AIR TRUST #3
(A Trust)
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 (loss) $ 50 $ 14,378 $ (213)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 1,262 5,641
Gain from the sale of aircraft -- (13,733) --
Changes in operating assets and liabilities:
Accounts receivable 249 1,313 (917)
Prepaid deposits -- 5 1
Accounts payable and accrued expenses (2) (4) (4)
Due to affiliates -- (21) 18
Lessee deposits -- -- (1,227)
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Net cash provided by operating activities 297 3,200 3,299
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Investing activities
Payment for capitalized repairs -- (1,199) --
Payment of acquisition fees -- (54) --
Payment for lease negotiation fees -- (12) --
Proceeds from the sale of aircraft -- 24,970 --
-------------------------------------------------------
Net cash provided by investing activities -- 23,705 --
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Financing activities
Owners' capital contribution -- 1,199 --
Distributions paid (297) (28,104) (3,299)
-----------------------------------------------------
Net cash used in financing activities (297) (26,905) (3,299)
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Net change in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
-------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
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See accompanying auditors' report and notes to financial statements.
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CANADIAN AIR TRUST #3
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
In 1995, a Trust Agreement (the Trust) was entered into between PLM Equipment
Growth Fund V (EGF V), a California limited partnership, PLM Equipment Growth
Fund VI (EGF VI), a California limited partnership, PLM Equipment Growth &
Income Fund VII (EGF VII), a California limited partnership, and Professional
Lease Management Income Fund I (Fund I), a Delaware Limited Liability Company,
(the Owners). The Trust was entered into for the purpose of purchasing five
Boeing 737-200 commercial aircraft. The Trust has no employees nor operations
other than the operation of the five Boeing 737-200's.
The Trust contained a provision for allocating specific aircraft to the
beneficial owners under certain circumstances. One of the commercial aircraft,
owned by EGF V, was transferred to the limited partnership during 1996. All of
the remaining aircraft in the Trust had been sold as of December 31, 1998. The
Trust is expected to liquidate in 2000.
PLM Financial Services Inc., (FSI) is the General Partner of EGFs V, VI, and VII
and the Manager of Fund I. FSI is a wholly-owned subsidiary of PLM
International, Inc.
The aircraft were purchased during 1996 for $28.1 million. EGF V, EGF VI, and
EGF VII (the EGF's) collectively paid acquisition and lease negotiation fees of
$1.0 million to PLM Worldwide Management Services (WMS), a wholly-owned
subsidiary of PLM International, Inc., based on the prorata share of the cost of
the aircraft purchased. No fees were paid by Fund I. Upon the purchase of the
aircraft, a lease with Canadian Airlines International was entered into with a
term expiring in March 2002.
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 were managed under a management agreement by PLM
Investment Management, Inc. (IMI), a wholly-owned subsidiary of FSI. IMI
received 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 Trusi has no cash balance at December 31, 1999 and 1998.
ACCOUNTING FOR LEASES
The aircraft in the Trust were 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 were
amortized over the life of the lease.
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CANADIAN AIR TRUST #3
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION
Depreciation of aircraft equipment was 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. Acquisition fees of $0.8
million were paid to WMS and were capitalized as part of the cost of the
equipment and amortized over the life of the aircraft.
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 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 were 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 1998 or
1997.
REPAIRS AND MAINTENANCE
Repair and maintenance for the aircraft was usually the obligation of the
lessee.
NET INCOME AND CASH DISTRIBUTIONS TO OWNERS
The net income and cash distributions of the Trust are allocated to the Owners.
Net income is generally allocated to the Owners based on number of aircraft
owned. Certain depreciable and amortizable amounts are allocated specifically to
the EGF's, such as depreciation on acquisition fees and amortization on lease
negotiation fees. Cash distributions are allocated based on the number of
aircraft owned.
COMPREHENSIVE INCOME
The Trust's net income is equal to comprehensive income for the years ended
December 31, 1999, 1998, and 1997.
2. TRANSACTIONS WITH AFFILIATES
Under the equipment management agreement, IMI received 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, $36,000, and $0.1
million during 1999, 1998, and 1997, respectively.
The Trust reimbursed FSI $0, $40,000, and $0.1 million during 1999, 1998, and
1997, respectively, for data processing and administrative expenses directly
attributable to the Trust.
The balance due to affiliates as of December 31, 1999, included $3,000 due to
affiliates for management fees and $1,000 due to an affiliated partnership for
expenses paid on its behalf.
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CANADIAN AIR TRUST #3
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. AIRCRAFT ON LEASE
Revenues were earned by placing the aircraft in operating leases. A six-year
lease with Canadian Airlines International was signed upon the acquisition of
the aircraft in 1996.
During 1997, the lessee was having financial difficulties and was unable to pay
the Trust 3 months rent. The Trust negotiated a repayment schedule starting
October 1998 in which the lessee would make 10 equal quarterly installments plus
interest of 12% on the unpaid balance secured by a letter-of-credit. The last
quarterly installment is due January 2001. As of July 2000, the lessee remains
current with the repayment plan.
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 $6.9 million in 2000, $6.9 million
in 2001, $1.7 million in 2002, and $0 thereafter.
4. GEOGRAPHIC INFORMATION
The aircraft were leased and operated in Canada.
5. INCOME TAXES
The Trust is not subject to income taxes, as any income or loss is included in
the tax returns of the Owners of the Trust. Accordingly, no provision for income
taxes has been made in the financial statements of the Trust.
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 Trust to concentrations of
credit risk, consist principally of lease receivables.
The aircraft in the Trust were on lease to only one customer during 1998 and
1997. This lessee, Canadian Airlines International, accounted for all of the
lease revenue. Triton Aviation Services, Ltd. purchased all the commercial
aircraft with the existing lease attached from the Trust and the gain from the
sale accounted for 87% of total consolidated revenues during 1998.
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.
