INDEPENDENT AUDITORS' REPORT
The Owners
Aero California Trust
We have audited the accompanying balance sheet of the Aero California Trust as
of December 31, 1998, 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Aero California 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
AERO CALIFORNIA TRUST
(A Trust)
Balance Sheets
December 31,
(in thousands of dollars)
1999 1998
(unaudited)
--------------------------------------
ASSETS
Accounts receivable, net of allowance for doubtful
accounts of $5 in 1999 and $0 in 1998 $ 826 $ 624
Receivable from affiliates 420 420
Finance lease receivable 9,176 10,011
Deferred charges, less accumulated
amortization of $250 in 1999 and $167 in 1998 384 467
-------------------------------------
Total assets $ 10,806 $ 11,522
=====================================
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Due to affiliates $ 62 $ 16
Lessee deposits 420 420
------------------------------------
Total liabilities 482 436
Owners' equity 10,324 11,086
------------------------------------
Total liabilities and owners' equity $ 10,806 $ 11,522
====================================
See accompanying auditors' report and notes to financial statements.
AERO CALIFORNIA TRUST
(A Trust)
STATEMENTS OF INCOME
For the Years Ended December 31,
(in thousands of dollars)
1999 1998 1997
----------------
(unaudited) (unaudited)
--------------------------------------------------------
REVENUES
Finance lease income $ 1,685 $ 1,818 $ 1,942
Interest income 19 1 --
-------------------------------------------------------
Total revenues 1,704 1,819 1,942
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Expenses
Amortization expense 83 83 83
Management fees to affiliate 50 50 50
Insurance expense 12 19 5
Repairs and maintenance -- 4 --
Administrative expenses to affiliates 1 8 12
Administrative expenses 25 27 25
Provision for bad debt 5 -- --
-------------------------------------------------------
Total expenses 176 191 175
-------------------------------------------------------
Net income $ 1,528 $ 1,628 $ 1,767
=======================================================
See accompanying auditors' report and notes to financial statements.
AERO CALIFORNIA TRUST
(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) $ 11,073
Net income 1,767
Distributions paid (1,387)
----------------
Owners' equity at December 31, 1997 (unaudited) 11,453
Net income 1,628
Distributions paid (1,995)
----------------
Owners' equity at December 31, 1998 11,086
Net income 1,528
Distributions paid (2,290)
----------------
Owners' equity at December 31, 1999 (unaudited) $ 10,324
================
See accompanying auditors' report and notes to financial statements.
AERO CALIFORNIA TRUST
(A Trust)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(in thousands of dollars)
1999 1998 1997
(unaudited) (unaudited)
---------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,528 $ 1,628 $ 1,767
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Amortization expense 83 83 83
Changes in operating assets and liabilities:
Due from affiliates -- -- (420)
Accounts payable -- (1) (6)
Due to affiliates 46 (1) (616)
--------------------------------------------------------
Net cash provided by operating activities 1,657 1,709 808
--------------------------------------------------------
INVESTING ACTIVITIES
Principal payments received on direct finance lease 633 286 579
-------------------------------------------------------
Net cash provided by investing activities 633 286 579
--------------------------------------------------------
Financing activities
Distributions paid (2,290) (1,995) (1,387)
--------------------------------------------------------
Net cash used in financing activities (2,290) (1,995) (1,387)
--------------------------------------------------------
Net change in cash and cash equivalents -- -- --
Cash and cash equivalents at beginning of year -- -- --
---------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ --
========================================================
See accompanying auditors' report and notes to financial statements.
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
In December 1996, PLM Equipment Growth Fund IV (EGF IV), a California limited
partnership, PLM Equipment Growth Fund V (EGF V), a California limited
partnership, and PLM Equipment Growth Fund VI (EGF VI), a California limited
partnership, (the Owners or Partnerships) 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 two DC-9 Stage III commercial aircraft. The Trust has
no employees nor operations other than the operation of the two DC-9's. The
Trust is owned 35% by EGF IV, 25% by EGF V, and 40% by EGF VI.
PLM Financial Services Inc., (FSI), a wholly-owned subsidiary of PLM
International, Inc., is the General Partner of the Owners.
The two aircraft were purchased in December 1996 for $11.5 million. The Owners
paid acquisition and lease negotiation fees of $0.6 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. A 91 month
lease was signed upon the acquisition of the aircraft which is being accounted
for as a finance lease expiring July 2004 with Inter Global Inc.
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 are 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.
ACCOUNTING FOR LEASES
In December 1996, PLM Worldwide Leasing (WLC) entered into a sale and leaseback
transaction for two DC-9 aircraft with TEC as trustee for the Owners. The lease
qualifies as a finance lease in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 13,
"Accounting for Leases".
Under the direct finance lease method of accounting, the leased asset is
recorded as an investment in a direct finance lease and represents the minimum
net lease payments receivable, including the unguaranteed residual value of the
equipment, less unearned income. Rental payments consist of principal and
interest on the lease, principal payments reduce the investment in the finance
lease, and the interest is recorded as revenue over the lease term.
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.
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 equipment under the Trust
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 are less than the
carrying value of the asset, a loss on revaluation is recorded. No reductions to
the carrying value of the assets were required during 1999, 1998, or 1997.
The aircraft in the Trust is used as collateral against the senior loan of EGF V
and EGF VI.
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 are allocated to the Owners
based on their percentage of ownership in the Trust.
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 2% of the lease payments. The Trust's management fee expense to
affiliate was $0.1 million during 1999, 1998, and 1997.
The Trust reimbursed FSI $1,000, $8,000, and $12,000 during 1999, 1998, and
1997, respectively, for data processing and administrative expenses directly
attributable to the Trust.
The balance in due to affiliates as of December 31, 1999 and 1998 were $0.1
million and $16,000, respectively, due to IMI for management fees.
3. NET INVESTMENT IN A DIRECT FINANCE LEASE
During 1996, the Trust entered into a direct finance lease for the two aircraft
owned by the Trust. Gross lease payments are to be received over 91 months,
which commenced in December 31, 1996.
The components of the net investment in the direct finance lease as of December
31, are as follows (in thousands in dollars):
1999 1998
(unaudited)
-------------- --------------
Total minimum lease payments $ 11,340 $ 13,860
Estimated unguaranteed residual values 3,000 3,000
Less unearned income (5,164) (6,849)
============== ==============
$ 9,176 $ 10,011
============== ==============
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
3. NET INVESTMENT IN A DIRECT FINANCE LEASE (CONTINUED)
Future minimum rentals receivable under the direct finance lease as of December
31, 1999 are approximately $2.5 million in 2000, 2001, 2002, 2003, and $4.3
million in 2004.
4. GEOGRAPHIC INFORMATION
The aircraft are leased and operating in Mexico.
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 owning the Partnerships. 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 $5,000 lower than the federal income tax basis of
such assets and liabilities, primarily due to differences in provision for bad
debt.
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 finance lease to only one customer during 1999, 1998, and 1997.
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.