AERO CALIFORNIA TRUST
(A TRUST)
FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
The Owners
Aero California Trust :
We have audited the accompanying balance sheet of the Aero California Trust (the
"Trust") as of December 31, 2001, 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 Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Trust as of December 31, 2001, and the
results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 7, 2002
INDEPENDENT AUDITORS' REPORT
The Owners
Aero California Trust
We have audited the accompanying statements of operations, changes in owners'
equity, and cash flows for Aero California Trust for the year ended December 31,
2000. 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 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Aero
California Trust for the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. The
accompanying 2002 and 2001 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
March 2, 2001
AERO CALIFORNIA TRUST
(A TRUST)
BALANCE SHEETS
DECEMBER 31,
(in thousands of dollars)
2002 2001
(unaudited)
- -------------------------------------------------------------------
ASSETS
Receivable from affiliates . . . . . . . . . . . . . $ 420 $ 420
Finance lease receivable . . . . . . . . . . . . . . 2,425 3,234
Deferred charges and other assets, less accumulated
amortization of $500 in 2002 and $417 in 2001. 137 225
------ ------
Total assets . . . . . . . . . . . . . . . . . $2,982 $3,879
====== ======
LIABILITIES AND OWNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses. . . . . . . . $ 1 $ --
Due to affiliates. . . . . . . . . . . . . . . . . . 2 39
Lessee deposits. . . . . . . . . . . . . . . . . . . 420 420
------ ------
Total liabilities. . . . . . . . . . . . . . . . . 423 459
Owners' equity . . . . . . . . . . . . . . . . . . . 2,559 3,420
------ ------
Total liabilities and owners' equity . . . . . $2,982 $3,879
====== ======
See accompanying notes to financial statements.
AERO CALIFORNIA TRUST
(A TRUST)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
2002 2001 2000
(unaudited)
- ---------------------------------------------------------------
REVENUES
Finance lease income . . . . . . . . . $ 496 $ 1,335 $1,527
Interest income. . . . . . . . . . . . -- 1 1
----- -------- -------
Total revenues . . . . . . . . . . . 496 1,336 1,528
----- -------- -------
EXPENSES
Amortization expense . . . . . . . . . 83 83 83
Management fees to affiliate . . . . . 24 44 50
Insurance expense. . . . . . . . . . . 24 16 19
Administrative expenses to affiliates. 5 -- 1
Administrative expenses. . . . . . . . 17 22 29
Recovery of bad debts. . . . . . . . . -- -- (5)
Impairment loss. . . . . . . . . . . . -- 4,069 --
----- -------- -------
Total expenses . . . . . . . . . . . 153 4,234 177
----- -------- -------
Net income (loss). . . . . . . . $ 343 $(2,898) $1,351
===== ======== =======
See accompanying notes to financial statements.
AERO CALIFORNIA TRUST
(A TRUST)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands of dollars)
Owners' equity at December 31, 1999 (unaudited) $10,324
Net income . . . . . . . . . . . . . . . . . . . 1,351
Distributions paid . . . . . . . . . . . . . . . (2,693)
--------
Owners' equity at December 31, 2000 . . . . . . 8,982
Net loss . . . . . . . . . . . . . . . . . . . . (2,898)
Distributions paid . . . . . . . . . . . . . . . (2,664)
--------
Owners' equity at December 31, 2001. . . . . . 3,420
Net income (unaudited) . . . . . . . . . . . . . 343
Distributions paid (unaudited) . . . . . . . . . (1,204)
--------
Owners' equity at December 31, 2002 (unaudited). $ 2,559
========
See accompanying notes to financial statements.
AERO CALIFORNIA TRUST
(A TRUST)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands of dollars)
2002 2001 2000
(unaudited)
- ------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 343 $(2,898) $ 1,351
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Amortization expense. . . . . . . . . . . . . . . . . 83 83 83
Impairment loss . . . . . . . . . . . . . . . . . . . -- 4,069 --
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . -- 524 --
Other assets. . . . . . . . . . . . . . . . . . . . 5 (7) --
Accounts payable and accrued expenses
due to affiliates . . . . . . . . . . . . . . (36) 14 (37)
-------- -------- --------
Net cash provided by operating activities . . . . 395 1,785 1,397
-------- -------- --------
INVESTING ACTIVITIES
Principal payments received on direct finance lease . . 809 879 1,296
-------- -------- --------
Net cash provided by investing activities . . . . 809 879 1,296
-------- -------- --------
FINANCING ACTIVITIES
Distributions paid. . . . . . . . . . . . . . . . . . . (1,204) (2,664) (2,693)
-------- -------- --------
Net cash used in financing activities . . . . . . (1,204) (2,664) (2,693)
-------- -------- --------
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 notes to financial statements.
