CANADIAN AIR TRUST #2
(A TRUST)
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Owners
Canadian Air Trust #2
We have audited the accompanying balance sheet of the Canadian Air Trust #2 (the
Trust) as of December 31, 1998, and the statements of income, changes in owners'
equity, and cash flows for the years 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 audits in accordance with auditing standards generally accepted
in the United States of America. 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.
As described in Note 1 to the financial statements, the Trust was liquidated 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 years then
ended in conformity with accounting principles generally accepted in the United
States of America. The accompanying 2000 and 1999 financial statements were not
audited by us, and accordingly, we express no opinion or any other form of
assurance on them.
/S/ KPMG LLP
SAN FRANCISCO, CALIFORNIA
June 9, 2000
CANADIAN AIR TRUST #2
(A TRUST)
BALANCE SHEETS
DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
2000 1999
(unaudited) (unaudited)
-----------------------------------
ASSETS
Accounts receivable $ -- $ 244
-----------------------------------
Total assets $ -- $ 244
===================================
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Due to affiliates $ -- $ 5
-----------------------------------
Total liabilities -- 5
Owners' equity -- 239
-----------------------------------
Total liabilities and owner's equity $ -- $ 244
===================================
See accompanying auditors' report and notes to financial statements.
CANADIAN AIR TRUST #2
(A TRUST)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
2000 1999 1998
(unaudited) (unaudited)
---------------------------------------------------------
REVENUES
Lease revenue $ -- $ -- $ 1,599
Interest income 31 29 47
Gain from the sale of aircraft -- -- 8,196
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Total revenues 31 29 9,842
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EXPENSES
Depreciation and amortization expense -- -- 853
Management fees to affiliate -- -- 26
Repairs and maintenance expense -- -- --
Insurance expense -- -- 16
Administrative expenses to affiliates -- -- 37
Administrative expenses -- -- 5
--------------------------------------------------------------------------------------------------------------
Total expenses -- -- 937
---------------------------------------------------------
Net income $ 31 $ 29 $ 8,905
=========================================================
See accompanying auditors' report and notes to financial statements.
CANADIAN AIR TRUST #2
(A TRUST)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS)
Owners' equity at December 31, 1997 $ 15,599
Net income 8,905
Distributions paid (24,066)
-----------------
Owners' equity at December 31, 1998 438
Net income 29
Distributions paid (228)
-----------------
Owners' equity at December 31, 1999 (unaudited) 239
Net income 31
Distributions paid (270)
---------------------------------------------------------------------------
Owners' equity at December 31, 2000 (unaudited) $ --
=================
See accompanying auditors' report and notes to financial statements.
CANADIAN AIR TRUST #2
(A TRUST)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS)
2000 1999 1998
(unaudited) (unaudited)
---------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 31 $ 29 $ 8,905
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization -- -- 853
Gain from the sale of aircraft -- -- (8,196)
Changes in operating assets and liabilities:
Accounts receivable 244 194 958
Prepaid deposits -- -- 6
Accounts payable and accrued expenses -- -- (23)
Due to affiliates (5) 5 (41)
Lessee deposits -- -- (288)
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Net cash provided by operating activities 270 228 2,174
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INVESTING ACTIVITIES
Transfer of equipment to owner -- -- 1,413
Proceeds from the sale of aircraft -- -- 13,313
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Net cash provided by investing activities -- -- 14,726
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FINANCING ACTIVITIES
Proceeds from affiliates -- -- 7,166
Distributions paid (270) (228) (24,066)
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Net cash used in financing activities (270) (228) (16,900)
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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 $ -- $ -- $ --
=======================================================
SUPPLEMENTAL INFORMATION
Noncash transfer of equipment at net book value to
owner $ -- $ -- $ 1,413
========================================================
See accompanying auditors' report and notes to financial statements.
CANADIAN AIR TRUST #2
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. Summary of Significant Accounting Policies
ORGANIZATION
In 1995, PLM Equipment Growth Fund III (EGF III), a California limited
partnership, PLM Equipment Growth Fund IV (EGF IV), a California limited
partnership, 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) 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 seven Boeing 737-200 commercial
aircraft. The Trust had no employees nor operations other than the operation of
the seven Boeing 737-200's.
The Trust contained a provision for allocating specific aircraft to the
beneficial owners under certain circumstances. Two of the commercial aircraft,
one owned by EGF III and another owned by EGF V, were transferred to the owner's
limited partnership during 1998 and 1996, respectively. All of the remaining
aircraft in the Trust had been sold as of December 31, 1998. The Trust was
liquidated in 2000.
PLM Financial Services Inc., (FSI) is the General Partner of EGFs III, IV, 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 1995 for $30.1 million. EGF III, EGF IV, EGF
V, EGF VI, and EGF VII (the EGF's) collectively paid acquisition and lease
negotiation fees of $1.4 million to PLM Worldwide Management Services (WMS), a
wholly-owned subsidiary of PLM International, Inc., based on the pro-rata 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 September 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. All amounts as of and for the years ended December 31,
2000 and 1999 are unaudited.
OPERATIONS
The aircraft in the Trust were managed under a continuing 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 Trust had no cash balance at December 31, 2000 and 1999.
CANADIAN AIR TRUST #2
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
ACCOUNTING FOR LEASES
The aircraft under the Trust were leased under an operating lease. Under the
operating lease method of accounting, the leased assets were recorded at cost
and depreciated over its estimated useful life. Rental payments were 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 equally over 36 months.
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 $1.2
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 2000,
1999, or 1998.
REPAIRS AND MAINTENANCE
Repair and maintenance for the aircraft are usually the obligation of the
lessee.
NET INCOME AND CASH DISTRIBUTIONS TO OWNERS
The net income and cash distributions of the Trust were allocated to the Owners.
The net income was generally allocated to the Owners based on number of aircraft
owned. Certain depreciable and amortizable amounts were allocated specifically
to the EGF's, such as depreciation on acquisition fees and amortization on lease
negotiation fees. Cash distributions were 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, 2000, 1999, and 1998.
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-, $-0-, and $26,000
during 2000, 1999, and 1998, respectively.
CANADIAN AIR TRUST #2
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
2. TRANSACTIONS WITH AFFILIATES (continued)
The Trust reimbursed FSI $-0-, $-0-, and $37,000 during 2000, 1999, and 1998,
respectively, for data processing and administrative expenses directly
attributable to the Trust.
Trust management fees payable to IMI was $5,000 as of December 31, 1999. No
Trust management fees were payable to IMI as of December 31, 2000.
3. GEOGRAPHIC INFORMATION
The aircraft were leased and operated in Canada.
4. 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.
5. CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Trust to concentrations of
credit risk, consisted principally of lease receivables.
The aircraft in the Trust were on lease to only one customer during 1998. This
lessee, Canadian Airlines International, accounted for all of the lease revenue.
Triton Aviation Services, Ltd. purchased three commercial aircraft with the
existing lease attached from the Trust and the gain from the sale accounted for
83% of total consolidated revenues during 1998.
As of December 31, 2000, the manager believes the Trust had no other significant
concentrations of credit risk that could have a material adverse effect on the
Trust.