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
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 (collectively the Owners or Partnerships), and Aero California Trust
(the Trust) entered into a Trust Agreement under which PLM Transportation
Equipment Corp. (TEC), a wholly-owned subsidiary of PLM International, Inc.,
acts as 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) is the General Partner of EGF IV, EGF V, and
EGF VI. FSI is a wholly-owned subsidiary of PLM International, Inc.
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 pro-rata 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. In 2001 and 2002, the General
Partner entered into a series of lease amendments to the original lease
agreement that extended the lease to November 2004 (see Note 3).
Estimates
---------
These accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with accounting principles generally accepted in the
United States of America. 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 year ended December 31, 2002 are unaudited.
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 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 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.
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
Accounting for Leases - continued
-------------------------------------
In accordance with SFAS 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 assets held by the Trust at least quarterly, and whenever
circumstances indicate that the carrying value of an asset will not be
recoverable due to expected future market conditions. If projected undiscounted
future cash flows and fair value are less than the carrying value of the asset,
an impairment loss is recorded. The Trust recorded a $4.1 million impairment
loss on assets in 2001 (see Note 3). There were no revaluations of assets
required in 2000.
In October 2001, the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", (SFAS No. 144)
which replaced SFAS No. 121. In accordance with SFAS No. 144, the Trust
evaluates long-lived assets for impairment whenever events or circumstances
indicated that the carrying values of such assets may not be recoverable.
Losses for impairment are recognized when the undiscounted cash flows estimated
to be realized from a long-lived asset are determined to be less than the
carrying value of the asset and the carrying amount of long-lived assets exceed
its fair value. The determination of net realizable value for a given
investment requires several considerations, including but not limited to, income
expected to be earned from the asset, estimated sales proceeds, and holding
costs excluding interest. The Trust applied the new rules on accounting for the
impairment or disposal of long-lived assets beginning January 1, 2002. No
reductions were required to the carrying value of the equipment during 2002.
EGF VI's 40% interest in the Trust is used as collateral against the senior loan
of EGF VI.
Cash and Cash Equivalents
----------------------------
All cash generated from operations is distributed to the owners. Accordingly,
the Trust has no cash balance at December 31, 2002 and 2001.
Repairs and Maintenance
-------------------------
Repairs and maintenance for the aircraft are usually the obligation of the
lessee.
Net Income (Loss) and Cash Distributions to Owners
---------------------------------------------------------
The net income (loss) and cash distributions of the Trust are allocated to the
Owners based on their percentage of ownership in the Trust.
Comprehensive Income (Loss)
-----------------------------
The Trust's net income (loss) is equal to comprehensive income (loss) for the
years ended December 31, 2002, 2001, and 2000.
2. Transactions with General Partner and Affiliates
-----------------------------------------------------
Under the equipment management agreement, the Trust pays IMI a monthly
management fee equal to 2% of the lease payments. The Trust's management fee
expense to affiliate was $24,000, $44,000, and $0.1 million during 2002, 2001,
and 2000, respectively.
The Trust reimbursed FSI and its affiliates $5,000, $-0-, and $1,000 during
2002, 2001, and 2000, respectively, for data processing and administrative
expenses directly attributable to the Trust.
The balance due to affiliates as of December 31, 2002 and 2001 was $2,000 and
$39,000, respectively, for management fees to IMI.
AERO CALIFORNIA TRUST
(A TRUST)
NOTES TO FINANCIAL STATEMENTS
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 were to be received over 91 months,
which commenced in December 31, 1996. In 2001 and 2002, the Partnership entered
into a series of lease amendments to the original lease agreement that extended
the lease to November 2004.
The components of the net investment in the finance lease receivable as of
December 31, are as follows (in thousands in dollars):
2002 2001
- ---------------------------------------------------------
Total minimum lease payments . . . . . $2,496 $ 3,799
Estimated unguaranteed residual values 573 482
Less unearned income . . . . . . . . . (644) (1,047)
------- --------
$2,425 $ 3,234
======= ========
In 2001 and 2002, the aircraft lease agreements for the aircraft in the Trust
were amended to extend the lease four months to November 2004. The amendments
allowed five interest only payments from September 2001 through January 2002.
Additionally, the amendments lowered the required monthly lease payments from
February 2002 until lease expiration from $105,000 to $50,000 per aircraft. The
General Partner believed it was in the Trust's best interest to enter into the
amendments in order that the lessee would be able to continue operations. As a
result of these amendments, a $4.1 million loss on revaluation was recorded in
2001.
Future minimum rentals receivable under the direct finance lease as of December
31, 2002 are approximately $1.3 million in 2003, $1.2 million in 2004, and $-0-
thereafter.
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, 2002, there were no differences between the financial
statement carrying amounts of assets and liabilities and the federal income tax
basis of such assets and liabilities.
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 finance lease to only one customer during 2002, 2001, and 2000.
As of December 31, 2002, the manager believes the Trust had no other significant
concentrations of credit risk that could have a material adverse effect on the
Trust.